February 25, 2020
On February 24, Weil secured a key victory for Westinghouse (and successor W Wind Down Co LLC) when the Second Circuit affirmed New York bankruptcy and district court rulings in a putative class action arising out of Westinghouse’s chapter 11 bankruptcy. The Court’s opinion derailed putative class plaintiffs’ efforts to circumvent the bankruptcy stay, and reinforced important bankruptcy law principles governing classification of claims, in particular, what constitutes a contingent pre-petition claim under the bankruptcy code.
At the time Westinghouse filed for bankruptcy in March 2017, it was in the process of constructing two nuclear power plants, including the V.C. Summer Project in South Carolina. In November 2017, about 2 months after the Bar Date passed to submit proofs of claim for prepetition claims against Westinghouse, two South Carolina utility customers filed a motion to lift the automatic stay pursuant to U.S.C. §362(d). They sought to pursue what they characterized as post-petition claims against Westinghouse, or in the alternative, an enlargement of time to file proofs of claim if their claims were deemed pre-petition. The Utility Customers claimed they paid separate and distinct charges on their utility bills to the V.C. Summer owners, and those funds were passed along to Westinghouse for construction. The Utility Customers attributed the Owners’ abandonment of the project to Westinghouse’s inability to complete performance.
In January 2018, the Bankruptcy Court denied the Utility Customers’ motion on both grounds. The Bankruptcy Court rejected their arguments that their claims had arisen post-petition because “[a]ll of the acts, all of the things for which you want compensation, happened pre-bankruptcy,” pointing to years of rate increases, allegations of mismanagement, and other acts occurring before the petition filing. The Bankruptcy Court also rejected arguments that Westinghouse should have given direct notice to them of the Bar Date, and that there was no basis in the record establishing an excusable neglect for missing the Bar Date. The Utility Customers then filed notice of appeal to the United States District Court for the Southern District of New York.
On appeal, the District Court affirmed the Bankruptcy Court’s decision, focusing on the undisputed facts in the record regarding the actions leading up to the bankruptcy, the allegations at the heart of the South Carolina lawsuits, and the abandonment of the project. The District Court agreed with the Bankruptcy Court and Weil’s briefing that “the fact that a party would have no reason to assert a claim until the occurrence of a future event [such as abandonment] does not mean that the claim is post-petition.” The District Court determined that, at a minimum, it was publicly known that Westinghouse was uncertain about the continued feasibility of the projects prior to its bankruptcy, putting the Utility Customers on notice of their potential contingent claim.
Subsequently, the plaintiffs appealed the District Court ruling to the Second Circuit, which likewise affirmed, holding that “the substance of Appellants’ unjust enrichment claim is that Westinghouse received the benefit of special payments made to utility companies to finance the construction of a nuclear power plant, but Westinghouse repudiated the agreement obligating it to finish construction of the plant. The record is clear, however, that the utility payments, construction delays, cost overruns, and Westinghouse’s representation to the V.C. Summer Owners that, at a minimum, it was uncertain about its ability to honor the construction agreement, all occurred before the bankruptcy petition was filed. Thus, we agree with the bankruptcy court and the district court that Appellants’ claim against Westinghouse is a pre-petition claim for purposes of the Bankruptcy Code.”