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Begley, Josephine and Daniel v. Philadelphia Electric Co.

decided: April 19, 1985.

BEGLEY, JOSEPHINE AND DANIEL
v.
PHILADELPHIA ELECTRIC CO. ET AL. PHILADELPHIA ELECTRIC COMPANY, APPELLANTS BEGLEY, JOSEPHINE AND DANIEL V. PHILADELPHIA ELECTRIC CO. ET AL. PHILADELPHIA ELECTRIC COMPANY, APPELLANTS



On Appeal from the United States District Court of the Eastern District of Pennsylvania, D.C. Civil No. 83-4657.

Garth, and Becker, Circuit Judges, and Rosenn, Senior Circuit Judge.

Author: Garth

Opinion OF THE COURT

GARTH, Circuit Judge:

This case presents the question whether section 366 of the Bankruptcy Code,*fn1 pre-empts state public utility regulations which provide consumers with certain protective procedures prior to termination of utility service. The district court found no pre-emption and ordered Philadelphia Electric Company (PECO) to comply with the state regulations and effect an amortization schedule for post-petition arrearages incurred by the Begleys. Since we agree with the district court that section 366 does not, at least in the context of a Chapter 7 proceeding, pre-empt Pennsylvania's utility regulations governing termination procedures, we affirm.

I.

Josephine and Daniel Begley filed a petition for bankruptcy under Chapter 7 on May 28, 1982. At that time, they were substantially indebted to PECO. PECO demanded and received an "adequate assurance" of payment of future bills in the amount of $312.00. Such an assurance is authorized by 11 U.S.C. § 366(b).

The Begleys failed to pay utility bills accruing after the bankruptcy filing. PECO applied the $312.00 assurance against post petition arrearages amounting to $591.87, and posted the Begley account for termination. Termination was forestalled upon receipt of an additional $467.85 from the Begleys. On November 15, 1982, new arrearages amounted to $355.24, and PECO again posted the Begleys' account for termination.

Each time the Begley account was posted for termination, the Begleys sought relief from the Pennsylvania Public Utilities Commission (PUC) under 52 Pa. Code, chapter 56, which provides that prior to termination a ratepayer must be given the opportunity to amortize arrearages through a payment plan.*fn2 Each time, the PUC dismissed Begleys' complaint, finding its jurisdiction pre-empted by the Bankruptcy Code.

The Begleys then filed for injunctive relief from termination. The Bankruptcy Court preliminary enjoined termination. When the Begleys moved for class action certification, the bankruptcy court, uncertain of its jurisdiction, transferred the case to the district court. The district court remanded to the bankruptcy court to decide PECO's outstanding motion which sought dissolution of the order restraining PECO from terminating the Begleys' account, 30 Bankr. 469. The bankruptcy court then permitted PECO to terminate Begleys' service by dissolving the restraining order. The Begleys appealed this latter order to the district court, and also requested that the reference to the bankruptcy court be withdrawn.

The district court withdrew the reference from the bankruptcy court on April 17, 1984, and invited cross-motions for summary judgment on the Begleys' claims: (1) that section 366 did not pre-empt the provisions of 52 Pa. Code, chapter 56; (2) that the PUC's refusal to take jurisdiction over the Begleys' dispute with PECO violated 11 U.S.C. § 525, (the Bankruptcy Code provision barring governmental discrimination against bankruptcy petitioners); (3) that this violation of section 525 gave rise to a claim under the Civil Rights Act, 42 U.S.C. § 1983; and (4) that when PECO applied the "adequate assurance" to subsequent arrearages, PECO engaged in a prohibited unilateral modification of the amount furnished as adequate assurance.

On June 11, 1984, the district court granted summary judgment in favor of the Begleys on their first claim and ordered PECO to enter into an amortized payment plan. It enjoined PECO from terminating Begleys' service. It also granted summary judgment against the Begleys' section 1983 claim, and against their claim that application of the deposit to post-petition arrearages violated section 366(b), 41 Bankr. 402.*fn3 PECO appeals, arguing that the Bankruptcy Code has pre-empted Pennsylvania's procedures. In response, the Begleys claim that PECO remains subject to the provisions of the Pennsylvania Code, which among other things provides for no termination of service until after an attempt to negotiate a payment plan has failed.

II.

Section 366 of the Bankruptcy Code deals specifically with utility service to the debtor and provides specific protections for both debtor and creditor. The debtor is protected against discrimination by the utility ...


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