Atlas Mach. & Iron Works, Inc. v. Bethlehem Steel Corp.

• Decision Date: 22 February 1993
• Docket Number: Nos. 92-1111,92-1684,s. 92-1111
• Citation: 986 F.2d 709
• Parties: , Bankr. L. Rep. P 75,139 ATLAS MACHINE & IRON WORKS, INCORPORATED, Plaintiff-Appellant, v. BETHLEHEM STEEL CORPORATION, Defendant-Appellee. BETHLEHEM STEEL CORPORATION, Plaintiff-Appellant, v. ATLAS MACHINE & IRON WORKS, INCORPORATED, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 709

986 F.2d 709

24 Bankr.Ct.Dec. 5, Bankr. L. Rep. P 75,139

ATLAS MACHINE & IRON WORKS, INCORPORATED, Plaintiff-Appellant, v. BETHLEHEM STEEL CORPORATION, Defendant-Appellee.

BETHLEHEM STEEL CORPORATION, Plaintiff-Appellant, v. ATLAS MACHINE & IRON WORKS, INCORPORATED, Defendant-Appellee.

Nos. 92-1111, 92-1684.

United States Court of Appeals, Fourth Circuit.

Argued Dec. 3, 1992.

Decided Feb. 22, 1993.

H. Jason Gold, Gold & Stanley, P.C., Alexandria, VA, Michael Abbott Grow, Vorys, Sater, Seymour & Pease, Washington, DC, argued (Valerie P. Morrison, Howard I. Rubin, Gold & Stanley, P.C., Alexandria, VA, on brief), for appellant.

Leslie Margot Alden, Verner, Liipfert, Bernhard, McPherson & Hand, Chartered, McLean, VA, argued (John F. Connor, James F. Hibey, Karen P. Power, on brief), for appellee.

Before PHILLIPS, Circuit Judge, and SPROUSE and CHAPMAN, Senior Circuit Judges.

OPINION

SPROUSE, Senior Circuit Judge:

This is a consolidated appeal concerning two causes of action between Atlas Machine & Iron Works, Inc. ("Atlas") and Bethlehem Steel Corporation ("Bethlehem"). The disputes stem from a 1988 settlement agreement (the "Agreement") in which Atlas promised to pay Bethlehem a previously incurred debt of $13 million by April 1990, and Atlas's failure to meet that deadline. The first action, brought by Atlas, is for breach of the settlement agreement. In the second, Bethlehem filed a Chapter 7 ¹ bankruptcy petition against Atlas.

In the contract action, the district court held that Bethlehem did not breach the Agreement by filing the bankruptcy petition. It also ruled for Bethlehem on its counterclaim, holding that Atlas breached the Agreement by failing to pay its debt on time, and awarding Bethlehem judgment on the debt. We affirm the district court's decision. In the bankruptcy action, the bankruptcy court dismissed Bethlehem's Chapter 7 petition because it was defective. The district court affirmed, as do we.

I

The facts underlying the two actions are somewhat complex. Atlas and Bethlehem have been battling each other in various courts for the past several years. The heart of the litigation is an overdue, multimillion-dollar loan from Bethlehem to Atlas. Bethlehem has made several unsuccessful attempts to collect the debt, which is secured by a deed of trust on all of Atlas's real estate and security interests in all of its personal property.

One of the antecedent lawsuits between the two steel companies originated in November 1987. Atlas filed an action in federal district court in Alexandria, Virginia, charging Bethlehem with antitrust and other federal law violations, and Bethlehem counterclaimed. To settle the litigation, Atlas and Bethlehem entered into a settlement agreement in May 1988 and each company dismissed the claims pending against the other. The district court entered the dismissal order the day after the parties signed the Agreement. ²

Bethlehem drafted the Agreement. It provided in part:

1. Atlas agrees that the debt due Bethlehem is $13,556,693.30 (the "Debt") and that the Debt shall be paid in full in cash on or before April 20, 1990. The parties agree that time is of the essence in the performance of this obligation.

....

5. In the event that the Debt has not been paid in full in cash on or before April 20, 1990, Bethlehem shall have the right, without interference by Atlas, to sell or otherwise dispose of the Collateral to satisfy the debt in the manner described below. The only limitation on Bethlehem's right to sell or otherwise dispose of the Collateral is that the sale shall be conducted in accordance with applicable state law. Atlas agrees that the foreclosures, if any, will be determined to meet a standard of commercial reasonableness, and Atlas shall not object to or complain of these foreclosures in any respect. Atlas shall promptly execute any documents requested by Bethlehem in order to accomplish the sale or other disposition of the Collateral.

a. Bethlehem shall first foreclose on the real property located at Gainesville [54 acres--the entirety of Atlas's real estate] and apply the net proceeds from the auction sale against the Debt.

b. In the event that the Debt has not been satisfied in full after the application of the net proceeds from the foreclosure sale of the Gainesville property, Bethlehem shall then sell or otherwise dispose of the remainder of the Collateral in such order as Bethlehem deems appropriate.

The Agreement defined "Collateral" as all of Atlas's assets. Another section provided that the Agreement did not affect Bethlehem's perfected security interests in and liens on Atlas's assets.

Atlas did not pay any of the debt by April 20, 1990, as required by the settlement agreement. As a result, on January 11, 1991, in the previously dismissed action over which the district court had retained jurisdiction, Bethlehem asked the court to enter (a) an order requiring Atlas to turn over its bank accounts, and (b) judgment on the debt, "to be executed upon at Bethlehem's sole discretion." The district court denied the motion, saying:

In the event Atlas failed to pay the debt by [April 20, 1990], the settlement agreement provided that Bethlehem must first proceed through foreclosure on Atlas's Gainesville property in order to satisfy the debt. Proceedings are currently pending in [Virginia state court] and there is no further enforcement action to be taken by this court at this time.

The referenced Virginia action was one brought in 1987 by Williams Industries, Inc., a large Atlas shareholder, against both Atlas and Bethlehem, in the Circuit Court of Prince William County. Bethlehem had attempted to foreclose on Atlas's land, spurring Williams Industries to file an injunctive action to bar the foreclosure. The circuit court granted a temporary injunction, which Bethlehem moved to dissolve in May 1990 after Atlas failed to pay the debt by the Agreement's April 1990 deadline. After a hearing the state court denied Bethlehem's motion, made the injunction permanent, and scheduled a trial on the merits. Williams and Bethlehem settled on July 1, 1991, the day the state trial was scheduled to begin, and the court dissolved the injunction. ³ On July 26, 1991, Bethlehem served Atlas with notice that a foreclosure sale would be held in June 1992.

In the meantime, in April 1991 Bethlehem had filed its petition to place Atlas into bankruptcy, and in May 1991 Atlas brought the contract action at issue in this appeal. It alleged that Bethlehem had breached the Agreement by trying to collect the debt through Chapter 7 instead of foreclosure. ⁴ Bethlehem counterclaimed, alleging that Atlas breached the Agreement by failing to pay the debt on time, and seeking judgment on the debt.

Bethlehem presented a successful summary judgment motion on both Atlas's claim and its own counterclaim. The district court held that Atlas breached the Agreement by not meeting the April 1990 deadline, and awarded Bethlehem judgment on the debt. It also held that the Agreement did not prohibit Bethlehem from collecting the debt through Chapter 7.

II

We first consider the appeal in the contract action. We, of course, review de novo the district court's grant of summary judgment. Kowaleviocz v. Local 333, 942 F.2d 285, 288 (4th Cir.1991). We must affirm if no genuine issue of material fact exists and Bethlehem is entitled to judgment as a matter of law. Id.

Atlas maintains that the district court erred in holding that it breached the settlement agreement by failing to repay the debt by April 1990. Paragraph 1 of the Agreement stated:

Atlas agrees that the debt due Bethlehem is $13,556,693.30 (the "Debt") and that the Debt shall be paid in full in cash on or before April 20, 1990. The parties agree that time is of the essence in the performance of this obligation.

This language unambiguously required Atlas to pay the debt by April 20, 1990. Therefore, its failure to comply with the deadline constituted a breach of the Agreement.

There is simply no merit to Atlas's argument that its failure to pay could not constitute a breach because paragraph 5 of the Agreement specified foreclosure as Bethlehem's exclusive recourse in the event of nonpayment. It is not unusual for a contract to specify a remedy in the event of a breach. See, e.g., Bender-Miller Co. v. Thomwood Farms, Inc., 211 Va. 585, 179 S.E.2d 636, 638 (1971). A breach of such a contract does not void it; rather, the remedy is limited to the one listed in the contract--assuming it is exclusive.

The weakness in Atlas's argument is that the Agreement did not provide that foreclosure would be Bethlehem's exclusive remedy. The parties agreed foreclosure would be an available remedy in the event of Atlas's breach, but not the sole remedy. The express language provided that if Atlas failed to pay the debt on time, Bethlehem would have the right, not the obligation, to foreclose on Atlas's assets:

In the event that the Debt has not been paid in full in cash on or before April 20, 1990, Bethlehem shall have the right, without interference by Atlas, to sell or otherwise dispose of the Collateral to satisfy the debt in the manner described below.

(Emphasis added). It is also true that Bethlehem's right to sell or dispose of the property, if exercised, was limited by the language chosen by the two parties: Bethlehem "shall first foreclose" on Atlas's land, and "shall then sell or otherwise dispose of" its remaining assets, if necessary. The limitation, however, must be construed with the unequivocal language of the Agreement citing foreclosure as an optional remedy for Bethlehem, not an exclusive one.

In Bender-Miller, 179 S.E.2d 636, the Virginia Supreme Court of Appeals held that an agreement to limit remedies must be clearly expressed in the contract. It said:

[P]arties to a contract may provide the remedy that will be available to them in case a breach occurs.... However, ... the remedy provided will be exclusive...