Dwyer v. Ins. Co. of Pa., (In re Pihl, Inc.)
| Decision Date | 14 April 2015 |
| Docket Number | Case No. 13–15575–WCH,Adversary Proceeding Case No. 13–01384 |
| Citation | 529 B.R. 414 |
| Parties | In re: Pihl, Inc. Debtor. Kathleen P. Dwyer, Chapter 7 Trustee, Plaintiff, v. The Insurance Company of the State of Pennsylvania, American International Companies, and Middlesex Savings Bank, Defendants. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Christopher M. Condon, Murphy & King, P.C., Boston, MA for the Chapter 7 Trustee
Eric H. Loeffler and Bradford R. Carver, Hinshaw & Culbertson, Boston, MA for the Defendants
The matters before the Court are the “Motion for Partial Summary Judgment Against Defendants” (the “Trustee Motion”), filed by Kathleen P. Dwyer (the “Trustee”), the plaintiff and Chapter 7 trustee (the “Trustee”) of the estate of Pihl, Inc. (the “Debtor”), the “Opposition of the Insurance Company of Pennsylvania and American International Companies to the Plaintiff's Motion for Partial Summary Judgment” (the “Defendants' Opposition”), filed by defendants The Insurance Company of the State of Pennsylvania (“ICSP”) and American International Companies (“AIC”) (collectively, the “Defendants”), ICSP's “Motion for Summary Judgment” (the “ICSP Motion”), and the Trustee's “Opposition to Motion for Summary Judgment” (the “Trustee's Opposition”). Through the Trustee Motion, the Trustee seeks: (1) turnover of funds held by a third defendant, Middlesex Savings Bank (the “Bank”), pursuant to 11 U.S.C. § 542 ; (2) avoidance of a UCC–1 financing statement (the “First Transfer”) that AIC filed on September 16, 2013, as a preferential transfer pursuant to 11 U.S.C. § 547 ; (3) recovery and preservation of the value of the First Transfer pursuant to 11 U.S.C. §§ 550 and 551 ; (4) avoidance of a Writ of Attachment (the “Second Transfer”) ICSP filed on September 20, 2013, pursuant to 11 U.S.C. § 547 ; and (5) recovery and preservation of the value of the Second Transfer for the Debtor's estate pursuant to 11 U.S.C. §§ 550 and 551. ICSP, through the ICSP Motion, seeks a declaration that the Bank funds are not property of the estate and turnover of those funds to ICSP. For the reasons set forth below, I will deny both motions.
Pursuant to Local Rule 56.1 of the United States District Court for the District of Massachusetts,1 the Trustee filed a “Statement of Undisputed Facts in Support of Motion for Partial Summary Judgment against the Defendants”2 (the “Trustee's Statement of Facts”), and ICSP filed a “Concise Statement of Facts In Support Of Its Motion for Summary Judgment”3 3 (the “ICSP Statement of Facts,” collectively, the “Statements of Fact”). The Trustee filed a response to the ICSP Statement of Facts4 and ICSP filed a response to the Trustee's Statement of Facts.5
The Debtor is in the business of construction contracting and specializes in civil engineering projects.6 It is a wholly owned subsidiary of E. Pihl and Son, A/S, an international contracting and civil engineering company based in Denmark.7 ICSP is in the business of issuing performance and payment contract surety bonds.8 ICSP is a subsidiary of American International Group (“AIG”).9 AIC is also an affiliate of AIG.10
On or around January 12, 2006, the Debtor executed a written indemnity agreement (the “Indemnity Agreement”) with ICSP in contemplation of ICSP issuing the Debtor surety bonds.11 The Indemnity Agreement stated that the Debtor will exonerate and indemnify ICSP from and against any liability for losses and expenses that ICSP might sustain because it executed surety bonds for the Debtor.12 The Indemnity Agreement also contained a provision purporting to assign, as security, certain property belonging to the Debtor. The provision read as follows:
The Principals, the Indemnitors hereby consenting, will assign, transfer and set over, and do hereby assign, transfer, and set over to the Surety, as collateral, to secure the obligations in any and all of paragraphs of this Agreement ... but only in the event of (1) any abandonment, forfeiture or breach of any contracts referred to in the Bonds or of any breach of said Bonds; ... (a) All of the rights of the Principals in, and growing in any manner out of, all contracts referred to in the Bonds, or in, or growing in any manner out of the Bonds; ... (e) Any and all percentages retained and any and all sums that may be due or hereafter become due on account of any and all contracts referred to in the Bonds and all other contracts whether bonded or not in which the Principal has an interest.13
On October 19, 2009, E. Pihl & Son executed a counterindemnity agreement (the “Counter Indemnity Agreement”) in favor of AIG.14 The Counter Indemnity Agreement defined AIG as including ICSP15 and was similar in substance to the Indemnity Agreement.16 The Defendants have not explained the relevance of the Counter Indemnity Agreement.
Following the execution of the Indemnity Agreement and Counter Indemnity Agreement, ICSP issued performance and payment bonds as follows:17
| Project | Bond Amount | Owner/Obligee | Bond Issue Date & Bond Number |
| Nahant Beach Reservation Reconstruction | $17,451,608.70 | Massachusetts Department of Conservation and Recreation (“DCR”) | April 29, 2010# 29–53–74 |
| Willimansett Bridge Deck and Replacement (the “Williamansett Bridge Project”) | $19,257,704.00 | Massachusetts Department of Transportation (“DOT”) | April 26, 2011# 29–53–75 |
| General Edwards Drawbridge Rehabilitation | $8,618,407.00 | DOT | June 29, 2011# 29–53–76 |
The Defendants claim that they began receiving bond payment claims on each of the above projects (collectively, the “Bonded Projects”) with increasing frequency at the end of 2011.18 According to the Defendants, these claims continued through 2012 and 2013.19 On or around June 14, 2012, a subcontractor sued the Debtor and ICSP.20 The subcontractor claimed that the Debtor failed to make payments for the Willimansett Bridge Project and sought to recover on the payment bond ICSP issued.21 The outcome of that action is not on the record before me. On or around August 26, 2013, E. Pihl and Son filed for bankruptcy protection in Denmark.22
ICSP states that on September 12, 2013, an employee of the Debtor informed ICSP the Debtor would not complete the Bonded Projects due to E. Pihl & Son's bankruptcy.23 On the same day, the Debtor terminated all of its employees and ceased operations.24 ICSP mailed the Debtor a letter reminding it of its obligations pursuant to the Indemnity Agreement on September 13, 2013.25 On September 16, 2013, AIC filed a UCC–1 financing statement with the Secretary of the Commonwealth of Massachusetts.26 The financing statement purported to take an interest in substantially the same collateral as described in the assignment provision of the Indemnity Agreement.27
On September 17, 2013, ICSP sent the Debtor a letter demanding $1,072,804 in collateral security, an amount based on ICSP's understanding of its potential exposure on the bonds at that time.28 As of September 17, 2013, the Debtor had a balance of $680,814.91 at the Bank, comprised of $289,386.17 (the “Pre–Existing Balance”) deposited prior to that date and a payment of $391,428.74 (the “September Payment”) received that day from the Commonwealth of Massachusetts.29
On September 18, 2013, in a letter to the Debtor, the DOT declared 30 That same day, the DOT sent the Debtor a letter stating 31
Also on September 18, 2013, ICSP commenced an action in the United States District Court for the District of Massachusetts (the “District Court”) against the Debtor and the Bank.32 ICSP filed an ex parte motion in the District Court for a trustee process on the same day.33 On September 19, 2013, the District Court approved the Writ of Attachment, which was served on the Bank.34 The Bank filed an answer indicating that it held $680,814.91 in accounts in the Debtor's name.35
On September 20, 2013, the Debtor filed a voluntary Chapter 7 petition in this court.36 The Debtor listed $682,893.13 in accounts at the Bank on its schedules of assets and liabilities.37 On October 23, 2013, I approved a stipulation in the lead case in which the Trustee rejected certain executory contracts, including those for the Bonded Projects.38
On October 2, 2013, the Trustee filed the present adversary proceeding.39 Through her Complaint, the Trustee sought turnover of the Pre–Existing Balance and September Payment (collectively, the “Funds”), avoidance of the First and Second Transfers (collectively, the “Transfers”), recovery and preservation of the value of the Transfers, and a preliminary injunction ordering immediate turnover of funds in the Bank.40 After a hearing held on October 8, 2013, I denied the Trustee's Emergency Motion for Preliminary Injunction (“Motion for Preliminary Injunction”).41 The Bank filed an Answer to the Complaint (the “Bank's Answer”) on October 30, 2013,42 while the Defendants together filed their Answer (the “Defendant's Answer”)43 on November 1, 2013. On November 7, 2014, the parties filed the ICSP Motion44 and the Trustee Motion,45 seeking summary judgment, with one exception, on all of the remaining counts. The Trustee reserved her rights and defenses as to the September Payment for trial.46 On December 9, 2014, the parties filed their respective oppositions.47 I held a hearing on December 17, 2014, and, at its conclusion, took the matter under advisement.
The Defendants take the position that the Funds held by the Bank are not property of the estate. They advance three theories: (1) that ICSP has equitable subrogation rights in the Funds as proceeds of bonded...
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