In re Builders Alliance, Inc., Bankruptcy No. 89-10303S
| Decision Date | 23 May 1989 |
| Docket Number | Adv. No. 89-0154S.,Bankruptcy No. 89-10303S |
| Citation | 100 BR 203 |
| Parties | In re BUILDERS ALLIANCE, INC., Debtor. BUILDERS ALLIANCE, INC., Plaintiff, v. C. & J. CLARK RETAIL, INC., Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Marjorie L. McMahon, Philadelphia, Pa., for debtor-plaintiff.
Michael Bloom, Mark J. Manta, Philadelphia, Pa., for defendant.
Janet A. Sonnenfeld, Michael Power, Philadelphia, Pa., for creditors' committee.
This is an adversarial proceeding in which the Debtor, BUILDERS ALLIANCE, INC., a general contractor operating as a Chapter 11 debtor-in-possession, seeks to collect an alleged account receivable from the Defendant, C. & J. CLARK RETAIL, INC., a shoe retailer on whose behalf it contracted to renovate a shopping-center store site in Moorestown, New Jersey. Although the record is somewhat scanty, the facts appear in large measure indistinguishable from those presented to us in another matter before us about a year ago, In re Temp-Way Corp., 82 B.R. 747 (Bankr.E.D.Pa.1988). Therefore, we come to the same result that we reached in the Temp-Way matter. We decline to require the Defendant to pay the Debtor for its services when the Debtor, in violation of the terms of its contract with the Defendant, has failed to pay its subcontractors. However, we condition our decision on obliging the Defendant to in fact pay these subcontractors.
The Chapter 11 case underlying this proceeding was filed by the Debtor on January 24, 1989. The instant adversary matter was one of two proceedings commenced by the Debtor against this same Defendant on February 28, 1989. The other proceeding (Adversary No. 89-0151S) was brought in connection with a similar fact-situation concerning a shopping-center site in Smithaven, New York. On April 3, 1989, the Defendant filed Answers and Counter-claims to the Debtor's Complaints in both actions, contending that it was entitled to setoffs because the Debtor had failed to pay its subcontractors, and that the liability to do so would consequently fall upon the Defendant itself. It also filed a motion seeking relief from the automatic stay for permission to assert such setoffs in both of these proceedings. On April 19, 1989, this motion and both proceedings came before us for trial.
Adversary No. 89-0151S was thereupon settled by a Stipulation in which the Debtor withdrew its claims and the Defendant agreed to set aside and administer a fund to be paid to the Debtor's subcontractors. The reason that this proceeding and not the instant proceeding was resolved was the alleged existence of a New York law, applicable to the Smithaven project, providing subcontractors with a broad right to file mechanics' liens against an owner to collect any sum due to them. See, e.g., In re Tubular Products, Inc., 69 B.R. 582, 585 (Bankr.E.D.Pa.1987). It was apparently correctly alleged that New Jersey has no comparable law. See, e.g., Baldyga Construction Co. v. Hurff, 174 N.J.Super. 616, 617-18, 417 A.2d 110, 111 (1980).
At trial, the parties recited several Stipulations of Fact and then they each called one witness. George Pafundi, the President of the Debtor, on its behalf; and Cynthia Westphal Salvo, the Director of Store Design for the Defendant, on behalf of the Defendant. The Defendant, at trial, submitted a Memorandum of Law addressing both Adversary No. 89-0151S and this proceeding. We allowed the Debtor until May 1, 1989, and the Defendant, after a one-day extension, until May 9, 1989, to submit further briefing. Since this is an adversary proceeding, we are obliged to submit our decision in the form of Findings of Fact and Conclusions of Law pursuant to Bankruptcy Rule (hereinafter "B.Rule") 7052 and Federal Rule of Civil Procedure 52(a). Little extended discussion of legal issues is necessary because of our adoption of our previous reasoning in Temp-Way, supra.
1. On November 29, 1988, the Debtor entered into a contract captioned Abbreviated Form of Agreement Between Owner and Contractor (hereinafter "the Contract") to perform certain renovations at a total cost of $62,507.00 in a Hanover Shoes store with the Defendant, which owns over 500 shoe stores under various names throughout the country and planned to open in the Moorestown Mall in Moorestown, New Jersey.
2. Payments on the Contract were to be made according to the following schedule:
3. The first two payments were made in accordance with this schedule. The Debtor seeks, in this proceeding, the last two payments totalling $25,002.80, which the Defendant has admittedly not paid to it.
4. The Contract includes, at paragraph 15, the following provisions:
5. The Debtor has admittedly not paid the following subcontractors on this job the following respective sums:
Larsaro (sp.?) Tile $ 1,790.00
Ellis Plumbing 488.00
Lou's Electric 2,881.00
Rabinowitz Glass Co. 5,000.00
Engelke & Co. 19,447.50
__________
TOTAL $29,606.50
Other small sums are apparently owed, because the Debtor admits that the total amount which it owes to subcontractors is $30,006.50.
6. The Debtor's subcontracts all included the following provision:
THE CONTRACTOR SHALL MAKE THE LAST PAYMENT TO SUBCONTRACTOR AFTER ALL MATERIALS AND LABOR INSTALLED BY SAID SUBCONTRACTOR HAVE BEEN COMPLETED, APPROVED BY THE SAID ARCHITECT AND SATISFACTORY EVIDENCE FURNISHED TO CONTRACTOR BY SUBCONTRACTOR THAT ALL LABOR AND MATERIAL ACCOUNTS FOR USE ON THIS PARTICULAR WORK HAVE BEEN PAID IN FULL, AND FOR WHICH PAYMENT HAS BEEN MADE BY SAID "OWNER" TO SAID CONTRACTOR.
7. The Defendant accepted the store on or about January 31, 1989. The work was about ninety-five (95%) percent completed as of January 24, 1989, when the Debtor filed bankruptcy.
8. One of the subcontractors, Lou's Electric, temporarily cut off the electric system in the store shortly after the Defendant took possession because the Debtor had remitted a payment of $2,000 to it by a check which had been returned to it for insufficient funds.
9. On March 27, 1989, Eugene A. Groves, the General Manager of the Moorestown Mall, wrote to the Defendant, advising that he had paid certain subcontractors' invoices attached thereto, which attachments were not produced at trial.
10. Mr. Pafundi claimed that he had "properly" paid all subcontractors because of the effect of the term in their contracts quoted at Finding of Fact 6, page 205 supra, requiring that the subcontractors be paid only upon payment by the owner (the "pay when paid" clause). With respect to the sums not paid to the subcontractors, he contended that payments were not due because payments had not yet been made to the Debtor by the "owner," i.e., the Defendant. He therefore contended that the Debtor had not violated ¶ 15.2(3) of the Contract, quoted at Finding of Fact 4, page 205 supra.
11. Mr. Pafundi further testified that all of the subcontractors had promised not to file mechanics' liens in connection with their services on the project and had not, to his knowledge, done so. Therefore, he contended that the Debtor had not violated ¶ 15.4 of the contract, also quoted at Finding of Fact 4, page 205 supra.
12. The Debtor provided no assurance that the subcontractors would be paid from any remittances made to it by the Defendant. In fact, it suggested, in argument and its Brief, that it was precluded by certain unspecified provisions of the Bankruptcy Code from making any distribution to the subcontractors and, for that reason, was unable to comply with ¶ 15.2(3) of the Contract.
1. This court has jurisdiction to hear and determine this matter.
This proceeding is properly classifiable as a "garden-variety accounts receivable proceeding" brought by a debtor. We have consistently held that such proceedings are core in nature. See, e.g., In re Jackson, 90 B.R. 126, 128-31 (Bankr.E.D.Pa.1988); and In re Windsor Communications Group, Inc., 67 B.R. 692, 694-96, 700 (Bankr.E.D. Pa.1986). Furthermore, in adherence with B.Rule 7008(a), the Debtor pleaded that the proceeding was core pursuant to 28 U.S.C. §§ 157(b)(2)(A), (b)(2)(O), and the Defendant admitted same. We believe that these pleadings constitute the requisite "express consent," see B.Rule 7012(b), allowing us, pursuant to 28 U.S.C. § 157(c)(2), to determine this matter, even assuming arguendo that it is noncore. We shall therefore determine it.
2. The Debtor's violation of the Contract clauses allowing the Defendant to withhold payment because the Debtor has failed to make payments to subcontractors and providing that final payment is not due until releases of liens or receipts for payment to subcontractors in full are provided establish viable defenses for the Defendant to this proceeding.
The most effective defense articulated by the Defendant is the straightforward assertion that the Debtor has failed to satisfy the...
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