28 F.4th 629
5th Cir.2022Background:
- Ultra Resources contracted with Rockies Express Pipeline (REX) to reserve interstate pipeline capacity under a filed-rate contract requiring fixed reservation payments whether gas shipped or not.
- After suspending drilling and entering Chapter 11, Ultra sought bankruptcy-court authority to reject the REX contract; REX objected and FERC intervened claiming exclusive regulatory authority over filed rates.
- The bankruptcy court invited FERC to participate as a party-in-interest, held a hearing, applied heightened (Mirant) scrutiny considering the public interest, and authorized rejection; it then confirmed Ultra’s reorganization plan over FERC’s objection.
- FERC argued bankruptcy courts cannot relieve a debtor of obligations under a filed-rate contract without FERC proceedings and that confirmation violated 11 U.S.C. § 1129(a)(6) because the plan produced an effective rate change.
- The Fifth Circuit, bound by In re Mirant, affirmed: rejection is a breach (not a collateral attack on the filed rate), bankruptcy courts must consider the public interest and invite FERC to participate, but FERC approval or a full FERC hearing is not required before rejection or confirmation.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether rejection of a filed-rate contract in bankruptcy relieves debtor of public-law obligation to continue performance absent FERC approval | FERC: Rejection cannot relieve the debtor of the public-law obligation to pay or perform under a filed rate; only FERC can modify or abrogate a filed-rate contract | Ultra: Rejection is a breach under §365 and leaves REX an unsecured claim; rejection does not change the filed rate and does not require FERC approval | Held: Rejection is a breach, not a collateral attack on the filed rate; bankruptcy court may authorize rejection and FERC may not compel continued performance post-rejection (Mirant governs) |
| Whether bankruptcy court must obtain FERC approval or allow FERC to hold proceedings before ruling on rejection | FERC: Because it ‘‘speaks through its orders,’’ the bankruptcy court must defer and allow FERC to conduct full proceedings on public-interest effects | Ultra: Bankruptcy court must consider public interest, invite FERC to participate, but may adjudicate rejection without waiting for a full FERC proceeding | Held: Court must invite FERC as party-in-interest and consider public interest, but need not halt bankruptcy process for a full FERC hearing; participation, not mandatory FERC adjudication, is required |
| Whether confirmation of the plan violated 11 U.S.C. § 1129(a)(6) because rejection led to less-than-full payment of filed-rate obligations | FERC: Plan’s treatment of the rejected contract effectuates a rate change that requires regulatory approval under §1129(a)(6) | Ultra: The filed rate itself was not altered; damages from rejection are calculated using the filed rate and any shortfall flows through bankruptcy claims treatment | Held: §1129(a)(6) not violated because the plan did not change the filed rate; damages use the filed rate and any reduction in payment stems from bankruptcy claims treatment, not a rate modification |
Key Cases Cited
- In re Mirant Corp., 378 F.3d 511 (5th Cir. 2004) (bankruptcy court may authorize rejection of filed-rate utility contracts; must scrutinize public-interest effects and may enjoin FERC narrowly to protect rejection)
- In re FirstEnergy Sols. Corp., 945 F.3d 431 (6th Cir. 2019) (agreeing Mirant view that post-rejection debtor is not bound to continue payment/performance as a public-law obligation)
- Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (2019) (rejection of executory contracts treated as breach with unsecured-claim consequences)
- Schneidewind v. ANR Pipeline Co., 485 U.S. 293 (1988) (Natural Gas Act grants FERC exclusive jurisdiction over interstate natural-gas transportation and resale rates)
- United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332 (1956) (filed-rate doctrine; rates cannot be unilaterally changed outside regulator)
- Fed. Power Comm’n v. Sierra Pac. Power Co., 350 U.S. 348 (1956) (Mobile-Sierra public-interest standard for modifying filed rates)
- Ark. La. Gas Co. v. Hall, 453 U.S. 571 (1981) (filed-rate doctrine and limits on courts altering filed rates)
- Celotex Corp. v. Edwards, 514 U.S. 300 (1995) (bankruptcy courts have comprehensive jurisdiction to resolve matters connected to the estate)
- In re Nat’l Gypsum Co., 208 F.3d 498 (5th Cir. 2000) (importance of rejection power to Chapter 11 reorganizations)