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Note: To collateralize its obligations in excess of its line of credit, Applicant, Enron Power Marketing, posted several standby LCs issued by various banks, naming California Power Exchange Corp., a regulated public utility, as Beneficiary. Shortly before the LCs expired, the Utility drew US$136 million on them.

When Applicant sought relief under Chapter 11 (reorganization) of the U.S. Bankruptcy Code, the Utility claimed that it was entitled to retain the proceeds of the LCs because they "secure a $16,221.36 market-activity claim against Enron as well as 'other amounts to which [Utility] is entitled under applicable law and the [Utility] Tariff.'" Applicant objected and filed an adversary proceeding in the U.S. Bankruptcy Court for the Southern District of New York, Gonzales, J., seeking return of the LC proceeds.

Claiming that the issues raised by Applicant transcended the scope of the bankruptcy, Utility filed a motion in federal district court to remove the adversary proceeding pursuant to 28 U.S.C. § 157(d), which mandates removal "if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce." The U.S. District Court for the Southern District of New York, Casey, J., granted the motion.

The judge ruled that "[t]he Bankruptcy Court cannot adjudicate this objection and determine whether the letter-of-credit proceeds must be turned over to [Applicant's] bankruptcy estate without substantial and material consideration of federal law beyond Title 11", requiring it to determine initially whether or not "this is a garden-variety bankruptcy case" and whether the funds are impacted by federal energy law.

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