In re Vappi & Co., Inc.

• Decision Date: 17 September 1992
• Docket Number: Bankruptcy No. 91-13914-JNG,Adv. No. 91-1576-JNG.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts
• Parties: In re VAPPI & CO., INC., Debtor. ROTMAN ELECTRICAL CO., INC., Plaintiff, v. John F. CULLEN, Trustee of the estate of Vappi & Co., Inc., and the President and Fellows of Harvard University, Defendants.

145 B.R. 719 (1992)

In re VAPPI & CO., INC., Debtor ROTMAN ELECTRICAL CO., INC., Plaintiff, v. John F. CULLEN, Trustee of the estate of Vappi & Co., Inc., and the President and Fellows of Harvard University, Defendants.

Bankruptcy No. 91-13914-JNG, Adv. No. 91-1576-JNG.

United States Bankruptcy Court, D. Massachusetts.

September 17, 1992.

William J. Ferguson, Jr., Gadsby & Hannah, Boston, Mass., for plaintiff.

Maureen Mulligan, Peabody & Arnold, Boston, Mass., for defendants.

John F. Cullen, trustee.

MEMORANDUM

JAMES A. GOODMAN, Chief Judge.

1. INTRODUCTION

The matters before the Court are cross motions for summary judgment filed by the Chapter 7 Trustee of the bankruptcy estate of Vappi & Co., Inc. ("Vappi" or the "Debtor") and Rotman Electrical Co., Inc. ("Rotman"). Rotman commenced an adversary proceeding against John F. Cullen (the "Trustee") and the President and Fellows of Harvard University (Harvard") in October of 1991. Through its two count complaint, Rotman seeks 1) a declaratory judgment that funds held by Harvard¹ are not property of the Debtor's estate and are subject to a constructive trust or equitable lien in favor of Rotman for the payment of a debt in the amount of $86,868² or 2) in the alternative, a declaratory judgment that payments received by the Debtor from Harvard on behalf of Rotman are not property of the estate and are subject to a constructive trust or an equitable lien in favor of Rotman. With respect to payments made to and received by Vappi, Rotman seeks a declaration that the Trustee must pay it out of funds now in the Debtor's estate. The relief sought by Rotman is predicated upon the Debtor's alleged breach of contract and fraud (Count I and Count II of the complaint, respectively).

II. STANDARD FOR SUMMARY JUDGMENT

Summary judgment is appropriate when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c), made applicable to this proceeding by Fed.R.Bankr.P. 7056. The party moving for summary judgment must establish "an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). The non-moving party then has the burden of establishing at least one "genuine" and "material" factual issue in order to avoid the entry of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir.1990). Where a party responding to a motion for summary judgment bears the burden of proof on the underlying issue, Rotman in this case, that party must establish that specific facts exist to create an authentic dispute. Garside, 895 F.2d at 48.

III. FACTS

On or about July 20, 1989, the Debtor, as general contractor, entered into a written contract with Harvard to renovate Vanderbilt Hall at Harvard Medical School (the "Project"). The written contract entered into between Harvard and Debtor provided, inter alia, that:

a) "On all applications for Payment, the Debtor shall indicate the sums of money being requisitioned for payment of the Debtor\'s principal Suppliers and Subcontractors for each subdivision of Work and shall include therewith a certificate for payment and release of claims in form approved by Harvard stating that all such money will be used to pay named Suppliers and Subcontractors as their interests may appear within ten (10) calendar days after receipt of payment from Harvard. At Harvard\'s discretion and upon his sic request ... the Debtor shall provide affidavits from each of his sic Subcontractors which attest to the fact that they have received the previous month\'s payment from the Debtor." (Contract, Modifications to General Conditions, clause 9.3.1.1);

b) "The Debtor shall promptly pay each Subcontractor, upon receipt of payment from Harvard, ... the amount to which said Subcontractor is entitled, reflecting the percentage actually retained, if any, from payments to the Debtor on account of such Subcontractor\'s Work." (Contract, General Conditions, clause 9.5.2);

c) The Debtor certify with each application and certificate for payment submitted to Harvard that "to the best of the Contractor\'s knowledge, information and belief the Work covered by the Application for Payment has been completed in accordance with the Contract Documents, that all amounts have been paid by the Contractor for Work for which previous Certificates for Payment were issued and payments received from the Owner, and that current payment shown herein is now due." (Application and Certificate for Payment, AIA Document G702);

d) "Neither the final payment nor the remaining retained percentage shall become due until the Debtor submits to the Architect (1) an affidavit that all payrolls, bills for materials and equipment, and other indebtedness connected with the work for which Harvard or its property might in any way be responsible, have been paid or otherwise satisfied...." (Contract, General Conditions, clause 9.9.2); and

e) "The Debtor shall, as a condition precedent to final payment, sign a release form stating that the Debtor certifies that all payrolls, material bills, and other indebtedness connected with the Work have been paid and, in consideration of all prior payments and of a final payment, Debtor releases and forever discharges Harvard from all claims, demands, obligations, and liabilities of every kind and nature arising out of or relating to the Contract. Debtor will, upon request of the Architect or Harvard, furnish Harvard with statements of Subcontractors and/or Suppliers substantiating prior payments by Debtor." (See Contract, Modifications to General Conditions, clause 9.9.5.1).

On or about November 15, 1989, Rotman entered into a subcontract agreement with the Debtor whereby Rotman agreed to perform certain electrical work at the Project, for and on behalf of the Debtor. The subcontract price was $1,540,000, subject to additions and deductions for changes as provided for in the subcontract agreement.

The subcontract entered into between Rotman and the Debtor provided that periodic payments would be made by the Debtor to Rotman, on account of work performed by Rotman, conditioned upon payment by Harvard to the Debtor of the amount allowed on account of Rotman's materials and work. The subcontract stated the following:

"an amount equal to 10% of the total amount of the subcontract Price shall be retained until final acceptance and approval of the project by Harvard. Rotman shall have no right to such retainer until paid by Harvard. Should Harvard elect to reduce the retainer, the amount released by Harvard shall be paid over to Rotman when received by the Debtor."

(Subcontract, Art. II, para. 3).

From approximately July 6, 1989 to February 1, 1991, Rotman furnished labor, materials and services to the Debtor and otherwise fully performed in accordance with the terms and conditions of its subcontract with the Debtor. As a result of change orders issued by the Debtor, Rotman's approved and adjusted subcontract price was increased from $1,540,000 to $1,758,610, as of the date that Rotman completed its work.

The Debtor submitted twenty applications and certificates for payment to Harvard in connection with the Project. Although the Debtor's payments to Rotman under the subcontract totalled only $1,671,924, the following payment applications were approved by Harvard and paid to the Debtor:

                    a) Payment Application No. 16
                         (Period Ending 9/30/90)
                         Total Electrical                                    $1,724,261
                         Less Retainage                                      $   (7,817)
                                                                             ___________
                         Certified to Rotman                                 $1,716,444
                    b) Payment Application No. 17
                         (Period Ending 10/30/90)
                         Total Electrical                                    $1,724,261
                         Less Retainage                                      $   (4,817)
                                                                             ___________
                         Certified to Rotman                                 $1,721,444
                    c) Payment Application No. 18
                         (Period Ending 11/30/90)
                         Total Electrical                                    $1,724,261
                         Less Retainage                                      $   (2,817)
                                                                             ___________
                         Certified to Rotman                                 $1,721,444
                

The Debtor submitted Payment Application No. 19 to Harvard for the period ending December 31, 1990 and requested therein a progress payment of $257,364. Payment Application No. 19 was approved by Harvard on January 11, 1991 and payment of the full amount requested by the Debtor was issued by Harvard to the Debtor on January 16, 1991. The Debtor's project manager represented to Harvard in Payment Application No. 19 that, upon approval of the payment application and receipt of the progress payment, the Debtor's total payments to Rotman for electrical work performed at the Project would be $1,742,640, less a contract retainer of $2,817, for a net distribution to Rotman of $1,739,823.

The Debtor submitted Payment Application No. 20 to Harvard for the period ending February 28, 1991, requesting a progress payment of $130,380. The Debtor's project manager certified to Harvard in Payment Application No. 20 that all amounts had been paid by the Debtor for work for which previous certificates for payment were issued and payments received from Harvard. Payment Application No. 20 has not been paid to the Debtor by Harvard, although the $159,380 is now in an escrow account held by the Trustee.

All payments made by Harvard to the Debtor were made more than 90 days prior to the May 6, 1991 date the petition in bankruptcy was filed. The total amount paid by Harvard to...