In re Gulf Water Benefaction Co.

• Decision Date: 31 January 1980
• Docket Number: Bankruptcy No. HB-79-95
• Citation: In re Gulf Water Benefaction Co., 2 B.R. 357 (Bankr. S.D. Tex. 1980)
• Parties: In re GULF WATER BENEFACTION COMPANY, Debtor. GULF WATER BENEFACTION COMPANY, Plaintiff, v. The PUBLIC UTILITY COMMISSION OF TEXAS, By and Through the ATTORNEY GENERAL of the State of Texas, and the State of Texas, By and Through its Secretary of State, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Texas

2 B.R. 357 (1980)

In re GULF WATER BENEFACTION COMPANY, DebtorGULF WATER BENEFACTION COMPANY, Plaintiff, v.The PUBLIC UTILITY COMMISSION OF TEXAS, By and Through the ATTORNEY GENERAL of the State of Texas, and the State of Texas, By and Through its Secretary of State, Defendants.

Bankruptcy No. HB-79-95, Adversary "B".

United States Bankruptcy Court, S.D. Texas, Houston Division.

January 31, 1980.

Joe Alfred Izen, Jr., L.T. Bradt, Houston, Tex., for debtor.

Martha V. Terry, Asst. Atty. Gen., Austin, Tex., D.J. Baker, Fulbright & Jaworski, Houston, Tex., Special Counsel for Public Utility Commission of Texas and the State of Texas.

MEMORANDUM OPINION

JOHN R. BLINN, Bankruptcy Judge:

This matter is before the Court on the complaint of the Debtor, Gulf Water Benefaction, seeking to enjoin the Public Utility Commission of Texas and the State of Texas from pursuing certain state court proceedings until such time as a plan is confirmed.

Gulf Water Benefaction ("Gulf Water") is a Texas corporation providing sanitary sewer service to residential and commercial customers in two subdivisions in Harris County, Texas.The Public Utility Commission of Texas(the "PUC") is a state agency charged with jurisdiction and responsibility over entities offering utility service within the State of Texas.Among the duties of the PUC are rate regulation and quality of service and for some time Gulf Water and the PUC have been involved in administrative and state court disputes on both points.

Gulf Water argues that at least since the PUC began fixing Gulf Water's rates in 1976, the operations of Gulf Water, previously profitable, have continuously suffered a negative cash flow.Thus finding itself unable to meet its obligations and disillusioned with state procedure for setting and reviewing utility rates, Gulf Water sought the protection of the bankruptcy court by filing a Chapter XI petition on January 12, 1979.That petition was subsequently dismissed for want of prosecution; in fact, no schedules, statement of affairs or statement of executory contract were ever filed on behalf of the Debtor nor was an extension of time in which to file requested.Shortly after the dismissal, Gulf Water on February 15, 1979 filed a second Chapter XI petition, initiating the case^* under which this adversary proceeding is brought.

At the time of the filing, several causes of action involving Gulf Water and the PUC were pending in the state district courts in Travis County, Texas.Two of these causes of action were scheduled for hearing before State District JudgeCharles Mathews on February 15, 1979, the very day the second petition was filed.One was Cause Number 276,982, an appeal by Gulf Water and Peoples National Utility Company, Inc.("Peoples National") of rates promulgated by the PUC in an administrative action styled "Docket 1211."The other was Cause Number 276,449, in which the PUC sought to enforce fines and penalties on Gulf Water, Peoples National and Robert E. Pine(the President and General Manager, respectively, of Gulf Water and Peoples National) for charging rates higher than those set in Docket 1211.

The first matter entertained by Judge Mathews on February 15 was a motion by the PUC to dismiss Cause Number 276,982 (the appeal) for want of prosecution.The PUC argued Gulf Water and Peoples National had filed that appeal in the fall of 1977 yet had never acted upon it or set the matter for trial.During the presentation by the PUC of its argument in favor of dismissal, one of the attorneys for Gulf Water interrupted the proceedings to present the Court with Judicial Notices of Stay issued in the XI case just that morning.Notwithstanding such notice Judge Mathews made a docket entry reflecting his decision to grant the PUC's motion to dismiss.He declined, however, to enter a written order to that effect.No further action on the matter has been taken and whether appeal times have begun to run has not yet been addressed.

Judge Mathews then turned to Cause Number 276,449 (the enforcement action) but declined to proceed until such time as the PUC either obtained a determination by the bankruptcy court that the stay was inapplicable to that state court proceeding or secured relief from the automatic stay.

Accordingly, the PUC on February 19, 1979, filed its complaint, denominated Adversary "A", seeking a determination by the bankruptcy court that the automatic stay did not apply to Cause Number 276,449 (the enforcement action) arguing a state's enforcement of its police powers is outside the scope of the automatic stay.In the alternative the PUC sought to have the stay modified or terminated.Additionally, the PUC urged the automatic stay did not apply to co-defendantsRobert E. Pine and Peoples National as neither had filed any petition for relief under the Bankruptcy Act.Adversary "A" was first heard before this Court on March 12, 1979.After hearing arguments the Court continued the matter indefinitely to allow the parties to file briefs.

On April 6, 1979, to safeguard against an adverse ruling in Adversary "A", Gulf Water filed a complaint initiating this Adversary "B" in which it attempted to set aside Judge Mathews' ruling in Cause Number 276,982 (the appeal) and to enjoin the PUC from taking further action in either that matter or Cause Number 276,449 (the enforcement action) until such time as a plan is confirmed.The PUC responded by filing a motion to dismiss primarily asserting want of jurisdiction over the subject matter.In its motion the PUC argued Cause Number 276,982 (the appeal) was an original action filed by the Debtor and Peoples National seeking relief from a rate order of the PUC and as such was not within the scope of the automatic stay.The PUC further argued Cause Number 276,449 (the enforcement action) involved the ability of a state to enforce its police powers and as such was also outside the automatic stay.

Arguments on the PUC's motion to dismiss Adversary "B" were held May 14 at the conclusion of which the Court announced although it had doubts Gulf Water had discharged its burden in establishing jurisdiction, in the interest of judicial economy the motion would be denied.The Court set the injunction proceeding for May 17 and at the beginning of that hearing Gulf Water attempted to amend its original complaint to include the question of the validity of the rates set by the PUC.Counsel for Gulf Water noted that as the PUC had not yet filed its answer, Gulf Water was entitled to an amendment as a matter of right; however, he also admitted the delay by Gulf Water in filing the amendment and the complexity of the issue added by it, could allow the PUC successfully to argue surprise.The Court refused to allow the amendment citing the frequent arguments in the adversary proceeding and the main case as to necessity for a prompt resolution and trial proceeded on the original complaint.The matter could not be concluded on May 17 and was adjourned to June 6.The Court heard testimony June 6, 7 and 8 but again it could not be concluded and was carried over to August 27, 28, 29 and 30....