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.











Philip L. Hanrahan, Esq.

Thomas S. Hemmendinger, Esq.

Stephen D. Lerner, Esq.

Gregory D. Pavey, Esq.

W. Timothy Miller, Esq.

U.S. Trustee