Opposition Brief — Mabey v. Southwestern Electric Power Co., 119 S. Ct. 2019 (1999) (No. 98-1206)

No. 98-1206 1; a

—= TT — ne ht

Je y-

In The .

Supreme Court of the United States

October Term, 1998

——_—- ---—-- — 9 -—-------——

RALPH R. MABEY, CHAPTER 11 TRUSTEE FOR

CAJUN ELECTRIC POWER COOPERATIVE, INC.,

AMERICAN COMMERCIAL TERMINALS LLC,

WESTERN FUELS ASSOCIATION, INC., AND

TRITON COAL COMPANY LLC,

Petiti mers

SOUTHWESTERN ELECTRIC POWER COMPANY

AND THE COMMITTEE OF CERTAIN MEMBERS

OF CAJUN ELECTRIC POWER COOPERATIVE,

Respondents

apinneepmennteiemenman, o—----

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Fifth Circuit

— * inteuntnepipeencnie ws

RESPONSE IN OPPOSITION TO THE

PETITION FOR WRIT OF CERTIORARI

csmnpiadiontmamenisinnneemnmamnauniig o-—— —

MELANIE ROVNER COHEN Henry J. Kam

BENJAMIN D. SCHWARTZ Counsel of Record

DARREN B. Watts EDWARD L. RIPLey

CHRISTOPHER COMBEST Patricia BARON Tomas

ALTHEIMER & GRAY SHEINFELD, MALEY & Ka

Attorneys for Respondent, t Attorneys for Respondent

The Committee of Certain Southwestern Electric

Members of Cajun Electric Company

Power Cooperative 1001 Fannin, Suite 37!

10 South Wacker Drive Houston, Texas 77002

Chicago, IL *¢ 16-7482 (713) 658-8881

(312) 715-4006

(Continued On Inside Cover)

deal

PROFESSOR ELIZABETH WARREN

Attorney for Respondent

Southwestern Electric

Power Company

1563 Massachusetts Avenue

Cambridge, Massachusetts

02138

(617) 495-3101

eys for Respondent

western Electric

Company

Seventeenth Floor,

Beck Building

400 Travis Street

DO aArnasaY

owe?

71102

Shreveport, Louisiana

(318) 221-4196

JOHN M. SHARP

SHARP, HeNrRy, CERNIGLIA,

Corvin & WEAVER

Attorneys for Respondent,

The Committee of Certain

Members of Cajun Electric

Power Cooperative

15171 South Harrell’s

Ferry Road

Suite C

Baton Rouge, Louisiana

70816

oe Rendle

(225) 755-1060

KeNNETH C. Raney, Jr.

CENTRAL AND SOUTH WEst1

CORPORATION

Attorney for Respondent,

Southwestern Electric

Power Company

P.O. Box 660164

Dallas, Texas 75201

(214) 777-1115

QUESTIONS PRESENTED FOR REVIEW

1. Whether United States v. Knight, 336 U.S. 505

(1949), upholding a criminal conviction of a defendant

who aided and abetted a bankruptcy trustee in unlaw-

fully appropriating estate property, conflicts in any way

with the Fifth Circuit’s decision in this case to permit

payments among plan co-proponents for professional and

plan expenses subject to final approval of the bankruptcy

court.

2. Whether a consensual plan of reorganization in

which plan co-proponents shared legal expenses during

the course of the bankruptcy can violate the absolute

priority rule for “cram-down” plans.

se

LIST OF PARENT COMPANIES AND

NON-WHOLLY-OWNED SUBSIDIARIES PURSUANT

TO SUPREME COURT RULE 29.6

The Committee of Certain Members of Cajun Electric

Power Cooperative (the “CCM”) is an unofficial commit-

tee that is represented in this case by its own bankruptcy

counsel and comprises the following six distribution

cooperatives: Beauregard Electric Cooperative, Inc.; Dixie

Electric Membership Corporation; Jefferson Davis Electric

Cooperative, Inc.; Northeast Louisiana Power Coopera-

tive, Inc.; South Louisiana Electric Cooperative Associa-

tion; Valley Electric Membership Corporation. A seventh

distribution cooperative, Washington-St. Tammany Elec-

tric Cooperative, Inc., while no longer a member of the

CCM, was such a member at all times during the litiga-

tion of this matter through the date of the Fifth Circuit’s

August 11, 1998, opinion.

The foregoing seven distribution cooperatives are not

publicly-held companies but are owned by their individ-

ual rate-paying, retail customer-members. None of the

foregoing distribution cooperatives have a parent com-

pany or a subsidiary which issues public shares.

Southwestern Electric Power Company (“SWEPCO”)

is a wholly-owned subsidiary of Central and South West

Corporation (“CSW”). SWEPCO has partially-owned sub-

sidiaries: Arklahoma Corp. and Southwest Arkansas Util-

ities Corporation. CSW, which has a number of other

wholly-owned subsidiaries, is the only affiliate that has

issued shares to the public.

ili

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW ...........

LIST OF PARENT COMPANIES AND NON-

WHOLLY-OWNED SUBSIDIARIES PURSUANT

TO SUPREME COURT RULE 29.6 ............... ii

SOR OA ROE ved cs 415 fie ok eisl a sored iii

Spans APE FAD ERMA MBER 6 os ic Few ceetbiks sebinenws \

SEA AMNUNE SOW NEEM SOA oc csiew wid pss bW cabs l

i. Ween 0 Se LAGE... ss os cuee seein I

Ds RPE RCMRTONIING 6 ie. o.o55 es oS 4s Kod Cees ]

C. - PEM FOES ick ds cae ee hia 5

REASONS FOR DENYING THE WRIT............. 9

A. ine Petition is Timely io i5 soc ccaveassas y

B. The Questions Now Presented to This Court

for Review Were Not Timely and Properly Pre-

sented to Nor Passed Upon by the Lower

AE 2 Gee sical vies Seine Cote CURA Ore ae 10

C. The Actual Decision of the Court of Appeals

Precludes the Adverse C ynsequences That

Petitioners Argue Will Result................ 1]

D. The Trier of Fact, the Bank: uptcy Court, Found

All of the Material Facts in Favor of SWEPCO

and the CCM. This Court’s Decision in Knight

Is Not Cause for Certiorari to Be Granted, but

Rather Requires That These Fact Findings, and

the Fifth Circuit’s Decision, Remain Undis-

ROTI alk sre bic ew 12

TABLE OF CONTENTS - Continued

Page

E. This Case Must Be Decided on Its Unique Facts

and Those Facts, as Found and Affirmed

Below, Refute the Underlying Factual Conclu-

sions Upon Which Petitioners Premise Their

POMMIOE. oii ibe se OE eee ela ce cuca Ok eas 16

F. The Court of Appeals’ Decision Does Not Con-

flict with the Ahlers Decision and Could Not

Conflict with Any Resolution of Bank of Am.

Nat'l Trust and Sav. Ass'n v. 203 N. LaSalle St.

Partnership, 126 F.3d 955 (7th Cir. 1997), cert.

granted, 118 S. Ct. 1674 (May 4, 1998), Now

meron Tier Come ee ec 18

CAPR ReOGASe 6-5 &i bbc coun cans eta eee a 20

TABLE OF AUTHORITIES

FEDERAL Cases

Amadeo v. Zant, 486 U.S. 214 PR OS eo ke

Anderson v. Bessemer City, 480 U.S. 564 (1985) ..__.

Bank of Am. Nat'l Trust and Sav. Ass'n v. 203 N. LaSalle

St. Partnership, 126 F.3d 955 (7th Cir. 1997), cert.

granted, 118 S. Ct. 1674 (May 4, 1998)............ 18,

Boston & Maine Corp. v. Town of Hempton, 7 F.3d

Wee MOWE CAE. B08 is is csks co cc ce ee

Campbell v. Louisiana, 523 U.S. cee (2996) 3.

Curry v. Baker, 479 U.S. 130] [e00) > 035. eee

Goodman v. Lumens Steel Co.. 482 U.S. 656 (1987) ....

Johnson v. Bechtel Assocs Professional Corp., 801

Rute Sap tre; Cie 1906) re er ee

Missouri v. Jenkins, 495 US. 33 8) APR eS

National Collegiate Athletic Ass'n v. Board of Regents,

& &

Soe, Ss ae LIS cc he or

NLRB v. Hendricks County Rural Ele¢ Membership

Corp., 454 U.S. 170 é.. i} aoe gs PS Ra sR

Norwest Bank Worthington v Ahlers, 485 U.S. 197

ESUME bts de hcls ois pee seeeeee D 9, 10, 18,

Singleton v. Commissioner of Internal Revenue Ser

vices, 439 U.S. 940 FRRPOE 60s cea ae

United States v. Alvarez-Sanc hez, 511 U.S. 350 (1994) __.

7 i ! oo . ~; ; oo

United States v. Johnston. 268 U.S. 220 (1925)

v1

TABLE OF AUTHORITIES - Continued

Page

United States v. Rivera, 844 F.2d 916 (2d Cir. 1988) .... 10

In re Wabash Valley Power Ass'n, Inc., 72 F.3d 1305

i Be ae), .) Perens ree Pere ee et eye ree 17

FEDERAL STATUTES

11 U.S.C. § T1ZaN). 052 cc ccc ccc cnss ce sccesavncnyes 8

11 UEC: BPI Ae vccce sk eee ers nee cee 7

11 USC. 8 UD ve cin hin cee ee esas be eee es 19, 20

11 US.C. & TIZMOG). «coc vec cas ee venravsrssaves 8, 9

11 US.C. §& 11Z9(aNl4). «0 «05 een ee: S657, 4a oe

11 U.S.C. & TIZGANGD, 6 cece bine eres eserenres 9, 19

11 US.C. §& A202)... ose ceeewsesucveweeees 19, 20

28 USC. § ZIG 3c ns seen: trap eneereeawoeree 10

RULES

Fed. R. Civ. BF. Sita) iccisa cs ice ere 15

Fed. &. Banke PF. OG13 .2 xo oe cecenec von de ceteenaaeee 15

Sup. Ct. R. 10..... cc ccc eee s nce e nn scnecevacerecees 18

Sup. Ct Ro IBD... cncec cere scewnasasyosuatentoens 10

STATEMENT OF THE CASE

A. Nature of the Case.

In the underlying bankruptcy case, Southwe: ‘ern

Electric Power Company (“SWEPCO”) and several elec-

tric cooperatives jointly proposed a plan of reorganiza-

tion under which they would enter into new, mutually

acceptable and mutually desirable, long-term business

relationships. This dispute presented, under unusual

facts and based upon a factually intensive ruling, the

issue of the extent to which bankruptcy law regulates

understandings reached between such co-proponents to

allocate among themselves the legal and related litigation

costs incurred in seeking confirmation of their joint plan.

Relying on changing theories of the case, Petitioners con-

tend that bankruptcy law prohibits any allocation of costs

by which payments are made to plan co-proponents who

are also creditors or equity interest holders. As resolved

by the unanimous decision of the Fifth Circuit Court of

Appeals, the applicable rule provides that such payments

are not prohibited but are subject to approval by the

bankruptcy court as reasonable.

B. Factual Background.

SWEPCO and an unofficial committee (“CCM”) com-

posed of non-profit rural electric distribution coopera-

tives, each of which is a member of Cajun Electric Power

Cooperative, Inc. (“Cajun” or “Debtor”)

4?

are CO-propo-

nents of a plan of reorganization (the “Joint Plan” or the

“SWEPCO Plan”) filed in Cajun’s chapter 11 case. App. at

2a, 3a.!

The CCM members presently purchase and distribute

to retail customers in rural Louisiana electricity produced

from Cajun’s electric generating assets. Faced with the

bankruptcy of their electricity supplier, several distribu-

tion cooperatives approached SWEPCO in the spring of

1995 and invited it to join in an effort to acquire Cajun’s

assets. Joint App. at 3243. The Joint Plan, originally filed

on April 19, 1996, provides that a SWEPCO affiliate (i)

will purchase Cajun’s non-nuclear electric generating and

transmitting assets and (ii) will enter voluntarily negoti-

ated, mutually acceptable, new power supply contracts

with consenting distribution cooperatives to supply their

electricity requirements for twenty-five years. App. at 3a;

Joint App. at 499, 766-926.

The plan presented by the Trustee (the “Trustee’s

Plan”), and supported by the other Petitioners, proposes

to sell the assets to Louisiana Generating LLC (“Generat-

ing”). A third plan (the “Enron Plan”) proposed a sale to

an affiliate of Enron Capital & Trade Resources Corp.

App. at 3a. These two Plans provided for the successful

purchaser to obtain new, long-term contracts granting to

it the right to sell to the distribution cooperatives all of

their electricity requirements but, unlike the Joint Plan,

would obligate the distribution cooperatives without

their consent to the new contracts. App. at 3a; Joint App.

at 998-99, 1325-85. None of the three Plans proposed

—

' “App.” refers to the Appendix attached to the Petition for

Writ of Certiorari. “Joint App.” refers to the Joint Appendix

filed with the court of appeals below.

assigning to the purchaser the existing power supply

contracts between Cajun and the distribution coopera-

tives, the terms of which preclude Cajun from charging

rates at levels from which it could earn any profits on its

operations. Joint App. at 973-76.

In early 1997, SWEPCO calculated that, under the

rates then proposed, the distribution cooperatives’ pur-

chase obligations for the first year alone would be

approximately $220 million under the Joint Plan and

approximately $250 million under the Trustee’s Plan and

the Enron Plan. Joint App. at 4327. By contrast, the CCM

members’ collective unsecured claims are approximately

$616,000. Pet. at 5.

By the December 6, 1996, deadline for creditors to

vote on the Plans, the distribution cooperatives voted

overwhelmingly for the Joint Plan and for the Enron Plan

and overwhelmingly against the Trustee’s Plan. App. at

7a. The distribution cooperatives did not control the

classes of unsecured creditors containing their claims

under the three Plans and were not permitted to vote as

equity interest holders on the Plans because they would

not receive any property on account of those interests.

App. at 25a, 26a. Before the Fifth Circuit, Petitioners,

SWEPCO and the CCM all agreed that the “CCM mem-

bers’ votes were, as a practical matter, ‘not worth buy-

ing’. ...” App. at 25a.

The bankruptcy court commenced confirmation hear-

ings on December 16, 1996. During that week, two distri-

bution cooperatives, who were members of the unofficial

members committee, announced in open court that they

desired to withdraw their support for the Joint Plan and

to change their votes to ones in favor of the Trustee’s

Plan. On January 2, 1997, one of those distribution coop-

eratives moved to disqualify the CCM’s counsel. App. at

7a. Thereafter, the following occurred, as set forth in the

bankruptcy court's findings of fact made after conducting

a six-day trial:

“A truly dramatic and watershed event occurred in

this case on January 7 of 1997, [when] . . . the Court

disqualified the Members Committee counsel due to an

obvious contractual conflict.” App. at 83a. A meeting was

held that evening “and as a result of events which

occurred at that meeting SWEPCO transferred the sum of

$1 million to counsel for the Members Committee.” App.

at 84a. At that meeting, SWEPCO’s president, who “was

in court when the [Dann] Pecar firm was disqualified,”

App. at 86a,

for the first time suggested an immediate $1

million payment. He testified that the payment

was made to assist the members in their ongo-

ing struggle for confirmation of the SWEPCO

and Members plan.

App. at 86a. The bankruptcy court went on to find as

follows:

... The evidence is overwhelming that the $1

million payment, by whatever name you choose

to call it, was generally made without strings

attached. There is no credible evidence which

suggests otherwise. The only requirement was

that the funds would be repaid to SWEPCO in

the event that the following happened, another

plan was confirmed and the Members received

reimbursement under the confirmed plan. The

members also agreed to use their best effort to

ee

yl

negotiate expense reimbursement, as a success-

ful plan proponent.

. . . [T]he payment .. . is a transition

assistance payment.

App. at 86a, 87a (emphasis added).

C. Prior Proceedings.

On April 17, 1997, prior to the resumption of the

confirmation hearings which the bankruptcy court had

continued because of the disqualification of counsel,

SWEPCO and the CCM filed with the bankruptcy court a

Joint Report discussing in detail the payment at issue.

App. at lla. On April 18, 1997, the Trustee filed, in a

single document, a response to the Joint Report and a

combined motion and memorandum seeking immediate

denial of confirmation of the Joint Plan and/or disgorge-

ment of the payments. App. at 13a. Uniike the Petition

before the Court, the motion relied principally on

§ 1129(a)(4) of the Bankruptcy Code, which requires for a

plan to be confirmed that:

Any payment made or to be made by the propo-

nent [of a plan], by the debtor, or by a person

issuing securities or acquiring property under

the plan, for services or for costs and expenses

in or in connection with the case, or in connec-

tion with the plan and incident to the case, has

been approved by, or is subject to approval of,

the court as reasonable.

Joint App. at 1671-79.

The bankruptcy court denied the Trustee’s motion

after a trial in which the court heard six days of testi-

mony from 16 witnesses and received over 80 exhibits

into evidence. App. at 14a. In its oral ruling, the bank-

ruptcy court made specific findings of fact and deter-

mined that the payment “is for services and costs in

connection with or incident to the case;” held “[s]Juch

payments must be approved by the Court as reasonable;”

rejected the Trustee’s argument that § 1129(a)(4) required

court approval prior to the payment; and held that court

approval could be obtained subsequently. App. at 88a,

89a.

The bankruptcy court rejected Petitioners’ accusa-

tions of vote buying, improper lock-up and bad faith,

finding:

At the time the payment was conceived and

when it was made, however, the votes were

already in. . . As stated earlier in the terms of

the letter of . . . [SWEPCO’s attorney] of January

9, clearly indicate that the payment did not lock

in any of the members. They were free to meet

and negotiate [with all potential purchasers]. In

fact, they did.

App. at 87a. The bankruptcy court also rejected Peti-

tioners’ assertions of inadequate disclosure and found as

facts that (i) the disclosure statement for the Joint Plan

approved on November 22, 1996, placed all parties on

notice that such a payment may be negotiated; and (ii)

SWEPCO and the CCM at all times intended to make

disclosure at the appropriate time. App. at 87a.

ES EE To

The district court, sitting as an appellate court, held

the bankruptcy court's factual findings were clearly erro-

neous and reversed the bankruptcy court on all issues

then raised by Petitioners. App. at 49a, 56a. The district

court ordered the immediate disqualification of the Joint

Plan and an immediate refund of the $1 million payment.

The district court ordered the money repaid to SWEPCO,

because it concluded that the money could not go into the

bankruptcy estate. App. at 74a, 75a.

The district court ruled, among other things, that

SWEPCO and the CCM violated § 1129(a)(4) because

SWEPCO failed to get prior approval and the

Court believes that the payments were made for

an improper purpose, namely, the Court

believes that this was made as a preconfirmation

payment to lock in votes.

App. at 50a.

SWEPCO and the CCM appealed to the Fifth Circuit

Court of Appeals, which stayed the district court’s order.

App. at 19a. In a unanimous decision entered August 11,

1998, the court of appeals reversed the district court,

affirmed the bankruptcy court and directed that “(t]he

mandate shall issue forthwith.” App. at 36a.

The court of appeals’ opinion addressed each ground

relied upon by the district court. The court of appeals

held the district court erred in holding that the bank-

ruptcy court’s factual findings were clearly erroneous

and reversed the district court’s holdings that ‘i) the

payment was made for an improper purpose, i.¢., to buy

the CCM members’ votes; (ii) the Joint Plan violated

o

§ 1125 of the Bankruptcy Code because the disclosure

§ 1129(a)(3) of the Bankruptcy Code. App. at 26a, 32a,

35a.

The court of appeals reversed the district court's

rulings on the absolute priority rule and on § 1123(a)(4)

of the Bankruptcy Code, each for the following same

reasons: (i) “the payments were not derived directly or on

this record indirectly, from assets of the bankruptcy

estate;” ind (ii) “as the bankruptcy court found, the pay-

ments were not made in satisfaction of the CCM mem-

bers’ claims against Cajun, but rather as reimbursement

for plan and litigation expenses incurred in the bank-

ruptcy case.” App. at 33a, 34a.

The court of appeals affirmed the bankruptcy court’s

rulings on § 1129(a)(4) and rejected the district court’s

construction of that section to require court review prior

to payment. App. at 20a-30a. Thus, the court of appeals

affirmed both the factual finding that the payments were

reimbursement for legal and plan expenses and the hold-

ing that the payments were subject to court approval as

reasonable.

Petitioners’ brief to the Fifth Circuit did not present

any arguments analyzing the absolute priority rule. Nor

did it cite Norwest Bank Worthington v. Ahlers, 485 U.S. 197

(1988) (“Ahlers”). Petitioners’ brief did cite United States v.

Knight, 336 U.S. 505 (1949) (“Knight”), a case not previ-

ously cited by Petitioners to either the bankruptcy court

or the district court.

After the court of appeals’ decision, Petitioners filed

a “Suggestion for Rehearing En Banc by Appellees”

,

which also contained a request for panel rehearing.

There, Petitioners discussed Knight more extensively than

initially; cited Ahlers; and, for the first time before any

court, attempted to develop an argument regarding the

absolute priority rule.

The court of appeals took the filing as a motion to

recall the mandate to restore jurisdiction in the court of

appeals and denied it per curiam. App. at 91a.

On January 27, 1999, 169 days after entry of judgment

by the court of appeals, Petitioners filed their Petition for

Writ of Certiorari.

On February 11, 1999, the bankruptcy court entered

its Reasons for Decision on the confirmation of the

Trustee’s Plan and the Joint Plan, which denied confirma-

tion of both and provided some guidance for possible

plan modifications. In its Reasons for Decision, the bank-

ruptcy court concluded, among other things, that (i) the

Trustee’s Plan did not satisfy § 1129(a)(3), which requires

a finding that the plan was proposed in good faith and

not by means forbidden by law; (ii) the Joint Plan com-

plied with § 1129(a)(3); and (iii) the Joint Plan satisfied

the requirements of § 1129(a)(8), a finding which as a

matter of law obviates the need to address compliance

with the absolute priority rule.

¢

REASONS FOR DENYING THE WRIT

A. The Petition Is Untimely.

The court of appeals order, entered on August 11,

1998, reversed the district court order and directed that

the mandate issue forthwith. This terminated the court of

10

appeals’ jurisdiction over the case. Boston & Maine Corp.

v. Town of Hampton, 7 F.3d 281, 282 (1st Cir. 1993); United

States v. Rivera, 844 F.2d 916, 921 (2d Cir. 1989). This also

necessarily reduced to zero the time period for filing a

petition for rehearing. Johnson v. Bechtel Assocs. Profes-

sional Corp., 801 F.2d 412, 415 (D.C. Cir. 1986). The court

of appeals, treating the Petition for Rehearing and Sug-

gestions for Rehearing En Banc as motions to recall the

mandate, denied them on October 29, 1998, Accordingly,

Petitioners did not file a timely petition for rehearing.

The time to file a petition for writ of certiorari, there-

force, was not extended by Sup. Ct. R. 13.3. Petitioners did

not file their Petition for Writ of Certiorari within 90 days

after entry of judgment by the court of appeals. The

Petition for Writ of Certiorari is thus untimely, and this

Court lacks jurisdiction. Missouri v. Jenkins, 495 U.S. 33, 45

(1990); 28 U.S.C. § 2101(c).

B. The Questions Now Presented to This Court for

Review Were Not Timely and Properly Presented to

Nor Passed Upon by the Lower Courts.

This Court’s traditional rule precludes a grant of

certiorari when the question presented was not pressed

or passed upon below. Campbell v. Louisiana, 523 U.S. 392

(1998); United States v. Alvarez-Sanchez, 511 U.S. 350, 360

n.5 (1994). That is the situation here.

Petitioners seek to have this Court address a legal

question pertaining to Ahlers and the absolute priority

rule even though they did not brief the question to the

court of appeals until they sought rehearing, when Peti-

tioners presented a different legal argument than now

11

raised. Then, Petitioners criticized the court of appeals’

“test” because “it is essentially factual,” and argued that

application of the absolute priority rule cannot be based

upon the parties’ “justification for the payment.” Sugges-

tion at 15, 16. Now, before this Court, Petitioners argue

that the justification for the payment, an inherently fac-

tual issue, is the test that must be used to determine

whether the payment violates the absolute priority rule.

Pet. at 14, 15.

Similarly, Petitioners ask this Court to address

Knight, even though Petitioners failed to cite Knight or to

present any arguments based on it to either the bank-

ruptcy court or the district court.

Petitioners’ attempt to use a writ of certiorari to

enable them to argue before this Court issues which they

failed to press properly and fully below is unjustifiable.

The writ is properly denied.

C. The Actual Decision of the Court of Appeals Pre-

cludes the Adverse Consequences That Petitioners

Argue Will Result.

Petitioners argue that this case is of general impor-

tance because the court of appeals’ decision undermines

rules of law protecting creditors and permits abusive

practices in that it would allow, among other things, the

following: (a) bidders for assets of a bankruptcy estate to

pay cash directly to important stakeholders rather than to

the estate; (b) stakeholders to extract money from bidders

that would be otherwise distributed under the bank-

ruptcy priority rules; and (c) payments to junior interests

outside of a plan. Pet. at 2, 9, 13. Petitioners’ arguments

12

are conclusively refuted, however, by (i) the factual find-

ing affirmed by the court of appeals that the payment at

issue was to cover legal and plan expenses incurred in

connection with the bankruptcy case; and (ii) the holding

affirmed by the court of appeals that the payment is

subject to review and approval by the bankruptcy court

as reasonable.

Although the applicability of § 1129(a)(4) and its

requirement for court approval was the issue most exten-

sively discussed by the court of appeals, the Petition

avoids meitioning that. Petitioners’ justificetion for the

writ of certiorari necessarily relies on a materially incom-

plete and misleading description of the court of appeals’

decision and does not present a valid reason for the writ

to be granted.

D. The Trier of Fact, the Bankruptcy Court, Found All

of the Material Facts in Favor of SWEPCO and the

CCM. This Court’s Decision in Knight Is Not Cause

for Certiorari to Be Granted, but Rather Requires

That These Fact Findings, and the Fifth Circuit’s

Decision, Remain Undisturbed.

Petitioners rely on Knight to argue that this Court

should hear this matter. A review of the bankruptcy

court’s findings of fact and of the Knight decision itself

compel the conclusion that the factual findines and hold-

ings of the bankruptcy court, affirmed by the Fifth Cir-

cuit, must be left undisturbed.

The facts of this case establish the financial assistance

as a legitimate business transaction: one plan co-propo-

nent and co-litigant helping another with professional

a 2

13

fees in a critical time of need. No estate assets were used

to pay these fees; the funds were SWEPCO’s. The pay-

ments were not derived directly or even indirectly from

estate assets and did not deplete the estate. No estate

professionals were involved; the CCM is an unofficial

private committee that was not appointed by the bank-

ruptcy court. No illicit purpose was involved. The bank-

ruptcy court found as a fact that there was no improper

quid pro quo for the payment. It further found as a fact

that the funds were for assistance in the transition to new

counsel. The bankruptcy court found the disclosure ade-

quate. The Fifth Circuit determined that these findings

were not clearly erroneous.

Petitioners’ reliance on Knight is without merit.

Knight was a criminal case. The critical facts in Knight are

that the buyer had agreed to pay a higher price, and the

trustee then intentionally and falsely underreported the

value of the estate’s assets, enabling him to divert some

of the purchase price for his own personal gain. Knight

turned on egregious facts far removed from those found

in this case.

In Knight, a buyer agreed to buy assets, including a

fixed amount of net current assets, from a bankrupt com-

pany. The plan of reorganization that incorporated that

sale was confirmed. Subsequently, the trustee for the

bankrupt company approached the attorney for the buyer

and informed him that, in addition to whatever fee the

bankruptcy court would allow to him, he desired another

$3,000. A scheme was hatched whereby the trustee would

fraudulently underreport the net current assets by $3,000,

effectively reducing the buyer’s purchase price. The

buyer then issued a check payable to its own lawyer, who

14

cashed the check, and, after deducting $500 for his own

taxes, paid the remaining $2,500 to the trustee. All of this

was done after confirmation, secretly and without court

approval, and depleted assets of the estate.

The actual holding of Knight confirms that a fact

finder’s determinations concerning a transaction must be

upheld where the evidence supports those findings. In

Knight, the jury found that the buyer had agreed to pay a

higher price that included the $3,000 that had been diver-

ted to the trustee. The Third Circuit Court of Appeals

reversed. In reversing the Third Circuit, this Court held

as follows:

There was substantial evidence that Maxi

[buyer] agreed to pay $26,404.33 for the net

current assets of Central [bankrupt] and that

Knight was party to a scheme to divert $3,000 of

the consideration to the personal ends of

Michael [Trustee] and Reifsnyder. It was there-

fore an improper interference with the jury’s

function for the Court of Appeals to reject that

theory of the case and to accept one which to it

seemed more credible.

336 U.S. at 508 (emphasis added).

In this case, after a six-day trial, after hearing 16

witnesses and after considering over 80 exhibits, the

bankruptcy court found that the payments were made for

professional fees and expenses to help the Committee

with its transition to new counsel. All votes on the plan

had been cast well before any payments were made. The

Joint Plan, which fixed the purchase price (initially, $780

million; now, $940.5 million), had been on file months

before the financial assistance was provided. SWEPCO

15

never reduced its purchase price. In fact, over the next

year, all bidders, including SWEPCO, raised their pur-

chase prices significantly.

The holding in Knight simply recognizes that due

deference must be given to the fact finder’s determina-

tions of the facts, which in Knight were particularly offen-

sive, and the rule that findings of fact shall not be set

aside unless clearly erroneous. Fed. R. Civ. P. 52(a); Fed.

R. Bankr. P. 8013; Amadeo v. Zant, 486 U.S. 214, 223 (1988):

Anderson v. Bessemer City, 470 U.S. 564, 573 (1985).

The bankruptcy court’s ruling on these facts and the

Fifth Circuit's upholding of the same are not cause to

grant a writ. The Court does “not grant a certiorari to

review evidence and discuss specific facts.” United States

v. Johnston, 268 U.S. 220, 227 (1925); NLRB v. Hendricks

County Rural Elec. Membership Corp., 454 U.S. 170, 176 n.8

(1981). Application of this rule is particularly appropriate

where, as here, the trial court’s factual findings were

affirmed by the court of appeals. Goodman v. Lumens Steel

Co., 482 U.S. 656, 665 (1987); National Collegiate Athletic

Ass'n v. Board of Regents, 468 U.S. 85, 98 n.15 (1984).

Petitioners argue that the Fifth Circuit’s decision will

cause bankruptcy courts to lose control of bankruptcy

sales and auctions. To the contrary, the Fifth Circuit held

that § 1129(a)(4) requires bankruptcy court review and

approval of fees paid by a plan proponent in connection

with a plan.

Moreover, the Fifth Circuit’s decision affirms that

Petitioners had no evidence to substantiate their argu-

ment that purchase price consideration was used to influ-

ence stakeholders. The bankruptcy court found that the

16

payments were indeed to assist the CCM in transition to

new counsel, and nothing more. The CCM has filed

papers that describe and itemize expenses its members

have incurred in this bankruptcy case that more than

offset the amounts received from SWEPCO. Pursuant to

the Fifth Circuit’s ruling, the bankruptcy court must

determine their reasonableness.

E. This Case Must Be Decided on Its Unique Facts and

Those Facts, As Found and Affirmed Below, Refute

the Underlying Factual Conclusions Upon Which

Petitioners Premise Their Petition.

Denial of a writ of certiorari is fully appropriate

when the case involves atypical or unique circumstances.

Curry v. Baker, 479 U.S. 1301 (1986); Singleton v. Commis-

sioner of Internal Revenue Services, 439 U.S. 940, 945 (1978)

(acknowledging that “it [is] entirely appropriate to dis-

favor complicated cases which turn largely on unique

facts”).

For several reasons, the specific factual circumstances

presented in this unique case must control the resolution.

Among those factual circumstances are the following:

1. The payments resulted from the unusual

and unanticipated disqualification of coun-

sel for the CCM.

2. The payments were made by one proponent

of a plan of reorganization to its co-propo-

nent to cover the recipient’s plan and litiga-

tion-related expenses, when there were two

other competing plans pending.

17

3. The distribution cooperatives’ principal sta-

tus was as prospective parties to new supply

contracts.

4. Cajun is a non-profit cooperative.

5. The bankruptcy involves a debtor in a regu-

lated industry.

Non-profit cooperatives are unique entities. It is not

surprising that, after wrestling with the application of the

absolute priority rule in another electric cooperative

chapter 11 case, the Seventh Circuit Court of Appeals

concluded as follows: “it is small wonder that the rules of

chapter 11 bankruptcy, primarily designed as they are for

profit-seeking enterprises, are less than straightforward

to apply here.” In re Wabash Valley Power Ass’n, Inc., 72

F.3d 1305, 1315 (7th Cir. 1995).

This bankruptcy case features economic tensions not

normally associated with bankruptcy matters. This bank-

ruptcy involves the economic conflict inherent in the task

of determining a purchase price for business assets in a

regulated industry covering non-profit cooperatives. The

limitations on the future revenues that a purchaser can

realize from its future customers from the output from

those regulated assets create economic tension unlike that

in most chapter 11 cases.

Furthermore, the specific facts of this case, and the

findings of fact made and affirmed below, refute the

underlying factual conclusions subsumed in the ques-

tions presented by Petitioners for review. Among the

underlying factual conclusions not substantiated by fac-

tual findings made below are the following: (i) the newly

18

asserted contention? that SWEPCO only offered and the

CCM members only accepted the payments because of

the CCM members’ claims and equity interests (which is

contradicted by the bankruptcy court's findings of fact as

to what was, and was not, the reason for the payments);

(ii) the contention that the payments were made under a

plan (which is contrary to the Petition’s own characteriza-

tion of the payments as made ” ‘outside’ of and prior toa

confirmed plan of reorganization,” Pet. at i); and (iii) the

contention that the payments were derived directly or

indirectly from the assets of the estate (which the court of

appeals determined was unsupported by the record).

As the record does not establish the correctness of

any of these subsidiary factual conclusions, were the

Court to take this case, it would have to evaluate the

underlying evidence and determine whether the factual

findings made below were erroneous. In such a circum-

stance, denial of the writ is appropriate under the stan-

dards set forth in Sup. Ct. R. 10.

F. The Court of Appeals’ Decision Does Not Conflict

with the Ahlers Decision and Could Not Conflict

with Any Resolution of Bank of Am. Nat’l Trust and

Sav. Ass'n v. 203 N. LaSalle St. Partnership, 126 F.3d

955 (7th Cir. 1997), cert. granted, 118 S. Ct. 1674 (May

4, 1998), Now Before the Court.

Compliance with the absolute priority rule only

needs to occur when the proposed plan does not satisfy

* Before the court of appeais, Petitioners stated “[wJhile the

Members are voting creditors and equity holders, their primary

importance to any plan is as continued customers and

purchasers of the power generated by the acquired assets.” Pet.

Appellee Brief at 3.

19

the requirement under § 1129(a)(8) that each impaired

class of claims or interests has accepted the plan. When a

bankruptcy court finds the § 1129(a)(8) requirement is

met, as recently done by the bankruptcy court with

regard to the Joint Plan, then as a matter of law the

absolute priority rule is not at issue.

Even if the absolute priority rule were to be

addressed with respect to the Joint Plan, the payment at

issue does not present any issue with regard to the appli-

cation of the rule. Neither the Ahlers decision nor any

decision this Court may make in Bank of Am. Nat'l Trust

and Sav. Ass'n v. 203 N. LaSalle St. Partnership, 126 F.3d 955

(7th Cir. 1997), cert. granted, 118 S. Ct. 1674 (May 4, 1998),

with regard to the existence of the “new value” exception

to the absolute priority rule, has any relevance.

Indeed, the inapplicability of the absolute priority

rule is established by the holding made and affirmed

below that the payments are within the ambit of

§ 1129(a)(4). Section 1129 of the Bankruptcy Code sets

forth numerous requirements for confirmation of a pro-

posed plan of reorganization. One such requirement, sct

forth in § 1129(a)(4), deals with payments made or to be

made for services or costs rendered in connection with

the bankruptcy case or the plan of reorganization. A

separate section, § 1129(b)(2) (which codifies the absolute

priority rule), allows for confirmation over rejection by a

class of claims and, thus, deals with payments received

under the plan on account of claims or equity interests.

The criteria used to determine whether the plan may

be confirmed differ for the two types of payments. Pay-

ments made for services rendered are subject only to the

20

requirement that the bankruptcy court approve them as

reasonable. On the other hand, payments under a plan

made on account of claims or equity interests are not

subject to any requirement that they be approved as

reasonable. Rather, the criteria of § 1129(b)(2) address

whether holders of unsecured claims in senior classes

either accepted the plan or will receive distributions of a

value equal to their allowed claims.

The presence of these separate provisions in § 1129

dealing with different types of payments and imposing

different criteria necessarily establishes that a finding

that a payment was for services in connection with a plan

precludes that payment from being one on account of a

claim or equity interest subject to scrutiny under

§ 1129(b)(2).

CONCLUSION

For the reasons set forth above, the Petition should

be denied.

Respectfully submitted,

Henry J. Kamm

Counsel of Record

Epwarp L. Riptey

Patricia B. Tomasco

SHEINFELD, MALey & Kay, PC.

Attorneys for Respondent,

Southwestern Electric Power

Company

1001 Fannin, Suite 3700

Houston, Texas 77002

(713) 658-8881

21

ProressorR ELIZABETH WARREN

Attorney for Respondent,

Southwestern Electric Power

Company

1563 Massachusetts Avenue

Cambridge, Massachusetts 02138

(617) 495-3101

Bossy S. GILLIAM

WILKINSON, CakéMopy & GILLIAM

Attorneys for Respondent,

Southwestern Electric Power

Company

Seventeenth Floor, Beck Building

400 Travis Street

Shreveport, Louisiana 71102

(318) 221-4196

KENNETH C. RANey, JR.—

CENTRAL AND SOUTH WEsT

CORPORATION

Attorney for Respondent,

Southwestern Electric Power

Company

P.O. Box 660164

Dallas, Texas 75201

(214) 777-1115

MELANIE ROvNER COHEN

BENJAMIN D. SCHWARTZ

Darren B. Watts

CHRISTOPHER COMBEST

ALTHEIMER & GRAY

Attorneys for Respondent,

The Committee of Certain

Members of Cajun Electric Power

Cooperative

10 South Wacker Drive

Chicago, Illinois 60606-7482

(312) 715-4000

22

JoHN M. SHARP

SHARP, Henry, CERNIGLIA,

CotviIn & WEaveER

Attorneys for Respondent,

The Committee of Certain

Members of Cajun Electric Power

Cooperative

15171 South Harrell’s Ferry Road

Suite C

Baton Rouge, Louisiana 70816

(225) 755-1060