DocketNumber: Bankruptcy No. 00-29909-MBM; Adversary No. 02-2126-MBM
Citation Numbers: 300 B.R. 621
Judges: McCullough
Filed Date: 10/28/2003
Status: Precedential
Modified Date: 11/22/2022
MEMORANDUM AND ORDER OF COURT
AND NOW, this 28th day of October, 2003, upon consideration of (a) the amended adversary complaint of VP Energy,
(a)the Court possesses CORE SUBJECT MATTER JURISDICTION over (i) each of the four counts brought within the Debtor’s amended complaint, as well as the Debtor’s objection to the Proofs of Claim contained within such complaint, (ii) the entirety of the counter-complaint of the Defendants, and (iii) the Proofs of Claim,
(b) the Defendants’ summary judgment motion is GRANTED with respect to (i) the Debtor’s Count 1, and (ii) the Debtor’s Count 3 but only to the extent of $328,783.58 — i.e., 80% — of the relief that is sought therein, and
(c) the Defendants’ summary judgment motion is DENIED WITH PREJUDICE with respect to (i) the Debt- or’s Count 2 and 4, (ii) the Debtor’s Count 3 to the extent of $82,195.90— i.e., 20% — of the relief that is sought therein, and (iii) the Defendants’ Counterclaim 3.
The rationale for the Court’s decision is set forth below.
I.
The Court does not identify any real issue as to its subject matter jurisdiction over any of the matters raised in the instant adversary proceeding except for the extent of such jurisdiction, that is whether such matters constitute core or noncore proceedings. Therefore, the Court shall confine its subsequent discussion to the core/noncore issue. That the Proofs of Claim and the Debtor’s objection thereto constitute core proceedings follows easily from 28 U.S.C. § 157(b)(2)(B). As for the counter-complaint of the Defendants, the matters raised therein constitute core matters, pursuant to § 157(b)(2)(B) as well, given that (a) the substance of such counter-complaint mirrors in its entirety the substance of the Proofs of Claim, and (b) the Proofs of Claim, as set forth in the preceding sentence, are the subject of an objection over which the Court possesses core subject matter jurisdiction.
II.
The Debtor, in its Count 1, seeks a reduction of $3,947.06 in the initial purchase price (hereafter “the Initial Purchase Price”) that it paid to the Defendants’ predecessor (hereafter also referred to as “the Defendants”), pursuant to the Stock Purchase Agreement as amended by the parties’ March 26, 1999 letter (hereafter “the Stock Purchase Agreement”), for the Defendants’ 80% ownership interest in Volunteer-Phoenix Energy, Inc. (hereafter “Volunteer-Phoenix”). The Court does not understand the Debtor to dispute— indeed, the Court does not understand how the Debtor could dispute — that it paid $2,855,763 as the Initial Purchase Price on April 1, 1999 (hereafter sometimes referred to as “the Closing Date”).
The Debtor contends that it is entitled to such price reduction (a) because the Initial Purchase Price indisputably was to
The Court concludes that such price reduction as sought by the Debtor is utterly pointless and, more importantly, is not authorized by any provision in the Stock Purchase Agreement. The Court concludes as it does in the preceding sentence because the Court concludes, in turn, that (a) the Initial Purchase Price is indisputably nothing more than an interim amount that the Debtor was to pay the Defendants for their 80% ownership interest in Volunteer-Phoenix, after which payment a settlement was to indisputably occur between the parties based upon the difference between the Initial Purchase Price and a subsequently-to-be-computed — and independently determined — final total price that the Debtor was to ultimately pay for such ownership interest (hereafter “the Final Purchase Price”), see Stock Purchase Agreement ¶ 1.2.2, (b) the Final Purchase Price indisputably was to be calculated by either (i) adding to the Initial Purchase Price an amount equal to the product of .80 and the amount by which Volunteer-Phoenix’ retained earnings improved between January 31, 1999, and March 31, 1999, or (ii) subtracting from the Initial Purchase Price an amount equal to the product of .80 and the amount by which Volunteer-Phoenix’ retained earnings decreased between January 31, 1999, and March 31,1999, see Stock Purchase Agreement ¶ 1.2.2, (c) to grant a reduction in the Initial Purchase Price as sought by the Debtor would necessarily likewise produce, from the Debtor’s point of view, a precisely inverse, or offsetting, effect on the settlement between the parties predicated upon the difference between the Initial Purchase Price and the Final Purchase Price — i.e., a $3,947.06 reduction in the Initial Purchase Price would result in either a $3,947.06 increase in the settlement amount due from the Debtor to the Defendants or a $3,947.06 decrease in the settlement amount due to the Debtor from the Defendants, (d) to grant such price reduction as sought by the Debtor would thus be meaningless, and (e) paragraph 1.2.1 of the Stock Purchase Agreement, which paragraph, as set forth above, calls for certain adjustments to be made to Volunteer-Phoenix’ retained earnings, contemplates, the Court concludes as a matter of law, not meaningless retained earnings adjustments but instead only those retained earnings adjustments that would affect the total purchase price that the Debtor was to pay in return for the aforesaid 80% ownership interest.
Because the reduction to the Initial Purchase Price sought by the Debtor in its
III.
The Debtor, in its Count 2, seeks the recovery of amounts from the Defendants for what it characterizes as various post-closing transactions, to wit:
(a) Costs and expenses which the Debt- or paid after the Closing Date that the Debtor contends should have been paid by the Defendants prior to the Closing Date — the Debtor asserts in ¶ 24(c) of its Amended Complaint that such costs and expenses total $746,648.89, while the Defendants aver that the same total equals $807,525.28, which averment by the Defendants is not all that strange given that an apparent internal schedule of the Debtor’s accounts payable as of March 31, 1999, indicates that the total of such costs and expenses equals $807,525.28, see Ex. 13 to Defs.’ Summ. J. Mot.;
(b) $229,193.77 for what the parties refer to as various “LDC balancing adjustments” that were received by the Defendants but which, according to the Debtor, should have been paid over to the Debtor after the Closing Date;
(c) $877,977.94 for accounts receivable of the Debtor allegedly generated after the Closing Date but which were apparently collected by the Defendants after the Closing Date; and
(d) $12,064.83 for certain credits taken by customers of the Debtor that the Debtor contends should properly be chargeable to the Defendants.
The Debtor, within its Count 2, at ¶ 25 of its Amended Complaint, concedes that it owes the Defendants:
(a) $1,120,365.90 for accounts receivable of the Debtor allegedly generated prior to the Closing Date which were apparently collected by the Debtor after the Closing Date, and
(b) $30,234.05 for other amounts paid by customers of the Debtor after the Closing Date which are apparently properly due the Defendants.
The Court cannot, and thus will not, grant summary judgment in favor of the Defendants regarding the costs and expenses which the Debtor paid after the Closing Date that the Debtor contends should have been paid by the Defendants prior to the Closing Date because, inter alia, the parties dispute, and the Court cannot presently resolve what it identifies to be contractual ambiguities relevant to the issue of, whether ¶¶ 2.3.4 & 2.3.6 of the Stock Purchase Agreement, as well as § 4.1 of a document entitled “Operating Agreement” (hereafter “the Operating Agreement”),
As for the $877,977.94 in post-Closing Date accounts receivable that were collected by the Defendants after the Closing Date and which are now allegedly due the Debtor, the Court understands the Defendants to argue that (a) they credited such amount in the Debtor’s favor against a much larger amount due them from the Debtor, thereby resulting in a net amount payable to them from the Debtor of apparently $17,482,650.57 as set forth in Exhibit
Regarding the Debtor’s $229,193.77 claim for “LDC balancing adjustments,” the entry of a summary judgment in favor of the Defendants is presently premature, and thus may not presently be had, if for no other reason than that (a) the Defendants present their own claim for “LDC balancing adjustments” as part of their $808,925.86 Proof of Claim, (b) the Debtor has objected to such Proof of Claim, (c) the Debtor’s $229,193.77 “LDC balancing adjustments” claim appears to be interrelated with, indeed likely can be used as a setoff or recoupment defense to, such Proof of Claim, for which Proof of Claim— which also comprises Count 1 of the Defendants’ counter-complaint — the Defendants do not presently seek the entry of a summary judgment, and (d) the Court does not wish to presently rule “in a vacuum” regarding only one of the instant parties’ “LDC balancing adjustments” claims. The Court also denies the Defendants’ summary judgment motion respecting the Debtor’s “LDC balancing adjustments”
Finally, the Court must deny the Defendants’ summary judgment motion with respect to the $12,064.83 amount that the Debtor seeks in its Count 2 for certain credits taken by customers of the Debtor that the Debtor contends should properly be chargeable to the Defendants (hereafter “the Customer Credits”), and notwithstanding (a) the Debtor’s concession that it owes the Defendants $30,234.05 for items similar in nature to the Customer Credits (hereafter “the Customer Payments”), and (b) the Defendants’ apparent offer, as implied at the bottom of page 12 of their reply to the Debtor’s opposition brief, which reply was filed on July 31, 2003, to perhaps admit the truth of — and thereby arguably remove any dispute regarding— what the Debtor ultimately contends regarding the Customer Credits and Customer Payments, that is that the Debtor owes the Defendants a net amount of $18,169.22 (i.e., 30,234.05 — 12,064.83) for the Customer Payments. The Court is constrained to so deny the entry of a summary judgment in the Defendants’ favor for such $18,169.22 because the Court, even in the face of the Defendants’ apparent position that they agree with the Debt- or that they are owed such $18,169.22, remains unconvinced that the Defendants do not actually seek the recovery of more with respect to the Customer Payments via the Defendants’ $808,925.86 Proof of Claim, which proof of claim, as set forth above, is objected to by the Debtor.
IV.
The Debtor, in its Count 3, seeks to recover $410,979.48 in profits that it alleges the Defendants should have paid, but nevertheless failed to pay, to Volunteer-Phoenix prior to the Closing Date pursuant to the Operating Agreement and another contract entitled “Gas Supply and Services Agreement” (hereafter “the Unpaid Profits”). The Defendants contend that they are entitled to the entry of a summary judgment in their favor with respect to the entirety of such count for several reasons, and alternatively that summary judgment is warranted with respect to at least 80% of the relief sought by the Debtor in such count, or $328,783.58.
In particular, the Defendants contend that (a) the Debtor lacks standing to pursue its claim for the Unpaid Profits, apparently on the basis that the Debtor lacked any ownership interest in Volunteer-Phoenix when Volunteer-Phoenix’ alleged right to the Unpaid Profits accrued, (b) the operation of § 5.4 of the Operating Agreement essentially defeats the Debtor’s claim in any event because, argues the Defendants, such section, presuming arguendo that such unpaid profits existed, required, before such profits could be paid out to shareholders, either their reinvestment into Volunteer-Phoenix or their use in the satisfaction of advances that had been made to Volunteer-Phoenix by the Defendants, (c) the Unpaid Profits essentially constitute “lost profits,” which profits could not have been recovered by Volunteer-Phoenix from the Defendants in any event pursuant to limitation of damages clauses contained within the Operating Agreement and the Gas Supply and Services Agreement, and (d) 80% of the Unpaid Profits cannot be recovered in any event because, if the Unpaid Profits actually were a receivable that was due to Volunteer-Phoenix on the Closing Date, then (i)
Of the four arguments by the Defendants recounted by the Court in the preceding paragraph, the Court finds merit with respect to only the last of such arguments. However, the Court accepts such argument for which it finds merit and shall, accordingly, grant summary judgment to the Defendants regarding the Debtor’s Count 3 to the extent of $328,783.58. Such action by the Court is also necessitated given the Debtor’s oral stipulation at the close of the August 27, 2003 summary judgment hearing to the effect that the Defendants are entitled to set off as a claim against any liability that they might have for payment of the $410,979.48 in Unpaid Profits $328,783.58 that would then be due them for a corresponding increase to the Initial Purchase Price. For the reasons set forth below, the Court rejects the first three arguments offered by the Defendants as cause for the grant of their summary judgment motion respecting the Debtor’s Count 3; accordingly, the Court shall deny such summary judgment motion to the extent of the remaining 20% of the relief sought by the Debtor in its Count 3, or $82,195.90.
First, the Court must reject the Defendants’ argument that the Debtor lacks standing to pursue its claim for the Unpaid Profits because (a) the Debtor presently owns, and owned when it commenced the instant adversary proceeding, all of the stock in Volunteer-Phoenix, which latter entity was ultimately merged into the Debtor, (b) the Debtor thus owns, and owned when such proceeding was commenced, all of Volunteer-Phoenix’ assets, including any right of Volunteer-Phoenix to pursue recovery of the Unpaid Profits, and (c) the Debtor, in its Count 3, asserts, as the owner of Volunteer-Phoenix’ assets, Volunteer-Phoenix’ right, Whatever it may be, to recover the Unpaid Profits, thereby vesting the Debtor with standing to pursue its Count 3.
Second, the Court, at the summary judgment stage, cannot rule that the operation of § 5.4 of the Operating Agreement precludes recovery by the Debtor of the Unpaid Profits because a genuine dispute exists as to the applicability of such § 5.4 to such profits, including, in particular, whether, presuming arguendo that such unpaid profits existed, the same could have been used to satisfy advances that had been made to Volunteer-Phoenix by the Defendants. The Court notes, however, that, if the Unpaid Profits could not have been utilized to satisfy such advances, then the Defendants cannot obtain summary judgment in their favor by arguing that such § 5.4 mandated reinvestment of such profits in Volunteer-Phoenix’ operations unless such reinvestment, in fact, actually occurred — indeed, presuming that Volunteer-Phoenix and, thus, the Debtor is otherwise entitled to recovery of the Unpaid Profits, presuming arguendo their
Finally, the Court rejects the Defendants’ argument that the Unpaid Profits constitute “lost profits” such that their recovery is contractually barred pursuant to limitation of damages clauses contained within the Operating Agreement and the Gas Supply and Services Agreement. The Court so rules because (a) the Court, as a matter of law, construes the damages limitation clause that appears in the Operating Agreement, which clause bars the recovery of “lost profits of any kind or nature whatsoever,” see Ex. 4 to Defs.’ Summ. J. Mot. — Operating Agreement § 10.10, such that the same bars the recovery only of profits that constitute indirect, consequential, or special damages but not those that constitute direct damages, that is damages in the form of profits that are contractually due under another clause of the Operating Agreement, (b) the Court, as a matter of law, construes the damages limitation clause that appears in the Gas Supply and Services Agreement, which clause does not explicitly bar the recovery of “lost profits” and only explicitly bars the recovery of “special, indirect, incidental or consequential damages,” see Ex. 5 to Debtor’s Resp. in Opp’n to Defs.’ Summ. J. Mot. — Gas Supply and Services Agreement ¶ 8, in a manner identical to the damages limitation clause contained in the Operating Agreement, and (c) the Unpaid Profits represent not indirect, consequential, incidental, or special damages but rather direct damages in the form of profits that are allegedly due under other clauses of the Operating Agreement and/or the Gas Supply and Services Agreement.
V.
Because the Court denies the Defendants’ summary judgment motion to the extent that the same pertains to the Debt- or’s Count 2 and $82,195.90 — i.e., 20% — of the relief sought in the Debtor’s Count 3, and since the Debtor, via its Count 4, seeks to do nothing more than to hold the Defendants hable on a successor liability theory for the relief that the Debtor seeks via its first three counts, the Court shah deny the Defendants’ summary judgment motion as it regards such Count 4.
VI.
The Defendants, in their Counterclaim 3, which counterclaim is identical to their $132,276.10 Proof of Claim, bring a $132,276.10 claim for indemnification against the Debtor pursuant to § 4.7 of the Stock Purchase Agreement. Such § 4.7 obligates the Debtor to assume an acknowledged obligation of the Defendants to issue 2 $% of the capital stock of Volunteer-Phoenix to an individual named Korandovich (hereafter “Korandovich”) and to indemnify and defend the Defendants “from any obligations or liabilities to Korandovich ... resulting from ... [the Debtor’s] failure or refusal to fulfill such ... stock issuance that may be requested by Korandovich.”
The parties do not dispute that the Debtor never issued any of Volunteer-Phoenix’ stock to Korandovich. The parties also agree that (a) Korandovich commenced an action against the Defendants in the U.S. District Court for the Southern District of Ohio subsequent to the Closing Date (hereafter “the Ohio District Court Action”), (b) the Defendants filed a third party complaint against the Debtor within the confines of the Ohio District Court
In order for the Defendants to prevail on their indemnification claim as against the Debtor, the Defendants must prove, inter alia and of course, that the underlying claims for which they seek indemnification — i.e., those that were pursued against them in the Ohio District Court Action — are covered by the indemnification language of § 4.7 of the Stock Purchase Agreement.
The Court holds, as a matter of law, that the claims raised within the Ohio District Court Action come within the coverage of the indemnification language of § 4.7 of the Stock Purchase Agreement only if such claims were brought by Korandovich as a result of, and so as to redress, the Debtor’s failure or refusal to fulfill its obligation to issue 2Wo of Volunteer-Phoenix’ stock to Korandovich. The Court must deny the Defendants’ summary judgment motion regarding its Counterclaim 3 if for no other reason than that the Court cannot presently determine whether, and thus cannot presently rule that, Korandovich advanced his claims in the Ohio District Court Action as a result of, and so as to
The Court also will not presently resolve whether the Defendants’ settlement with Korandovich of the Ohio District Court Action is reasonable because (a) the Defendants have neither disclosed to the Court the terms of, nor submitted for the Court’s review the agreement that effectuated, such settlement, and (b) the Court cannot resolve the issue of such reasonableness absent such disclosure or review of such agreement (hereafter “the Settlement Agreement”). Of course, since an open issue remains as to the reasonableness of such settlement, the Defendants’ summary judgment motion as the same pertains to its Counterclaim 3 cannot presently be granted. In a related regard, the Court is cognizant of (a) the Defendants’ notice to the Court that the Settlement Agreement is subject to a confidentiality provision, (b) the Defendants’ position that, as a result of such confidentiality requirement, they were precluded, during the course of the Court’s consideration of their summary judgment motion, from disclosing settlement terms or submitting to the Court as an exhibit a copy of the Settlement Agreement, and (c) the Defendants’ offer to provide the Court with information as to settlement terms under seal and/or for an in camera review of the Settlement Agreement upon the Court’s request. However, the Court concludes that the aforesaid confidentiality concern of the Defendants cannot affect the Court’s decision to deny the Defendants’ summary judgment motion as the same pertains to the Defendants’ indemnification claim because (a) the Defendants, as the party moving for such summary judgment, bear the burden of proving that they are entitled to a judgment as a matter of law, which burden they cannot carry unless they (i) prove that their settlement with Korandovich was reasonable, and (ii) consequently place before the Court either the terms of such settlement or a copy of the Settlement Agreement, (b) the Defendants, in order to prevail on such summary judgment motion, thus needed to affirmatively seek, rather than merely to offer, to place before the Court either the terms of such settlement or a copy of the Settlement Agreement, which action the Defen
Because the Court identifies at least two separate grounds for denying the Defendants’ summary judgment motion as the same pertains to Counterclaim 3, the Court need not and, thus, will not presently engage in an analysis of the many other arguments that the Debtor advances in opposition to such Counterclaim; however, the Court will note summarily that many, if not all, of such other arguments are largely devoid of merit.
VII.
IN SUMMARY, (a) the Defendants’ summary judgment motion is GRANTED with respect to (i) the Debtor’s Count 1, and (ii) the Debtor’s Count 3 but only to the extent of $328,783.58 — i.e., 80% — of the relief that is sought therein, and (b) the Defendants’ summary judgment motion is DENIED WITH PREJUDICE with respect to (i) the Debtor’s Count 2 and 4, (ii) the Debtor’s Count 3 to the extent of $82,195.90 — i.e., 20% — of the relief that is sought therein, and (iii) the Defendants’ Counterclaim 3.
. The Defendants do not presently seek summary judgment with respect to the first two counts of their counter-complaint.
. The Operating Agreement sets forth many of the terms for the operation of Volunteer-Phoenix prior to its sale to the Debtor, and the parties to such document included (a) Volunteer-Phoenix, (b) the Defendants, who owned 80% of Volunteer-Phoenix, and (c) an entity that, as the Court understands it, at the time when the Operating Agreement was executed owned the remaining 20% of Volunteer-Phoenix.
. Indeed, that the underlying claim for which an indemnitee seeks indemnification comes within the coverage of an indemnification agreement is sometimes even formally stated as, notwithstanding that it is necessarily always implied to be, an element of an indemni-tee’s cause of action for contractual indemnification as against an indemnitor. See McClure v. Deerland Corp., 401 Pa.Super. 226, 585 A.2d 19, 22 (1991); Sun Co., Inc. v. Carboline Co., 1992 WL 252265 at *1 (E.D.Pa.1992).
. The law, at least in some jurisdictions, is that "when the indemnitor has notice of the [underlying] claim and refuses to defend, the indemnitor is bound by any good faith reasonable settlement, and the indemnitee need only show potential[, rather than actual,] liability' in order to prevail on an indemnification claim. See 41 Am.Jur.2d Indemnity § 46 (2003) (citing cases from several jurisdictions). Given the present existence of other disputes that impact the outcome of the Defendants’ indemnification claim in its Counterclaim 3, the Court need not and, thus, will not presently resolve whether, as a matter of law, the Defendants (a) must provide a showing of actual liability with respect to Korando-vich’s claims, or (b) need only satisfy, instead, a lesser standard of potential liability regarding such claims.