In re Brockway Pressed Metals, Inc.

• Decision Date: 30 March 2007
• Docket Number: Bankruptcy No. 05-11891-TPA.,Adversary No. 05-1303-TPA.
• Citation: 363 B.R. 431
• Parties: In re BROCKWAY PRESSED METALS, INC., Debtor, Brockway Pressed Metals, Inc., LaSalle Bank National Association, General Motors Corporation, BorgWarner TorqTransfer System, Inc., AVM, Inc., and Delphi Corporation, Plaintiffs, v. Eynon Associates, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

363 B.R. 431

In re BROCKWAY PRESSED METALS, INC., Debtor Brockway Pressed Metals, Inc., LaSalle Bank National Association, General Motors Corporation, BorgWarner TorqTransfer System, Inc., AVM, Inc., and Delphi Corporation, Plaintiffs, v. Eynon Associates, Inc., Defendant.

Bankruptcy No. 05-11891-TPA.

Adversary No. 05-1303-TPA.

United States Bankruptcy Court, W.D. Pennsylvania.

March 30, 2007.

COPYRIGHT MATERIAL OMITTED

Robert D. Nachman, Esq., Chicago, IL, Lead Counsel for LaSalle Bank National Association.

Beverly Weiss Manne, Esq., Pittsburgh, PA, for LaSalle Bank National Association.

Ronald L. Hicks, Jr., Esq., for Eynon Associates, Inc.

Daniel A. Zazove, Esq., for the Debtor.

Guy C. Fustine, Esq., Erie, PA, for The Committee of Unsecured Creditors.

MEMORANDUM OPINION

THOMAS P. AGRESTI, Bankruptcy Judge.

This matter came before the Court for trial on the Complaint to Determine Validity and Priority of Liens filed by the Debtor, Brockway Pressed Metals, Inc. ("Brockway") and LaSalle Bank National Association ("LaSalle Bank") against Eynon Associates, Inc. ("Eynon"). The Court considered the testimony, stipulations and other evidence submitted at trial as well as the arguments of counsel. For the following reasons the Court enters Judgment in favor of Brockway and LaSalle Bank, finding that Eynon's claim against funds currently held in escrow to be without merit. In light of LaSalle Bank's all inclusive security interest which includes Brockway's receivables, the escrow is payable to LaSalle Bank.¹

FACTS

On June 8, 2005, Brockway Pressed Metals, Inc., a Pennsylvania corporation, located in Brockway, Pennsylvania, filed for relief under Chapter 11 of the United States Bankruptcy Code and continued operating in debtor-in-possession status. Since 1953, Brockway was in the business of designing and manufacturing a wide range of highly engineered powder metal products. In the years prior to the petition date the most significant market opportunities for Brockway's powder metal part design and manufacturing expertise typically involved automotive applications including engine and transmission components, steering components, cruise control devices and various other applications for ultimate use in the automotive industry.

Because of the Debtor's highly engineered product line, it retained the Defendant, Eynon Associates, Inc., as its sale representative. Eynon, a Michigan corporation founded in 1936, is a product development and engineering sales representative for a select group of suppliers, who Eynon refers to as "principals," who manufacture various components, assemblies and materials that are uniquely engineered to meet the specific needs of the automotive industry. In marketing Brockway's product line Eynon works closely with engineers of existing and potential "customers" such as General Motors Corporation, BorgWarner TorqTransfer Systems, Inc., AVM, Inc. and Delphi Corporation ("Designated Customers") to design and sell products that ultimately are to be manufactured by the suppliers/principals Eynon represents. Eynon represented Brockway since it first opened in 1953.

Beginning in 1953 and continuing until March 2, 1998, Eynon worked under an oral agreement with Brockway. Among other things, Brockway agreed to pay Eynon a commission "for the life of product" (continuing so long as the product was shipped, on average, being approximately 7 years) generally receiving 5% of the net invoice amount collected by Brockway on products sold and delivered to customers within the territory assigned to Eynon. Following Brockway's sale to Inland Steel, for the first time on March 2, 1998, Brockway and Eynon entered into a written Sales Representative Agreement (Ex. G) ("1998 Sales Representative Agreement") that, among other things, formally documented the Parties' then agreement A to the percentage of the net amount of receivables to be received by Eynon. Pursuant to the 1998 Sales Representative Agreement, Brockway appointed Eynon as its exclusive sale representative for all of Brockway's powdered metal products and assemblies sold to certain customers. According to its terms, Eynon was to promote and solicit orders of Brockway's products from customers within Eynon's then-assigned territory and to be paid pursuant to a set commission schedule including a formula for determining the date on which commission payments became due. The commission amounts were reduced from that which Eynon experienced under the oral sales representative agreement previously in place. The 1998 Sales Representative Agreement also included a "nonalienation" clause referring to Eynon as "Representative" and which stated:

Nonalienation. The Representative's interests under this Agreement are not subject to the claims of the Representative's creditors and may not otherwise be voluntarily or involuntarily assigned, alienated or encumbered.

See Ex. G, p. 8, Section XIV, ¶ 1, Sales Representative Agreement, dated March 2, 1998.

The 1998 Sales Representative Agreement remained in place until June 5, 2001 when Brockway and Eynon entered into another written contract, again entitled "Sales Representative Agreement" (Ex. H) ("2001 Sales Representative Agreement"). Similar to and expanding upon the prior agreement, the 2001 Sales Representative Agreement appointed Eynon as Brockway's exclusive sale representative for all Brockway's products sold to all existing or potential customers developed by Eynon within Eynon's then-assigned territory, setting forth similar duties and responsibilities for Brockway. As with the prior agreement, the 2001 Sales Representative Agreement contained a defined commission schedule but extended the actual date for payment of the commissions. As in the 1998 Sales Representative Agreement, it included identical "nonalienation" language. See Ex. H, Section XII, ¶ 2.

Under the prior agreement, the "life-of-the-product" commission had been reduced to a 3 year "posttermination term" (i.e., following termination of the contract) rather than "life-of-the-product." The new agreement extended the "posttermination term" commission to five years. The June 5, 2001 Sales Representative Agreement also provided that any disputes arising out of it were to be governed and construed in accordance with the applicable Pennsylvania law.²

Although over time, Eynon's sales responsibilities continued to expand through 2004, Eynon was not Brockway's only sales representative. In August of 2004, Brockway and Eynon entered a new agreement entitled "First Amendment to Sales Representative Agreement" (Ex. I) ("2004 Amendment") under which Eynon became Brockway's only sales representative. The 2004 Amendment also modified the manner, amount and timing of payments from Brockway to Eynon related to earned sales commissions. Unless otherwise changed by the 2004 Amendment, the terms of the 2001 Sales Representative Agreement were incorporated into the 2004 Amendment which fully controlled the relationship of the Parties. No changes were made to the nonalienation clause.

LaSalle Bank first became involved in Brockway's operations in 1998 when it loaned money to Brockway's parent company, EMC Group, Inc., which loan was guaranteed by Brockway and certain other affiliated entities. In November of 2002, the Credit Agreement with LaSalle Bank and Brockway changed to include Brockway, among others, as borrowers instead of guarantors. As security for the obligation to LaSalle Bank, Brockway, as well as others, provided LaSalle Bank a security interest lien and mortgage in all or substantially all of Brockway's property. At no time during the financial relationship between Brockway and LaSalle Bank was Eynon a party to any documentation or even asked to execute any documents related to this obligation.

Through June of 2004, consistent with its contractual duties during both the oral and written contract periods, Brockway complied with its responsibilities for invoicing, collection of customer receivables and providing Eynon with a regular summary of all order acknowledgments and invoices. All decisions relating to pricing, specifications, acceptance of orders, shipment or delivery of products, return of products, credit and allowances or adjustment in accounts were made solely by Brockway. Brockway also forwarded to Eynon all commission amounts due for product sales in regard to orders received and fulfilled through the sale of its products to its customers. This payment practice ended as of July of 2004 when no further commission payments were received by Eynon up to and including the filing of the bankruptcy. Despite Eynon's repeated demands, Brockway failed to forward to Eynon the earned sale commissions due it pursuant to the 2004 Amendment.

In March, 2005, Eynon filed suit against Brockway in the United States District Court for the Western District of Pennsylvania claiming, among other things, breach of contract, unjust enrichment and conversion coupled with a demand for an equitable accounting due to Brockway's continued failure to pay the earned sale commissions Eynon claimed as rightfully due it. On August 6, 2005, Eynon entered default judgment against Brockway in the amount of $391,094.27 representing the earned sales commission Eynon believed was due and owing through February, 2005. The default judgment allowed for the payment of postjudgment interest, costs and accruing postjudgment commissions. Following entry of the judgment, Eynon instituted garnishment proceedings against a number of Brockway's customers. Thereafter, on June 8, 2005, Brockway filed the within bankruptcy.

PROCEDURAL HISTORY

On June 13, 2005, the preliminary hearing on Brockway's first day motions took place which included its request for an interim order for postpetition debtor-in-possession financing ("DIP Financing"). As expected, the proposed interim order required that all Brockway's receivables be part of the DIP Financing collateral. At that...