Opinion
CASE NO. 02-43582-H4-11 Jointly Administered.
December 8, 2004
Marcy E. Kurtz, Megan J. Fahey BRACEWELL PATTERSON, L.L.P., Houston, Texas, Counsel to the Debtors' Disbursing Agent.
Jeffrey R. Fine, HUGHES LUCE, LLP, Dallas, Texas, Counsel to the Claimant.
Mark Andrews NELIGAN TARPLEY ANDREWS FOLEY LLP, Dallas, TX, Counsel to the Intervenor.
Encompass Services Corporation and its subsidiaries (the "Debtors") OldCo Holding, LLC (the "Intervenor"), and Dynamic Systems, Inc. (the "Claimant" and together with the Debtors and the Intervenor, the "Parties") stipulate and agree as follows:
1. WHEREAS, on November 19, 2002, the Debtors filed their voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code.
2. WHEREAS, on May 28, 2003, this Court entered an order confirming the Immaterially Modified Second Amended Joint Plan of Reorganization of Encompass Services Corporation and its Affiliated Debtors Under Chapter 11 of the Bankruptcy Code and supplemented by the Plan Supplement, the First Amended Plan Supplement, and the Second Amended Plan Supplement (collectively, the "Plan"). On June 9, 2003 (the "Effective Date"), the Plan became effective.
3. WHEREAS, as of the Effective Date, and pursuant to Article 5.3 of the Plan, the Debtors assert that each of Debtor's assets and liabilities were merged with and pooled with the assets and liabilities of each of the other Debtors, and each and every Claim filed or to be filed in the Chapter 11 case of any of the Debtors is deemed filed against the consolidated Debtors and is deemed one Claim against, and obligations of, the consolidated Debtors.
4. WHEREAS, on April 15, 2003, the Claimant filed proof of claim number 3703 in Bankruptcy Case 02-43582 (the "Proof of Claim") alleging a general unsecured claim in the amount of $1,047,994.00.
5. WHEREAS, on February 19, 2004, the Disbursing Agent filed his Objection to Proof of Claim Filed by Dynamic Systems, Inc. (Docket No. 3874) (the "Objection") objecting to the Proof of Claim.
6. WHEREAS, on March 11, 2004, the Claimant filed its Response to the Objection (Docket No. 4157).
7. WHEREAS, on May 10, 2004, the Bankruptcy Court entered an order (Docket No. 4741) permitting OldCo Holding, LLC to intervene regarding the Proof of Claim, the Objection and the Response filed thereto.
NOW THEREFORE, THE PARTIES HERETO STIPULATE AND AGREE AS FOLLOWS:
1. That, in full and final settlement of the disputes and claims existing among the Parties hereto, the Proof of Claim is allowed as a general unsecured claim in the amount of $300,000.00, with the balance disallowed in its entirety.
2. That, the Claimant, the Intervenor, and the Debtors, for themselves and on behalf of each of the respective affiliates, hereby RELEASE, ACQUIT, and FOREVER DISCHARGE each other, and their agents and attorneys, from any and all claims, including all claims filed against the Debtors in the bankruptcy case, demands, and causes of action of any nature whatsoever, whether arising under any contract or in tort, which in any way related to any of the acts, events, dealings or transactions, and agree that this Agreement releases any and all claims, demands, and causes of action of any nature whatsoever that they may have, whether or not asserted at the time of the execution of this Agreement, for any injuries or damages of any kind whatsoever, whether known or unknown that occurred as a result of or are in any way related to any course of dealings between the Claimant, the Intervenor, the Debtors or any of their respective agents or affiliates, or any of the acts, events, dealings, or transactions. This release shall not apply, however, to the Parties' rights and obligations under this Agreement. Each Party hereto further acknowledges and agrees that it may hereafter discover claims or facts in addition to or different from those now known or believe to be true with respect to the matters described and released herein. Nevertheless, it is each Party's intention fully, finally, and forever to release each other and their agents from all claims relative to such matters, which now exist or which may exist in the future. In furtherance of such intention, this Agreement shall remain in effect as a full and complete release of all such claims.
3. Each Party hereto covenants and agrees not to bring, file, charge, claim, sue, cause, assist, or permit to be brought, filed, charged or claimed any action, cause of action, or proceeding based upon any of the claims released under this Agreement, and further covenants and agrees that this Agreement is, will constitute and may be pleaded as, a bar to any such claim, action, cause of action or proceeding.
4. Each Party hereto represents and warrants:
a. Such Party has all requisite power and authority to enter into this Agreement. The execution, delivery, and performance of this Agreement has been duly and validly authorized by all necessary action on the part of such Party, including without limitation obtaining all necessary consents or waivers. This Agreement constitutes a valid and binding obligation of such party, enforceable in accordance with its terms.
b. The execution, delivery, and performance of this Agreement will not conflict with or result in a breach of any of the terms, conditions or provisions of any agreement or instrument to which such Party is a party or by which it is bound.
5. That this Agreement, including the Compromise Settlement Agreement attached hereto as Exhibit A, is hereby approved by this Bankruptcy Court, and constitutes the entire understanding of the Parties with respect to the subject matter hereof and may not be modified or amended except by a writing executed by or on behalf of the Parties.
6. That, except as stated herein, the Claimant does not have any surviving claim against the Debtors in these bankruptcy cases.
7. That the Debtors expressly reserve the right to object to any Claim not subject to this Stipulation.
IT IS HEREBY ORDERED that the Stipulation is approved.
COMPROMISE SETTLEMENT AGREEMENT
This Agreement is between Dynamic Systems, Inc. ("DSI"), Faulkner Construction, Inc. ("Faulkner"), Ken Polk Investments, LLC ("KPI"), OldCo Holding, LLC ("OldCo"), Polk Mechanical Company, LLC ("Polk Mechanical"), Encompass Services Corporation ("Debtor"), its direct and indirect subsidiaries ("Subsidiary Debtors") whose bankruptcy cases are jointly administered under Cause No. 02-43582-H4-11, pending in the United States Bankruptcy Court for the Southern District of Texas, Houston Division, and the Bankruptcy Estate of Debtor and Subsidiary Debtors ("Estate").
A. THE DFW PROJECT
1. Debtor (or one of the Subsidiary Debtors) made a bid to DSI to perform certain mechanical work on the construction project owned by Dallas/Ft. Worth International Airport Board and originally known generally as "DFW Terminal D Expansion" (the "DFW Project"). Debtor or one of the Subsidiary Debtors furnished a Subcontractor's Bid Bond dated on or around May 1, 2002, issued by Encompass Industrial/Mechanical of Texas (a Subsidiary Debtor or an assumed name of the Debtor or one of the Subsidiary Debtors), as Principal, and Federal Insurance Company ("Federal") as Surety.
2. In a letter dated on or around July 25, 2002, DSI indicated an intent to enter into a subcontract with Debtor or one of the Subsidiary Debtors and gave notice to same to proceed with construction of its scope of work. Said letter stated, among other things, that if DSI and Debtor (or a Subsidiary Debtor) are unable to reach agreement on the construction documents, DSI will reimburse Debtor (or a Subsidiary Debtor) its reasonable costs (including fee) of performing the work. The terms of the letter are more fully and completely set forth in said letter. Accordingly, Debtor or one of the Subsidiary Debtors commenced providing labor and materials to DSI for the Project and invoiced DSI for same. Those invoices are unpaid.
3. DSI provided a proposed Subcontract Agreement to Debtor (or one of the Subsidiary Debtors) bearing the date of July 25, 2002 (the "DFW Subcontract") that was executed by Encompass Mechanical Services ("EMS"), which is a Subsidiary Debtor or an assumed name of the Debtor or one of the Subsidiary Debtors, and returned to DSI. Among other things, the DFW Subcontract required EMS to furnish payment and performance bonds to DSI, which Federal and Debtor did not provide. The Debtor and the Subsidiary Debtors filed for protection under the bankruptcy laws in the United States Bankruptcy Court for the Southern District of Texas, styled In Re: Encompass Services Corporation, et al., bearing case number 02-43582-H4-11 (the "Bankruptcy Proceeding"). DSI did not formally execute the DFW Subcontract, and withdrew its offer to make a contract with Debtor (or one of the Subsidiary Debtors) and otherwise terminated any contractual relationship with Debtor (or one of the Subsidiary Debtors) on the Project. DSI proceeded to perform the scope of work of the DFW Subcontract, and incurred expenses and damages in doing so.
4. In December 2002, Debtor and certain Subsidiary Debtors transferred and sold certain assets and liabilities to KPI which included certain assets and liabilities pertaining to the Project, as is more fully and completely set forth in the Purchase And Sale Agreement documenting said transaction. Those assets and liabilities were later transferred and assigned by KPI to either OldCo or Polk Mechanical.
5. DSI filed a Proof of Claim in the Bankruptcy Proceeding in the amount of $1,047,994.00. Debtor and Subsidiary Debtors filed Disbursing Agent's Objection to Proof of Claim filed by Dynamic Systems, Inc., objecting to DSI's Proof of Claim. OldCo intervened in that matter.
6. DSI filed suit against Polk Mechanical and Federal in the 68th District Court of the Dallas County, Texas styled Dynamic Systems, Inc. v. Federal Insurance Company and Polk Mechanical Company, LLC, bearing cause number 04-02551 (the "State Court Suit") seeking damages for breach of contract against Polk Mechanical and breach of obligations represented by the Bid Bond against Federal. Both Federal and Polk Mechanical deny liability to DSI. DSI's allegations and the responses of Polk Mechanical and Federal are more fully set forth in the pleadings on file in the State Court Suit.
B. THE APPLIED MATERIALS PROJECT
7. Faulkner, as general contractor, and Encompass Mechanical Contractors ("EMC"), which is a Subsidiary Debtor or an assumed name of the Debtor or one of the Subsidiary Debtors, as subcontractor, entered into a Subcontract Agreement bearing the date of May 7, 2002 whereby EMC agreed to perform certain mechanical work on the construction project known generally as "Applied Materials Building 41 Data Center" located in Austin, Texas (the "Applied Materials Project"). Said subcontract is referred to as the "Applied Materials Subcontract".
8. EMC began performing its Applied Materials Subcontract. Thereafter, the Debtor and the Subsidiary Debtors filed for protection under the bankruptcy laws in the Bankruptcy Proceeding described above. The Debtor, certain Subsidiary Debtors, and KPI entered into the Purchase And Sale Agreement described above, followed by the transfer of certain assets and liabilities from KPI to OldCo or Polk Mechanical, as described above.
9. OldCo, acting by and through Polk Mechanical, completed the obligations of EMC under the Applied Materials Subcontract. Disputes arose concerning Faulkner's obligations to pay OldCo and Polk Mechanical. Pursuant to the Construction Industry Rules of the American Arbitration Association, Polk Mechanical made a Demand For Arbitration upon Faulkner dated February 23, 2004 seeking damages from Faulkner in the amount of $232,704.10. That arbitration proceeding is case number 70 M 110 00106 04 (the "Arbitration Proceeding"). Faulkner denies liability to Polk Mechanical.
The parties have compromised and settled their disputes, according the terms set forth below, to avoid the trouble and expense of further litigation and arbitration, the outcomes of which are uncertain for all parties.
SETTLEMENT TERMS AND CONDITIONS
FOR GOOD AND VALUABLE CONSIDERATION, the receipt of which is acknowledged and confessed, the parties agree and promise as follows:
1. Immediately upon the execution of this instrument by all parties, Faulkner and/or DSI will pay Polk Mechanical $150,000.00 in Dallas County, Texas.
2. DSI will reduce the amount of its Proof of Claim in the Bankruptcy Proceeding to $300,000.00, and the DSI will be allowed a general unsecured claim in the Bankruptcy Proceeding in the amount of $300,000.
3. KPI, OldCo and Polk Mechanical hereby waive, release, and forever discharge Faulkner and DSI of and from all claims and causes of action relating or in any way pertaining to the DFW Project and the Applied Materials Project. This includes, but is not limited to:
a. Claims and causes of action arising from labor and materials provided to the DFW Project;
b. Claims and causes of action arising from labor and materials provided to the Applied Materials Project;
c. Claims and causes of action arising from the DFW Subcontract;
d. Claims and causes of action arising from the Applied Materials Subcontract;
e. Claims and actions alleged or that could have properly been alleged in the State Court Suit;
f. Claims and actions alleged or that could properly have been alleged pertaining to the Applied Materials Project in the Arbitration Proceeding.
4. Except for DSI's revised Proof of Claim limited to $300,000.00, DSI waives and releases Debtor and Subsidiary Debtors of and from all other claims and causes of action relating to or in any way pertaining to the DFW Project. This includes, but is not limited to:
a. Claims and causes of action arising from labor and materials provided to the DFW Project;
b. Claims and causes of action based upon obligations represented by the Bid Bond;
c. Claims and causes of action arising from the DFW Subcontract;
5. DSI and Faulkner hereby waive, release, and forever discharge KPI, OldCo, and Polk Mechanical of and from all claims and causes of action relating or in any way pertaining to the DFW Project and the Applied Materials Project. This includes, but is not limited to:
a. Claims and causes of action arising from labor and materials provided to the DFW Project;
b. Claims and causes of action based upon obligations represented by the Bid Bond;
c. Claims and causes of action arising from labor and materials provided to the Applied Materials Project;
d. Claims and causes of action arising from the DFW Subcontract;
e. Claims and causes of action arising from the Applied Materials Subcontract;
f. Claims and actions alleged or that could have properly been alleged in the State Court Suit;
g. Claims and actions alleged or that could properly have been alleged pertaining to the Applied Materials Project in the Arbitration Proceeding.
Nothing contained in c. and e. above shall be considered a release or waiver of any rights that Faulkner may have for claims for latent defects arising out of or related to labor and materials furnished on the Applied Materials Project.
6. The Debtor, the Subsidiary Debtors, and the Estate hereby waive, release, and forever discharge KPI, OldCo, Polk Mechanical, and their predecessors and successors of and from all claims and causes of action relating or in any way pertaining to the DFW Project, the Proof of Claim asserted by DSI in the Bankruptcy Proceeding, and any liability or payments to DSI resulting from said Proof of Claim, whether such claims or causes of action arise from the Purchase And Sale Agreement or otherwise.
7. KPI, OldCo and Polk Mechanical hereby waive, release and forever discharge Debtor, Subsidiary Debtors, and the Estate of and from all claims and causes of action relating, or in any way pertaining, to the DFW Project that arise from the Purchase And Sale Agreement.
8. DSI will request that the Court dismiss the State Court Suit with prejudice to the refiling of same.
9. Polk Mechanical will cause the Arbitration Proceeding to be dismissed.
10. OldCo will dismiss its intervention in the matter involving Debtor's objection to DSI's Proof of Claim.
11. The releases contained herein are contractual and not mere recitals.
12. The parties releasing claims herein warrant and represent that they own such claims, and possess the right to release them.
13. It is understood that each party denies liability to the other parties, and that this instrument is not to be used or construed as an admission of liability by any party hereto. Each party releasing claims herein indemnifies the parties being released from claims of third parties that assert the specific claims being released.
14. This instrument may be executed by all parties in multiple counterparts and be just as effective as if all parties executed every copy.
15. This Compromise Settlement Agreement shall not be effective or enforceable until it is approved by the bankruptcy court within the Bankruptcy Proceeding.
DYNAMIC SYSTEMS, INC.
By: ____________ Title: _________
ACKNOWLEDGMENT
STATE of TEXAS § COUNTY of TRAVIS §
BEFORE ME, the undersigned authority, on this day physically appeared MARK D. RIDLEY, personally known to me as the individual whose name is subscribed to the foregoing Compromise Settlement Agreement, and he/she acknowledged to me said document was the act of DYNAMIC SYSTEMS, INC., and he/she executed said document as the act of DYNAMIC SYSTEMS, INC. in his/her capacity as itsVice President for the purposes and consideration therein expressed.
Given under my hand and official seal of office on this 26 day of October 2004.
My Commission Expires: 09/08/04
FAULKNER CONSTRUCTION, INC.
By: _____________ Title: __________
ACKNOWLEDGMENT
STATE of TEXAS § COUNTY of TRAVIS §
BEFORE ME, the undersigned authority, on this day physically appeared Charles D. Schmidt personally known to me as the individual whose name is subscribed to the foregoing Compromise Settlement Agreement, and he/she acknowledged to me said document was the act of FAULKNER CONSTRUCTION, INC., and he/she executed said document as the act of FAULKNER CONSTRUCTION, INC. in his/her capacity as its Vice President for the purposes and consideration therein expressed.
Given under my hand and official seal of office on this 11th day of November, 2004.
KEN POLK INVESTMENTS, LLC
By: _________ Title: _______
ACKNOWLEDGMENT
STATE of TEXAS § COUNTY of ________ §
BEFORE ME, the undersigned authority, on this day physically appeared Ken Polk personally known to me as the individual whose name is subscribed to the foregoing Compromise Settlement Agreement, and he/she acknowledged to me said document was the act of KEN POLK INVESTMENTS, LLC, and he/she executed said document as the act of KEN POLK INVESTMENT, LLC in his/her capacity as its Member/Manager for the purposes and consideration therein expressed.
Given under my hand and official seal of office on this 4th day of November, 2004.
OLDCO HOLDING, LLC
ACKNOWLEDGMENT
STATE of TEXAS § COUNTY of _______ §
BEFORE ME, the undersigned authority, on this day physically appeared Ken Polk, personally known to me as the individual whose name is subscribed to the foregoing Compromise Settlement Agreement, and he/she acknowledged to me said document was the act of OLDCO HOLDING, LLC, and he/she executed said document as the act of OLDCO HOLDING, LLC in his/her capacity as its member/manager for the purposes and consideration therein expressed.
Given under my hand and official seal of office on this 4th day of November 2004.
POLK MECHANICAL, LLC
By: _____________ Title: ___________
ACKNOWLEDGMENT
STATE of TEXAS § COUNTY of _______ §
BEFORE ME, the undersigned authority, on this day physically appeared _______, personally known to me as the individual whose name is subscribed to the foregoing Compromise Settlement Agreement, and he/she acknowledged to me said document was the act of POLK MECHANICAL, LLC, and he/she executed said document as the act of POLK MECHANICAL, LLC in his/her capacity as itsmember/Manager for the purposes and consideration therein expressed.
Given under my hand and official seal of office on this 4th day of November, 2004.
ENCOMPASS SERVICES CORPORATION, ITS SUBSIDIARIES, AND THE ESTATE
By: _____________________ Title: __________________
ACKNOWLEDGMENT
STATE of TEXAS § COUNTY of _________ §
BEFORE ME, the undersigned authority, on this day physically appeared ______, personally known to me as the individual whose name is subscribed to the foregoing Compromise Settlement Agreement, and he/she acknowledged to me said document was the act of ENCOMPASS SERVICES CORPORATION, the SUBSIDIARY DEBTORS (as defined above), and the BANKRUPTCY ESTATE OF ENCOMPASS SERVICES CORPORATION and the SUBSIDIARY DEBTORS, and he/she executed said document as the act of ENCOMPASS SERVICES CORPORATION, the SUBSIDIARY DEBTORS, and the BANKRUPTCY ESTATE OF ENCOMPASS SERVICES CORPORATION and the SUBSIDIARY DEBTORS, and in his/her capacity as its Vice President for the purposes and consideration therein expressed.
Given under my hand and official seal of office on this19th day of October, 2004.