Opinion
99-CV-0546E (H), 94-BK-10866K
September 21, 2000
Attorneys For The Appellant: Richard W. Cross, Esq., Asst. Attorney General of NYS, The Capitol, Albany, N Y 14224
Attorneys For The Appellee: Edward P. Yankelunas, Esq., c/o Damon Morey, 1000 Cathedral Place, 298 Main St., Buffalo, N Y 14202
MEMORANDUM and ORDER
Presently before this Court is an appeal from a Bankruptcy Court order which sustained the objection by debtor and appellee D.A. Elia Construction Corp. ("Elia") to a claim by erstwhile creditor and appellant New York State University Construction Fund ("State Fund") with regard to a claim by State Fund that it was entitled to liquidated damages of $200,500 as a result of Elia's failure to obtain certain bonds in violation of a bid proposal that Elia had proffered to State Fund and that State Fund had accepted. Procurement of these bonds were preliminary to the executing by the parties of a formal contract for the performance of particular construction work. Inasmuch as State Fund appeals from a final order disallowing their claim, jurisdiction lies pursuant to 28 U.S.C. § 158(a)(1). For the reasons set forth below, the Bankruptcy Court's order disallowing State Fund's claim is affirmed.
The pertinent facts are as follows. State Fund solicited bids for a public works project related to the replacement of an underground steam distribution system at the New York State University College at Buffalo. In response, Elia submitted to State Fund a signed bid proposal dated June 28, 1993 ("bid proposal") in an amount of $1,376,000 on a form provided by State Fund and submitted a $76,000 check in lieu of a bid bond as bid security. Prior to this submission, Elia had also been provided with a number of other materials, including a document entitled "Information for Bidders," which were incorporated by reference into the bid proposal.
One day before all bid proposals were to be "opened," Elia learned that its regular surety company would not provide it with performance, labor and material bonds that were necessary to complete the execution of the contract with State Fund. Nevertheless, Elia contacted State Fund on July 21, 1993 — the day when all solicited bids were to be opened — and reduced its bid to an amount totaling $1,324,500. State Fund then contacted Elia by letter dated August 5, 1993 and informed Elia that it was the "apparent low bidder." Pursuant to this letter, Elia was instructed to execute the enclosed contract, disclose the identity of its surety for the performance, labor and material bonds and return such within ten days after receipt of the August 4, 1993 letter.
On September 17, 1993, State Fund sent Elia the "Notice of Award" of the contract, even though Elia had yet to supply the aforementioned contract or bonds within the required time period. State Fund had also returned to Elia its bid security deposit September 4, 1993 pursuant to a provision contained with the Information for Bidders. After approximately one month had passed and Elia had yet to fulfill the requirements of its bid proposal, State Fund wrote Elia October 28, 1993 and indicated that, unless it received the requested executed materials and bond documents, State Fund would "have no choice but to declare [Elia] in default of [its] obligations under the [bid] Proposal and Information for Bidders ***." In response, Elia requested, by letter dated November 2, 1993, that it have until December 17, 1993 to return the requested materials because, inter alia, its regular surety company would not approve the performance, labor and material bonds and Elia was in the process of securing such bonds from another source.
By letter dated November 22, 1993, State Fund declared Elia in "default of [its] obligations under the [bid] Proposal and Information for Bidders." Pursuant to a liquidated damages provision in the bid proposal, it quantified its damages at $200,500 — the difference between Elia's bid proposal and the next lowest bid. Once more and in response, Elia indicated in a letter dated December 2, 1993 that it expected to be able to deliver the required materials by December 17, 1993. By letter dated January 10, 1994, State Fund noted that Elia's self-imposed deadline had since passed and, because the promised materials were never executed and delivered, it was referring the matter to the "Attorney General's Office for appropriate legal action to collect the above-mentioned liquidated damages."
On March 30, 1994 Elia filed for protection under Chapter 11 of the United States Bankruptcy Code to which State Fund filed a claim July 13, 1995. Elia also pursued an ultimately successful action against its regular surety company for wrongfully denying it the performance, labor and material bonds. On April 24, 1998 Elia objected to State Fund's claim in Bankruptcy Court, to which State Fund filed a response stating that, under the terms of paragraph 11 of the bid proposal, Elia is liable to State Fund. The parties then appeared before the Bankruptcy Court May 26, 1998, during which Elia first specified the exact nature of its objection — viz., that, pursuant to the language of the liquidated damages provision in the bid proposal, State Fund was not entitled to any award of damages. The hearing concluded with the bankruptcy judge instructing the parties to brief him on the legal issues because "in order to better assess how variations and fact patterns might have any relevance or any bearing on the governing law, [he] [needed] to know the law first." The Bankruptcy Court also permitted the parties to engage in "[v]oluntary discovery."
After the scheduling order regarding the submission of these briefs was repeatedly adjourned by the parties, a revised order was issued by the Bankruptcy Court in February 1999 and the parties submitted their briefs pursuant to such timetable. Upon review of these briefs, the Bankruptcy Court disallowed State Fund's claim by Decision dated May 14, 1999. The liquidated damages provision in disputes states that,
"[i]n case the Proposal is accepted by [State Fund] and the undersigned shall refuse [or] neglect, within ten (10) calendar days after date of receipt of the Notice of Award, to execute and deliver an AGREEMENT in the form provided herein, or to execute and deliver a performance bond and a labor and material bond in the amounts required and in the form prescribed, the undersigned shall be liable to [State Fund], as liquidated damages, for the amount of the bid security or the difference between the Total Bid of the undersigned and the Total Bid of the bidder submitting the next lowest bid, whichever sum shall be higher, otherwise the total amount of the bid security will be returned to the bidder in accordance with the provisions set forth in the Information for Bidders." Bid Proposal ¶ 11.
The Bankruptcy Court found that, because Elia did not "refuse" or "neglect" to execute and deliver the required bonds, State Fund was not entitled to the liquidated damages provided for under the bid proposal. See Bankruptcy Court May 14, 1999 Decision. State Fund then filed an appeal to this Court in addition to filing a motion for reconsideration with the Bankruptcy Court and therein argued that "[i]ssues of fact exist upon which discovery must be taken and evidence must be heard before a decision as to the allowance or disallowance of [State Fund's] claim can be made." Cross May 21, 1999 Affirm. ¶ 8. During the subsequent July 7, 1999 motion to reconsider hearing, the Bankruptcy Court upheld its previous ruling principally because no party had ever indicated to it in any capacity, following the May 1998 objection hearing, that discovery was needed and the law, as briefed, required a decision in favor of Elia. The present appeal ensued.
A district court reviews a bankruptcy court's findings of fact for clear error and its conclusions of law de novo. In re Bayshore Wire Prods. Corp., 209 F.3d 100, 103 (2d Cir. 2000). An order denying reconsideration is reviewed for abuse of discretion. See In re Johansmeyer, 231 B.R. 467 (E.D.N.Y. 1999). On appeal, State Fund argues that the Bankruptcy Court erred in disallowing its claim because Elia is "liable for breach of contract for failure to honor the terms of the bid documents," because a hearing as to the "facts" regarding Elia's inability to execute and deliver the required bonds never occurred and because it is "unjust and inequitable for Elia to recover money for [the surety company's] conduct regarding State Fund project and not be required to pay [State Fund] for the damages [State Fund] suffered and which are deemed part of the recovery Elia obtained ***." State Fund Brief, at 12, 20-21, 25-26. For the same reasons, State Fund also argues that the Bankruptcy Court should have granted its motion to reconsider. State Fund Reply Brief at 10.
Insofar as State Fund argues that it may recover liquidated damages from Elia under the terms of the bid proposal, State Fund's argument is unavailing. Preliminarily, "it should be noted that the construction of a contested contractual provision presents a question of law" for a court to decide and, under New York law, a court's "construction of any contract must give due consideration to: (a) the entire contract; and (b) the disclosed intent of the parties." Williams Press, Inc. v. State of New York, 37 N.Y.2d 434, 439 (1975). Furthermore, where the language of a contract is unambiguous and clear, "words and phrases are given their plain meaning." Painwebber Inc. v. Bybyk, 81 F.3d 1193, 1199 (2d Cir. 1996) (citing American Express Bank Ltd. v. Uniroyal, Inc., 562 N.Y.S.2d 613, 614 (1st Dep't App. Div. 1990). "[M]atters extrinsic to the agreement may not be considered when the intent of the parties can fairly be gleaned from the face of the instrument." Cruden v. Bank of New York, 957 F.2d 961, 976 (2d Cir. 1992). "A court may neither rewrite, under the guise of interpretation, a term of the contract when the term is clear and unambiguous, nor redraft a contract to accord with its instinct for the dispensation of equity upon the facts of a given case. Further, the entire contract must be considered, and all parts of it reconciled, if possible, in order to avoid an inconsistency." Ibid. That said, the undersigned finds no error in the Bankruptcy Court's interpretation of the contested provision in the bid proposal.
Internal citations omitted.
In ruling that Elia had not breached the terms of its bid proposal by "refusing" or "neglecting" to execute the required bonds, the Bankruptcy Court found that
"the purpose of such a provision is to assure good faith and prevent `experimental' bidding. If the low bidder acts in good faith but was incapable of anteing up, [State Fund] has only lost 10 days. Thus, a bidder is not an insurer of its ability to obtain a bond, but is only an insurer of its own good faith.
* * * * *
The fact that a bond must *** be obtained, does not mean that an inability to obtain a bond that a bidder thought it had, bears a paragraph 11 liquidated damages risk." Bankruptcy Court May 14, 1999 Decision at 3 (emphasis in original).
The Bankruptcy Court went on to state that, State Fund's arguments to the contrary, "neglect" is not synonymous with "`fail' or `omit' where there has been a diligent, but unsuccessful, effort" and because Elia made a "good faith effort" to comply with the bid proposal and did not "refuse" to deliver the required bonds, liquidated damages were not required. Id. at 3-4. The undersigned agrees. It is plain that, for any court to have found Elia's inability to obtain such bonds as tantamount to "refusal" or "neglect," State Fund must have at least demonstrated some level of nonfeasance by Elia, evidence of which is conspicuously lacking in the record. In this regard, it is pertinent to note that Elia successfully prosecuted an action against its regular surety company for such company's unjustifiable refusal to provide Elia with the needed performance, labor and material bonds and, as was stated by the Bankruptcy Court, "the case at Bar is the paradigmatic case of how events may cause a good faith bidder to be rendered unable to obtain the bond it had been relying on." Bankruptcy Court May 14, 1999 Decision at 3.
It must be conceded, however, that the aforementioned analysis is entirely dependant on whether the Bankruptcy Court properly decided that a further hearing as to the "facts" regarding Elia's inability to execute and deliver the required bonds was neither requested nor required. Section 502(b) of the Bankruptcy Code states, in relevant part, that if an "objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim ***." Rule 3007 of the Federal Rules of Bankruptcy Procedure ("FRBP") adds that, once an objection is filed, a "copy of the objection with notice of the hearing thereon shall be mailed or otherwise delivered to the claimant, the debtor or debtor in possession and the trustee at least 30 days prior to the hearing." Although both sections would seem to imply that a hearing is required in every situation where an objection has been asserted, section 102(1) of the Bankruptcy Codes notes that
"`after notice and a hearing', or a similar phrase —
(A) means after such notice as is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances; but
(B) authorizes an act without an actual hearing if such notice is given properly and if —
(i) such a hearing is not requested timely by a party in interest; or
(ii) there is insufficient time for a hearing to be commenced before such act must be done, and the court authorizes such act[.]"
Consequently, section 102(1) "makes it clear that a hearing is not statutorily required, but only that parties are given an opportunity for a hearing and may have a hearing if it is so requested." Matter of Moses, 9 B.R. 370, 373 (Bankr. N.D. Ga. 1981).
As "notice and a hearing" pertain to the present matter, State Fund contends that the Bankruptcy Court erred when it "failed to acknowledge that issues of fact which are outcome determinative exist in the present case" and did not order some type of evidentiary hearing after reading the parties' submissions. Appellant Brief at 12. In support of its position, State Fund states that, during the May 26, 1998 Bankruptcy Court colloquy, it was held that resolution of State Fund's claim required an application of law with which it was unfamiliar and that, before "attempting to navigate though the procurement laws and structure that gave rise to this asserted claim," such court would be better off with legal briefing first. May 26, 1998 Bankruptcy Hearing Trans. at 22, 24. Indeed, State Fund points out that, during the July 7, 1999 hearing on the motion for reconsideration, the Bankruptcy Court stated that its "original briefing order back in May of 1998 was not intended to result in a matter that [it] would take under submission on the briefs." July 7, 1999 Bankruptcy Hearing Trans. at 5. State Fund's argument is, nonetheless, unavailing.
Neither the Bankruptcy Code nor the FRBP required the Bankruptcy Court to hold a full evidentiary hearing. "If an objection is entered, the allowability of the claim becomes a question for determination by the bankruptcy judge. The setting for this determination may be as elaborate as the parties require, i.e., one or more of the parties may request a hearing. If no hearing is requested the bankruptcy court may proceed to determine the allowability of question without the hearing." Matter of Moses, at 373-374. In the absence of such a request, that party will generally be precluded from raising such issue in a later proceeding unless the failure to hear the issue results in a manifest injustice. In re Macrose Indus. Corp., 186 B.R. 789, 802 (E.D.N.Y. 1995). As was indicated by the Bankruptcy Court,
"not every claims objection needs a trial record or a set of stipulated facts or affidavits on a motion for summary judgment ***. *** Now, when the State University Construction Fund's brief was received pursuant to [its] scheduling order, *** there was no hint whatsoever in that brief, or in the brief of D.A. Elia, that there were matters under dispute that were material to the outcome that needed to be the subject of discovery." July 7, 1999 Bankruptcy Hearing Trans. at 16-17.
Consequently, "based on [its] belief *** that voluntary discovery had been undertaken, [that] there had been sufficient discovery, *** that there had been settlement discussions that ultimately failed, that [it] [had been] asked for a further scheduling order, [and that] no one [had] ever said that there was a need for discovery at that point," the Bankruptcy Court correctly rendered its decision sustaining Elia's objection to State Fund's claim. July 7, 1999 Bankruptcy Hearing Trans. at 20. Furthermore, to have granted State Fund's motion for reconsideration and subsequently required an evidentiary hearing after the Bankruptcy Court had issued its decision would be manifestly unjust to Elia, inasmuch as State Fund would be permitted "to go looking for some facts that might fit the law as [the Bankruptcy Court] declared it to be, and might fit the law that [the Bankruptcy Court] rejected at the time [State Fund] argued an interpretation of the law that made discovery irrelevant ***. July 7, 1999 Hearing Trans. at 20-21.
State Fund was not without warning as to the possibility of this progression of events. The Bankruptcy Court had stated that, during the May 26, 1998 objection hearing, "[i]t's really up for the two sides to tell [it] whether there is a desire to address [evidentiary issues] in some kind of summary fashion or to somehow address one thing before the other, maybe brief an issue of law first, and see where that goes to see if it renders any factual disputes irrelevant." May 26, 1998 Hearing Trans. at 21-22. Nevertheless, the brief which State Fund submitted was found to be "so certain of *** a proposition of law that the brief never went on to say, *** in the alternative, *** [that the parties] need discovery" as to "facts" regarding Elia's inability to execute and deliver the required bonds and the Bankruptcy Court considered it proper to adjudge the sufficiency of the claim and the objection. July 7, 1999 Hearing Trans. at 19. Accordingly, the Bankruptcy Court did not err when it failed to hold a further hearing as to the "facts" regarding Elia's inability to execute and deliver the required bonds.
In this regard, it is pertinent to note that a bankruptcy court presented with a motion for reconsideration must determine whether there is "cause" to reconsider a disallowed claim and, in situations akin to that of the instant case, is generally guided by the principles which underlay Rule 59 of the Federal Rules of Civil Procedure ("FRCvP"). 11 U.S.C. § 502(j) ("A claim that has been allowed or disallowed may be reconsidered for cause. A reconsidered claim may be allowed or disallowed according to the equities of the case."); FRBP 3008 ("A party in interest may move for reconsideration of an order allowing or disallowing a claim against the estate."); FRBP 9023 (stating that FRCvP 59 "applies in cases under the [Bankruptcy] Code"). Under FRCvP 59, a court may properly have its attention turned to newly discovered evidence or to manifest errors of law or fact and assess its impact on a previously entered judgment. In re Farley, 211 B.R. 889, 893 (Bankr. N.D. Ill. 1997) (citing Moro v. Shell Oil Co., 91 F.3d 872, 876 (7th Cir. 1996)). FRCvP 59 does not, however, allow a party to overcome a procedural failure and it does not grant a party license to introduce "new" evidence or arguments that could have, but were not, presented prior to the precipitating order. Ibid. As applied to the instant case, State Fund has never claimed that it was unaware of the "facts" for which it seeks discovery. The gravamen of State Fund's argument is that "[t]here was no opportunity to present evidence regarding the validity of the facts upon which the Bankruptcy Court relied in reaching its findings." State Fund Reply Brief at 3 (emphasis added). Its failure to priorly raise such argument, consequently and properly precluded State Fund from raising this ground on motion for reconsideration and the Bankruptcy Court did not commit any error in denying such motion.
As a corollary to the above, State Fund has also made the argument that, even if the Bankruptcy Court's determination was correct as to the application of the liquidated damages provision, Elia has breached other provisions of its bid proposal entitling State Fund to damages. Specifically, State Fund argues that "[p]aragraph 11 is not the sole remedy for a breach of the bid documents, as a bidder could violate the terms of the bid regardless of whether the bonds are obtained. If a bidder is in a general breach of the terms of the bid, the bidder is still liable for damages. The measure of damages for such breach is the difference between the unpaid portion of the bid price and the cost of completing the contract." State Fund Reply Brief at 8. Regardless of the correctness of such assertion and inasmuch as there is nothing in the record before the undersigned which indicates that such issue was properly raised before the Bankruptcy Court, such assertion deserves little comment. The motion to reconsider, for example, was expressly couched in terms of whether the Bankruptcy Court was correct in deciding that the liquidated damages provision was inapplicable despite there being no evidentiary hearing and the issue of whether other provisions of the bid proposal entitle State Fund to some measure of damages was simply not brought to the attention of such court. Consequently and because issues not raised in the bankruptcy court cannot generally be raised for the first time on appeal — see In re LaRoche, 969 F.2d 1299, 1305 (1st Cir. 1992); see also In re Schick, No. 97 CIV. 9300 (JGK), 1998 WL 397849, at *7 (S.D.N.Y. Jul 16, 1998) —, State Fund has waived any argument that paragraph 11 is not the sole measure damages for Elia's purported breach of its bid proposal.
Finally, insofar as State Fund claims it is entitled to damages based upon Elia's recovery from their surety company, such argument fails because, in order to state a claim for unjust enrichment, State Fund must show how Elia was unjustly enriched at its expense, which State Fund does not. See Paramount Film Distrib. Corp. v. State, 30 N.Y.2d 415, 421 (1972) ("The essential inquiry in any action for unjust enrichment or restitution is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered."). The undersigned simply fails to see a connection between the jury verdict and subsequent settlement between Elia and its surety company such that Elia is deemed to have retained a benefit conferred upon it by State Fund. Additionally, there is nothing in the record which indicates that State Fund raised this issue in the Bankruptcy Court. Consequently, any claim for unjust enrichment must fail.
Accordingly, it is hereby ORDERED that State Fund's appeal is dismissed, that the Bankruptcy Court's order disallowing its claim is affirmed and that this case shall be closed.