In re Dehon, Inc.

• Decision Date: 12 October 2006
• Docket Number: Adversary No. 04-04039.,Adversary No. 04-04040.,Adversary No. 04-04049.,Adversary No. 04-04047.,Adversary No. 04-04272.,Bankruptcy No. 02-41045.
• Citation: 352 B.R. 546
• Court: U.S. Bankruptcy Court — District of Massachusetts
• Parties: In re DEHON, INC., Debtor. Stephen S. Gray, As Plan Administrator of Dehon, Inc., Plaintiff, v. Western Environmental Services & Testing, Inc., Defendant. Stephen S. Gray, As Plan Administrator of Dehon, Inc., Plaintiff, v. University of Alaska, Defendant. Stephen S. Gray, As Plan Administrator of Dehon, Inc., Plaintiff, v. Energy & Environmental Analysis, Inc., Defendant. Stephen S. Gray, As Plan Administrator of Dehon, Inc., Plaintiff, v. Kinnetic Laboratories, Inc., Defendant. Stephen S. Gray, As Plan Administrator of Dehon, Inc., Plaintiff, v. Interliance, LLC., Defendant.

352 B.R. 546

In re DEHON, INC., Debtor.

Stephen S. Gray, As Plan Administrator of Dehon, Inc., Plaintiff, v. Western Environmental Services & Testing, Inc., Defendant.

Stephen S. Gray, As Plan Administrator of Dehon, Inc., Plaintiff, v. University of Alaska, Defendant.

Stephen S. Gray, As Plan Administrator of Dehon, Inc., Plaintiff, v. Energy & Environmental Analysis, Inc., Defendant.

Stephen S. Gray, As Plan Administrator of Dehon, Inc., Plaintiff, v. Kinnetic Laboratories, Inc., Defendant.

Stephen S. Gray, As Plan Administrator of Dehon, Inc., Plaintiff, v. Interliance, LLC., Defendant.

Bankruptcy No. 02-41045.

Adversary No. 04-04039.

Adversary No. 04-04040.

Adversary No. 04-04047.

Adversary No. 04-04049.

Adversary No. 04-04272.

United States Bankruptcy Court, D. Massachusetts.

October 12, 2006.

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COPYRIGHT MATERIAL OMITTED

Peter D. Bilowz, Christian T. Haugsby, Rafael Klotz, Douglas B. Rosner, Leonard H. Freiman, Goulston & Storrs, P.C., Daniel Glosband, Macken Toussaint, Goodwin Procter LLP, Christian J. Urbano, Hanify & King P.C., Boston, MA, Albert Birkner, Cerha Hempel & Spiegelfeld Partnerschaft Von Rechtsanwalten, Michael Caro, Jeremy Goldring, Baker & McKenzie, David M. Fournier, Pepper Hamilton LLP, Wilmington, DE, Philip J. Katauskas, Philadelphia, PA, Larry P. Zoglin, Phillips & Cohen LLP, San Francisco, CA, for Debtor.

MEMORANDUM OF DECISION

HENRY J. BOROFF, Bankruptcy Judge.

Before the Court are cross motions for summary judgment, in whole or in part, filed in five adversary proceedings brought by Stephen S. Gray, the Plan Administrator (the "Plan Administrator") of the Chapter 11 plan of liquidation of Dehon Inc.¹ (the "Debtor"). The Plan Administrator, pursuant to 11 U.S.C. §§ 547 and 550,² seeks to recover allegedly preferential payments made to each of the defendants (collectively, the "Defendants"). The Defendants have asserted in their respective pleadings that the preference actions may not be maintained because the underlying contracts were either actually assumed by the Debtor or should now be ordered assumed retroactively. The Plan Administrator asks this Court to rule that the defense is unavailing. The Defendants seek to end this litigation now through an order to the contrary.

I. FACTS AND TRAVEL OF THE CASE

Each of the Defendants in these five adversary proceedings is a party to a prepetition contract with the Debtor: (1) Western Environmental Services & Testing, Inc. ("WEST") provided subcontract work in connection with a contract between the Debtor and the United States Department of Defense; (2) the University of Alaska (the "University") provided services in connection with a contract between the Debtor and the United States Department of Energy; (3) Energy & Environmental Analysis, Inc. ("EEA") provided subcontract work in connection with a contract between the Debtor and the California Energy Commission; (4) Kinnetic Laboratories, Inc. ("Kinnetic") provided subcontract work in connection with contracts between the Debtor and the United States Department of the Interior; and (5) Interliance, LLC ("Interliance") provided subcontract work in connection with a contract between the Debtor and the California Energy Commission. For purposes of the present summary judgment motions, the parties agree that the contracts are all "executory" within the meaning of § 365 of the Bankruptcy Code.³

The Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on February 5, 2002 (the "Petition Date").⁴ Interliance and WEST were included on the Debtor's "Schedule F — Creditors Holding Unsecured Nonpriority Claims."⁵ The University, EEA and Kinnetic were not listed as creditors holding unsecured claims on Schedule F. None of the contracts were listed on the Debtor's "Schedule G — Executory Contracts and Unexpired Leases."

In response to item 3a. on the Debtor's "Statement of Financial Affairs," which required the Debtor to list all payments on debts (totaling more than $600.00) in the 90 days preceding the commencement of the case, the Debtor attached a supplemental list. Each Defendant appears on that list, together with the amount of payments made to that Defendant within 90 days prior to the Petition Date.

On the Petition Date, the Debtor also filed a motion for authority to sell, pursuant to § 363, substantially all of the Debtor's assets, consisting of six separate lines of business, to the Debtor's prepetition secured lender (the "Stalking Horse"), subject to higher and better offers (the "Sale Motion"). Attached to the Sale Motion was the proposed purchase and sales agreement (the "Stalking Horse Agreement") between the Stalking Horse and Debtor. The Sale Motion also stated that the Debtor sought an order "authorizing the assumption of executory contracts in connection with the sale" pursuant to § 365 and "establishing the deadline by which parties to the proposed assumed contracts may object to the assumption and assignment of contracts and assert claims for the payment of cure amounts." In the portion of the Sale Motion marked "Assumption and Assignment of Executory Contracts," the Debtor stated that the Stalking Horse Agreement contemplated that "certain executory contracts" would be assumed and assigned to the buyer. The Stalking Horse Agreement anticipated that some executory contracts, not yet designated, could be assumed and assigned to the Stalking Horse, or other successful bidder, after notice to the non-debtor parties to such contracts and an opportunity to state cure amounts.

This Court approved the portion of the Sale Motion relating to notice and bidding procedures on March 4, 2002.⁶ The "Notice of Intent to Sell Assets of Arthur D. Little, Inc. and Certain of Its Subsidiaries, Free and Clear of Liens, Claims and Encumbrances" (the "Sale Notice") gave notice to parties of the hearing date and objection deadline with regard to the Sale Motion and informed parties that the Debtor was seeking 1) leave to sell substantially all of its assets free and clear, 2) approval of the Stalking Horse Agreement and 3) authorization for the assumption and assignment of executory contracts in connection with the sale. The Sale Notice summarized the terms of the Stalking Horse Agreement, noting specifically that the buyer agreed to assume and pay "all obligations and liabilities arising under contracts assumed by the Buyer." No contracts were specifically identified in the Sale Notice as designated to be assumed and assigned by the Debtor. The Sale Notice provided that copies of the Sale Motion and the exhibits would be available on request. On March 5, 2002, the Sale Notice was served on Interliance and WEST, but was never served on the University, EEA or Kinnetic.

On March 29, 2332, the Debtors filed an expedited motion to establish cure costs for certain executory contracts and unexpired leases that the Debtors proposed to assume and assign under § 355, if requested to do so by a successful bidder (the "Cure Motion").⁷ Attached to the Cure Motion was a list of potential contracts and leases that the Debtor would move to assume and assign should the successful bidder request. None of the Defendants' contracts were listed on the attachment and none of the Defendants were served with the Cure Motion. On April 2, 2302, this Court denied the Cure Motion, finding that the motion "provide[d] objecting parties insufficient time to appropriately respond." The Debtor did not renew the motion.

After receiving several qualified bids by the April 2, 2032 bid deadline, the Debtor conducted an auction sale (the "Auction") of substantially all of the Debtor's assets on April 3 and 4 of 2002. At the conclusion of the Auction, TIAX, LLO ("TIAX") emerged as the winning bidder for the Debtor's Technology & Innovation ("T & I") business. The University, EEA and Interliance contracts were associated with the T & I business purchased by TIAX. ICF Consulting Group, Inc. ("ICF") was chosen as the winning bidder for the Debtor's Global Environment & Risk ("GRE") and Public Sector Program Management ("PSPM") businesses. The WEST and Kinnetic contracts were associated with the business lines purchased by ICF.

As contemplated by the Bidding Procedures Order, the Debtor entered into asset purchase agreements with each of the winning bidders. The asset purchase agreement between the Debtor and TIAX (the "TIAX Agreement"), section 1.01(a)(iv), provided for the sale of the Debtor's "entire legal and beneficial right, title and interest in and to all Contracts ... related to the T & I Business." Section 1.02 of the TIAX Agreement contemplated that TIAX would designate certain contracts to be assumed pursuant to the agreement.⁸ The asset purchase agreements between the Debtor and ICF (the "ICF Agreements") regarding the GER and PSPM business lines were substantially similar; under section 1.01(a)(iv) of each Agreement, included among the assets to be sold was "all of Seller's right, title and interest in and to all agreements, proposals, contracts, leases, licenses, purchase orders, contract rights and similar arrangements" related to the GER and PSPM business lines.

The TIAX Agreement and the ICF Agreements also contained identical provisions making clear that each transaction was to be considered an "As Is Transaction":

8.02 Buyer hereby acknowledges and agrees that, except as otherwise expressly provided in Section 2 of this agreement, the seller makes no representations or warranties whatsoever, express or implied, with respect to any matter relating to the [ ] Business, the subject assets or the seller, including, without limitation, ... (E) the transferability of any asset ... or (H) any other matter or thing relating to the [] Business, the subject assets, the seller or any portion thereof . Accordingly, Buyer[s] will accept the [] Business and the subject assets at the closing "as is," "where is," and "with all faults."

On April 5, 2002,...