In re Enron Corp.
| Decision Date | 16 May 2003 |
| Docket Number | Bankruptcy No. 01-16034 (AJG).,Adversary No. 02-02614. |
| Parties | In re ENRON CORP., et al., Debtors. Bayerische Hypo-Und Vereinsbank AG, Plaintiff, v. Banca Nazionale Del Lavoro, S.p.A., Defendant. Banca Nazionale Del Lavoro, S.p.A., Third-Party Plaintiff, v. Bank of America, N.A., Cogentrix Energy, Inc., Green Country Energy, LLC, Nepco Procurement Company, and National Energy Production Corporation, Third-Party Defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
Stroock & Stroock & Lavan, LLP, Brian M. Cogan, Heidi Balk, of counsel, New York City, for Bayerische Hypo-Und Vereinsbank AG.
Gilmartin, Poster & Shafto, LLP, Michael C. Lambert, of counsel, New York City, for Banca Nazionale Del Lavoro, S.p.A.
Scarcella, Rosen & Slome, LLP, Adam L. Rosen, of counsel, Uniondale, NY, for Banca Nazionale Del Lavoro, S.p.A.
Weil, Gotshal & Manges, LLP, Brian S. Rosen, Martin Sosland, James Muenker, of counsel, New York City, for Enron Corp., National Energy Production Corporation, and NEPCO Power Procurement Company.
Dewey, Pegano & Kramarsky, LLP, Keara A. Bergin, and David S. Pegano, of counsel, New York City, for Green Country Energy LLC and Cogentrix Energy, Inc.
Zeichner, Ellman & Krause, LLP, David B. Chenkin, Ronald M. Neumann, Mark Hanchet, of counsel, New York City, for Bank of America.
Plaintiff, Bayerische Hypo-Und Vereinsbank AG ("HVB"), brings a Motion for an Order Granting Summary Judgment, or, in the Alternative, Granting Leave to Amend its Complaint. HVB moves for summary judgment ("Motion" or "Summary Judgment Motion") pursuant to Rule 56 of the Federal Rules of Civil Procedure, made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7056, on its sole cause of action for breach of a participation agreement by defendant, Banca Nazionale Del Lavoro, S.p.A. ("BNL").
The issue in this adversary proceeding is whether BNL is obligated to reimburse HVB under a participation agreement for funds drawn on an HVB letter of credit. BNL bought a 100% participation interest in a letter of credit that Enron had obtained from HVB. Shortly after Enron's bankruptcy filing (which constituted a default under the master letter of credit agreement between Enron and HVB), the beneficiary on the letter of credit presented documentation to HVB causing HVB to drawdown on the letter of credit against Enron's account. HVB paid the beneficiary and then sought reimbursement from BNL pursuant to the terms of the participation agreement. BNL declined HVB's request for reimbursement citing violations by HVB of the participation agreement. HVB brings the instant Motion arguing that BNL is obligated to indemnify HVB for the payment of the letter of credit and that BNL's defenses to payment fail as a matter of law. For the reasons discussed below, HVB's motion for summary judgment is granted.
On December 2, 2001, Enron Corp. and certain of its affiliated entities ("Enron Corp. Debtors" or "Enron") commenced cases under Chapter 11 of Title 11 of the United States Code. On May 20, 2002, National Energy Production Corporation ("NEPCO") (02-12398), and NEPCO Power Procurement Company ("NEPCO Power") (02-12402), affiliated Enron Corp. entities, commenced cases under Chapter 11 of the Code (the Enron Corp. Debtors, NEPCO and NEPCO Power, collectively "Debtors").1
The draw on the Enron letter of credit occurred on December 4, 2001 and BNL rejected HVB's demand for reimbursement on December 5, 2001. On December 10, 2001, HVB commenced a civil action by summons and complaint in the Supreme Court of the State of New York, County of New York against BNL ("State Court Action"). The State Court Action alleged that a participation agreement entered into between HVB and BNL on February 16, 2001 ("Participation Agreement") had been breached by BNL. On December 21, 2001, BNL answered the state court complaint. BNL commenced a third-party action as captioned above, naming, inter alia, NEPCO and NEPCO Procurement Company ("NEPCO Procurement") on February 22, 2002.2 HVB made a motion for summary judgment in the State Court Action seeking judgment against BNL based upon the parties' obligations under the Participation Agreement. The summary judgment motion was argued in state court on March 20, 2002.
On July 12, 2002, with the summary judgment motion still undecided in state court, HVB filed a Notice of Removal causing the State Court Action to be removed to this Court pursuant to 28 U.S.C. § 1452 and Bankruptcy Rule 9027.3 Upon removal, HVB filed with this Court a Motion for Summary Judgment or in the Alternative Granting Plaintiff Leave to Amend.
On August 29, 2002, seeking to remand the adversary proceeding from this Court back to state court, BNL brought a Motion for Remand Pursuant to 28 U.S.C. § 1452(b) and For Relief From the Automatic Stay Under § 362(a). That motion was denied by this Court on October 11, 2002.
On October 24, 2002, this Court heard oral arguments concerning the Motion. Subsequent to oral argument, on October 29, 2002, BNL filed papers under seal alleging several grounds to deny the Motion including Rule 56(f) of the Federal Rules of Civil Procedure. On December 12, 2002, this Court held a conference pursuant to which the Motion was continued in order permit BNL to conduct additional discovery.
The parties reconvened on February 6, 2003 and presented oral argument related to the additional discovery. HVB's Summary Judgment Motion was taken under advisement at the conclusion of the February 6, 2003 hearing.
HVB and BNL are the only parties to the Participation Agreement. BNL's defenses to payment under the Participation Agreement implicate several underlying transactions involving a power plant construction project as well as circumstances related to HVB's decision to honor the letter of credit.
On November 1, 1999, Green Country Energy, LLC ("Green Country"), an indirect wholly-owned subsidiary of Cogentrix Energy Inc. ("Cogentrix"), entered into a fixed-price "turnkey" contract with NEPCO, a subsidiary of Enron. . NEPCO agreed to construct and engineer a 795 MW dispatchable gas-fired combined cycle power generation facility in Jenks, Oklahoma ("Jenks Plant") for Green Country ("E & C Agreement"). (Supplemental Lambert Aff. Exhs. F, G). Green Country also entered into a separate equipment procurement contract with NEPCO Procurement, a division of Enron Equipment Procurement Company, for the procurement of certain equipment for the Jenks Plant ("EP Agreement"). (Supplemental Lambert Aff. Exhs. F, H).
The E & C Agreement and EP Agreement at paragraphs 6.2, 6.3 & 6.4 required that NEPCO and NEPCO Procurement provide Green Country with letters of credit in order to provide "security" for the performance of their contractual obligations as contractors. (Supplemental Lambert Aff. Exhs. G, H).
Pursuant to a Master Letter of Credit and Reimbursement Agreement between Enron and HVB dated February 6, 1996 ("Master Letter of Credit"), on December 20, 2000, Enron ("Applicant") requested, on behalf of NEPCO and NEPCO Procurement, and HVB ("Issuing Bank" or "Issuer") agreed to issue an irrevocable standby letter of credit in favor of Green Country ("Beneficiary"). (Plaintiff's 7056-1 Statement ¶ 1; Affidavit of Salvatore Esposito (hereinafter "Esposito Aff.") ¶ 3; Declaration of Brian M. Cogan in Support of Motion for Summary Judgment or Alternatively to Amend (hereinafter "Cogan Decl.") Exhs. 2C, 2E).
On December 21, 2000, HVB issued the requested letter of credit, designated SB103855, in the amount of $39,000,000 naming Green Country as Beneficiary for Applicant Enron (on behalf of its subsidiaries NEPCO and NEPCO Procurement) ("Letter of Credit"). (Plaintiff's 7056-1 Statement ¶ 2; Esposito Aff. ¶ 4; Cogan Decl. Exh. 2D).
The Letter of Credit contained an expiration date of December 31, 2001. The Letter of Credit also contained instructions and other information for the Beneficiary to observe in the event that it sought to draw against the Letter of Credit, namely: (i) specific language to be contained in the draw certificate and the sight draft;4 (ii) the time and place for the presentation of draw documents; (ii) details concerning partial draws under the Letter of Credit; (iii) language explaining that the Letter of Credit is unqualified; (iv) language explaining that Applicant bears all fees and costs related to the Letter of Credit; and (v) a choice of law provision.
Under the Master Letter of Credit, Enron had the right to submit applications to HVB for letters of credit that would support the performance of its or its affiliates' obligations to various beneficiaries. (Esposito Aff. ¶ 3). The Master Letter of Credit was entered into based on Enron's credit standing when it was issued in 1996. (Reply Affidavit of Salvatore Esposito (hereinafter "Esposito Reply Aff.") ¶ 3). The Letter of Credit was irrevocable. (Esposito Reply Aff. ¶ 3). Under the Master Letter of Credit, HVB had no right to demand cash or any other collateral unless Enron defaulted. (Esposito Reply Aff. ¶ 3).
HVB issued multiple letters of credit at Enron's request pursuant to the Master Letter of Credit, the total amount of which exceeded $100,000,000, including the $39,000,000 Letter of Credit. (Plaintiff's 7056-1 Statement ¶ 3; Esposito Aff. ¶ 5).
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