Mission Iowa Wind Co. v. Enron Corp.

• Decision Date: 31 March 2003
• Docket Number: No. 02 Civ. 5403(JSR).,02 Civ. 5403(JSR).
• Parties: MISSION IOWA WIND CO., and Storm Lake Power Partners I, LLC, Appellants, v. ENRON CORP., Appellee. In re Enron Corp., et al., Debtors.
• Court: U.S. District Court — Southern District of New York

Page 39

291 B.R. 39

MISSION IOWA WIND CO., and Storm Lake Power Partners I, LLC, Appellants, v. ENRON CORP., Appellee.

In re Enron Corp., et al., Debtors.

No. 02 Civ. 5403(JSR).

United States District Court, S.D. New York.

March 31, 2003.

Gabriela P. Cacuci, Tancred V. Schiavoni, III, O'Melveny & Myers, LLP, New York City, for plaintiffs.

Richard A. Rothman, Weil, Gotshal & Manges LLP, New York City, Gregory Coleman, John F. Greenman, Weil, Gotshal & Manges LLP, Austin, TX, for Enron Wind Corp.

Carl T. Anderson, Paul, Hastings, Janofsky, Los Angeles, CA, for General Electric Corp.

Michael S. Lurey, Steven Sorell, Latham & Watkins, Los Angeles, CA, for Fortis Bank.

John A. Menke, John R. Paliga, Brenda A. Bachman, Washington, DC, for Pension Benefit Guaranty Corp.

Christopher Meyer, Dynda Thomas, Squire, Sanders and Dempsey LLP, Cleveland, OH, for Official Committee of Unsecured Creditors.

MEMORANDUM ORDER

RAKOFF, District Judge.

Enron Wind Corp. ("Enron Wind"), a wholly owned subsidiary of Enron Corp., owns (directly and indirectly) various wind power businesses here and in Europe. In February 2002, Enron Wind and its domestic subsidiaries (collectively, the "U.S. Asset Sellers") filed for bankruptcy, a case related to the earlier-filed bankruptcy of the parent corporation. Simultaneously, the U.S. Asset Sellers filed a proposed Sale Agreement, which, as amended, was approved by the Bankruptcy Court on April 15, 2002, see Sale Order, Record on Appeal ("R.") at 782-805.

Under the Sale Agreement, General Electric Co. purchased substantially all of the assets owned by the U.S. Asset Sellers, as well as the assets of certain solvent European subsidiaries of Enron Wind (the "European Asset Sellers") that are not in bankruptcy. See Sale Agreement, R. at 496 (outlining corporate structure); Enron Org. Chart, R. at 893-94 (same).

As compensation therefor, General Electric Co. agreed to pay to the U.S. Asset Sellers and the European Asset Sellers a combined total of $325 million in cash, subject to certain contingent future adjustments, as well as to assume a total of approximately $168 million in combined liabilities. R. at 423-24, 429, 431-32, 1196. But although the Sale Agreement specifically allocated the $168 million in assumed liabilities between the U.S. and European Asset Sellers — with General Electric assuming $28 million in debts of the former and $140 million in debts of the latter, R. at 1196 — it made no similar allocation of the $325 million cash payment. Instead, the Sale Agreement provided that the parties:

will attempt in good faith to agree prior to the Closing on an allocation of the Purchase Price among the Transferred Assets ... provided, however, that the parties hereto will agree on a final allocation of the Purchase Price between the U.S. Asset Sellers in the aggregate on the one hand, and the European Asset Sellers ... on the other hand, on or before the hearing to be held before the Bankruptcy Court on such subject matter....

Sale Agreement § 2.12, R. at 431-32.

In approving the Sale Agreement, however, the Bankruptcy Court, in its Sale Order (which had been agreed to by the parties), determined that that court would hold an Allocation Hearing to review the allocations between the U.S. Asset Sellers and the European Asset Sellers and that, based on its determination, the parties would then be obligated to close the sale unless the Bankruptcy Court did not approve an allocation that at least provided the European Asset Sellers with enough funds to cover "excluded liabilities" (i.e., debts that General Electric was not assuming). R. at 802-03. Accordingly, the Bankruptcy Court convened an Allocation Hearing on April 30, 2002, R. at 935-1060, at which conflicting expert testimony was received from, respectively, the U.S. Asset Sellers and Mission Iowa Wind Co. ("Mission Iowa"), one of the creditors of the U.S. Asset Sellers.

At the hearing, the debtors asserted that the U.S. Asset Sellers accounted for roughly 37% of the sales, earnings, and book value of the assets, and argued that accordingly 37% of the $325 million cash payment should be allocated to the U.S. Asset Sellers and 63% to the European Asset Sellers. Mission Iowa, while contesting the 37% figure, argued that even if that were the fairest ratio to use, the allocation must also account for the assumed liabilities; and since the vast majority (83%) of the debt assumed by General Electric was that of the European Asset Sellers, a better allocation would combine the assumed liabilities with the cash payment and allocate 37% of that total consideration ($493 million) to the U.S. Asset Sellers. In dollar terms, this would increase the amount of money allocated to the U.S. Asset Sellers from $120 million to $154 million, thereby, in turn, benefitting the creditors of the U.S. Asset Sellers, namely, Mission Iowa and co-appellant Storm Lake Power Partners I LLC.

Without deciding the merits of this controversy, the Bankruptcy Court, by order dated May 6, 2002, approved the debtors' proposed allocation, finding it fell within the scope of their business judgment. Transcript of Allocation Hearing, R. at 1056-58; Allocation Order, R. at 1061-62. This appeal followed.

Preliminarily, appellee moves to dismiss the appeal as moot, since appellants sought no stay of the Allocation Order, with the result that the assets have already been transferred and the monies paid pursuant to 11 U.S.C. § 363(b). Section 363(m) of the Code, 11 U.S.C. § 363(m), provides that the "reversal or modification on appeal of an authorization" of a sale or lease under § 363(b) "does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith ... unless such authorization and such sale ... were stayed pending appeal." However, inherent in the fact that § 363(m) provides only that the validity of an unstayed sale cannot be disturbed on appeal is the corollary that other relief may be available and hence not moot. As the Second Circuit stated in Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 105 F.3d 837 (2d Cir.1997), while failure to obtain a stay may deprive the appellate court of jurisdiction so far as invalidation of a sale is concerned, "[i]t is not entirely clear why an appellate court, considering an appeal from an unstayed but unwarranted order of sale ... could not order some other form of relief other than invalidation of the sale." Gucci, 105 F.3d at 839-40 & n. 1; accord, e.g., Wintz v. American Freightways, Inc. (In re Wintz Cos.), 219 F.3d 807, 811 (8th Cir.2000) ("Claims against the property once sold may be maintained only against the proceeds of the sale."); In re Lloyd, 37 F.3d 271, 273 (7th Cir.1994) (holding that debtor could appeal concerning the distribution of proceeds from a closed sale, even though any claim for the return of the property was moot under § 363(m)); Osborn v. Durant Bank & Trust Co. (In re Osborn), 24 F.3d 1199, 1203-04 (10th Cir.1994) ("[W]here state law or the Bankruptcy Code provides remedies that do not affect the validity of the sale, § 363(m) does not moot the appeal."); United States v. Salerno, 932 F.2d 117, 123 (2d Cir.1991) (holding that while an appeal concerning a sale order was moot, appellant was free to object to the distribution of the proceeds).

In this case, the redistribution sought by appellants does not require invalidation of the sale or prejudice to the buyer, because, as the parties estimate,...