Memorandum of Decision Re: AP Against Chapter 11 Debtor

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Decisions
IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re FLOWIND CORPORATION,                                                                                           No. 97-12265                Debtor. ___________________________/ WINDKRAFT, INC.,                Plaintiff,         v.                                                                                                                                  A.P. No. 98-1091 FLOWIND CORPORATION,                Defendant. ______________________________/
Memorandum
I. Introduction      Debtor Flowind Corporation operates a wind power plant. In 1989, Flowind and plaintiff Windkraft, Inc. entered into a written contract whereby Windkraft would purchase leasehold and associated rights from Flowind.      Eight years after the agreement, Flowind filed a Chapter 11 petition. On the eve of confirmation of Flowind's plan, Windkraft has filed this adversary proceeding seeking specific performance of the contract, damages, attorneys' fees, and a trial by jury. Flowing has responded with a motion for summary judgment. While judgment on the merits is premature, an order of the court is necessary as to fundamental procedural matters.      Pursuant to FRBP 7001, certain disputes arising during bankruptcy proceedings must be resolved by adversary proceeding rather than motion. These matters are those determined to be of sufficiently serious impact to require the due process protections available in a federal lawsuit. It is not a violation of the automatic stay to file an adversary proceeding in bankruptcy court pursuant to FRBP 7001. In re North Coast Village, Ltd., 135 B.R. 641 (9th Cir.BAP 1992). However, that rule does not create any rights. An adversary proceeding cannot be used to circumvent any of the provision of the Bankruptcy Code. Id., at 644. Windkraft's complaint has not been drafted with this principle in mind. II. Monetary Damages      A debtor cannot be sued for money on a prepetition obligation. Such an action is nothing more than a claim. As such, it can only be made by the filing of a proof of claim pursuant to section 501 of the Bankruptcy Code and FRBP 3002(a) ("An unsecured creditor . . must file a proof of claim . . ."). An adversary proceeding seeking monetary damages is nothing more than a procedurally improper attempt to file a proof of claim. As the court in North Coast Village noted:            [A]n adversary proceeding against the debtor seeking            to recover on a pre-petition dischargeable claim . . .            could . . . be dismissed and sanctions could be            awarded . . . because the claim should have been            asserted through the claims allowance process. 135 B.R. at 644. III. Attorneys' Fees; Jury Trial      Attorneys' fees incurred in prosecuting prepetition contract rights are themselves prepetition claims, even if incurred postpetition. In re Abercrombie, 139 F.3d 755 (9th Cir.1998). Allowance of claims are to be determined by the bankruptcy court without a jury. Katchen v. Landy, 382 U.S. 323, 336 (1966); Billing v. Ravin, Greenberg & Zackin, P.A., 22 F.3d 1242, 1247 (3rd Cir.1994). IV. Specific Performance      Windkraft uses tortured logic to reach the conclusion section 365 of the Bankruptcy Code allows it to seek specific performance against Flowind. Its logic is:            1. The debtor can reject executory contracts.            2. The contract at issue is not executory because Windkraft has fully performed;            3. Therefore, the debtor must perform.      This logic is fallacious because section 365, dealing with executory contracts, does not apply at all to things which are not executory contracts. The correct logic is:            1. The debtor may assume executory contracts.            2. This contract is not executory;        ;    3. Therefore, the debtor may not assume it.      A debtor may be compelled to perform under a prepetition contract only where before bankruptcy the transaction had progressed to the point where the nondebtor obtained enforceable property rights in the subject of the contract. See, e.g., Proyectos Electronicos, S.A. v. Alper, 37 B.R. 931 (E.D.Pa.1983). The focus of such a claim is not whether specific performance is an available remedy but rather whether the property in question is property of the estate under section 541 of the Code. To the exent that property is not property of the estate, Windkraft can seek its turnover. However, Windkraft may not, by its adversary proceeding, seek creation of property rights it did not have when Flowind filed its bankruptcy petition.      Insofar as Windkraft argues that it has ownership rights or lien rights in the disputed leases, it may raise and litigate those issues in an adversary proceeding. This court has core jurisdiction to determine these issues. 28 USC section 157(b)(2); In re United Marine Shipbuilding, Inc., 198 B.R. 970, 975 (Bkrtcy.W.D.Wash.1996); In re Schraiber, 97 B.R. 937, 940 (Bkrtcy.N.D.Ill.1989). V. Conclusion      For the foregoing reasons, the court determines that Windkraft's complaint is procedurally improper. It will accordingly be dismissed, without prejudice to the filing of a proof of claim, and with leave to amend to state a claim falling within FRBP 7001(2). Its demand for a jury trial will be stricken. Counsel for Flowind shall submit an appropriate form of order.
Dated: May 30, 1998                                                                                        _______________________                                                                                                                         Alan Jaroslovsky                                                                                                                         U.S. Bankruptcy