KEVIN J. CAREY, Bankruptcy Judge.
Before the Court is the Motion of Portland General Electric ("PGE") for Relief from Stay. (D.I. 286.) PGE moves that the stay be lifted so that it may initiate litigation against various debtor entities arising out of alleged breaches of a construction agreement between PGE and the Debtors
For the reasons set forth below, the relief from stay will be granted.
In 2013, the Debtors entered into the EPC Contract to build a combined-cycle combustion turbine and related facility for the generation of energy (or the "Carty Project") for PGE. Soon thereafter, Abengoa, the Debtors' ultimate Spain-based parent company, signed the Guaranty. The Debtors also obtained a performance bond from Liberty Mutual Insurance Company and Zurich American Insurance Company (collectively, the "Sureties"). Relations between PGE and the Debtors broke down in November 2015, and PGE notified the Debtors that it was considering placing them into default. Subsequently, in December 2015, PGE terminated the EPC Contract.
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, relying upon a clause in the EPC Contract that states, in relevant part:
(EPC Contract, Art. 40.18, D.I. 395-1, at 16.) After briefing, a hearing was held on July 7, 2016, at which this Court decided that further consideration would be paused pending the Oregon District Court's forthcoming decision regarding the Sureties.
U.S. District Judge Hernandez issued his decision on July 27, 2016,
After supplemental briefing, and another hearing held on August 9, 2016, I took the matter under advisement.
Under 11 U.S.C. § 362(a):
Under 11 U.S.C. § 362(d):
"Except for lack of adequate protection, `cause' is not defined by § 362(d)(1). Cause is a flexible concept and courts often conduct a fact intensive, case-by-case balancing test, examining the totality of the circumstances to determine whether sufficient cause exists to lift the stay."
With regard to the burden of proof, 11 U.S.C. § 362(g) provides:
Since the Debtors' equity in property is not at issue here, the burden to resist lifting of the stay rests entirely with the Debtor. Curiously, the cases considering such requests for relief tend toward asking the question: "Why should the court lift the stay?" The statute, by its burden shifting, seems almost instead to ask, "why shouldn't the stay be lifted?" Similarly, application of the Rexene factors seem to limit the significance of placing the burden of proof squarely upon the party who opposes lifting of the stay, here, Abiensa. It is not PGE's burden to show that the Debtors would not be harmed by stay relief. I also find that use of the Rexene test in situations like this one is sometimes inadequate to the task of determining whether stay relief should be granted.
In In re SCO Group, Inc., my colleague, Judge Gross, turned to the Court of Appeals for the Second Circuit for the following list of factors (Judge Gross called them policies), in which the balance of harms is but one element:
I find that no great prejudice will result to the Debtors from initiation of the proposed suit in the federal district court. The Debtors have failed to carry their burden to demonstrate harm. I do not (as urged by PGE) hold that the Debtors' offer to resolve the entire suit in arbitration is a de facto consent to lift the stay because the two forums are not the same—greater resources would be expended in the full action if jurisdiction in the Oregon District Court were held to be proper (resources that would be devoted to discovery, testimony, all of the features that make it PGE's preferred forum). However, the jurisdictional determination is not the entire consequent action. Expenditure of the resources necessary to obtain a proper determination of jurisdiction will not prejudice the Debtors, and, should the Oregon District Court be determined to be the proper forum, there has been no convincing argument from the Debtors that abiding by the terms of their contract will result in undue prejudice. The Debtors have also failed to prove that litigation, jurisdictional or otherwise, in the Oregon District Court would prejudice the interests of the rest of the creditor body. The only argument that touched upon the subject, and briefly, was that of the Official Creditors Committee at the July 7 hearing. (7/7/16 Tr. 37:7-38:24). Concerns voiced over the effect of lifting the stay on the overall bankruptcy are purely speculative.
The potential hardship to PGE considerably outweighs the hardship to the Debtors. At the August 9 hearing, the Debtors presented arbitration as the most efficient forum because it is "the forum where the final decision cannot be appealed. . . ." (8/9/16 Tr. 39:9-11, D.I. 505.) As I stated at the hearing, "efficiency isn't solely a measure of how much time something takes to be decided." (8/9/16 Tr. 39:16-17.) This speaks to the concern, raised by PGE, that the Debtors are using the stay offensively to force their choice of forum, a forum which could potentially present due process concerns due to that very lack of a comprehensive appeals process. While I do not believe that the Debtors are abusing the automatic stay, or that their offer to lift the stay voluntarily only for arbitration is in any way coercive, I am cognizant of PGE's misgivings.
While PGE concedes that the ICC is properly considering the arbitrability of the dispute (or potential dispute) concerning the Guaranty, PGE does not admit to any obligation to arbitrate the underlying EPC Contract. Given that contention, and in light of the abbreviated and summary nature of this proceeding, it is proper that PGE have a full and fair opportunity to litigate the jurisdictional issues in the forum that is best suited to manage what could prove to be separate parallel proceedings between PGE and Abengoa and possibly Abeinsa in arbitration, and between PGE and the Sureties and possibly Abeinsa in the action that is going forward in Oregon District Court. In a footnote to PGE's Supplemental Brief in Support, PGE clarifies how it sees the next steps after a lift-stay progressing:
(D.I. 472 at 2 n.3.) I agree that allowing the Oregon District Court to manage this matter seems the best and most efficient resolution. I acknowledge that a request to initiate, rather than resume, litigation commenced pre-petition is somewhat unusual. However, here, proceedings on related matters have already been commenced and are continuing. The Oregon District Court, having already ruled on a related issue, is best positioned to determine the extent of the jurisdictional issues that may be presented to the ICC panel, including, should the Oregon District Court agree with PGE, the extent to which certain disputes between PGE and Abeinsa may be removed from the ICC's determination of arbitrability.
With regard to the probability of success on the merits on the underlying construction dispute, I have barely been briefed and it has been hazily outlined at best, but both parties indicate that if it went forward in the Oregon District Court it would be hotly contested and involve significant complexity, many witnesses, and extensive discovery. That is not enough to state an opinion on the probability of success on the merits. However, the jurisdictional issues have been sufficiently briefed and I find that PGE has a sufficient likelihood of success on the issue of forum selection under the EPC Contract. This this factor weighs in PGE's favor. Although I do not believe that I am, as PGE suggests, compelled by the principles of collateral estoppel or comity to apply the Oregon court's interpretation of the Sureties' bond to the interpretation of the EPC Contract, there is merit in the contention that when the EPC issue is before that court it may, under similar reasoning, reach a similar conclusion.
For the reasons set forth above, PGE's Motion for Relief from the Stay will be granted.
An appropriate order will follow.
See Abengoa's Answer and Claim, Bledsoe Decl. Ex. 2, at 8, D.I. 286-4, at 9.