In re Westinghouse Elec.
| Decision Date | 19 September 2019 |
| Docket Number | Case No. 17-10751 (MEW) |
| Parties | In re WESTINGHOUSE ELECTRIC COMPANY LLC, et al., Reorganized Debtors. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Four Times Square
New York, NY 10036
By: Shana A. Elberg
300 South Grand Avenue, Suite 3400
Los Angeles, CA 90071
By: Van C. Durrer II
40 Bank Street, Canary Wharf
London E14 5DS, United Kingdom
By: Chris Mallon
PARKER POE ADAMS & BERNSTEIN LLP
Attorneys for TurbinePROs, LLP and Toshiba America
401 South Tryon Street, Suite 3000
Charlotte, NC 28202
By: Kiah T. Ford IV
John C. Amabile
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
1285 Avenue of the Americas
New York, NY 10019
By: Alan W. Kornberg
Kyle J. Kimpler
John T. Weber
Michael J. Colarossi
PROSKAUER ROSE LLP
Committee of Westinghouse Electric Company LLC, et al.
Eleven Times Square
New York, NY 10036
By: Martin J. Bienenstock
Timothy Q. Karcher
Vincent Indelicato
Toshiba Corporation ("Toshiba") and two of its affiliates, TurbinePROS, LLC ("TurbinePROS") and Toshiba America Energy Systems Corporation ("Toshiba America"), have filed motions seeking the allowance and payment of administrative expense claims. [ECF Nos. 3742, 3823 and 3826, respectively.] Toshiba originally asked, in the alternative, for permission to file amended prepetition proofs of claim, but it has since withdrawn that alternative request.
Toshiba seeks to recover letter of credit fees and costs that Toshiba paid in connection with guarantees that it provided to the owners of two nuclear power projects that the parties have referred to as the Vogtle Project and the VC Summer Project. Toshiba seeks "recharge fees, administrative fees and other post-petition carrying charges" that total $8,701,581.94.
TurbinePROS contends that after the bankruptcy filings it provided project management, supervision, scheduling, quality control, labor and tooling services to the Debtors in connection with the VC Summer Project. It seeks the allowance and payment of $246,517.34, representing charges set forth in nine separate invoices.
Toshiba America contends that after the bankruptcy filings it provided labor and materials in connection with the VC Summer Project under two separate contracts. It claims that its contracts were put in a state of suspense between August 1, 2017 and July 31, 2018, and that during that period Toshiba America incurred $65,840 of "suspension and demobilization costs."
W Wind Down Co. LLC ("Wind Down Co.") was formed under the Debtors' confirmed plan of reorganization to resolve remaining claims and to make distributions required by the plan. Wind Down Co. has objected to the motions filed by Toshiba and its affiliates. [ECF No. 4174.] The Statutory Unsecured Claimholders' Committee (the "Committee") has also objected to the Toshiba motion. [ECF No. 4176.] Wind Down Co. and the Committee contend that all of the Toshiba entities' claims are barred by the terms of a "global settlement" that was incorporated first into a Plan Support Agreement and then into the confirmed chapter 11 plan of reorganization. Wind Down Co. has also argued that as a matter of law the expenses that Toshiba incurred in connection with the letters of credit were incurred for Toshiba's own protection and do not qualify for treatment as administrative expenses of the Debtors' estates, or as items by which Toshiba provided a "substantial contribution" to the Debtors' cases.
Toshiba and its affiliates have filed responses to the objections [ECF Nos. 4307 and 4310] and the Court heard argument on May 16, 2019. [ECF No. 4323.] At the direction of the Court, the parties also filed letters that addressed certain questions that arose during oral argument. [ECF Nos. 4327 and 4337.] Toshiba contends that the Court should schedule an evidentiary hearing and should allow discovery in advance of that hearing, while Wind Down Co. and the Committee contend that the objections should be resolved as a matter of law.
For the reasons set forth below, the Court rules that the contention by Wind Down Co. and the Committee that the Toshiba entities' claims are barred by the terms of a "global settlement" cannot be resolved as a matter of law. The Court also rules that Toshiba's current allegations in support of its claims to reimbursement of letter of credit fees as administrative expenses of the estate are deficient, but that Toshiba may amend such contentions and may pursue limited discovery as to certain matters before a final ruling is issued.
At the hearing and in their papers the parties agreed to the facts that are set forth below, except as I have otherwise noted.
Westinghouse Electric Company LLC ("Westinghouse") was a party to various contracts with the owners of the Vogtle and VC Summer Projects for the construction of nuclear power plants in Georgia and in South Carolina. Toshiba guaranteed Westinghouse's obligations to the project owners. Those guarantees were made in 2008, and Toshiba had no contractual rights to terminate them. The project owners had the right to enforce the guarantees without first exhausting remedies against the Debtors.
The agreements between Westinghouse and the Vogtle and VC Summer Project owners stated that if Toshiba's credit ratings declined then letters of credit would have to be posted to protect the owners. Toshiba's credit ratings did decline, and that decline triggered obligations to provide letters of credit. Toshiba has argued that it was Westinghouse's obligation to post the letters of credit but that Toshiba arranged for the letters of credit because Westinghouse was unable to do so. It is undisputed that the letters of credit in favor of the Vogtle Project owners were issued on January 13, 2016 in the amount of $900 million (later increased to $920 million on March 18, 2016) and the letters of credit in favor of the VC Summer Project owners were issued on April 8, 2016 in the amount of $45,000,000. If the letters of credit had not been posted, then the owners could have declared a default and could have called on the guarantees.
Toshiba and Westinghouse did not enter into any written agreements regarding the costs of the letters of credit. Toshiba alleges that it issued monthly invoices for such costs and that Westinghouse paid some invoices, but that such payments stopped in July 2016.
The letters of credit were outstanding when these bankruptcy cases were filed in March 2017. The letters of credit could not be cancelled before June 30, 2017, and they were subject to automatic one-year extensions unless Toshiba gave 60 days' prior notice of an election not to extend them. The parties agreed that if Toshiba had given such a notice then the project owners could have drawn down on the letters of credit before the expiration dates were reached.
The Debtors filed bankruptcy petitions on March 29, 2017. In anticipation of the bankruptcy filings certain of the Debtors entered into "Interim Assessment Agreements" with the project owners, which were approved by an Order entered March 30, 2017. The Interim Assessment Agreements permitted the projects to continue on an interim basis, at the expense of the owners, until final decisions were made. Toshiba was not a party to the Interim Assessment Agreements, but the owners of the Vogtle and VC Summer Projects agreed that they would not take actions under Toshiba's guarantees and would not draw against the letters of credit while the Interim Assessment Agreements were in effect. The Interim Assessment Agreements had initial terms of 30 days but they were extended a number of times.
Toshiba has argued that keeping the letters of credit in place (and not allowing them to expire on June 30, 2017) allowed the projects to continue and for their futures to be decided in an orderly manner, and therefore was of great benefit to the Westinghouse estate. However, leaving the letters of credit in place was also of enormous benefit to Toshiba itself. Toshiba's counsel went so far as to say during oral argument that Toshiba might have failed if the letters of credit had been called upon in early 2017.
During the periods in which the Interim Assessment Agreements were in effect Toshiba engaged in negotiations with the project owners regarding the guarantee claims against Toshiba.In June and July 2017, Toshiba entered into separate settlement agreements with the project owners. The first of the settlement agreements was dated June 9, 2017 and related to the Vogtle Project. The agreement resolved Toshiba's obligations under the guarantees for an agreed amount of $3,680,000,000 minus certain specified recoveries. The parties agreed that Toshiba would make monthly payments in accordance with an agreed schedule but with a right to prepay such amounts. The letters of credit were to remain in place, but the project owners agreed not to assert claims under the guarantees or to make demands under the letters of credit except to the extent provided in the agreement and for so long as Toshiba made payments called for under the agreement. Finally, section 9.3 also stated that Toshiba would be subrogated to the owners' claims against Westinghouse once the agreed guarantee claim amount had been paid in full.
Toshiba also entered into a settlement agreement dated July 27, 2017 with the owners of the VC Summer Project. That agreement resolved Toshiba's obligations under the VC Summer guarantees for an agreed amount $2,168,000,000. Many other terms were similar to the terms of the Vogtle agreement, though there...
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