488 B.R. 647
Bankr. D. Ariz.2013Background
- Clear Peak filed Chapter 11 on Feb 22, 2012; Debtor and SCE dispute automatic stay applicability to a PPA.
- PPA dated Nov 15, 2010 is for 8.5 MW solar generating facility; product includes energy, Green Attributes, Capacity, etc.
- PPA term is 20 years post Commercial Operation Date, with a CPUC-approved Commercial Operation Deadline and possible extensions.
- PPA requires posting a Development Security and other security; SCE holds a first-priority lien on posted collateral.
- Debtor paid half of Development Security but failed to post the remainder by Feb 13, 2012; SCE declared Event of Default on Feb 14, 2012; Debtor filed bankruptcy the same day.
- Debtor later negotiated a LOI with Recurrent Energy; Court must decide if PPA is a forward contract not subject to the automatic stay.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the PPA a forward contract under 362(b)(6)? | Curley argues PPA is not a forward contract. | SCE asserts PPA is a forward contract subject to 362(b)(6). | Yes; PPA is a forward contract protected by 362(b)(6). |
| Is the Debtor a forward contract merchant? | Debtor contends it is not a forward contract merchant. | SCE contends at least one party (SCE) is a forward contract merchant and the Debtor is a seller. | Yes; at least one party is a forward contract merchant, satisfying 362(b)(6). |
| Does Section 556 apply to allow termination and remedies despite the stay? | Debtor argues remedies may be stayed. | SCE relies on Section 556 allowing termination and offset. | Yes; PPA is within Section 556; termination and remedies permitted. |
| Can SCE offset the Development Security under 362(b)(6)? | Debtor seeks to limit offset. | SCE may set off Development Security as part of termination. | Yes; offset rights permitted under 362(b)(6) as part of termination of a forward contract. |
Key Cases Cited
- In re National Gas Distributors, 556 F.3d 247 (4th Cir. 2009) (defines forward contract elements and merchant involvement)
- In re MBS Mgmt. Services, Inc., 690 F.3d 352 (5th Cir. 2012) (four-part forward contract test)
- In re MBS Mgmt. Services, Inc., 432 B.R. 570 (Bankr.E.D.La.2010) (bankruptcy court applying forward contract concepts)
- In re Borden Chemicals, Inc., 336 B.R. 214 (Bankr.D. Del. 2006) (hedging vs. ordinary contract distinction)
- Olympic Natural Gas Co., 294 F.3d 737 (5th Cir. 2002) (relying on direct negotiations of forward contracts)
- Cascade Grain Products, LLC, 465 B.R. 570 (Bankr.D. Or. 2011) (maturity date interpretation for forward contracts)