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Facts: The debtor filed bankruptcy on September 23, 2008. The debtor was a telephone company that operates in a highly regulated environment at both the federal and state level. The debtor's largest creditor was Verizon, to which it owed $3 million. The debtor concedes that Verizon is a utility. The debtor filed a motion requesting a determination that § 366 does not apply to Verizon because Verizon and the Debtor are parties to an executory contract and, therefore, § 365 applies instead. And, if § 366 does apply, that a deposit of 14 days in the amount of $57,000 is an adequate amount for a deposit.
Issues: Whether § 366 or § 365 applies.
Holding: The debtor's motion is denied: § 366 applies and the debtor is to provide a payment of adequate assurance to Verizon.
Rules: Section 366 added new protections for utilities in BAPCPA, and provides that, in a chapter 11 case, "a utility 'may alter, refuse, or discontinue utility service, if during the 30-day period beginning on the date of the filing of the petition, the utility does not receive from the debtor or the trustee adequate assurance of payment for utility service that is satisfactory to the utility'... 'Assurance of payment' in a chapter 11 case is now required to be in the form of cash deposit, a letter of credit, a certificate of deposit, a surety bond, a prepayment of utility consumption, or another form of security that is mutually agreeable to the utility and the debtor." A bankruptcy court is no longer able to grant a lien or an administrative expense priority as a form of assurance of payment. In deciding what constitutes adequate assurance, the court should focus on the utility's need for assurance with regard to the debtor's financial resources.
Reasoning: Section 365 does not supplant § 366 and the debtor needs to provide adequate assurance to Verizon. The adequate assurance is a "guard against the utility assuming an unreasonable risk." The debtor is incurring $150,000 a month in services and is to provide a $150,000 deposit. Although the court is very troubled by the debtor's fluctuating post-petition budgets, the court does not want to convert this case to chapter 7 so long as the debtor posts its deposit and keeps current on a post-petition basis with Verizon and all its post-petition vendors. The debtor will have some additional time to get its affairs in order.
Facts: American Home Mortgage Investment Corp. ("AHMIC" or the "Plaintiff"), a debtor in the chapter 11 cases, sued Lehman Brothers Inc. and Lehman Commercial Paper Inc. (together, "Lehman") asserting breach of contract, turnover of property of the estate, conversion, unjust enrichment, and a declaratory judgment in which the Plaintiff sought, inter alia, the court's ruling that Lehman had violated the automatic stay by liquidating certain positions. AHMIC was in the business of originating residential mortgage loans. AHMIC, as the "Seller," sold certain notes (the "Series 2004-A Notes" and "Series 2005-A Notes," and together the "Notes") to Lehman, as the "Buyer," under the parties' preexisting Master Repurchase Agreement (the "MRA"). The MRA permitted Lehman to make margin calls when the market value of the Notes fell below a certain amount. Lehman made a margin call that AHMIC failed to meet and Lehman called a default. AHMIC then declared chapter 11 bankruptcy and, post-petition, Lehman terminated the MRA and either foreclosed or intended to foreclose on the Notes instead of selling them. After that, Lehman
