In re Republic Fabricators, Inc.

Decision Date20 July 1989
Docket NumberBankruptcy No. 82-61760.
Citation104 BR 933
CourtU.S. Bankruptcy Court — Northern District of Indiana

R. Golding, Lord, Bissell & Brook, Chicago, Ill., for Lord, Bissell & Brook (LB & B).

R. Stochel, John M. O'Drobinak, P.C., Crown Point, Ind., for First Bank of Whiting (Bank).


FRANCIS G. CONRAD, Bankruptcy Judge, sitting by special designation.

After time for an appeal had lapsed from a bench Order where we denied LB & B's application for compensation as co-counsel for Republic Fabricators, Inc. (Debtor) to recover under 11 U.S.C. § 506(c),2 for lack of an expressed contract between LB & B and a Senior Vice-President, a unauthorized agent, of the Bank, LB & B requested we revisit the facts under theories of unjust enrichment, quantum meruit and/or quasi contract. The Bank moved to dismiss LB & B's motion on grounds of res judicata, and, upon dismissal, requested its own attorney's fees and sanctions for LB & B's untimely efforts.

We do not reconsider our bench Order because LB & B failed to satisfy the requirements under F.R.Civ.P. 60(b) and Rules of Practice and Procedure in Bankruptcy Rule 9024.3 Alternatively, we hold LB & B is barred from presenting new theories of recovery by the claim preclusion principle.


Debtor was incorporated in Indiana in 1976 and engaged in the business of fabrication, installation, and maintenance of equipment used principally for energy and chemical industries located in California, Indiana, Illinois, Ohio, and Texas. Debtor's principal place of business was in Hammond, Indiana where it operated out of leased offices, a shop, and storage facilities.

To obtain working capital, Debtor executed security agreements and related agreements with the Bank. The Bank obtained "a security interest in all of Debtor's then existing and thereafter acquired accounts receivable, chattel paper, contract rights, general intangibles, patent, patent rights, trade names, copy-rights, inventory, machinery, equipment and proceeds thereof." LB & B's Memorandum of Law in Support of Motion for Quantum Meruit, Quasi Contract and/or Unjust Enrichment Payment of Compensation and Expenses from the Bank, filed February 5, 1988, pages 2-3.

Prior to Debtor's bankruptcy, substantially all of Debtor's common stock was transferred to Republic Industries, Inc., an Indiana holding company. Republic Industries, Inc. also owned all of the outstanding stock of RFI Services Corporation, an Indiana corporation engaged in substantially the same kind of business as the Debtor.

According to LB & B:

The Debtor\'s operations were profitable between 1976 and 1981. Thereafter, the Bank required the Debtor to make substantial payments to the Bank on the Debtor\'s guarantee of the obligations of RFI Services Corporation. The Debtor\'s cash position deteriorated subsequent to the date of these payments. Eventually, the Debtor was forced to seek relief under Chapter 11 of Title 11 of the United States Code, on or about November 12, 1982.

LB & B's Memorandum, page 3. On November 12, 1982, Debtor filed for relief under Chapter 11, 11 U.S.C. §§ 101, et seq., (Chapter 11 filing).

On November 2, 1982, a telephone conversation between the Debtor's principals, the Bank's Senior Vice-President, and LB & B initiated LB & B's recruitment as the Debtor's attorney in its upcoming bankruptcy. The Bank's Senior Vice-President was the officer who regularly supervised the administration of the various loans from the Bank to the Debtor and Debtor's affiliates. This conversation resulted in LB & B and the Bank's attorney travelling together to Houston, Texas on November 3, 1982 to participate in several meetings between LB & B, Debtor's principles and controller, and the Bank's Senior Vice-President and attorney.

At one meeting, the parties discussed the financial condition of the Debtor. They also discussed the need to preserve the Bank's security interest in Debtor's property because a significant portion of the Bank's collateral consisted of its security interest in Debtor's accounts receivable, the value of which depended on the ability of the Debtor to remain in business to complete performance of jobs in progress. At the time of filing of the Chapter 11 petition, the Debtor was insolvent, unable to pay its loans, and unable to sustain its regular business operations. The Bank faced substantial losses if the Debtor was unable to remain in business and operate as a liquidating Chapter 11 to maximize the value of its accounts receivable.

A later meeting was held between the Bank's Senior Vice-President, Bank's attorney, and LB & B to discuss LB & B's pre-employment concern; namely, in the event the Debtor was unable to reorganize and was forced to liquidate, LB & B might not be paid because all of Debtor's assets were subject to the Bank's security interest. LB & B interpreted this meeting to be an assurance that it would be paid its fees and expenses. Accordingly, it agreed to be retained by the Debtor. LB & B submitted an affidavit from the Bank's Senior Vice-President. In the affidavit, the Bank's "unauthorized" agent avers he "assured" and "represented" to LB & B that if the Debtor were eventually liquidated, LB & B's compensation and expenses "would and should normally be paid from the proceeds of the Debtor's assets received by a Court-appointed Trustee or by the Bank." LB & B's § 506(c) Motion, paragraph 5, at page 3. The affidavit further stated that the Bank's Senior Vice-President agreed that LB & B could be paid a $10,000.00 retainer by the Debtor from property subject to the Bank's cash collateral. The $10,000.00 retainer was paid to LB & B and to our knowledge has been kept by LB & B.

On November 10, 1982, LB & B and the Bank's Senior Vice-President met with the Bank's Executive Loan Committee and agreed to the terms and conditions of the use of the Bank's cash collateral. LB & B's Memorandum, page 6. On November 30, 1982 and February 15, 1983, Orders were entered by the Court to authorized the Debtor, as DIP, to use the cash collateral. In exchange for the Bank's consent to the use of cash collateral, the Bank was given "a security interest, on a post-petition basis, in all of Debtor's present and future accounts and in all property of the Debtor in which the Bank held a security interest at the time of the filing of the petition for relief." LB & B's Memorandum, page 3.

Absent the continuation of the Debtor's business operations under an orderly liquidating Chapter 11, all parties agree the Bank would not have realized the extent of proceeds from Debtor's account receivables and sale of assets that it did. Indeed, accounts receivable collection and liquidation of assets during Debtor's Chapter 11 produced approximately one (1) million dollars in cash for the Bank. Although some post-petition revenue was lent by the Bank for the DIP's continued operation and preservation of the Bank's accounts receivable, the Bank received a net reduction of $315,000.00 in Debtor's indebtedness to it prior to the Debtor's conversion to Chapter 7.

In its § 506(c) motion, LB & B alleged it had an express contract with the Bank because:

the Bank expressly consented to the payment of your Applicant\'s (LB & B\'s) fees from the proceeds of the Debtor\'s assets subject to its security interest in the event of liquidation of the business. Your Applicants relied upon such assurances and representations of the Bank in rendering legal services to the Debtor throughout the course of this Chapter 11 case. At no time did the Bank attempt to repudiate or withdraw such assurances and representations.

LB & B's § 506(c) Motion, paragraphs 5, 6, at page 3.

LB & B requested compensation from the Bank in the sum of $63,435.50, less the $10,000.00 retainer received prior to the commencement of the case, and advanced out-of-pocket expenses in the amount of $2,715.33.

On August 21, 1987, we held an evidentiary hearing and from the bench sustained the Bank's objections to LB & B's fee request on two grounds. First, we found the absence of an agreement between LB & B and the Bank or consent by the Bank. Second, we found the Bank's Senior Vice-President lacked the apparent authority to bind the Bank to the alleged agreement. In dicta, we also ruled that there was insufficient evidence to show the attorney's fees benefited the estate. Accordingly, we refused to make a "benefit" finding.


On January 22, 1988, the Bank filed two motions: "Motion to Dismiss LB & B's Application for Attorney Fees" and "Motion for Attorneys Fees and Sanctions."

The Bank's sanctions motion stated it was in response to LB & B's "Motion of LB & B for Quantum Meruit, Quasi-Contract and/or Unjust Enrichment Payment of Compensation and Expenses From the Bank." It represented LB & B's motion was filed with the Court on November 23, 1987 when, in fact, there is no docket entry that LB & B's quantum meruit motion was filed prior to the Bank's opposition motions. We note that LB & B's February 5, 1988 quantum meruit motion was accompanied by a memorandum dated November 20, 1987. To avoid speculation that the parties had erroneously assumed that LB & B had filed its quantum meruit motion with the Court prior to the Bank's opposition in this proceeding, we determine such irregularity to be de minis and treat the current posture of these motions as a request for our reconsideration on the merits.

The Bank seeks a dismissal of LB & B's quantum meruit motion under Rules of Practice and Procedure in Bankruptcy Rule 7008 and F.R.Civ.P. 8.4 The Bank seeks attorney's fees and costs as sanctions against LB & B based on allegations that LB & B's motion was filed in bad faith, groundless in fact, unwarranted in existing or modified law, and was instituted for the improper purpose of harassment against the Bank. The...

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