Matter of Van Dyk Research Corp.
| Decision Date | 30 April 1981 |
| Docket Number | Bankruptcy No. B-75-2568. |
| Citation | 13 BR 487 |
| Parties | In the Matter of: VAN DYK RESEARCH CORPORATION a New Jersey Corporation, Debtor. VAN DYK RESEARCH CORPORATION, a New Jersey Corporation, Debtor and Bernard Hellring, Receiver for Van Dyk Research Corporation, Plaintiffs, v. SCM CORPORATION, a New York Corporation, Defendant. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
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Crummy, Del Deo, Dollan & Purcell by Frank J. Vecchione, Newark, N.J., for receiver.
Ravin & Kesselhaut by Mark Baumgarten, West Orange, N.J., for debtor.
Riker, Danzig, Scherer & Hyland, Newark, N.J., for SCM Corp.; Benjamin P. Michel, Newark, N.J., of counsel.
Janet L. Samuels, New York City (New York Bar) Staff Atty., for SCM Corp.
The debtor has filed two actions against the SCM Corporation (hereinafter SCM). The first is a motion to expunge or reduce claim # 267 filed by SCM and the second is a verified complaint filed on July 27, 1976 wherein the debtor seeks to disaffirm and reject certain portions of an agreement between the parties. The complaint seeks other relief which will hereinafter be dismissed.
On October 3, 1975 the debtors filed a petition for arrangement under Chapter XI of the Bankruptcy Act. Thereafter, the Receiver was appointed and qualified to the position. Subsequently, on November 8, 1979 a plan of arrangement was confirmed by this Court, which retained jurisdiction to hear the verified complaint action and all matters relating to claims.
For some time prior to the filing of the Chapter XI petition, the debtor has been engaged in the business of developing, manufacturing and distributing xerographic plain paper copier machines.
On December 3, 1973 the debtor and SCM entered into a marketing arrangement whereby SCM agreed to purchase 2200 plain paper office xerographic copy machines manufactured by the debtor. The copiers, known as the "Van Dyk 4000," were to be marketed by SCM as the "SCM 6740". The contract was modified by amendments dated May 30, 1974, June 20, 1974 and November 21, 1974. Under said agreements, SCM also agreed to purchase accessories and spare parts from Van Dyk for the copier machine, including a sorter to collate copies and to be attached to the 6740 copier machine.
Under the December 3, 1973 Purchase Agreement, Van Dyk retained the right to increase prices for spare parts and supplies sold by it to SCM. Paragraph 5(b) of said Agreement provided:
(b) Van Dyk shall have the right, at any time, to increase the price of spare parts and supplies to reflect actual out-of-pocket increases in Van Dyk\'s wage, material or other costs or expenses properly allocable to such spare parts and supplies. Upon written request by SCM, the correctness of any such price increase shall be certified within ninety (90) days after such request by SCM by an independent Certified Public Accountant selected by Van Dyk and approved by SCM, such approval not to be unreasonably withheld; Van Dyk\'s present auditors, Giordano and Riddell are approved for this purpose by SCM. Van Dyk shall give SCM ninety (90) days prior written notice of any such price change, and the prices as changed shall not apply to SCM orders received by Van Dyk before the expiration of said ninety (90) days to the extent that such orders can be filled from inventory then on hand.
Under paragraph 5(a) of said agreement, Van Dyk also warranted that all spare parts and accessories were free from defects of material and workmanship and agreed to "replace without charge . . . such spare parts and supplies which SCM, at SCM's costs, shall have returned to the Van Dyk facility designated for this purpose by Van Dyk."
Under the terms of the agreement, Van Dyk agreed to train SCM servicemen in the operation, maintenance, repair and service of the copier machines. Van Dyk, in fact, conducted training courses for SCM servicemen on the copier and the sorter.
Under the terms of the Purchase Agreement, SCM had the right to terminate its contract with Van Dyk. Such termination was conditioned upon SCM purchasing an additional 225 Van Dyk copier machines and reimbursing the debtor for its costs in the development of an "International Machine".
Subsequently on January 30, 1975 SCM gave notice of termination to Van Dyk and paid Van Dyk $4,100,000.00 as required under the agreements for future deliveries of the machines. SCM also paid Van Dyk an additional $100,000.00 for Van Dyk's work on the "International Machine". SCM asserts that it paid Van Dyk a total of approximately $33,700,000.00 for copiers, sorters, spare parts and training, in addition to the $100,000.00 for the International Machine.
After termination of its purchase agreement with Van Dyk, SCM continued to purchase spare parts from the debtor.
Van Dyk made no attempt to increase its prices for spare parts until after SCM terminated the agreement on January 30, 1975. By letter dated January 31, 1975 Van Dyk submitted a new price list to SCM, to become effective ninety (90) days after the receipt thereof. At this time, SCM acknowledged the fact that Van Dyk had, in fact, been underpricing its spare parts. On February 10, 1975 SCM, by letter, requested that Van Dyk certify the price increases in accordance with paragraph 5(b) of the Purchase Agreement. James T. Conway, SCM's Director of Internal Accounting in 1975, testified that Van Dyk never supplied the requested audit, since it did not have the original records of its pricing methods used in its 1973 pricing list, and could not assess its out-of-pocket expenses.
At this time, Conway met with representatives of Van Dyk to work out a new spare parts pricing arrangement. On May 7, 1975 an interim pricing agreement was reached under which SCM agreed to pay Van Dyk the new prices on the January 31, 1975 price list, "for a period of 60 days, subject to verification, and refund or adjustment". It was also agreed at this time that price increases would be audited and certified by Touche Ross annually, as part of Van Dyk's annual audit.
Van Dyk also agreed to supply, and did forward to SCM, an analysis of twenty-five (25) basic parts, to support the January, 1975 prices.
During this time, SCM paid all bills submitted by Van Dyk without protest, on a thirty (30) day basis.
A final agreement on the pricing of spare parts was reached in June 1975 and is contained in a series of letters dated June 2, 1975, June 5, 1975 and June 30, 1975. Under this agreement, Van Dyk agreed to price each part according to a certain format. Under this format, material costs and labor costs were to be added together to determine the costs of the goods sold. A figure representing "corporate burden" was added to attain the total cost. A profit figure of approximately twenty (20%) per cent of the selling price was then added to obtain the new selling price.
It was further agreed that revisions in the spare parts price list be done quarterly, and that the vice-president of finance for Van Dyk certify that such revisions conform with the agreed pricing format.
Van Dyk issued its first price list under this agreement on August 6, 1975, effective September 1, 1975. On September 26, 1975 Van Dyk issued to SCM an invoice for $302,832.32 representing a retroactive price adjustment for parts sold between April 1, 1975 and September 1, 1975. SCM has refused to pay this invoice, and denies that it represents any setoff against the sums due it from Van Dyk.
The original proof of claim filed by SCM on November 6, 1975 contained the following summary of claims:
(i) Defective parts returned to Van Dyk for
credit ...................................... $148,914.53
(ii) Defective parts not yet returned to Van
Dyk for credit .............................. 19,961.52
(iii) Defective drums received by SCM and currently
in its possession ........................... 84,312.54
(iv) Copy paper paid for in advance by SCM
but not delivered by Van Dyk ................ 69,088.00
(v) Billing error ............................... 101.01
(vi) Purchase cost of drums failing to meet
warranties .................................. 219,836.04
(vii) Labor cost of replacing drums failing to
meet warranties ............................. 22,673.40
(viii) Expenses incurred by SCM as a result of
inadequate Van Dyk training of SCM personnel
pursuant to contract ........................ 442,932.00
(ix) Cost of excessive SCM service personnel
necessitated by inadequate Van Dyk training
of SCM personnel pursuant to contract
............................................. 276,893.55
_____________
Total ...................... $1,284,711.59
In paragraph 8 of the proof of claim, SCM stated that the claims were not subject to any setoff or counterclaim of Van Dyk, and asserted that the September 25, 1975 invoice or $302,832.32 sent by Van Dyk to SCM, purportedly to represent a retroactive price increase, was unenforceable.
On December 13, 1979, by letter memorandum filed with the Court, the claim was reduced to $1,171,987.98 and was further adjusted during the trial to $1,189,063.38. The final figure includes the sum of $66,646.00 representing an administrative claim for overcharging of spare parts by the debtor during the pendency of the Chapter XI proceeding.
On November 7, 1975 the debtor denied all of the claims filed by SCM except those covered by specific memos issued by the debtor to SCM. The debtor further reserved the right to counterclaim and setoff in the event that any damages resulted from SCM's alleged breach of the contract.
Subsequently on July 27, 1976 the debtor and the Receiver filed a verified complaint directed against SCM wherein the debtor (1)...
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