ENRIQUE S. LAMOUTTE, Bankruptcy Judge.
This case is before the court upon Debtor's Position as to Overpayment to Lord under the 15% Footnote Provision of the Supplement to Plan of Reorganization at Docket No. 1017 filed by Redondo Construction Corporation (hereinafter referred to as the "Debtor" or "Redondo") and the Opposition to Debtor's Position as to Alleged Overpayment under the 15% Footnote Provision filed by Continental Lord, Inc. (hereinafter referred to as "CLI" or "Lord") (Docket Nos. 2627 & 2629) and the reply and sur reply regarding this issue which were subsequently filed by the Debtor and Lord (Docket Nos. 2636, 2643). In addition, before the court is Remodelco, Inc.'s Motion to Join Continental Lord's Motion (Docket No. 2559) and Requesting Reopening of Chapter 11 Case under 11 U.S.C. §350(b) and the Debtor's Objection to Remodelco's Claim for Interest Payment (Docket No. 2644). Also, before the court is the Debtor's Renewed Objection to Reopening of the Case upon Recent Arguments Presented by Lord at Docket 2643 (Docket No. 2645) and Lord's opposition (Docket No. 2647). For the reasons stated below, the court denies Debtor's Position as to Overpayment to Lord Under the 15% Footnote Provision of the Supplement to Plan of Reorganization at Docket No. 1017 (Docket No. 2627) and grants in part and denies in part, Lord's Opposition to Debtor's Position as to Alleged Overpayment Under the 15% Footnote Provision (Docket No. 2629). The court denies Debtor's Objection to Remodelco's Claim for Interest Payment (Docket No. 2644). The court denies Debtor's Renewed Objection to Reopening of the Case Upon Recent Arguments Presented by Lord at Dkt. 2643 (Docket No. 2645).
The court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This is a core proceeding pursuant to 28 U.S.C. §157(b)(1) and (b)(2)(A). Venue of this proceeding is proper under 28 U.S.C. §§ 1408 and 1409.
The travel of this particular case is not only extensive but convoluted. On June 13, 2017, the court, as part of its Order Clarifying Nature of Hearing (Docket No. 2614) included the procedural background regarding the issue of Lord's pass-through claim and the treatment that this pass-through claim has been afforded by the Debtor throughout the bankruptcy case and in adversary proceeding 03-00194. The court incorporates said procedural background in order to better understand this particular issue, the context that the same has in relation to the history of the case, and its relationship with the adversary proceeding. In order to better understand a case or a story, the same must be told from the very beginning. This is the procedural background that was included in the above referenced Order:
On June 28, 2017, the Debtor filed its Position as to Overpayment to Lord under the 15% Footnote Provision of the Supplement to Plan of Reorganization at Docket No. 1017, arguing the following: (i) "[i]t is a fact that the 2001 Amendment was superseded in January 2005, upon request by Lord and acceptance of the Litigation Trust Administrator, and most importantly as included in the footnote incorporated to the Plan; (ii) Debtor's previous counsel, noted that pursuant to the 2005 amendment to the Pass Through Agreement Lord had been overpaid by the Litigation Trust Administrator (Docket No. 2627, Exhibit 3); (iii) that the payment made to CLI was made in error and that the Litigation Trust Administrator overpaid CLI. CLI was overpaid in the amount of at least $592,358.82 due to a payment in error by the Litigation Trust Administrator who did not follow the 2005 amendment to the Pass Through Agreement and the clear language of the footnote; (iv) "... the Litigation Trust Administrator overpaid Lord under the provisions of the 2001 amendment, when in fact if payment was to be made pursuant to the Exhibit to the Confirmed Plan as Supplemented included in the footnote the 2005 amendment it mandated payment strictly of 15% of the Debtor's recovery related to Lord's claim, less proportionate expenses. As calculated by the Debtor payment according to the footnote's language is for a lesser amount;" (v) Article 1795 of the Puerto Rico Civil Code ("PR Code"), 31 L.P.R.A. §5121, provides that, "[i]f a thing is received when there was no right to claim it and which, through an error, has been unduly delivered, there arises an obligation to restore the same;" (vi) CLI's payment of interest is not a payment under the confirmed plan as supplemented; either under Class 8 (which does not include payment of interest) nor a payment under an assumed contract (since the Pass Through Agreement was never listed in the Schedules, nor assumed by the Debtor); (vii) "Lord knew that it was been paid under the 2001 amendment and not under the 2005 amendment. Lord reaffirmed in this Bankruptcy Court the 2001 amendment however it did not recognize the overpayment received considering the 2005 amendment. Under this set of undisputed facts, Lord lacks good faith and cannot claim the doctrine of `actos propios.' In order to claim this doctrine, Lord must have acted in good faith and have clean hands" (Docket No. 2627).
On July 11, 2017, CLI filed its Opposition to Debtor's Position as to Alleged Overpayment Under the 15% Footnote Provision contending the following: (i) "[f]or more than 12 years Debtor operated under the Plan following its agreement with Lord, pursuing Lord's claim, paying the principal amount of such claim and working on the amounts that should be paid as Lord's share in the interest to be received;" (ii) Debtor alleges that its attorney, Mr. Cuprill, the Trust Administrator and all four (4) members of the Board of Supervisors made an error when they all agreed in July 2012 to pay Lord the principal amount adjudicated by this Court on August 31, 2009 to Lord (Adversary Proceeding Num. 03-00194, Docket No. 129, p. 41); (ii) the issue raised by the Debtor, "... for the first time in 12 years, has to be considered taking in consideration all of the provisions of the Liquidating Agreement, as amended. Debtor is ignoring the basic rule regarding incorporation by reference. The incorporation of a document by reference does not require sacramental words.
On July 27, 2017, the Debtor filed its Reply to Lord's Opposition to Debtor's Motion at Docket 2627 as to Overpayment pursuant to Footnote included in Exhibit to Amended Payment Plan contending the following: (i) the Debtor reaffirms that judicial estoppel works both ways. ".... the undisputed facts of this case show that Lord's acts do not sustain the right to receive what it received as payment under a contract which by terms of the Plan of Reorganization, was rejected. Second, Lord cannot allege judicial estoppel to defend an overpayment it knew was not the agreement between the parties, nor was sustained by the exact wording of the footnote. When the party alleging judicial estoppel knew that the facts upon which it alleged rights are based were in error, or contrary to what the agreement was, it cannot allege judicial estoppel. Furthermore, payments received in error are subject to be returned;" (ii) on April 29, 2016, the Debtor through prior counsel replied to the Urgent Motion in adversary proceedings 03-00192; 03-00194 and 03-00195 informed the court that Lord had been paid in excess (Adversary Proceeding No. 03-00192, Docket No. 399). The Court denied Lord's motion and ordered the disbursement of funds (Adversary Proceeding No. 03-00192, Docket No. 400); (iii) "[t]he Debtor distributed all funds received from the Litigation Trust under the provisions of the Amended Plan of Reorganization, as supplemented. All allowed general unsecured claims were paid 100% of their claim. No interest was to be paid to this class according to the terms of the confirmed plan. The remaining proceeds were received and used by the Reorganized Debtor;" (iv) the pre-petition Liquidating Agreement is an executory contract pursuant to 11 U.S.C. §365(a). The Debtor did not file a motion assuming the Liquidating Agreement with Lord and it also failed to assume the Liquidation Agreement explicitly through the plan. Therefore, the Liquidation Agreement was deemed rejected by the terms of the Plan of Reorganization and Lord did not object to the Plan nor moved for the assumption of the Liquidating Agreement; (v) the footnote in Exhibit B to the Supplement of the First Amended Plan, which relates to the list of the causes of action of the estate that will be turned over to the Litigation Trust, cannot be considered an attempt to assume the Liquidating Agreement; (vi) "... Lord received more than the amount of its Allowed Claim under the Plan. This was done by error of the Litigation Trust Administrator even though the allowed claim under the confirmed plan was considerably lower. The amount paid was even more than the 15% provided by the footnote of the Plan;" (vii) in the alternative, if this Court determines that Lord is entitled to an additional payment of interest under the footnote, Lord cannot obtain relief aside from what is provided in the text of the footnote (15% of the award less proportionate costs and expenses); (viii) since the Liquidating Agreement was never assumed by the Debtor, the only right that Lord may claim is that under the terms of the alleged footnote. Thus, pursuant to 11 U.S.C. §1141(a), (b) and (c), the terms of the Plan are binding and the causes of action are property of the estate and vest on the reorganized debtor free and clear of all claims and interest, except for those provided by the confirmed plan. Therefore, Lord cannot claim more than the 15% granted by the footnote in the plan. Any interest Lord might have aside from the 15% recovery was stripped by the Plan; (ix) judicial estoppel is applicable to Lord's actions and inactions such as the following: (1) Lord failed to request that the Liquidating Agreement be assumed by the Debtor; (2) Lord failed to respond to the objection to claim #139; (3) Lord failed to object to the Disclosure Statement which did not disclose the existence of the Liquidating Agreement and its impact in the recovery of any award under adversary proceeding 03-00194; (4) Lord failed to object to the confirmation of the plan which included a provision that provided that all executory contracts not assumed by the Debtor were deemed rejected on the effective date; (5) Lord failed to formally request that its contingent pass through claim be classified separately; and (6) Lord failed to object to the language of the footnote that only preserved the right to receive 15% of the recovery, less proportionate expenses; and (x) the Debtor reaffirms its position as originally raised by prior counsel and restated in Debtor's motion at Docket No. 2627 which provides the computation of the overpayment made to Lord contrary to the provisions of the footnote (Docket No. 2636).
On August 15, 2017, CLI filed its Sur-Reply to Debtor's Reply to Lord's Opposition to Debtor's Motion at Docket 2627 arguing the following: (i) the Liquidating Agreement is not an executory contract; (ii) Lord could not be a party in adversary proceeding 03-00194 because its claim was against PRHTA and Lord did not have a contract with PRHTA. The industry standard is for recourse of the subcontractor to have the general contractor pass-thru the claim against the owner under a liquidating agreement; (iii) "Lord's claim pursuant to the Liquidating Agreement, as amended in 2001, and Adv. Proc. 03-00194 is not included in claim #139 and Lord has never been an unsecured Class 8 creditor for its claim;"(iv) Lord has two (2) different claims; namely one is based on the Liquidating Agreement, as amended in 2001, for the PR-2 Mayaguez Project which is contingent on Debtor obtaining a favorable judgment and receiving the funds from the PRHTA, and the second claim is #139 for other projects owed pre-petition by Debtor to Lord and which bear no relation to the projects litigated under Adv. Proc. 03-00194;" (v) on November 9, 2009, the Debtor in its post-trial memorandum as to the PR-2 Mayaguez Project stated that; "The Debtor/Plaintiff breaks down the amounts owed by the PRHA for the PR-2 Mayaguez project and includes a line item for Claims for subcontractors for Lord in the amount of $1,746,085 and for Remodelco in the amount of $85,000 for a total of $1,831,085;" (vi) on July 16, 2012, the Debtor issued the payment to Lord of the principal amount of $1,746,085 as agreed by the parties in the 2001 amendment to the Liquidating Agreement. The two shareholders of the Debtor and Debtor's attorney accepted and approved the payment of the principal amount. The check paying such amount has a note that states: "Pass Thru Claim PR #2 Mayaguez job" at Docket 2559-3; (vii) "... pursuant to the approval of such payment made in accordance with the amended Liquidating Agreement, Debtor, its two shareholders and Debtor's attorney recognized, accepted and ratified the Liquidating Agreement, as amended in 2001, as a valid and enforceable agreement. Such payment was also approved by this Honorable Court in 2015, when the Final Report of the Litigation Trust Administrator was submitted;" (viii) "[o]n April 22, 2016, Debtor's attorney Charles Cuprill sent a Memorandum to Debtor's shareholders, Lord and another subcontractor of Debtor (Dkt. #2559-6). Mr. Cuprill's Memorandum included an analysis of interest payments due to Lord and Remodelco as part of the award of the principal amount previously paid in the Mayaguez Project case. Referring to Lord and Remodelco, Cuprill stated that such computation is `setting forth the percentage of their entitlements' and Mr. Gorbea[`s] acceptance of the $1,336,799.03 amounts stated by Mr. Cuprill (Docket 2559, Exhibit 6);" (ix) "[r]egarding Debtor attorney's motion, memorandum and acts, the First Circuit Court of Appeals has maintained that a party is bound by the expressions of its attorney.
On August 30, 2017, the Debtor filed its Objection to Remodelco's Claim for Interest Payment premised upon the following: (i) Remodelco failed to file a proof of claim against the Debtor; (ii) the disclosure statement and confirmed plan failed to mention the existence of any liquidating pass-through agreement between the Debtor or Remodelco; (iii) the footnote in the supplement of the First Amended Plan only mentions Lord "with a 15% pass through claim," less proportionate expenses; (iv) Remodelco did not object the disbursement of the interest award in the adversary proceeding and failed to appear before June 2017 in the case; (v) Remodelco did not request by motion that any existing agreement be assumed as an executory contract; (vi) the Debtor did not classify Remodelco in Class 8 where it listed its other general unsecured creditors, suppliers and subcontractors; (vii) Remodelco has failed to submit copy of the purported agreement with its pleadings; (viii) the plan is binding on the Debtor and Remodelco. Remodelco never objected the confirmation of the Plan, nor requested that it be separately classified due to its pass through claim; (ix) pursuant to section 1141 and the prevailing case law, Remodelco is bound by the terms of the plan and the causes of action vested to the Debtor free and clear of its interest, thus the Debtor does not need to pay Remodelco on account of the interest award under the terms of the Confirmed plan; and (x) Remodelco failed to properly prosecute its claim and preserve any right it may have with respect to the interest award. Its actions or inactions preclude Remodelco from asserting a claim against the Debtor at this juncture (Docket No. 2644).
On September 13, 2017, the Debtor filed its Renewed Objection to Reopening of the Case Upon Recent Arguments Presented by Lord at Dkt. 2643 contending as follows: (i) "... Lord's position is that the award as a whole, including the interest award, is not property of the bankruptcy estate. This change in Lord's legal position divests this Honorable Court of any jurisdiction to consider Lord's claim for interests under the confirmed plan;" (ii) Lord's new position that the Liquidating Agreement is not an executory contract is a "... contradictory position to the arguments it used in order to request the reopening of the bankruptcy case, where it vehemently defended as the grounds for reopening the case that the Liquidating Agreement was an executory contract assumed by the Debtor through the footnote in the Supplement of the Amended Plan;" (iii) "... the only bankruptcy related nexus in Lord's request to reopen the case was that the Liquidating Agreement was an executory contract assumed by the Debtor and thus incorporated by the footnote in the Supplement to the Amended Plan;" (iv) "Lord's arguments now are more geared towards defending issues under non-bankruptcy law, i.e., the allowance of an interest award as an integral part of a judgment, the constructive trust theory and judicial estoppel. These are not core matters that require the expertise of the Bankruptcy Court, nor the interpretation of the Bankruptcy Code provisions or of the confirmed plan;" and (v) "[i]n order for a moving party to establish `cause' it must demonstrate that there is compelling cause. Lord's request for relief is based on what it alleges is `non-property of the estate' under a `non-assumed' contract. The relief requested by Lord is not a relief to correct errors, make amendments to the confirmed plan or the need to enforce the plan and discharge. Therefore, there is no `cause' under Lord's request to reopen this case" (Docket No. 2645).
On November 2, 2017, CLI filed its Opposition to "Debtor's Renewed Objection to Reopening of the Case" premised upon the following: (i) the issue of whether the Liquidating agreement is an executory contract was not the basis of the court's decision of having jurisdiction to re-open the case as it was stated in at docket 2582; (ii) "... the Court reopened the case because it had jurisdiction to do so, based on the undisputed facts that occurred during more than 12 years, as demonstrated in Lord's motion and its Exhibits and on equitable principles;" (iii) on August 29, 2008, the Bankruptcy Court entered the final decree (Docket No. 1965) in which Article XI, Section 11.1 of Debtor's confirmed plan of reorganization by which this court retained jurisdiction under 11 U.S.C. §§105(a) and 1142 for several purposes detailed in the plan; (iv) the order reopening the case was notified more than seven (7) months ago, therefore the same is firm and final; (v) "[t]he undisputed facts prove that Lord has always stated and hereby restate and affirm that the provisions for payment to Lord under the Liquidating Agreement were specifically accepted and included by Debtor under the confirmed Plan and the actions of Debtor and its attorney during 12 years were in accordance with such agreement;" (vi) when Redondo and Lord agreed in the Liquidating Agreement to prosecute the litigation against the PRHTA, they created a relationship that should be considered as a constructive or express trust because said Agreement includes the following: (1) an express trust of Lord in Redondo for it to act as a conduit to prosecute Lord's claims against PRHTA; (2) to receive the payments made by PRHTA to cover Lord's principal amount claimed and interests thereon, and (3) to pay Lord any amounts received related to Lord's claim; (4) such amounts do not represent a payment to Redondo because Redondo is acting as a conduit between PRHTA and Lord regarding Lord's claim; (vii) the interest awarded is an integral part of said monetary claim, therefore said interests cannot be considered as part of the Debtor's estate pursuant to 11 U.S.C. §541(b) and (d) and the same is attached to the principal amount. Thus, Lord is the sole beneficiary of interest and Redondo is a mere conduit; (viii) whether the Liquidating Agreement is an executory contract is not pertinent because the Court already reopened the case based upon the amendment to the confirmed Plan; (viii) "[t]he interests awarded to Lord under the adversary proceeding (later disbursed to Debtor) is property of Lord and the amended and confirmed Plan created Debtor's obligation to pay it to Lord. This legal obligation was proposed by Debtor in an amendment to its Plan, accepted and confirmed a long time ago. As such, it is a matter under the Bankruptcy Code and the present case;" (ix) Debtor's post-petition and post-confirmation actions treat Lord's pass-through agreement and claim as a valid one based on the incorporation of the obligations included in the Liquidating Agreement in Debtor's confirmed Plan. Such actions include: (1) the filing of the adversary proceeding including Lord's pass-through claim; (2) the footnote in the supplement incorporated the obligations under the Liquidating Agreement into the terms of a Plan that was subsequently confirmed; (3) the Litigation Trust Administrator's final report (Docket No. 2553) which disclosed that Lord and Remodelco as pass-through claimants. The administrator informed that if the pass-through claims and Las Vistas are added to the pending amounts to be paid, then the amount would not amount to $5,485,000, but it would be in the amount of $9,920,000; (4) the Litigation Trust Administrator made a check to Lord on July 16, 2012 for $1,385,381 in payment of the principal net amount of the pass through claim (Docket No. 2559-3) which was made prior to the report; (5) the Litigation Trust administrator and the two (2) shareholders of the Debtor which were actively participating in the case recognized as valid the incorporation of the Liquidating Agreement in the confirmed Plan and this can be evidenced since they accepted and approved the July 16, 2012 payment to Lord (Docket 2559-4, Exhibit 4); (6) the Plan Administrator provided different scenarios of pending payments to the pass through claims (Docket No. 2559-6); (7) Debtor's former attorney memo recognizing that the interest amount of $1,336,799.03 should be payable to Lord and Mr. Gorbea's acceptance of that amount (Docket No. 2559-6 & 2559-7); (8) in adversary proceeding No. 03-00194, there is a post-trial report (Docket No. 115) in which it includes the payments of the pass through claims of Debtor's subcontractors; namely, Lord and Remodelco; and (x) Debtor's motion questioning this court's jurisdiction constitutes a collateral attack to this Court's decision which became final since February 2017 (Docket No. 2647).
On December 13, 2017, the Debtor filed a Motion Requesting Leave to Reply and Reply to Lord's Objection to Renewed Objection to Reopening of the Case Upon Recent Arguments Presented by Lord at Dkt. 2643, contending that: (i) Lord's change in its legal position divests the Bankruptcy Court of any jurisdiction to reopen the case. Lord now claims that: "... the Liquidating Agreement is not an executory contract and that the same was assumed by the Debtor (Docket No. 2643, pg. 4. It further concluded that the Debtor is a mere conduit that might only hold, at the most, the legal title but not the beneficial interest of proceeds resulting from Lord's specific claim against PRHA (Docket No. 2643, pg. 17). Finally, it was reaffirmed that the award as a whole, including the interest award, is not property of the bankruptcy estate;" and (ii) there is no "cause" under 11 U.S.C. §350 to reopen the case (Docket No. 2648).
On December 22, 2017, CLI filed a Motion to Strike Debtor's motion at Docket No. 2648 because it is a repetition of the arguments concocted to further delay the resolution of the case. Debtor is trying to attack this court's determination to reopen the case, when it did not file a motion for reconsideration. CLI argues that the only pending matters before the Court are the following: (i) if pursuant to the confirmed plan, Lord is owed the interests of the principal amount already paid to Lord; and (ii) the amount of such interests (Docket No. 2649).
There are several legal issues before the court. The first issue is a renewed objection by the Debtor as to whether the court has jurisdiction to reopen the case under 11 U.S.C. §350. If the court has jurisdiction to reopen this case, the next issue that must be considered is whether the Liquidating Agreement, as amended, that was referenced in the footnote to the estate's claims and causes of action, constitutes an executory contract and the implications of this concept. The court must also consider whether the doctrine of judicial estoppel, equitable estoppel and "actos propios" are applicable in the instant case. Lastly, the court will consider whether the doctrine of collection by mistake of what is not due ("cobro de lo indebido") is applicable to the instant case.
Fed. R. Bankr. P. 5010 provides in pertinent part that, "[a] case may be reopened on motion of the debtor or other party in interest pursuant to §350(b) of the Code." Section 350(b) provides that: "[a] case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." 11 U.S.C. §350(b). The movant bears the burden of demonstrating the grounds for reopening of a case.
"While the Code does not define `other cause' for purposes of reopening a case under section 350(b), the decision to reopen is discretionary with the court, which may consider numerous factors, including equitable concerns, and ought to emphasize substance over technical considerations."
Moreover, a bankruptcy case should remain closed, "where it appears that [reopening the case] would be futile and a waste of judicial resources."
The court reaffirms its prior holding (Docket No. 2582) to reopen this case pursuant to section 350(b) for "other cause," based upon the interpretation of the binding provisions of the confirmed plan, as supplemented (Docket Nos. 1016, 1017 and 1018), under the particular circumstances of the case and also the Debtor's contention regarding the subcontractor claims in adversary proceeding No. 03-00194. In retrospect, maybe a final decree should not have been entered on August 29, 2008, when there was substantial ongoing litigation in adversary proceeding number 03-00192, 03-00194 and 03-00195.
The court finds that it is important and relevant to disclose the origins of how "footnote 1" pertaining to Exhibit B (Estate's Claims and Causes of Actions) came into existence. The Debtor in the Supplement to First Amended Disclosure Statement disclosed that Exhibit C (a list of the proof of claims filed against Debtor), in the row marked Claim No. 139 (Continental Lord), deleted the number "$131,273.00" in the column labeled "Amount expected to be allowed," and replaced it with "$157,509.15" (Docket No. 1016). The Debtor in its Supplement to First Amended Plan of Reorganization disclosed that: "1. The amendments to the Plan, as indicated in boldface, are attached hereto as Exhibit A. 2. The amendment to Item No. 3 (Estate's Claims and Causes of Actions) of the "Schedule of Plan Documents" annexed to the Plan is attached hereto as Exhibit B" (Docket No. 1017 as compared to Docket No. 879, pg. 171, Estate's Claims and Causes of Action in which there were no footnotes). The Debtor on February 17, 2005, filed a Motion in Compliance with Order and Certificate of Mailing stating that: "Debtor has amended the Plan in accordance with the Joint Motion, and both the Plan and Exhibit C of the Disclosure Statement in response to issues raised by Continental Lord, Inc. concerning its claim, as specifically set forth in the Supplements filed contemporaneously herewith, which are being served together as indicated in the certificate of service to this motion" (Docket No. 1018, pg. 1).
The Debtor's confirmed plan, Article XI, section 11.1 Retention of Jurisdiction, provides in pertinent part that after the Effective Date, the Bankruptcy Court shall have exclusive jurisdiction pursuant to 11 U.S.C. §§105(a) and 1142 to: (e) to determine all controversies, suits and disputes that may arise in connection with the interpretation, enforcement or consummation of the Plan, including but not limited to the Litigation Trust Agreement; (f) to enforce the provisions of the Plan subject to the terms thereof; and (g) to correct and defect, cure any omission, or reconcile any inconsistency in the Plan, the Plan Documents or in the Confirmation Order as may be necessary to carry out the purpose and the intent of the Plan (Docket Nos. 879, pgs. 68-69). Moreover, the Debtor made a particular request for retention of jurisdiction over specified matters as stated in Article XI of the first amended plan of reorganization which the court granted on October 5, 2005 (Docket No. 1207). Therefore, the court has jurisdiction to consider the pending issues regarding the Liquidating Agreement.
The next step in our analysis is to determine whether the Liquidating Agreement that is referenced in footnote 1 of Exhibit B regarding the estate's claims and causes of action is an executory contract as initially alleged by CLI in its Motion Requesting Reopening of Chapter 11 case under 11 U.S.C.A. §350(b)
The area of executory contracts in Bankruptcy has been defined as a "thicket ... where lurks a hopelessly convoluted and contradictory jurisprudence."
Section 365(a) provides in pertinent part: "... the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." 11 U.S.C. §365(a). The ability to "assume or reject any executory contract," subject to court approval, is one of the most powerful tools in the bankruptcy tool kit.
The term "executory contract" is devoid of statutory definition. Most courts have adopted Professor Countryman's definition of an executory contract which also embodies the material breach test. The definition is the following: "a contract under which the obligation of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other." Countryman,
"Professor Countryman observed that if the debtor fully performed before the commencement of the case, and only the other party's performance was left to be done, the contract should not be viewed as executory because the debtor's right to receive the other party's obligation would simply be an asset of the estate. If the contract were considered an executory contract, the trustee might inadvertently reject the contract and forfeit the asset. Moreover, the provision of the bankruptcy law that views rejection of an executory contract as a breach entitling the other party to a claim for damages would make no sense if the debtor already fully performed. Similarly, if the other party fully performed and only the debtor's performance remained to be done, the estate already has whatever benefit is to be gained from the contract. The other party has a claim against the estate for breach of contract if the debtor or the estate does not perform, but that party cannot deprive the estate of the performance that the estate has already received. However, if this were considered an executory contract, the trustee might assume the contract and convert the other party's claim to a first priority administrative claim. Since the estate could receive no benefit from such a conversion in the status of the claim, it seems appropriate to simply bar the trustee from ever assuming such a contract by treating the contract as nonexecutory."
Professor Andrew explains the key elements of assumption of an executory contract according to Professor Countryman and its consequences in the following manner:
Some courts have moved away from Professor Countryman's approach and have adopted a "functional approach" which works "backward from an examination of the purposes to be accomplished by rejection, and if they have already been accomplished then the contract cannot be executory."
In a Chapter 11 case, the decision to assume or reject, except as to nonresidential property leases, must be made prior to or in conjunction with a confirmed plan.
"Although the Countryman definition may be easy to state, the myriad differences in particular contracts have made it difficult to apply. Courts typically struggle with trying to find whether there are any unperformed obligations on either side and whether breach of those obligations would excuse the other party from performance."
The court needs to define and understand what the purpose(s) of a liquidating agreement is in the construction industry and the relation that pass-through claims have to the same in order to determine whether the Liquidating Agreement is an executory contract. It is important to note that there was a Subcontract Agreement entered into between Redondo and Lord on May 28, 1990, that is, prior to the Liquidating Agreement between Redondo and Debtor. The same engaged Lord to perform, as a subcontractor, electrical and other related work for the PR-2 Mayaguez Project as required by the contract entered into between Redondo and the PRHTA on March 15, 1990 (construction contract AC-200009) for the construction of improvements and additional lanes to a portion of Highway PR-2 between Mayaguez and Hormigueros. The court also notes that the Debtor in its Amended Schedule G (Executory Contracts and Unexpired Leases) does not list the Liquidating Agreement with Lord as an executory contract (Docket Nos. 134, 168).
The first step is to define what a "pass-through" claim is. In
Therefore, for a pass-through claim to exist, there must be an agreement between the contractor and the subcontractor. Liquidating Agreements are used to avoid the limitation of the "Severin Doctrine"
Liquidating agreements in the construction industry are used as a mechanism to bridge the lack of privity between the owner and subcontractor, and thus, facilitate recovery. Liquidating Agreements generally contain the following elements: "(1) allow the subcontractor and supplier to present their claims in the name of the contractor but at no expense to the contractor; (2) require the claims to include an amount for the contractor's markup; and (3) limit the liability of the contractor to whatever sums are recovered by it from the owner on their claims."
Liquidating Agreements have been described as "... a conditional payment arrangement" between the contractor and the subcontractor. "From the general contractor's perspective, the liquidating agreement limits its exposure to the downstream subcontractor in the event the pass-through claim fails. The subcontractor, meanwhile, acquires direct access to the owner. A typical liquidation agreement includes a contractor's admission of exposure to the downstream party (in order to avoid the "Severin Doctrine" by preserving liability to the subcontractor) paired with a subcontractor's agreement to limit its recovery to that which is achieved by the contractor. In addition, liquidation agreements frequently expressly address the amount to be paid from the recovery received, how it will be calculated (e.g., is the subcontractor entitled to first dollar payment), and the scope of the release of claims (e.g., the subcontractor's sole relief is tied to the contractor's recovery)."
This court concludes, after analyzing the nature of pass through claims and their relationship with liquidation agreements, that a liquidation agreement is not an executory contract pursuant to section 365(a). Lord's claim did not originate from the liquidation agreement, rather Lord's claim originated from the subcontract it executed with the Debtor by which Lord agreed to perform, as a subcontractor, the electrical and other related work for the PR-2 Mayaguez Project and all the (monetary) damages Lord sustained, which were attributed to PRHTA (A detailed description of the same were provided by Debtor/Plaintiff in its post-trial brief in Adv. Proc. 03-00194, Docket No. 115, pgs. 10-24). At the time of the bankruptcy filing, Lord had already fully completed the work it was subcontracted to do by Redondo for the Mayaguez Project, meaning that the Debtor had already benefited from the subcontract. However, in order to complete the electrical work that was subcontracted, Lord (and also Remodelco) encountered numerous difficulties and delays caused by the PRHTA which materialized into the subcontractor claims. Lord's pass-through claim includes extended general home office overhead, extended job overhead, additional labor costs due to loss of productivity, extended overhead for miscellaneous tools and expenses, and a profit factor of 15%. Therefore, Lord's claim
Viewed from a different perspective, if the Liquidating Agreement were an executory contract, there would be an asset and a liability side to the contract. In this particular type of arrangement, the idea is that the entity from which Lord and Remodelco's (the subcontractors') pass-through claims will get paid is from the PRHTA (which was the entity that was ultimately responsible for the extensive delays and project difficulties), which ultimately benefits the contractor's pocket (Redondo) because otherwise Lord and Remodelco would have filed a lawsuit for their claims based on their damages, namely: extended general home office overhead, extended job overhead, additional labor costs due to loss of productivity, extended overhead for miscellaneous tools and expenses, and a profit factor of 15%, directly against Redondo.
At the time of the Debtor's bankruptcy filing, Lord had already completed its obligations under the subcontract with Redondo. The interference, differing site conditions and extensive delays caused by the PRHTA, resulted in Lord's pass-through claim in the amount of $1,746,085
For the reasons explained above, this court finds that the Liquidating Agreement is not an executory contract pursuant to section 365(a), it is a "conditional payment arrangement" regarding the subcontractor's already existing pass-through claim. This "conditional payment arrangement" was executed between the contractor and the subcontractor which was entered into primarily because of the subcontractor's lack of privity with the owner or in this case, the PRHTA. Lord's pass-through claim is a conditional claim, whose payment was conditioned on the outcome of the subsequent bankruptcy estate's cause of action regarding the PR-2 Mayaguez Project, which was litigated in adversary proceeding 03-00194. The monies from the pass-through claims (Lord and Remodelco), if the Plaintiff/Debtor was successful in the litigation of this particular adversary proceeding, would be collected eventually from PRHTA's funds, not from Redondo and what later became the Debtor's bankruptcy estate (the original liquidating agreement was first executed on August 15, 1994 and subsequently amended on March 2001).
The Debtor was aware of the nature of Lord's pass-through claim. The Debtor on February 17, 2005 (Docket No. 1017) filed its Supplement to First Amended Plan of Reorganization in which it specifically disclosed that one of the amendments was to Item No. 3 which is the Estate's Claims and Causes of Actions (Exhibit B) of the Schedule of Plan Documents annexed to the Plan. The amendment to Exhibit B consisted of 2 footnotes, footnote 1 being the subject of this convoluted controversy. This court finds that the supplement to the First Amended Plan of Reorganization which resulted in the inclusion of "footnote 1" to the Estate's Claims and Causes of Actions is a binding provision of a confirmed plan and the parties involved have for over a decade, since before the date the plan was confirmed on October 6, 2005, consistently treated this claim as a pass-through claim in conformity with the purpose of a Liquidation Agreement and the ensuing litigation, as explained above.
The next step of the analysis involves the doctrine of judicial estoppel and its applicability regarding the pass-through claims of Lord and Remodelco. The court is aware that in the instant case Remodelco did not file a proof of claim nor is referenced in a footnote (of the bankruptcy estate's claims and causes of action) as having executed a liquidating agreement for its pass-through claim.
At this juncture, the court clarifies that the doctrine of judicial estoppel and equitable estoppel are different doctrines and, thus, have different requirements. The parties in this case seem to treat these doctrines interchangeably.
The primary objective of the doctrine of equitable estoppel is to "... prevent injustice when an individual detrimentally and predictably relies on the misrepresentation of another."
Lord's position regarding the doctrine of equitable estoppel, which is similar to the state law doctrine of "actos propios), is premised on the following:
Redondo argues that Lord is unable to claim the doctrine of "actos propios" due to its lack of good faith, mainly because it knew that it was being overpaid because of the 2005 amendment to the Liquidating Agreement. Redondo contends the following:
The court finds that CLI failed to demonstrate that the traditional elements of equitable estoppel are present in this case; such as proving detrimental reliance as to Redondo's misrepresentations which made CLI change its position for the worse. Moreover, this court also finds that CLI and Redondo have also failed to apply the requisites of the state law doctrine of "actos propios" to the particular facts of this case. In particular, the parties have omitted discussing the specific acts that have "... given life to a situation contrary to reality, that is, apparent and, through such appearances, may influence the behavior of others." Thus, this court does not need to discuss further the precise parameters and requirements of an estoppel claim against Redondo.
This court in
"In
CLI argues that the doctrine of judicial estoppel is applicable to Redondo due to its alleged contradictory and groundless new position. Lord alleges the following:
The Debtor contends that the doctrine of "actos propios" or judicial estoppel is applicable to Lord's actions or inactions based upon the following:
After considering the parties' arguments, the court concludes that both Lord and Redondo have fallen short in the application of the three factors that are generally required for the applicability of the doctrine of judicial estoppel to the legal record of this case. Both parties refer to documentation such as the Liquidating Agreement, the Debtor's attorney memorandum, and the Trust Administrator's Memorandum, which were never presented to the court in order to persuade it to accept a particular position. Notwithstanding, the court finds that Redondo's position regarding the subcontractor claims pertaining to the record of the case in adversary proceeding 03-00194 are inconsistent with the arguments it brings forth in this contested matter. The complaint in this adversary proceeding was filed on December 23, 2003. Redondo in paragraphs 20, 21 and 23 of the complaint alleges the following:
Moreover, Redondo in the prayer to the complaint requested the following:
On November 9, 2007, the Debtor filed its post-trial memorandum. In this memorandum, Redondo explains in detail all of the delays, interferences, and differing site conditions that it encountered when working in the PR-2 Mayaguez Project. Redondo also explains in detail the delays, problem, interferences, and differing site conditions that Lord and Remodelco encountered when working on this particular project (Adv. Proc. 03-00194, Docket No. 115, pgs. 10-24). Redondo in its post trial memorandum explained the following:
Moreover, Redondo, in its itemization of the amounts owed by PRHA regarding the PR-2 Mayaguez Project, includes a line item titled, "Claims of Subcontractors" and below it discloses Lord's claim in the amount of $1,746,085.00 and Remodelco's claim in the amount of $85,000.00 and it discloses the summation of these amounts as "Total Claimed Equitable Adjustment" in the amount of $1,831,085.00. (Adv. Proc. 03-00194, Docket No. 115, pgs. 20-21). The Defendant disclosed its position regarding the subcontractor claims in its post-trial brief. The Defendant or the PRHTA stated the following:
On August 31, 2009, the court, (Carlo, B.J.), entered a Decision and Order in which it discussed the PR-2 Mayaguez Project (Adv. Proc. 03-00194, Docket #129, pgs. 21-42), and concluded as follows regarding Lord and Remodelco's claims:
"Lord's and Remodelco's claims against RCC are included in Joint EX 41, in accordance with Section 109.04 of the Blue Book. They are the only two subcontractors with claims. (EX 68) (Tr. of 2/14/07, pp. 658-659, 668-691; Tr. of 07/02/07, pp. 1242-1243). And while PRHA argues that it had no contractual relationship with Lord and Remodelco, these claims were direct costs of completing the project." (adv. Proc. 03-00194, Docket No. 129, pg. 32).
The court also concluded:
The bankruptcy court also found that amongst the amounts owed by PRHA to RCC for the Mayaguez project, was the amount of $1,831,085.00 for the claims of subcontractors of which, $1,746,085.00 was allocated to Lord and $85,000.00 was allocated to Remodelco. The court also allocated a profit component of 10% to the total equitable adjustment line item which included Lord and Remodelco's claim amounts ($1,831,085.00 × 1.10 = $2,014,193.05), plus the prejudgment interest at 6.5% from June 30, 1996 (Adv. Proc. 03-00194, Docket No. 129, pgs. 41-42, 55; Docket No. 130).
Subsequently, on February 11, 2010, this court entered a Decision and Order in adversary proceeding 03-00194 to dispose of the motions filed by the Debtor to amend the Court's Decision and Order of August 31, 2009 and motions by PRHA to amend or alter judgments of the Court entered on August 31, 2009, or for a new trial. In its Decision and Order, the court concluded as follows:
On March 18, 2010, the PRHTA filed its Statement of Issues on Appeal regarding the Court's August 31, 2009 Judgment at Docket No. 130. One of the issues that the PRHTA presented was that the court erred in granting Redondo a monetary remedy for its subcontractors'/pass-through claims because it failed to establish, either with sufficient evidence or simply lack of it, that it was entitled to such compensation in accordance with the standards and or requirements of the applicable law (Adv. Proc. 03-00194, Docket No. 154, pgs. 2-3). The Bankruptcy Court's Decision and Order was affirmed by the district court on April 15, 2011 in civil case no. 10-1371, 10-1372 and 10-1373, which were consolidated. The court, regarding the subcontractor claims held that PRHTA waived any defense it had as to RCC's ability to bring the subcontractor claims in the proceedings below, and thus has not properly preserved this issue for appeal (Adv. Proc. 03-00194, Docket No. 238, pgs. 6-7).
The issue of whether Redondo lacked standing to assert subcontractor claims was appealed to the First Circuit by the PRHTA along with other three legal issues or claims of error which are not pertinent to this particular controversy (Adv. Proc. 03-00194, Docket No. 240, pgs. 7-8). The First Circuit regarding this particular issue affirmed the district court, because the PRHTA forfeited its
After the First Circuit rendered its Opinion and Order, Redondo filed on June 12, 2012 a Motion for an Order Directing Withdrawal of Funds requesting the United States District Court for the District of Puerto Rico the withdrawal of $10,605,379.82 from the $21,791,245.00 which were originally deposited with the district court as a supersedeas bond to stay the execution of the judgments pending appeal. The amount of $10,605,379.82 is allocated in the following three (3) projects: (1) 03-00194 PR-2 Mayaguez for the amount of $9,327,326.18
The PRHTA and Redondo jointly requested that the Clerk of the Court issue a check to the order of Redondo for the principal amount of $10,469,315.21, plus forty-eight point zero percent (48.04%) of the interest earned on the $21,791,245.00 that was deposited by the PRHTA on June 14, 2011 (Civil No. 10-01371, Docket No. 71); (Adv. Proc. 03-00194, Docket No. 342, pg. 9, Exhibit I). The interest of forty-eight point zero percent (48.04%) of the interest earned on the $21,791,245.00 that was deposited by the PRHTA resulted in $57,677.55 (Adv. Proc. 03-00194, Docket No. 342, Exhibit IV). The principal amount to be disbursed decreased from $10,605,379.82 to $10,469,315.21 because it excluded the profit factor corresponding to the disputed extended home-office overhead. In the same manner, the amount that was allocated to the PR-2 Mayaguez Project decreased from $9,327,326.18 to $9,220,288.88 because of the 10% profit factor of the "Home Office Overhead" ($1,074,373.48 ×.10 = $107,437.34).
It is important to note, that the exclusion of the "Home Office Overhead" and its corresponding 10% profit factor, reduced Redondo's claim for the PR-2 Mayaguez Project in the amount of $1,181,810.83 ($1,074,373.48 × 1.10 = $1,181,810.83) which is approximately a decrease of 11.36% of its original claim amount of $10,402,099.66. The issue of the calculation of extended overhead damages and the issue of prejudgment interest were vacated and remanded for further proceedings consistent with the Opinion from the First Circuit (Adv. Proc. 03-00194, Docket No. 240).
The record shows that the total equitable adjustment for the PR-2 Mayaguez claim was in the amount of $7,858,582.31. Lord and Remodelco's subcontractor claims formed part of the equitable adjustment amount and the 10% profit factor was calculated using this figure as a base ($7,858,582.31 ×.10 = $785,858.22 = profit 10%) (Adv. Proc. 03-00194, Docket No. 342, pg. 7).
On June 20, 2012, the district court ordered the Clerk to disburse the amount of $10,469,315.21 plus 48.04% of the interest accrued on the amount deposited by the PRHTA and copy of the checks for the principal and the accrued interest are included in Adv. Proc. 03-00194, Docket No. 342, Exhibits IV and IV (Civil No. 10-01371, Docket No. 72); (Adv. Proc. 03-00194, Docket No. 342, pg. 9, Exhibit II & Exhibits IV & V).
The Litigation Trust Administrator's e-mail dated July 11, 2012 (Docket No. 2627, pg. 102) attached the following documents for the Litigation Board to review and to decide whether to approve distribution #3 which included the principal amounts of Lord and Remodelco's claims. The email reads in the following manner:
"Gentlemen:
If you have any questions, please let us know." (Docket No. 2627, pg. 102).
Thereafter, the Litigation Trust Administrator sent another e-mail to the Litigation Trust Board on July 12, 2012 explaining that he was attaching a document titled, "Final Distribution 3" which is the correct document to be used and matches (corresponds) with the Memorandum. (Docket No. 2627, pg. 112).
The Litigation Trust Administrator provided a memorandum to the Litigation Trust Board that is dated July 11, 2012. This memorandum includes the allocation of the total monies received in Civ. Case No. 10-01371 for all three (3) projects. The total awarded amount was $10,469,315.00 and the interest amount was $57,678.00. From the total amount awarded ($10,469,315.00 + $57,678.00) the following expenses were deducted: (i) legal fees in the amount of $1,052,699.00; (ii) administrative expenses in the amount of $625,186.00; and (iii) estimated income tax in the amount of $150,000.00, resulting in a net distribution to creditors of $8,699,108.00 which was allocated in the following manner: (i) $1,395,381.00 for Continental Lord's claim; (ii) $68,352.00 for Remodelco's claim; and (iii) the remaining $7,235,375.00 for unsecured creditors (Docket No. 2627, Exhibit G).
According to Redondo's Litigation Trust Administrator's calculations, Lord was awarded a claim in the amount of $1,755,650.00 which is comprised of Lord's base claim in the amount of $1,746,085.00 and $9,565.00 of interest. Lord was paid a net amount of $1,395,381.00 after deducting 10% for legal fees ($175,565.00); 18.94% for costs ($156,294.00) and less 18.83% estimated pre-chapter 11 cost ($28,410.00) (Docket No. 2627, Exhibit G). The line item of costs has an asterisk on the spreadsheet which explains that the 18.94% cost percentage was obtained by dividing the amount of Lord's claim by the undisputed amount of the total claim ($1,755,650.00/$9,270,688.00) and 18.94% was multiplied by the amount of $825,204.00
Also according to Redondo's Litigation Trust Administrator's calculations, Remodelco was awarded a claim in the amount of $85,998.00 which is comprised of Remodelco's base claim in the amount of $85,000.00 and $469.00
The expenses that were deducted from the total amount awarded were those incurred for all three (3) adversary proceedings; namely, 03-00192; 03-00194 and 03-00195, meaning that Lord and Remodelco were sharing these legal fees and administrative costs (decreasing the amount of their claim and affecting their percentage of the total amount of the claim that was awarded). The total awarded amount was $10,469,315.00 and the interest amount was $57,678.00. From the total amount awarded ($10,469,315.00 + $57,678.00) the following expenses were deducted: (i) legal fees in the amount of $1,052,699.00; (ii) administrative expenses in the amount of $625,186.00; and (iii) estimated income tax in the amount of $150,000.00, resulting in a net distribution to creditors of $8,699,108.00 which was allocated in the following manner: (i) $1,395,381.00 for Continental Lord's claim; (ii) $68,352.00 for Remodelco's claim; and (iii) the remaining $7,235,375.00 for unsecured creditors (Docket No. 2627, Exhibit G). Therefore, Lord's net distribution after deducting all pertinent expenses for the three adversary proceedings and dividing this amount by the total net distribution to creditors resulted in 16.04% ($1,395,381.00/$8,699,108.00); Remodelco's net distribution after deduction all pertinent expenses for the three (3) adversary proceedings resulted in .786% ($68,352.00/$8,699,108.00) and Redondo's net distribution resulted in 83.174% ($7,235,375.00/$8,699,108.00).
All four members of the RCC Litigation Trust Board unanimously approved Distribution #3 regarding civil case No. 10-01371 by July 13, 2012 (Docket Nos. 2559, 2627, pgs. 97-114) as required by Article VII, section 7.9B
On July 16, 2012, Redondo issued a check to Continental Lord in the amount of $1,395,381.00 and the memo line of the check reads, "Pass Thru Claim PR#2 Mayaguez Job" (Docket No. 2559-3).
Subsequently, on March 5, 2013, a hearing was held regarding adversary proceeding 03-00194 and the Order stated the following:
After conducting a thorough analysis of Redondo's position regarding the subcontractor pass-through claims of Lord and Remodelco, which it initially brought forth in its complaint and then further explained in its post-trial memorandum and resulted in one of the legal issues which was discussed in three (3) Opinions and Orders, this court finds that the doctrine of judicial estoppel applies to the Debtor in the instant case regarding the validity and the amounts distributed for the subcontractor pass-through claims.
The judicial estoppel doctrine applies to Redondo because its new position regarding the subcontractor claims is inconsistent with its prior position as evinced in the extensive and convoluted travel of this adversary proceeding. Moreover, Redondo would derive an unfair monetary advantage if this new position is accepted by the court, thirteen (13) years after filing the complaint in the adversary proceeding and four (4) years after the disbursement of the principal payment of the subcontractor claims from the date of the motion to reopen on June 28, 2016 (Docket No. 2559).
Redondo collected monies from the complaint against PRHTA for the PR-2 Mayaguez project, which included the principal of the subcontractor claims (Lord and Remodelco). The Debtor represented to the courts that the claims of Lord and Remodelco were pass-through claims and that Redondo had legal standing to assert the same against the PRHTA. The Debtor all throughout this proceeding has failed to clarify to the courts and to the PRHTA, which was the entity that eventually ended up paying these monetary damages, that Lord and Remodelco would receive 15% of the total recovery of the project claim in conformity with a Liquidating Agreement (notwithstanding its claim), which simply meant that the Debtor would profit from the subcontractor claims since the filing of the complaint,
The Litigation Trust Administrator proceeded to make the pass-through claims distributions with the approval of all four (4) members of the Litigation Trust Board. The members of the Litigation Trust Board, which included 2 of the shareholders of the Debtor (Jorge Redondo and Miguel Redondo), and the Debtor's attorney who filed the supplement to the amended plan of reorganization that included the schedule of the estate's claims with the footnote as to Lord's pass through claim did not bring forth any issue or discrepancy with the footnote and/or the Liquidating Agreement, as amended, or to this Court's Decision and Order that itemized in the PR-2 Mayaguez project the subcontractors' total claim amounts that were due to Lord and Remodelco. In fact, copy of the Liquidating Agreement was first included as an Exhibit as part of the contested matters in the motion to reopen on June 28, 2016. (Docket No. 2559, Exhibits 1 & 2).
Subsequently, all members of the Litigation Trust Board approved the distribution which was based on the amount of each of the subcontractor claims, not a 15% recovery from the total monetary amount of the claim for the PR-2 Mayaguez Project. The Litigation Trust Administrator's legal memorandum and the spreadsheet disclosed the different components of the distribution which disclosed that the principal of the subcontractor claims was being paid in full (exclusive of the 10% profit factor), not as a 15% percentage of the total principal amount recovered for the PR-2 Mayaguez Project. The principal awarded to Lord and Remodelco consisted in the entirety of their claims which was itemized by this court (and had also been itemized by Redondo as the Plaintiff in its post-trial memorandum at Adv. Proc. 03-00194, Docket No. 115, pgs. 20-21) in its August 31, 2009 Decision and Order. Lord and Remodelco's claims were not calculated as a 15% of the entire amount of Redondo's total claim for the PR-2 Mayaguez Project. There was no disclosure in the adversary proceeding that the claim of Lord would be paid pursuant to a Liquidating Agreement not the actual amount claimed to the PRHTA.
The Debtor paid Lord the amount of $1,395,381.00 with a check dated 07/16/2012 and in which the memo line read, "Pass Thru Claim PR#2 Mayaguez Job" (Docket No. 2559, Exhibit 3). On March 5, 2013, almost eight (8) months after Redondo disbursed the monies to Lord and Remodelco, there was a hearing in adversary proceeding 03-00194 wherein the parties informed and represented to the court that there were only two (2) pending matters; namely, the calculation of post judgment interest and pre judgment interest and the amounts owed, if any, for extended overhead in the Mayaguez Project. The issue of the calculation of post judgment interest and pre judgment interest and the amounts owed was finally concluded on April 21, 2016.
On April 21, 2016, the court rendered its Opinion and Order in all three (3) adversary proceedings (03-00192; 03-00194 and 03-00195) regarding the issue of pre judgment and post judgment interest in all three adversary proceedings which resulted in the pre-judgment interest amount of $9,923,567.43, plus the interests accrued over said amount, less any applicable fees, in favor of Redondo (Adv. Proc. 03-00194, Docket No. 365). On April 4, 2016, the Debtor filed an Urgent Motion for Calculation of Interest due Redondo Construction Corporation and for Setting Aside Status Conference in all three (3) adversary proceedings (Adv. Proc. 03-00194, Docket No. 359). The Debtor in said motion calculated the accrued interest up to judgment date 08/31/2009 for the principal amount of the entire claim ($9,220,288.88) awarded in the PR-2 Mayaguez Project in the amount of $8,759,021.78 and the interest accrued from the post judgment date was calculated in the amount of $126,187.71 (Adv. Proc. 03-00194, Docket No. 359, pg. 5). The court notes that the pre-judgment interest and the post-judgment interest was calculated using the figure in the total amount of $9,220,288.88, which corresponds to the entire amount of the claim which was awarded to Redondo for the PR-2 Mayaguez Project, and said amount includes the claims of Lord and Remodelco.
On April 28, 2016, seven (7) days after the Opinion and Order of the court, Lord filed an Urgent Motion Requesting Funds Be Not Disbursed contending the following: (i) "Lord was one of the subcontractors for herein debtor in the PR-Mayaguez Project, for which the later filed Adversary Proceeding No. 03-00194 which included Lord's claim of $1,746,085.00, which was admitted by Opinion and Order dated August 31, 2009. In said Opinion and Order this Honorable Court granted prejudgment interests over the amounts allowed for each and every project to debtor;" (ii) Lord was paid the principal net amount owed after deductions of $1,395,381 on July 16, 2012; (iii) "[a]s the concession of interests was affirmed for all projects which included Lord's claim, there is pending payment of Lord's claim [for] interests, which Debtor's Attorney Charles Cuprill computed such interests owed in the amount of $1,336,799.03, which Lord accepted.
The memorandum makes reference to several exhibits, however, Exhibit 4 was the only exhibit that was submitted to the court. Exhibit 4 disclosed a breakdown regarding the amounts paid in the PR-2 Mayaguez project to Redondo, Continental Lord and Remodelco and the percentages allocated to each party of said claim. According to the Exhibit, Lord's net claim before interests was in the amount of $1,580,085.00 (19.04%) and Remodelco's net claim before interests was in the amount of $77,389.20 (.93%). Redondo's net claim before interests was in the amount of $6,640,785.79 (80.03%). However, the net claim before interests did not factor in the amounts allocated to Lord and Remodelco for administrative expenses and the estimated pre-chapter 11 costs.
The interest component allocation that is disclosed in Exhibit 4, allocates $7,068,825.87 of the interest granted to Redondo, minus the legal costs in the amount of $706,882.59 for a net payment of $6,361,943.28 (81.94%). There is no deduction for administrative costs for Redondo. Lord's allocation of interest granted is in the amount of $1,681,931.34, minus $168,193.13 for legal costs and $176,939.18 for administrative costs, resulting in a net payment of $1,336,799.03 (17.22%). Remodelco's allocation of interest granted is in the amount of $82,377.42, minus $8,237.74 for legal costs and $8,666.10 for administrative costs, resulting in a net payment of $65,473.57 (.84%). This is the first scenario proposed by the Debtor regarding the interest component allocation to Lord and Remodelco (
Subsequently, on April 29, 2016, the Debtor filed an Objection to Urgent Motion Requesting Funds Be Not Disbursed by which it contends that: (i) "[o]n April 28, 2016, Continental Lord, Inc. ("Lord") filed an urgent motion (the "Urgent Motion") relative to adversary number 03-00194, stating that it was one of the subcontractors in the project corresponding to said case, as to which in the original opinion and judgment of this Court of April 31, 2009, was awarded a pass through claim for $1,746,085.00, the principal of which, after deducting Lord's share of costs and attorney's fees, has been paid by RCC in excess, and now claims its share of the interest recently awarded by the Court to RCC, not Lord;" (ii) "[c]ontrary to Lord's assertions the computation of the interest which may be due [to] Lord was not made by the undersigned attorney but by Luis R. Carrasquillo, CPA on the basis of certain information provided by Eng. Roberto Arrieta, which is being revised to correct certain errors included therein, pertaining to what Lord is entitled to pursuant to the provisions of RCC's confirmed plan (the "Plan"), as supplemented on February 16, 2005 (the "Supplement");" (iii) "[t]here is no basis for Lord's assertion that if the funds awarded RCC, if disbursed thereto, `Lord will never be paid.' RCC will pay Lord what Lord is entitled to pursuant to the Plan, as supplemented;" (iv) "[f]inally, as stated above, RCC will comply with its obligations to Lord pursuant to the provisions of the confirmed plan as supplemented, once the correct computation of the amount due [to] Lord is accomplished;" and (v) [t]o this effect, the Supplement provides in its footnote number 1 that Lord is entitled to a pass through claim from the recovery by Debtor in adversary number 03-00194 of 15%, less proportioned expenses. Once the correct amount is computed and RCC receives the funds awarded by this Court, RCC will fully comply with its obligations under the confirmed Plan (Docket No. 1017 in the main case, Exhibit A hereto)" (Adv. Proc. 03-00192, Docket No. 399).
On April 29, 2016 the court denied Lord's urgent motion, for the reasons stated by Plaintiff/Debtor which the court adopted. Moreover, the motion fails to plead with particularity the facts leading to its conclusory statements, and fails to include the legal basis for the same (Adv. Proc. 03-00194, Docket No. 400).
Also, on April 29, 2016, the Debtor's attorney Mohammad Saleh Yassin from the Law offices of attorney Cuprill drafted a memorandum dated April 29, 2016 directed to Eng. Jorge Redondo; Arq. Miguel Redondo and Charles A. Cuprill, Esq. regarding "requested information" (Docket No. 2627, pg. 15). In this memo, the Debtor brings forth the 1994 Liquidation Agreement, and the amended 2001 Liquidating Agreement and discusses the pertinent clauses pertaining to each agreement. This memorandum also discusses the January 14, 2005 letter sent by Eng. Roberto Gorbea from Lord to attorney Cuprill and the January 22, 2005, memorandum drafted by Eng. Arrieta and sent to Eng. Gorbea and Mr. Cuprill in response to Lord's letter. Thereafter, on February 17, 2005, a supplement to the First Amended Plan of reorganization was filed, stating that, "[a]s per an agreement of August 15, 1994, as amended, with Continental Lord, Inc. ("CLI"), [CLT] is entitled to a 15% pass through from the recovery by Debtor, less proportioned expenses." On July 11, 2012, Eng. Arrieta sent a memorandum to the Litigation Trust Board detailing the amounts to be paid (the "Distribution #3) corresponding to the awarded principal amounts regarding the claim pertaining to the PR-2 Mayaguez project. The court notes that Eng. Arrieta also copied the Debtor's attorney regarding his July 11, 2012 memorandum regarding Distribution #3. Distribution #3 was unanimously approved by the members of the Litigation Trust.
In this memo, the Debtor's attorney alleges that Lord's allocation of the principal award pursuant to the Supplement's 15% pass through language should have been the following:
The Debtor's attorney also alleges in this memo that Lord received an excess payment of $292,119.00 under Distribution #3, which is the difference of $1,395,381.00 and $1,105,262.00
The memo further states that on April 21, 2016, an Opinion and Order was entered by which the lump sum amount of `$9,923,567.43, plus the interest accrued over said amount, less any applicable fees, in favor of RCC' (the `Interest Award'). The portion of the Interest Award corresponding to the PR-2 Mayaguez project is $8,833,134.62. Eng. Arrieta indicated that the expenses between April 1, 2012 and June 30, 2015 were in the amount of
The Debtor's attorney
Remodelco's allocation for the Interest Award should be as follows:
The Debtor, under the second scenario, did not provide a breakdown of Redondo's interest claim and how much was allocated to legal fees and administrative expenses. Following the Debtor's mathematical computation, Redondo's calculation for the net interest claim should be the following:
The Debtor's
The Debtor, under the
The Debtor alleges that the doctrine of collection by mistake of what is not due ("cobro de lo indebido") is applicable to the instant case regarding the alleged overpayments regarding the principal of Lord's claim under
The Debtor argues that the payment to Lord was made in error because it was overpaid by the Litigation Trust Administrator. The Debtor's argument is based upon the following: (i) "... the Litigation Trust Administrator and Lord failed to consider the January 14, 2005 agreement reaffirmed on January 22, 2005, as well as the footnote of the Supplement to the Plan, which limited any recovery by Lord only to 15% of the award and not to any specific amount granted for its claim as per the 2001 previous amendment;" (ii) "[t]he January 2005 agreement, prompted the Debtor to file, upon exigencies of Lord, a Supplement to the Confirmed Plan on February 2005, that included the footnote with the 15% agreed distribution;" and (iii) "[i]t is Debtor's position that should the Court consider the footnote included in the Exhibit to the Supplement to the Plan as legally valid and binding, (which the Debtor disputes) Lord was overpaid in the amount of $592,358.82, due to a payment in error by the Litigation Trust Administrator, who did not follow the 2005 amendment to the Pass Through Agreement and the clear language of the footnote for Debtor's computation" (Docket No. 2627, pgs. 3-4).
Article 1795 of the PR Civil Code, 31 L.P.R.A., §5121, provides that: "[i]f a thing is received when there was no right to claim it and which, through an error, has been unduly delivered, there arises an obligation to restore the same." Article 1800 of the PR Code, 31 L.P.R.A, §5126, provides in pertinent part that, "the proof of payment is incumbent upon the person who claims to have made the same. He shall also be obliged to prove the error under which he made it." Finally, article 1801 of the PR Code, 31 L.P.R.A, §5127 states the following: "[i]t is presumed that there was an error in payment when a thing was never owed or which was already paid for has been delivered, but the person from whom the returned is asked may prove that the delivery was made through liberality or for any other sufficient cause."
In
Thus, in the instant case, the Debtor has the burden of proving the error, given that there is no issue as to Lord receiving the payment for the principal amount of its claim. The Supreme Court of Puerto Rico in
An "error of law" is defined by the Supreme Court of Puerto Rico "as the one in which the person who acts does not comply with the provisions of a current legal norm",
This distinction was important because only an error of fact gave rise to the application of the doctrine, with the necessary effect of imposing the duty on the defendant to return what he had mistakenly collected.
All three requirements must be met. In this case, Redondo cites the three requirements that must be satisfied, but fails to apply all of them to the facts of this case. Redondo falls short in establishing whether a factual error or an error of law was made. The distinction may be less important now, but we cannot conclude that the Supreme Court intended to relieve the movant of his burden of proving the nature of the error that was made. The Debtor's argument regarding Lord's overpayment in the amount of $592,358.82 is allegedly due to a payment in error by the Debtor's Litigation Trust Administrator, who allegedly did not follow the 2005 amendment to the Liquidating Agreement and the clear language of the footnote for Debtor's computation. The alleged 2005 amendment to the 2001 Liquidating Agreement is disputed by Lord, and also the footnote's interpretation in the Exhibit regarding the Estate's causes of action is in controversy. Said footnote referenced the August 15, 1994 agreement, as amended. The court finds that if the error is one of law, the Debtor has not shown to this court how the excess payment was made under the belief that it was required by law, or by a misunderstanding of the applicable law. Redondo's argument for the alleged error is based on contract interpretation and an alleged amendment to the 2001 amendment to the Liquidating Agreement which is a different juridical concept.
Redondo fails to explain the basis for excluding certain line items from the total claim for the PR-2 Mayaguez Project. The line items that were excluded from the total amount of the claim were the following: the extra work orders for miscellaneous items and type X sidewalks in the amount of $306,594.79; the claim of Remodelco in the amount of $85,000.00; and the payment due on the original contract in the amount of $1,757,659.12 which was added after the calculation of the 10% profit of the total equitable adjustment (Adv. Proc. 03-00194, docket No. 342, pg. 7). There was no allocation for the interest component generated from the monies deposited from the supersedeas bond by PRHTA. No explanation was given for these adjustments which decreased the total amount the claim for the PR-2 Mayaguez Project. Therefore, this court finds that Redondo did not satisfy its burden of proof in proving that an error was made in the payment of the principal amount of Lord's subcontractor claim.
The final issue before the court is the interest component in the three adversary proceedings, which was the subject of substantial litigation regarding the determination of whether the award of pre-judgment interest was appropriate; and if so, the basis of such award, the applicable rate of interest and the periods of accrual. The bankruptcy court awarded Redondo prejudgment interest on all damages at the rate of 6.5% per annum from June 30, 1996 in adversary proceeding 03-00194.
Upon remand to this court on the issue of prejudgment interest, an Opinion and Order was entered, appealed to the district court and ultimately the same was again appealed to the First Circuit.
The First Circuit in
The Debtor filed an Urgent Motion for Calculation of Interest Due Redondo Construction Corporation and for Setting Aside Status Conference requesting the court to enter an Opinion and Order and a judgment awarding the Debtor the interest specified in the amount of $9,982,695.52, on the principal of the original judgments plus the interest earned on those funds. In said motion, the Debtor included a table of the calculation of the pre and post petition interest due to the Debtor from the funds on deposit with the Clerk, following the mandate of the First Circuit. The table was divided by each of the three (3) projects. The PR-2 Mayaguez project was awarded the principal amount of $9,220,288.88 which was the basis for the interest calculation. The accrued interest up to Judgment date was in the amount of $8,759,021.78 and the accrued interest post judgment was in the amount of $126,187.71, which adds up to the total interest due in the amount of $8,885,209.49. The court notes that the prejudgment and postjudgment interest for the PR-2 Mayaguez project were calculated based on the total amount of the principal awarded which includes the pass through claims or the subcontractor claims of Remodelco and Lord (Adv. Proc. 03-00194, Docket No. 359, pg. 5). On April 21, 2016, the Court entered an Opinion and Order and a Judgment regarding the interest, as to which both Redondo and the PRHTA have agreed to as to the amounts to be disbursed, and directed the following disbursements: (a) $9,923,567.43, plus the interest accrued over said amount, less any applicable fees, in favor of RCC; and (b) the remaining balance in favor of PRHTA (Adv. Proc. 03-0094, Docket Nos. 365 & 366).
This court has already discussed and concluded that Lord and Remodelco have pass through claims. The court also finds that the prejudgment and postjudgment interest calculated from the total principal awarded in the three (3) projects, which included the PR-2 Mayaguez project, constitutes part of the award or recovery to which Lord and Remodelco are entitled to from the principal amounts of its pass through claims, which formed part of the total principal amount for the PR-2 Mayaguez project, and from which the prejudgment and postjudgment interest were calculated.
The court notes that unlike the August 31, 2009 Decision and Order which included and itemized Lord and Remodelco's pass through claims as a component of the total principal awarded under the PR-2 Mayaguez Project claim, the subsequent Opinion and Orders that have dealt with the issue of prejudgment and postjudgment interest have calculated the interest using the total principal awarded by project. Thus, there is no specific allocation or itemization to the prejudgment and postjudgment interest pertaining to the subcontractor claims (Lord and Remodelco's pass through claims) which form part of the total principal awarded of the PR-2 Mayaguez project.
Lord argues that the computation that should be used for the interest calculation is the same one included in Attorney Cuprill's April 22, 2016 memorandum in which the suggested net distribution of interest to Lord was in the amount of $1,336,799.03 after deducting legal and administrative costs (Docket No. 2559, pgs. 15-16). The April 22, 2016 memorandum also included the interest portion for Remodelco in the net amount of $65,473.57 (Docket No. 2559-6). Lord argues that it has performed all its duties and obligations and is entitled to receive the full amount of the interest awarded by this Court on the principal amount of $1,746,085.00, less the agreed upon deductions. However, on April 29, 2016, a memorandum from the Law Offices of Charles A. Cuprill was drafted regarding requested information and it was addressed to Eng. Jorge Redondo; Arq. Miguel Redondo and to Charles A, Cuprill, Esq. (Docket No. 2627, Exhibit 3). The memo discloses that the portion of the interest award corresponding to the project is in the amount of $8,833,134.62 and that Eng. Arrieta indicated that the expenses between April 1, 2012 and June 30, 2015 were in the amount of $728,268.54. In said memo, the attorney from the Law Offices of Charles A. Cuprill proposes that Lord's allocation of in the interest award based upon the "15% pass through from the recovery by Debtor, less proportioned expenses" should be as follows:
The allocation of the interest award for Remodelco should be the following:
After considering the above findings, the court concludes that Lord and Remodelco are both entitled to their respective interest awards. However, the parties have not placed the court in a position to be able to determine the specific amount the interest award component should be. In the case of Lord, the Debtor has changed positions regarding both the principal amounts of the pass-through claim and the interest component that corresponds to Lord for its subcontractor claim. The footnote 1 that was included as part of the estate's claims and causes of action, in particular to the claim regarding the PR-2 Mayaguez, and which reads, "[a]s per an agreement of August 15, 1994, as amended, with Continental Lord, Inc. ("CLI"), CLI is entitled to a 15% pass through from the recovery by Debtor, less proportioned expenses," references the Liquidating Agreement of August 15, 1994, as amended.
Therefore, the parties must compute how the interest component must be distributed, "[a]s per the agreement of August 15, 1994, as amended, with Continental Lord, Inc. ("CLI"), CLI is entitled to a 15% pass through from the recovery by Debtor, less proportioned expenses," pursuant to the principles of contractual interpretation premised upon articles 1233-1241 of the PR Civil Code, 31 L.P.R.A. §§3141-3479.
In the case for Remodelco's interest allocation, the only line item for which the Debtor presented two different figures was for the expense component. The court notes that the Debtor all throughout adversary proceeding 03-00194 represented not only to this court, but to the United States District Court for the District of Puerto Rico that it had standing to assert the subcontractor claims of Lord and Remodelco. The standing controversy was brought forth by the PRHTA which was the party that ultimately paid for the subcontractor claims and the interest component for the same. The issue of whether Redondo lacked standing to assert subcontractor claims was appealed to the First Circuit by the PRHTA along with three other legal issues or claims of error which are not pertinent to the instant case (Adv. Proc. 03-00194, Docket No. 240, pgs. 7-8). The First Circuit regarding this particular issue affirmed the district court, concluding that the PRHTA forfeited its
The Debtor's arguments in its objection to Remodelco's interest payment are the following: (i) "[t]he record is devoid of any evidence or facts which would entitle Remodelco to receive a payment of `interest' under the terms of the Confirmed Plan;' (ii) "Remodelco's alleged `pass through claim,' which it alleges is the basis for the payment of `interest' under the terms of the Confirmed Plan. Remodelco's alleged `pass through claim' which it alleges is the basis for the payment of `interest' is not even referenced in the Supplement to the First Amended Plan;" (iii) [t]he Confirmed Plan fails to include Remodelco as a creditor of the Debtor under any of the classes. Nor did Remodelco file a proof of claim against the Debtor;" and (iv) "[t]he Disclosure Statement and Confirmed Plan fail to mention the existence of any liquidating or pass-through agreement between the Debtor and Remodelco. Much less is there a motion to assume the same in the record of the case" (Docket No. 2644, pg. 2). The Debtor also argues that: (i) Remodelco did not request any independent remedy to the Court in order to preserve any right it may have to the interest award; (ii) "[t]he Plan is devoid of any reference to any additional claim which Remodelco may have, subject to additional payment by the Debtor. Therefore, after confirmation, the Plan is what dictates the relationship between the parties. Hence, Remodelco does not have any right to receive any additional payment aside from that which was received (100% of the principal amount granted in the judgment, less proportionate expenses and costs)" (Dkt #2644, pgs. 6 & 9).
The court finds that the Debtor's arguments regarding Remodelco's interest allocation are inconsistent with the position it has sustained throughout the duration of the adversary proceeding in which it represented that it had standing to assert the subcontractor claims of Lord and Remodelco because the PRHTA waived its
For the reasons stated above, the court denies Debtor's Position as to Overpayment to Lord Under the 15% Footnote Provision of the Supplement to Plan of Reorganization at Docket No. 1017 (Docket No. 2627) and grants in part and denies in part, Lord's Opposition to Debtor's Position as to Alleged Overpayment Under the 15% Footnote Provision (Docket No. 2629). The court denies Debtor's Objection to Remodelco's Claim for Interest Payment (Docket No. 2644). The court denies Debtor's Renewed Objection to Reopening of the Case Upon Recent Arguments Presented by Lord at Dkt. 2643 (Docket No. 2645).
The court orders the parties to submit to the court within thirty (30) days, their respective computations regarding how the interest component should be distributed, "[a]s per the agreement of August 15, 1994, as amended, with Continental Lord, Inc. ("CLI"), CLI is entitled to a 15% pass through from the recovery by Debtor, less proportioned expenses," pursuant to the principles of contractual interpretation premised upon articles 1233-1241 of the PR Civil Code, 31 L.P.R.A. §§3141-3479.
As to the interest allocation for Remodelco, the court orders the parties to submit within thirty (30) days, their respective computations on the amount of the expense that should be deducted from the interest that was allocated in the amount of $82,377.00.
SO ORDERED.
