In re Medomak Canning, Bankruptcy No. 186-00126

• Citation: 101 BR 399
• Decision Date: 15 June 1989
• Docket Number: Adv. No. 187-0086.,Bankruptcy No. 186-00126
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Maine
• Parties: In re MEDOMAK CANNING, Debtor. ACME ENGINEERING COMPANY, Cara Corporation, Cross-Claim Plaintiffs, v. BAYSIDE ENTERPRISES, INC., Poultry Processing, Inc., and Bernard J. Lewis, Cross-Claim Defendants.

101 B.R. 399 (1989)

In re MEDOMAK CANNING, Debtor.

ACME ENGINEERING COMPANY, Cara Corporation, Cross-Claim Plaintiffs, v. BAYSIDE ENTERPRISES, INC., Poultry Processing, Inc., and Bernard J. Lewis, Cross-Claim Defendants.

Bankruptcy No. 186-00126, Adv. No. 187-0086.

United States Bankruptcy Court, D. of Maine.

June 15, 1989.

Richard E. Poulos, Portland, Me., for defendants Bayside and Poultry Processing.

Sidney St. F. Thaxter, Curtis, Thaxter, Stevens, Broder & Micoleau, Portland, Me., for Acme Engineering.

Daniel W. Sklar, Sleehan, Phinney, Bass & Green, Manchester, N.H., for Cara Corp.

Dennis G. Bezansen, So. Portland, Me., Trustee.

MEMORANDUM OF DECISION

JAMES A. GOODMAN, Bankruptcy Judge.

Bayside Enterprises, Inc. ("Bayside") and Poultry Processing, Inc. ("P.P.I.") seek by motion to dismiss Acme Engineering Company's ("Acme") and Cara Corporation's ("Cara") cross-claims asserting equitable subordination¹ on the grounds that claimants have failed to state a claim on which relief can be granted. Fed.R.Civ.P. 12(b)(6). Bayside and P.P.I. additionally assert that Acme and Cara are barred from asserting their claim by the doctrine of res adjudicata. This action is a core proceeding within the meaning of 28 U.S.C. § 157.

On April 7, 1986 an involuntary chapter 7 petition was filed against Medomak Canning Co. ("debtor"). An order for relief was entered on April 18, 1986. The trustee, on June 6, 1986, filed a motion to sell the property of the estate free and clear of liens to which Bayside and P.P.I. objected. On June 25, 1986 after notice and a hearing and after Bayside and P.P.I. withdrew their objections this Court allowed the trustee's motion and in its order required that the proceeds from the sale be held in escrow with valid liens to attach to those proceeds. On June 5, 1987 the trustee, Bayside and P.P.I. filed a "Joint Application for the Approval of a Compromise" ("compromise") as settlement of the dispute concerning entitlement to the proceeds of the sale of those assets. After notice and a hearing on July 1, 1987 at which crossclaimants Acme and Cara were represented by counsel, this Court entered an order granting the compromise. At no time did either Acme or Cara object to the compromise on the theory of equitable subordination of Bayside's and P.P.I.'s claims. Acme's objection only sought clarification that the validity and priority of their asserted secured (emphasis added) claim would be determined before the trustee disbursed any proceeds to Bayside and P.P.I. The pertinent provisions of the compromise are as follows:

1. That compromise No. 1 be and hereby is in all respects approved.²

3. That the objection of Acme Engineering Company to compromise No. 1 is overruled on the grounds that Acme Engineering Company\'s objection is addressed favorably by compromise No. 1 in that compromise No. 1 does not determine the said creditors priority or right to proceeds of the sale of the debtor\'s real and personal property; rather the validity, nature and extent, priority, allowability and amount of the claim of the various creditors shall be subsequently determined in an action to be brought by the trustee.

6. That as between the trustee, Bayside and P.P.I., Bayside shall have an allowed secured claim in the amount of $186,573.72 as of June 2, 1987, plus attorneys fees of $15,000.00; and P.P.I. shall have an allowed secured claim for a warehousemans\' lien for the Blake Building in Portland, Maine and Verney Mill in Brunswick, Maine in the total amount of $121,551.48; and P.P.I. shall have an allowed secured claim in the amount of $999,967.25 as of June 1, 1987, plus attorneys fees of $35,000.00 based on a second mortgage on the debtor\'s business real estate and a security interest in the debtor\'s inventory, machinery, equipment, fixtures, accounts receivable and general intangibles.

7. Notwithstanding paragraph 6 above of this Order, the priority of the claims of Bayside and P.P.I. specified in paragraph 6 above shall be subsequently determined by this Court in an adversary proceeding to be instituted by the trustee against Bayside and P.P.I. and all other claimed secured claimants in the proceeds of the debtor\'s real and personal property including those specified in paragraph III E and F of compromise No. 1.

8. Notwithstanding paragraph 7 above Bayside and P.P.I. shall pay or satisfy (which shall include a written release and withdrawal of all claims against the trustee and estate) the claims of Ingersol-Rand (filed in the amount of $10,900), Foxboro Terminals (filed in the amount of $3,731.97) and Fore River Warehousing and Storage Company, Inc. (filed in the amount of $17,661.62).

9. That other than those claims specified in paragraph 6 above, any and all claims of P.P.I., Bernard J. Lewis and Suzanne Lewis against the trustee and estate herein shall be and hereby are allowed but subordinated to all other unsecured claims against the debtor\'s estate (emphasis added).

10. Within ten (10) days of the date a judgment of this Court becomes final with reference to the complaint to be filed by the trustee determining the nature, extent, validity, priority, amount, avoidability, and/or allowability of all claimed secured claims against the proceeds of sale of the debtor\'s real and personal property (now held by the trustee), the trustee shall distribute from the proceeds of sale of the debtor\'s real and personal property, cash and accounts receivable until said funds are exhausted, secured claims as allowed by the Court in the priority fixed by the Court provided that the secured claims of Bayside and P.P.I. as specified in paragraph 6 above shall be deemed allowed as between the trustee and the said secured claimants (emphasis added).

11. That contemporaneously with the distribution to Bayside and P.P.I. specified in paragraph 10 above, Bayside and P.P.I. shall pay to the trustee the sum of $250,00 as property of the estate free and clear of all liens, encumbrances, claims or other interests (emphasis added).

12. That Bayside, P.P.I., Bernard J. Lewis, the probate estate of George I. Lewis and Suzanne Lewis shall execute and deliver general releases which releases shall effect a release of any and all claims said parties may have against the trustee and estate herein except as may arise under the

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