Southern Montana co-op members: Supply contracts void, unenforceable

By Caroline Salls

Pittsburgh, Sept. 24 - Four of Southern Montana Electric Generation and Transmission Cooperative, Inc.'s co-op members filed a lawsuit against the company's Chapter 11 trustee that asks the U.S. Bankruptcy Court for the District of Montana to rule that their supply contracts are void and unenforceable, according to a Sept. 23 court filing.

The plaintiffs are Beartooth Electric Cooperative, Inc., Fergus Electric Cooperative, Inc., Mid-Yellowstone Electric Cooperative, Inc. and Tongue River Electric Cooperative, Inc.

Former Southerm Montana Electric members Yellowstone Valley Electric Cooperative, Inc. and Electric City Power of Great Falls terminated their memberships with Southern Montana earlier this year, leaving the plaintiffs as the cooperative's only members, the filing said.

Plan consequences

According to the lawsuit, the objectives of the plan of reorganization proposed by the trustee for Southern Montana's bankruptcy case are:

• To reorganize Southern Montana Electric as a shell-entity and puppet controlled by Prudential Insurance Co. of America and Morgan Stanley Capital Group, Inc.;

• To strip the plaintiffs of their rights under the supply contracts;

• To usurp Southern Montana's board of trustees' control over the company;

• To make Southern Montana's members, contrary to the bylaws and Montana law, personally liable for obligations owed to Morgan Stanley Capital by the company;

• To avoid the effect of the nonprofit contracts and pay huge profits to Morgan Stanley Capital and Prudential;

• To hold the plaintiffs hostage to new power supply agreements with a provider that bears no resemblance to Southern Montana;

• To use a rate negotiated between the trustee, Morgan Stanley Capital and Prudential to avoid the contractual oversight of the U.S. Department of Agriculture Rural Utility Services and self-regulation of the company's members; and

• To use the court's jurisdiction to "cram down" a plan on Montana rural electric consumers that violates and avoids traditional oversight.

Rulings sought

As a result, the plaintiffs are asking the court to rule that the supply contracts are unenforceable and void for failure of consideration; that they are not assumable or assignable without the consent of the plaintiffs; that the plan "impermissibly modifies the supply contracts without the plaintiffs' consent," which extinguishes the plaintiffs' executory obligations; that the plan results in an impermissible de facto assignment of the supply contracts without the requisite plaintiffs' consent; and that the plan renders the supply contracts void and unenforceable against the plaintiffs.

Southern Montana filed for bankruptcy on Oct. 21, 2011. The Billings, Mont.-based cooperative's Chapter 11 case number is 11-62031.

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