Potomac Elec Power v. Mirant Corp ( 2006 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS July 19, 2006
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
_____________________ Clerk
No. 05-10038
_____________________
In The Matter Of: MIRANT CORPORATION; ET AL.,
Debtors.
MIRANT CORPORATION; MLW DEVELOPMENT LLC;
MIRANT AMERICAS ENERGY MARKETING LP; MIRANT
AMERICAS GENERATION LLC; MIRANT MID-ATLANTIC
LLC; ET AL.,
Appellants,
versus
POTOMAC ELECTRIC POWER COMPANY; FEDERAL
ENERGY REGULATORY COMMISSION,
Appellees.
_____________________
No. 05-10419
_____________________
In The Matter Of: MIRANT CORP.,
Debtor.
POTOMAC ELECTRIC POWER CO.,
Appellee,
versus
MIRANT CORP.; MLW DEVELOPMENT LLC; MIRANT
AMERICAS ENERGY MARKETING LP; MIRANT
AMERICAS GENERATION LLC; MIRANT MID-ATLANTIC
LLC; ET AL.,
Appellants.
_________________________________________________________________
Appeals from the United States District Court
for the Northern District of Texas
USDC Nos. 4:03-CV-1242-A, and 4:05-CV-95-A
________________________________________________________________
Before JOLLY, SMITH, and GARZA, Circuit Judges.
PER CURIAM:1
This appeal arises from the Asset Purchase and Sale Agreement
(APSA) entered into between Mirant Corporation (Mirant) and Potomac
Electric Power Company (PEPCO). This appeal is not the first time
these parties have been before us, see In re Mirant Corp., 378 F.3d
511 (5th Cir. 2004), and we recognize that it may not be the last.
After argument and review of the lengthy briefing and extensive
record in this case it is evident that a single theme lies behind
the thousands of pages generated in this litigation: Mirant’s
unrelenting and unjustified effort to avoid a legitimate
contractual obligation it now views as a bad deal.
In order to secure PEPCO’s acceptance of Mirant’s bid to
purchase certain electric generating facilities, Mirant agreed to
receive assignment of PEPCO’s Purchase Power Agreements (PPAs).2
At the time of negotiations both Mirant and PEPCO acknowledged that
the purchase price for electricity under the PPAs was above market
price, resulting in an agreed “negative value” of approximately
1
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
2
At oral argument Mirant’s counsel conceded that “but for”
the Back-to-Back agreement and the assignment of PEPCO’s PPAs to
Mirant, PEPCO would not have agreed to the total deal entered
between the parties in the APSA.
2
$500 million. Consequently, the parties reduced the agreed sale
price by $500 million, representing the loss on the PPAs. Instead
of $3.2 billion, Mirant paid Pepco $2.65 billion. The parties
memorialized their agreement in the APSA, which included 1) the
transfer of certain power generation facilities to Mirant; 2) the
assignment of PEPCO’s PPAs to Mirant, including the Back-to-Back
arrangement agreed to as a contingency plan in the event that the
PPAs were not assignable to Mirant; 3) lease agreements and
easements allowing Mirant access to the generating facilities; and
6) inter-connection agreements allowing Mirant to transfer power
along PEPCO’s inter-connection network.
PEPCO notified Mirant at the December 19, 2000 closing on the
APSA that certain PPAs were unassignable,3 and the parties began
performing under the APSA’s contingency plan known to the parties
as the Back-to-Back Agreement (BTB). The cost to Mirant under the
BTB is approximately $10-15 million per month.
In July 2003, Mirant filed for bankruptcy and immediately
filed a motion to reject the BTB (first motion to reject), but did
not attempt to reject the remaining executory portions of the APSA.
PEPCO, because of the automatic stay, was required to continue
3
PEPCO was unable to secure the permission of certain power
suppliers to assign their PPA agreements to Mirant. Thus five PPAs
were ultimately unassigned. Consequently, per the terms of Section
2.4 of the APSA, PEPCO gave notice in writing to Mirant that it was
activating the Back-to-Back Agreement as to those unassignable
PPAs. PEPCO delivered this written notice to Mirant at the closing
on the APSA.
3
performance. On December 9, 2004, the district court denied
Mirant’s first motion to reject, finding that the BTB was not
severable from the APSA and thus was not eligible for rejection
under 11 U.S.C. § 365. Mirant appeals that order (appeal no. 05-
10038). In appeal number 05-10038, Mirant raises two points of
error: 1) the finding of the district court that the BTB was not
severable from the APSA; and 2) the standard for rejection
articulated in dicta by the district court.
On the very date the district court denied Mirant’s first
motion to reject, Mirant unilaterally declared that it would no
longer perform its obligations under the BTB and ultimately filed
a second motion to reject with the bankruptcy court.4 This second
motion and related pleadings were withdrawn from the bankruptcy
court by the district court. On March 1 and March 16, 2005, the
district court ordered Mirant to perform under the BTB until either
1) rejection was approved, or 2) Mirant demonstrated that
discontinuing performance pending rejection was within the public
interest. (The second motion to reject is still pending before the
district court.) Mirant appeals these March orders (appeal no. 05-
10419) and seeks a stay of the order to perform under the BTB
pending ruling on the merits of its second motion to reject. In
4
On January 19, 2003, the bankruptcy court issued an order
requiring Mirant to resume performance under the BTB unless and
until one of three contingencies occurred. One of these
contingencies was that Mirant file “a motion to reject the APSA.”
Consequently, instead of resuming payment, on January 21, 2003,
Mirant filed its second motion to reject.
4
appeal number 05-10419, Mirant raises an additional two points of
error: 1) the district court’s withdrawal from the bankruptcy
court of Mirant’s second motion to reject and related pleadings;
and 2) the district court’s order that Mirant perform under the BTB
until rejection of the BTB or APSA is approved on the merits.
In section I we address the issues presented in appeal number
05-10038. Section II addresses the issues involved in appeal
number 05-10419. For the reasons set forth below we AFFIRM all
orders of the district court.
I
Appeal no. 05-10038 challenges the district court’s December
9, 2004 order denying Mirant’s first motion to reject the BTB
portion of the APSA. Section 365(a) of the Bankruptcy Code
provides that “the trustee, subject to the court’s approval, may
assume or reject any executory contract or unexpired lease of the
debtor.”5 11 U.S.C. § 365(a). Under § 365, “[i]t is well
established that as a general proposition an executory contract
must be assumed or rejected in its entirety.” Stewart Title
Guaranty Co. v. Old Republic Nat’l Title Ins. Co., 83 F.3d 735, 741
(5th Cir. 1996) (citation omitted). This “often-repeated statement
. . . means only that the debtor cannot choose to accept the
5
Through legal fiction, the rejected contract is considered
to be breached by the debtor and the non-breaching party to the
contract is then given an unsecured claim in the bankruptcy estate
equal to the amount of the damages resulting from the breach. See
In re Mirant, 378 F.3d at 519-20.
5
benefits of the contract and reject its burdens to the detriment of
the other party to the agreement.” Richmond Leasing Co. v. Capital
Bank, N.A., 762 F.2d 1303, 1311 (5th Cir. 1985). Consequently, to
reject a contract under § 365, a debtor must establish that 1) the
contract is executory, and 2) the contract is either an entire
agreement, or a severable portion of an agreement. Once a contract
is deemed eligible for rejection, court approval is required for
rejection.6 See 3 Collier on Bankruptcy ¶ 365.03 (15th Ed. Rev.
2004) (“The decision to assume or reject a contract or lease is
subject to court approval.”).
6
Under Section 10.1(b)(iii), the APSA provides that in the
event Mirant breaches the BTB agreement PEPCO gets a claim for
damages rather than a release of its APSA obligations. Mirant thus
argues that this provision indicates severability, and that if
Mirant is allowed to reject the contract PEPCO will receive the
remedy it bargained for -- a claim for damages. Although at first
glance this argument may appear to have merit, the contention
ultimately fails. The standard for § 365 rejection is not whether
the non-breaching party will be made whole; nor does the inquiry
examine whether the non-breaching party will ultimately receive the
negotiated remedy. Instead, § 365 requires a two-part
consideration -- 1) whether there is an executory contract; and 2)
whether the debtor seeks to reject a severable agreement.
Consequently, PEPCO’s contractual remedy for breach of the BTB is,
at this stage in the analysis, irrelevant.
Additionally, Mirant’s Section 10.1(b) argument was first
presented at oral argument, relying on certain APSA excerpts
provided to the panel at argument in a group of documents entitled
the “Argument Submission.” This “Argument Submission” is not a
part of the record or briefing in this case, nor does it contain
any citation indicating that its content is a part of the record on
appeal.
6
The parties agree that the relevant portions of the APSA are
executory.7 Thus, our analysis of the December 9, 2004 order
begins with the question of severability. Once severability is
resolved, we consider the appropriate standard for approving
rejection. Thus we turn to examine, first whether the BTB
agreement is severable from the APSA, and second, the appropriate
standard for rejection in this context.
A
The issue of severability under § 365 requires that an
executory contract be rejected in toto to prevent a debtor from
picking through an agreement, accepting the benefits while
sloughing the burdens. See In re Café Partners/Washington 1983, 90
B.R. 1, 5 (Bankr. D.D.C. 1988) (“the Debtor may not pick and choose
from among the desirable and undesirable portions of the
contract”). However, “[i]f a single contract contains separate,
severable agreements the debtor may reject one agreement and not
another.” Stewart Title Guaranty Co., 83 F.3d at 741.
The district court found, and the parties agree, that
severability for purposes of § 365 rejection is determined by
applying the non-bankruptcy, general legal rules applicable to the
agreement at issue. See, e.g., In re Café Partners, 90 B.R. at 6(“[W]hether a contract . . . is an entire contract is not a
7
Although the Code does not define “executory contract,” the
legislative history indicates the term refers to a contract “on
which performance is due to some extent on both sides.” In re
Mirant, 378 F.3d at 518.
7
question of the Federal bankruptcy law but of the law, usually
State law, that would govern the parties’ rights outside
bankruptcy.”).
The APSA itself provides that it is to be “governed by and
construed in accordance with the law of the District of Columbia.”
APSA, § 12.6. Under D.C. law, the well established test of
severability is whether the parties, at the time the agreement was
entered, intended the contract to be severable. See, e.g., Holiday
Homes v. Briley, 122 A.2d 229, 232 (D.C. 1956) (“Whether a number
of promises constitutes one contract or more than one is primarily
a question of intention of the parties.”). Howard University v.
Durham, 408 A.2d 1216, 1219 (D.C. 1979), observed that while the
intention of the parties controls, “[t]here is no set answer to the
question of when a contract is divisible.” However, the court
found there were several “factors to be considered” in determining
whether the parties intended the contract to be severable. Id.Those factors as enumerated are:
1) whether the parties assented to all the
promises as a single whole; 2) whether there
was a single consideration covering various
parts of the agreement or whether
consideration was given for each part of the
agreement; and 3) whether [the] performance of
each party is divided into two or more parts,
the number of parts due from each party being
the agreed exchange for a corresponding part
by the other party.
Id.; see also Cahn v. Antioch Univ., 482 A.2d 1216, 1219 (D.C.
1994) (affirming the Howard Univ. factors). Based on these
8
factors, the district court concluded that the BTB was not
severable from the APSA and thus was not eligible for rejection.
After considering these factors and the corresponding evidence, we
agree.8
First, the parties clearly “assented to all the promises” --
the sale of the generation facilities, the lease agreements, the
easements, the BTB agreement, and the inter-connection agreements
-- “as a single whole.” The parties did not enter separate
contracts or transactions; nor were the various agreements executed
8
The APSA itself contains a clause entitled “Severability”
which reads as follows:
Section 12.11 Severability. If any term or
other provision of this Agreement is invalid,
illegal or incapable of being enforced by any
rule of law or public policy, all other
conditions and provisions of this Agreement
shall nevertheless remain in full force and
effect. Upon such determination that any term
or other provision is invalid, illegal or
incapable of being enforced, the Parties shall
negotiate in good faith to modify this
Agreement so as to effect the original intent
of the Parties as closely as possible to the
fullest extent permitted by applicable law in
an acceptable manner to the end that the
transactions contemplated hereby are fulfilled
to the extent possible.
Mirant argues that this clause indicates the parties’ intent that
the agreement be severable. It contends that the language of the
APSA clearly reveals that the APSA and the BTB were intended to be
two separate agreements. We disagree. This clause only serves to
prevent the termination of the entire agreement should something
outside the control of the parties -- invalidity, illegality, or
impossibility -- occur with respect only to a part thereof. It
does not provide insight into the parties’ view of the
interconnection of the various portions of the APSA.
9
or closed at separate times. Instead, each part of this agreement
was contained in a five-volume document collectively entitled the
Asset Purchase and Sale Agreement. This agreement was executed on
June 7, 2000 as one package, and the parties held the closing on
December 19, 2000.9 As further evidence that the parties viewed
this deal “as a single whole,” Section 12.10 of the APSA identifies
the different parts of the agreement and states that collectively
they “embody the entire agreement and understanding of the
Parties.”10
9
Mirant confuses the issue of execution by arguing that the
BTB agreement is a “separately executed letter agreement.” Mirant
contends that the December 19, 2000 letters from PEPCO to Mirant
constitute the “executing documents” for the BTB agreement. This
argument is misleading and without merit. Schedule 2.4 of the APSA
contains the BTB agreement, with section II.D of Schedule 2.4
outlining how the BTB agreement will be administered. Section II.D
specifically provides that the BTB agreement is “[e]ffective as of
the [c]losing [d]ate” as to all unassignable PPAs, and that PEPCO
was to provide to Mirant “all information which [PEPCO] now has or
hereafter acquires or to which [Mirant] is entitled with respect to
each Unassigned PPA.” Consequently, on the date of the closing of
the APSA, December 19, 2000, PEPCO provided to Mirant letters that
identified the unassignable PPAs and notified Mirant that the
identified PPAs would be “governed by Section II of Schedule 2.4 of
the Asset Sale Agreement.” This letter indicates in no way a
separate execution, or a separate agreement. Instead, the letters
only provide “information” required by section II.D, i.e., the
identity of the unassigned PPAs, on the “effective date” of the
Schedule 2.4 agreement, the December 19 closing.
10
Section 12.10 states as follows:
SECTION 12.10 Entire Agreement. This
Agreement, the Confidentiality Agreement and
the Ancillary Agreements including the
Exhibits, Schedules, documents, certificates
and instruments referred to herein or therein
and other contracts, agreements and
instruments contemplated hereby or thereby,
10
Second, it is clear that the parties negotiated one single
consideration for the entirety of the deal, including the BTB
agreement. Mirant’s arguments that consideration for the APSA was
separate or distinct from that of the BTB agreement are, at best,
misguided.11 Further, Mirant’s focus on the exchange of money as
embody the entire agreement and understanding
of the Parties in respect of the transactions
contemplated by this Agreement. There are no
restrictions, promises, representations,
warranties, covenants or undertakings other
than those expressly set forth or referred to
herein or therein. This Agreement and the
Ancillary Agreements supersede all prior
agreements and understandings between the
Parties with respect to the transactions
contemplated by this Agreement other than the
Confidentiality Agreement.
Mirant’s argument that this is merely a standard integration clause
having no bearing on severability is without merit. Clearly, this
section reflects an “integration clause.” However, the language of
the section also indicates that the parties viewed this transaction
as containing a series of supporting documents, embodied in one
unified agreement.
11
Mirant makes three arguments to support its contention that
the APSA and BTB were supported by separate consideration. Each
mischaracterizes the agreement between these parties and is thus
without merit. First, Mirant argues that consideration under the
APSA was the $2.65 billion which was distinct and unrelated to the
monthly payments made under the BTB agreement. This argument is
inconsistent with the fact that the $2.65 billion purchase price
included reduction of $500 million to reflect the negative value of
the PPAs -- a fact conceded by Mirant at oral argument.
Second, Mirant argues that there are different methods or
periods of payment -- lump sum for the APSA, and monthly payments
for the BTB agreement. This argument ignores the fact that, as
discussed below, the monthly payments are not the consideration for
the BTB agreement.
Finally, Mirant argues that the duration of payment is
different -- one single transfer under the APSA versus the ongoing
11
the only evidence of consideration is misplaced. Consideration is
a bargained-for promise or performance. See Restatement (Second)
of Contracts § 71 (1979). The consideration for the BTB agreement
is not, as Mirant suggests, the monthly payments made by Mirant to
PEPCO. Nor was the consideration for the power generating
facilities the $2.65 billion dollars paid by Mirant. Instead, as
stated by Mirant’s counsel at oral argument, “the consideration the
parties negotiated for was a whole deal.” That is to say, there
was one amount as consideration for this overall agreement; that
single amount reflected the negotiated value of the entire
transaction -- PEPCO agreed to sell its generating facilities and
lease its properties and inter-connective capabilities, and grant
certain easements; Mirant agreed to pay $2.65 billion and take on
the PPAs.12
The third and final Howard University factor asks whether the
performance required by the alleged separate agreement can be
divided from the performance required by the remainder of the
agreement. Performance is divisible where the alleged severable
payment by Mirant to PEPCO under the BTB agreement. Mirant would
have the court view the APSA as a single transaction completed on
December 19, 2000. However, there are many ongoing rights and
obligations under the APSA, other than the BTB agreement, i.e., the
lease and easement agreements and the inter-connection agreements.
12
Common sense suggests this view of the consideration
supporting the parties’ agreement. Why would Mirant enter a legal
obligation requiring it to pay an above-market rate for power,
unless Mirant was taking on that obligation in exchange for
something Mirant deemed to be valuable -- in this case the
generation facilities and associated agreements?
12
obligations “can be apportioned into corresponding pairs of part
performances so that the parts of each pair are properly regarded
as agreed equivalents.”13 Restatement of Contracts (Second) § 183;
see also Howard Univ., 408 A.2d at 1219 (“whether performance of
each party is divided into two or more parts, the number of parts
due from each party being the agreed exchange for a corresponding
part by the other party”). PEPCO’s obligations under the BTB
agreement14 were not the “agreed equivalent” of the “agreed
exchange” for Mirant’s monthly payment obligations under the BTB
agreement. Instead, Mirant’s payment of $2.65 billion and
assumption of the PPAs along with the BTB, was the agreed exchange
and negotiated equivalent of PEPCO’s transfer of its generating
facilities, lease and easement agreements, and inter-connection
agreements. Because the parties’ respective obligations under the
BTB are not the “agreed exchange” for the other party’s performance
under the BTB, performance of the BTB is not divisible from
performance of the APSA.
13
This principle can be explained thusly: A contract between
two parties, 1 & 2, has three parts, A, B, and C. Performance of
part A is divisible only where Party 1's performance under part A
is the “negotiated exchange” or “agreed equivalent” for Party 2's
performance under part A. In other words the performance of each
party under the subject portion of the contract constitutes equal
and matching equivalents, without reference to or performance under
the remainder of the contract.
14
Under the BTB each month PEPCO continues performing under
the unassignable PPAs, purchasing power from the third party,
selling that power in the market, and then billing Mirant for
PEPCO’s loss on the sale.
13
Each of the Howard University factors points in this case to
one single and indivisible agreement: there was assent by the
parties “to all the promises as a single whole”; there was “a
single consideration covering [the] various parts of the
agreement”; and the performance is not divisible. Howard Univ.,
408 A.2d at 1219. Nothing in the record or arguments gives any
indication to the contrary; nor is there any evidence that the
parties intended any part of the agreement to be severable from the
whole. The record is clear that, as the district court found,
“the furthest thing from the minds of the parties when they entered
into the APSA, and agreed to a contract price of $2.65 billion, was
that . . . the Back-to-Back Agreement would be treated as
contractual commitment[] separate from and independent of [the]
sale . . . of [Pepco’s] electric generation facilities.”15
15
In their briefing and at argument, the parties spent
extensive time discussing Stewart Title Guaranty Co. v. Old
Republic National Title Insurance Co., 83 F.3d 735 (5th Cir. 1996),
and the validity of the “but for” or “essential” test. Both
parties agree, however, that the law of the District of Columbia
applies, and that the ultimate question under that law is the
intent of the parties at the time the contract was executed.
Further, both parties contend that the Howard University factors
should be considered in determining the parties’ intent. As
demonstrated by the above discussion, the Howard University factors
indicate the parties did not intend the BTB to be a severable part
of the APSA. Mirant conceded at oral argument that the BTB is not
severable under the “essential” or “but for” test. (Specifically
counsel for Mirant stated, “If the but for test applies we lose.”)
Thus, under either the “essential” test or Howard University
approach the outcome in this case is the same -- no severability.
Consequently, it is unnecessary for us to determine whether the
“essential” or “but for” test, or the Howard University approach
applies.
14
As the parties to this agreement did not intend it to be
severable from the agreement as a whole, we hold that the BTB
agreement is not separate or severable from the remaining portions
of the APSA. Consequently, the district court was correct to
refuse Mirant’s motion to reject its obligations under the BTB
agreement under § 365 of the Bankruptcy Code.
B
As we have determined that the BTB agreement is not severable
and thus not eligible for § 365 rejection, determination of the
applicable standard a debtor must meet for rejection is
unnecessary. Nevertheless, we should recognize that the purpose of
§ 365 rejection is to free the debtor from agreements that would
hinder or disable reorganization. See, e.g., National Labor
Relations Board v. Bildisco & Bildisco, 104 S.Ct. 1188, 1197 (1984)
(“The fundamental purpose of reorganization is to prevent a debtor
from going into liquidation . . . . Thus, the authority to reject
an executory contract is vital to the basic purpose of a Chapter 11
reorganization, because rejection can release the debtor’s estate
from burdensome obligations that can impede a successful
reorganization.”); In re Nat’l Gypsum Co., 208 F.3d 498, 504 (5th
Cir. 2000) (holding that the purpose of § 365 is to “release the
debtor’s estate from burdensome obligations that can impede
successful reorganization”); Richmond Leasing Co., 762 F.2d at 1310
(“[§ 365] . . . serves the purpose of making the debtor’s
rehabilitation more likely”). Mirant is currently operating under
15
a plan of reorganization approved on December 9, 2005, which
provides for continuing performance under the BTB agreement and for
payment to all its pre-petition creditors in full. Consequently it
does not appear on the record before us that performance of the BTB
obligations is causing any hindrance to Mirant’s successful
reorganization.
Having determined that the district court’s order denying
Mirant’s first motion to reject was not error, we turn now to
review the March 1 and March 16, 2005 district court orders
requiring Mirant to perform its obligations under the BTB
agreement pending resolution of its second motion to reject.
II
In appeal number 05-10419, Mirant raises two points of error:
first, the district court’s withdrawal from the bankruptcy court of
Mirant’s second motion to reject and related pleadings to allow the
district court to decide these motions; and second, the district
court’s order requiring Mirant to perform its obligations under the
BTB agreement pending court approval of Mirant’s requested
rejection under § 365. Each issue will be considered in turn:
A
Mirant classifies the district court’s withdrawal of the
second motion to reject and related proceedings from the bankruptcy
court as a “complete disruption of the court system.” Mirant
contends that the district court erred in withdrawing these
pleadings from the bankruptcy court. Matters under Chapter 11 are
16
within the district court’s original jurisdiction, and reference to
and withdrawal from the bankruptcy court of bankruptcy matters is
left to the discretion of the district court. 28 U.S.C. § 157(a)
(2005). Thus, as PEPCO correctly notes, an order withdrawing
referral of a matter from bankruptcy court is not a final
appealable order, and thus, this court has no appellate
jurisdiction to review an appeal from such an order. See In re
Matter of Lieb, 915 F.2d 180, 183 (5th Cir. 1990) (finding no
appellate jurisdiction to review a district court’s determination
regarding withdrawal as the order was “neither final nor
collateral”); see also Caldwell-Baker Co. v. Parsons, 392 F.3d 886(7th Cir. 2004) (citing cases from the First, Second, Third, Fifth,
Seventh, Ninth, Tenth and Eleventh Circuits, finding that no
circuit considering the issue has found appellate jurisdiction to
review a grant or denial of withdrawal).16
16
28 U.S.C. § 157(d) provides for both mandatory and
permissive withdrawal by the district court. The district court in
its March 1, 2005 order found both applicable.
First, under 28 U.S.C. § 157(d), mandatory withdrawal is
required where “the [district] court determines that resolution of
the proceeding requires consideration of both title 11 and other
laws of the United States regulating organizations or activities
affecting interstate commerce.” 28 U.S.C. § 157(d) (2005). Here,
resolution of the parties’ dispute required consideration of both
Title 11 and the federal regulation of electricity. This Court’s
instruction in Mirant I provided that FERC be involved in
determining whether rejection of the BTB is appropriate, as well as
the acknowledgment that resolution of rejection will necessarily
impact on a federally regulated electricity contract. See In re
Mirant, 378 F.3d at 520, 524.
Second, § 157(d) allows for permissive withdrawal “for cause
17
B
In its final point of error in this second appeal, Mirant
raises questions relating to the portions of the March 1 and March
16, 2005 orders requiring it to perform its obligations under the
BTB agreement during the pendency of its second motion to reject.
Mirant argues that unless and until an executory contract is
assumed or rejected, Mirant has no legal obligation to perform
under that contract. Thus, Mirant contends that the district court
erred in requiring it to perform under the BTB pending rejection.17
Mirant’s position is contrary to “the universally accepted rule
that a trustee [or debtor] cannot accept the benefits of an
executory contract without accepting the burdens as well.”
shown.” The district court made several findings as to why
permissive withdrawal was appropriate. These findings included:
the litigious and seemingly inconsistent positions of Mirant;
judicial economy; the district court’s familiarity with the issues;
and the seemingly inconsistent rulings of the bankruptcy court. See
Holland America Ins. Co. v. Succession of Roy, 777 F.2d 992, 998
(5th Cir. 1985) (“The district court should consider the goals of
promoting uniformity in bankruptcy administration, reducing forum
shopping and confusion, fostering the economical use of the
debtors’ and creditors’ resources, and expediting the bankruptcy
process.”). On the briefing before us, the arguments made by
Mirant that the district court erred in withdrawing the second
motion for rejection and related pleadings appear frivolous. Such
baseless arguments do not enhance Mirant’s credibility before this
Court.
17
Mirant also raises various contentions that the March orders
constitute injunctions that are procedurally deficient, ultimately
resulting in a violation of Mirant’s due process rights. These
arguments are without merit. As noted below, Mirant had been
ordered at least four times to pay under the BTB. Had Mirant
complied with these previous orders the district court would not
have had to issue the March orders once again commanding Mirant’s
performance under the BTB agreement pending rejection.
18
Schokbeton Indus., Inc. v. Schokbeton Prods. Corp., 466 F.2d 171,
175 (5th Cir. 1972); see also Bildisco, 104 S.Ct. at 1199 (“If the
debtor . . . continue[s] to receive benefits from the other party
to an executory contract pending a decision to reject or assume the
contract . . . the debtor . . . is obligated to pay.”) (internal
citations omitted).18
Mirant argues that it has received no post-petition benefit
from the BTB agreement and thus does not fall under this generally
accepted principle. This contention has no basis. Mirant has made
no attempts or offers to compensate PEPCO for the $500 million
discount Mirant received on the sale price of the generating
facilities; it continues to distribute electricity along PEPCO’s
lines using the inter-connection agreements; it continues to
operate plants on land owned by PEPCO per the lease agreements; it
continues to access certain generating and transfer facilities per
the easement agreements; and so on. Each day of operation Mirant
benefits from the rights and privileges it obtained in exchange for
the obligations associated with the assignment of the over-market
PPAs and the requirements of the BTB agreement. Mirant will
18
There can be disputes as to the amount the debtor must pay
as the “reasonable value” of the post-petition benefit bestowed by
the non-debtor. See, e.g., Bildisco, 104 S.Ct. at 1199 (holding
that the debtor is required to pay the “reasonable value” for post-
petition benefit, “which, depending on the circumstances of a
particular contract, may be what is specified in the contract”).
However, Mirant argues only that it should not have to pay at all.
Mirant has not disputed the amount it was ordered to pay pending
rejection, and consequently that issue is not before us.
19
continue to receive these benefits as PEPCO is required by the
automatic stay to perform under all these on-going portions of the
APSA, unless and until rejection is approved. Despite Mirant’s
cites to general bankruptcy principles, there is no authority to
support the position that Mirant may force PEPCO to continue
performance under the BTB while Mirant discontinues and refuses
payment without court permission, indeed in defiance of court
order.
By the time the district court issued the March orders, Mirant
had been directly or indirectly ordered to perform under the BTB at
least four times.19 Further, to the extent Mirant argues that its
second motion to reject cured any problems with its prior non-
performance this argument is wholly without merit.20 Thus, the
19
See Bankruptcy Order, Sept. 25, 2003 (“The debtors shall
continue to perform under . . . the [BTB agreement] . . . until
specifically relieved of such obligation by order of this Court or
such other court of competent jurisdiction.”); Bankruptcy Order,
Sept. 29, 2003 (“Debtors may not discontinue these agreements
without an order of the bankruptcy court entered only after notice
and hearing.”); District Court Order, January 4, 2004 (stating that
any action causing PEPCO to be denied payment under the BTB would
be appropriate only after a specific showing by Mirant to the
court); District Court Order, December 9, 2004 (rejecting Mirant’s
First Motion to Reject the BTB).
20
Specifically, Mirant’s claim that it is seeking to reject
the entire APSA in response to the January 19, 2003 order of the
district court appears disingenuous. As the district court noted
in its March 1 order, Mirant’s second motion “again seeks judicial
approval [to] reject[] . . . the BTB.” The second motion purports
to reject “the entirety of the APSA.” However, the motion goes on
to state that the “Interconnection Agreement,” “Easement, License
and Attachment Agreements,” “Local Area Support Agreement,” and
“Site Lease Agreements” are separate from the APSA and thus would
not be included in the rejection. The only remaining portions of
20
district court did not err in ordering Mirant to perform under the
BTB pending rejection approval.
III
For the reasons stated herein, we hold that the BTB agreement
is not severable from the APSA and is thus not eligible for
rejection under 11 U.S.C. § 365. Further, we hold that the order
of the district court withdrawing Mirant’s second motion to reject
and related pleadings from the district court is not a final
appealable order. Consequently, we have no appellate jurisdiction
to review the withdrawal. Additionally, we find that the district
court did not err in ordering Mirant’s performance under the BTB
agreement pending resolution of the second motion to reject. For
these reasons, the district court order of December 9, 2004
the APSA are the transfer of PEPCO’s generating facilities and the
BTB agreement. The transfer of the generating facilities has been
completely performed and is thus no longer executory.
Consequently, despite the “clever” labeling of its motion, Mirant
is essentially seeking to reject the BTB.
This type of legerdemain is not uncommon in the litigious
history of this case. Mirant’s attempts to avoid its BTB
obligations have not been limited to motions to reject. As pointed
out by FERC in its January 19, 2006 order, Mirant’s initial
proposed plan of reorganization called for the creation of a new
entity -- “New Mirant.” The plan then allowed Mirant to transfer
all its remaining assets, including the generating facilities,
leases, easements, and inter-connection agreements under the APSA
to New Mirant while leaving performance of “its APSA obligations
[previously described in the FERC order as the obligations under
the BTB agreement] with the remaining corporation -- “Old Mirant.”
The result would be that a judgment-proof entity retained the BTB
obligations while the New Mirant enjoyed the benefits of the APSA.
21
involved in appeal no. 05-10038, and the March 1, and March 16,
2005 orders involved in appeal 05-10419 are affirmed.
Mirant is cautioned that, while we welcome legitimate appeals,
any future appeals that continue the pattern of attempts to reject
the BTB agreement or efforts to refuse payment pending rejection
may well invite the most severe sanctions available to this court.
AFFIRMED; SANCTIONS WARNING ISSUED.
22