Northland Associates, Inc. v. US, IRS

• Decision Date: 02 November 1993
• Docket Number: 92-CV-117 and 92-CV-574.,91-00058,No. 91-CV-651,91-CV-651
• Parties: NORTHLAND ASSOCIATES, INC., Plaintiff, v. UNITED STATES of America, INTERNAL REVENUE SERVICE, and Abrantes Construction Corporation, as Debtor in Possession, Defendants. In re ABRANTES CONSTRUCTION CORPORATION, Debtor. UNITED STATES of America, Appellant, v. NORTHLAND ASSOCIATES, INC., Appellee. (Two Cases)
• Court: U.S. District Court — Northern District of New York

160 B.R. 484 (1993)

NORTHLAND ASSOCIATES, INC., Plaintiff, v. UNITED STATES of America, INTERNAL REVENUE SERVICE, and Abrantes Construction Corporation, as Debtor in Possession, Defendants.

In re ABRANTES CONSTRUCTION CORPORATION, Debtor.

UNITED STATES of America, Appellant, v. NORTHLAND ASSOCIATES, INC., Appellee. (Two Cases)

Nos. 91-CV-651, 91-00058, 92-CV-117 and 92-CV-574.

United States District Court, N.D. New York.

November 2, 1993.

COPYRIGHT MATERIAL OMITTED

Ernstrom & Dreste, Rochester, NY (J. William Ernstrom, of counsel), for Northland Associates, Inc.

U.S. Dept. of Justice, Tax Div., Washington, DC (Mark D. Lansing, D. Patrick Mullarkey, of counsel), Gary Sharpe, U.S. Atty., Syracuse, NY (William F. Larkin, Asst. U.S. Atty.), for U.S.

Devorsetz, Stinziano, Gilberti & Smith, P.C., Syracuse, NY (Bruce E. Wood, of counsel), for Abrantes Const. Corp.

Richard Croak, U.S. Trustee, Utica, NY.

MEMORANDUM-DECISION AND ORDER

INTRODUCTION

McCURN, Senior District Judge.

On April 3, 1991, the bankruptcy court granted Northland Associates, Inc.'s ("Northland") motion to lift the automatic stay pursuant to 11 U.S.C. § 362(a). On April 13, 1991, the United States filed a notice of appeal with respect to this order. Shortly thereafter, Northland commenced the present civil action (91-CV-651) seeking an order requiring the Army Corps of Engineers ("Corps") to pay over to the court the contract retainages that it held pursuant to its contract with Abrantes Construction Corp. ("Abrantes") pending a determination of Northland's rights to these moneys vis-a-vis the United States, the Internal Revenue Service ("IRS"), and Abrantes.¹ See Northland's Complaint. The United States then moved to dismiss Northland's complaint or, in the alternative, for summary judgment.

This court entertained oral argument with respect to both the United States' appeal and its motion to dismiss on October 8, 1991. With respect to the United States' appeal, the court remanded the matter and directed the bankruptcy court "to consider, with specificity, Northland's arguments for `cause' in light of the Curtis factors and then, only if such cause is shown, to require Abrantes to demonstrate that it is entitled to continued protection." In re Abrantes Constr. Corp., 132 B.R. 234, 238 (N.D.N.Y.1991) (McCurn, C.J.). Moreover, in light of this remand, the court denied the United States' motion to dismiss without prejudice. Id. at 238-39.

In conformance with this court's instructions, the bankruptcy court, on remand, applied the Curtis factors to its reconsideration of Northland's motion. Based upon its application of these factors to the record before it, the bankruptcy court upheld its prior decision to lift the automatic stay to allow Northland to proceed with its action in this court. See Memorandum-Decision, Findings of Fact, Conclusions of Law and Order dated December 16, 1991 ("December 16, 1991, Decision"). The United States timely appealed this order (92-CV-117). The United States also appealed the bankruptcy court's March 26, 1992, order denying the United States' motion to lift the automatic stay for lack of jurisdiction (92-CV-574). In addition, the United States renewed its motion to have Northland's complaint dismissed or, in the alternative, for summary judgment. Northland opposed this motion and also cross-moved for summary judgment. Abrantes asserted no position with respect to any of these issues.

On June 23, 1992, this court heard oral argument with respect to both of the United States' appeals as well as the United States' and Northland's motions for summary judgment. With respect to the United States' appeal of the bankruptcy court's December 16, 1991, order granting Northland's motion to lift the automatic stay, the court orally affirmed that order and informed the parties that a written decision setting forth the court's reasoning would be forthcoming. As to the other matters before it, the court reserved decision.

While these matters were pending, the bankruptcy court dismissed the underlying Chapter 11 bankruptcy proceeding, In re Abrantes Construction Corp., 132 B.R. 234, on January 7, 1993. On that same date, the IRS forwarded a Request for Offset — Government Contract to the United States Department of the Army, Corps of Engineers ("Corps") requesting that the amount of $436,743.56 be offset against any contract retainages held by the Corps. See United States Letter to the Court dated September 20, 1993, at 1. In response to this request, the Corps forwarded $172,371.00 to the IRS on January 13, 1993, and $243,267.33 to the IRS on August 25, 1993. See id. Having forwarded these funds to the IRS, the Corps no longer retains any funds pursuant to its contract with Abrantes. See id. at 1-2.

As a result of the foregoing events, the United States notified the court by letter dated September 20, 1993, that it believed that Northland's complaint was moot. In response to the United States' letter, the court directed the parties to submit letter briefs setting forth their positions with respect to the status of the pending matters. See Court's Letter dated September 24, 1993. The court now has had the opportunity to review the parties' responses and the applicable law. The following constitutes the court's findings of facts and conclusions of law with respect to all matters presently pending before the court.

BACKGROUND²

On January 27, 1989, Abrantes and Northland entered into a Teaming Agreement. The purpose of this agreement was to enable Abrantes to bid successfully on a federal construction project at the Fort Drum military facility in Watertown, New York. On April 14, 1989, the Corps accepted Abrantes' bid and a contract for the construction of the project was entered into between Abrantes, as general contractor, and the United States. The contract price was $4,328,000.00. In compliance with the Teaming Agreement, Northland assisted Abrantes in meeting the necessary federal contract bonding requirements pursuant to the Miller Act, 40 U.S.C. § 270a et seq. In this regard, on April 18, 1989, Abrantes applied for payment and performance bonds with CIGNA. It appears that CIGNA agreed to be the surety and to provide both the performance and payment bonds required by the Miller Act. Subsequently, on April 20, 1989, Abrantes and Northland entered into a subcontract agreement concerning some of the work to be performed on the project. This subcontract identified Abrantes as the "Contractor" and Northland as the "Subcontractor." Pursuant to this subcontract Northland would receive $3,260,967.00 upon its successful completion of the specified work.

On December 10, 1990, the Internal Revenue Service ("IRS") served a Notice of Levy on the Corps in the amount of $88,999.57. This Notice of Levy represented Abrantes' unpaid income tax liability for the tax period ending June 30, 1990. Subsequently, on December 31, 1990, the IRS filed a Notice of Federal Tax Lien against Abrantes in the approximate amount of $88,300.00. On January 9, 1991, before the project was completed, Abrantes filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101-1330. Abrantes also defaulted on the performance of its obligations under the contract. Northland, however, continued to perform its work on the project pursuant to its subcontract with Abrantes. Northland claims that Abrantes has not paid in full the amounts due Northland under the subcontract. Therefore, Northland has attempted to assert a claim to the contract proceeds retained by the Corps for unpaid work in the amount of $404,310.04.³ On February 4, 1991, the IRS filed its proof of claim with the bankruptcy court in the amount of $236,344.61, exclusive of interest which has and continues to accrue from the date of the filing of the bankruptcy petition. See 11 U.S.C. § 506(b); United States v. Ron Pair Enters., Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989).

DISCUSSION

I. United States' Appeals of the Bankruptcy Court's December 16, 1991 and March 26, 1992 Orders

Section 362 of the United States Bankruptcy Code provides, in pertinent part, that "(c) except as provided in subsections (d), (e), and (f) of this section — . . . (2) the stay of any other act under subsection (a) of this section continues until the earliest of — . . . (B) the time the case is dismissed; . . ." 11 U.S.C. § 362 (West 1993) (emphasis added). As stated above, the bankruptcy court dismissed the underlying bankruptcy proceeding, In re Abrantes Constr. Corp., 132 B.R. 234, on January 7, 1993. Thus, the stay, upon which the United States' appeals are based, is no longer in effect.

Prior to the bankruptcy court's dismissal of the bankruptcy action, this court orally affirmed the bankruptcy court's December 16, 1991, order granting Northland's motion to lift the automatic stay. Although at that time the court informed the parties that it would issue a written decision setting forth the reasons for its conclusions, the subsequent dismissal of the bankruptcy proceeding renders a detailed explanation of this court's decision unnecessary. Suffice it to say that the court's decision to affirm the bankruptcy court's order was based upon a finding that, on the whole, the bankruptcy court had correctly found that the Curtis factors weighed heavily in favor of lifting the automatic stay.

With respect to the United States' appeal of the bankruptcy court's March 26, 1992, Order denying its motion to lift the automatic stay, the United States stated in its letter brief that it was willing to stipulate to a withdrawal of this appeal as moot. See United States Letter Brief dated October 5, 1993, at 2. Northland has no objection to such a stipulation. See Northland Letter Brief dated September 29, 1993, at 1. Since the court agrees that the dismissal of the bankruptcy proceeding has rendered this issue moot, the court dismisses the United States' appeal (91-CV-574) of the...