In re Global Indus. Technologies, Inc.

• Decision Date: 13 July 2005
• Docket Number: No. 02-21626JKF.,02-21626JKF.
• Parties: In re GLOBAL INDUSTRIAL TECHNOLOGIES, INC., et al., Debtors. Global Industrial Technologies Services Company, Global Industrial Technologies, Inc., GPX Forge-Acquisition, Inc., GPX Forge, Inc., GPX Forge-U, Inc., GPX Corp., and RHI Refractories America Inc., Movants, v. Tanglewood Investments, Inc., Respondent.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Pennsylvania

Page 230

327 B.R. 230

In re GLOBAL INDUSTRIAL TECHNOLOGIES, INC., et al., Debtors.

Global Industrial Technologies Services Company, Global Industrial Technologies, Inc., GPX Forge-Acquisition, Inc., GPX Forge, Inc., GPX Forge-U, Inc., GPX Corp., and RHI Refractories America Inc., Movants, v. Tanglewood Investments, Inc., Respondent.

No. 02-21626JKF.

United States Bankruptcy Court, W.D. Pennsylvania.

July 13, 2005.

Nicholas R. Pagliari, Reed Smith LLP, Paul M. Singer, Reed Smith, Gregory L. Taddonio, Amy M. Tonti, Reed Smith LLP, David Ziegler, Esq., Reed Smith, LLP, Lisa R. Kerszencwejg, Cohen & Grigsby, P.C., Pittsburgh, PA, for debtors.

Peter Nicholas Pross, Eckert, Seamans, Cherin & Mellott LLC, Pittsburgh, PA, for defendant.

MEMORANDUM OPINION¹

JUDITH K. FITZGERALD, Bankruptcy Judge.

Before the court is Debtors' Objection to Unliquidated Claims² of Tanglewood Investments, Inc. ("Tanglewood") and Tanglewood's Motion for Summary Judgment on Objection to Unliquidated Claims of Tanglewood Investments, Inc.

Under Fed.R.Civ.Pro. 56(c), made applicable in these proceedings by Fed.R.Bankr.Pro. Rules 9014 and 7056, summary judgment is appropriate only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In considering a motion for summary judgment, the court must review the record, arguments of counsel, pleadings, and inferences in a light most favorable to Debtors, the party opposing the motion.

Background

As of June 22, 1999 (the "Acquisition Date"), AF Acquisition Company purchased certain assets from UCR Inc., AFC Acquisition, Inc., and GPX Forge f/k/a Ameri-Forge Corporation (the "Old Ameri-Forge") pursuant to the Asset Purchase Agreement ("APA"). Dkt. 3112, Stipulation of Facts (hereafter "SOF") at Exh. A ¶ 1. At some point after the Acquisition Date, purchaser AF Acquisition Company changed its name to Ameri-Forge Corporation (the "New Ameri-Forge"). SOF at ¶ 2. Debtor Global Industrial Technologies, Inc. (principal Debtor in these consolidated cases at Bankruptcy No. 02-21626) is the sole stockholder of Debtor GPX, Inc., (02-21632) and GPX, Inc., is the sole stockholder of Debtor GPX Forge, Inc., (02-21636). SOF at ¶ 3.

The relationship between Tanglewood and the purchaser, New Ameri-Forge, has not been made clear to the court. Tanglewood was not a signatory to the APA. However, there appears to be no dispute among the parties in interest that Tanglewood stands in the place of New Ameri-Forge and possesses whatever rights and obligations New Ameri-Forge obtained in the APA. Therefore, for the purposes of this contested matter, the court will assume that Tanglewood has standing to file the proofs of claim and to bring the summary judgment motion. Further, unless identification of a particular corporate entity is required, the court will refer to the buyer in the APA as Tanglewood and the sellers as Debtors.

On December 22, 2000, 25 employees of Old Ameri-Forge and/or New Ameri-Forge (the "Mendez Plaintiffs") commenced a lawsuit against Tanglewood, Debtor Global Industrial Technologies, Inc., and various of their affiliates and subsidiaries (together, the "Mendez Defendants") as joint defendants in Roberto C. Mendez, et al. v. Ameri-Forge Corporation et al. (Cause No.2000-65256) (the "Mendez Suit"), in the 11th Judicial District Court of Harris County, Texas, asserting claims sounding in, inter alia, harassment, disparate treatment/discrimination in wages, assault, harassment/hostile work environment and retaliation. SOF at ¶ 12.

On February 12, 2001, the Mendez Defendants removed the Mendez Suit to the United States District Court for the Southern District of Texas (Houston Div.) (Case No. H-01-0523). SOF at ¶ 13.

Debtors engaged the law firm of Jackson Lewis Schnitzler & Krupman ("JLS & K") to respond to and defend against the Mendez Suit. SOF at ¶ 14. Tanglewood engaged the firm of Locke Liddell & Sapp, LLP ("LLS") to defend against the Mendez Suit. SOF at ¶ 15.

On May 25, 2001, New Ameri-Forge and Tanglewood filed a petition for declaratory judgment in the case styled Ameri-Forge Corp. et al. v. UCR, Inc., et al., Cause No.2001-27322 (the "Declaratory Judgment Action"). SOF at ¶ 17. On January 28, 2002, New Ameri-Forge and Tanglewood filed a Motion for Summary Judgment in the Declaratory Judgment Action. SOF at ¶ 18.

On February 14, 2002, Global Industrial Technologies, Inc., and certain of its affiliates filed petitions for relief under Chapter 11 of the Bankruptcy Code. Additional affiliates filed voluntary petitions with the court on February 22 and March 19, 2002. These cases are jointly administered for procedural purposes only. The Debtors continue as debtors-in-possession pursuant to §§ 1107 and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in these cases.

As of the petition date, the Mendez Suit was in the discovery stage and no depositions had been taken. Both the Mendez Suit and the Declaratory Judgment Action were stayed pursuant to § 362(a) of the Bankruptcy Code. SOF at ¶ 20-21.

Tanglewood has submitted 13 claims (seven in its own name and six in the name of New Ameri-Forge) seeking contribution and/or indemnification from Debtors in connection with the Mendez Suit and the Declaratory Judgment Action.

Contribution in the Mendez Suit

In the Mendez Suit, current and former employees of the Debtors and Tanglewood seek unspecified damages against the Debtors and Tanglewood for alleged violations of their constitutional and civil rights and for alleged discrimination on the basis of nationality and alleged unlawful termination. In its proofs of claim, Tanglewood seeks contribution against Debtors as joint defendants for the Debtors' proportionate share of damages and other amounts the Mendez Plaintiffs may recover from Tanglewood.

The court notes that Tanglewood has indicated that it has dropped its demand for contribution from the Debtors in the Mendez Suit.

(The Tanglewood Entities have abandoned their efforts to obtain an unsecured claim for any contingent liabilities (such as they may be) to the Plaintiffs in the Mendez Suit.)

Summary Judgment Motion, Dkt. No. 3206 at ¶ 9.

To the extent that there is any ambiguity or irregularity in Tanglewood's abandonment of its contribution demand, the court also finds that § 502(e)(1)(B) of the Bankruptcy Code requires the court to disallow portions of the claims that seek contribution. A claim (or portion of a claim) must be disallowed under § 502(e)(1)(B) if three conditions are met: (i) the claim must be contingent; (ii) the claim must be for reimbursement or contribution; and (iii) the claimant must be co-liable with the Debtor with respect to the claim. In re Pinnacle Brands, Inc., 259 B.R. 46, 55 (Bankr.D.Del.2001). First, a demand for contribution where there has been no determination of liability of the claimant, and thus no liability incurred or funds actually paid out by the claimant, is unquestionably contingent. Second, the proofs of claim at issue in this controversy explicitly seek "contribution" from Debtors for amounts that the Mendez Plaintiffs might recover from Tanglewood. Third, all the proofs of claim seek contribution "against [Debtors] for their proportion of any damages, costs, expenses or other amounts the plaintiffs may ultimately recover from Tanglewood ...,"³ which can only occur if Debtors and Tanglewood are co-liable on the claim.

Based on the apparent abandonment of the contribution demand by Tanglewood and the provisions of § 502(e)(1)(B) of the Bankruptcy Code, the court sustains the objection of Debtors to those portions of the proofs of claim seeking contribution from the Debtors to Tanglewood.

Indemnification and the LLS Fees

In the Declaratory Judgment Action (identified in the proofs of claim as the Indemnity Action), Tanglewood sought judicial determination that Tanglewood had the right to complete indemnification from the Debtors for all of Tanglewood's liability in the Mendez Suit, including costs, expenses, attorneys' fees and other charges. Tanglewood claims its right to indemnification based on provisions in Article XI of the APA.

Although the Declaratory Judgment Action has been stayed pursuant to § 362 of the Bankruptcy Code, the issues raised in the Declaratory Judgment Action form the core of the summary judgment motion presently before the court.

... [A]t this time, the Tanglewood Entities are seeking recovery under the Claims solely for the $321.073.07 in LLS's fees and expenses already incurred in the Mendez Suit, the Declaratory Judgment Action, and these Bankruptcy Cases.

Summary Judgment Motion, Dkt. No. 3206 at ¶ 9 (emphasis in original). Hereinafter, the court will refer to this demand for $321,073.07 in fees and expenses as the "LLS Fees."

As a preliminary matter, the court finds that § 502(e)(1)(B) does not apply to the LLS Fees. These fees have already been incurred and billed and are therefore not contingent. Consequently, Debtors' objection based on § 502(e)(1)(B) to that portion of the claims regarding the LLS Fees is overruled.

Tanglewood bases its claims to indemnification for the LLS Fees on its rights under ¶ 11.2 and the definition of damages in the APA.

11.2. Indemnification and Payment of Damages by Parent [Debtor Global Industrial Technologies, Inc.], GPX and Sellers. Parent, GPX and Sellers, jointly and severally, will indemnify and hold harmless Buyer [Tanglewood] and its Representatives, stockholders, controller persons and other Related Persons (collectively, the "Buyer Indemnified Persons") for, and will pay to the Buyer Indemnified Persons the amount of, any Damages sustained or incurred by any Buyer Indemnified Person to the extent relating to, resulting from or arising out of, or any allegation by any third party of: .... (c) the Excluded Assets or the Excluded Liabilities.

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