AEP Energy Services Gas Holding Co. v. Bank of America, N.A.

Summarized by Joel Levitin , Cahill Gordon & Reindel LLP
15 years 4 months ago

Citation:

(2nd Circuit, Dec 31,1969)

Tag(s):

2nd Circuit

Ruling:

Security interest in natural gas in storage facility that is subordinated to the right of a party to use such gas until a guaranty default (including the filing of a bankruptcy petition by Enron) occurs, but upon such default has a superior right, is enforceable in favor of holder of security interest and gives such holder a superior right to the gas. In addition, court of appeals held that lower court improperly decided issues that were not transferred to it by the Texas district court.

Procedural context:

Appeal to court of appeals from a summary judgment entered by the United States District Court for the Southern District of New York in favor of the defendants on all of the plaintiffs’ claims. Affirmed in part; reversed in part (to permit Texas court to adjudicate certain claims).

Facts:

After Enron and affiliates entered bankruptcy proceedings in December 2001, Bank of America ("BofA") and the Bank of New York ("BONY") asserted guaranty events of default under certain operative agreements as a result of the bankruptcy filings and attempted to repossess certain natural gas contained in a storage facility owned by a special-purpose trust owned in equal parts by Enron and BofA (with BONY serving as trustee). AEP and certain other entities asserted that they had superior rights in the gas based on, among other things, contractual provisions subordinating the rights of BofA and BONY and permitting AEP to use the gas, but only so long as there was no guaranty default. The disputes resulted in state and federal court actions in Texas, including declaratory judgment and contract and tort claims and counterclaims among the parties. The federal court in Texas transferred the declaratory judgment, but not the contract and tort claims and counterclaims to the US District Court for the Southern District of New York. The New York District Court then decided all of the claims in favor of BofA..

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