Forklift LP Corp. v. iS3C, Inc. (In Re Forklift LP Corp.)

363 B.R. 388, 2007 Bankr. LEXIS 858, 47 Bankr. Ct. Dec. (CRR) 272
CourtUnited States Bankruptcy Court, D. Delaware
DecidedMarch 21, 2007
Docket19-10224
StatusPublished
Cited by9 cases

This text of 363 B.R. 388 (Forklift LP Corp. v. iS3C, Inc. (In Re Forklift LP Corp.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Forklift LP Corp. v. iS3C, Inc. (In Re Forklift LP Corp.), 363 B.R. 388, 2007 Bankr. LEXIS 858, 47 Bankr. Ct. Dec. (CRR) 272 (Del. 2007).

Opinion

*390 MEMORANDUM OPINION

PETER J. WALSH, Bankruptcy Judge.

This opinion is with respect to the motion (Adv. Doc. # 38) of iS3C Consultancy Services Ltd. (“Defendant”) for partial summary judgment against Forklift Liquidating Trust (“Plaintiff’). Plaintiff, the successor trust for Clark Material Handling Company and its affiliated debtors (collectively, the “Debtors”), seeks to disgorge payments made to Defendant and to disallow Defendant’s claim against the Debtors.

BACKGROUND

The Debtors filed for bankruptcy on April 17, 2000 pursuant to chapter 11 of the Bankruptcy Code. 11 U.S.C. §§ 101 et seq. 1 On August 3, 2001, the Debtors applied for an order authorizing the retention of Defendant as a computer consultant to aid in the implementation of a software upgrade. (Doc. # 905.) The Court approved a contract between Defendant and the Debtors on September 7, 2001, which budgeted fees totaling approximately $450,000 to be paid to Defendant. (Doc. # 936.)

The contract between Defendant and the Debtors set forth several milestones to be achieved. (Doc. # 905, att. 2.) Defendant ceased work before all of the milestones were achieved and the parties disagree as to which party was to blame for the failed software upgrade. Plaintiff claims that the Debtors already paid approximately $458,000 to Defendant for its services, (Adv. Doc. #40, p. 6) while Defendant claims that it has only received $270,000. (Adv. Doc. # 38, p. 6.) On April 7, 2003, Defendant filed an administrative claim for $458,470.08 for services provided under the base contract and additional services that the Debtors requested. (Doc. # 2483, Ex. D.) The Debtors objected to Defendant’s claim on September 23, 2003 in their Eighth Omnibus Objection to Claims (the “Objection”). (Id. at ¶¶ 31-32.) In addition, the Debtors filed this adversary proceeding on September 24, 2003 seeking to disgorge the payments already made to Defendant. (Doc. # 2486.) As this adversary proceeding and the Debtors’ Objection involve the same ultimate issues, the parties agreed to consolidate the Objection into this adversary proceeding. (Adv. Doc. # 38, pp. 1-2.)

The hearing on the Debtors’ Objection was scheduled for October 22, 2003. (Doc. #2483, p. 1.) Although counsel for the Debtors stated in the agenda for the hearing that they were ready to go forward with their Objection, (Doc. # 2597) at the hearing the Debtors requested that the Court delay hearing the merits of Defendant’s claim until the Debtors had a chance to take discovery on factual issues. (Oct. 22, 2003 Hearing Transcript, Adv. Doc. # 40, Ex. E, p. 57, line 17 — p. 59, line 3.) Defendant attended the hearing with a witness, ready to address the Objection on the merits. (Id. at p. 56, lines 15-16.) However, the Court determined that it did not have time and adjourned the hearing on the Objection until a later, unspecified date. (Id. at p. 89, lines 6-12; see also Id. at p. 133, lines 4-14.) At the October 22, 2003 hearing, after counsel for the Debtors assured the Court that the Plan provided means to pay Defendant’s claim in full if it were allowed at a later date, (Id. at p. 91, line 21 — p. 92 line 11), the Court went forward to confirm the Debtors’ Third Amended Plan of Liquidation (the “Plan”). (Doc. # 2601.)

The Plan provided that it would not become effective (the “Effective Date”) until a number of conditions were satisfied. *391 (Id. at § 2.59.) Those conditions were not completed until August 18, 2004 — 10 months after the Plan was confirmed. Shortly after the Effective Date, the Trustee effected an “Initial Distribution” which is defined in the Plan to mean

payment to a Holder of (a) an Allowed Secured Claim that is not agreed to deferred payments, (b) an Allowed Administrative Claim that has not agreed to deferred payments, (c) a Priority Non-Tax Claim that has not agreed to deferred payments, and (d) Professional Claims.

(Id. at § 2.88.)

The Plan outlined a program of deferred distributions to several types of creditors. The deferred distributions were to be funded through the prosecution of numerous avoidance actions filed by the Debtors. (See Doc. # 2601.) In the interest of avoiding administrative insolvency and conversion of the case to chapter 7, (Adv. Doc. # 38, p. 7.), some of the administrative claim holders, but not Defendant, agreed before the Plan was confirmed to receive this deferred distribution from the proceeds of the avoidance actions. By agreeing to this treatment, these administrative claim holders waived their right under § 1129(a)(9)(A) to receive full payment on the Effective Date of the Plan. The Plan refers to the claims of these claim holders as “Allowed Deferred Claims.” Section 2.7 of the Plan defines “Allowed Deferred Claim” in a manner that allows for two types of claims:

“Allowed Deferred Claim” means any Claim, including an Administrative Claim, ... that either by agreement or because it was Allowed subsequent to the Effective Date will be paid on a deferred basis as part of the Subsequent Distributions ...

(Doc. #2601, § 2.7 (emphasis added).) The term “Subsequent Distributions” is defined as “the Distributions made under the Phase I Distributions, Phase II Distributions, and Phase III Distributions.” (Id. at § 2.140.) In another section addressing claims that become allowed at a later date, the Plan again provides for distributions through Phase I, II and III Distributions:

To the extent that a Disputed Claim becomes an Allowed Claim after the Initial Distribution Date, the Trustee shall pay such Allowed Claim, without interest, pursuant to either the Phase I Distributions, Phase II Distributions or Phase III Distributions, whichever is applicable.

(Id. at § 6.12.)

The definitions for the Phase I, II and III Distributions describe a process whereby money collected from avoidance actions is dispersed among three groups of creditors: (1) “Holders of Allowed Deferred Claims that have agreed to a deferred Distribution,” (2) a group of Korean Banks who hold by far the largest administrative claims against the Debtors, and (3) holders of a certain type of general unsecured claim. (Id. at §§ 2.110, 2.111, 2.112.) The Plan provides that Phase I Distributions will commence at a date to be determined by Plaintiff. (Id. at § 2.110.) As of this date, almost three and a half years after the Plan was confirmed, Plaintiff has not yet effected a Phase I Distribution, and, according to Plaintiffs counsel, no distributions subsequent thereto are anticipated.

Before the Effective Date of the Plan, the Debtors reached settlements with all other administrative claim holders who had not agreed to the deferred distribution program. (Adv. Doc. # 40, p.

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363 B.R. 388, 2007 Bankr. LEXIS 858, 47 Bankr. Ct. Dec. (CRR) 272, Counsel Stack Legal Research, https://law.counselstack.com/opinion/forklift-lp-corp-v-is3c-inc-in-re-forklift-lp-corp-deb-2007.