In re Information Control Corp.

• Court: U.S. Bankruptcy Court — Central District of California
• Writing for the Court: JOHN D. AYER
• Citation: In re Information Control Corp., 33 B.R. 246 (Bankr. C.D. Cal. 1983)
• Decision Date: 13 September 1983
• Docket Number: Bankruptcy No. LA 81-04325-RO(JA),Adv. No. LA 82-8710-RO(JA).
• Parties: In re INFORMATION CONTROL CORPORATION, Debtor. INFORMATION CONTROL CORPORATION, a corporation, Debtor in Possession, Plaintiff, v. Billy D. LEWIS, dba BDL Electronics Company, Defendant.

33 B.R. 246 (1983)

In re INFORMATION CONTROL CORPORATION, Debtor INFORMATION CONTROL CORPORATION, a corporation, Debtor in Possession, Plaintiff, v. Billy D. LEWIS, dba BDL Electronics Company, Defendant.

Bankruptcy No. LA 81-04325-RO(JA), Adv. No. LA 82-8710-RO(JA).

United States Bankruptcy Court, C.D. California.

September 13, 1983.

Louis E. Kempinsky, Gendel, Raskoff, Shapiro & Quittner, Los Angeles, Cal., for defendant.

Joseph E. Stalder, Torrance, Cal., for plaintiff.

James E. Eichstaedt, Los Angeles, Cal., U.S. Trustee.

MEMORANDUM OF DECISION

JOHN D. AYER, Bankruptcy Judge.

Information Control Corporation ("ICC"), the debtor and plaintiff, was a maker of electronics products. It manufactured a line of electronic modules called "the Abacus line." Billy D. Lewis ("Lewis") was at one time an executive of ICC. Later, Lewis himself produced the Abacus line, under a subcontract with ICC. While performing the subcontract, he acquired some purchase orders. He filled those purchase orders, received payment, and divided the proceeds with ICC, all pursuant to agreement and all, so far as appears, without any quarrel. But it now appears that the purchase orders themselves—the sheets of paper containing the names and addresses of customers— have value independent of the production cycle. In this action, ICC seeks to force Lewis to turn over the purchase orders.¹ Lewis in defense asserts that he had a right to retain all purchase orders. But Lewis asserts further that, in any event, the matter was disposed of by a compromise settlement between Lewis and ICC, consummated some five months before the court issued summons in this suit.²

I find that there was indeed a binding settlement, and I therefore give judgment for Lewis. Having decided in favor of Lewis on the issue of compromise, I do not reach the issue of his underlying rights.

I

The Abacus line consisted mainly of electronic modular packaging products used primarily in military electronics. Lewis is an entrepreneur experienced in the field of micro-processors. Lewis joined ICC as an executive in August of 1979. Lewis resigned his employment in October of 1980, but continued to assist in the marketing of Abacus as a part-time independent contractor. In March, 1981, he severed all connection with ICC, to go into business for himself. In April, 1981, ICC filed this Chapter 11 case.

ICC saw from the beginning of the Chapter 11 case that it would need help if it were to keep alive the Abacus line. Lewis for his part saw that Abacus offered him an opportunity to develop his entrepreneurial skills. Consequently, just a few days into the case, ICC and Lewis entered their sub-contract agreement. Lewis, under the business name of BDL Electronics Company ("BDL"), undertook to manufacture and market Abacus. In exchange for this privilege, he agreed to pay a percentage of the gross to ICC. Lewis and ICC reduced their agreement to writing. The writing contained, among others, the following clause:

"BDL is authorized to solicit ICC customers for new and continuing business in the name of ICC for Abacus products and services, and to accept any orders. These orders and the resulting receivables will be the property of BDL. . . . These orders are the sole responsibility and property of BDL."

The subcontract was a month-to-month agreement, giving either party the right to terminate on 30 days notice. Operating under the subcontract, Lewis manufactured and distributed the Abacus line until July, 1982, when he exercised his right to terminate. In the course of the subcontract, Lewis obtained a number of purchase orders. On termination of the subcontract, the rights to the Abacus line reverted to ICC. But Lewis retained physical possession of the purchase orders.

Besides Lewis and ICC, there were other participants in the ICC case. The most notable was the Official Creditors' Committee ("Committee"). While Lewis was making and selling Abacus products, the Committee was trying to find a buyer for the entire Abacus line. At last, ICC and the Committee made a deal with a firm named Logic Technology, Inc. ("Logic"). Logic agreed to pay $175,000 for the Abacus line. But as part of its bargain, Logic demanded that ICC deliver certain purchase orders, alleged to be in the hands of Lewis.

On August 24, 1982, ICC, seeking to meet the demands of Logic, filed its "Complaint for Conversion," beginning this lawsuit against Lewis. But here the parties fell upon the kind of mischance which seems to have become a feature of bankruptcy practice. Just two months previously, in June of 1982, the U.S. Supreme Court had handed down its celebrated decision in the Marathon case, Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), casting doubt on the very existence of the bankruptcy court. Hence the bankruptcy judge, rather than issuing summons and setting trial on ICC's complaint, entered a boilerplate order declaring that "no disposition will be made of (the case) at this time."

ICC, rebuffed by the court but pressing to complete its deal with Logic, promptly launched another sortie. This time ICC filed an "Emergency Application" against Lewis in the bankruptcy court, demanding that he turn over the purchase orders forthwith. This Application was filed jointly by ICC's lawyer, and by Roger A. Ferree ("Ferree"), who was attorney for the Committee. The Application, unlike the Complaint, got a place on this Court's calendar.

After he learned of the Application, Lewis and his attorney talked with Ferree. As a result of their talk, Lewis offered to turn over to ICC a list of customers who had purchased Abacus materials. According to Lewis, Ferree told him that ICC and the Committee "would accept my offer." ICC for its part took the Application off calendar. On September 10, 1982, Lewis, pursuant to his agreement with Ferree, turned over a customer list.

And there, at least as far as Lewis was concerned, the matter rested. But not so for ICC. ICC still had to deal with Logic. And Logic balked. In December, 1982, some three months after the encounter over the Application, Ferree informed Lewis that Logic wanted not just the names, but also copies of the actual purchase orders. This time Lewis balked. At last in February, 1983, ICC's counsel, still hoping to satisfy Logic, prevailed on the Court to issue its summons against Lewis in the original lawsuit. This Motion for Summary Judgment followed in due course.

II

As suggested above, Lewis' argument in this motion has two major points. First, he argues that he had a contract right to keep the purchase orders. But second, he argues that in any event any claim was disposed of in September of 1982, when the Application was taken off calendar, and when he delivered some papers to ICC.

Regarding the contract itself, both parties direct the Court's attention to the same language in the subcontract agreement— particularly to the phrase that the "orders are the sole responsibility and property of BDL." The dispute seems to come down to a conflict over the word "orders." Lewis says, in effect, that the "orders" are the pieces of paper, and the information on the pieces of paper. ICC says, in effect, that the "orders" are the right to do the work and to reap the profits.

Without presuming to dispose of this issue, it seems that each of these readings is at least conceivable. Recognizing that there may be a conflict, still Lewis argues that the matter is appropriate for summary judgment. He argues that the issue is one of contract interpretation and that contract interpretation is an issue of law.

I am not so sure. Rather, the question whether contract interpretation is a matter of law seems to me to be a question on which there is a great deal of uncertainty. See, e.g., the helpful discussion in 3 A Corbin, CORBIN ON CONTRACTS § 554 (1960), and the interesting gloss on Corbin by Kaufman in 1 C. Kaufman, CORBIN ON CONTRACTS §§ 554A-C (1982 Supp.). Certainly, there is authority for the proposition that interpretation is a matter of law. One instructive instance is the pair of opinions by the California Supreme Court deciding Argonaut Ins. Co. v. Transport Indem. Co., 6 Cal.3d 496, 492 P.2d 673, 99 Cal.Rptr. 617 (1972), where the majority and dissent split 4-3 on the interpretation of an agreement. About the only thing the Court did agree on was that it was in its power as an appellate Court to do the interpretation— i.e., to treat the matter as a question of law. In any event, the court cannot possibly permit the parties to make an issue of every and any word in agreement, without risking a descent into infinite regress. But no word defines itself. Words derive their meanings from the people who use them; and it would be a brave judge who would say always and in every case that he knows what those meanings might be. Cf., RESTATEMENT (SECOND) OF CONTRACTS § 201 comment a (1981). Certainly, the tendency of California law has been to support this latter view—to broaden, rather than to restrict, the ambit of fact testimony on questions of interpretation. Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal.2d 33, 442 P.2d 641, 69 Cal.Rptr. 561 (1968); Delta Dynamics, Inc. v. Arioto, 69 Cal.2d 525, 446 P.2d 785, 72 Cal.Rptr. 785 (1968). Insofar as meaning is thus a question of fact, it is not the sort of issue that should be disposed of on a motion for summary judgment. Sartor v. Arkansas Natural Gas Corp., 321 U.S. 620, 64 S.Ct. 724, 88 L.Ed. 967 (1944).

III

Be that as it may, in this case I do not think I am forced to this choice, for it seems to me that there is another issue on which there is less doubt. And that is the matter of compromise. I find that the parties settled the matter in September when ICC took its motion off calendar, and when Lewis turned the list over to ICC. The compromise of a disputed claim is sufficient consideration to form a binding...