Return Date: February 27, 2002

Transcription

1 Return Date: February 27, 2002 Time: 9:30 a.m. COUCH WHITE, LLP 540 Broadway P.O. Box Albany, New York (518) Harold N. Iselin, Esq. (H.I. 1428) James J. Barriere, Esq. (J.B. 3206) Attorneys for Memorial Sloan Kettering Cancer Center UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x In re: Chapter 11 ENRON CORP., et. al., Case No (AJG) Debtors. x Jointly Administered

2 MOTION BY MEMORIAL SLOAN KETTERING CANCER CENTER FOR AN ORDER COMPELLING ENRON ENERGY SERVICES, INC. TO PROMPTLY ASSUME OR REJECT THE EXECUTORY CONTRACT TO: THE HONORABLE ARTHUR J. GONZALEZ UNITED STATES BANKRUPTCY JUDGE The Memorial Sloan Kettering Cancer Center (hereinafter, Sloan Kettering ) moves for an order, pursuant to Bankruptcy Rule 6006 and sections 105 (a) and 365(d)(2) of title 11 of the United States Code ( Bankruptcy Code ), compelling Enron Energy Services, Inc. (hereinafter, EESI or debtor ) to promptly assume or reject the Electric Energy Services and Sales Agreement it entered into with Sloan Kettering. In support of this motion, Sloan Kettering represents as follows: JURISDICTION AND VENUE 1. This Court has jurisdiction over this motion pursuant to 28 U.S.C. 157 and Venue is proper in this Court pursuant to 28 U.S.C The relief sought by Sloan Kettering is based on the following allegations, which are supported by and set forth in the affidavit of Mr. Ira Lerner, Sloan Kettering s Director of Facilities Management. FACTS 4. On December 2, 2001, Enron filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code with this Court. Enron remains a debtor in possession pursuant to sections 1107 (a) and 1108 of the Bankruptcy Code. 5. Sloan Kettering, a New York not-for-profit corporation, is a medical center which provides a wide variety of critical medical services ranging from emergency care to medical research. Sloan Kettering operates several medical facilities in the New York City area. 6. On May 31, 2001, Sloan Kettering and EESI entered into an Electric Energy Services and Sales Agreement (hereinafter Contract ). A true and correct copy of the Contract is attached hereto as Exhibit A. The Contract requires, inter alia, EESI to receive and pay when due

3 Utility Invoices received by Sloan Kettering from the electric utility that provides electric service to Sloan Kettering, Consolidated Edison Company of New York, Inc. ( Con Edison ). Under the Contract, Sloan Kettering receives its full energy requirements from Con Edison unless EESI chooses to supply all or part of such energy requirements to Sloan Kettering, an option that EESI has not exercised. The Contract is an executory contract in that performance under the Contract remains due on both sides. EESI and Sloan Kettering remain obligated to continue meeting their respective obligations under the Contract. 7. Pursuant to section of the Contract, EESI is obligated to act as Sloan Kettering s Billing Agent, meaning that EESI must receive and pay, when due, the utility invoices associated with the electricity supplied to Sloan Kettering s facilities. Under this arrangement, Con Edison forwards Sloan Kettering s necessary billing information to EESI. EESI, in turn, bills Sloan Kettering for both Con Edison s utility services (transmission and distribution service) and the agreed upon charge for EESI s supply service (electric energy) in one consolidated bill from EESI. Upon receipt of the consolidated bill, Sloan Kettering submits payment of the bill to EESI. EESI is required to pay Con Edison the full amount of the bill issued by Con Edison for Sloan Kettering s accounts. 8. As of the date of this petition, EESI is in default under the Contract for failing to perform its obligations as Sloan Kettering s Billing Agent. Since November, 2001, EESI has not paid to Con Edison the amounts set forth in the Utility Invoices associated with Sloan Kettering s accounts, nor has EESI issued an invoice to Sloan Kettering. As a result of EESI s default, Con Edison is threatening to terminate its utility services to Sloan Kettering s facilities unless Sloan Kettering begins paying Con Edison directly for its utility service. 9. Specifically, section of the parties Contract states, in part, that, [f]rom and after the Commencement Date, EESI will (i) receive and pay when due the [Con Edison] Invoices for the [Sloan Kettering] Facilities... Thus, EESI s failure to pay Con Edison, in a timely manner for the utility invoices it renders, is a breach of the Contract. 10. Furthermore, the failure by EESI to pay Con Edison constitutes an Event of Default under the parties Contract. Exhibit A of the Contract defines an Event of Default as either, (a) the failure by the Defaulting Party to make, when due, any payment required under this Agreement...; [or] (b) the material failure by the Defaulting Party to perform any material covenant set forth in this Agreement... Thus, EESI s failure to submit the proper payment to Con Edison constitutes a default under both (a) and (b) of the Contract s default provision. 11. Section 3.2 of the Contract defines the parties remedies in the event of a default. The Contract provides that if an event of default occurs nder the Contract and the Defaulting party fails to cure said default within a specified period of days, the non defaulting may terminate the Contract. Therefore, absent the automatic stay, Sloan Kettering would have the right to demand that EESI either cure the existing breach, or alternatively, allow Sloan Kettering to terminate the Contract. 12. As a result of EESI s breach, Sloan Kettering in placed in a precarious situation. On January 11, 2002, Con Edison sent Sloan Kettering a Termination of Service Notice resulting from EESI s failure to pay Con Edison s utility invoices. The termination notice demands that unless Sloan Kettering begins paying Con Edison directly for the utility services rendered to the Sloan Kettering facilities, Con Edison will terminate its utility service to the Sloan Kettering facilities.

4 13. Thus, if Sloan Kettering begins paying Con Edison directly for the utility services rendered to Sloan Kettering, Sloan Kettering will be committing a breach of contract for failing to submit that amount to EESI pursuant to the Billing Agency arrangement set forth in the parties Contract. Conversely, if Sloan Kettering does not submit the utility payments directly to Con Edison, Sloan Kettering faces the potential of having Con Edison terminate its utility service to Sloan Kettering s facilities. Thus, EESI s failure to perform pursuant to the terms of the contract is causing Sloan Kettering substantial hardship. 14. Consequently, Sloan Kettering is placed in a no-win predicament. If Sloan Kettering ignores Con Edison s termination notice and continues paying its utility invoice directly to EESI pursuant to the terms of the Contract, Sloan Kettering risks having its utility service shut-off if EESI does not promptly resubmit Sloan Kettering s payment to Con Edison. Because EESI has not paid Con Edison in over 2 months under such an arrangement and EESI is already in arrears to Con Edison for over $600,000, such a payment is very unlikely. Furthermore, if Sloan Kettering decides to cease paying EESI for the utility invoices and begins paying Con Edison directly, Sloan Kettering will breach the Contract it has with EESI, exposing Sloan Kettering to damages under a potential breach of contract claim. 15. Therefore, EESI s default forces Sloan Kettering to choose between risking having its utility service shut-off or defaulting under the Contract. Based on EESI s current breach of the Contract and the nature of EESI bankruptcy business affairs, Sloan Kettering is currently unable to ascertain whether EESI will continue performing under the contract during its bankruptcy proceeding. Therefore, in order to prevent any further damage to the operations of Sloan Kettering s business, EESI should be compelled to promptly assume or reject the Contract currently existing between the two parties. ARGUMENT AND AUTHORITY THE DEBTOR SHOULD BE COMPELLED TO PROMPTLY ASSUME OR REJECT THE CONTRACT 16. Based on EESI s default under the contract and the resulting hardship forced upon Sloan Kettering, this Court should compel the debtor to promptly assume or reject the Contract. 17. The Bankruptcy Code states that [i]n a case under chapter 9, 11, 12, or 13 of this title, the trustee may assume or reject an executory contract...but the court, on the request of any party to such contract...may order the trustee to determine within a specified period of time whether to assume or reject such contract U.S.C. 365(d)(2). What constitutes a reasonable time for the court to require the trustee to assume or reject the contract lies in the sole discretion of the court, to be determined on a case-by-case basis. See In re: Teligent, Inc., 268 B.R. 723 (Bankr. S.D.N.Y. 2001); see also In re: Burger Boys., 94 F.3d 755 (2 nd Cir. 1996). 18. If an executory contract is in default, a debtor may not assume the contract until it cures the default or provides adequate assurances that it will promptly cure, the default. See 11 U.S.C. 365(b)(1)(A); see also In re: Harry C. Partridge, Jr. & Sons, Inc., 43 B.R. 669, 671 (Bankr. S.D.N.Y.

5 1984). Accordingly, a debtor who defaults under a contract must bring the contract back into compliance with its terms. 19. Furthermore, prior to assuming a contract in default, the trustee must compensate or provide adequate assurances that the trustee or debtor will compensate the non-debtor party for actual pecuniary loss and provide adequate assurance of future performance under such contract. See 11 U.S.C. 365(b)(1)(B). 20. The Bankruptcy Code also requires the trustee or debtor to provide adequate assurances of future performance before a debtor who has breached a contract be allowed to assume the contract. See U.S.C. 365)(b)(1)(C). Congress intent in imposing these conditions on the ability of the debtor to assume the contract was to insure that the contracting parties receive the full benefit of their bargain if they are forced to continue performance. Eastern Airlines, Inc. v. Ins. Co. of the State of Pennsylvania, 85 F.3d 992, 999 (2 nd Cir. 1996). A non-debtor party to a contract is not expected to incur significant added detriment while those who have an interest in the property or the bankruptcy estate are unable to resolve how to deal with an asset. In re Beker Industries Corp., 64 B.R. 890, 898 (Bankr. S.D.N.Y. 1986). 21. The equities clearly weigh in favor of compelling the Debtors to assume or reject the Contract. As detailed above and in the affidavit submitted by Ira Lerner the Debtor s failure to perform pursuant to the terms of the contract adversely affects Sloan Kettering s business operations in a substantial manner and requiring EESI to assume or reject the contract now will not result in any harm to the Debtor in this situation. Absent relief from this court, Sloan Kettering will continue to face the possibility of having its electricity service shut-off, or having to breach its contract with Debtor. Consequently, Sloan Kettering needs EESI to promptly decide whether it intends to assume or reject the Energy Sales and Service Agreement with Sloan Kettering. In addition, if EESI is unable to cure its existing default as required by Section 365(b)(1), EESI should be ordered to immediately reject the Contract, because, as stated above, EESI cannot assume the Contract without curing all existing defaults. WAIVER OF ACCOMPANYING MEMORANDUM OF LAW 22. Sloan Kettering respectfully requests that this Court waive and dispense with the requirement set forth in Rule (b) of the Local Rules for the United States Bankruptcy Court for the Southern District of New York that any motion filed shall have an accompanying memorandum of law. No novel issue of law is raised by the Motion. Accordingly, Sloan Kettering submits that wavier of the Rule (b) requirement is appropriate in these circumstances. CONCLUSION

6 23. Based on the foregoing reasons, Sloan Kettering requests that this Court enter an order (i) granting Sloan Kettering s motion to compel the Debtor to promptly assume or reject the Contract; (ii) waiving the Memorandum of Law required by Local Rule ; and (iii) granting such other order and further relief as the Court deems just. Dated: Albany, New York February 1, 2002 COUCH WHITE, LLP By: S/ Harold N. Iselin Harold N. Iselin, Esq. (H.I. 1428) Attorneys for Sloan Kettering 540 Broadway P.O. Box Albany, New York J:\data\client2\09713\CPC003sk.doc

7 Hearing Date: February 27, 2002 Hearing Date: February 27, 2002 Time: 9:30 a.m. COUCH WHITE, LLP 540 Broadway P.O. Box Albany, New York (518) Harold N. Iselin, Esq. (H.I. 1428) James J. Barriere (J.B. 3206) Attorneys for The Sloan Kettering Hospital UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x In re: Chapter 11 ENRON CORP., et. al., Case No (AJG) Debtors. Jointly Administered x AFFIDAVIT OF Mr. IRA LERNER IN SUPPORT OF THE MOTION BY THE MEMORIAL SLOAN KETTERING CANCER

8 Hearing Date: February 27, 2002 CENTER FOR AN ORDER COMPELLING ENRON ENERGY SERVICES, INC. TO PROMPTLY ASSUME OR REJECT THE EXECUTORY CONTRACT TO: THE HONORABLE ARTHUR J. GONZALEZ UNITED STATES BANKRUPTCY JUDGE Ira Lener does hereby declare under penalty of perjury that the following is true and correct, pursuant to 28 U.S.C. ' 1746: 1. I am employed as Director of Facilities Management by the Memorial Sloan Kettering Cancer Center (hereinafter, ASloan Kettering@). I make this affidavit in support of Sloan Kettering=s motion to compel Enron Energy Services, Inc. (hereinafter, AEESI or Adebtor@) to assume or reject the Contract existing between the parties. I have personal knowledge as to the matters described in this affidavit, and I am competent to testify on these matters. 2. On December 2, 2001, Enron filed for a voluntary petition for relief under chapter 11 of the Bankruptcy Code with this Court. 3. Sloan Kettering, a New York not-for-profit corporation, is a medical center which provides a wide variety of critical medical services ranging from cancer care to medical research. Sloan Kettering operates several medical facilities in the New York City area. On June 8, 2001, EESI and Sloan Kettering entered into the Contract at issue in this motion. The Contract is set to expire after the last billing cycle in June The Contract requires EESI to manage the billing and payment of both the supply of electricity by EESI and the delivery of the electricity by Consolidated Edison Corporation of New York, Inc. (hereinafter, ACon Edison@). Pursuant to the section of the Contract, EESI must act as Sloan Kettering=s Billing Agent. As Sloan Kettering=s Billing Agent, EESI must receive and pay the Con Edison utility invoices associated with the electricity supplied to Sloan Kettering=s facilities. Under the Billing Agent arrangement, Con Edison forwards Sloan Kettering=s necessary billing information to EESI to allow Sloan Kettering to receive one consolidated bill from EESI. EESI is required to pay Con Edison for the electric service provided by Con Edison to Sloan Kettering. 5. As of the November 2001 billing cycle, EESI is in default of the Contract for failing to perform its obligations as Sloan Kettering=s Billing Agent. Upon receiving Sloan Kettering=s billing information from Con Edison EESI has failed to pay Con Edison for the electric service provided to Sloan Kettering by Con Edison. Thus, EESI owes Con Edison over $600,000 for unpaid utility invoices associated with the electricity supplied to the Sloan Kettering facilities.

9 Hearing Date: February 27, As a result of EESI=s breach of the Contract, on January 11, 2002, Con Edison sent Sloan Kettering a Termination of Service Notice. The termination notice states that Con Edison will terminate its utility service to the Sloan Kettering facilities unless Sloan Kettering begins paying Con Edison directly for the utility services rendered to the Sloan Kettering facilities. 7. Con Edison=s request places Sloan Kettering in a difficult position. If Sloan Kettering begins paying Con Edison directly for the utility services rendered to Sloan Kettering, Sloan Kettering will be committing a breach of contract for failing to submit that amount to EESI pursuant to the Billing Agency arrangement set forth in the parties= Contract. However, if Sloan Kettering does not submit the utility payments directly to Con Edison, Sloan Kettering faces the potential of having Con Edison terminate its utility services to Sloan Kettering=s facilities. 8. EESI=s failure to perform pursuant to the Contract forces Sloan Kettering to choose between risking having its utility service shut-off or defaulting under the Contract. Based on EESI=s current breach of the Contract and the nature of EESI bankruptcy business affairs, Sloan Kettering is currently unable to ascertain whether EESI will continue performing under the contract during its bankruptcy proceeding. Thus, requiring EESI to either assume or reject the Contract would substantially benefit Sloan Kettering, while causing little, to no, harm to EESI. I declare under penalty of perjury that the foregoing is true and correct. Dated: January 30, 2002 New York, New York S/_Ira Lerner Ira Lerner Director of Facilities Management Sloan Kettering Hospital Sworn to before me this 30 th day of January, 2002.

10 Hearing Date: February 27, 2002 Notary Public J:\DATA\CLIENT2\09713\CPC004SK.DOC