Comunidad de Aguas Canal El Manzano v. Alto Maipo SpA (In re Alto Maipo SpA)

645 B.R. 48

IN RE: Alto Maipo SPA,

Reorganized Debtor.

Comunidad de Aguas Canal El Manzano on behalf of itself and its members and constituents, Gemma Contreras Bustamante, Christian Becker Matkovic, Maite Birke Abaroa, Bruno Bercic, Plaintiffs,

v.Alto Maipo SpA, Defendant.

Case No. 21-11508 (KBO)

Adv. Proc. No. 22-50381 (KBO)

United States Bankruptcy Court, D. Delaware.

Signed October 27, 2022

Stanley B. Tarr, Blank Rome LLP, Wilmington, DE, Kate Scherling, Quinn Emanuel Urquhart & Sullivan LLP, New York, NY, Serafina Concannon, Quinn Emanuel Urquhart & Sullivan, Washington, DC, Sara Clark, Quinn Emanuel Urquhart & Sullivan, LLP, Houston, TX, for Plaintiffs Comunidad de Aguas Canal El Manzano, Bruno Bercic, Christian Becker Matkovic, Gemma Contreras Bustamante, Maite Birke Abaroa.

Sean T. Greecher, Young, Conaway, Stargatt & Taylor, Wilmington, DE, for Defendant.

Lucas Loviscek, Quinn Emanuel Urquart & Sullivan, LLP, Washington, DC, for Plaintiff Comunidad de Aguas Canal El Manzano.

MEMORANDUM ORDER GRANTING IN PART DEFENDANT'S MOTION TO DISMISS AND DENYING PLAINTIFFS’ MOTION TO STRIKE

Karen B. Owens, United States Bankruptcy Judge

Upon consideration of the Defendant's Motion to Dismiss Plaintiffs’ Complaint (the "Motion to Dismiss") [Adv. D.I. 12], the Plaintiffs’ Motion to Strike Portions of the Declaration of Sebastian Aviles Pursuant to Rule 44.1 in Support of Alto Maipo's Motion to Dismiss Plaintiffs’ Complaint [Adv. D.I. 24] (the "Motion to Strike" and together with the Motion to Dismiss, the "Motions"), and all relevant briefing and submissions filed in support of and in opposition to the Motions [Adv. D.I. 14, 21, 26-28, 30]; and after determining that oral argument is unnecessary as it will not further aid the Court's decision-making process; the Court hereby finds and concludes the following.

I. BACKGROUND AND ALLEGED FACTS

On November 17, 2021, Defendant Alto Maipo SpA ("Alto Maipo" and together with Alto Maipo Delaware LLC, the "Debtors") filed for chapter 11 bankruptcy protection in this Court. At the time of filing, Alto Maipo was completing construction of two hydroelectric power plants outside of Santiago, Chile. The hydroelectric project (the "Project") captures water from four tributaries of the Maipo River – the Volcán River, the Yeso River, the Aucayes Stream, and the Colorado River. In May 2022 when this Court confirmed the Debtors’ joint plan of reorganization (the "Plan"),² the Project had reached commercial operation and was producing energy. The Plan embodied a consensual restructuring of the Debtors’ prepetition obligations to their major stakeholders, including equity holders, the primary construction contractor, and the holders of outstanding senior secured term loan obligations. It infused new working capital and other financing necessary for the reorganized Debtors’ ongoing operations and left allowed general unsecured claims unimpaired. The Plan went effective on May 26, 2022.³

Approximately one month later, this proceeding was commenced. The Plaintiffs, all Chilean citizens and purported residents of San José de Maipo, claim to possess, or represent individuals who possess, certain Chilean constitutional, statutory, and contractual water rights that have been impaired by the Project. Comunidad de Aguas Canal El Manzano ("Comunidad") is a community group that asserts it represents approximately 3,000 individual members who own surface water rights from the Colorado River in approximately 300 hectares of land in the San José de Maipo area. Comunidad contends that for over 20 years it has captured water from the Colorado River and distributed it through a network of channels to its members for personal, educational, recreational, economic, agricultural, and industrial use. The remaining Plaintiffs claim to be members of Comunidad except for Maite Birke Abaroa, who purports to serve as an elected representative of approximately 18,000 constituents in the San José de Maipo area.

Of particular importance to this proceeding are two agreements to which Comunidad and Alto Maipo are parties, collectively referred to as the "Manzano Contract". The Manzano Contract was assumed on the Plan's effective date, but the existence of any contractual defaults and resulting cure amounts were issues left undecided for later adjudication.⁴ Specifically, the parties⁵ agreed that "the existence of any such defaults and the required cure shall be resolved by a court, arbitral panel, or any other judicial or administrative body of competent jurisdiction, as to which all parties fully reserve all relevant rights and defenses."⁶

Plaintiffs assert in the Complaint that the Manzano Contract required Alto Maipo to build water intakes ("Water Intakes") by December 11, 2021 to allow the Comunidad members continued access to water while Alto Maipo captures it from the Colorado River for operations. They allege that the Manzano Contract requires Alto Maipo to maintain the Water Intakes and guarantee water availability to the Comunidad members in accordance with their legal water rights during the useful life of the Project. According to the Complaint, the Water Intakes were to be built before the Project began operating pursuant to Chilean Environmental Law, the Project's operating permits and authorizations, and the Manzano Contract.

In January 2022 – postpetition and before construction of the Water Intakes – Plaintiffs allege that Alto Maipo began testing the Project's hydropower turbines using water from the Colorado River. According to the Plaintiffs, the tests impeded water flow in the river, making it impossible for Comunidad to capture water and depriving their members of water for at least eight days. Plaintiffs allege that Alto Maipo constructed a temporary structure to restore water flow but that those efforts impaired the river's water quality, deprived members of clean and potable water, and damaged the environment. It is further alleged that Alto Maipo later obtained its operational permit by falsely representing to the relevant Chilean government authority that it complied with all condition precedents to enter into operation when, in fact, the Water Intakes have not been completed.

Following the turbine tests, the Comunidad unsuccessfully sought from the Primera Sala de la Corte de Apelaciones de San Miguel (described as the First Chamber of the Court of Appeals of San Miguel or the "Chilean Appellate Court") certain relief to prevent Alto Maipo from taking further actions that would deprive members of water access. It also pursued an administrative action by filing petitions before the Superintendencia del Medio Ambiente de la República de Chile (described as the Chilean Superintendency of Environment) and the Coordinador Eléctrico Nacional (described as the Chilean National Electrical Coordinator) complaining that Alto Maipo conducted turbine testing prior to constructing the Water Intakes.

The Debtors reacted to the Comunidad's Chilean efforts in part by requesting several forms of relief from this Court. First, the Debtors filed a motion to enforce the automatic stay against Comunidad, arguing that its actions sought to shut down the Project, which would cause substantial harm to the Debtors’ estates and stakeholders.⁷ The Debtors requested that this Court require Comunidad to dismiss the action pending before the Chilean Appellate Court and withdraw the petition before the Chilean National Electrical Coordinator. ⁸

Furthermore, as a sanction, the Debtors asked this Court to expunge the $1 billion proof of claim Comunidad submitted in the bankruptcy proceeding.⁹ Second, the Debtors filed a motion to assume the Manzano Contract.¹⁰ In the assumption motion, they asserted that they were not in breach of the contract because the Water Intakes could not be built until after the operating permit was obtained and that they had six months to complete the construction from the permitting.¹¹ According to the Debtors, they obtained the required permit on April 12, 2022 and intended to cause the intake construction as soon as possible.¹² Third, the Debtors objected to the Plaintiffs’ proofs of claim.¹³ None of these contested matters were fully briefed or presented to the Court in light of the agreements in the Plan for the assumption of the Manzano Contract and later resolution of the Plaintiffs’ claims in a forum to be determined.¹⁴

Resting upon these allegations and background, Plaintiffs have asserted four counts in the Complaint. The first is claim for breach of the Manzano Contract. The second appears to request a declaratory judgment that Plaintiffs have incurred damages in an approximate amount of $63 million as a result of Alto Maipo's alleged breaches of the Manzano Contract and that such damages remain unpaid.¹⁵ The remaining third and fourth counts are claims for infringement of the Chilean Constitution, Water Code, and Environment Law.

In addition to the Complaint, each of the Plaintiffs filed a request for payment of an administrative expense claim against Alto Maipo (together, the "Administrative Expense Claims").¹⁶ The Administrative Expense Claims attach the Complaint and assert administrative expenses based on its allegations and claims in an amount no less than that sought in this proceeding.¹⁷

II. LEGAL DISCUSSION

A. The Adversary Proceeding Should Be Dismissed

Through the Motion to Dismiss, Alto Maipo requests that this Court dismiss the Complaint on several grounds. It argues that the Plaintiffs lack standing to assert claims under applicable Chilean law. It contends that the Manzano Contract contains an arbitration clause that is valid and enforceable. It submits that the Court should apply the doctrine of forum non conveniens so that the claims may be adjudicated in Chile. And finally, it urges the Court to permissively abstain pursuant to 28 U.S.C. § 1334(c)(1). Because the Plaintiffs’ claims can and should be adjudicated in Chile, the Court begins and ends its analysis with the parties’ ...