In re QC Piping Installations, Inc.

• Decision Date: 28 September 1998
• Docket Number: Bankruptcy No. 093-71758-511,Adversary No. 095-7115-511.
• Citation: 225 BR 553
• Parties: In re QC PIPING INSTALLATIONS, INC., Debtor. Allan B. MENDELSOHN, Chapter 7 Trustee of the Estate of QC Piping Installations, Inc., Plaintiff, v. The DORMITORY AUTHORITY OF THE STATE OF NEW YORK and International Fidelity Insurance Company, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of New York

225 B.R. 553 (1998)

In re QC PIPING INSTALLATIONS, INC., Debtor.

Allan B. MENDELSOHN, Chapter 7 Trustee of the Estate of QC Piping Installations, Inc., Plaintiff, v. The DORMITORY AUTHORITY OF THE STATE OF NEW YORK and International Fidelity Insurance Company, Defendants.

Bankruptcy No. 093-71758-511, Adversary No. 095-7115-511.

United States Bankruptcy Court, E.D. New York.

September 28, 1998.

Sills Cummis Zuckerman Radin Tischman Epstein & Gross, New York City, by Patricia Fugee, for International Fidelity Insurance Co.

Plunkett & Jaffe, P.C., New York City, by Arthur J. Semetis, for Dormitory Authority of the State of New York.

Pryor & Mandelup, LLP, Westbury, New York, by Jeanne M. Farnan, for Trustee.

OPINION (Motion for Summary Judgment)

MELANIE L. CYGANOWSKI, Bankruptcy Judge.

QC Piping Installations, Inc. ("QC" or "Debtor") filed a voluntary petition for relief under chapter 7 on June 1, 1993. Allan B. Mendelsohn, Esq. ("Trustee") was appointed as permanent trustee on July 20, 1993.¹ On July 18, 1995, the Trustee filed the present adversary proceeding against the Dormitory Authority of the State of New York ("DASNY") and International Fidelity Insurance Company ("IFIC"). Before the Court is a motion for summary judgment by IFIC, in which DASNY has joined. At issue on this motion are the competing claims of the Trustee and the Debtor's surety, IFIC, to money retained by DASNY in connection with its pre-petition construction contract with the Debtor.

Factual Background

The following facts are undisputed, except where noted. Prior to the filing, DASNY solicited bids for construction work at the City University of New York, Baruch College. QC bid for and was awarded the contract. In connection with the construction project, IFIC issued a performance bond for the benefit of DASNY in which it agreed to complete the work if QC defaulted.² IFIC also issued a labor and material bond for DASNY's benefit in which it agreed to pay the claims of laborers and materialmen if QC defaulted.³ See Certification of Bogda Clarke, Esq., Vice President and Claims Counsel of IFIC ("Clarke Cert."), ¶¶ 3 & 4.

The May 31, 1991 contract between DASNY and QC was executed on QC's behalf by Jerome F. Kennedy ("Kennedy"), QC's President. The signed document, which is labeled "Contract," states:

1. The Contractor shall Furnish and shall perform all Work of every kind or nature whatsoever required and all other things necessary to complete in a proper and workmanlike manner the Fire Protection Work at CUNY — Baruch College — Site "A" Contract # 5 — DA # 6500 180 1 2129 in strict accordance with the Contract Documents (of which a listing of specifications and drawings are attached hereto) and in strict accordance with such changes as are ordered and approved pursuant to the Contract. . . .

See Exh. A to Clarke Cert. The document contains, in addition to the preamble and the first paragraph quoted above, three more brief, numbered paragraphs. Paragraph 2 essentially provides that QC agreed to perform all the work and labor required by the contract for the sum of $945,545. Paragraph 3 provides that the work was to be completed on or before October 25, 1993, and that QC was required to pay DASNY $300 per day for each day thereafter that the work was not done. Paragraph 4 identifies DASNY as both the owner of the land and the owner of the building, and gives the street address of the property where the work was to be done.

The phrase "Contract Documents," contained in the first paragraph quoted above, is not defined by the document labeled "Contract." IFIC contends, but the Trustee disputes, that DASNY's contract with QC consists of several documents including, but not limited to, the May 31, 1991 document labeled "Contract" (referred to above), a Form of Bid dated April 16, 1991 and executed by Kennedy, and a document entitled "General Conditions for City University Projects" ("General Conditions") which is not executed by either party. See Exh. B to Clarke Cert. The Trustee does not dispute that the General Conditions document is a detailed, 45-page document with twenty numbered articles.⁴ Nor does he allege any ambiguity in any of its terms. Rather, he contends that IFIC and DASNY have not shown that its terms apply.

Article 1, Section 1.01 of the General Conditions contains, inter alia, the following definitions:

Contract

The agreement between the Owner and the Contractor consisting of the Contract Documents.

* * *

Contract Documents

The Contract, Notice to Bidders, Information for Bidders, Form of Bid, General Conditions, Supplemental General Conditions, General Requirements, Bonds, Drawings, Specifications, Addenda, Change Orders, and any supplementary data together with all provisions of law deemed to be inserted in the Contract.

Article 9 of the General Conditions (governing "Termination"), Section 9.03, entitled "Owner's Right to Do Work," provides:

The Owner may, after notice to the Contractor, without terminating the Contract and without prejudice to any other right or remedy the Owner may have, perform or have performed by others all of the Work or any part thereof and may deduct the cost thereof from any moneys due or to become due the Contractor.

Article 16 of the General Conditions (governing "Payment"), Section 16.06, entitled "Withholding of Payments," states:

A. The Owner may withhold from the Contractor any part of any payment as may, in the judgement sic of the Owner, be necessary:

1. to assure payment of just claims of any persons supplying labor or materials for the work;

2. to protect the Owner from loss due to defective Work not remedied; or

3. to protect the Owner from loss due to injury to person or damage to the Work or property of other Contractors, Subcontractors or others caused by the act or neglect of the Contractor or Subcontractors. The Owner shall have the right to apply any said amount so withheld, in said manner, as the Owner may deem proper to satisfy said claims or to secure said protection. Said application of the money shall be deemed payments for the account of the Contractor.

In connection with QC's bid, Kennedy also signed, on behalf of QC, a document entitled "Commitment to Affirmative Action to Ensure Minority and Minority and Women Business Enterprises Opportunity." That document provides that the bidder (QC) agreed to "comply with the reporting requirements of Article 20 of the General Conditions." See Supplemental Cert. of Stephan Boiko in Further Supp. of the Mot. of International Fidelity Ins. Co. and the Dormitory Auth. of the State of New York to Dismiss the Adversary Proceeding, dated Feb. 15, 1996 ("Supp. Boiko Cert."), at 3, ¶ 6; Exh. C.

QC began performance of the DASNY contract and, during the construction, DASNY made certain payments to QC when QC submitted payment requisitions for work it had completed. DASNY held back, as "retainage," five percent of the payments to QC.⁵ In May of 1993, QC defaulted on its contract with DASNY, and DASNY terminated the contract.⁶ Pursuant to its bonds, IFIC was required to, and did, complete the construction and pay the claims of QC's laborers and materialmen, expending the total sum of $661,714.66.⁷

DASNY currently holds the sum of $42,913.61, representing the retainage on its contract with QC; this is what the Trustee's complaint seeks to recover.

Procedural Background

The Trustee's complaint alleges the existence of the May 31, 1991 contract with DASNY, and avers that during the completion of the contract, the Debtor submitted payment requisitions to DASNY on a monthly basis, and that DASNY paid the amounts requested in the requisitions, but that, pursuant to the contract, DASNY withheld 5% as retainage. The Trustee further avers that the last payment from DASNY to QC was made on April 5, 1995, and the payment requisition listed $42,913.61 as retainage due to QC as of that date. DASNY approved the last payment requisition on April 6, 1995.

The Trustee's first claim alleges that DASNY and IFIC are indebted to QC in an amount not less than $42,913.61, no part of which has been paid despite due demand. It alleges that the indebtedness is property of the estate and is a mature debt, payable on demand and/or payable on order to or on the order of the Trustee. It seeks judgment against the defendants, jointly and severally, ordering them to pay at least that sum plus interest to the Trustee and to account to the Trustee for all monies due to or being held on behalf of the Debtor. The Trustee's second claim contains all of the same allegations as the first and seeks recovery pursuant to 11 U.S.C. §§ 542(a) and (b). The third claim alleges that "all or part of the Indebtedness may have been transferred to or for the benefit of the Defendants as creditors of the Estate, for or on account of an antecedent debt owed by the Debtor ("Antecedent Debt"), made while the Debtor was insolvent, or sic within 90 days of the date of the filing of the petition." It further alleges that the transfer would have enabled the Defendants to receive more than each or both would have if the transfer had not been made, and that the transfer therefore constitutes a preferential transfer avoidable by the Trustee. It seeks a declaration that the transfer is a voidable preference and an Order directing defendants to return to the estate the amount which constitutes the preferential transfer.

On December 1, 1995, IFIC moved to dismiss the Trustee's complaint for failure to state a claim upon which relief may be granted, supported by the certification of Bogda Clarke (Vice President and Claims Counsel of IFIC) and various documentary exhibits. Shortly thereafter, DASNY filed a "Notice of Joinder in Motion by the Dormitory Authority of the State of New York to Dismiss the Adversary Proceeding," supported by the affidavit of Stephan Boiko, Associate General Counsel of DASNY, dated Dec. 14, 1995 ("Boiko Aff."). The Boiko Affidavit alleges that DASNY is...