In re Marion Steel Co., Bankruptcy No. 83-01617
| Citation | 35 BR 188 |
| Decision Date | 17 October 1983 |
| Docket Number | Adv. No. 83-0781.,Bankruptcy No. 83-01617 |
| Parties | In re MARION STEEL COMPANY, fka Steel Bar Products, Inc., Debtor. MARION STEEL COMPANY, Plaintiff, v. OHIO EDISON COMPANY, Defendant. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
COPYRIGHT MATERIAL OMITTED
Kenneth C. Baker, Toledo, Ohio, John F. Kostelnik, Cleveland, Ohio, for AmeriTrust Co.
Charles Cobbe, Columbus, Ohio, Vincent M. Nathan, Toledo, Ohio, for Armco, Inc.
George E. Ferstle, Toledo, Ohio, for debtor.
John M. Carey, Toledo, Ohio, for Ohio Edison.
John N. MacKay, Greg Shibley, Toledo, Ohio, for Kripke-Tuschman, Inc.
MEMORANDUM AND ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION, DISSOLVING TEMPORARY RESTRAINING ORDER AND FIXING ADEQUATE ASSURANCE OF UTILITY PAYMENT
This matter came on to be heard on October 6, 1983 on the Marion Steel Company's (hereafter "Debtor") motion for a preliminary injunction against the Ohio Edison Company (hereafter "Ohio Edison") enjoining the termination of electrical service to Debtor's Marion, Ohio steel manufacturing operation, Ohio Edison's motion to dissolve a temporary restraining order issued by this Court on September 29, 1983, and on Debtor's motion, pursuant to 11 U.S.C. § 366, for an order of the court fixing the amount of deposit or other security that Debtor must post to provide the utility with adequate assurance of payment. For the reasons discussed below, while dissolving the injunction issued September 29, 1983, upon the Debtor's maintenance of a $64,000.00 security deposit and payment of $107,000.00 weekly for future projected utility bills, the Court orders that utility service be maintained to Debtor except as herein provided.
Debtor filed a petition under Chapter 11 of the Bankruptcy Code on September 12, 1983. Since November of 1981 it has actively been engaged in the manufacturing of steel products at its Marion, Ohio plant.
Since November of 1981 Debtor has consumed, on a monthly basis, from $400,000.00 to $550,000.00 of electricity from Ohio Edison. Debtor had been current in its obligation with Ohio Edison until about March or April of 1983 when it developed problems meeting its monthly utility bill. In mid August of 1983, upon Debtor's inability to pay for its July 1983 utility usage, Debtor closed down its steel manufacturing operation. As of the filing of the petition on September 12, 1983, Debtor owed Ohio Edison approximately 1.1 million dollars for prepetition utility service.
Since the filing of the petition Debtor and Ohio Edison have been attempting to reach an agreement as to the amount of security deposit and other conditions under which Ohio Edison would continue electrical service. On September 29, 1983, based upon Debtor's representation that Ohio Edison would not assure maintenance of utility service past October 2, 1983, the Court issued a temporary restraining order against disruption of utility service until hearing of Debtor's motion for a preliminary injunction on October 6, 1983.
The testimony of Debtor's president adduced at the hearing revealed that, while the utility had initially discussed $650,000.00 as an appropriate security deposit based upon past usage and the Public Utility Commission of Ohio's formula for computing a security deposit, the parties have more or less agreed, based upon projections of Debtor's postpetition usage of electricity, that only an initial $64,000.00 deposit plus $107,000.00 per week in advance payment need be made to ensure payment for Debtor's postpetition electrical service. They disagree as to the conditions under which utility service may be terminated in the event of Debtor's default upon these terms.
Debtor is currently financially unable to pay in advance for more than one week's electrical service. This financial crisis was precipitated, at least in part, by the temporary discontinuance of prepetition financing for current operating expenses by the AmeriTrust Company, one of Debtor's principal lenders. While the financing at least temporarily has been restored postpetition, under conditions approved by the Court, the arrangement leaves Debtor unable to project payment of current expenses more than one week into the future.
A disruption of Debtor's utility service, without any prior notice to the Debtor, could potentially cause a serious threat to the safety of Debtor's property and employees. At the heart of Debtor's manufacturing operation are two 40 ton capacity electric arc furnaces. These furnaces, which derive their power exclusively from Ohio Edison power, are used to convert scrap metal into steel billets which are subsequently transformed into the finished product sold to Debtor's customers. If not given at least 2 to 3 hours advance notice of utility disruption, Debtor's control of hot molten metals in intermediate stages of production would be lost, potentially damaging and dangerous to both equipment and some 70 employees on duty at a particular time. Debtor currently operates approximately 24 hours a day, five days a week.
At the present time, it appears that Debtor has a positive net worth with going concern asset values exceeding liabilities by approximately 11 million dollars.
Prior to discussion of the Court's reasoning in its decision to deny the Debtor's motion for a preliminary injunction, the Court finds it necessary to discuss both the procedural posture of this case and the facts leading up to the issuance of the Court's temporary restraining order.
This Chapter 11 case was commenced by the filing of a petition on September 12, 1983. While the Court has previously indicated in its discussion of the facts underlying this case that the Debtor had shut down its manufacturing operation prior to the filing of the petition in this case, it is unclear whether the shut down, caused by Debtor's inability to pay its current operating expenses, was caused in part by unilateral shut-off or threat of shut-off of electrical service by Ohio Edison.
In any event, Debtor engaged in no significant production activities post petition until it was able to obtain court approval of an "Emergency Interim Order Authorizing Debtor-in-Possession to Incur Secured Debt" (hereinafter "financing order") on September 21, 1983. After approval of the financing order, Debtor apparently recommenced steel manufacturing on its premises.
Apparently sometime after entry of the financing order, Debtor also commenced formal negotiations with the Ohio Edison Company in an attempt to reach an agreement, pursuant to 11 U.S.C. § 366(b), as to what terms would be required by Ohio Edison to constitute "adequate assurance of payment." Indeed, at least a partial agreement had been reached between Debtor and the utility supplier prior to any Court involvement in this matter. In essence, the partial agreement provided that upon the posting of a $64,000.00 security deposit and prepayment for each week's projected electrical usage in the amount of $107,000.00 per week, payable every Monday, Ohio Edison would continue to provide electrical service to Debtor's Marion, Ohio plant.
The parties could not agree as to the method and conditions under which Ohio Edison had a right to discontinue electrical service in the event of Debtor's failure to make any of the required weekly payments. Ohio Edison insisted that it have a unilateral right to shut-off electrical service without prior Court permission. Debtor insisted that utility shut-off only occur after notice and a hearing and prior authorization of the Court. Further, Ohio Edison objects to the grant of certain superpriority expenses given to other creditors which are the subject of a separate appeal.
Upon the failure of the parties to reach an agreement on this matter, on motion of Debtor filed September 29, 1983 for a temporary restraining order against a discontinuance of electrical service, the Court convened a hearing on telephonic notice to counsel for Ohio Edison. Counsel for both parties made an appearance at the hearing. Upon the continued failure of counsel to reach an agreement as to the method or conditions under which Ohio Edison would discontinue electrical service in the event of a default on Debtor's promise to make weekly advance utility payments, after Ohio Edison's counsel declined to give either the Debtor or the Court assurance that utility service would not be cut-off pending a Court determination of the "adequate assurance of payment" issue under § 366, the Court entered a temporary restraining order enjoining an electrical service shut-off pending the Court's ruling on Debtor's motion for a preliminary injunction on such issue.
Ohio Edison has expressed its continuing objection on both procedural and substantive grounds to the continuance of any injunction. First, Ohio Edison challenged the authority of the Court to issue such injunction absent formal compliance with various aspects of Fed.R.Civ.P. 65, made applicable in adversary proceedings under Bankruptcy Rule 7065. Second, Ohio Edison questioned the propriety of injunctive relief arguing a formal lack of proof of any irreparable harm to Debtor, a prerequisite, it maintains, to issuance of an injunction.
While resolution of all these questions necessarily is beyond the scope of this order, the Court will at least partially touch on these issues in its discussion of the sufficiency of Debtor's motion for a preliminary injunction under Rule 65 Fed.R.Civ.P.
One of the asserted procedural defects Ohio Edison has complained of during the course of these proceedings has been the failure of Debtor to have initiated this request for injunctive relief by way of an adversary proceeding, to wit — the filing of a complaint for injunctive relief. Although it appears that this defect has at least in part been remedied by the filing on October 6, 1983 at 3:04 p.m. of the instant "Complaint to...
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