Hugh McDonald Comments on Fifth Circuit Decision on Bankruptcy Court v. State Court in Bankruptcy Claim Dispute

The U.S. Court of Appeals for the Fifth Circuit challenged the bankruptcy court’s jurisdiction over the claim against ERCOT—finding the court exceeded its power. Since resolving the claim would require the bankruptcy court to determine if ERCOT charged its rates lawfully, the Fifth Circuit concluded that the lower court should have considered the application of the Burford abstention doctrine and consider whether the case should have been moved to state court.

“It’s really just a statement by the Fifth Circuit that if you are trying to have a bankruptcy court reprice for a specific period of time or get into the business of pricing electricity at a period in time, that has to be dealt with on the state level,” Insolvency & Restructuring partner Hugh McDonald told Bloomberg Law.

McDonald noted that while Just Energy’s underlying dispute involved electricity rates, other state regulated areas may also be affected by the opinion, which further maintains that bankruptcy courts can still control whether a debtor is owed money under a claim for a breach of contract.

“[But] you can’t set the rate that they shouldn’t be paying under that contract that has been approved by the state regulators,” he said.

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