In re Nitec Paper Corp.
| Decision Date | 17 October 1984 |
| Docket Number | No. 84 Civ. 1729(DNE).,84 Civ. 1729(DNE). |
| Citation | 43 BR 492 |
| Parties | In re NITEC PAPER CORPORATION, Debtor. |
| Court | U.S. District Court — Southern District of New York |
Stephen L. Baum, Arthur T. Cambouris, Gerald C. Goldstein and Reina Barcan, New York City, of counsel for appellant Power Authority
LeBoeuf, Lamb, Leiby & MacRae, Thomas G. Rohback, New York City, of counsel for appellant Niagra-Mohawk Power Corp.
Phillips, Nizer, Benjamin, Krim & Ballon, Martin F. Brecker and Jeffrey A. Heller, New York City, of counsel for appellee.*
The New York Power Authority and Niagara-Mohawk Power Corporation ("Niagara-Mohawk") have appealed from an order of the Bankruptcy Court, Burton R. Lifland, J., In re Nitec Paper Corporation, 43 B.R. 492, U.S.B.R. (S.D.N.Y.1984), 82 B 10809, ("Order") granting permission to effect transfer of electric power at market rates. The power would normally be used by the debtor-in-possession at below-market, regulated rates. Under the Order it is being transferred to a third party at market price, with the cost difference inuring to the debtor.
Jurisdiction in this case is found: (1) under 28 U.S.C. § 1334, which gives the District Court original jurisdiction over all matters arising under the bankruptcy laws; (2) under 28 U.S.C. § 1331 because this matter involves federal law; and (3) under 16 U.S.C. § 825p, which grants jurisdiction in all disputes arising out of 16 U.S.C. §§ 791a et seq., the Federal Power Act, whose provisions govern the "Niagara Redevelopment Act," 16 U.S.C. §§ 836-836a (1982).
Appellants seek review of the Order. Appellee has moved to dismiss the appeal on the grounds that the Order is not a final order.
A contract existed between the Kimberly Clark Corporation, (appellee Nitec Paper Corporation's ("Nitec") predecessor at its facility) and the Niagara-Mohawk Power Corporation ("Niagara-Mohawk"), a public utility power company. The contract was for the bulk purchase of price-controlled electricity referred to in trade parlance as "replacement power." Appellee Nitec, a debtor in bankruptcy reorganization, sought permission from the bankruptcy court to assume the contract. Nitec filed a proposed order with the U.S. Bankruptcy Court for the Southern District of New York, on January 11, 1984. On January 27, 1984, the bankruptcy court entered the Order calling for Nitec's assumption of the contract.
The Order also called for transfer of about two-thirds of the monthly total in question to a third party, the Occidental Chemical Corporation ("OCC"), for six months. In return, OCC was to pay the controlled price to Niagara-Mohawk while paying Nitec a surcharge of $35,700 per month.
Appellant, Power Authority of New York State ("Power Authority"), is a political subdivision of New York State, and is run as a public benefit corporation. It was originally created in 1931 under the Power Authority Act, L. 1931, ch. 772, codified at N.Y.Pub.Auth. Law §§ 1000-1015 (McKinney 1982 & Supp.1983-84). The Power Authority is responsible for the generation, transmission, and sale of electric power throughout many areas of New York State. It is the regulatory agency supervising the transfer of power at issue here.
Resolution of the issue in this case requires an understanding of the historical relationship among the parties. Appellant Niagara-Mohawk operated two hydro-electric plants known as "Project 16." On June 7, 1956 one of these plants was destroyed in a rock slide. Congress stepped in quickly to help restore the supply of power by passing the "Niagara Redevelopment Act" Pub.L. No. 85-159 (1957) at 16 U.S.C. §§ 836-836a (1982).
Under this Act the Federal Power Commission (since 1977, the Federal Energy Regulatory Commission) was directed to issue a license to the Power Authority to build and operate a replacement facility. Congress specifically mandated, among other conditions, that the Power Authority provide Niagara-Mohawk with an allocation of power equivalent to what was being generated at Project 16 prior to the 1956 disaster. In return for the allocation of power, Niagara-Mohawk voluntarily surrendered its federal license to run the original facility.
Congress indicated its intent in providing power to Niagara-Mohawk: "in order as nearly as possible to restore low power costs to such industries and for the same general purposes for which power from Project 16 was utilized. . . ." 16 U.S.C. § 836(b)(3) (emphasis added).
New York State, by statute, clearly granted regulatory powers to the Power Authority, N.Y.Pub.Auth. Law § 1005(5)(e) and (f). Congress gave this grant force and effect when it mandated that: "as a condition of the license, every licensee hereunder 16 U.S.C. §§ 791a et seq. which is a public service corporation . . . owning or operating any project and developing transmitting or distributing power for sale or use in public service, shall abide by such reasonable regulation of the services . . . and of rates and charges of payment therefor, as from time to time be prescribed by any duly constituted agency of the state in which the service is rendered or the rate is charged." 16 U.S.C. § 812.
The Power Authority received a copy of the proposed order from Nitec with a request for its endorsement.1 Pursuant to its regulatory obligation, the Power Authority declined to approve the Order. The bankruptcy court did, however, issue the Order, prompting this appeal.
On the question of appealability of the Order, this court may review any order of the bankruptcy court pursuant to Pub.L. No. 98-353, § 158, 98 Stat. 333, 341 (1984) (codified at 28 U.S.C. § 158), which provides that "the district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees, and, with leave of court, from interlocutory orders and decrees, of bankruptcy judges. . . ." Id. This court may treat the notice of appeal, filed with the bankruptcy court, as an application for leave to appeal. In re Johns-Manville Corp., 32 B.R. 728, 731 (S.D.N.Y.1983). Thus, the statute provides the court with discretion in reviewing an interlocutory appeal whether or not it is considered final for purposes of appeal in other instances.
Even though the traditional test for finality of orders, see Cohen v. Beneficial Indust. Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), is not required in this case, the same factors are relevant in determining whether or not to accept the appeal under the discretionary jurisdiction to be applied to bankruptcy matters. In this case, many of the factors that favor review of interlocutory orders without this grant of general appellate jurisdiction are present. The subject matter of the order is undeniably final with respect to the appellants. Further, the issues presented on this appeal are certainly separable from the subject matter of the central concern of this action, a Chapter 11 reorganization. See Cohen v. Beneficial Indust. Loan Corp., 337 U.S. 541, 546, 69 S.Ct. 1221, 1225, 93 L.Ed. 1528 (1949) (). Finally, abstaining from accepting this appeal until the reorganization is finalized will make effective review more difficult. See Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98 S.Ct. 2454, 2457, 57 L.Ed.2d 351 (1978) (). The planned reorganization will be based on the propriety of the resale in question, and the review of the resale should therefore be made before the plan is finalized. If review is delayed until the reorganization plan is in place, any modification may have the potential to upset the entire plan. Therefore, the court accepts the appeal of the order pursuant to the authority granted in 28 U.S.C. § 158, See In re Johns-Manville Corp., 32 B.R. 728, 731 (S.D.N.Y.1983) (), and the appellee's motion to dismiss is denied.2
A review of the Order shows the bankruptcy court relied on 11 U.S.C. § 365(a) for its approval of Nitec's assumption of its predecessor's contract, which is not in dispute. No authority, however, is cited for ordering the resale. Thus, the order of resale falls under the bankruptcy court's general authority to manage the estate. 11 U.S.C. §§ 105, 363. Appellee contends this authority is sufficient because there is no specific bar in the bankruptcy code that would invalidate the order. The reallocation, however, is in violation of federal and state law regulating power in the Niagara frontier region; it is certainly contrary to state and federal laws absent Power Authority approval; and it is contrary to the bankruptcy code itself.
When Congress passed the Niagara Redevelopment Act it certainly did not envision the resale of low cost power as a method to finance a Chapter 11 debtor. Such a scheme by a bankruptcy court becomes in reality quasi-government financial support. It may support the federal policy, expressed in the bankruptcy code, of encouraging the rehabilitation of bankrupt companies, but it does so here by infusing into the estate money to which the estate is not entitled. Such a subsidy is something Congress clearly could have provided for in the Niagara Redevelopment Act, if it intended to do so. On the contrary, the Act indicates Congress intended not to furnish a tradeable commodity to companies in the Niagara market, but merely to restore their power on terms existing before the disaster.
Congress made clear that the power allocated to Niagara-Mohawk was "for resale generally to the industries which purchased power produced by project 16 prior to such date, or their...
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