In re Raymond Professional Group, Inc.

• Decision Date: 21 July 2009
• Docket Number: Adversary No. 07 A 00639.,Bankruptcy No. 06 B 16748.
• Citation: 408 B.R. 711
• Court: U.S. Bankruptcy Court — Northern District of Illinois
• Parties: In re RAYMOND PROFESSIONAL GROUP, INC., et al., Debtors. Raymond Professional Group, Inc., et. al., 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.

408 B.R. 711

In re RAYMOND PROFESSIONAL GROUP, INC., et al., Debtors.

Raymond Professional Group, Inc., et. al., 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.

Bankruptcy No. 06 B 16748.

Adversary No. 07 A 00639.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

July 21, 2009.

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Eugene J. Geekie, Jr., Jason M. Torf, Schiff Hardin, LLP, Chicago, IL, for Debtor.

FINDINGS OF FACT AND CONCLUSIONS OF LAW AFTER TRIAL ON COUNT VI

JACK B. SCHMETTERER, Bankruptcy Judge.

Table of Contents

                HISTORY AND PLEADINGS ..............................................................  720
                FINDINGS OF FACT ...................................................................  722
                    Summary of the Findings of Fact ................................................  722
                JURISDICTION .......................................................................  727
                CONCLUSIONS OF LAW .................................................................  727
                    Introduction ...................................................................  727
                      I. FUNDS IN THE ACCOUNT ARE HELD IN A PREBANKRUPTCY
                          TRUST FOR POPE UNDER THE ILLINOIS MECHANICS LIEN
                          ACT ......................................................................  728
                        a. Pope did not waive its lien rights by virtue of the September 26
                            2001 "Final" Lien Waiver ...............................................  729
                        b. Pope was not required to file and therefore did not fail to file timely
                            its lien claim. Accordingly, it did not allow its rights, under the
                            Mechanics Lien Act to lapse ............................................  731
                        c. The January 30, 2003 Final Lien Waiver applied to Pope's
                            outstanding lien claim which exceeded the amount of the AES
                            Settlement .............................................................  734
                

                     II. RAYMOND MANAGEMENT SERVICES AND POPE OWNED THE
                          ACCOUNT AS TENANTS IN COMMON SUBJECT TO OUTCOME
                          OF THE ARBITRATION AND MECHANICS LIEN TRUST
                          RIGHTS. POPE NOW HOLDS THE SOLE MECHANICS LIEN
                          TRUST RIGHTS IN THE ACCOUNT ..............................................  738
                            Conclusion as to the Mechanics Lien Act and Ownership of the
                              Account ..............................................................  741
                    III. POPE'S ALTERNATIVE TRUST THEORIES ARE WITHOUT
                          MERIT ....................................................................  741
                        a. There is no constructive trust ..........................................  741
                        b. There is no resulting trust .............................................  742
                     IV. THE INITIAL ACCOUNT AND CURRENT ACCOUNT IS NOT AND
                          NEVER WAS AN ESCROW ACCOUNT. POPE WAIVED THE
                          CONTRACTUAL REQUIREMENT FOR AN ESCROW ....................................  743
                      V. POPE HAS NOT ESTABLISHED THAT THERE WAS AN ACTIONABLE
                          MISREPRESENTATION OR THAT IT REASONABLY
                          RELIED ON ANY MISREPRESENTATION BY RAYMOND ...............................  745
                     VI. TO THE EXTENT NOT ALLOWED HEREIN, THE INTERVENING
                          COMPLAINT BY NFIC IS NOT SUSTAINED; AND JUDGMENT
                          WILL ENTER AGAINST THE COMMITTEE .........................................  746
                CONCLUSION .........................................................................  748
                APPENDIX: DETAILED FINDINGS OF FACT ................................................  749
                

HISTORY AND PLEADINGS

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 06-16748 and 06-16753, respectively. Raymond Professional Group is the 100 percent shareholder of RMS.¹ Raymond Professional Group 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.

On July 17, 2007, RPG filed this Adversary Complaint against William A. Pope Company ("Pope"), originally in five counts, seeking (1) a declaration determining that RPG owns the Account; (2) pursuant to 11 U.S.C. § 544(a), to avoid any trust found to have been imposed on the Award; (3) to avoid the Award as a preference under 11 U.S.C. § 547(b); (4) to avoid the Award as a fraudulent transfer under 11 U.S.C. § 548(a)(1)(B); and (5) to disallow Pope's claim for the amount of the Award under 11 U.S.C. § 502(d). In its Amended Answer to Complaint, Pope asserted a counterclaim seeking inter alia 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 ILCS 60/21.02 (Supp.2007) [hereinafter 770 ILCS 60/21.02].

Raymond Professional Group and RMS (collectively "Raymond") have since filed an Amended Complaint adding Count VI seeking a declaration that Pope does not own the bank account; that the account is not an escrow account; and that the funds in the account are not held in trust pursuant to the Illinois Mechanics Lien Act. The Official Committee of Unsecured Creditors (the "Committee") filed an Amended Third-Party Complaint joining in the relief sought by RPG and RMS. Pope has counterclaimed in Count VI asserting ownership of the account as an asserted "joint account" or as an "escrow," or through mechanics lien or trust rights thereon. National Fire Insurance Company of Hartford ("NFIC") filed an Amended Intervening Complaint in Count VI requesting a declaration that funds in the Account are assets of RMS and Pope, and are to be used to satisfy obligations of RMS and NFIC under a Payment Bond that had been provided under the EPC Contract; and also directing J.P. Morgan Chase Bank, N.A. (where the Account is presently on deposit) to release the funds in the account to NFIC to satisfy obligations of RMS and NFIC under the Payment Bond. Count VI and all issues therein were bifurcated for trial separately from the other counts in the Adversary proceeding. The trial concluded and written post-trial arguments were received in the form of Proposed Findings of Fact and Conclusions of Law.

The proceedings have often been characterized by personal attacks on the credibility of witnesses and the professional integrity of counsel. In their post-trial briefs, Raymond and Pope argued in broad brush attacks that their opponent's Proposed Findings of Fact and Conclusions of Law provided incomplete or inaccurate record citations, and otherwise mischaracterized the record. (Pope Response at 12-13 n. 7; Raymond Reply at 14 n. 9-11.) They suggested that these inaccuracies "are made throughout," (Pope Resp. at 12 n. 7), and asked the Court to "take extreme caution when evaluating each and every fact . . . to verify that the `fact' is actually established by the record." (Raymond Reply at 14.) In light of these arguments, those parties were each ordered to file a Response to the Proposed Findings of Fact of the other party admitting or denying each proposed fact and citing to the trial record in support of their denials.² (Docket No. 391.) The parties' Responses filed as a result of that Order revealed that few of the proposed facts of each are actually disputed by the other.

Some of the stipulated facts and facts established by evidence are redundant and many are not directly relevant or necessary in resolving Count VI. Moreover, some of the stipulated documents admitted into evidence and referenced by the parties in their Proposed Findings of Fact and Conclusions of Law are duplicative.³ Raymond used much trial time and argument trying to re-litigate issues that had been decided by the Arbitration Panel. Over Pope's objections to relevancy, Raymond was permitted to offer this evidence in support of its theory that Pope let its rights under the Mechanics Lien Act lapse by failing to perfect timely its lien claim. For reasons discussed below, however, it is now found and held that those arguments are without merit. Nevertheless, the parties were given wide latitude in presenting their positions, and all stipulated and proven facts and documents have been included here in order to create a full record for the possible appeal.

After considering the evidence, including stipulated evidence and arguments presented by the parties, the following Findings of Fact and Conclusions of Law are made and will be entered. Pursuant thereto it will be adjudged and declared on Count VI that: (1) the funds in the Current Account were and are impressed with a statutory trust under section 21.02 of the Illinois Mechanics Lien Act of which Pope is the sole beneficiary, and therefore those funds are not property of the bankruptcy estate of any Debtor; (2) the Initial and Current Accounts are not and were never escrow accounts; (3) the Initial and Current Accounts were always held under the foregoing statutory trust subject to claims and disputes between RMS and Pope...