In a 9 page decision dated October 6, 2016, Judge Carey of the Delaware Bankruptcy Court granted the motion of Portland General Electric (“PGE”) for relief from the automatic stay of the Bankruptcy Code. Judge Carey’s opinion is available here (the “Opinion”). PGE moved that the stay be lifted so that it could initiate litigation against various debtor entities arising out of alleged breaches of a construction agreement between PGE and the Debtors called the “Turnkey Engineering, Procurement & Construction Agreement for Carty Generating Station” (the “EPC Contract”).
In 2013, the Debtors entered into the EPC Contract for PGE. The Debtors’ ultimate parent company, Abengoa, signed a Guaranty and the Debtors obtained a performance bond. In November the relationship between PGE and the Debtors began deteriorating and in December 2015, PGE terminated the EPC Contract.
Around the same time, PGE sought recovery pursuant to the performance bond, but its claim was denied. On December 31, 2015, in accordance with the provisions of the Guaranty, Abengoa commenced an ICC arbitration with PGE. Abengoa joined the Debtors and the bond providers to the arbitration, relying upon clauses in the Guaranty that provided for arbitration as the exclusive forum.
In February 2016, PGE sought to enjoin the arbitration. In March 2016, PGE commenced an action against the Sureties in the U.S. District Court for the District of Oregon. On March 29, 2016, the Debtors filed their voluntary petitions for relief under chapter 11. On May 25, 2016, PGE filed its Motion for Relief from the Stay to pursue claims against the Debtors in the District of Oregon.
Judge Carey’s Opinion
Judge Carey started his discussion of applicable law by outlining the factors required to grant a motion for relief from stay as provided in Rexene Products, 141 B.R. 574, Judge Carey then cited 11 U.S.C. 362(g), which provides that, In any hearing under subsection (d) or (e), concerning relief from the stay of any act under subsection (a) of this section—
(1) the party requesting such relief has the burden of proof on the issue of the debtor’s equity in property; and
(2) the party opposing such relief has the burden of proof on all other issues.
Judge Carey held that pursuant to this section of the Bankruptcy Code, it is not PGE’s burden to show that the Debtors would not be harmed by stay relief. Opinion at *5. He then quickly determined that (1) the Debtors have failed to carry their burden to demonstrate harm and (2) the potential hardship to PGE considerably outweighs the hardship to the Debtors.
Judge Cary agreed with PGE that allowing the Oregon District Court to manage this matter seems the best and most efficient resolution. He acknowledged that a request to initiate, rather than resume, litigation commenced pre-petition is somewhat unusual. However, Judge Carey determined that because proceedings on related matters had already commenced and the Oregon District Court had already ruled on a related issue, it was best positioned to resolve the question of whether the underlying litigation should be resolved in arbitration or through litigation.