In re Raymond Professional Group, Inc., Bankruptcy No. 06 B 16748 (Jointly Administered) (Bankr. N.D. Ill. 5/20/2010)
| Decision Date | 20 May 2010 |
| Docket Number | Adversary No. 07 A 00639.,Bankruptcy No. 06 B 16748. |
| Parties | In re RAYMOND PROFESSIONAL GROUP, INC., et al., Debtors. RAYMOND PROFESSIONAL GROUP, INC., Plaintiff, RAYMOND MANAGEMENT SERVICES, INC., n/k/a RAYMOND PROFESSIONAL GROUP-DESIGN/BUILD, INC., Co-Plaintiff to Count VI, v. WILLIAM A. POPE COMPANY, Defendant. WILLIAM A. POPE COMPANY, Counter-Plaintiff as to Count VI, v. RAYMOND PROFESSIONAL GROUP, INC., and RAYMOND MANAGEMENT SERVICES, INC., n/k/a RAYMOND PROFESSIONAL GROUP-DESIGN/BUILD, INC., Counter-Defendants. NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, a Connecticut Corporation Intervening Plaintiff, v. RAYMOND PROFESSIONAL GROUP, INC., RAYMOND PROFESSIONAL GROUP-DESIGN/BUILD, INC., and WILLIAM A. POPE COMPANY, Intervening Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Under the Bankruptcy Code, a bankruptcy debtor may avoid certain pre-bankruptcy transfers of property interests. The debtor-plaintiffs in this Adversary proceeding seek to use that power to obtain funds in an Account that was adjudicated post-bankruptcy in Count VI to belong to the defendant William A. Pope Company ("Pope"). That judgment when entered was subject to the possible issues asserted against Pope in Counts II through V. Claims in those Counts are based on different theories, but all rest on the contention that Pope's rights were obtained by a pre-bankruptcy "transfer" of rights to it that may now be set aside through those Counts. However, there was no such transfer to it prior to the bankruptcy filings, and all of the legal theories asserted are therefore inapplicable.
For reasons stated below, judgments will be entered in favor of Pope and against Plaintiffs by one separate Judgment Order dealing with Counts II through V.
On December 18, 2006, Raymond Professional Group, Inc., ("RPG") and Raymond Management Services, Inc., n/k/a Raymond Professional Group-Design/Build ("RMS") filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in related bankruptcy cases numbered 06-B-16748 and 06-B-16753, respectively. RPG is asserted to be the 100 percent shareholder of RMS.1 RPG provided shared corporate services to each of the debtor-subsidiaries, including RMS. The subsidiaries provided engineering, architectural, design/build, and other technical services to private and government clients, primarily in the power, industrial, and process market sectors. RMS contracted with a property owner, AES Medina Valley Cogen, LLC, ("AES") to build a cogeneration power facility and subcontracted with Pope to do most of the construction work. AES settled remaining lien claims against it by a final payment of $2.5 million in return for waivers of mechanics liens from RMS and Pope. That payment went into an account that RMS and Pope had earlier established that required signatures of an officer of each for any withdrawal (the "Account").
RPG filed this Adversary Complaint against Pope, originally in five counts, seeking the following reliefs: In Count I, a declaration determining that RPG owns the disputed Account; in Count II, pursuant to 11 U.S.C. § 544(a), to avoid any trust found to have been imposed by an Arbitration Award following arbitration between Pope and RMS on contractual claims between them (the "Award"); in Count III, to avoid the Award as a preference under 11 U.S.C. § 547(b); in Count IV, to avoid the Award as a fraudulent transfer under 11 U.S.C. § 548(a)(1)(B); and in Count V, to disallow Pope's claim for entitlement to the debt found due to it by the Award under 11 U.S.C. § 502(d). In its Amended Answer to Complaint, Pope asserted a counterclaim seeking, among other things, a declaration that funds in the Account are held in trust for its benefit pursuant to section 21.02 of the Illinois Mechanics Lien Act, 770 Ill. Comp. Stat. Ann. 60/21.02 (West 2001), amended by 770 Ill. Comp. Stat. Ann. 60/21.02 (Supp. 2007).
RPG, joined therein by RMS, later filed an Amended Complaint adding Count VI, which sought declarations that Pope did not own the Account, that the Account was not an escrow account, and that the funds in the Account were not held in trust pursuant to the Illinois Mechanics Lien Act. Pope counterclaimed in Count VI, asserting ownership of the Account as an asserted "joint account" or an "escrow," or through mechanics lien or trust rights thereon. Count VI and all issues therein were then bifurcated for trial separately from the other counts.
The trial on Count VI concluded, and Findings of Fact and Conclusions of Law were made and entered. See generally In re Raymond Prof I Group, Inc., 408 B.R. 711 (Bankr. N.D. Ill. 2009), amended by 410 B.R. 813 (Bankr. N.D. Ill. 2009) (Docket Nos. 415, 428). Judgment was entered therein declaring, among other things, that Pope then owned the entire Account and was entitled to recover immediately all funds held in the Account, and that RPG and RMS recovered nothing by their claims in Count VI. RPG and RMS immediately filed a Notice of Appeal, and that appeal before a United States District Judge is currently stayed pending resolution of the remaining Counts of this Adversary Complaint so that possible appeals may be coordinated with that earlier appeal.
After the Judgment on Count VI was entered and the appeal thereon was stayed, counsel for RPG and RMS announced an intent to pursue the remaining Counts of the Complaint. RMS then joined RPG as a co-plaintiff in Counts II through V, which had originally been asserted only by RPG, and a trial date was set.2 Counsel for all parties to those Counts stipulated that all evidence admitted at the trial on Count VI would be readmitted for trial on Counts II through V. That evidence was offered and admitted, no other evidence was offered, and all parties rested. RPG, RMS, and Pope presented their closing arguments by way of post-trial briefs. The Official Committee of Unsecured Creditors adopted the briefs of RPG and RMS, and the National Fire Insurance Company of Hartford ("NFIC") adopted Pope's brief.
After considering the evidence, the following Findings of Fact and Conclusions of Law are made and will be entered as to Counts II through V.
Pursuant to the parties' stipulation, the same evidence that was admitted and considered during the trial on Count VI was admitted and is considered here. All of the detailed Findings of Fact made after trial on Count VI, published at In re Raymond Professional Group, Inc., 408 B.R. 711, 749-87 (Bankr. N.D. Ill. 2009), amended by 410 B.R. 813, 813-16 (Bankr. N.D. Ill. 2009) (Docket Nos. 415, 428), are hereby fully incorporated as part of these present Findings of Fact by this reference, as amplified in some detail by further discussion here.
A summary of the facts most directly pertinent to Counts II through IV follows. "FOF" references are to paragraphs of the original Findings of Fact made after trial on Count VI by evidence readmitted here.
On September 12, 2000, RMS entered into the EPC Contract with AES for the engineering, procurement, construction, and start-up of a cogeneration power facility (the "Project") on AES property. ( of Fact ("FOF") 46.) In January 2001, RMS and Pope executed a subcontract between those two parties effective September 12, 2000, pursuant to which Pope was responsible to build the Project. (FOF 89-92.)
Paragraph 7 of the Subcontract called for creation of an escrow account in which to deposit Project funds not immediately needed or distributed. (FOF 101.) On February 2, 2001, Mr. Chidley, as President of RMS, and Mr. Troyke, as President of Pope, met to discuss the opening of the account called for in the Subcontract. (FOF 117.) Mr. Chidley told Mr. Troyke that in order to create an escrow, articles of escrow would have to be drafted explaining RMS's and Pope's intent relative to an escrow account; that there would be an escrow agent designated who would be paid a fee; and that escrow accounts are not interest bearing. (FOF 118.) However Mr. Troyke wanted to obtain the highest possible rate of return on the deposited funds. Therefore, Mr. Chidley and Mr. Troyke agreed that instead of creating an escrow, they would open a commercial checking account requiring the dual signatures of a RMS representative and a Pope representative to disburse funds or make changes to the account. (Id.)
RPG was not a party to the Subcontract, and did not have any contract with Pope for the Project. (FOF 93-94.) Thus, RPG never had and does not now have any contractual claim against the Account because the Account was established by RMS and Pope pursuant to their contractual relationship, as amended by their agreement to establish the checking account instead of an escrow.
Thereafter, billing disputes arose between RMS and Pope regarding accuracy of Pope's claimed costs and whether or not Pope's invoices included profit. (See FOF 158.) RMS stopped remitting payment to Pope for Pope's work after March of 2001. (FOF 178.) On May 23, 2001, Pope made a claim on the RMS Payment Bond issued by NFIC. (FOF 180.) On June 19, 2001, Pope executed a Notice of Claim of Subcontractor pursuant to 770 Ill. Comp. Stat. 60/24 and delivered it to AES. (FOF 181-83.) From June 2001 through October 3, 2001, AES withheld payment for RMS's invoices covering work performed in May 2001. (FOF 184.)
On September 26, 2001, RMS, Pope, and NFIC entered into an Interim Settlement Agreement (the "ISA"), (FOF 194), in order to facilitate payment of Project funds from AES, and they agreed on the minimum amount due to Pope at the time. (See FOF 199.) The ISA called for the payment of certain amounts from RMS to Pope in exchange for Pope's execution of a waiver of lien. (FOF 202.) Pursuant to paragraph 7 of the ISA, RMS agreed to pay Pope $2,808,671 from the...
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