T & B General Contracting, Inc., Matter of

• Decision Date: 14 December 1987
• Docket Number: No. 86-3797,86-3797
• Citation: 833 F.2d 1455
• Parties: Bankr. L. Rep. P 72,140 In the Matter of T & B GENERAL CONTRACTING, INC., Debtor. PORT CHARLOTTE BANK AND TRUST COMPANY, a Florida banking corporation, Plaintiff-Appellant, v. BALLENGER CORPORATION, A South Carolina corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1455

833 F.2d 1455

Bankr. L. Rep. P 72,140

In the Matter of T & B GENERAL CONTRACTING, INC., Debtor.

PORT CHARLOTTE BANK AND TRUST COMPANY, a Florida banking

corporation, Plaintiff-Appellant, v. BALLENGER CORPORATION, A South Carolina corporation,

Defendant-Appellee.

No. 86-3797.

United States Court of Appeals, Eleventh Circuit.

Dec. 14, 1987.

Roberta Colton, William Knight Zewadski, Trenam, Simmons, Kemker, Scharf, Barkin, Frye & O'Neill, Tampa, Fla., for plaintiff-appellant.

Roy W. Cohn, Tampa, Fla., Eugene Brantley, Brantley, Jackson & Peace, P.A., Columbia, S.C., for defendant-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before RONEY, Chief Judge, HATCHETT, Circuit Judge, and HAND, ^* Chief District Judge.

HATCHETT, Circuit Judge:

In this bankruptcy appeal, we determine that neither the relationship nor events which occurred between a general contractor, a subcontractor, and a bank established a contract or duty which rendered the prime contractor liable or otherwise responsible for losses suffered by the bank when the subcontractor defaulted on its bank loans. We affirm.

FACTS

This controversy between the appellant, Port Charlotte Bank and Trust Company (Bank) and Ballenger Corporation (Ballenger) began as an adversary proceeding in the United States Bankruptcy Court by the debtor, T & B General Contracting, Inc. (T & B), against the Bank, Ballenger, and another creditor. T & B, however, is no longer involved in this case.

Ballenger is a South Carolina corporation and was, during the time relevant to this lawsuit, a general contractor engaged in highway construction projects. Early in 1977, Ballenger entered into a contract with the Department of Transportation of The contract between Ballenger and DOT provided that Ballenger would submit monthly estimate reports to the DOT for construction completed during the previous month. After verifying the estimates, DOT would remit periodic payments to Ballenger for work performed during the subject month. Ballenger would in turn pay T & B for the portion of the work T & B had performed.

the State of Florida (DOT) and became the general contractor on a highway project, known as Interstate 275, with segments located in the Florida counties of Sarasota, Lee, and Charlotte. After acquiring these contracts with DOT, Ballenger entered into four subcontracts with T & B, the debtor in the underlying bankruptcy action. Pursuant to these four subcontracts, T & B was obligated to complete certain work in four different phases of the Interstate 275 project.

From the inception of this contractual arrangement, T & B maintained a banking relationship with the Port Charlotte Bank as both a depositor and a borrower. During the relevant time, it had both a general corporate account and a payroll account with the Bank; it was also indebted to the Bank on several loans, both secured and unsecured, made in connection with the highway projects.

During the course of the interstate construction and while T & B was indebted to the Bank, T & B's financial condition began to deteriorate, and its cash flow problems increased, seriously jeopardizing its ability to repay its loans to the Bank.

In September, 1978, the Bank agreed to renew its loans to T & B and continued to extend credit to T & B based on the monthly estimates for completed work Ballenger submitted to the DOT. During this time, Ballenger cooperated with the Bank and with T & B by informing the Bank of the amount of the progress payment earned by T & B each month. According to this informal arrangement, Ballenger would receive a payment from the DOT and remit the amount T & B had earned by issuing a check to T & B and the Bank as joint payees. T & B would endorse the check and deposit it with the Bank, whereupon the Bank would apply the funds to the accrued interest on T & B's loans. Thus, the parties agree that the Bank was repeatedly renewing the loans to T & B for successive thirty-day periods. It appears that on at least one occasion, the Bank reduced a portion of T & B's principal indebtedness and renewed the remaining indebtedness.

In this manner, the Bank had extended credit to T & B beginning in September, 1978, and continuing through January, 1979. By February, 1979, however, it became increasingly apparent that T & B was in a very difficult financial position. It appeared unlikely that T & B would be able to complete performance on the four subcontracts.

In March, 1979, W.W. Williams Company, a judgment creditor of T & B, garnished T & B's checking accounts. Contemporaneously, T & B's workers' compensation and liability insurance was cancelled. In light of these developments, Ballenger informed T & B that it considered T & B to be in default under their contract, and notified T & B that the four interstate subcontracts were terminated.

On March 22, 1979, T & B filed a voluntary petition pursuant to Chapter XI of the Bankruptcy Act of 1898. Based on the alleged default on the interstate subcontracts, Ballenger filed an unsecured claim in the amount of $709,387.35. On June 10, 1981, the bankruptcy court approved this claim. The Bank then liquidated its collateral which secured part of T & B's indebtedness, and it now claims an unsecured indebtedness of $533,600.75, plus interest.

T & B initiated an adversary proceeding against the Bank, Ballenger, and W.W. Williams Company of Florida, Inc. In this action, the Bank filed a cross-claim against Ballenger seeking damages on theories of breach of contract, fraudulent intentional misrepresentation, negligent misrepresentation, fraud and deceit, and equitable subordination. The Bank also sought an accounting as to certain joint venture funds unrelated to the highway construction contract.

The bankruptcy court denied the Bank recovery on all counts, finding that no agreement, express or implied, existed between the Bank and Ballenger and that Ballenger made no misrepresentations to the Bank, 64 B.R. 291. When the United States District Court for the Middle District of Florida affirmed the decision of the bankruptcy court in its order dated November 10, 1986, the Bank appealed to this court.

ISSUES

The bank presents five issues on appeal: (1) whether the district court's application of a clearly erroneous standard of review is constitutional in a "non-core" proceeding involving traditional state contract and fraud claims; (2) whether an enforceable financing agreement exists between Ballenger and the bank; (3) whether Ballenger's alleged misrepresentations and material non-disclosures are actionable under Florida law; (4) whether Ballenger promised the bank "change order" payments earned by T & B; and (5) whether the doctrine of equitable estoppel precludes Ballenger from exercising a set-off.

DISCUSSION

A. Standard of Review

The Bank contends that the district court improperly applied a clearly erroneous standard of review to the bankruptcy court's finding of fact. It concedes that because the bankruptcy court decision in this case was issued after the effective date of the new Bankruptcy Rules, the new Bankruptcy Rule 8013 governs and it sets forth a clearly erroneous standard for district court review. The bank argues, however, that since the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), circuit courts have drawn a distinction between the standard of review to be applied in "core" bankruptcy proceedings and the standard to be applied to a bankruptcy court's decisions on traditional common law contract and fraud claims. The Bank asserts that the clearly erroneous standard of Bankruptcy Rule 8013 remains applicable to "core" proceedings, but the application of that standard to traditional common law contract and fraud claims, which are commonly state law based, unconstitutionally vests a non-Article III bankruptcy judge with too much judicial power.

Ballenger contends that the district court properly applied the clearly erroneous standard from rule 8013 in reviewing the bankruptcy court's findings of fact.

For a period of time prior to the effective date of the new Bankruptcy Rules, as the Bank contends, the factual findings of the bankruptcy court were subject to complete review by the district court. The Sixth Circuit commented on this transitional period between the old Bankruptcy Rules and the new Bankruptcy Rules in In re Martin, 761 F.2d 1163 (6th Cir.1985), where the court stated:

In the period from December 24, 1982, the effective date of the judgment on Northern Pipeline Construction Company v. Marathon Pipeline Company, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), to August 1, 1983, the effective date of the new Bankruptcy Rules, the bankruptcy court's findings were reviewable de novo by the district court. White Motor Corp. v. Citibank, 704 F.2d 254, 263, 267 app. (6th Cir.1983). The new rules, however, accord the findings of the bankruptcy judge the same deference given the findings of a district judge....

761 F.2d at 1165. The bankruptcy court decision in this case was rendered after the effective date of the new Bankruptcy Rules. Therefore, the new rules apply. Bankruptcy Rule 8013 provides: "Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of witnesses."

The district court noted that Adler v. Nicholas, 381 F.2d 168 (5th Cir.1967) was properly cited by the Bank for the proposition that, although the clearly erroneous doctrine is the usual rule on review of findings by the bankruptcy court, it is not the appropriate rule where the district court is in as good a position as the bankruptcy court to construe the terms of a written instrument and where no credibility issues are involved. The district court properly followed both rule 8013 and the Adler case in applying the...