MATTER OF MARINE ELEC. RY. PRODS. DIV., INC.
| Decision Date | 26 February 1982 |
| Docket Number | Bankruptcy No. 180-05261,Adv. No. 181-0626. |
| Citation | 17 BR 845 |
| Parties | In the Matter of MARINE ELECTRIC RAILWAY PRODUCTS DIVISION, INC., Debtor. MARINE ELECTRIC RAILWAY PRODUCTS DIVISION, INC., Plaintiff, v. NEW YORK CITY TRANSIT AUTHORITY, Union Switch and Signal Division of American Standard, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Richard K. Bernard, Brooklyn, N.Y., for defendant New York City Transit Authority; Martin B. Schnabel and Kenneth J. Chertoff, Brooklyn, N.Y., of counsel.
Sullivan & Cromwell, New York City, for defendant Union Switch and Signal Division of American Standard, Inc.; Arline Mann, New York City, of counsel.
Finley, Kumble, Wagner, Heine, Underberg & Casey, New York City, for the debtor/plaintiff; A. Peter Lubitz, New York City, of counsel.
This is a motion made pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, by the New York City Transit Authority (NYCTA or THE AUTHORITY) and the Union Switch and Signal Division of American Standard, Inc. (UNION SWITCH) jointly, for an order dismissing the complaint, filed against them by Marine Electric Railway Products Division, Inc. (MARINE ELECTRIC or THE DEBTOR) for declaratory and injunctive relief and for damages arising from NYCTA's allegedly discriminatory treatment of the debtor in violation of Section 525 of the Bankruptcy Reform Act (THE CODE), 11 U.S.C. § 525.
To set this matter in proper perspective, a short summary of the facts follows:
On September 4, 1980, Marine Electric filed its petition for relief with this court under Chapter 11 of the Code, 11 U.S.C. § 1101 et seq. Its parent, Marine Electric Corporation, is also a Chapter 11 debtor in a case pending in this court. Since this date, Marine Electric has been operating its business as a debtor-in-possession in accordance with Section 1108 of the Code, 11 U.S.C. § 1108. This section provides that "unless the court orders otherwise, the trustee may operate the debtor's business." In the absence of the appointment of a trustee, the debtor continues to operate its business without the necessity of a court order. See 1979 Collier Pamphlet Edition of the Bankruptcy Code, Legislative History following Section 1108, p. 462.
The debtor is engaged primarily in the manufacture of electrical equipment for railway cars and ships. A significant portion of its business is derived from government contract work. According to the debtor, it has "entered into and satisfactorily performed numerous contracts with both federal and state governmental entities. . . ." (Plaintiff's Application for a Temporary Restraining Order, dated November 30, 1981, pp. 1-2)
On August 20, 1981, the NYCTA publicly solicited bids for the design and manufacture of "no motion detectors" to be installed in New York City's subway cars. (NYCTA Bid No. 12792) These devices will apparently lock the end subway car door while the train is in motion to prevent potential accidents. (S.M. December 29, 1981, p. 41)
In response to this solicitation, three prospective contractors, including Marine Electric and Union Switch, submitted bids. On September 9, 1981, the president of NYCTA advised Marine Electric by letter that its bid was the "apparent low bid" on the "no motion detector" contract. (Letter to Marine Electric from John D. Simpson, President, NYCTA, September 9, 1981, Exhibit A attached to the complaint)
Marine Electric offered to provide the required 1070 units at the cost of $563,890.00, or $527.00 per unit. Union Switch's bid was the second lowest at $1,014,360.00, or $948.00 per unit.
In his letter, however, Mr. Simpson informed the debtor that it was the intention of the Authority to award the contract to the second lowest bidder, namely Union Switch. The reason given for this decision was explained as follows:
For purposes of this present motion, however, the Authority admits that its determination to reject Marine Electric's bid was in fact based "`solely on Marine Electric's status as a debtor-in-possession'" under Chapter 11 of the Bankruptcy Code. (Affidavit of Kenneth J. Chertoff, Esq., verified December 11, 1981 attached to NYCTA's motion to dismiss the complaint, p. 2, quoting from paragraph 10 of plaintiff's complaint)
In an attempt to reverse this determination, A. Peter Lubitz, Esq., an attorney associated with Finley, Kumble, Wagner, Heine, Underberg & Casey, Esqs., the attorneys for the debtor, wrote Mr. Simpson of the NYCTA on September 16, 1981. As part of this effort, Mr. Lubitz asked that a meeting be held between NYCTA, Marine Electric and their respective counsel "for the purpose of discussing the issues and concerns raised" as the result of NYCTA's decision to withhold the contract from the debtor. (Letter to John D. Simpson from A. Peter Lubitz, dated September 16, 1981, Exhibit B attached to the complaint) In addition, it was requested that the contract not be awarded in the interim during which the NYCTA would reconsider its decision. In support of his requests, Mr. Lubitz made reference to the provisions of Section 525 of the Code, 11 U.S.C. § 525, and enclosed a copy of a recent bankruptcy court decision construing this statute, In re Coleman American Moving Services, Inc., 8 B.R. 379, 7 B.C.D. 142, 3 C.B.C.2d 609 (Bkrtcy.C.D. Kan.1980). Section 525 states:
"Except as provided in Perishable Agricultural Commodities Act, 1930 (7 U.S.C. §§ 499a-499s), the Packers and Stockyards Act, 1921 (7 U.S.C. §§ 181-229), and section 1 of the Act entitled `An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes,\' approved July 12, 1943 (57 Stat. 422; 7 U.S.C. § 204), a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act."
On October 5, 1981, Richard K. Bernard, Esq., General Counsel to the NYCTA, responding to Mr. Lubitz's letter, essentially reiterated the Authority's refusal to accept Marine Electric's bid. Specifically, he reminded Mr. Lubitz that NYCTA found Marine Electric to be "`not a Responsible Bidder;'" cited various deficiencies in Marine Electric's financial status; and rejected Mr. Lubitz's reliance on Section 525 of the Code, 11 U.S.C. § 525, and the Coleman decision. Mr. Bernard did, nevertheless, agree to meet with representatives of Marine Electric with this caveat: "we feel that such a meeting would be worthwhile only if you can produce more concrete facts demonstrating from both professional and financial viewpoints your ability to complete this contract." (Letter to A. Peter Lubitz, Esq., from Richard K. Bernard, NYCTA General Counsel, dated October 5, 1981, Exhibit C attached to the complaint)
During the following week, Mr. Lubitz spoke with Kenneth J. Chertoff, Esq., of the NYCTA's General Counsel's Office. According to Mr. Chertoff's affidavit, he told Mr. Lubitz that the Authority would be willing to meet with him, but he advised that there was "little point in so doing. . . ." Additionally, he noted that "in any event, any action which Mr. Lubitz intended would have to be taken quickly in light of Mr. Chertoff's stated expectation that the contract would be awarded during the next few days if it had not in fact already been awarded." (Affidavit of Kenneth J. Chertoff, Esq., verified December 11, 1981 attached to motion to dismiss)
Mr. Lubitz then called Mr. Chertoff on October 28, 1981 to request that a meeting be scheduled and to inform him that to his knowledge the subject contract still had not been awarded. The following day, Mr. Chertoff telephoned Mr. Lubitz to tell him that although the contract still had not been awarded, such award "was in fact most imminent." Id. During this conversation, a meeting was scheduled for November 4, 1981.
Finally, on October 30, 1981, the contract was awarded to Union Switch (NYCTA Acceptance and Order No. 11483, dated October 30, 1981, Exhibit A attached to NYCTA's motion to dismiss the complaint), whereupon Mr. Chertoff notified Mr. Lubitz of this fact. Mr. Lubitz, at this point, indicated that he was still desirous of meeting with representatives of the Authority. Thus, on November 4, 1981, a meeting was held which resulted in no change in the positions of either of the parties.
Approximately a month later, on December 3, 1981, Marine Electric filed its complaint against NYCTA and Union Switch in which it requested a preliminary...
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