In re Enron Corp.

• Decision Date: 28 October 2002
• Docket Number: No. 01-16034 (AJG).,01-16034 (AJG).
• Parties: In re ENRON CORP., et al., Debtors.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

284 B.R. 376

In re ENRON CORP., et al., Debtors.

No. 01-16034 (AJG).

United States Bankruptcy Court, S.D. New York.

October 28, 2002.

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Weil, Gotshal & Manges, LLP, New York City, Martin J. Bienenstock, Martin A. Sosland, Timothy E. Hoeffner, of counsel, for Debtors.

Milbank, Tweed, Hadley & McCloy, LLP, New York City, Matthew S. Barr, of counsel, for Official Committee of Unsecured Creditors.

Fiddler, Gonzalez & Rodriguez, LLP, San Juan, PR, Brian K. Tester, of counsel, for Banco Bilbao Vizcaya Argentaria Puerto Rico.

MEMORANDUM DECISION AND ORDER DENYING BANCO BILBAO VIZCAYA ARGENTARIA PUERTO RICO'S MOTION TO CHANGE VENUE OF SAN JUAN GAS COMPANY, INC.

ARTHUR J. GONZALEZ, Bankruptcy Judge.

Upon consideration of the: (i) Motion for Change of Venue brought by Banco Bilbao Vizcaya Argentaria Puerto Rico ("BBV" or "Movant") dated July 11, 2002 (the "Motion" or "Change of Venue Motion") (Docket Entry # 5352); (ii) Debtors' Memorandum of Law in Opposition ("Respondent") to Banco Bilbao Vizcaya Argentaria Puerto Rico Motion for Transfer of Venue of San Juan Gas Company Inc. Chapter 11 Case to the District of Puerto Rico dated August 26, 2002 (the "Memorandum in Opposition") (Docket Entry # 6081); and (iii) Affidavit of Stephen Dowd in Opposition to Banco Bilbao Vizcaya Argentaria Puerto Rico Motion for Transfer of Venue of San Juan Gas Company Inc. Chapter 11 Case to the District of Puerto Rico entered on August 26, 2002 (the "Dowd Affidavit") (Docket Entry # 6084); and the record of the hearing held on August 29, 2002;¹ and for the reasons set forth below, this Court denies the Motion to transfer venue of this bankruptcy case from the Southern District of New York to the District of Puerto Rico, pursuant to 28 U.S.C. § 1412.

I. Background²

A. Enron Corp. Debtors

On December 2, 2001, Enron Corp. and certain of its affiliated entities ("Enron Corp. Debtors") commenced cases under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code" or "Code").

As of the petition date, Enron Corp. was a large, multifaceted national and international corporation with operations, financial interests, creditors and stockholders across the United States and around the world. In re Enron Corp., 274 B.R. 327, 334 (Bankr.S.D.N.Y.2002). Enron Corp., an Oregon corporation, is a holding company of subsidiaries engaged in the wholesale and commodity market business, telecommunications and insurance. Id. Enron Corp. Debtors divide their business operations into five primary business units: Enron Wholesale Services, Enron Retail Services, Enron Transportation Services, Enron Global Services and Enron Broadband Services. Id. The Enron Corp. Debtors have approximately 3,500 direct and indirect subsidiaries (all Enron Corp. affiliated debtors and subsidiaries to file for Chapter 11 up to this point, with the exception of San Juan Gas Company, Inc., are hereinafter referred to as the "Enron Debtors"). Id.

B. San Juan Gas Company, Inc.

San Juan Gas Company, Inc. ("SJG" and, together with the Enron Debtors, the "Debtors"), a wholly-owned direct subsidiary of Enron Corp., commenced a case under Chapter 11 of the Bankruptcy Code on June 12, 2002 (Case Number 02-12902). 1007-2 Affidavit ¶ 8 (hereinafter "1007-2 Aff."³). SJG has no publicly held shares of stock, debentures, or other securities. 1007-2 Affidavit ¶ 8.

SJG conducts operations on the island of Puerto Rico where it is the sole distributor of propane gas for San Juan. 1007-2 Aff. ¶ 18. Pursuant to local statute, SJG has a monopoly on gas distribution to the San Juan area.⁴ However, SJG cannot alter its level of service absent pre-approval from appropriate local regulatory agencies. Without regulatory pre-approval, should SJG fail to provide continuous gas service at specified levels, SJG could incur civil and criminal sanctions. Further, Enron Corp. as parent corporation of SJG could be exposed to liability from SJG's actions. See Motion for SJG Operating Funds ¶ 16 (see infra. p. 382).

SJG states that "[w]ith almost no cash reserves and a mandatory service obligation, SJG found itself in a situation where commencing its chapter 11 case was the only alternative." Motion for SJG Operating Funds ¶ 6 (see infra. p. 382). The causes underlying this condition are both external and internal to SJG.⁵ First, SJG cites internal cutbacks that have lead to a decrease in its customer base. Second, SJG notes that it took on a debt burden due to an unsuccessful attempt at developing a fiber optic network in conjunction with another Enron affiliate, Enron Broadband Services. Third, due to regulatory and market restrictions, SJG has been unable to raise its customer's rates. Fourth, outstanding receivables are unlikely to be collected in the near future. Fifth, SJG has had to incur substantial expenses due to regulatory compliance issues.

Although not cited by SJG, this Court notes that SJG and certain Enron Debtors are defendants in a lawsuit pending before the United States District Court for the District of Puerto Rico concerning a gas pipeline explosion that took the lives of thirty (30) people; injured scores of others; and resulted in extensive damage to property. See Motion Requesting Partial Relief from the Automatic Stay ¶ 1 filed December 27, 2001 (Docket Entry # 481); Transcript of August 29, 2002 Change of Venue Motion Hearing at 252 line 20 to line 24; 263 line 10 to line 17; 264 line 19 to 265 line 6; (hereinafter "Tr."). In fact, six (6) months prior to SJG's Chapter 11 filing, plaintiffs in the case pending before the District Court of Puerto Rico filed a motion before this Court seeking relief from the automatic stay in order to pursue the litigation in the District Court of Puerto Rico. Pursuant to an Agreed Order of this Court dated April 11, 2002 (Docket Entry # 2933), relief from stay was denied, and Debtors were permitted to settle with plaintiffs without further order of this Court.

Approximately one (1) month after SJG filed for Chapter 11, and approximately eight (8) months after Enron Corp. filed for Chapter 11, on July 11, 2002, Banco Bilbao Vizcaya Argentaria Puerto Rico ("BBV"), a general unsecured creditor of SJG (and Enron Corp.), brought the instant motion pursuant to 28 U.S.C. § 1412 seeking a change of venue for SJG's bankruptcy case from the Southern District of New York to the District of Puerto Rico.

At about the same time, due to an ongoing negative cash flow, and its obligations to provide uninterrupted service of gas, SJG sought approval from this Court to borrow operating funds in the amount $495,000 from Enron Corp. On July 15, 2002, Enron Corp. and SJG brought a Motion for (A) An Order Approving Enron Corp.'s Use of Property Outside the Ordinary Course of Business and Use of Cash Collateral Pursuant to 11 U.S.C. §§ 105, 361 and 363 and Fed. R. Bankr.P. 4001(b) and 6004 and (B) Entry of Order, Pursuant to 11 U.S.C. §§ 105, 361, 362, 363, and 364, Authorizing San Juan Gas Company, Inc. to Enter Into Post-petition Financing Agreement With Enron Corp. and Granting Liens and Super-Priority Claims (the "Motion for SJG Operating Funds") (Docket Entry # 5135). By Order of this Court dated August 12, 2002, Debtors' Motion for SJG Operating Funds was granted (the "Final Order") (Docket Entry # 5744). The cash infusion appears to have been calculated to stem the cash flow problems and to temporarily ameliorate the underlying causes of SJG's faltering business plan.

On August 29, 2002, this Court held a hearing on the instant Change of Venue Motion. In support of its opposition, Debtors submitted the affidavit of Stephen Dowd, Director of Enron Global Assets and Services ("Dowd"). Dowd was available for cross-examination at the hearing; however, Movant did not examine the affiant, and thus his testimony stands uncontroverted. This Court has considered Movant's arguments in favor of transferring the venue of SJG's bankruptcy case, and the opposition thereto, and concludes that transfer is not warranted.

II. Facts of SJG's Bankruptcy Case

A. SJG's Business and Assets

As explained above, SJG is a direct subsidiary of Enron Corp. and is a provider of propane gas to customers in and around the San Juan, Puerto Rico area. SJG is,

the local gas distribution company serving the San Juan metropolitan and Old San Juan area through an underground gas (propane air mixture) distribution system. Established in 1911 and acquired in 1985 the company is the only one of its type authorized by the government of Puerto Rico's Public Service Commission to install pipeline systems in the Island. The current active system includes approximately 23.5 miles of pipeline, which sells Propane to 408 commercial customers (primarily Puerto Rico's tourism industry). A project including a fiber optic network ring and an expansion of the pipeline system to 37 miles is 90% complete but has been suspended. The company also owns storage facilities that include 60,000 gallons of LPG (liquid) storage and 500,000 cubic feet of Propane/Air mix storage capacity.

1007-2 Aff. ¶ 18.

B. SJG's Financial Relationship With BBV

On August 10, 2001, BBV and SJG entered into a 364-Day Revolving Credit Agreement dated August 10, 2001 (the "Credit Agreement"), and a Guaranty Agreement dated August 10, 2001 was made by Enron Corp. Dowd Aff. ¶ 11. Both agreements are governed by New York law, and provide that notice to BBV shall also be provided to its offices in New York, New York. Dowd Aff. ¶ 11. The Proof of Claim filed BBV on February 5, 2002 in the main Enron case states that it intends to hold Enron and SJG "jointly and severally indebted to [BBV] in the principal amount of $14,400,000, plus accrued interest thereon, costs, fees and other expenses."

C. Enron as "DIP Lender"

Pursuant to the Final Order granting the Motion for SJG Operating Funds, SJG received a debtor-in-possession loan ("DIP Loan") from Enron Corp. for $495,000. The...