945 F.3d 431
6th Cir.2019Background
- FirstEnergy Solutions (FES) filed Chapter 11 and moved to reject eight power-purchase agreements (PPAs) and a multi-party intercompany power agreement (ICPA) that had been filed with FERC; FES said the contracts were financially burdensome and unnecessary to its reorganizing business.
- The bankruptcy court issued a temporary restraining order and then a broad injunction barring FERC from initiating or continuing any proceeding about the contracts, and approved rejection of the contracts applying only the ordinary business‑judgment rule.
- FERC and contract counterparties (OVEC, Duke, Maryland Solar) and Ohio Consumers’ Counsel intervened, arguing the filed‑rate doctrine and Mobile‑Sierra give FERC exclusive (or at least primary) jurisdiction over filed energy contracts and that rejection requires scrutiny of the public interest.
- The bankruptcy court relied on Chao’s public‑policy test to treat the anticipated FERC action as primarily private and invoked §105(a) to enjoin FERC; it declined to apply any heightened public‑interest standard and accepted stipulated facts that the contracts burdened FES.
- The Sixth Circuit held the bankruptcy court has jurisdiction to decide rejection of filed energy contracts (they are not immune from rejection as de jure regulations), but the injunction was overbroad and the court must apply a heightened, public‑interest sensitive standard on remand; appeal consolidated and remanded (affirm in part, reverse in part).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether filed, FERC‑filed power contracts are immune from rejection in bankruptcy | FES: filed contracts are ordinary executory contracts and may be rejected under §365 if burdensome | FERC/counterparties: filed‑rate doctrine / Mobile‑Sierra make filed contracts effectively regulatory; only FERC may abrogate/modify | Court: Filed contracts are not immune; bankruptcy court has jurisdiction to permit rejection, but not exclusive authority over the public‑interest dimensions |
| Whether the automatic stay/regulatory‑powers exception (§362(b)(4)) bars FERC proceedings | FES: §362(a)/§105 justify enjoining FERC to avoid interference with reorganization | FERC/counterparties: §362(b)(4) exempts governmental regulatory actions; FERC may proceed | Court: Bankruptcy court could enjoin FERC only against orders that would directly conflict with bankruptcy orders; the blanket bar on FERC proceedings was overbroad under Chao’s public‑policy test |
| Proper standard for evaluating rejection of filed energy contracts | FES: Ordinary business‑judgment rule suffices | Counterparties/FERC: Apply a heightened Bildisco/Mirant standard requiring careful scrutiny of public interest | Court: Bankruptcy court must apply an adjusted/higher standard (equities balancing and careful scrutiny of public interest, invite FERC participation) |
| Scope of §105(a) injunctive power vis‑à‑vis FERC | FES: §105 permits broad injunction to prevent FERC from thwarting rejection | FERC/counterparties: §105 does not permit enjoining an agency from exercising its statutory functions | Held: §105 allows injunctions preventing specific, direct conflict with bankruptcy orders but does not authorize enjoining all FERC proceedings or agency functions; bankruptcy court exceeded its authority |
Key Cases Cited
- In re Mirant Corp., 378 F.3d 511 (5th Cir. 2004) (bankruptcy court may enjoin FERC from ordering continued performance but must consider public‑interest impacts when authorizing rejection)
- NLRB v. Bildisco & Bildisco, 465 U.S. 513 (U.S. 1984) (heightened equities‑balancing standard for rejection of collective‑bargaining agreements)
- Chao v. Hosp. Staffing Servs., 270 F.3d 374 (6th Cir. 2001) (establishes pecuniary‑purpose and public‑policy tests for §362(b)(4) regulatory exception to the automatic stay)
- Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354 (U.S. 1988) (filed‑rate doctrine: FERC has exclusive jurisdiction over wholesale rates and related terms)
- Pennsylvania Water & Power Co. v. FPC, 343 U.S. 414 (U.S. 1952) (FERC enforcement can impose obligations independent of private contract; filed rates carry statutory force)
- FPC v. Sierra Pacific Power Co., 350 U.S. 348 (U.S. 1956) (FERC may require performance even of money‑losing filed contracts where public interest so requires)
- Morgan Stanley Capital Grp. v. Pub. Util. Dist. No. 1, 554 U.S. 527 (U.S. 2008) (clarifies contract‑rate v. tariff distinctions and Mobile‑Sierra presumptions)
- Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (U.S. 2019) (rejection under §365 does not necessarily extinguish non‑contractual rights or otherwise exempt debtors from generally applicable law)