In re Entergy New Orleans, Inc.
In re Entergy New Orleans, Inc.
Opinion of the Court
REASONS FOR ORDER
This matter came on for hearing on July 13, 2006 on motions for summary judgment filed by the debtor, Entergy New Orleans, Inc., the debtor’s parent company, Entergy Corporation, Inc., and the debtor’s affiliates, Entergy Services, Inc., and Systems Fuels, Inc. The motions for summary judgment sought denial of the motion for certification of classes filed by the Gordon plaintiffs and the Lowenburg plaintiffs; the motions for summary judg
I. Background Facts
The debtor is a utility company serving the New Orleans area, and is subject to the regulatory jurisdiction of the New Orleans City Council. It is a wholly owned subsidiary of Entergy Corporation, a public utility holding company subject to the Public Utility Holding Act of 1935. The debtor filed for Chapter 11 protection on September 17, 2005 because of the damage caused to its operations and equipment by Hurricane Katrina, which caused severe damage to the Greater New Orleans area on August 29, 2005.
The Gordon plaintiffs are a group of the debtor’s customers who in 1999 filed a class action suit against the debtor, its parent company, and other Entergy subsidiaries in the Civil District Court for Orleans Parish in the state of Louisiana.
At the same time the Gordon plaintiffs filed their class action suit, they commenced an administrative proceeding against the debtor with the New Orleans City Council as required by state law.
The Gordon plaintiffs appealed the city council’s decision because the award was not as large as they had requested. The appeal was pending before the Louisiana Fourth Circuit Court of Appeal when the debtor filed its Chapter 11 petition.
The Lowenburg plaintiffs are a group of the debtor’s customers who filed a class action suit against the debtor on April 15, 1998 in the Civil District Court for the Parish of Orleans alleging that the debtor charged rates in excess of what was allowed by the New Orleans City Council ordinances governing the debtor.
On January 19, 2006, the debtor filed a motion to set the last day to file proofs of claim, requesting that the bar date be set on April 19, 2006. The order granting that motion was entered on February 17, 2006. On March 3, 2006, the Gordon and Lowen-burg plaintiffs filed a joint motion requesting certification of classes. They set the motion for hearing on March 29, 2006. The debtor, its parent, the Unsecured Creditors’ Committee, and the City Council filed objections to the motion. At the hearing on the motion, the debtor and its parent company agreed that they would not object to the filing of a class proof of claim by the putative representatives of the Gordon and Lowenburg plaintiffs on the grounds that class certification had not been granted prior to the filing of the proof of claim.
II. Legal Analysis
A. Class Certification
The court has extensively reviewed the cases on class certification in the bankruptcy context and has concluded that the exact procedure to be followed in seeking class certification is unclear at best. The United States Fifth Circuit Court of Appeal, which this court is bound to follow, has not ruled on the issue of class actions in bankruptcy courts except to approve a line of bankruptcy cases that have allowed a class representative in a certified class action to file a complaint under 11 U.S.C. § 523 that the debts owed to the class members be excepted from discharge.
The United States circuit courts of appeal that have ruled on class certification in the bankruptcy context take two different approaches to the issue of filing a class proof of claim. The minority view espoused by the Tenth Circuit holds that, “Class action procedures can be employed in a bankruptcy proceeding only to consolidate claims that have already been properly filed.”
In contrast to the Standard Metals holding that class proofs of claim are impermissible, the predominant line of cases addressing class proofs of claim, originating with an opinion by the Seventh Circuit, allows a class representative to file a proof of claim.
Rule 9014 thus allows bankruptcy judges to apply Rule 7023-and thereby Fed. R.Civ.P. 23, the class action rule-to ‘any stage’ in contested matters. Filing a proof of claim is a ‘stage’. All disputes in bankruptcy are either adversary proceedings or contested matters, so Rule 23 may apply throughout a bankruptcy case at the bankruptcy judge’s discretion.15
The Seventh Circuit also noted that when the bankruptcy judge further examined the issue, he might well find that an order directing the trustee to send a notice of the bankruptcy, the underlying state court proceeding and a proof of claim form to each of the policyholders who was a potential claimant was a sufficient alternative to certifying a class in the bankruptcy court.
The Eleventh Circuit in Charter Co., held that it would adopt the Seventh Circuit’s ruling in American Reserve and allow class proofs of claim to be filed. In Charter Co., stockholders filed suit against the company on behalf of themselves and other stockholders who had purchased stock during a certain period. The suit was filed against the Charter Co. and its officers and directors in a federal district court in Florida. Two weeks later on April 20, 1984, Charter Co. filed a Chapter 11 petition under the Bankruptcy Code. The class action suit was thus stayed as to the debtor company but continued as to the other defendants. On September 14, 1984, prior to the bar date, the named representatives in the district court suit filed a class proof of claim appending a consolidated and amended class action complaint to the proof of claim. The parties attempted unsuccessfully to settle the dispute, negotiating for over two years. In August 1986 the district court certified the class, and on October 7, 1986 Charter Co. objected to the proof of claim. The claimants responded to the objection by filing a motion requesting that the court apply Bankruptcy Rule 7023 via Rule 9014. The court held that the claimants timely filed their motion to apply Rule 7023 via Rule 9014 because until there was a contested matter, i.e., the claim objection, the motion to apply Rule 7023 could not be ripe.
The Charter Co. court also distinguished its holding from a previous Eleventh Circuit holding in GAC Corp.,
In Reid, a Sixth Circuit case, an attorney filed an action in Michigan state court seeking class certification on behalf of his client and other former employees of the White Motor Corp.
The Reid court also held that it would follow the Seventh Circuit’s ruling in American Reserve to the extent that Bankruptcy Rule 9014 gives bankruptcy judges the discretion to invoke Rule 7023, and thereby Fed.R.Civ.P. 23, to any stage of contested matters, including class proofs of claim.
The present motion for class certification was initially brought by the plaintiffs
Thus, the court must first determine whether or not to invoke Rule 7023, which would permit the court to decide whether or not, under Rule 7023, a class should be certified. Such a determination is wholly within the discretion of the court.
Those courts that would equate the determination of a class under Rule 7023 with the determination of whether to apply Rule 7023 do not recognize the concerns peculiar to bankruptcy law-which are the appropriate bases for exercise of discretion under Rule 9014. These concerns properly include, to a greater or lesser degree, prejudice to the debtor or its other creditors, prejudice to putative class members, efficient estate administration, the conduct in the bankruptcy case of the putative class representatives, and the status of proceedings in other courts28
The court will keep these factors in mind as a basis for its analysis of whether to apply Rule 7023 to the instant case.
1. Regulatory Considerations
One of the largest hurdles that the Gordon and Lowenburg plaintiffs must overcome is the regulatory framework by which the debtor is governed, and the process by which complaints involving the rates charged by the debtor to its customer are to be adjudicated. The debtor is
The Louisiana Supreme Court has addressed the issue of jurisdiction over state regulated utilities in Daily Advertiser v. Trans-LA
The Supreme Court described the jurisdiction of the LPSC as follows:
An antitrust or a damage action, as plaintiffs couch their claims, generally would constitute a civil matter over which the district court would have jurisdiction; damage suits of all kinds have long been the warp and woof of the caseload of the courts. Yet, the manner in which plaintiffs couch their claims does not automatically vest jurisdiction in the district court; rather, the nature of the relief demanded is dispositive. Nor does the fact that a party to an action qualifies as a public utility automatically divest a court of original jurisdiction; however, that fact renders another constitutional provision arguably applicable. The other relative constitutional provision is La. Const. Art. IV,*483 § 21(B), which vests jurisdiction over public utilities in general and rates in particular in the LPSC, providing:
The commission shall regulate all common carriers and public utilities and have such other regulatory authority as provided by law. It shall adopt and enforce reasonable rules, regulations, and procedures necessary for the discharge of its duties, and shall have other powers and perform other duties as provided by law.
Construing this provision we have held that it grants in mandatory language, constitutional jurisdiction to the commission over all common carriers and public utilities. We further have held that it provides the LPSC with broad and independent regulatory powers over public utilities. Indeed, we have labelled (sic) the LPSC’s jurisdiction over public utilities as plenary. We have also construed this provision as conferring upon the LPSC exclusive jurisdiction, in the first instance, to fix or change any rate to be charged by a public utility; the courts lack the power to fix or change rates until the LPSC has acted. Although courts are statutorily permitted to change, modify, alter, or set aside orders of the Commission, as justice may require, that statutory standard of review may not supercede or abrogate the constitutional scheme in which plenary ratemaking authority is delegated to the Public Service Commission. The only jurisdiction courts have over the fixing of utility rates is to review the LPSC’s orders on appeal. Even when exercising appellate jurisdiction over a rate order, a court may not, in the first instance, fix or change rates to be charged by a public utility, but rather must remand to the LPSC for it to determine the appropriate rate to be charged customers.33
The court went on to apply the exhaustion rule to matters involving the interpretation of LPSC orders or regulations, i.e., that until the plaintiff has exhausted his available remedies before the LPSC, he cannot resort to the courts. The court also held that the doctrine of primary jurisdiction required any matters related to the complaint that are not within the jurisdiction of the LPSC, but are instead entitled to adjudication in district court, be deferred until the LPSC proceeding is complete.
In light of the extensive proceedings already underway before the proper administrative bodies and in the state courts, the court finds that the prescribed channels for adjudication of rate related complaints against the debtor are apparently working as they should; this is a factor weighing very heavily in favor of not invoking Rule 7023 in this proceeding.
2. Other Considerations
American Reserve directs the bankruptcy court to examine whether the class action process is a more desirable process than ordinary claim adjudication. The debtor argues that requiring it to send out
The debtor has not yet filed a plan of reorganization, nor does it appear close to doing so, thus the court does not see how the debtor could be prejudiced by a reopening of the claims bar date should the court decide to require the debtor to send actual notice to the putative class members.
Fortunately, the agreement by the debt- or, its parent, Entergy, Inc., and the unsecured creditor’s committee, that they would not object to the proofs of claim of either the Gordon or the Lowenburg plaintiffs on the basis that a non-certified class representative filed a proof of claim on behalf of a subsequently certified class greatly simplifies the court’s decision at this time.
As the elected representative of the residents of Orleans Parish and the regulatory authority with exclusive jurisdiction over [the debtor] ENO’s provision of electric and gas service to customers in*485 Orleans Parish, the Council represents and protects all ENO ratepayers. Any relief ordered by the Council will accordingly include all relief to which any potential member of a class of such ratepayers is entitled. Certification of Claimants in this Docket as representatives of a class of all persons who are or have been customers of ENO is thus unnecessary and inappropriate.37
The state courts have jurisdiction to determine whether that is so in the appeals from the City Council’s decisions in both the Gordon and Lowenburg proceedings. There is no need for this court to interfere with the established process of adjudicating ratepayer/utility disputes.
B. Objection to proof of claim
The debtor objects to proof of claim number 826 filed by the Gordon plaintiffs and claim number 328 filed by the Lowenburg plaintiffs on the basis that it is not possible from the face of the claims to determine how the claims were calculated. This is not surprising given that the claims are disputed and unliqui-dated. Each claim consists of the official proof of claim form and an attachment that describes the nature of the state court and administrative proceedings that have been brought against the debtor. The court holds that the documentation filed with the claims detailing the administrative and judicial remedies sought by the plaintiffs in other' fora outside this court is sufficient documentation of the proof of claim at this time. Although dollar amounts are listed on the proof of claim form, it is clear from the attachment that the actual claim amount will be the judgment awarded, if any, in the actions against the debtor.
Properly filing a proof of claim constitutes prima facie evidence of the claim’s validity. If the debtor objects, it is its burden to present enough evidence to overcome the prima facie effect of the claim. If the debtor successfully rebuts the prima facie validity of the claim, then the claimant must come forward with additional proof.
III. Conclusion
For the reasons set forth above, the court declines to apply Fed.R.Bankr.P. 7023 to this contested matter and will not certify either the Gordon plaintiffs or the Lowenburg plaintiffs as a class. The court denies the motion for summary judgment as to the objection to the proof of claim filed by each group. The court finds that the documentation appended to each proof of claim is sufficient at this time.
. The suit, No. 99-5707, is entitled Reverend C.S. Gordon, Jr., et al. v. Entergy New Orleans, Inc., Entergy Corporation, Entergy Services, Inc. and Entergy Power, Inc.
. See Motion and Memorandum for Certification of Classes (P-678).
.Id.
. Daily Advertiser v. Trans-La, 612 So.2d 7, 27 (La. 1993).
. Case No.2005-CA-1381 was argued before the Louisiana 4th Circuit Court of Appeal on September 6, 2006.
. The suit, No. 98-6638, is entitled Thomas P. Lowenburg, et al. v. Entergy New Orleans, Inc.
. Transcript of excerpt of proceedings held March 29, 2006 (P-745) at pp. 10, 12, 14, 16, 18-19.
.The Gordon proof of claim is for “$82,796,-573 plus”, and the Lowenburg claim is for "$240,000,000 plus”.
. In re Davis, 194 F.3d 570, 576 n. 3 (5th Cir. 1999).
. In re Standard Metals Corp., 817 F.2d 625, 632 (10th Cir. 1987).
. Sheftelman v. Standard Metals Corp., 839 F.2d 1383 (10th Cir. 1987).
. In re American Reserve Corp., 840 F.2d 487 (7th Cir. 1988).
. Bankruptcy Rule 7023 states: “Rule 23
. Bankruptcy Rule 9014(c), which applies to a contested matter in a case ... not otherwise governed by these rules, states in part: "The court may at any stage in a particular matter direct that one or more of the other rules in Part VII shall apply.”
. In re American Reserve Corp., 840 F.2d 487, 488 (7th Cir.l988)(internal citations omitted).
. In re American Reserve Corp., 840 F.2d 487, 493-494 (7th Cir. 1988)
. In re The Charter Company, 876 F.2d 866 (11th Cir. 1989).
. Reid v. White Motor Corporation, 886 F.2d 1462 (6th Cir. 1989).
. In the Matter of GAC Corporation, 681 F.2d 1295 (11th Cir. 1982).
. Id at 1299.
. Reid v. White Motor Corporation, 886 F.2d 1462 (6th Cir. 1989).
. Reid v. White Motor Corporation, 886 F.2d 1462, n. 8 (6th Cir. 1989) (objection to class proof of claim creates contested matter for which bankruptcy court is permitted, but not obligated, to direct that Fed.R.Bankr.P. 7023 apply).
.Id. at n. 13 (court noted that Reid did not file his motion pursuant to Rule 9014 until after the bankruptcy court had granted the trustee's motion for summary judgment dismissing Reid's class proof of claim).
. Reid v. White Motor Corporation, 886 F.2d 1462 (6th Cir. 1989); In re The Charter Company, 876 F.2d 866 (11th Cir. 1989).
. Reid v. White Motor Corporation, 886 F.2d 1462 (6th Cir. 1989); In re The Charter Company, 876 F.2d 866 (11th Cir. 1989); In re American Reserve Corp., 840 F.2d 487 (7th Cir. 1988).
. In re Craft, 321 B.R. 189 (Bankr.N.D.Tex. 2005).
. In re American Reserve Corp., 840 F.2d 487 (7th Cir. 1988).
. In re Craft, 321 B.R. 189, 198-199 (Bankr.N.D.Tex. 2005).
. La. Const. Art. IV, § 21. The current Louisiana Constitution was adopted in 1974, but the exception from LPSC jurisdiction for municipally regulated utilities is far older than the 1974 date.
. Daily Advertiser v. Trans-LA, 612 So.2d 7 (La. 1993) (holding that where manipulation or abuse of fuel adjustment clauses is alleged, the regulatory body charged with overseeing the operation of such clauses has exclusive jurisdiction over challenges to such clauses).
. Id at 13.
. Id at 14.
. Id at 16-17 (internal citations omitted).
. Id at 30-31.
. The debtor has filed a motion and scheduled a hearing on October 23, 2006 to request its third extension of the exclusivity period in which to file a plan of reorganization. The debtor initially filed its Chapter 11 petition on September 17, 2005 and over one year has passed since then.
. Transcript of excerpt of proceedings held March 29, 2006 (P-745) at pp. 10, 12, 14, 16, 18-19.
. New Orleans, LA Resolution R-04-66 (Feb. 5, 2004) at ¶ 6, filed as exhibit 1 to (P-711).
. See footnote 8, supra.
. In re O’Connor, 153 F.3d 258, 260 (5th Cir. 1998).
Reference
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