Tonkon Torp U.S. Bankruptcy Court Trial Victory for NORPAC Foods Affirmed by U.S. District Court

The Tonkon Torp-led NORPAC Foods Inc. nine-figure bankruptcy cases had a notable outcome – unsecured creditors received distributions significantly above the amounts projected at the outset of the chapter 11 cases (approaching 39% as opposed to below 10%, or even 0% as the bank argued). Once NORPAC’s chapter 11 plan was confirmed on November 30, 2020, Tonkon Torp’s bankruptcy and restructuring attorneys began their work with SierraConstellation Partners, LLC, NORPAC’s financial adviser and chapter 11 Plan Agent, to reconcile over $200 million in claims and conclude the bankruptcy plan. Most chapter 11 claims are settled with little fuss; however, in a case of this size, it is not uncommon for there to be dozens of evidentiary hearings on contested claims.

Thanks to the discernment and skill of Tonkon Torp’s bankruptcy team, only one claim in the NORPAC case was brought to trial – and it resulted in a win on an issue of first impression on the West Coast that has now been affirmed by the district court. The dispute arose with PacifiCorp, an electrical utility whose claim for over $500,000 included a request that administrative priority be given to $200,000 of their claim, payment for certain electricity delivered to NORPAC. In this instance, the parties could not see eye-to-eye in negotiations and Tonkon Torp prepared to defend their client’s position in U.S. Bankruptcy Court.

At the center of the resulting May 2021 trial was the well-litigated question of whether electricity can be defined as a “good” under the Uniform Commercial Code (UCC) – and therefore be eligible for administrative priority status under Section 503 of the Bankruptcy Code. Federal courts have split on the issue, resulting in a drawn-out effort to settle the question conclusively.

Led by attorney Danny Newman, Tonkon Torp successfully argued that electricity doesn’t meet the definition of a good as defined by the UCC because it is not “identified” before it is used by the customer and thus not “movable.” Judge Peter McKittrick’s decision on May 18, 2021 in favor of NORPAC helped clarify the long-standing argument of how to categorize electricity claims. Although PacifiCorp appealed, the U.S. District Court for the District of Oregon affirmed the Bankruptcy Court decision on February 3, 2023. It is the first district court decision on the issue anywhere in the U.S. in the last seven years, and the first ever decision of its kind west of the Mississippi River. The case has been watched closely by bankruptcy advisors and has received national commentary in trade media.

Tonkon Torp navigates complicated cases such as the NORPAC chapter 11 by taking a practical, results-oriented approach to effectively and efficiently reorganize debtors, assisting debtors in restructure debt, raising needed capital, investigating and resolving creditor claims, and minimizing the number of costly and time consuming disputes and trials. When trials do become necessary, Tonkon Torp attorneys have the relevant expertise and skill to defend debtor clients on the most complicated issues.