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5th Circ. Won't Budge From Ch. 15 Power Price Suit Remand

Feb 1, 2023

The Fifth Circuit stood by its remand of an electricity pricing dispute between Chapter 15 debtor Just Energy Group Inc. and Texas grid regulators, which directed the bankruptcy court to abstain from handling the suit, rejecting the company's pleas for reconsideration.

In an order filed Tuesday, the Fifth Circuit denied natural gas and electricity retailer Just Energy Group's request for a panel or en banc rehearing, sticking with its early January ruling finding that the bankruptcy court should have left the dispute between Just Energy and the Electric Reliability Council of Texas to a local court in the Lone Star State.

"Because no member of the panel or judge in regular active service requested that the court be polled on rehearing en banc, the petition for rehearing en banc is denied," the panel said.

Just Energy began insolvency proceedings in Canada in March 2021. The company was granted Chapter 15 recognition of its Canadian proceedings in Texas bankruptcy court that April.

Last March, Just Energy commenced an adversary action in its Chapter 15 case against ERCOT, seeking refunds for the $274 million it paid toward a $335 million bill it was slapped with during the February 2021 winter storm that crippled Texas' electricity grid for more than a week. The bankruptcy court dismissed some claims from the complaint, but also certified a direct appeal to the Fifth Circuit, according to court documents.

In its January opinion, the Fifth Circuit panel presiding over the case said that under the Burford doctrine, which requires federal court abstention when an issue concerns a state's regulatory interests, "only one court is permitted to answer Just Energy's $335-million-dollar question: Travis County district court."

According to the panel, the dispute between Just Energy and ERCOT met four of the five factors under Burford, given the dispute's involvement of unsettled Texas law, Texas' interest in the litigation, the state's need for coherent policy in the area and the presence of a state forum dedicated to adjudicating such disputes — thereby launching the doctrine's applicability.

Despite Just Energy's pleadings otherwise in its petition for rehearing, the panel and circuit court remained unpersuaded, rejecting the company's request Tuesday.

In its rehearing petition, filed Jan. 18, Just Energy doubled down on its prior argument that it couldn't bring its claims against ERCOT in state court because of its Chapter 15 filing, saying that Burford abstention is a form of permissive abstention, which is excluded under the U.S. Bankruptcy Code.

Furthermore, Just Energy said the panel misinterpreted the Fifth Circuit's 2015 ruling in Firefighters' Retirement System v. Citco Group Ltd. as having distinguished between Burford abstention and U.S. Bankruptcy Code permissive abstention, saying it "drew no such distinction" and only concluded that federal courts must not abstain from proceedings related to Chapter 15 cases.

"If the decision stands, litigants can simply affix the 'Burford' label to a defense that otherwise constitutes permissive abstention under [the U.S. Bankruptcy Code] and escape the congressional prohibition that Firefighters' enforced," Just Energy said.

ERCOT did not file a brief opposing Just Energy's rehearing petition.

In response to the Fifth Circuit's decision to stick to its prior ruling, however, an ERCOT spokesperson told Law360 in an emailed statement that the council is happy to see the denial of Just Energy's rehearing request, saying it reconfirms that the bankruptcy court should abstain from considering Texas wholesale electric market issues. 

U.S. Circuit Judges Leslie H. Southwick, James E. Graves Jr. and Kurt D. Engelhardt sat on the panel for the Fifth Circuit in early January.

Representatives for Just Energy did not immediately respond to requests for comment Wednesday.

ERCOT is represented by Jamil Alibhai and Kevin M. Lippman of Munsch Hardt Kopf & Harr PC, and Wallace B. Jefferson, Nicholas Bacarisse and Rachel A. Ekery of Alexander Dubose & Jefferson LLP.

Just Energy is represented by James C. Tecce, Lindsay M. Weber and John Bash of Quinn Emanuel Urquhart & Sullivan LLP.

The case is Electric Reliability Council of Texas Inc. et al. v. Just Energy LP et al., case number 22-20424, in the U.S. Court of Appeals for the Fifth Circuit.

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