DocketNumber: No. 11-22292-JKF
Citation Numbers: 482 B.R. 765
Judges: Fitzgerald
Filed Date: 11/14/2012
Status: Precedential
Modified Date: 11/22/2022
MEMORANDUM OPINION AND ORDER DENYING MOTION FOR ALLOWANCE OF ADMINISTRATIVE EXPENSES PURSUANT TO 11 U.S.C. § 503
Before the court is Spire Consulting Group, LLC’s (“Spire”) Motion for Allowance of Administrative Expenses. Spire previously filed a proof of claim alleging a “secured claim” in “quantum meruit” for services rendered to First Sealord Surety, Inc. (“First Sealord”), Debtor’s surety. The motion for payment of administrative expense is based on the same facts and essentially the same legal arguments. Doc. Nos. 215, 233 (Supplemental). Debt- or’s objection to the claim (Doc. No. 180) was sustained (Order of September 5, 2012, Doc. No. 245) inasmuch as Spire was not a prepetition creditor, had no contract with the Debtor and had no lien or security interest. At the hearing on September 5, 2012, the court ordered counsel for Spire to file a brief with respect to arguments raised in the application and supplemental application for allowance of administrative expense, specifically to address
A brief history is in order. In March of 2010 Debtor entered into an agreement with BE & K/Turner Joint Venture (“Joint Venture”) for the manufacture and installation of hangar doors at the Boeing, Charleston, South Carolina, Expansion and Site Development Project, (“Boeing Contract”). Pursuant to the requirements of the Boeing Contract, Debtor entered into an agreement in July of 2010 with First Sealord for the issuance of a surety bond to secure its performance and insure payment of subcontractors and suppliers. The General Indemnity Agreement provided that First Sealord had a security interest in the proceeds of the Boeing Contract, Doc. No. 233, Exhibit A, ¶ 11, but First Sealord did not file a financing statement until after this Chapter 11 was filed on April 11, 2011. Accordingly, First Sealord did not have a secured claim. Because it never paid on the bond, despite demand from Debtor’s subcontractors and suppliers, First Sealord did not have an unsecured claim.
During the course of Debtor’s contract with the Joint Venture, Debtor “incurred unanticipated costs due to delays and acceleration caused and/or directed” by the Joint Venture resulting in “unanticipated costs to [Debtor] of approximately $965,-071.00.”
Debtor failed to pay all the subcontractors’ invoices and three creditors filed claims against the surety bond as well as mechanics’ liens. Two other creditors filed claims against the bond but did not file mechanics’ liens.
In order to recoup amounts First Sea-lord would have to pay on the bond, it was necessary to get the Joint Venture to agree to pay the additional $965,071.00 in costs incurred by Debtor because of the Joint Venture’s changes to the Boeing Contract. Debtor had contacted Spire
Thereafter, First Sealord contracted with Spire to put together the Change Order for Debtor to present to the Joint Venture to recoup the additional costs and expenses. Acceptance of the Change Order by the Joint Venture was the only way First Sealord would recover what it would have to pay out on the bond in light of Debtor’s inability to pay the subcontractors.
Although Spire began invoicing First Sealord in May of 2011, the two did not enter into a Letter of Engagement until August 4, 2011. However, First Sealord made no payments to any subcontractor under the surety bond and on February 8, 2012, the Pennsylvania Commonwealth Court ordered it into liquidation. That court also terminated the surety bond effective March 9, 2012.
Administrative Expense
In order to qualify for payment of an administrative expense under 11 U.S.C. § 503(b) the expense must be an actual, necessary cost of preserving the estate or must have been incurred in making a substantial contribution to the estate. The purpose of priority treatment for administrative expenses under § 503 of the Bankruptcy Code is to encourage parties “to continue to do business with a debtor post-petition,” In re North American Pe
Unjust Enrichment
Spire argues that it is entitled to administrative claimant status because otherwise Debtor would be unjustly enriched inasmuch as Spire’s work permitted Debtor to recoup money owed it on the Boeing Contract. “The responsibility for administrative expenses is based on the equitable principle of unjust enrichment, rather than compensation of the creditor’s loss.” In re Funding Systems Asset Management Corp., 72 B.R. 87, 90 (Bankr.W.D.Pa.1987). Spire’s efforts here are to compensate it for the loss it suffered when First Sealord went into liquidation. We find that Debtor was not enriched, unjustly or otherwise.
Black’s Law Dictionary defines unjust enrichment as “[t]he retention of a benefit conferred by another, without offering compensation, in circumstances where compensation is reasonably expected.” Black’s Law Dictionary, 1678 (9th ed. 2009). Spire never expected compensation from the Debtor until First Sealord went into liquidation. Spire’s contract with First Sealord specifies that Spire was working SOLELY for First Sealord and contains a disclaimer that there are any third-party beneficiaries to the contract. Spire’s counsel did not even enter an appearance in the bankruptcy until April 24, 2012, after the Pennsylvania Commonwealth Court cancelled First Sealord’s bond on March 9, 2012. Spire’s contract was with First Sealord, not the Debtor, and, as stated, First Sealord engaged Spire for First Sealord’s benefit, not the Debtor’s. Under the circumstances, Spire could not have “reasonably expected” compensation from Debtor.
We note that the agreement resulting in the release of the undisputed amounts owed to Debtor which the Joint Venture used to pay the mechanics’ liens was between the Joint Venture and First Sealord. Furthermore, it was dated November 3, 2011, six months after Spire first began invoicing First Sealord in May of 2011. See Exhibit to Motion to Approve Payment of Certain Subcontractor Claims, Doc. No. 112, filed by First Sealord on November 15, 2011. The agreement between the Joint Venture and First Sealord also reserved to the Debtor and First Sealord the right to pursue recovery of additional funds “above the undisputed contract balance,” id., but Debtor disclaimed any interest in pursuing the funds. Doc. No. 259 at 5, ¶ 15.
The evidence establishes that, although the Joint Venture paid mechanics’ lien claims in the amount of $569,002.74, the subcontractors were owed over $666,000. Further, the amount of $277,352
A letter from Debtor’s president to the Controls Manager of the Joint Venture dated December 12, 2011, noted that Debt- or still was owed an amount
Third-Party Beneficiary
The letter of engagement between Spire and First Sealord, on Spire’s letterhead and signed by Spire’s principal Anthony Gonzales, expressly states that First Sealord is the client and that there were to be no third-party beneficiaries: “This Agreement is for the sole and exclusive benefit of the Client [First Sealord]. Unless stated below, no person or entity is considered to be a third-party beneficiary: I. None.” Doc. No. 259, Exhibit C, Letter dated August 3, 2011, from Spire Consulting Group to James A. Keating, counsel for First Sealord, at 3. There is nothing in the record to support the concept that Debtor was intended to be or was in fact a third-party beneficiary.
Spire asserts that because First Sealord assigned its General Indemnity Agreement with Debtor to Spire, Spire is entitled to be paid under the terms of that agreement. Attached to Spire’s Supplemental Application for Administrative Expense, Doc. No. 233, is an Indorsement Allonge which states:
By execution of this Indorsement Al-longe, and in consideration of the terms of the Assignment Agreement dated of even date herewith, First Sealord Surety, Inc., in Liquidation, does hereby assign, transfer, and sets over unto Spire Consulting Group, LLC, ... all of the right, title and interest of First Sealord ... in, to and under the General Indemnity Agreement ... by and between First Sealord ..., Fleming Steel Company. ...
However, the assignment by First Sealord to Spire is dated August 3, 2012, after the objection to First Sealord’s claim was sustained by order of this Court dated July 19, 2012. See Doc. No. 233, Exhibit A (General Indemnity Agreement with In-dorsement Allonge dated August 3, 2012, attached), Doc. No. 217 (order of July 19, 2012, sustaining objection to First Sea-lord’s claim). Spire’s rights can rise no higher than those of its assignor.
For the foregoing reasons, it is ORDERED, this 14th day of November,
. First Sealord did not file a response to Debtor’s objection to its claim and an order was entered disallowing First Sealord’s claim. See Doc. Nos. 181,217.
. Debtor’s counsel communicated with counsel for the Joint Venture by letter dated April 12, 2012, offering to settle a claimed overage in the amount of $965, 071 for $785,605. See Doc. No. 251, Exhibits C, D.
.The subcontractors also filed litigation against the Joint Venture, First Sealord and unidentified others for the balance owed to them. Doc. No. 112 at 2, ¶ 8.
. The record contains a letter of April 19, 2011, Doc. No. 251, Exhibit A, and an email of May 2, 2011, id., at Exhibit B, between Debtor and Spire whereby Debtor explained the circumstances and transmitted certain information Spire would need in order to quote Debtor a price for putting together the Change Order. Debtor, however, never entered into a contract with Spire to do the work.
. First Commonwealth Bank's secured claim exceed $3 million. Under the plan of reorganization and a stipulation between the Bank and Debtor, First Commonwealth Bank was to be paid $1.75 million as a secured claim and the rest as unsecured. See Doc. Nos. 108, 166.
. In the November 3, 2011, letter memorializing the Joint Venture/First Sealord agree
. The $277,352 was not part of the Change Order calculation.
. The letter named a figure of $272,952 which later increased to $277,352.
. One of the bases for Spire’s assertion of entitlement to an administrative expense is that it delivered the Change Order directly to the Debtor but this ministerial act is not sufficient to constitute a benefit to or preservation of the estate. 11 U.S.C. § 503.
.That is, $291,650.74 was part of the overage.
. We also note that from May 31, 2011, through December 31, 2011, Spire billed First Sealord, and only First Sealord, on a monthly basis. See Doc. No. 233, Exhibit C (invoices). The only reference to Debtor is on a September 27, 2011, invoice referring to a charge
Furthermore, the confirmed plan of reorganization provided that First Sealord would look to the Joint Venture to satisfy its claim and any remaining amounts owed would be treated as an unsecured claim under the plan but First Sealord’s claim was disallowed in its entirety because it had paid nothing on the bonds.
. The Assignment Agreement between First Sealord and Spire was not provided to the Court but that does not affect the outcome inasmuch the assignment, evidenced by the Indorsement Allonge, occurred after First Sealord’s claim had been disallowed.
. Nonetheless, Spire relies on paragraphs 5 and 6 of the General Indemnity Agreement between First Sealord and Debtor. Paragraph 5 provides that Debtor will
pay all charges and fees incurred by the Surety, its shareholders, directors, officers, partners, employees, agents, subsidiaries, Affiliates and divisions (and any surety that surety procures to execute any Bond and any other surety with which Surety may act as co-surety on any bond or other instrument) under any agreement to which any Indemnitor is a party.
Doc. No. 233, Exhibit A, at ¶ 5. (The Indemni-tors are the Debtor and its principal(s)). However, when First Sealord assigned the General Indemnity Agreement to Spire, it had no claim. Spire cannot bootstrap a claim based on assignment of the General Indemnity Agreement when no claim existed that could be assigned, notwithstanding the language of the General Indemnity Agreement. For the same reason Spire’s argument with respect to ¶ 6 of the General Indemnity Agreement which provides that Debtor is to hold harmless First Sealord "from ... all liability, ... damage, and expense” fails. Moreover, ¶ 8 of the General Indemnity Agreement provides that Debtor's liability extends to "the amount of all payments ... made by Surety ...” Doc. No. 233, Exhibit A at 2, ¶ 8. First Sealord made no payments. The contract must be read as a whole. Spire has no administrative claim.