IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
|DO NOT PUBLISH
This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
FLOWIND CORPORATION, No. 97-12265
v. A.P. No. 98-1091
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
[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.
, 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.
B.R. 970, 975 (Bkrtcy.W.D.Wash.1996); In re Schraiber
, 97 B.R. 937, 940
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 _______________________