American LaFrance, LLC v. RT Jedburg Commerce Park, LLC (In re American LaFrance, LLC)

Citation461 B.R. 267,55 Bankr.Ct.Dec. 178
Decision Date02 November 2011
Docket NumberAdversary No. 10–51245.,Bankruptcy No. 08–10178 (BLS).
PartiesIn re AMERICAN LAFRANCE, LLC, Reorganized Debtor.American LaFrance, LLC, Plaintiff, v. RT Jedburg Commerce Park, LLC, Defendant.
CourtU.S. Bankruptcy Court — District of Delaware

461 B.R. 267
55 Bankr.Ct.Dec.
178

In re AMERICAN LAFRANCE, LLC, Reorganized Debtor.American LaFrance, LLC, Plaintiff,
v.
RT Jedburg Commerce Park, LLC, Defendant.

Bankruptcy No. 08–10178 (BLS).

Adversary No. 10–51245.

United States Bankruptcy Court, D. Delaware.

Nov. 2, 2011.


[461 B.R. 269]

Christopher A. Ward, Justin K. Edelson, Shanti M. Katona, Polsinelli Shugart PC, Wilmington, DE, David Drez, Wick Phillips Gould & Martin, LLP, Fort Worth, TX, Ian T. Peck, Abigail Ottmers, Haynes and Boone, LLP, Dallas, TX, for American LaFrance, LLC.

Bonnie Glantz Fatell, Victoria Guilfoyle, Blank Rome LLP, Wilmington, DE, Paula K. Jacobi, Barnes & Thornburg LLP, Chicago, IL, for RT Jedburg Commerce Park LLC.

OPINION1
BRENDAN LINEHAN SHANNON, Bankruptcy Judge.

Before the Court is an adversary proceeding initiated by American LaFrance, LLC (“ALF” or the “Debtor”) primarily to resolve its objection to the $8 million claim (the “Claim”) [Docket No. 939, Proof of Claim No. 1003] filed by RT Jedburg Commerce Park, LLC (“RT Jed-burg”). RT Jedburg filed a motion for summary judgment (the “Motion”) [Adv. Docket No. 25] asking the Court to overrule the objection. For the reasons set forth below, the Court will deny the Motion and will disallow the Claim.

I. BACKGROUND

On January 28, 2008 (the “Petition Date”), ALF filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). Before the Petition Date, ALF and RT Jedburg entered into a lease agreement (the “Lease”) under which RT Jedburg agreed to lease to ALF two industrial buildings located in Summerville,

[461 B.R. 270]

South Carolina (collectively, the “Premises”). The Lease was executed on or about August 4, 2006 and amended on January 26, 2007. The Lease required ALF to construct certain additions inside a building on the Premises that was specifically designed to facilitate the manufacture, assembly, and painting of emergency and commercial vehicles. ALF hired various contractors to construct these additions, but when ALF later defaulted on its payment obligations, work on the Premises ceased and the contractors filed various mechanic's liens against the Premises.

Pursuant to its Third Amended Plan of Reorganization (the “Plan”) [Docket No. 392], the Debtor moved to assume the Lease [Docket No. 512]. RT Jedburg filed its objection to Plan confirmation and to the Debtor's assumption of the Lease [Docket No. 525], asserting that the Debtor had not cured its defaults under the Lease. To resolve the dispute between the parties concerning Lease assumption, the parties negotiated the terms of a stipulation (the “Agreed Order”) [Docket No. 686] pursuant to which the Debtor was authorized to assume the Lease, subject to certain “assumption cure requirements” (the “Cure Provision”). Generally, the purpose of the Cure Provision was to ensure that ALF completed its construction obligations with respect to the manufacturing building on the Premises. The Cure Provision provided as follows:

ALF shall be required to have completed all work that is required to obtain a permanent Certificate of Occupancy (“CO”) permitting installation of equipment and furnishings and operation and occupancy of the Premises by no later than August 31, 2008. ALF shall be required to receive the CO from Berkeley County no later than October 31, 2008. The CO may be subject to conditions imposed by Berkeley County and as allowed by the 2003 International Building Code Chapter 1 Paragraph 110.2 and 110.3. To protect RT Jedburg from the consequences of ALF failing and in the event that ALF fails (i) to complete all of the work that is required to obtain the CO for the Premises by August 31, 2008 and/or (ii) to have the CO for the Premises issued to it by October 31, 2008, RT Jedburg shall have an allowed Class 4 unsecured claim in the amount of $8 million (the “Claim”). The Claim shall be reserved for and paid in the same manner as all Class 4 unsecured claims are reserved for and paid under the Plan except as modified by the Order confirming the Plan.

Agreed Order ¶ 5 (emphasis added). Upon entry of the Agreed Order, the Debtor resumed construction on the Premises in an effort to fulfill its obligations under the Cure Provision and ultimately obtain a permanent certificate of occupancy (the “CO”) for the manufacturing building.2 As noted, the Agreed Order provided that ALF must “complete all of the work that is required to obtain the CO for the Premises by August 31, 2008” (the “Work Deadline”) and that ALF “have the CO for the Premises issued to it by October 31, 2008” (the “CO Deadline”).

Sometime in late August 2008, Daniel Warsowick, on behalf of ALF, called Brian Welcker, who represented RT Jedburg, to inform him that ALF did not expect to complete the necessary construction by the Work Deadline. Mr. Welcker confirmed this conversation via an email dated August 26, 2008, requested to be advised of the date “on or about which

[461 B.R. 271]

[Mr. Warsowick] anticipated this work may be completed,” and notified that Mr. Warsowick that he intended to inspect the Premises shortly. Mr. Warsowick responded in an email dated August 28, 2008 that “all work associated with obtaining the CO will be completed by the Friday of Sept. 19th,” and that ALF intended to schedule a preliminary inspection with a Berkeley County building inspector the county sometime before that date.3 On September 26, 2008, the Debtor passed the inspection by the Berkeley County building inspector, and by September 29, 2008, the Debtor had obtained the CO, more than a month before the CO Deadline.

On September 18, 2008, however, RT Jedburg filed the Claim in the Debtor's bankruptcy case. RT Jedburg asserts that it is entitled to payment on the Claim because the Cure Provision states that “RT Jed-burg shall have an allowed Class 4 unsecured claim in the amount of $8 million” in the event that the Debtor failed to meet the Work Deadline. The Debtor objected to the Claim.

On June 15, 2010, the Debtor commenced this adversary proceeding by filing its complaint (the “Complaint”) [Adv. Docket No. 1] against RT Jedburg to supplement its objection to the Claim. By the Complaint, the Debtor seeks (1) a declaratory judgment stating that the Debtor satisfied the provisions of the Agreed Order (“Count I”); (2) an order disallowing the Claim under 11 U.S.C. § 502 (“Count II”); and (3) reasonable attorneys' fees and expenses in the event that the Debtor prevails on Count I and Count II (“Count III”). RT Jedburg filed a motion to dismiss the Complaint, which the Court has previously denied [Adv. Docket No. 12]. Shortly after RT Jedburg filed its motion for summary judgment, the Court scheduled a two-day trial in this matter. Trial was held, after which the parties submitted their respective proposed findings of fact and conclusions of law.

This matter has been fully briefed and argued, and the Court has admitted relevant testimony and exhibits on the matter.4 It is now ripe for decision.

II. JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. Consideration of this adversary proceeding constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (M).

III. DISCUSSION

To resolve the dispute between the parties relating to the Claim, the Court must interpret the Agreed Order and determine if and to what extent the Debtor may be liable to RT Jedburg on account of the Cure Provision. With respect to their enforcement, agreed orders are generally treated as contracts.

[461 B.R. 272]

Enter. Energy Corp. v. United States (In re Columbia Gas Sys., Inc.), 146 B.R. 106, 113 (D.Del.1992) (holding that it is appropriate to treat a judicially-approved settlement agreement like a contract in the bankruptcy context) (citations omitted). This Court has previously held that “[w]hen construing an agreed or negotiated form of order ... the Court approaches the task as an exercise of contract interpretation rather than the routine enforcement of a prior court order.” In re Trico Marine Servs., Inc., 450 B.R. 474, 482 (Bankr.D.Del.2011). See also City of Covington v. Covington Landing Ltd. P'ship, 71 F.3d 1221, 1227 (6th Cir.1995) (“An agreed order, like a consent decree, is in the nature of a contract, and the interpretation of its terms presents a question of contract interpretation.”). Ultimately, “the goal is to determine the rights, duties, and reasonable expectations of the parties, as disclosed to and blessed by the Court.” In re Trico, 450 B.R. at 482.

A. Choice of Law5

It is well settled that a federal court applies the choice of law principles of the state in which it sits. See Piper Aircraft Co. v. Reyno, 454 U.S. 235, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981); Allstate Ins. Co. v. Hague, 449 U.S. 302, 307, 101 S.Ct. 633, 66 L.Ed.2d 521 (1981). The Delaware Supreme Court has stated that determining that state whose law applies to the interpretation of a contract requires assessing which state “has the most significant relationship to the transaction and the parties.” Travelers Indem. Co. v. Lake, 594 A.2d 38, 46–47 (Del.1991); Oliver B. Cannon & Son, Inc. v. Dorr–Oliver, Inc., 394 A.2d 1160, 1166 (Del.1978). Factors that should be considered in this analysis include the place of contracting,...

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