UNITED
STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
LEXINGTON DIVISION
IN RE:
RUSSELL CAVE COMPANY, INC. CASE NO. 99-50142
DEBTOR
MEMORANDUM OPINION AND ORDER
This matter is before the court upon motions filed herein by Expeditors
International of Washington, Inc. (AExpeditors@), for: 1) Reconsideration, Alteration, or Amendment of this
court=s Order of August 10, 1999 (Doc. #392); 2) a Motion to Stay the
Order of August 10, 1999 (Doc. #394), and 3) a Motion for Leave to Supplement the Record
(Doc. #395) to reflect events occurring subsequent to the submission of briefs on the
matter upon which the court ruled in the August 10, 1999 Order (Doc. #382).
With respect to the Motion for Leave to Supplement the Record
(Doc. #395), Expeditors has moved to supplement the record to call to the court=s attention the fact that the sale of substantially all of the
debtor=s assets to Paul Harris Stores, Inc. (APaul Harris@) provided that if the purchaser, Paul Harris, elected to
purchase the goods which were shipped and stored by Expeditors, that they (Paul Harris)
would pay the additional sum of $90,000 to the debtor as part of the purchase price. It was established by statements of counsel for
the debtor in court and on the record that, in fact, Paul Harris elected to purchase these
goods but that the payment of the $90,000 sum has not yet been made. It appears to the court the Motion to Supplement
the Record (Doc. #395) is well taken in that the inclusion of the sum of $90,000 as part
of the consideration in the Paul Harris sale can, arguably, correspond to the same $90,000
which the debtor forwarded to Expeditors. The
court will, therefore, consider that information in conjunction with the other arguments
made by Expeditors.
Expeditors argues that the affidavits of Sullivan (Doc. #215) and
Premec (Doc. #280) establish that the entire sum of $90,000 was a deposit in connection
with the transaction in dispute here and, because of that, they meet the requirement of Asame transaction@ in order to apply recoupment doctrine in this case. The debtor and Unsecured Creditors Committee
contend that this evidence is written hearsay and that the court should not consider this
evidence and that the only evidence before the court is the affidavit of John Rice (Doc.
#272), an officer of the debtor, who concludes that the records do not allow him to
determine the purpose of the deposit of the $90,000.
The court believes that the affidavits of Sullivan (Doc. #215) and Premec (Doc.
#280), to the extent that they relate to the purpose of the forwarding of the $90,000 to
Expeditors, should be considered. The debtor
has had the opportunity to examine its own books and records and has offered no further
information regarding the $90,000 deposit other than that contained in the Rice affidavit
(Doc. #272).
A review of the above matters, considering all of the facts
before the court at this time, leads the court to conclude that it is more credible that
the $90,000 was deposited in conjunction with the transaction in question than that it was
intended as a deposit for that transaction and other transactions between the parties as
is suggested in the Rice affidavit (Doc. #272). While
the court does not find it conclusive that the debtor has, in its sale to Paul Harris,
linked the $90,000 deposit with the purchase of the goods in question, it is simply
additional evidence which, when combined with the affidavits above, tends to support the
claim of Expeditors.
Reviewing the authorities cited by Expeditors in the court=s earlier Memorandum (Doc. #383) herein, and in view of the court=s consideration of the additional evidence, it appears that the
movant has made the case for recoupment. The
application of the doctrine of recoupment requires a single, integrated transaction and is
called for A...in bankruptcy cases only when >it would ... be inequitable for the debtor to enjoy the benefits
of the transaction without meeting its obligations.=@ Newberry
Corp. v. Fireman=s Fund Ins. Co., 95 F.3d 1392 (9th Cir. 1996) at
page 1403, quoting University Medical Center v. Sullivan, 973 F.3d 1065 (3rd
Cir. 1992).
While the debtor denies that there is a connection between the
$90,000 it is to receive from Paul Harris, it appears to the court that there is more than
coincidence involved and that recovery by the debtor of the sum remaining in escrow in
this controversy would be fundamentally unfair to Expeditors. Because the court finds that the debtor has
contracted to recover this same sum from Paul Harris, it would indeed be a windfall and
inequitable to allow debtor to also recover all of the sum remaining in escrow. Since Expeditors had possession of the remainder
of the $90,000 deposit and it was part of the same transaction, it would appear that
Expeditors may avail itself of its common law right of recoupment as against said sum.
With respect to the amount of recoupment requested, it appears
that the affidavit of Jennifer R. Sullivan (Doc. #215), filed with the court on March 22,
1999, and supported by the affidavits of Thomas S. Hemmendinger (Doc. # 214) and Philip L.
Hanrahan (Doc. #216) filed on that same date, show expenses of $32,103.03 recoverable as
against the sum remaining in escrow with attorney Hemmendinger. The court has reviewed the services rendered by
the attorneys and the rates charged by them and finds them to be reasonable and allowable
under the circumstances. It appears that the
amount of $32,103.03 should be recouped by Expeditors against the sum held in escrow.
Whereupon, it is hereby ORDERED AS FOLLOWS:
1) That
the Motion for Leave to Supplement Record (Doc. #395) is sustained;
2) That
the Motion for Stay of Order entered herein (Doc. #394) be, and the same hereby is, found
to be MOOT;
3) That
the Motion for Reconsideration, to Alter or Amend Judgment, and to Make Additional
Findings of Fact and Conclusions of Law (Doc. #392) be, and the same hereby is, SUSTAINED
and the order of this court entered August 10, 1999 (Doc. #382) be and the same hereby is
set aside and held for naught;
4) That
attorney Thomas Hemmendinger is directed to pay to Expeditors International of Washington,
Inc. from the escrow sum in his hands, the sum of $32,103.03; and
5) That
attorney Hemmendinger is directed to forward the balance of the escrowed sums, including
any accrued interest, to the debtor-in-possession.
Dated this day of October, 1999.
BY THE COURT
JUDGE
COPIES TO:
Debtor
Philip L. Hanrahan, Esq.
Thomas S. Hemmendinger, Esq.
Stephen D. Lerner, Esq.
Gregory D. Pavey, Esq.
W. Timothy Miller, Esq.
U.S. Trustee