* U.S. District Judge, Eastern District of Louisiana, sitting

by designation United States Court of Appeals

Fifth Circuit



## FILED

October 29, 2003

Charles R. Fulbruge III

Clerk IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 02-20447

RELIANT ENERGY SERVICES, INC.,

Plaintiff – Appellant,

versus

ENRON CANADA CORP.,

Defendant-Appellee.

Appeal from the United States District Court

for the Southern District of Texas

Before De MOSS and STEWART, Circuit Judges, and FALLON *

, District

Judge.

DeMoss, Circuit Judge:

Under a Master Nettin g, Setoff, and Security Agreement

(“Netting Agreement”), Reli ant Energy Services, Inc. (“RES”) and

Reliant Energy Services Canada, Ltd. (“RESC”) (collectively,

“Reliant” or “Reliant Parties”) sought $78,468, 996.60 from Enron

Cana da Corporation (“Enron Canada”). Reliant filed a breach of

contract claim in federal court against Enron Canada seeking a

declaratory judgment that the terms of the Netting Agreement made

Enron Canada jointly li able for $78,468,996.60 and an injunction2

requiring Enron Canada to pay this amount into the registry of the

court. Enron Canada moved to dismiss the claim asserting lack of

personal jurisdiction and , in the alternative, that Reliant

violated a 11 U.S.C. § 362(a) bankruptcy stay. The district court

found that personal jurisdiction was not lacking, but agreed that

the bankruptcy stay extended to the Enron Corporation also extended

to its subsidiary, Enron Canada under the “unusual circumstances”

exception articulated in A.H. Robins Co. v. Piccinin

, 788 F.2d 994

(4th Cir. 1986). The district court also found that the terms of

the Netting Agreement imposed no liability on Enron Canada for the

debts of other Enron entities and denied Reliant’s request for a

preliminary injunction. For the following reasons, we conclude

that the terms of the Netting Agreement are ambiguous, and

therefore we vacate the district court’s decision and remand for

further consideration.

BACKGROUND

The dispute arises from a history of trading between Reliant

and five subsidiaries of the Enron Corporation. Reliant and Enron

North America Corp. (“EN A”), Enron Broadband Services, L.P.

(“EBA”), ENA Upstream Company, LLC (“ENAUPSCOM”), Enron Canada, and

Enron Power Marketing, Inc. (“EPMI”) (collect ively, “Enron” or

“Enron Parties”) executed and performed various master sales

agreements that set forth the terms and conditions under which they

traded, purchased and sold natural gas, electricity, and broadband1 Although the Nett ing Agreement refers to at least six

underlying master agreements, the record contains onl y one, the

Master Pow er Purchase & Sale Agreement, an underlying master

agreement between Reliant and EPMI.

3 data capacity (“underlying master agreements”). Each agreement was

between a single Enron party and a single Reliant party and laid

out the terms of their dealings in a single commodity or product.

Reliant and the various Enron subsidiaries performed under

these underlying master agreements without incident for several

years. In October 2001, however, news agencies began publishing

reports that questioned the Enron Corporation’s accounting

practices and the accuracy of their financial statements. At that

time, the Enron Parties approached the Reliant Parties with the

proposed Netting Agreement which effectively combined all of the

existing underlying master agreements into “one single integrated

agreement” governing payment, settlement, collateral, security

interests, defaults a nd other terms. 1 On November 8, 2001, the

Reliant Parties and the Enron Parties execute d the Netting

Agreement.

The Netting Agreement provides that if one of the parties to

an underlying master agreement defaulted on its obligations, the

non-defaulting party could declare all of the u nderlying master

agree ments in default, otherwise referred to as cross-default.

After g iving all the parties notice of the default to the other

parties, under section 2(b), th e “Underlying Master Agreements

Close-Out” provision of the Netting Agreement, the non-defaulting4

party has the right to take the following actions:

(i) accelerate, terminate, and liquidate, or otherwise

close-out all Transactions under its Underlying Master

Agreements as of such designated date; (ii) exercise

rights of setoff, netting and/or recoupment in accordance

with the terms of its Underlying Master Agreements; (iii)

retain any Collateral; (iv) with respect to each

Defaulting Party, withhold payment and performance of

each Non-defaulting Party’s Obligations to each

Defaulting Party to pay, secure, setoff against , net,

and/or recoup such Defaulting Party’s Obligations to such

Non-Defaulting Party; (v) convert any Obligation from one

currency into another currency as set forth in Section 5;

and (vi) take any other action permitted by law or in

equity or by its Underly ing Master Agreements or any

Transactions thereunder necessary or appropriate to

protect, preserve, or enforce its rights or to reduce any

risk of loss or delay.

The exercise of the Section 2(b) right to close -out the

tr ansactions under the underlying master agreements results in a

“Settlement Amount” for each underlying master agreement. The term

“Settlement Amount” is defined as “the net amount that is due and

payable by one Party to the other Party in respect of an Underlying

Master Agreement upon the exercise by the Non-defaulting Party of

the rights set forth in Section 2(b).” (emphasis added). The

Netting Agreem ent provides that “‘Party’ means ENA, EPMI, EBS,

ENAUPSCOM, ECC (Enron Canada), RES, and RESC as the context

indicates, and ‘Parties’ means all of the foregoing.” Section 4 of

the Netting Agreement provides for a netting or offsetting of the

settlement amounts derived from each underlying master agreement to

arrive at a fina l settlement amount that is payable by the group

fro m whom such payment is due. Moreover, it sets forth the2 Section 4 provides in relevant part as follows:

Upon Non-defaulting Group’s exercise of the

Underlying Master Agreements Close-Out, the

Settlement Amounts under the Underlying Master

Agreements shall be netted and reduced by the

exercise of rights to apply Collateral

pursuant to all rights granted in this

Agreement (as so netted and reduced, the

“ Final Settlement Amount ”). Upon determination

of the Final Settlement Amount, Non-defaulting

Group shall provide Defaulting Group with a

statement showing the calculation of the Final

Settlement Amount. The Final Settlement Amount

shall be payable by the Group from whom such

payment is due on the third Business Day after

the statement is provided. In the event of a

dispute as to the Final Settlement Amount

payable by a Group, such Group s hall, within

the time prescribed herein, pay the undisputed

amount of the Final Settlement Amount without

del ay. If the Parties are unable to resolve

the disputed amount of the Final Settlement

Amount within 10 days, the matter shall be

submitted to arbitration in accordance with

Section 16. (underlining added)

5 procedure by which the final settlement amount is to be remitted. 2

On November 30, 2 001, Reliant issued notice to the Enron

parties, pursuant to Section 2 of the Netting Agreement that EPMI

was in default on the Master Power Purchase and Sale Agreement, an

underlying master agreement; and therefore, that all of the Enron

Parties were in default under the Netting Agreement. On December

2, 2001, the Enron Parties, except for Enron Canada, filed for

Chapter 11 bankruptcy protection. Thereafter, these Enron Parties

were protected from suit through the automatic stay provision of 11

U.S.C. § 362(a). After netting the settlement amount as required

by Section 4, Reliant determined that the final settlement amount3 Rel iant reached this $78,486,996.60 amount by subtracting

the amounts that Reliant owed different Enron Parties from the

total deficit. Prior to netting, Reliant Canada owed Enron Canada

in excess of $4,000,000.

4 Reliant f iled suit only as the domestic entity of Reliant

Energy Services, Inc., thus avoiding any potential subject matter

jurisdiction problems due to lack of diversity. Federal

jurisdiction, however, arises from 28 U.S.C. § 2201.

6 payable by the Enron Group to be $78,468,996.60. 3 On February 19,

2002, Reliant sent notice to EPMI through ENA stating that a “final

settlement amount” was due, but that no funds were forthcoming. The

very next day, Reliant sent a letter stating that “[n]othing

contained in the [February 19 letter] was intended to be, nor

should be construed to have been a violation of 11 U.S.C.

§ 362(a),” the automatic stay provision of Chapter 11 bankr uptcy

protection.

On February 26, 2002, Reliant filed suit against Enron Canada,

the only Enron party which had not filed for bankruptcy

protection. 4 Reliant claimed that Enron Canada breached the

Netting Agreement, seeking i nter alia

, injunctive relief and a

declara tion that Enron Canada was jointly liable for the

$78,468,996.60 under the Netting Agreement. Enron Canada filed a

motion to dismiss, arguing, among other things, that it was not

subject t o the court’s jurisdiction, that Reliant’s suit was

subject to the automatic stay in bankruptcy, and that Enron Canada

was not l iable for the debts of its affiliates under the Netting

Agreement. The district court dismissed Reliant’s suit, finding7

that it was subject to the automatic stay and that Enron Canada did

not owe $78,468,996.60 to Reliant under the Netting Agreement.

DISCUSSION

Does the Netting Agreement impose joint liability upon the Enron

parties?

The dist r ict court determined that generally the Netting

Agreement does not impose an affirmative obligation on one party to

cover all the debts of another. Thus, as part of its analysis of

whether to extend the bankruptcy stay to Enron Canada, the district

court determined that the Netting Agreem ent limits the forms of

recovery to which Reliant is entitled. In particular, the district

court determined that the language of the Netting Agr eement

unambiguou sly includes the right to terminate, liquidate, net,

setoff, and apply collateral; and does not include the right to

impose joint liability on Enron Canada.

We re view the district court’s interpretation of the Master

Netting Agreement de novo . A determination of whether a contract

is ambiguous and the interpretation of a contract are questions of

law, which on appea l are reviewed de novo. Stinnett v. Colorado

Interstate Gas Co.

, 227 F.3d 247, 254 (5th Cir. 2000). As this

litigation involves the free trade of commodities wi th Canada, a

free trade area country, federal jurisdiction is based on 28 U.S.C.

§ 2201; and therefore, federal law governs the interpretation of

the Netting Agreement. See United States v. Taylor

, 333 F.2d 633,

638 (5th Cir. 1964) (“[I]t is clear that federal law will control5 Although under Section 9 of the Nett ing Agreement, the

parties agreed that the contract shall be governed by and construed

in accordance with the laws of the Stat e of New York, there is

sufficient federal interest such that federal law governs the

interpretation of this contract.

8 contracts between private parties if there is sufficient federal

interest.”). 5 A contract is ambiguous only if its meaning is

susceptible to mult iple interpretations. The mere fact that the

parties may disagree on the meaning of a contractual provision is

not enough to constitute ambiguity. When a contract is expressed

in unambiguous language, its terms will be given their plain

meaning and will be enforced as written. Certain Underwriters at

Lloyd’s London v. C.A. Turner Constr. Co. , 112 F.3d 184, 186 (5th

Cir. 1997). “When interpreting a contract, the question is what

was the parties’ intent, [because] courts are compelled to give

effect to the parties’ intentions.” Pennzoil Co. v. FERC

, 645 F.2d

360, 388 (5th Cir. 1981). To determine intent, we look to the

plain language of the contract, its commercia l context, and its

purposes. I d. ; see also

, Transnat’l Learning Cmty at Galves ton,

Inc. v. United States Office of Pers. Mgmt.

, 220 F.3d 427, 431 (5th

Cir. 2000) (“[A] contract should be interpreted as to give meaning

to all of its terms-–presuming that every provision was intended to

accomplish some purpose and that none are deemed superfluous.”).

Both Reliant and Enron Canada argue that the Netting Agreement

is un ambiguous in their respective favors. Reliant asserts that

use of the term “Group” in Section 4 of the Netting Agreement

-9

“the Final Settlement Amount shall be payable by the Group from

whom such payment is due”

- imposes liability on Enron Canada

because it is part of the Enron Group. Reliant also makes several

arguments th at the Netting Agreement imposes joint liability on

Enron Canada. Enron Canada asserts that Section 4 embodies only

two functions, neither of which imply joint liability. First, it

obligates payment from the original group from whom the money was

due consistent with the applicable underlying master agree ment.

Second, it creates a mechanism for calculating the final settlement

amount against tha t particular party after setoff. The primary

difference between the two interpretations is that Enron Canada

contends that the Netting Agreement only entitles Reliant to set

off the amount they owe to Enron against the amount owed to them in

order to calculate the final sett lement amount; while, Reliant

believes th at they are entitled to not only set off the amounts,

but also to choose from whom they wish to collect. Though both

parties argue that the contract unambiguously compels a finding in

their favor, we disagree and find that the contract is ambiguous as

to whether it imposes joint liability on the various Enron Parties.

If a contract imposes joint liability on several parties then

all joint obligors are bound for the whole performance of the

contract. This is the consistent view of the various treatises on

contract law and the Restatement (Second) of Contracts which is the6 This also appears to be the law in Texas, the location of

the district court where the case was heard, and the law in New

York, which is the state whose laws were contractually agreed upon

to apply to the contract. S ee Pitman v. Lightfoot

, 937 S.W.2d 496,

528 (Tex. Civ. App.

- San Antonio 1996 writ denied); I n re Moss

,

249 B.R. 411, 420 (Bankr. N.D. Tex. 2000); Mfgs . & Traders Trust

Co. v. Lindauer

, 513 N.Y.S.2d 629, 634 (N.Y. Sup. Ct. 1987)

(quoting Williston on Contracts); see also Holland v. Fahnestock &

Co., Inc.

, 210 F.R.D. 487, 502 (S.D.N.Y. 2002) (stating that

“[i]nherent in the concept of joint and several liability is the

right of a plaintiff to satisfy its whole judgment by execution

against any one of the multiple defendants who are liable to

him.”).

10 law of this Circuit as well. 6 S ee Restatement (Second) of

Contracts 2d §§ 288-89; see also DeLeon v. Lloyd’s London, Certain

Underwriter’s

, 259 F.3d 344 (5th Cir. 2001) (citing Pitman ). As a

general rule, an obligation entered into by more than one person is

presumed to be joint. Williston on Contracts, § 36:3 at 621 (4th

ed. 1999).

This presumption will not be overcome unles s there are

either (1) express words to render the obligation several

or joint and several (often referred to as “words of

severance”); (2) the terms of the promise considered in

the light of the surrounding circumstan ces indicate an

intention to be boun d severally, or jointly and

severally; or (3) there is a statute that declares that

every contract, though joint in i ts terms, is to be

considered several as well as joint.

Id. at 621-23. The Restatement (Second) of Contracts 2d § 288

similarly provides:

Promises of the Same Performance

(1) Where two or more parties to a contract make a

promise or promises to the same promisee, the manifested

intention of the parties determines whether they promise

that the same performance or separate performances shall

be given.11

(2) Unless a contrary intention is manifested, a promise

by two or more promisors is a promise that the same

performance shall be given.

Restatement (Second) of Contracts 2d § 288 (1981). Also under

§ 289, if promisors have entered a contract jointly then they are

each bound for the whole per formance. However, determining what

parties are obligated under a multi-party, multi-promise agreement

is much more comp licated. Indeed, as Corbin on Contracts

instructs, “[i]t must be borne in mind that two or more persons

may, by a single instrument cont aining only one promissory

expression, bind themselves to pay wholly separate sums of money or

to render any other entirely distinct performances.” 9 Corbin on

Contracts § 937 at 685 (interim ed. 2002). Corbin goes on to

explain that parties may subscribe separate amounts but that this

may come down to merely how a contract is interpreted. I d. at 685-

86.

As no statute exists to displace the joint obligations, this

Court must determine whether the Netting Agreement imposes several

or joint obligations upon the Enron parties looking to the contract

for (1) express words which might render the obligations several or

joint and several, or (2) whether the terms of the promise

considered in the light of the surrounding circumstances indicate

an intention to be bound severally, or jointly and severally. The

sentence of Section 4 which is underlined in footnote 2 supra is of

critical importance in this regard. This sentence is an express12

covenant for payment of the amount of the Final Settlement Amount

at a date certain by “the Group from whom such payment is due.”

This covenant of payment is separate and distinct from all of the

other covenants between the parties; and is in our view the

ultimate purpose of the Netting Agreement. The Netting Agreement

states that the term “‘Group’ means Enron Group or Counterparty

Group, as applicable.” The Netting Agreement defines “Enron Group”

to mean “all Enron Parties.” Moreover, the Netting Agreement

defines “Enron Party” as meaning “any of ENA, EPMI, EBS, ENAUPSCOM,

and ECC (Enron Canada).”

If the term “all Enron Parties” is inserted in place of the

word “Group” in the critical sentence of Section 4 of the contract,

it would read: “The Final Settlement Amount shall be payable by all

Enron Parties from whom such payment is due on the third business

day after s uch statement.” The words “from whom such payment is

due” would modify “all Enron Parties” which would seem to indicate

that the particular party that owes money is obligated to pay.

Under this reading, the plain language of the N etting Agreement

would impose no liability on Enron Canada to pay the final

settlement owed to Reliant as a result of EPMI’s default under the

Master Power Purchase and Sale Agreement. Such a reading could

indicate that the language of Section 4 is intend ed to sever the

obligation of each party to pay debts accrued under all o f the

underlying m aster agreements. S ee Alexander v. Wheeler

, 40713

N.Y.S.2d 319, 320 (N.Y. App. Div. 1978) (explaining that under New

York law, words of severance are necessary to overcome a

presumption of joint obligations). The difficulty with this

reading, however, is that it renders the determination of the Final

Settlement Amount meaningless, for that amount is itself clearly a

sum resulting from off-setting all of the various amounts owed

between the Enron Parties and Counterparties (Reliant) on the

underlying master sales agreements. In other words, it makes

little sense for the parties to calculate a Final Settlement Amount

if that amount cannot be collected from any entity. Furthermore,

this reading would negate the purpose of the cross-default right,

found in Section 2 (b), and the cross-collateral rights, found in

S ection 6 and Annex A, which the Netting Agreement clea rly

contemplates for the benefit of the Non-Defaulting Party.

However, the terms of Section 4 may also be reasonably read

another way. The phrase “from whom such payment is due” could be

read as modifying the word “Group” and the word “Group” means

“Enron Group or Counter Party Group, as applicable .” The phrase

“from whom such payment is due,” therefore, permits us to determine

which of the two meanings of the word “Group” is “applicable.”

There is no dispute that the “Final Settlement Amount” was properly

determined in accordance with the language of the Netting Agreement

and the net balance owed wa s from the Enron Group to the Counter

Party Group, (Reliant). Consequently, once used for this purpose

the phrase “from whom such payment is due” would be surplusage and14

the relevant sentence could be interpreted as reading: “the Final

Settlement Amount shall be payable by all Enron Parties on the

third business day after the statement is provided.” Under this

interpretation of the contract language, “all Enron Parties” would

be jointly liable to pay the final settlement amount. This raises

the question, however, that if this was the intended meaning, why

did the parties not repeat using the term “Defaulting Group”

instead of “Group” in Section 4 and omit the phrase “from whom such

payment is due” all together. A possible explanation is that until

the Final Settlement Amount is actually determined as of the point

in time when the right to close out all of the underlying

agreements has been exercised, there is no way to predict whether

the Defaulting Party will owe money to the Non-Defaulting Party, or

vice versa. Therefore, the parties used the phrase “by the Group

from whom such payment is due” to cover either eventuality. Adding

additional confusion to this issue is the fact that the Netting

Agre ement makes no mention anywhere else amongst its provisions

that the obligations are being entered into jointly as to payment

of the Final Settlement Amount.

Viewing the M aster Netting Agreement as a whole adds no

further illumination on the subject. The Netting Agreement

purports to incorporate all of the underlying agr eements between

the various parties, but the only underlyin g agreement in the

record on appeal is the Master Power Purchase & Sale Agreement

between Reliant and EPMI; and that underlying agreement, creates no15

rights to collect amounts owed from anyone but the parties involved

in that particular contract. Though the parties agree that the

Netting Agreement creates the right to set-off amounts owed between

the different Enron and Reliant parties, this does not necessarily

mean that the Final Settlement Amount can be collected from any

party unless that party is otherwise jointly and severally liable.

In short, nothi ng in the Netting Agreement expressly states the

parties’ intentions as to whether the Final Settlement Amount is or

is not a joint obligation of the members of the “group from whom

such payment is due.” As such, we find that the Netting Agreement

is ambiguous as to this point and particularly with respect to

Section 4 and the meaning of the term “Group.” The district court

did not make a finding as to the intentions of the parties as it

apparently felt the contract was unambiguous in favor of Enron

Canada and granted summary judgment in Enron’s favor. We disagree

and find that the Netting Agreement is ambiguous and therefore

remand this case to the district court to make a factual

determination as to the intentions of the parti es and, in

particular, to determine the parties’ intended meaning of the term

“Group” in Section 4.

Does the bankruptcy stay extend to Enron Canada?

The district court also granted Enron Canada’s motion to

dismiss based on the bankruptcy stay in place for the other Enron

entities. The district court based this decision, in part on A .H.16

Robins Co. v . Piccinin , 788 F.2d 994 (4th Cir. 1986), and found

that the present case constituted the type of unusual circumstances

that should extend a bankruptcy stay. Reliant claims that this

case was an inappropriate extension o f the bankruptcy stay

provisions and that the Fifth Circuit has never adopted the

reasoning of A.H. Robins Co

.

This Court reviews the scope of an automatic stay de novo

.

Kosadnar v.Metropoli tan Life Ins. Co. , 157 F.3d 1011, 1013 (5th

Cir. 1998). The purposes of the bankruptcy stay under 11 U.S.C.

§ 362 “are to protect the debtor’s assets, provide temporary relief

from creditors, and further equity of distributio n among the

creditors by forestalling a race to the courthouse.” G atx Aircraft

Corp. v. M/V Courtney Leigh , 768 F.2d 711, 716 (5th Cir. 1985).

“By its terms the automatic stay applies only to the debtor, not to

co-debtors under Chapter 7 or Chapter 11 of the Bankruptcy Code nor

to co-tortfeasors.” I d. This Court has also noted that “[s]ection

362 is rarely, however, a valid b asis on which to stay actions

against non-debtors.” A rnold v. Garlock, Inc. 278 F.3d 426, 436

(5th Cir. 2001). However, an exception to this general rule does

exist, and a bankruptcy court may invoke § 362 to stay proceedings

against nonbankrupt co-defendants where “there is such identity

between the debtor and the third-party defendan t that the debtor

may be said to be the real party defendant and that a judgment

against the third-party defendant will in effect be a judgment or17

finding agai nst the debtor.” A .H. Robins Co.

, 788 F.2d at 999.

This Court recognized the A.H. Robins Co. ’s exceptio n in A rnold

,

but declined to extend it in that case because no claim of a formal

t ie or contractual indemnification had been made to create an

identity of interests between the debtor and nondebtor. 278 F.3d

at 436. Also, in E dwards v. Armstrong World Industries

, this Court

refused to extend the A.H. Robins exception to a surety, holding

that a supersedeas bond may be executed against the surety of a

judgment debtor. 6 F.3d 312, 316-17 (5th Cir. 1993), reversed on

other grounds , 514 U.S. 300 (1995).

Though the district court found t hat the exception should

extend to Enron Canada in this case, its order was premised largely

on its finding that Enron Canada was not obligated under the

contract to pay for the debts of the other Enron parties. The

district court’s conclusi on that the Netting Agreement does not

impose joint liability upon the different Enron Parties was

actually a part of its analysis as to whether or not the bankruptcy

stay should extend to Enron Canada. As the district court premised

its decision on its interpretation of the Netting Agreement, and as

we have held that the Netting Agreement is ambiguous, we vacate the

district court’s decision to extend the bankruptcy stay, and remand

to the district court to reconsider this issue in light o f its

finding s as to the meaning of the Netting Agreement. Should the

district court find that the Netting Agreement imposes no7 “A prelimin ary injunction is an extraordinary equitable

remedy that may be granted only if the plaintiff establishes four

elements: 1) a s ubstantial likelihood of success on the merits;

(2) a substantial threa t that the movant will suffer irreparable

injury if the injunction is denied; (3) that the threatened injury

outweighs any damage that the injunction might cause the defendant;

and (4) that the injunction will not disserve the public interest.”

Hoover v. Morales , 164 F.3d 221, 224 (5th Cir. 1998).

18 obligation upon Enron Canada to cover the debts of the other Enron

parties, then the bankruptcy stay issue will become moot. If,

however, th e district court finds that a joint obligation is

imposed by the Netting Agreement, then it will have to re-visit

this issue in light of that new finding.

CONCLUSION

As we find that the Netting Agreement between Reliant and

Enron is ambiguous as to its language regarding whether the Enron

parties are jointly liable, we REVERSE the district court’s grant

of summary judgment and REMAND the case to the district court. On

remand, the district court is to determine the intentions of the

parties’ as to liability under the contract, and, in particular, to

determine the parties’ intended meaning of the term “Group” in

Section 4. A s the district court’s denial of Reliant’s request for

a preliminary injunction appears to have been b ased on its

dismissal of the case on its merits, we REVERSE the district

court’s decision on this issue as well so that, on re mand, the

district court may de termine whether Reliant has established the

necessary elements to entitle it to a preliminary injunction. 7 As19

the district court relied upon its conclusion that the Netting

Agreement imposes no joint obligations upon the various Enron

parties in its deci sion to extend the bankruptcy stay, and as we

have remanded the case on that issue, we also VACATE the district

court’s decision in this regard and REMAND for further proceedings

consistent with this opinion. We do not comment, therefore, on

whether the 11 U.S.C. § 362(a) bankruptcy stay extends to Enron

Canada.

VACATED, in part, and REVERSED and REMANDED.CARL E. STEWART, Circuit Judge, dissenting:

I respectfully dissent from the panel majority’s conclusion that the Master Netting, Setoff, and

Security Agreement (“Netting Agreement”) is ambiguous regarding joint liability for the following

reasons. I agree with the majority’s statement of the facts and procedural history, so I will not recite

them here.

The majority concludes that a contract that is absolut ely devoid of any reference to “joint

liabilit y” and that painstakingly circumscribes the respective rights and obligations of the parties inter

se upon an event of default on an underlying agreement, is ambiguous regarding whether it imposes

an affirmative obligation on one party to cover all the debts of anothe r. The majority further

concludes t hat t his ambiguity requires remanding this case to the district court, ostensibly for the

purpose of adducing evidence of the parties’ intentions regardi ng t heir respective obligations. I

disagree with both conclusions.

The thrust of the majority’s opinion is that the Netting Agreement is ambiguous because it

is susceptible to two possible interpretations: one which the majority concedes gives effect to the

plain meaning of the contractual language, and a second interpretation which, by the majority’s own

admission, renders other provisions of the contract surplusage and is at best unsupported by any other

contractual term.

As the majority acknowledges, a contract is not ambiguous merely because it is susceptible

to two or more interpretations. Moreover, it is axiomatic that a contract is susceptible to two or

more interpretations only if more than one of the alternative reading s advanced is viable. To

“det ermin[e] the presence of ambiguity vel non,” this Court must both examine the provision in

question and construe t hat pro vision in the context of the agreement as a whole. C entral States,21

Sou t heast and Southwest Areas Pension Fund v. Creative Dev. Co. , 232 F.3d 406, 414 (5th Cir.

2000). The particular provision targeted by the majority as the source of ambiguity in the parties’

Netting Agreement appears in section 4, which states in pertinent part:

Upon Non-defaulting Group ' s exercise of the Underlying Master

Agreements Close-Out, the Settlement Amounts under the Under lying

Master Agre ement s shall be netted and reduced by the exercise of

rights to apply Collateral pursuant to all rights granted in this

Agreement (as so netted and reduced, the “Final Settlement

Amount”). Upon determination of the Final Settlement Amount,

Non-defaulting Group shall prov ide Defaulting Group with a

statement showing the ca lculation of the Final Settlement Amount.

The Final Settlement Amount shall be payable by the Group f rom

whom such payment is due on the t hird Business Day after the

statement is provided.

It is undisputed that the functional purpose of this provision is to set fo rth the ri ghts and

duties of the parties following the exercise of the Close-Out remedies afforded by Sections 2(b) and

3 in the event of a default on an underlying master agreement. What is in dispute is the scope of the

remedies contemplated by Section 4, specifically, whether that provision imposes joint liability on

the parties to the Netting Agreement. Reliant argues that because all of the Enron parties are subject

to the Netting Agreement, each individual party is jointly obligated under the contract. Enron Canada

counters that the Netting Agreement functions to aggregate a series of underlying master agreements

between and among various parties into one agreement for the limit ed purpose of triangular setting

off and netting payments consistent with the underlying agreements. The majority, finding both of

the conflicting interpretations staked out by t he part ies in favor of their respective positions

problematic, concluded that section 4 o f t he Netting Agreement is ambiguous. I disagree, for the

following reasons.22

In determining whether a contractual provision “could have more than one sensible meaning

and thus be ambiguous,” this Court has found it helpful to engage in the “venerable deductive exercise

known as the process of elimination.” C reative Dev. Co.

, 232 F.3d at 414. Applied here, this Court

must “first identify all of the possible” procedural and remedial functions of the provision at issue that

the “words themselves could conceivably refer to in the context of the entire . . . [a]greement.” Id

.

“We then examine each such possibility to see if it withstands legal analysis and remains a sensible

reading of the agreement. If two or more of the possibilities remain viable, there is ambiguity; but

if only one is left standing, there is no ambiguity.” Id

.

The parties and the majorit y have identified two possible interpretations of the impact of

section 4's phrase “ Group from whom payment is due ” on t he scope of the parties’ rights and

obligations: 1) Reliant’s position, that section 4 imposes joint liabilit y on Enron Canada for debts of

all of its affiliates; and 2) Enron Canada’s position, that section 4 merely obligates payment from the

original group from whom money was due consis t ent wit h the applicable underlying master

agreement and creates a mechanism for calculating the final settlement amount against that particular

party after set-off.

The majority finds Reliant’s assertion that joint liability is evinced by the use of the word

“Group” in Section 4 sufficiently compelling to conclude that the parties’ agreement is ambiguous.

Under the majority’s proposed construction, the phrase “from whom such payment is due” modifies

“Group,” and merely permits a determination of which o f t he two meanings of “Group” (Enron

Group or “Counter Party Group”) “is applicable,” with the result being that “‘all Enron Parties’

would become jointly liable to pay the final settlement amount.” I disagree because, as the majority

acknowledges, this reading renders the phrase “from whom such payment is due” surplusage once23

the “Group” is identified in context. “When interpreting a contract, however, this Court is obligated

to give meaning to all of its terms–presuming that every provision was intended to accomplish some

purpose, and that none are deemed superfluous.” T ransitional Cmty. at Galveston, Inc. v. U.S. Office

of Pers. Mgmt. , 220 F.3d 427, 431 (5th Cir. 2000); Transco Exploration Co. v. Pacific Employers

Ins., Co.

, 869 F.2d 862, 864 n.2 (5th Cir. 1989)(instructing that in contract interpretation we must,

“where possible, construe the words so as to harmonize all while rendering none superfluous”). In

t he instant case, the contract provides that New York law governs, but the analysis is the same.

“Under New York law an interpretation of a contract that has the effect of rendering at least on e

clause superfluous or meaningless

. . . is not preferred and will be avoided if possible.” G alli v. Metz

,

793 F.2d 145, 149 (2d Cir. 1992)(quoting Garza v. Marine Transp. Lines, Inc

., 861 F.2d 23, 27 (2d

Cir. 1988)). “Rather, an interpretation that gives a reasonable and effective meaning to all terms of

a contract is generally preferred to one that leaves a part unreasonable or of no effect.” Id

. (internal

quotati ons and citations omi tted). Thus, we cannot l eave out term s of a contract or render them

surplusage and then declare that there is an ambiguity, itself a result of refusing to give effect to the

con t ract ’s express provisions. The effect of the approach taken by the majority is to create a gap

where there was none, necessitating resort to putative suppletive rules of joint liabilit y that otherwise

appear to be precluded by the contract’s terms, purpose, and commercial context.

Indeed, the majority acknowledges the incongruity of Reliant’s construction with the contract

as a whole: “The netting agreement purports to incorporate all of the underlying agreements between

the various parties, but the only underlying [master] agreement in the record,” the contract between

Reliant and EPMI, “creates no rights to collect amounts owed from anyone but the parties involved

in that particular contract.” The majority further concedes that the Netting Agreement’s conferral24

of the right to offset “amounts owed between two different Enron and R eliant parties does not

necessarily mean that a party can collect the Final Settlement amount from all of its counter parties

jointly and severally.” From this, the majority concludes the contract is ambiguous.

However, I find that the interpretation offered by Reliant is neither persuasive nor is it even

plausible a lt ernat ive interpretation. Contrary to the majority’s view, I find that the only viable

interpretation, and the one that gives effect to the entirety of the parties’ agreement, is that espoused

by Enron Canada, and thus no ambig uit y exists. Indeed, the majority concedes that “the plain

language of the netting agreement would impose no liabilit y on Enron Canad a t o pay the final

settlement owed to Reliant as a result of EPMI’s default under the Master Power Purchase and Sale

Agreement.” As observed by the majo rity, the definitional language of the Netting Agreement

compels this interpretation; by inserting “all Enron Parties” in place of “Group,” the disputed sentence

in Section 4 would indicate that the particular party that owes money is obligated to pay, rather than

the aggregate of all parties affiliated with the original defaulting party.

Nonetheless, the majority endeavors to go beyond the plain meaning of the agreement’s terms

to insert ambiguity where I see none. At the core of the majority’s analysis is its view, shared by

Reliant, that giving effect to the “plain meaning” of the contract would “render[] the determination

of the Final Settlement Amount meaningless,” and “negate the purpose of the cross-default right

. .

. in section 2(b) and the cross-collateral rights found in section 6 and annex A.” In other words, the

majority concludes that Enron Canada’s interpretation of the Netting Agreement renders the other

provisions superfluous. In so doing, the majority misapprehends the functions of these provisions.

I will address each of these in turn.

First, in concluding that an interpretation of section 4 in accordance with its “plain meaning”8 Under the terms of the contract, the “Final Settlement

Amount” is different from the “Settlement Amount” and constitutes

a different calculation as set forth in Section 4.

25 renders “the determination of a Final Settlement Amount meaningless,” the majority mistakenly finds

that this reading of Section 4 imposes no further duty upon the individual parties other than that in

the set-off provision in Section 3 of the Netting Agreement. I disagree because these two sections

unambiguously impose different duties on the parties. Section 3 contains the terms and conditions

by which the non-defaulting group may setoff amounts owed among the different parties under the

various underlying master agreements in order to reach a final settlement amount. Section 4 sets out

the terms by which payment will be made once the final settlement amount is reached and also

provides for arbitration if there is a dispute over the amount. Alth o ugh Section 3 expressly grants

Reliant the right to offset “any and all sums, amounts, or Obligations Owed by Defaulting Party to

any Non-Defaulting Party” without further notice, Section 4 does not merely echo the same. Whereas

Section 3 entitles Reliant to setoff without further notice, Section 4 provides a method for calculating

the final settlement amount 8 and a process fo r no tifying the defaulting parties of that amount. The

parties’ intent could not be more plain. Indeed, Reliant exercised its rights under Sections 2 and 3 and

its rights to determine the final settlement amount and to notify Enron of that amount consistent with

Section 4.

Second, the majority mistakenly concludes that Enron Canada’s plain meaning interpretation

of Section 4 negates the purpose of the cross-default rights in Section 2. The majority’s reasoning

is flawed because it assumes that assigning a cross-default right is tantamount to joint and several

liabilit y. In other words, the majority’s view appears to be that because section 2 allows for assigning

cross-default (enabling, for example, Reliant to declare Enron Canada in default of EPMI’s debts),26

then Enron Canada must have an affirmati v e obligation to pay the other party’s debts. I disagree.

Under Section 2(b), upon the occurrence of a default of any of the underlying master agreements, the

non-defaulting group may declare the defaulting group in default of all underlying master agreements.

Section 2 also provides the non-defaulting party the right to setoff its debts. Thus, by imposing crossdefault on the Enron Group as a result of the default of an underlying master agreement, Reliant can

exercise its right to setoff. As the Supreme Court has explained, the right of setoff itself is a valuable

right. S ee Citizens Bank of Maryland v. Strumpf

, 516 U.S. 16, 18 (1995) (“The right of setoff ...

allo ws ent it ies that owe each other money to apply their mutual debts against each other, thereby

avoiding ‘the absurdity of making A pay B when B owes A.”) (internal quotati on marks and citation

omitted).

Neither this right to set-off nor the right to assign cross-default entitle Reliant to the right to

collect payment from an Enron party of its choosing. The purpose for allowing cross-default is clear.

The Netting Agreement was written to ensure that Reliant and Enron had the right to offset, close

out, and liquidate all of the underlying mast er agreements. In order to facilitate those rights, the

Netting Agreement provided for cross-default. There is no indication in the language of the contract

that the purpose of allowing cross-default is to impose joint liability or to entitle Reliant to choose

from which Enron Party to collect the final set tlement am ount. R ather, the Netting Agreement’s

cross-default simply allows a non-defaulting party to net-out obligatio ns upon the default of a

counterparty

, and, if insolvency is on the horizon for a defaultin g party, the Netti ng Agreem ent

permits the non-defaulting party to “close-out” ( i.e . terminate) the transaction to prevent the nondefaulting party’s losses from escalating. S ee Mark R. Smith, Basic Derivatives for the Oil and Gas

Company , 39 Alberta L. Rev. 152, 171-72 (2001). By operation of the netting agreement’s cross-27

default provision, a non-defaulting party may choose to close-out all transactions under its underlying

master agreements “across the board,” even if the triggering event of default involved only one such

agreement. Coupled with the net-off, set-off, recoupment, and cross-collateral rights that vest in a

non-defaulting party upon the happening of a counterparty’s default, the extension of default status

to the affiliat

es of the offending counterparty significant ly mitigates the non-defaulting party’s losses.

Third, the majority mistakenly conc ludes that to find that Section 4 does not impose joint

liabilit y would negate the purpose of the cross-collateral rights contained in Section 6 and the Annex

of the Netting Agreement. Like Section 2, however, the cross-collateral rights set forth in the Netting

Agreement mitigate the non-defaultin g part y’s losses upon the default of another by securing the

“aggregate” obligations of the defaulting party and its affiliates (“Counter Party Group”). Thus, in

the event of a default, the non-defaulting party may apply the collateral from the counterparty of its

choosing to satisfy the obligation o wed under the applicable underlying master agreement.

Interpreting the Netting Agreement to create several obligations is in no way inconsistent with this

provision. Rather, the provision expressly limits the remedy available to the non-defaulting party (and

thus the exposure of all parties in the defaulting group) to the exhaustion of the amount of collateral

pledged.

In essence, the majority finds that a provision that in advance sets forth the amount and source

of recovery available to a party upon the default of another is “meaningless” if, when its plain meaning

is given effect, the non-defaulting party’s recovery is limit ed in source and amount such that it bears

the risk of a defaulting party’s insolvency to the extent the non-defaulting party itself does not owe

payment unde r an underlying master agreement to a party in the defaulting group. It is not this

Cour t ’s place, however, to second-guess the wisdom of a contractual provision whose meaning is28

plain. This is especially true in this case, where the parties entered into the Netting Agreement on the

heels of publicity indicating that Enron might be at risk for insolvency, and thus ostensibly designed

the Netting Agreement to manage their exposure to risk.

The express purpose of the Netting Agreement limits the rights and remedies of the parties

in the event of a default of an underlying master agreement. The language of the contract

painstakingly details the limit ed rights and remedies of the parties. As the Netting Agreem ent

provides in its recitals:

Each Co unterparty Party desires now to provide in this Agreement for its right t o

terminate, liquidate, net, setoff, and apply Collateral upon a Default by, and prior to

Default determine the Collateral requirements of, any Enron Party under any one or

more of the Underlyin g Master Agreements as herein specified, including, without

limitation, by permitting each Counterparty Party to terminate, liquidate, net, setoff,

and apply Collateral across all of the Underlying Master Agreements and to treat this

Agreement, the Underlying Master Agreements, and all Transactions thereunder as

a single agreement, whether or not the Obl igat ions arising under the Underlying

Master Agreements and Transactions thereunder are in connection with (a) c ash

settled Transactions or physically set t led Transactions or (b) securities contracts,

forward contracts, commodities contracts, repurchase agreements, swap agreements,

or similar agreements.

The Netting Agreement defines “Counterparty” a s “RES and RESC (Reliant).” This language

indicates that under this Netting Agreement, Reliant’s rights are limited to termination, liquidation,

netting, setoff, and the application of Collateral. The language also suggests that the obligations of

the parties arise from the underlying master agreements and their referenced transactions. There is

no language in the contract that entitles Reliant to choose from which Enron party they will collect

a debt created by the obligations arising under an underlying master agreement. Nowhe re in the

language of this carefully crafted Netting Agreement is there an express or implied imposition of an

obligation of Enron Canada to pay the debts of any other Enron party.9 Reliant’s November 30, 2001 letter providing no tice of

default states in relevant part:

Pursuant to Article 2 of the Agreement, the Reliant

Parties wish to informyou that under the Master

Power Purchase and Sale Agreement dated effective

September 22, 2000 between RES (Reliant) and EPMI,

an Event of Default(s) under Section 5.1(g) and/or

Section 5.1(h)(iii) has occurred and is continuing.

29 After reviewing the Netting Agreement as a whole, I find that the interpretation advanced

by Reliant is not a viable alternative construction of the contract. Because I am persuaded by Enron’s

interpretation of the Netting Agreement, the only possible alt ernative reading left, I find that the

Netting Agreement unambiguously precludes a finding of joint liabilit y by limit ing the rights and

remedies available to the parties to those exp resssly set forth therein. Nowhere in the Netting

Agreement does it state that the parties are jointly liable. The words of the Netting Agreement are

clear that each group has the right to “terminate, liquidate, net, setoff, and apply Collateral across all

of the Underlying Master Agreements.” Indeed, this list appears several times throughout the Netting

Agreement. As evidenced by the Master Power Purchase and Sale Agreement, the parties aggregated

some of the rights fo und in the underlying master agreements, but did not alter their payment

responsibilities under those underlying master agreements. The parties were careful to provide for

guarantors in the underlying master agreements, as evidenced by the language of the Master Power

Purchase and Sale Agreement, but chose not to use analogous language in the Netting Agreement.

Rather, the parties expressly enumerated the rig ht s and remedies available under the Netting

Agreement. The contract must be read to express the parties’ intent not to impose joint liabilit y under

the Netting Agreement. I read the contract to not i ncl ude the guaranteei

ng of the debts of coparties. 930

Reliant’s view of the Netting Agreement carelessly conflates different rights under the Netting

Agreement in order to fashion implied joint liabilit y. Although Section 2 allows for Reliant to declare

Enron Canada in default of the settlement amount, it also lists the specific rights granted to the nondefaulting party which includes such remedies as setoff, netting, and retaining collateral, but it does

not impose a duty upon the different parties to pay the debts of t he other defaul ti ng parti es.

Specifically, the Netting Agreement states that “Settlement Amount means the net amount that is due

and payable by one Party to the other Party in respect of an Underlying Master Agreement upon the

exercise of the Non-defaulting Party of the rights set forth in Section 2(b).” Section 2(b) would at

most give Reliant specific rights to: (i) accelerate, terminate, or close-out all Transactions under the

Master Power Purchase and Sale Agreement; (ii) exercise rights of setoff, n etting or recoupm ent

under its underlying master agreement; (iii) retain any coll at eral; (iv) without pay ment and

performance on any of its debts owed to Enron Canada i n order to setoff agai nst, net, or recoup

Enron’s obligations to Reliant; (v) convert any obligation from one currency into another currency;

and (iv) to file a breach of contract claim against the Enron parties in order to protect, preserve, or

enforce its rights as enumerated in the Netting A greement or t o reduce any risk of loss or delay

.

Indeed, Reliant exercised its rights under Section 2(b) by giving notice to EPMI that it has defaulted

on the Master Power Purchase and Sale Agreement.

By specifically demanding payment from Enron Canada, Reliant overstepped the scope of its

rights under the Netting Agreement. The record reveals that Reliant has properly terminated the

underlying master agreements, assigned cross-default, setoff its debts to the Enron Parties against the

debts owed to it by the Enron Parties, netted payments in order to determine the settlement amount

of the underlying master agreement, has determined the final settlement amount, and has given proper1 0 EPMI, however, is protected from a suit through the automatic

bankruptcy stay.

31 G:\opin\02-20447.ces.dissent2.wpd notice. Because it is clear that Reliant’s rights are limited to the right to “terminate, liquidate, net,

setoff, and apply Collateral upon a Default,” it has exhaust ed all of its rights under the Netting

Agreement. According to Section 2(b) Reliant has the right to file suit to protect its limited rights.

As I have demonstrated, Reliant’s rights under the Netting Agreement have not been hindered, thus

theoretically its only existing recourse is to file a breach of contract claim against EPMI for payment

under the terms of the Master Power Purchase and Sale Agreement. 10

Because I find that by its terms, purpose, and context, the Netting Agreement does not

impose liabilit

y on Enron Canada to pay Reliant's proposed final settlement amount, I would affirm

the district court's order dismissing Reliant's claims. Moreover, the Panel's remand of this case back

to the district court for a hearing on the parties' intent is not the most judicially efficient method for

resolution. According to Reliant, the parties agree that the contract is unambiguous, but that its

interpretation is a question of law for the Court to determine. The parties already have asserted their

conflicting interpretations to the district court and to this Court: Difficult though it may be, it is up

to this Court to decide the respective obligations of the parties on this record. I am unpersuaded that

the parties will present any greater insight about the language in dispute during a reprise on remand

than they did before. The most that the majority achieves is that it sends an intractable dispute back

to the district court where the parties may decide to settle this case rather than traverse the appellate

court again following another ruling by the district court. I would affirm the district court on this

issue. Accordingly, I respectfully dissent.