Matter of Commonwealth Elec. Co.

Decision Date21 May 1990
Docket NumberA88-0286.,Bankruptcy No. BK87-2457
Citation118 BR 720
PartiesIn the Matter of COMMONWEALTH ELECTRIC COMPANY, Debtor. COMMONWEALTH ELECTRIC COMPANY, a corporation operating as debtor-in-possession, Plaintiff, v. ISYS SECURITIES SYSTEMS, INC., a corporation, Defendant.
CourtU.S. Bankruptcy Court — District of Nebraska

Edward Tricker, James Overcash, Woods & Aiken, Lincoln, Neb., for plaintiff.

William Hadley, Bradley White, Andersen, Berkshire, Lauritsen, Brower & Hadley, Omaha, Neb., for defendant.

MEMORANDUM

TIMOTHY J. MAHONEY, Chief Judge.

Trial of this adversary proceeding was held on November 14 and 15, 1989. Edward Tricker and James Overcash of Woods & Aiken located in Lincoln, Nebraska, appeared on behalf of the plaintiff. William Hadley and Bradley White of Andersen, Berkshire, Lauritsen, Brower & Hadley located in Omaha, Nebraska, appeared on behalf of defendant. Following trial, the Court requested post-trial written arguments and final briefs, the last of which was received on January 4, 1990. This memorandum contains the findings of fact and conclusions of law required by Fed.R.Civ.P. 52 and Fed.Bankr.R. 7052. This complaint which was brought as a request for turnover of property of the estate is a core proceeding under 28 U.S.C. § 157(b)(2)(E) and (O).

Background

Commonwealth Electric Company (Commonwealth) has been a debtor-in-possession under Chapter 11 of the Bankruptcy Code since August, 1987. Several years prior to that, Commonwealth entered into a subcontract arrangement with the defendant, ISYS Securities Systems, Inc. (ISYS). By virtue of the subcontract arrangement, ISYS had a construction contract with the United States Government to complete certain projects on the Consolidated Space Operation Center ("CSOC" or "project") which was located near Colorado Springs, Colorado. Commonwealth was to perform certain installation functions pursuant to its subcontract with ISYS.

In late June of 1987, Commonwealth was unable to continue its business operations and terminated its participation in the project after a significant amount of work had been completed. As a result of Commonwealth's inability to complete the project, ISYS was required to complete it in order to be in compliance with its contract with the Government. The dispute in Count I of the complaint concerns the amount due Commonwealth for the work it completed but had not received payment for as of the date of its work termination and the offset, if any, in favor of ISYS for the costs incurred by ISYS in completing the project.

The second count concerns an interpretation of the rights of the parties pursuant to the subcontract. During the work on the project, Commonwealth incurred certain additional costs as a result of delays by the Government. The contract between the Government and ISYS provides that any claim for additional cost caused by the Government to the contractor is subject to the Contract Disputes Act of 1978, 41 U.S.C. §§ 601-613 (Contract Disputes Act). As will be discussed later, that Act apparently requires certification of the costs and the cause of such costs by the contractor and submission to the Government for a determination by contract administration officers or an administrative panel. No action is permitted to be brought on the claim as between the contractor and the Government in the courts of the United States, at least until the full administrative process has been completed.

The subcontract between ISYS and Commonwealth states that disputes between the subcontractor and the contractor are also subject to the Contract Disputes Act. The issue is whether or not Commonwealth must submit its additional costs to ISYS, and then await Government determination of the allowance of the costs or may Commonwealth, as a result of language or lack of specific language in the subcontract look directly to ISYS for the additional costs whether or not the Government allows ISYS an increase in the contract amounts resulting from such additional costs?

The parties have agreed that the Court may interpret the contract language and declare the rights of the parties under the subcontract. If the Court determines that Commonwealth has a right to proceed directly against ISYS, it must then be determined whether or not there is sufficient evidence to permit judgment to be entered in favor of Commonwealth and against ISYS or whether further trial must be had on the damage issue.

Count I. Turnover.

Commonwealth, by leaving the project and terminating its work at the end of June, 1987, breached its contractual obligation to complete the project. At the time of the breach, it had billed ISYS for $3,437,417.65 for work done on the project. Commonwealth had received $3,203,169.62. This left a balance of $234,248.03 for invoiced amounts. In the pretrial statement, Filing No. 15, at Paragraph III.8., "uncontroverted facts," ISYS admits, without considering any offsets, that Commonwealth is still owed $225,957.00 for work under the contract. Commonwealth believes that the amount owed under the contract is $234,248.03. ISYS spends a substantial amount of time in its final argument and brief urging the Court to find that Commonwealth has presented insufficient evidence to support the $225,957.00 amount and, therefore, the Court should find that Commonwealth has failed to meet its burden of proof and is owed nothing for the work performed prior to the breach of the contract. However, the Court believes ISYS misunderstands the purpose of the pretrial statement. That statement contained the position of the parties with regard to controverted and uncontroverted facts. The admission by ISYS in the summary of uncontroverted facts eliminates the need for Commonwealth to present any evidence on its allegation that prior to the breach it performed work on the contract and was due at least $225,957.00 for such work. Had ISYS simply admitted that it had been billed a specific amount, such an admission would not have permitted Commonwealth to stand on the admission, but Commonwealth would have been required to present evidence of the completion of the work which resulted in its claim of at least $225,957.00.

From testimony of Mr. Cerretto, a witness for ISYS, the Court finds as a fact that the project was completed, as far as Commonwealth's subcontract is concerned, in February, 1988. ISYS now claims it owes Commonwealth nothing because Commonwealth did not complete the contract. However, the contract work was eventually completed and ISYS admitted an amount due for work completed prior to Commonwealth's breach. ISYS has a claim of offset which will be treated in this opinion.

This Court finds as a fact, based upon the admission in the pretrial statement, that ISYS owes Commonwealth as of August 8, 1987, the bankruptcy petition date, $225,957.00.

Commonwealth claims to be owed an additional $8,291.03 based upon its billings to ISYS as of the date of the breach. The only evidence Commonwealth presented concerning the additional monies owed was the testimony of Thomas Shea, former general counsel for Commonwealth, and Exhibits 1 and 2. Mr. Shea testified that in his investigation of the project, he discussed its status with Mr. Steve Trutna, formerly an employee of Commonwealth but, following the breach, an employee of ISYS. The questions and answers concerning the matter are contained on page 71 of the transcript of the trial and are as follows:

Line 4, Q. Alright, what did Mr. Trutna say to you insofar as what the balance of the work was to complete the Commonwealth subcontract?
A. There were some various items of work, I cannot remember in specific at this time, the specific items, but he talked about the scope of what was left to complete.
Q. And what did he say in relationship to that scope?
A. He talked about the items that he had and was working for ISYS to complete at that time.
Q. Did he indicate what those items were?
A. Yes. He talked to me about what the items were.
Q. Alright. At the time that Commonwealth terminated its performance out there, what percent of the contract amount had been actually invoiced or billed to ISYS?
A. Ninety-nine percent.

Mr. Shea did not testify that ninety-nine percent of the work was completed. His testimony is that ninety-nine percent of the contract amount had been invoiced or billed to ISYS. Therefore, his testimony is not evidence of contract completion to the extent of ninety-nine percent of the contract requirements.

Exhibit 1 is an accounting record identified by Mr. Shea as Commonwealth's record of billings and payments, upon which he based his claim that Commonwealth is owed an additional $8,291.03. Exhibit 2 is a summary of Exhibit 1 prepared by Mr. Shea which shows dates of invoicing amounts, retainages, payments and pay dates.

There was no other evidence offered in support of Commonwealth's claim that it had completed work pursuant to the terms of the contract as of the date of breach in an amount which would substantiate that ISYS owed Commonwealth as of the breach any more than the amount it has admitted, $225,957.00.

Commonwealth had the opportunity to either depose or present at trial Mr. Steve Trutna, who Mr. Shea claims was the person in charge of the project for Commonwealth and eventually in charge of completing the Commonwealth work for ISYS. Presumably, he would have been able to testify to the exact matters that remained to be completed under the terms of the contract and the items that had been completed, thereby tying in the invoice amounts to the work completed. With no evidence presented by Mr. Trutna or any other person directly related to the onsite administration of the project, there is no factual basis for the claim by Commonwealth that it completed work under the terms of the contract which would allow it the additional payment of $8,291.03.

The Court finds as a fact that the amount due Commonwealth for work completed pursuant to its contract...

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