MEMORANDUM OF DECISION
BILL PARKER, Chief Judge.
This matter is before the Court to consider the objections filed by Rally Partners, L.P. (the "Debtor"), to two proofs of claim filed in the Debtor's Chapter 11 proceeding: one by Koch Midstream Services Company, L.L.C. ("Koch"), and a second proof of claim filed by Gulf South Pipeline Company, L.P. ("Gulf South") (collectively, the "Creditors"). At the conclusion of a consolidated hearing on the objections, the parties were provided with the opportunity to submit supplemental briefing and, upon receipt of such briefing, the Court took the matters under advisement. This memorandum of decision disposes of all issues pending before the Court.
On December 5, 2001, Gulf South filed unsecured claim # 16 in the amount of $2,109,383.36. Gulf South owns and operates an interstate natural gas pipeline system, and is duly authorized to engage in business as an open access interstate natural gas pipeline operator regulated by the Federal Energy Regulatory Commission ("FERC"). Prior to the filing of this bankruptcy, the Debtor was engaged in the natural gas trading business and frequently
The parties have stipulated that from March 2001 until August 2001, the Debtor had an imbalance on Gulf South's pipeline system where it was "short" or "overdelivered;" hence, the Debtor had delivered less gas into the Gulf South pipeline system than had been shipped on the Debtor's behalf. It is also undisputed that the Debtor did not resolve these imbalances by offsetting any opposite imbalances. Accordingly, pursuant to the terms of the "Cash Settlement" procedure, Gulf South sent invoices to the Debtor in order for the Debtor to cure the imbalances. These invoices included an "Index Price" for the actual quantity of gas delivered on behalf of the Debtor,
Similarly, on the same date that Gulf South filed claim # 16, Koch filed its unsecured claim # 14 in the amount of $757,689.48. Koch also owns and operates a natural gas pipeline system which the Debtor frequently used prior to its bankruptcy; however, Koch's pipeline system, as an intrastate system located throughout East Texas, is not subject to any FERC Tariff. The relationship between Koch and the Debtor is subject to the terms and conditions of an Interruptible Gas Gathering Agreement dated May 1, 2000, and various exhibits thereto (collectively, the
A proof of claim, if it is executed and filed in accordance with the Federal Rules of Bankruptcy Procedure, constitutes prima facie evidence of the validity and amount of that claim, Fed. R. Bankr. P. 3001(f), and is deemed allowed unless a party in interest objects under 11 U.S.C. § 502(a). A proof of claim, however, does not qualify for that prima facie evidentiary effect if it is not executed and filed in accordance with the Bankruptcy Rules. See First Nat'l Bank of Fayetteville v. Circle J. Dairy (In re Circle J Dairy, Inc.), 112 B.R. 297, 300 (W.D.Ark.1989). Rule 3001 generally sets forth the requirements for filing a proof of claim, and one of those requirements states that:
FED. R. BANKR.P. 3001(c).
Likewise, if a creditor claims a security interest in property of the debtor, Rule 3001(d) requires the creditor to accompany its proof of claim with evidence that the creditor perfected a security interest.
Hence, the burden of persuasion under the bankruptcy claims procedure always lies with the claimant, who must comply with Fed. R. Bankr. P. 3001 by alleging facts in the proof of claim that are sufficient to support the claim. If the claimant satisfies these requirements, the burden of going forward with the evidence then shifts to the objecting party to produce evidence at least equal in probative force to that offered by the proof of claim and which, if believed, would refute at least one of the allegations that is essential to the claim's legal sufficiency. See Lundell v. Anchor Const. Specialists, Inc. (In re Lundell), 223 F.3d 1035, 1041 (9th Cir.2000); Sherman v. Novak (In re Reilly), 245 B.R. 768, 773 (2d Cir. BAP 2000). This can be done by the objecting party producing specific and detailed allegations that place the claim into dispute, see In re Lenz, 110 B.R. 523, 525 (D.Colo.1990); by the presentation of legal arguments based upon the contents of the claim and its
In the present case, Koch filed its claim # 14 in compliance with the Federal Rules of Bankruptcy Procedure; hence, its claim is entitled to prima facie validity. Thereafter, the Debtor properly objected to claim # 14 by presenting legal argument based upon the validity of a claim containing a "penalty."
Gulf South, on the other hand, failed to attach any supporting documentation to its claim # 16; thereby depriving it of any prima facie validity. However, at the February 13, 2003, hearing, the parties stipulated that Gulf South's $2,109,383.36 claim was valid and correctly calculated, pending the Court's ruling on the Debtor's limited objection to $147,789 of such claim as being in the nature of a penalty. Accordingly, based upon this limited objection to Gulf South's claim by the Debtor, Gulf South must also carry the ultimate burden of persuasion to establish the validity of its claim to the disputed $147,789.
The sole argument relied upon by the Debtor in its objection to the two proofs of claim is that the imbalance resolution procedures contained in both the Koch Agreement and in Gulf South's FERC Tariff, which requires the average Index Price to be multiplied by what the claimants call an "Imbalance Price" or a "Factor,"
In the bankruptcy context, it is well accepted that
In re Stewart, 190 B.R. 846, 851-52 (Bankr.C.D.Ill.1996) (citations and quotations omitted). This principle has arisen most often in the context of the treatment of punitive damage claims in mass tort bankruptcy cases. See, e.g., In re Hillsborough Holdings Corp., 218 B.R. 617, 620 (Bankr.M.D.Fla.1991) [sustaining debtor's objection to portion of judgment creditor's proof of claim reflecting punitive damages awarded in prior state court lawsuit because allowance of the punitive damages "would serve more to punish unsecured creditors than it would to punish the debtor"]; In re Johns-Manville Corp., 68 B.R. 618, 627 (Bankr.S.D.N.Y.1986) ["The purpose of punitive damages . . . is to punish tortfeasors and deter them from their wrongful conduct. . . . Neither purpose would be served by permitting the recovery of punitive damages in this reorganization."]. This protection for creditors was also recognized under the old Bankruptcy Act. Matter of GAC Corp., 681 F.2d 1295, 1301 (11th Cir.1982) [affirming a bankruptcy court's determination that punitive damage claims "are not appropriate in the bankruptcy context because the rationale for punitive damages is to punish the wrongdoer, whereas allowing such claims in bankruptcy would have the effect of punishing innocent third parties, i.e., the other creditors. . . ."]. But it can arise in traditional contractual disputes as well, and "[e]lements of damages which are classified as penalties, such as late charges which excessively compensate an obligee to an executory contract beyond its actual damages, are unenforceable." In re Orfa Corp. of Philadelphia, 129 B.R. 404, 425 (Bankr.E.D.Pa.1991)(emphasis added).
However, these various concerns are simply not present in the current case. The imbalance resolution provisions contained in the Koch Agreement and in Gulf South's FERC Tariff do not fit within the traditional definition of a "penalty" because these contractual provisions are not intended to apply to "a party that breaches" or to "a wrongdoer." Rather, both the Koch Agreement and Gulf South's FERC Tariff recognize that variations between the nominated amount and the actual amount of gas delivered into the respective pipeline systems are ordinary and customary in the gas industry due to the difficulty in precisely estimating the amount of gas available for a shipper (e.g., the Debtor) to ship during any given period.
Nor does the allowance of these portions of the Creditors' claims based upon the "Imbalance Price" or the "Factor," respectively, conflict with the overall philosophy of the Bankruptcy Code to effectuate a fair and equitable distribution of the assets of the estate to creditors. The policy concerns which have often mandated the disallowance of punitive damage claims are simply inapplicable to these claim elements.
Because the enforcement of these contractual provisions do not trigger nor violate the policies for which claims have been legitimately denied or subordinated in other bankruptcy cases as an unenforceable penalty, the Court concludes that the allowance of the $147,789.00 element of Gulf South's claim and the $111,473.00 element of Koch's claim, each arising from the invocation of the imbalance resolution provisions contained in their respective contracts with the Debtor, is appropriate and that the Debtor's objections relating thereto must be overruled.
This memorandum of decision constitutes the Court's findings of fact and conclusions of law