In re Metro Transp. Co., Bankruptcy No. 86-03618S
| Decision Date | 23 April 1990 |
| Docket Number | Adv. No. 89-0068S.,Bankruptcy No. 86-03618S |
| Parties | In re METRO TRANSPORTATION CO., t/a Yellow Cab Co., Debtor. METRO TRANSPORTATION CO., d/b/a Yellow Cab Company, Plaintiff, v. CONTROLLED RISK SERVICES, INC., Defendant. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Kevin W. Walsh, M. Kelly Tillery, Keith N. Leonard, Leonard, Tillery & Davison, Philadelphia, Pa., for debtor.
Mary F. Walrath, Clark Ladner Fortenbaugh & Young, Philadelphia, Pa., for Unsecured Creditors' Committee.
James J. O'Connell, Asst. U.S. Trustee, Philadelphia, Pa.
Thomas J. Duffy, Jr., Jonathan Dryer, Wilson Elser Moskowitz Edelman & Dicker, Philadelphia, Pa., Arthur Miller, Miller and Litman, New Brunswick, N.J., for defendant.
Once again, this court is asked to resolve a conflict arising from what has developed as the successful Chapter 11 rehabilitation of the principal purveyor of taxicab services in the city of Philadelphia, METRO TRANSPORTATION CO., trading as YELLOW CAB CO. ("the Debtor"). In this proceeding, the Debtor avers that Controlled Risk Services, Inc. ("CRS"), originally appointed as the Debtor's Third Party Administrator ("TPA") under written contract to administer post-petition insurance claims against the Debtor during its reorganization, is liable to the Debtor for damages resulting from negligence or professional malpractice, breach of its contract, and breach of its fiduciary duties to the Debtor as its TPA. These claims were asserted in a complaint filed in the above-captioned adversary proceeding only after CRS filed a "motion" seeking compensation for its services performed as TPA subsequent to April 12, 1988, for which CRS had not been compensated prior to its discharge. In a counterclaim to the complaint, CRS reiterated its claim for compensation and also sought interest, compensation for handling certain subrogation claims, and other damages resulting from its allegedly wrongful termination as TPA.
We conclude, after a tortuous course of pre-trial proceedings, a five-day consolidated trial on the motion for compensation and the complaint and counterclaim in the adversary proceeding, and consideration of voluminous post-trial submissions, that the Debtor has failed to meet its burden of proving CRS guilty of tortious malpractice. Consequently, we find that the Debtor's other claims, demanding proof of comparable elements, also lack merit.
However, we also conclude that CRS' performance of its services was not exemplary, and that the Debtor was within its rights in terminating the TPA contract on its finding that CRS was not adequately performing its duties. Therefore, we conclude that CRS is entitled to compensation for services performed prior to its termination, but is not entitled to recover on any claims attributable to closing cases which were merely transferred to the new TPA, interest, or any damages for alleged wrongful termination of the parties' contract.
The facts surrounding the Debtor's bankruptcy filing and its need for approval of its self-insurance plans to replace its loss of private insurance coverage are set forth in detail in an Opinion filed over 3½ years ago in this case, reported at 64 B.R. 968, 969-71 (Bankr.E.D.Pa.1986) ("Metro I").1 For the purposes of clarity, we repeat some of these facts at Findings of Fact 1-13, pages 878-80 infra. We also add that on October 25, 1989, the Debtor's Plan of Reorganization was confirmed. However, we also note that the effective date of the Plan was to be triggered by the approval of the Pennsylvania Public Utility Commission ("PUC") of certain transfers of Certificates of Public Convenience and the grants of liens on the Certificates to certain secured creditors, which has not yet transpired.
CRS' request for final compensation for its services, which set the instant proceedings into motion, was filed on October 7, 1988. The motion requested that the Debtor deposit $75,000 into a special custodial account to be applied toward compensation of services performed by CRS as described in 15 invoices dated between April 12, 1988, and July 15, 1988, totalling $69,303.54. Interest of twelve (12%) percent per annum is demanded for any delay over thirty days in payment of each invoice.
When the Debtor and the Official Unsecured Creditors' Committee of the Debtor ("the Committee") objected to the motion for compensation, it was set down for a hearing on November 2, 1988. In a colloquy on that date with interested counsel, the Debtor indicated an intention to file the instant adversary proceeding. Accordingly, we entered an Order of November 3, 1988, requiring the Debtor to file the projected adversary proceeding on or before February 1, 1989, and setting forth the pre-trial schedule for a consolidated trial on CRS' motion and the adversary proceeding on March 15, 1989.
The trial date was continued to April 27, 1989, and then, per an Order of April 6, 1989, to August 1, 1989, in order to permit the parties to respond to certain outstanding discovery under a schedule established by the court. On July 17, 1989, CRS filed a renewed motion for sanctions against the Debtor for its failure to comply with our Order of April 6, 1989, and the Debtor, admitting non-compliance by special counsel initially appointed to try the case, moved, on July 18, 1989, to replace that special counsel with new special counsel and to continue the trial again. By Order of July 28, 1989, we allowed CRS, but not the Debtor, an extension of time to complete discovery due to the Debtor's failure to adhere to the terms of the Order of April 6, 1989, and we established a new pre-trial schedule contemplating the commencement of the consolidated trial on October 24, 1989.
In its pre-trial submissions, CRS requested that we bifurcate the liability and the damage aspects of the Debtor's claims. Weighing the factors of convenience to the parties and the court, possible prejudice to the parties, and economy of resources in a matter in which we had skepticism of the merits of the claim, see, e.g., Bankruptcy Rule ( ) 7042, Federal Rule of Civil Procedure ("F.R.Civ.P.") 42(b); Emerick v. U.S. Suzuki Motor Corp., 750 F.2d 19, 22 (3d Cir.1984); and 5 J. MOORE, ¶ 42.031, at 42-36 to 42-41 (2d ed.1989), we granted the motion to bifurcate.
A five-day trial on the issue of liability alone as to the Debtor's claim, as well as the motion for compensation filed by CRS in the Debtor's main case, ensued on October 24, 1989, October 31, 1989, November 2, 1989, November 13, 1989, and November 14, 1989. In the course of the trial, the parties expressly agreed, pursuant to 28 U.S.C. § 157(c)(2), that this court could determine the adversary proceeding, assuming arguendo that it was not core. But see, e.g., In re Ben Cooper, Inc., 896 F.2d 1394, 1397-1400 (2d Cir.1990); and In re Jackson, 90 B.R. 126, 128-31 (Bankr.E.D. Pa.1988) (). Throughout this Opinion, we will refer to the transcripts of each of those respective days of trial as "Transcripts I, II, III, IV, and V," respectively.
Delays in ordering the transcripts resulted in extension of the post-trial briefing through March 13, 1990. Settlement conferences of November 17, 1989, and January 12, 1990, before the Honorable William H. Gindin, Chief Judge of the District of New Jersey, who appeared to assist this court with its overwhelming caseload, were unsuccessful.
The post-trial submissions were copious, but addressed almost exclusively the Debtor's claims against CRS in the adversary proceeding, neglecting almost entirely CRS' motion for compensation and counterclaims. Given the lack of prominence which even CRS has given these aspects of the matters before us, we consider and dispose of them summarily.
Pursuant to the dictates of B.Rule 7052 and F.R.Civ.P. 52(a), our decision is rendered in the format of Findings of Fact, Conclusions of Law, and a Discussion relating to the claims in the adversary complaint, followed by our summary disposition of the other aspects of the matters before us.
3. The Debtor filed its Chapter 11 bankruptcy petition on July 29, 1986, seeking, principally, to address the crisis in its operations created by the threat that its insurance with Balboa would be cancelled and not replaced.
4. On July 29, 1986, and August 6, 1986, this court, per Chief Judge Emil F. Goldhaber, issued, respectively, a Temporary Restraining Order requiring Balboa to continue its insurance coverage to the Debtor through August 6, 1986; and an Order approving a Stipulation between the Debtor and Balboa pursuant to which Balboa would continue coverage of the Debtor until October 1, 1986, and the Debtor would be prohibited from requesting this court to continue Balboa's coverage after October 1, 1986.
5. About a year prior to the cancellation of Balboa's insurance coverage, on October 12, 1985, the Debtor filed an application with the PUC requesting that it approve certain self-insurance components of the Debtor's coverage under the Balboa policy. On August 4, 1986, the Debtor amended its self-insurance application to request the PUC to approve a revised self-insurance plan contemplating no participation by an independent insurance company.
6. On August 12, 1986, the PUC filed an adversary proceeding in this court seeking declaratory and injunctive relief with regard to its denial of the Debtor's application for self-insurance. In an...
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