Elec Reliability Council v. Phillips
- Summarized by Caleb Chaplain , U.S. Bankruptcy Court, Western District of Virginia
- 1 year 10 months ago
- Case Type:
- Business
- Case Status:
- Reversed and Remanded
- Citation:
- 22-20603 (5th Circuit, Apr 29,2024) Published
- Tag(s):
-
- Ruling:
- The Fifth Circuit held that the bankruptcy court abused its discretion and erred in not abstaining from adjudicating the liquidating trustee’s claims. That is, Burford v. Sun Oil Co. compelled the bankruptcy court to abstain because federal adjudication posed a threat to Texas’s specialized system of utility regulation. The Fifth Circuit thus reversed the bankruptcy court’s denial of the motion to abstain. Because abstention was required, the Fifth Circuit remanded with instructions to dismiss Counts I–IV and to stay Counts V and VI pending resolution of related state proceedings.
- Procedural context:
- The Electric Reliability Council of Texas, Inc. (“ERCOT”) filed a proof of claim seeking payment of a nearly $300 million electric bill owed by the debtor, Entrust Energy, Inc. The Trustee of the Entrust Liquidating Trust initiated an adversary proceeding challenging ERCOT’s proof of claim. In the six-count complaint, the Trustee asserted that ERCOT violated Texas law through price manipulation, was grossly negligent in failing to winterize the Texas grid and respond adequately to the winter storm, and violated the Fifth Amendment by transitioning Entrust’s customers to another retail utility post-default without compensation.
ERCOT moved to dismiss all claims and requested alternatively that the bankruptcy court abstain under Burford v. Sun Oil Co., 319 U.S. 315 (1943). The bankruptcy court, ruling from the bench, declined to abstain and denied ERCOT’s motion to dismiss on all claims except for the takings claim. Following the bankruptcy court’s certification of the issues, the Fifth Circuit granted both parties’ petitions for direct review.
- Facts:
- In mid-February of 2021, Winter Storm Uri produced abnormally cold weather in Texas. The resulting freeze caused a large portion of the grid’s generation capacity to go offline as demand spiked from Texans needing heat.
To prevent failure of the grid, the Electric Reliability Council of Texas, Inc. (“ERCOT”), an entity tasked with managing the grid, manipulated the price of energy in hopes of incentivizing production. In part due to ERCOT’s actions, Entrust Energy, Inc. received an electric bill for approximately $296 million. This bill rendered Entrust insolvent. Due to this large bill, financial backers terminating agreements with Entrust, and a “mass transition” of its customers by ERCOT to other energy suppliers, Entrust filed a chapter 11 petition. In the bankruptcy case, ERCOT filed a claim seeking payment of the invoice.
- Judge(s):
- Higginbotham, Smith, and Higginson
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