In re Metro Transp. Co.
| Citation | 87 BR 338 |
| Decision Date | 10 June 1988 |
| Docket Number | Bankruptcy No. 86-03618S. |
| Parties | In re METRO TRANSPORTATION CO., t/a Yellow Cab Co., Debtor. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Barry D. Kleban, Kevin D. Walsh, Philadelphia, Pa., for debtor.
George E. Pierce, Jr., Philadelphia, Pa., for First Fidelity Bank.
Mary F. Walrath, Philadelphia, Pa., for Creditors' Committee.
Rand Spear, Philadelphia, Pa., for Yellow Cab Owners and Drivers Ass'n.
Melvin T. Sharpe, Jr., Philadelphia, Pa., for Committee of Concerned Taxi Drivers/Owners.
Before us are motions of the Debtor to reject two alleged executory contracts, pre-petition agreements of the Debtor (1) with the Yellow Cab Owners and Drivers Association (hereinafter "the Association") on April 16, 1986 (hereinafter "the April Agreement"); and (2) with a splinter group of the Association, the Committee of Concerned Taxi Drivers/Owners (hereinafter "the Committee"), on June 13, 1986 (hereinafter "the June Agreement"). We believe that both the April Agreement and the June Agreement were unmistakeably executory contracts at the crucial date of the filing of the Debtor's bankruptcy petition. We hold that a formal assumption of an executory contract by a debtor is required to render an executory contract enforceable against a debtor. Hence, while no act that has been done pursuant to these Agreements will be undone, the Debtor therefore has a right to reject them and eliminate any future obligations pursuant to them. We also believe that it is certainly within the realm of the Debtor's proper business judgment to reject them. However, we are concerned with protection of the rights of the Debtor's drivers. Therefore, we condition our order granting the Debtor's motions upon an assurance that all future dealings between the Debtor and its drivers will occur only after notice to the drivers and an opportunity for them to have a hearing on any motion dealing with their welfare in our court.
The Debtor, having filed its voluntary Chapter 11 bankruptcy case on July 29, 1986, filed the motions before us on March 21, 1988. The Association and the Committee each filed answers opposing the Debtor's efforts to reject their respective Agreements. A hearing on the motions was conducted on April 26, 1988. At the hearing, counsel for several of the Debtor's secured lenders and the Official Committee of Unsecured Creditors of the Debtor appeared and supported the motions. Counsel for the Pennsylvania Public Utility Commission (PUC), Alan Kohler, Esquire, was called as a witness by the Debtor, the Association, and the Committee. Also testifying were Robert Seaner, the Debtor's Vice-President in charge of operations, and Meldorn Shamlin and Roger Pittman, presidents of the Committee and the Association, respectively.
At the close of the hearing, we established a briefing schedule requiring the parties to submit Briefs on or before May 16, 1988, and May 23, 1988, respectively. We have all of these submissions on hand and we write in narrative form, as the matters before us are motions. See In re Campfire Shop, Inc., 71 B.R. 521, 524-25 (Bankr.E.D.Pa.1987).
The April Agreement is a comprehensive, detailed contract, containing 58 pages and 17 exhibits, entered into by the Trial Staff of the PUC, the Debtor, and the Association. This Agreement resolved an investigation begun by the PUC in 1981 regarding a disagreement between certain taxi drivers and the Debtor regarding the Debtor's allegedly unconscionable administration of a program to sell a large number (up to 300) of its approximately 800 Certificates of Public Convenience to its drivers. Among the multifarious terms of the April Agreement were the Debtor's agreement to sell 99 certificates to Association members at $17,000 apiece; to make certain loans and grants relating to members' vehicles, insurance, vehicle preparation, radios, and advertising; and providing an option to purchase the 26th Street garage utilized by Association members. The Association members were obliged to make payments into an escrow fund for 48 months, the total sum of which could have approached $2 million.
On July 24, 1986, just five days before the Debtor's filing, the April Agreement was approved by a PUC Order. The PUC proceeded to approve transfers of certificates pursuant to the April Agreement to about ninety (90%) percent of the eligible Association members subsequent to the bankruptcy filing.
The June Agreement is a relatively brief three-page contract between the Debtor and the Committee which is basically a supplement to the April Agreement which clarifies certain terms of the Debtor's dealings with the Committee members under the April Agreement. Therein, the Debtor agreed to transfer 20 certificates to Committee members without further payment and 15 certificates upon payment of $12,000 a piece, subject to the interests of lenders having security in the certificates. Although the June Agreement was not approved by a PUC order, Mr. Kohler testified that, apparently about the time of the Debtor's bankruptcy filing, the PUC "recognized" the June Agreement "as an exercise of rights" by the Committee members under the April Agreement by means of a "secretarial letter." Transcript of Recorded Proceedings, April 26, 1988, at 151.
We note that, despite the PUC's approval of both Agreements, Mr. Kohler stated that the PUC would not view any actions taken by this court concerning them as conflicting with PUC orders, since it believed that the Debtor's rights to assume or reject these Agreements were decisions within the jurisdiction of this court to which the PUC must adhere. We are therefore not faced with a conflict over powers of this court vis-a-vis the PUC's orders, as In re Metro Transportation Co., 64 B.R. 968 (Bankr.E.D.Pa.1986).
The instant proceedings were not the first litigation concerning the parties' rights under these Agreements in this case. Specifically, on September 17, 1986, the Committee filed an adversary proceeding seeking a declaration of the validity of the June Agreement and enforcement of its terms, at Adversary No. 86-1059S. After a hearing on May 26, 1987, we issued an Order of May 27, 1987, granting the Debtor's motion to dismiss the proceeding pursuant to Bankruptcy Rule 7041 and Civil Rule of Civil Procedure 41(b), which was not appealed.
We explained our brief Order of May 27, 1987, by stating that we found the June Agreement to be an executory contract, which would allow the Committee to proceed only under 11 U.S.C. § 365(d)(2) or 11 U.S.C. § 362(d) to obtain relief. However, we found that the Committee had not met its burden of proof under § 362(d), and had not requested relief under § 365(d)(2). In the intervening year since this decision, which put the Committee on notice as to this court's assessment of its rights, no motion under § 365(d)(2) had been filed by the Committee.
The substance of Mr. Seaner's testimony was an attempt to establish that the Agreements imposed an insurmountable financial burden upon the Debtor were the Association and the Committee to attempt to enforce all aspects of the Agreements. On cross-examination, the Association's counsel attempted to establish that many of the obligations recorded by Mr. Seaner were illusory as a result of subsequent events and that the Debtor would benefit from receipt of the funds which would be paid to it under the escrow agreement.
The thrust of Mr. Shamlin's testimony was that reliance upon the June Agreement was necessary for many Committee members to remain in business. His emotionally-moving testimony bespoke of a long period of frustration with broken promises of the Debtor and hence a desire to require the Debtor to adhere to the Agreement reached only after extended negotiations in June.
Mr. Pittman expressed concern about the possible abrogation of certain aspects of the April Agreement. He expressed particular concern about the status of the 26th Street garage, which it was subsequently learned belonged to Sidney Somerman, one of the owners of the Debtor and not the Debtor itself, as the parties to the Agreement had assumed. However, his greatest concern was that the Debtor would resort to the hardnosed tactics to repossess certificates in which it had allegedly engaged prior to the execution of the Agreement.
Both the Association and the Committee argued that the Agreements are not executory contracts. Somewhat at cross-purposes, the Association emphasized that the Debtor had substantially performed all of its relevant obligations, while the Committee emphasized its members' performance of their relevant obligations and the Debtor's failures to perform. Assuming arguendo that the Agreements were executory, the Association, again in contrast with the Committee's position, argued that the Debtor's substantial performance to date constituted an implicit assumption of the April Agreement. The Committee, meanwhile, emphasized its substantial performance, which it argued renders it inequitable to allow the Debtor to reject the Agreements at this juncture. Finally, both argued that the Debtor had failed to satisfy the "business judgment" test for determining whether this court should allow the Debtor to reject the contracts under § 365, again for different reasons. The Association emphasized the benefit to the Debtor from receipt of the potential $2 million flowing to it under the escrow agreement which the Debtor would allegedly irrationally eschew by rejecting the April Agreement. The Committee, meanwhile, emphasized the gross unfairness and inequities which would result to its members from allowing the Debtor to reject the Agreements.
At the outset, we observe that the June Agreement is, as Mr. Kohler described it, merely a contract which clarifies the rights of certain parties also covered by the April Agreement. Thus, the Committee's position places the status of both the April Agreement and the...
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