Professional Documents
Culture Documents
2d 11
Daniel C. Cohn, with whom Anne E. Colleton and Fine & Ambrogne,
Boston, Mass., were on brief for defendant, appellant.
Don Willenburg, with whom Richard Levin and Stutman, Treister &
Glatt, Los Angeles, Cal., were on brief for plaintiff, appellee.
Before CAMPBELL, Chief Judge, TORRUELLA and SELYA, Circuit
Judges.
SELYA, Circuit Judge.
When PubServ filed for reorganization in the bankruptcy court, Seabrook was
not yet operational. At the time, NHEC owed PubServ $4,794,771.74 for
prepetition purchases of electricity under the Supply Contract. NHEC admitted
that debt, but refused to pay it, asserting an entitlement to retain the funds as a
setoff against damages that might accrue in connection with the Sellback
Contract.
NHEC seasonably asserted its right of setoff and has consistently maintained its
entitlement thereto. Its payment of the prepetition indebtness was not voluntary
and by no means constituted a waiver. Cf. Irons v. FBI, 811 F.2d 681, 686 (1st
H.R.Rep. No. 595, 95th Cong., 2d Sess. 183, reprinted in 1978 U.S.Code Cong.
& Admin.News 5787, 6144. To implement the congressional purpose, courts
should attempt to minimize the dislocations attendant to setoffs. In the usual
case, requiring creditors to pay the debt while leaving them free to pursue their
perceived remedy nicely balances the rights and interests of the parties and
furthers the goals of the statutory scheme.
10
For this reason, we rule that NHEC, under the circumstances and
notwithstanding the enforced payment of its prepetition debt to PubServ,
retained standing to press its alleged offsetting claim. Cf. In re Archer, 34 B.R.
28, 30-31 (Bankr.N.D.Tex.1983).
Setoffs--Generally
11
does not affect any right of a creditor to offset a mutual debt owing by such creditor
12
to the debtor that arose before the commencement of the [bankruptcy] case ...
against a claim of such creditor against the debtor that arose before the
commencement of the case....
13
14
15
16
We believe that the courts below were correct in concluding that these
conditions were not satisfied here; and that, as a result, Creditor A (NHEC) was
not entitled to offset any amount against what it owed, prepetition, to Debtor
(PubServ). We describe briefly why appellant's claim failed to fulfill the
requirements of the Code.
19
In this case, PubServ has neither assumed nor rejected the Sellback Contract.
NHEC has never asked the bankruptcy court to set a deadline for an
assumption/rejection decision. In such circumstances, the Contract continues in
effect--and appellant has no provable claim thereunder against the bankrupt
estate. See Matter of Whitcomb & Keller Mortgage Co., 715 F.2d 375, 378-79
(7th Cir.1983); In re Cochise College Park, Inc., 703 F.2d 1339, 1352 (9th
Cir.1983); Federal's, Inc. v. Edmonton Investment Co., 555 F.2d 577, 579 (6th
Cir.1977); Mohonk Realty Corp. v. Wise Shoe Stores, 111 F.2d 287, 290 (2d
Cir.), cert. denied, 311 U.S. 654, 61 S.Ct. 47, 85 L.Ed. 418 (1940); Consol. Gas
Elec. Light & Power Co. v. United Rys. & Elec. Co., 85 F.2d 799, 804 (4th
Cir.1936), cert. denied, 300 U.S. 663, 57 S.Ct. 493, 81 L.Ed. 871 (1937); In re
Feyline Presents, Inc., 81 B.R. 623, 626 (Bankr.D.Colo.1988); In re Shoppers
Paradise, Inc., 8 B.R. 271, 278 (Bankr.S.D.N.Y.1980); see also Bordewieck,
supra, 59 Am.Bankr.L.J. at 200.
20
NHEC portrays the relation-back doctrine as tipping the scales in its favor. We
find such reliance to be grossly mislaid. We acknowledge that, when triggered
by a timely postpetition rejection, the relation-back rule serves to transform a
future action for breach of an executory contract into a prepetition claim subject
to setoff. See 11 U.S.C. Sec. 502(g). But the missing link is the event of
rejection. The simple fact of this matter is that the debtor has not yet rejected-and may never reject--the Sellback Contract. Courts must deal in the reality of
events, not in worst-case visions of what some uncertain future might bring.
Because there has been no rejection of the Sellback Contract, no claim or cause
of action has at this point accrued thereunder. See, e.g., Cochise College Park,
703 F.2d at 1352. Hence, there is no springboard for the backward leap which
appellant essays.1
21
NHEC's lament that rejection of the Sellback Contract seems "all but
inevitable," Appellant's Brief at 6, changes nothing. In this situation,
inevitability--like beauty--is largely in the eye of the beholder. The conclusion
is best written off as self-serving speculation. Perhaps more important, fear of
forthcoming rejection does not excuse NHEC from its interim obligations under
the Sellback Contract. A fortiori, such fears cannot excuse payment of monies
already due under the (unrelated) Supply Contract.
22
23
Since appellant does not possess a matured cause of action based on the
Sellback Contract, neither federal nor state law furnishes it a sufficient toehold
for its setoff claim. As noted earlier, 11 U.S.C. Sec. 553(a) is not an
independent source of setoff rights.2 NHEC cites to no other federal statute as a
seedbed for its alleged right of setoff. Applicable state law likewise offers no
consolation. The New Hampshire rule is straightforward:
24
If there are mutual debts or demands between the plaintiff and the defendant at
the time of the commencement of the plaintiff's action, one debt or demand
may be set off against the other.
25
26
No debt or demand shall be set off as aforesaid unless a right of action existed
thereon at the beginning of the plaintiff's action.
27
28
Section 515:8 could hardly be clearer: New Hampshire's general setoff statute
"do[es] not apply to debts that are not yet due." In re Estate of Borkowski, 120
N.H. 54, 410 A.2d 1121, 1123 (1980); accord Varney v. General Enolam, Inc.,
109 N.H. 514, 257 A.2d 11, 12-13 (1969); Petition of Leon Keyser, Inc., 98
N.H. 198, 96 A.2d 551, 552 (1953). This, we think, ends the state-law inquiry.
No performance by PubServ is now due, or has yet been due, under the
Sellback Contract. Consequently, no debt thereunder can be due: no "right of
action existed [on the Sellback Contract] at the beginning of the ... action."
N.H.Rev.Stat.Ann. Sec. 515:8. In short, NHEC is holding an empty bag. It
possesses nothing which, for the purposes at hand, can properly offset its
indebtedness to PubServ under the Supply Contract.
29
30
Conclusion
31
We need go no further. For the reasons described above, NHEC was not
entitled to a setoff against its prepetition debt to PubServ. There is one thing
more: inasmuch as the governing principles of law were carefully elucidated by
the courts below, and appellant nonetheless proceeded pervicaciously, without
a realistic hope of success, we award appellee double costs under Fed.R.App.P.
38.
32
NHEC's assertion that the bankruptcy court lacked discretion to deny its setoff