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The wide-ranging amendments to the Bankruptcy Code enacted by the Bankruptcy Abuse Prevention and Consumer Protection Act included significant amendments to Section 366 of the code, the section dealing with the providing of adequate assurance to utilities that are compelled to deal with a Chapter 11 debtor. Specifically, Section 366 was amended to add a subsection (c), which set forth examples of what would constitute “adequate assurance of payment” and the consequences to a Chapter 11 debtor that failed to provide adequate assurance of payment for utility service “that is satisfactory to the utility.” After this particular amendment became effective, many practitioners wondered aloud what would occur if a Chapter 11 debtor proposed an adequate assurance of payment, whether in a motion or informally, but was met with silence from the utility? What was the debtor supposed to do? Surprisingly, though the change created quite a hoopla in the bankruptcy community, it generated virtually no reported decisions. In 2005, shortly after BAPCPA became effective, a Michigan bankruptcy court in In re Lucre Inc. concluded that in the face of a nonanswer from a utility to an offer of adequate assurance of payment, it could not grant a debtor’s motion to continue an injunction preventing the utility from discontinuing service. In so ruling, the court stated that subsection (c) “requires as a condition to continuing the injunction either the utility’s acceptance of the adequate assurance offered . . . or the . . . debtor in possession’s acceptance of the adequate assurance offered by the utility. . . . [The right to modify the form of adequate assurance set forth in subsection (c)(1)] arises only after the adequate assurance payment has been agreed upon by the parties.” The court, however, did not foreclose all forms of relief. In recognition of a 6th U.S. Circuit Court of Appeals law stating a requirement of good faith might be implied in what might otherwise appear to be an absolute right under a statute (in that case, the absolute right to convert a case from Chapter 7 to Chapter 13), the court stated, “a similar good faith requirement might also exist with respect to a utility’s exercise of its rights under subsection (c). That is, subsection (c) could be read to require a utility to bargain in good faith with the trustee or debtor in possession before electing to discontinue service thereunder.” The court thus denied the debtor’s request, but without prejudice to “whatever right Debtor may later have to enjoin [the utility] from exercising its rights under subsection (c).” It was not until recently that another published decision surfaced. In In re Syroco, the debtor filed for Chapter 11 protection in Puerto Rico. On the same day, it filed a motion in which it offered its utilities a security deposit equal to the average cost of two weeks’ service and asked the bankruptcy court to deem that offer to be adequate assurance of payment. Certain utilities did not respond, and the debtor requested that the bankruptcy court enter an order preventing the nonresponsive utilities from discontinuing service. The court posed the question presented as follows: Can a court enjoin a utility from discontinuing service if that utility fails to reply or object to a Chapter 11 debtor’s offer or can the court consider the failure to respond a tacit acceptance of the debtor’s offer? The court acknowledged the holding of the bankruptcy court in Lucre but stated that it would decline to follow Lucre “because it is unreasonable to conclude that is what Congress intended.” Rather than rely on prior precedents cautioning courts to read statutes in strict accordance with their plain meaning if possible, the bankruptcy court instead relied on the axiom that “interpretations of a statute which would produce absurd results are to be avoided if alternate interpretations consistent with legislative purpose are available.” Utilizing that axiom, the court examined the “brief” legislative history and noted that neither the statute nor its legislative history prevent a court from continuing an injunction preventing discontinuation of utility service if the utility does not respond to an offer of adequate assurance of payment. An interpretation similar to that used in Lucre would make it impossible for a debtor to comply with Section 366 of the Code. And because “it is well recognized that silence can be interpreted as acquiescence,” under these circumstances it is not unreasonable to conclude that a lack of objection should be deemed a tacit acceptance. Accordingly, the bankruptcy court continued the Section 366 injunction preventing the nonresponding utilities from terminating service. Two observations: First, the two cases, it is submitted, are not inconsistent. The court in Lucre denied the debtor’s motion and thus seems to have toed the “plain meaning” line of cases but acknowledged that it might find implied in Section 366(c)(2) a duty of good faith. The court in Syroco, on the other hand, found the statute not ambiguous but one in which a “plain meaning” holding would lead to an absurd result. Both cases, though, suggest that a utility is unlikely to be able to stand on its silence and, at the end of 30 days from the filing date, simply discontinue service. The second observation is perhaps more interesting. In this era of courts clearly leaning toward using “plain meaning” almost exclusively, it may not be just in instances of ambiguity that courts will go beyond the words of the statute. Legislative history, it would seem, still has a place in judicial interpretation of statutes, even when a clear ambiguity may not exist. MYRON A. BLOOM is a shareholder with the firm of Hangley Aronchick Segal & Pudlin. His practice is concentrated in the areas of corporate organization, bankruptcy, commercial workouts and creditors’ rights.

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