In re Aero-Fastener, Inc.
| Decision Date | 30 December 1994 |
| Docket Number | Bankruptcy No. 93-40107. Adv. No. 93-4182. |
| Citation | 177 BR 120 |
| Parties | In re AERO-FASTENER, INC., Debtor. AERO-FASTENER, INC., Plaintiff, v. SIERRACIN CORPORATION, Defendant. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
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Louis S. Robin, Longmeadow, MA, for debtor.
David J. Noonan, Trustee.
L. Jed Berliner, Springfield, MA, for Sierracin Corp.
Before the Court for determination are several motions arising out of a "Complaint for Avoidance or Preferential Transfers, Breach of Agreement, and Breach of Contract/Distribution Agreement" (the "Complaint") filed by the Debtor, Aero-Fastener, Inc. (the "Debtor" or "Plaintiff") against Sierracin Corporation ("Sierracin" or "Defendant").
The following recitation of facts surrounding the instant dispute between the Debtor and Sierracin are either not contested or not properly controverted by Sierracin as is set forth below.
The Debtor is a seller of aircraft parts. Prior to the filing of the Chapter 11 case herein, the Debtor and Sierracin, a manufacturer of aircraft parts, had a distribution agreement concerning the purchase and sale of parts inventory for the Debtor's business (the "Distribution Agreement"). Over a two year period commencing in November of 1990, the Debtor purchased a significant amount of inventory from Sierracin for resale to other manufacturers. However, during the period of January 1, 1992 to September 1, 1992, the Debtor defaulted in payment as required by the Distribution Agreement and, as of December of 1992, owed Sierracin the sum of approximately $108,000.00.
In December of 1992, Sierracin commenced an action, entitled Sierracin Corporation v. Aero-Fasteners, Inc. in the Commonwealth of Massachusetts District Court Department for the Springfield Division (the "State Court Action"). The complaint sought payment of $118,182.13 for goods sold and delivered by Sierracin to the Debtor, pursuant to the Distribution Agreement. Sierracin also sought the imposition of a bulk attachment of the assets of the Debtor.
At or about the time that the State Court Action was filed, the Debtor was suffering from further financial difficulties. Most notably, United States Trust Company, the Debtor's source of financing, "froze" the Debtor's line of credit, forcing the Debtor to significantly reduce its operations. As a result of the loss of financing, the Debtor was unable to purchase inventory for resale, or otherwise to pay its debts.
Notwithstanding the foregoing difficulties, the Debtor and Sierracin were able to settle the State Court Action, prior to action on the request for bulk attachment, by executing an "Agreement and Release" (the "Settlement Agreement")1 on January 8, 1993. Pursuant to the terms of the Settlement Agreement, the Debtor agreed to ship goods valued at $124,691.22 to Sierracin from the Debtor's inventory and to release Sierracin from any other obligations (including the Debtor's claim against Sierracin for alleged "wrongful sales to Aero-Fastener's customers."). The amount of $124,691.22 was comprised of $108,628.38 for the agreed upon amount of the antecedent debt, a 10% restocking fee, and $5,200 in attorneys fees.
Also included in the Settlement Agreement was a provision which required Sierracin to ship to the Debtor new goods valued at $38,470.45 in exchange for inventory to be returned to Sierracin in the amount of $38,470.45, plus a ten (10%) per cent stocking charge. According to the Settlement Agreement, the goods to be sent from Sierracin to the Debtor were to be shipped to the Debtor within twenty-four (24) hours of receipt by Sierracin of the $38,470.45 goods to be returned from the Debtor to Sierracin.
Pursuant to the terms of the Settlement Agreement, the Debtor timely returned to Sierracin all parts specified in the Settlement Agreement. Those goods were shipped on January 8, 1993 from the Debtor's location in Westfield, Massachusetts, and received by the Sierracin on January 15, 1993 in Burbank, California. However, Sierracin did not ship any goods to the Debtor until several days after receiving its shipment from the Debtor. When Sierracin actually shipped the promised goods to the Debtor, it did not ship goods identified under the part numbers H11009-04(p) (171 pieces) and H11009-02(D) (107 pieces). Although the Debtor received some of the parts on January 25, 1993, the shipment (which did not include the entire order) was too late to fulfill a contract between the Debtor and the United States Government.
The execution of the Settlement Agreement and Sierracin's receipt of the goods pursuant to the terms of the Settlement Agreement occurred within the week preceding the filing of the instant Chapter 11 petition.
On or around January 15, 1993, the Debtor filed a Chapter 11 petition in this Court. Approximately seven (7) months later, the Debtor commenced the above-captioned adversary proceeding2 against Sierracin. Sierracin's Answer, filed on August 23, 1993, included a demand for a jury trial. At the Pre-Trial Conference on October 21, 1993, the parties submitted a Joint Pre-Trial Stipulation. In a Second Pre-Trial Order entered on October 21, 1993 by Chief Bankruptcy Judge James F. Queenan Jr., the Court ordered that a discovery deadline be set for May 1, 1994, and ordered the Debtor to file a motion for summary judgment on Counts I and II of the Complaint within sixty (60) days. Judge Queenan's order also provided that, after resolution of the "dispositive motions", the case would be transferred to the United States District Court.
Notwithstanding the sixty (60) day deadline set forth in Judge Queenan's Second Pre-Trial Order, not until March 1, 1994 did the Debtor file a motion for summary judgment on Count I (Avoidance of Preferential Transfers) and Count II (Breach of Agreement) together with an affidavit of James B. Avery, the Debtor's Treasurer (the "Avery Affidavit"). Sierracin responded by filing an opposition to the motion for summary judgment, but without any supporting affidavits. On April 28, 1994, this Court held a hearing on the Debtor's motion for summary judgment on Counts I and II of the Complaint.
At the hearing on its motion for summary judgment, the Debtor argued that summary judgment should be awarded on both Counts I and II because there were no genuine issues of material fact, and, on the further grounds that the nonmoving party, Sierracin, had failed to supply any affidavits in opposition to the Debtor's motion for summary judgment.
With respect to Count I (Avoidance of Preferential Transfers), the Debtor argued that the Debtor's satisfaction of the debt owed to Sierracin within ninety (90) days of the filing of the petition was a "casebook example of a preference." The Debtor asserted that it shipped approximately $165,000 worth of goods to Sierracin, which amount represented: (1) the $108,000 pre-existing debt, (2) the 10% restocking charge; (3) approximately $5,000 in legal fees; and (4) $38,000 worth of goods, including an additional 10% restocking charge. Of those amounts, the Debtor claimed that the $108,000 debt, plus the approximately $5,000 in legal fees and the 10% restocking charge3 was clearly an antecedent debt.4
With respect to Count II (Breach of Agreement) of the Complaint, the Debtor asserted that Sierracin's failure to timely deliver the goods valued at approximately $38,000, within the twenty-four time period prescribed under the Settlement Agreement, caused the Debtor to lose approximately $21,728.03 it would have collected that on the United States government contract.
In opposition to the motion for summary judgment, Sierracin raised several arguments. Firstly, Sierracin asserted that its failure to supply affidavits in opposition to the Debtor's motion for summary judgement was not fatal because prevailing case law requires the Court to draw all inferences in favor of the nonmoving party. Although it did not supply any affidavits, Sierracin asserted that the Debtor's allegations presented genuine issues of material fact.
Secondly, with respect to the alleged voidable preference, Sierracin asserted that all of the described transfers comprised one contract that was not severable. More specifically, Sierracin claimed that at the time of the execution of the Settlement Agreement, Sierracin took advantage of its bargaining position (because the Debtor could not find another supplier on an emergency basis) by requiring a premium price to be paid for the new contemporaneous consideration. Sierracin claimed that the right to do business with Sierracin, the only available supplier was itself new value, contemporaneously given. Furthermore, Sierracin found contemporaneous consideration given in its forbearance to go forward with its bulk attachment sought in the State Court Action.
Thirdly, with respect to Count II of the Complaint, Sierracin asserted that there was no breach of the Settlement Agreement because time was not of the essence in the agreement. Moreover, Sierracin also asserted that the measure of damages was inaccurate. It argued that the Debtor should have calculated damages on the basis of lost profits and not on the basis of the gross revenues of the lost sale.
After hearing the oral arguments, the Court granted summary judgment in favor of the Debtor on both Counts I and II.5
Approximately three months later, the Chapter 11 Trustee6 (the "Trustee") filed a "Motion for Separate and Final Judgment as to Counts I and II" ("Motion for Separate and Final Judgment"). Sierracin responded by filing an objection and also filed a "Motion to Revise Order Granting Plaintiffs Motion for Summary Judgment" ("Motion to Revise"). Sierracin also filed a "Motion for Leave to File Supplements" and a request for expedited determination.7 All of the above motions were...
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