Remington Rand Corp., In re

• Decision Date: 06 January 1988
• Docket Number: No. 87-5063,87-5063
• Citation: 836 F.2d 825
• Parties: , 18 Collier Bankr.Cas.2d 367, 17 Bankr.Ct.Dec. 84, Bankr. L. Rep. P 72,159, 34 Cont.Cas.Fed. (CCH) 75,420 In re REMINGTON RAND CORPORATION, Remington Rand Corporation (New Jersey), Debtors. The KILBARR CORPORATION and Pennbarr Corporation, Plaintiffs-Appellants, v. GENERAL SERVICES ADMINISTRATION, OFFICE OF FEDERAL SUPPLY AND SERVICES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 825

836 F.2d 825

56 USLW 2402, 18 Collier Bankr.Cas.2d 367,

17 Bankr.Ct.Dec. 84,

Bankr. L. Rep. P 72,159,

34 Cont.Cas.Fed. (CCH) 75,420

In re REMINGTON RAND CORPORATION, Remington Rand Corporation

(New Jersey), Debtors.

The KILBARR CORPORATION and Pennbarr Corporation, Plaintiffs-Appellants, v. GENERAL SERVICES ADMINISTRATION, OFFICE OF FEDERAL SUPPLY AND SERVICES, Defendant-Appellee.

No. 87-5063.

United States Court of Appeals, Third Circuit.

Argued Oct. 5, 1987.

Decided Jan. 6, 1988.

Joseph A. Dworetsky (argued), Suzanne Coyle, Drinker Biddle & Reath, Philadelphia, Pa., for plaintiffs-appellants.

Samuel A. Alito, Jr., U.S. Atty., Jerome L. Merin (argued), Asst. U.S. Atty., Newark, N.J., for defendant-appellee.

Before BECKER, SCIRICA and ROSENN, Circuit Judges.

OPINION OF THE COURT

SCIRICA, Circuit Judge.

This appeal requires us to examine the interplay between provisions of two divergent Acts of Congress: the Bankruptcy Reform Act of 1978 ("the Code"), 11 U.S.C. Secs. 101(4)(A), 1141(d)(1)(A) (1982), and the Contract Dispute Act of 1978 ("the Act"), 41 U.S.C. Sec. 605(a) (1982). Our inquiry must focus on each statute's use of the term "claim." Specifically, we must reconcile the Act's framework for processing government contract claims with the Code's broad treatment of "claim" for purposes of a bankruptcy discharge.

At issue is whether the government has a claim under Sec. 101(4)(A) of the Code prior to confirmation of a debtor's Chapter 11 reorganization plan when: (1) the government had not completed the final audit of its dealings with the debtor; and (2) pursuant to Sec. 605(a) of the Act, a federal contract officer had not certified the validity of the government's claim. If we conclude that a claim existed, we must then decide whether the government should be permitted to file a late proof of claim when the debtor, appellant Remington Rand Corp., acknowledges its failure to properly notify the government of the deadline for asserting claims affected by the Chapter 11 reorganization. Here, the government first sought to assert its claim nearly four years after the plan's confirmation.

Resolution of the "claim" issue is critical to the government's right to relief. If we conclude that the claim arose before confirmation of the Chapter 11 plan, then the claim is considered discharged and, barring permission to file a late proof of claim, the government will be estopped from seeking recovery from the reorganized Remington Corp. 11 U.S.C. Sec. 1141(d)(1)(A). ¹

Because these two statutes touch upon the same subject, we must, absent congressional intent to the contrary, give effect to both if they are capable of co-existence. Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1018, 104 S.Ct. 2862, 2881, 81 L.Ed.2d 815 (1984); Morton v. Mancari, 417 U.S. 535, 551, 94 S.Ct. 2474, 2483, 41 L.Ed.2d 290 (1974). Finding no intention by Congress to the contrary, we deem the statutes capable of co-existence. Therefore, our decision must effectuate both provisions.

In the Code, Congress defined "claim" in the broadest possible terms as any unliquidated, contingent, unmatured or disputed rights to payment. See 11 U.S.C. Sec. 101(4)(A); In re Frenville, 744 F.2d 332, 336 (3d Cir.1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 911, 83 L.Ed.2d 925 (1985). In the Act, "claim" is undefined, but the term is used to signify the more traditional legal cause of action. See Joseph Morton Co. Inc. v. U.S., 757 F.2d 1273, 1279-81 (Fed.Cir.1985); see generally 41 U.S.C. Secs. 605, 612. Thus, in drafting the Code to reach nearly every type of claim, Congress necessarily included the more traditional type of claim contemplated in the Act. Moreover, the certification procedure in Sec. 605(a) of the Act does not create a claim; it merely creates a jurisdictional prerequisite to judicial resolution of existing claims.

Applying the Act without regard to these facts would require us to treat government claims differently from all other Code claims, and also would allow the government to control the timing of when its bankruptcy claims arise. We find no indication that Congress intended this anomalous result. Absent direction from Congress exempting government claims from the general Code definition, we are unwilling and constitutionally unable to assume this legislative function.

Accordingly, we reverse the district court and hold that in a Chapter 11 proceeding, the two statutes are best effectuated by requiring the government to assert its claims--even those not yet authorized pursuant to the Act--when an officer in authority has knowledge of them before confirmation of a reorganization plan. Here, the government's contingent and unliquidated contract claim, stemming from breaches in 1980 and 1981, and discovered five months before confirmation of Remington's Chapter 11 reorganization plan, fell within the Code's broad definition of "claim." Although the claim was not certified pursuant to the Act until April 29, 1985, the government's right to payment existed before the plan's December 24, 1981 confirmation, and the government had the requisite knowledge of its right to payment before that date as well.

In addition, we hold that the bankruptcy court improperly granted summary judgment on the government's request to file a late proof of claim where Remington failed to notify the government of the claims bar date. We shall remand for a determination whether the government acted promptly and diligently in ultimately seeking relief.

I. FACTS AND PROCEEDINGS BELOW

Beginning in October, 1979, Remington contracted with the General Services Administration Office of Federal Supply and Service [hereinafter "GSA" or "the government"] to supply typewriters and typewriter elements. Under the government's Multiple Award Schedule Program, GSA contracts for supplies with various vendors, such as Remington, and then publishes each item and its price in a catalog from which all federal agencies order supplies. The parties entered two contracts: one covering 1980 and another 1981, terminating September 30, 1981. Both contracts included a "most favored nation" clause guaranteeing the government a price equal to the lowest of any Remington customer.

On March 28, 1981, Remington filed a voluntary petition for reorganization under Chapter 11. Less than a month later, government auditors began a "pre-award audit" of the 1980 and 1981 contracts to assist GSA in negotiating Remington's proposed 1982 contract. This audit was intended to evaluate the data submitted in Remington's proposed 1982 contract by examining the cost and sales submitted in support of Remington's bid. Government auditors spent about 300 hours on the audit, completing the project in June, 1981. They released their findings July 6, 1981, concluding that the proposed 1982 contract bid was generally acceptable. The auditors noted, however, that although the company's records were incomplete, Remington had provided other customers with discounts not granted to GSA. See App. at 161-62. Remington's failure to pass these discounts along to GSA was a breach of the 1980 and 1981 contracts, which had guaranteed GSA's receipt of Remington's most favorable rates.

The findings of possible contract irregularities prompted auditors to launch a more detailed post-award audit in June 1981. Post-award audits are normally undertaken during or after the contract period and are specifically designed to determine whether the contractor adhered to the most favored nation clause. Field work for the post-award audit was completed for the most part in September, 1981. The auditors released a draft of their final report in February, 1982, and the actual report in May, 1982, concluding that Remington owed GSA $394,773 for breaching the most favored nation clause.

Pursuant to bankruptcy rules, Remington had notified its creditors to file proof of claims before October 26, 1981, the date for court approval of its disclosure statement. GSA, however, was neither notified ² nor listed as a creditor on Remington's filed schedules with the bankruptcy court and therefore did not file proof of its claim before that date. The court confirmed Remington's plan of reorganization December 24, 1981. In the meantime, GSA did nothing to pursue its claim in the bankruptcy court.

When GSA attempted to assert its $394,773 post-award audit claim, Remington contended that the claim had been discharged in the Chapter 11 proceeding. In October, 1982, GSA's inspector general sought legal advice from the Justice Department concerning the possibility of recovery. The United States Attorneys Office for the District of New Jersey then referred the case back to GSA with instructions to first obtain approval of the claim from a government contract officer, as required under the Act. On April 29, 1985, nearly three years later, the government's contract officer authorized GSA's claim.

Remington filed suit in the bankruptcy court July 29, 1985 seeking a declaratory judgment and injunctive relief to prohibit GSA from collecting the $394,773. The bankruptcy judge held that no claim arose until completion of the post-award audit and release of the audit report in 1982--after the Chapter 11 confirmation. Moreover, the court concluded, even if GSA's claim arose before confirmation of the plan, GSA should be entitled to file a late proof of claim. The district court affirmed, holding that the Act governed when the government's claim arose, and that the government had no right to payment until completion of the post-award audit. The district court, however, did not address the late proof of claim issue.

II. DISCUSSION

On appeal, Remington contests the district court's affirmance of the bankruptcy court's determination that the government's claim did not arise before confirmation of the Chapter 11 plan. Because we must examine the interpretation and application of a legal precept, our review is plenary. In re McKeesport Steel...