Jordan v. Randolph Mills, Inc., C-82-903-G

Citation29 BR 398
Decision Date30 March 1983
Docket NumberNo. C-82-903-G,B-79-01136.,C-82-903-G
CourtUnited States District Courts. 4th Circuit. Middle District of North Carolina
PartiesJohn M. JORDAN, Appellant, v. RANDOLPH MILLS, INC., Appellee/Debtor.

Jeffrey A. Andrews of Vernon, Vernon, Wooten, Brown & Andrews, Burlington, N.C., for appellant.

Arlene Pianko Groner, Sol., F.E.R.C., Washington, D.C., for intervenor.

R. Bradford Leggett of Allman, Spry, Humphreys & Armentrout, Winston-Salem, N.C., and Wesley B. Grant of Grant & Hastings, Concord, N.C., for appellee.


HIRAM H. WARD, Chief Judge.

This matter comes before the Court upon the appeal of John M. Jordan from the Order (June 28, 1982) (hereafter Contempt Order) of the Bankruptcy Court finding him in contempt of its Restraining Order entered July 13, 1979. The Restraining Order enjoined all persons from "in any way interfering with or disturbing the property and assets of the debtor Randolph Mills, Inc., until further order of . . ." the court. In the Contempt Order the court found that Jordan's actions in obtaining a permit and applying for a license to generate hydroelectric power at dams owned by the debtor have "affected the property rights of the Debtor and have impaired the Debtor's ability to sell one of its valuable assets." Furthermore, the court concluded that Jordan was in civil contempt; that all permits, licenses, and applications insofar as they affect the dams are null and void; that Jordan and his corporation, Sellers Manufacturing Co., must take steps to assure that the records of the Federal Energy Regulatory Commission (FERC) reflect the null and void status of the documents; that monetary sanctions could be imposed if Jordan fails to comply; and that once the court no longer has jurisdiction over the dams (i.e., they are sold) Jordan could reapply de novo, but would not be entitled to any benefit from his prior actions in the de novo application proceedings.

Jordan appealed this ruling on July 19, 1982, and raised issues as to the court's jurisdiction, its power to declare the documents null and void, and whether his pursuit of a license violated the Restraining Order. (He filed the appeal in this Court on August 24, 1982). The Bankruptcy Court, upon motion, stayed the imposition of its Contempt Order. Order Granting Stay (August 2, 1982). On August 25, 1983, FERC filed a Motion for Leave to Intervene in order to challenge the court's ruling that the documents were null and void.1 The Court permitted intervention. Order (August 27, 1982).

Having reviewed the parties' contentions, the Court reached the following conclusions. The Bankruptcy Court had authority to enjoin the act of applying for permits and licenses. Jordan violated the July 13, 1979, Restraining Order by applying for and obtaining preliminary permits and by applying for licenses to operate hydroelectric projects at dams owned by Randolph Mills, Inc., a Chapter XI debtor-in-possession.


The parties appear to be in agreement on the following facts. The debtor, Randolph Mills, Inc., owns two dams across the Deep River near Asheboro. Located at the dams is hydroelectric generating equipment which is in poor condition because of lack of use. The debtor also owns surrounding land. The Deep River is a navigable river. On July 13, 1979, the debtor filed a Chapter XI petition, 11 U.S.C. §§ 701-799.2

Several months after this filing Jordan applied with FERC for two preliminary permits in order to study the economic feasibility of developing hydroelectric power at the debtor's dams. 16 U.S.C. § 797(f); 18 C.F.R. §§ 4.80-.83 (April 1, 1980). His permit applications dealt strictly with those dams. Subsequently, on June 19 and 24, 1980, FERC caused to be issued public notices about the applications for permits and explanations of how to protest the pending applications or intervene. 16 U.S.C. § 797(f); see 18 C.F.R. §§ 1.8-.10. On July 10, 1980, a legal notice to this effect appeared in The Courier-Tribune, an Asheboro newspaper. Upon seeing the notice the debtor by letter informed Jordan and FERC of the Restraining Order and gave them its opinion that Jordan's actions were in contravention thereof. Attorneys of FERC unofficially informed Jordan that his actions were proper and outside the realm of the bankruptcy proceedings. Jordan persisted in his effort.

On August 22, 1980, Walter M. Clark, debtor's president, requested from FERC an extension of time in which to file competing permit applications. FERC consented since it was a timely request. However, believing that it would be a violation of the Restraining Order, Clark notified FERC on October 22, 1980, that he would file no applications.

On November 18, 1980, FERC issued the permits to Jordan and noted that no one who commented on the applications had objected to their issuance. Receipt of the permits secured for Jordan certain rights.

The sole purpose of a preliminary permit is to secure priority of application for a license for a water power project under Part I of the Federal Power Act 16 U.S.C. § 791a-823 while the permittee obtains the data and performs the acts required to determine the feasibility of the project and to support an application for a license.

18 C.F.R. § 4.80. These permits had a term of one year. During the following year Jordan hired engineers and consultants to study the dam's hydroelectric potential at a cost of around $25,000. On October 26, 1981, Jordan, in compliance with FERC regulations, filed two license applications. 16 U.S.C. § 797(e); 18 C.F.R. § 4.51. If granted, the licenses would permit Jordan to generate hydroelectricity and provide him with the power to condemn the dams if the owner refused to sell after negotiations. 16 U.S.C. § 814.

On February 4, 1982, the court, upon the debtor's motion, authorized the debtor to sell one of the dams and land, the Upper Dam Tract, to William H. Lee for $170,000. 11 U.S.C. § 713(2); Bankruptcy Rule 11-54(b). One of the specific conditions of sale "was that there be no permits or licenses or applications therefor, either issued by or pending before FERC." Contempt Order ¶ 7.

On March 3, 1982, FERC issued public notices of the license applications. Two days later the debtor requested Jordan, by letter, to cease and desist from obtaining the licenses. Jordan responded on March 19, 1982, stated that he would continue, and commented that he would negotiate with Lee if Lee bought the one dam.

On March 24, 1982, the debtor filed an Application for Order Directing John M. Jordan to Show Cause wherein it contended that Jordan's actions were in violation of the Restraining Order. The court issued the Order to Show Cause on May 10, 1982. The court issued its Contempt Order on June 28, 1982. On July 19, 1982, Lee requested permission from FERC to file a competing license application out of time, which FERC denied in accordance with its policy of strict enforcement of filing deadlines.

In the Contempt Order the Bankruptcy Court outlined most of these facts just reviewed and specifically found that Jordan's actions had jeopardized the debtor's ability to sell the property in question. It found that "the sale of the Upper Dam Tract . . . is crucial to the continued existence of this Debtor and its prospects for rehabilitation." Order ¶ 11. Furthermore, the court found that Jordan acted with knowledge of the Chapter XI proceeding and the Restraining Order. Jordan never requested of the court relief from the Restraining Order.


FERC argues that the jurisdiction of the Bankruptcy Court is narrow in that it only extends to the debtor and his property. Although the court's jurisdiction within these boundaries is exclusive, it lacks power to invade the exclusive authority of FERC over hydroelectric power development by declaring applications it has accepted or permits and licenses it has issued to be null and void or otherwise interfere with FERC's evaluation of a licensed applicant's (Jordan's) qualifications. FERC comments that allowing the court such power would injure the public interest and run contrary to the intent of Congress that FERC have exclusive control over such matters.

In any event, FERC contends, no action by it has interfered with the debtor's legitimate interests because (1) the debtor's property rights remain the same and (2) if the dams are condemned, 16 U.S.C. § 814, the debtor will sustain no loss since it will receive fair market value. FERC makes the argument that the Bankruptcy Court could not approve the no-license/no-application condition since issuance of such documents is under FERC's exclusive control. It makes the final argument that the debtor has no right to collaterally challenge FERC's actions or Jordan's application since it filed no timely protest or competing application with the agency. Since the debtor chose not to so act, it loses the right of judicial review. 16 U.S.C. § 825l (person seeking review must have exhausted administrative remedies). This final argument presupposes absence of jurisdiction in the Bankruptcy Court.

Jordan contends that the resolution of this case turns on the relationship between riparian landowners and the federal government. When the government issues a license it does not interfere with the riparian property rights, but only delegates to the licensee property rights already held by the government under the Commerce Clause in the flow of the navigable river. Also, if Jordan receives a license, then any exercise of the eminent domain power attaching thereto could not diminish the debtor's property because the debtor must be paid fair market value. Jordan also echoes the other arguments of FERC.

The debtor contends that the Bankruptcy Court had broad injunctive powers and that Jordan erred by not requesting relief from the Restraining Order. The interference according to the debtor is the eminent domain power a license carries. The debtor also asserts that if licensed, Jordan...

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