In re M & T Elec. Contractors, Inc.
| Decision Date | 09 April 2001 |
| Docket Number | Bankruptcy No. 95-00060. Adversary No. 96-0004. |
| Citation | 267 BR 434 |
| Parties | In re M & T ELECTRICAL CONTRACTORS, INC., Debtor. M & T Electrical Contractors, Inc., Plaintiff, v. Capital Lighting & Supply, Inc., et al., Defendants. |
| Court | United States Bankruptcy Courts – District of Columbia Circuit |
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Roy B. Zimmerman, Alexandria, VA, Michael J. Goergen, Washington, DC, for debtor.
The court addresses various motions for summary judgment.
The court sets the stage by describing the entities involved, the claims, and the disposition of the motions with respect to each claim.
M.A. Mortenson Company ("Mortenson") entered into a prime contract with the Washington Metropolitan Airport Authority ("WMAA") to expand the main terminal at Washington-Dulles International Airport ("Dulles Project"). Singleton Electric Co., Inc. ("Singleton") is a firsttier electrical subcontractor through a contract with Mortenson. The plaintiff M & T Electrical Contractors, Inc. ("M & T") is a second-tier subcontractor through a contract with Singleton; M & T's chapter 11 reorganization case will turn on the outcome of this proceeding. The defendant Capital Lighting & Supply, Inc. ("Capital") is a third-tier subcontractor through a contract with M & T. Fidelity and Deposit Company of Maryland ("F & D") is a surety company that issued to Singleton a performance and payment bond for the Dulles Project in November 1993, and entered into an indemnity agreement with Singleton. F & D also has claims against M & T (not arising from the Dulles Project) for which it has a security interest in M & T's accounts receivables. The Internal Revenue Service ("IRS") is owed taxes by M & T, filed various notices of tax lien, and served notices of levy on Singleton and Capital to seize any funds owed M & T. The defendants C & A Investments, Inc. ("C & A") and the Comptroller of the Treasury of the State of Maryland ("the Maryland Comptroller") also asserted liens.
The claims asserted, and the court's disposition of the motions for summary judgment regarding them, are as follows.1
Counts I through IV of M & T's amended complaint (DE No. 25) involve nonbankruptcy law claims directed to amounts owed to M & T for the work it did. Count I alleges breach of contract against Singleton for non-payment under the purchase order that Singleton submitted to M & T in the amount of $1.5 million ("Singleton/M & T Purchase Order"). In regard to Count I, partial summary judgment will be granted Singleton holding that Singleton has a right of setoff against M & T's right to payment under the contract, but further holding that Singleton's right of setoff is defeated by the IRS's liens. It is unnecessary to determine the exact amount that was owed M & T because it appears that the tax liens will fall well short of equaling the amount that M & T was owed.
Count II alleges breach of contract against F & D for non-payment under the bond. Summary judgment will be granted in favor of F & D on this bond claim to the same extent summary judgment has been granted to Singleton in regard to Count I.
Count III seeks to determine the extent, validity and priority of liens and the respective interests of the defendants in the funds owed to M & T by Singleton and F & D. The motions for summary judgment regarding Count III will be partially granted, determining the rank of priority of the various claims to any funds owed by Singleton to M & T, but not the exact amounts of the claims.
Count IV seeks imposition of a constructive trust to order Capital to disgorge the money it received from Singleton, because those funds are directly traceable to payments Singleton received from Mortenson for the amounts owed by Singleton to M & T. Summary judgment will be granted in favor of Capital dismissing this constructive trust claim.
Count V invokes 11 U.S.C. § 547 to recover as a preferential transfer the money paid to Capital by Singleton. Summary judgment will be granted in Capital's favor dismissing this preference claim.
Count VI alleges a cause of action against Capital and Singleton for wrongful conversion of a check in the amount of $286,080.10 that Singleton made payable to M & T but delivered to Capital. Summary judgment will be granted in favor of Singleton and Capital dismissing this conversion claim.
Count VIII (the count following Count VI)2 seeks to recover as a preferential transfer an assignment made by M & T to F & D. Summary judgment will be granted in favor of F & D dismissing the preference claim.
Capital's answer to the amended complaint asserts a cross-claim against F & D and Singleton seeking judgment against Singleton pursuant to an oral guarantee and against F & D pursuant to its bond, to the extent that Capital is found to be liable to M & T. In light of the court's decision to grant summary judgment in favor of Capital in regard to Counts IV, V and VI, Capital's cross-claim against Singleton and F & D will be dismissed as moot.
The court now proceeds to a more detailed analysis of the motions.
On January 17, 1995, M & T filed a voluntary petition under Chapter 11 of the Bankruptcy Code. M & T, as debtor-in-possession, armed with the powers of a trustee under 11 U.S.C. § 1107(a), initiated this adversary proceeding. The background facts pertinent to the motions for summary judgment follow.
On August 6, 1993, Singleton entered into a subcontract with Mortenson for the Dulles Project in the amount of $8,166,000.00. M & T was a minority-owned contractor which qualified as a Disadvantaged Business Enterprise ("DBE") on the Dulles Project. Singleton's subcontract with Mortenson required Singleton to have contracts with DBEs on the Dulles Project qualifying for $3 million of DBE credit. Before the subcontract with Mortenson was signed, Singleton had tentatively agreed with Capital to buy the necessary electrical equipment directly from Capital. The DBE requirement changed that.
On or about September 29, 1993, M & T entered into a purchase order with Singleton to supply electrical equipment and to perform installation work on the Dulles Project in the amount of $1,500,000.00 (the Singleton/M & T Purchase Order). The labor portion of this deal called for M & T to unload the equipment at the Dulles Project site. The equipment portion of this deal was a so-called pass-through arrangement: it was agreed that M & T would contract with Capital for the purchase, and delivery to the Dulles Project, of the equipment called for by the Singleton/M & T Purchase Order. The Singleton/M & T Purchase Order's price included an amount attributable to M & T's marking up by roughly 3% the amount that Capital would charge M & T for supplying the equipment. By passing the equipment through M & T, Singleton would get DBE credit. On or about October 19, 1993, Capital entered into a purchase order with M & T in the amount of $1,435,009.00 ("M & T/Capital Purchase Order") to supply all of the electrical equipment included in the Singleton/M & T Purchase Order. The M & T/Capital Purchase Order included a provision conditioning M & T's obligation to pay Capital on M & T's receiving payment from Singleton.
F & D, a surety company, issued to Singleton a performance and payment bond for the Dulles Project in November 1993. At an even earlier date, F & D and Singleton, to protect F & D, had entered into an indemnity agreement that covers the Dulles Project bond.
In October 1994, Capital began to deliver electrical equipment directly to the Dulles Project and M & T began to perform labor at the site. Capital then began to submit invoices to M & T, who in turn submitted invoices to Singleton, who in turn submitted invoices to Mortenson.
On or about November 30, 1994, Singleton delivered to Capital a check it had made payable to M & T in the amount of $286,080.10. Capital asked M & T to endorse the check to it, but M & T declined to do so. The court examines in part VIII of this decision the facts regarding whether parol evidence establishes that M & T contractually (or as a matter of trust law) had no right to keep amounts, other than its markup, attributable to the equipment Capital had supplied.
On December 19, 1994, the IRS sent notices of levy in the amount of $726,906.95 to Singleton and Capital. Both Singleton and Capital informed the IRS that they were not in possession of any funds owed to M & T.
On December 27, 1994, Capital sent a letter to Singleton and F & D requesting payment of the sum of $1,378,835.72 for electrical equipment delivered to the Dulles Project. . The letter stated that "this notice is given pursuant to the requirements of the bond. . . ." On January 25, 1995, Capital sent a letter to Singleton and F & D requesting payment of an additional sum of $192,414.82. (Def.'s Mem.Supp.Summ.J., Ex. B). That letter also stated that "this notice is given pursuant to the requirements of the bond. . . ."
Singleton made payments to Capital via check for equipment supplied to the Dulles Project as follows: (1) on December 30, 1994, in the amount of $458,927.29; (2) on January 3, 1995, in the amount of $739,204.11; (3) on January 25, 1995, in the amount of $14,815; (4) on February 15, 1995, in the amount of $152,697.69; (5) on March 24, 1995, in the amount of $23,060.84; and (6) on September 25, 1995, in the amount of $34,976.79.
On January 4, 1995, the IRS sent a second notice of levy in the amount of $726,906.95 to Singleton. In response to the second levy, Singleton forwarded a check to the IRS in the amount of $35,700 by letter dated January 5, 1995. Singleton indicated on the levy acknowledgment that the payment of...
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