Opinion
Case No. 91-53976-ASW-CZ Chapter 11, Adversary No. 93-5321
October 12, 2000
MEMORANDUM DECISION ON CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT AND RELATED RELIEF
Before this Court are cross-motions by the parties in the above-numbered Adversary Proceeding ("Adversary Proceeding"). Plaintiff is Pajaro Dunes Rental Agency, Inc. ("PDRA"). Defendants are Pajaro Dunes Association ("PDA") and individuals who are alleged to be current or former officers or directors of PDA: Richard T. Burress, Dewey Hobson, Ralph Pica, George Kelly, R. Heath Wakelee, and John Lundell. Unless otherwise noted, references to PDA will include all Defendants in their capacities as Defendants and movants in the matters that are the subject of this Memorandum Decision. Each motion seeks partial summary judgment; PDRA's motion also seeks to have some of PDA's counterclaims dismissed and some of PDA's affirmative defenses stricken.
PDRA is represented by Steven B. Sacks, Esq. ("Sacks") of Perkins Coie LLP, and also by Louis Spitters, Esq. PDA is represented by Gregory R. Aker, Esq. and Stephen L. Cali, Esq., both of Wulfsberg Reese Sykes.
The matters have been briefed, argued, and submitted for decision. This Memorandum Decision constitutes the Court's findings of fact and conclusions of law, pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
I. BACKGROUND
PDRA was incorporated on January 1, 1983. Prior to that time, it had been a division of Hare, Brewer and Kelley ("HBK"), a corporation owned by William and Ryland Kelley.
During the 1960's, HBK developed a seaside community in Santa Cruz County, known as Pajaro Dunes. The residents of Pajaro Dunes formed homeowners'associations, one of which is PDA.
In 1982, PDA and HBK entered into an agreement ("1982 Agreement") with a seventeen year term (to April 30, 1999) that authorized HBK to conduct certain business activities at Pajaro Dunes, in exchange for HBK's payment of monthly fees and performance of a construction project.
In 1986, PDA and HBK entered into a second agreement ("1986 Agreement"), which provided, inter alia, that the term of the 1982 Agreement would be extended for seven years if HBK performed a second construction project by certain dates in 1986 and 1987.
In 1988, PDA and HBK entered into a third agreement ("1988 Agreement"), which provided, inter alia, that it superseded and replaced the 1986 Agreement, and that the term of the 1982 Agreement would be extended for nine years (to April 30, 2008) if HBK performed the second construction project by certain dates in 1989 and 1990.
On July 1, 1991, PDRA filed a petition under Chapter 11 of the Bankruptcy Code, Unless otherwise noted, all statutory references are to 11 U.S.C. "Bankruptcy Code", as it provided prior to the amendments enacted on October 22, 1994. and operated its business as a debtor-in-possession until September 14, 1994.
On June 30, 1993, while a debtor-in-possession, PDRA filed the original complaint in this Adversary Proceeding. That complaint named as defendant only PDA (not any of PDA's officers or directors), and was entitled "COMPLAINT TO AVOID TRANSFER, FOR DECLARATORY RELIEF, TO REJECT EXECUTORY CONTRACT, OBJECTION TO CLAIM, TO RECOVER FRAUDULENT CONVEYANCE, DAMAGES FOR FRAUD AND INTERFERENCE WITH ECONOMIC ADVANTAGE, AND FOR INJUNCTION". It sought, inter alia, to have the 1982 Agreement and the 1988 Agreement declared unenforceable against PDRA, and to avoid and recover payments made pursuant to them as prepetition fraudulent transfers and post-petition unauthorized payments outside the ordinary course of business.
On September 14, 1994, upon motion by the United States Trustee, David Bradlow was appointed to act as Chapter 11 Trustee ("Trustee"). The Trustee was authorized to, and did, employ Sacks as his attorney.
On May 30, 1995, a creditor of PDRA filed a reorganization plan in PDRA's Chapter 11 case. The plan proponent was L.S. Co., a general partnership, as nominee of eight irrevocable trusts for the children of Laurence L. Spitters (collectively and interchangeably, "Spitters"). Spitters was represented by attorney Peter N. Levenberg ("Levenberg").
The plan proposed by Spitters, as amended ("Plan"), was confirmed by this Court's order of September 21, 1995 ("Confirmation Order") after a hearing on September 6, 1995 ("Confirmation Hearing"). The Trustee was discharged by order dated October 22, 1995.
At the time of confirmation, the parties to the original complaint in the Adversary Proceeding had been and still were negotiating a possible settlement of that litigation. Ultimately, the negotiations collapsed and leave to file an amended complaint was granted by an order of October 24, 1996. At that point, PDRA was no longer a debtor in a Chapter 11 case but, pursuant to the Plan, a reorganized Chapter 11 debtor under the control of Spitters. PDRA filed the amended complaint ("Amended Complaint") against both PDA and the above-named current and former officers and directors of PDA. The Amended Complaint is entitled "FIRST AMENDED COMPLAINT FOR DECLARATORY RELIEF, INJUNCTION, RECESSION [sic], VIOLATION OF CIVIL RIGHTS, INTERFERENCE WITH ECONOMIC ADVANTAGE AND FRAUD". It includes fifteen claims for relief and seeks, inter alia, to have the 1982 Agreement and ¶ 17 of the 1988 Agreement declared unenforceable against PDRA, and to avoid and recover payments made pursuant to the 1982 Agreement as pre-petition fraudulent transfers and post-petition unauthorized payments outside the ordinary course of business. In response to the Amended Complaint, PDA filed (and later amended) an answer asserting affirmative defenses ("Affirmative Defenses") and also filed (and later amended and supplemented) counter-claims ("Counterclaims").
On October 21, 1997, the United States District Court for the Northern District of California ("District Court") issued an order directing this Court to determine which claims for relief in the Amended Complaint are core matters under 28 U.S.C. § 157, and then to conduct the litigation of such core matters. That order further provided that all other claims for relief in the Amended Complaint are to be litigated in the District Court. The District Court's order did not expressly address PDA's Counterclaims.
On October 10, 1999, this Court issued an order ("Core Matter Order") determining that three claims for relief are core matters to some extent, but that none of the other claims for relief and none of the Counterclaims are core matters.
PDRA now seeks summary judgment on two of the three claims for relief that have been determined to be partially core matters; PDRA also seeks to have some of PDA's Counterclaims dismissed and to have some of PDA's Affirmative Defenses stricken. PDA now seeks summary judgment on all three of the claims for relief that have been determined to be partially core matters.
II. CORE MATTER ORDER
The Core Matter Order, which was issued pursuant to the directive of the District Court, limits the extent of the matters that are currently before this Court. The District Court has reserved to itself all issues presented by the Amended Complaint except such issues as this Court determines to be core matters. The Core Matter Order provides that only certain issues are core matters, as follows:
1. PDRA's first claim for relief (avoidance and recovery of pre-petition fraudulent transfers and post-petition unauthorized transfers) "is a core matter and will be heard and determined by this Court to the extent it does not involve any federal constitutional issues".
2. Each of PDRA's third and fourth claims for relief (declaratory relief concerning, respectively, the enforceability of the 1982 Agreement and of the 1988 Agreement) is "a core matter and will be heard and determined by this Court to the extent that it involves only the interpretation of this Court's [Confirmation Order] and determination of that Order's effect on the" 1982 Agreement and 1988 Agreement.
3. All of PDA's Counterclaims "are non-core and will be heard and determined by the District Court except and only to the extent that [they] require an interpretation of the [Plan] and/or this Court's [Confirmation Order]".
III. MOTIONS BEFORE THIS COURT
PDRA's motion seeks summary judgment in its favor on the Amended Complaint's third and fourth claims for relief (declaratory relief concerning the enforceability of the 1982 Agreement and the 1988 Agreement). It also seeks orders dismissing four of PDA's six Counterclaims and striking eight of PDA's thirtyfour Affirmative Defenses.
PDA's motion seeks summary judgment in its favor on the Amended Complaint's third and fourth claims for relief (declaratory relief concerning the enforceability of the 1982 Agreement and the 1988 Agreement), and also on the first claim for relief (recovery of pre-petition fraudulent transfers and post-petition unauthorized transfers).
A. Third And Fourth Claims For Relief
Each party seeks summary judgment in its favor on the Amended Complaint's third claim and fourth claims for relief, which are as follows:
1. The third claim for relief seeks judgment declaring that the Confirmation Order discharged any obligation of PDRA owed under the 1982 Agreement, and that the 1982 Agreement was an unlawful and unconstitutional interference with PDRA's lawful use and enjoyment of its property.
2. The fourth claim for relief seeks judgment declaring that: the 1982 Agreement was not assumed by PDRA and all obligations under it were discharged by the Confirmation Order; the 1988 Agreement was assumed by PDRA and the Confirmation Order is binding upon PDA and upon PDRA in lieu of HBK; the Confirmation Order discharged all obligations by PDRA under ¶ 17 of the 1988 Agreement; but, if ¶ 17 of the 1988 Agreement is interpreted to incorporate the 1982 Agreement and if the Confirmation Order does not discharge all obligations under the 1982 Agreement, then ¶ 17 of the 1988 Agreement is an unlawful and unconstitutional interference with PDRA's lawful use and enjoyment of its property and is thus void.
Pursuant to the Core Matter Order, this Court is permitted to consider issues presented by the third and fourth claims for relief only to the extent of interpreting the Confirmation Order and its effect upon the 1982 Agreement and the 1988 Agreement. Accordingly, this Court may not consider (as the Amended Complaint prays) whether either the 1982 Agreement or the 1988 Agreement is an unlawful and unconstitutional interference with PDRA's lawful use and enjoyment of its property. Neither party asks that this Court address constitutional issues, but PDRA's motion for summary judgment does argue that the 1982 Agreement is unenforceable under state contract law for several reasons, Specifically, PDRA argues that the 1982 Agreement is unenforceable against PDRA because: PDRA was not a party to the 1982 Agreement, which was entered into by PDA and HBK at a time when PDRA had not yet been incorporated as a separate legal entity; the 1982 Agreement was never assigned to PDRA by HBK; and the 1982 Agreement became "null and void" by its terms due to PDA's failure to obtain and maintain valid County permits as required by the contract. and PDA contends that such arguments are not properly addressed to the Bankruptcy Court in view of the Core Matter Order. PDRA cites In re G.I. Industries, Inc., 204 F.3d 1276 (9th Cir. 2000) ("G.I.") for the proposition that this Court can consider enforceability issues in the context of interpreting the effect of confirmation.
However, that case is not on point. The issue in G.I. was whether the Bankruptcy Court could consider an objection to a proof of claim for damages arising from rejection of an executory contract, and disallow the claim if the rejected contract on which it was based was shown to have been unenforceable prior to rejection. The Ninth Circuit held that: (1) Bankruptcy Courts have core matter jurisdiction to allow or disallow proofs of claim pursuant to 28 U.S.C. § 157(b)(2)(B), and such jurisdiction extends to determining whether the claim was based on a valid contract; (2) the bankruptcy trustee had standing to object to the proof of claim even though the contract upon which the claim was based had been rejected, because claim allowance and rejection of executory contracts are separate processes, which are not mutually exclusive; and (3) a proof of claim based on an unenforceable contract is not allowable pursuant to 11 U.S.C. § 502(b)(1), so the validity of the rejected contract upon which the claim was based was properly at issue in the objection to the proof of claim. As discussed below, two salient facts ofG.I. are not present here: (1) the 1982 Agreement has not been rejected; and (2) PDA has filed no proof of claim for damages based on rejection, so this Court is not considering contract enforceability in order to determine an objection to a claim.
This Court agrees with PDA that the issue of whether the 1982 Agreement is unenforceable against PDRA for reasons apart from the effect of the Confirmation Order is beyond the scope fixed by the Core Matter Order, and must be decided by the District Court. The Core Matter Order expressly provides that this Court's role with respect to the third and fourth claims for relief is a narrow one, confined to interpreting the Confirmation Order and its effect upon the 1982 Agreement and 1988 Agreement. That role does not include deciding what becomes of the 1982 Agreement if it is held to have survived Plan confirmation, i.e., whether it is enforceable against PDRA under state contract law. PDRA's state contract law arguments of unenforceability are not necessarily beyond this Court's ken for all purposes. It is possible that they could have some bearing upon whether the 1982 Agreement is "essential" to PDRA's business operations within the meaning of the Confirmation Order, which could in turn bear upon how the Confirmation Order's reference to contracts providing rights that are "essential" (discussed below) affects the 1982 Agreement. To that extent, and in that context, such arguments would not run afoul of the Core Matter Order and could properly be considered by this Court.
(1) Contracts And Confirmation (a) Contracts
As stated above, PDA and HBK entered into three contracts between 1982 and 1988, as set forth following.
The 1982 Agreement is entitled "AGREEMENT" and recites that it is "made" on April 26, 1982 between PDA and HBK (the signatures are identified as those of PDA's President and Secretary, and of HBK's President). It provides (in pertinent part) as follows:
. . . WHEREAS, [HBK] desires to furnish and operate a real estate sales and rental business, to supply food services, housekeeping, maintenance service, and including the right to conduct seminars within [Pajaro Dunes] involving the properties of members of {PDA}:
NOW, THEREFORE, the parties mutually agree as follows:
1. [PDA] does hereby grant to [HBK]:
(a) the non-exclusive license to operate a real estate sales and rental business, to supply food services, housekeeping, maintenance service and including the right to conduct seminars involving property owned by members of [PDA] within the residential development known as PAJARO DUNES; and (b) the exclusive right to operate and maintain its sales, rental corporation yard, administrative and housekeeping activities on parcels 52-301-55 thru 57 as depicted on Exhibit A, attached and incorporated herein by reference.
2. The term of this agreement shall be for a period of [17] years commencing May 1, 1982, and terminating on April 30, 1999.
3. In consideration thereof, [HBK] shall pay to [PDA] the sum of [$3,333.33] per month, payable monthly in advance on the first day of each and every month with the first installment due and payable as of May 1, 1982.
4. At all times, [HBK] agrees to continue to provide a high-quality rental and seminar program, and shall conduct its business in full compliance with the CCR's and Rules of [PDA]. . . . [HBK] shall obtain all necessary governmental permits for its operation and shall at all times comply with all governmental regulations. [Disputes concerning changes in PDA's rules to be submitted to arbitration.]
5. [HBK] shall, within [24] months from the date hereof, expand its present facilities in the old house by constructing an addition of up to 4,000 square feet. [Design subject to approval of PDA.]
6. Upon the expiration of the term of [17] years or earlier termination if caused by major breach of this agreement by [HBK], [HBK] will by deed convey and transfer the above-mentioned building together with the land upon which it is situated free and clear of all encumbrances. During the term of this agreement, [HBK] shall pay when due all taxes and maintenance in connection with said building facility.
7. Within [90] days from the date of this agreement, [HBK] will by deed convey and transfer to [PDA} all of [HBK]'s interest in parcels 52-301-55, 52-301-56, and 52-301-57 [per Assessor's Map], with the exception of the portion occupied by the real estate facility, the tennis court, and the currently approved site for the permanent fire station. The deeded portion of parcels 52-301-55 thru 57 shall be free and clear of all encumbrances. [HBK to have necessary surveys and divisions performed at its own expense.]
8. [Parties to negotiate in good faith concerning relocation of site for permanent fire station and government approval thereof.]
9. [Manner of calculating and adjusting basic monthly payment payable by HBK.]
10. [PDA] is presently seeking approval of a one (1) year permit from the County of Santa Cruz and the California Coastal Commission to allow the activities licensed herein. [PDA] agrees to amend its application to seek such a use permit for a minimum period of [17] years and to use its best efforts to obtain and maintain such a permit. [HBK] agrees to assist [PDA] in obtaining all such necessary permits from the County of Santa Cruz, the Califonria [sic] Coastal commission, and any other governmental agency. This agreement is subject to termination and shall become null and void if [PDA] does not obtain and maintain a use permit from the County of Santa Cruz and the California Coastal Commission for a minimum period of [17] years substantially on the terms and conditions as indicated in Application No. 740700 PUD which is now pending.
11. [Agreement may be terminated by 90 days' written notice if either party fails to comply.]
12. [HBK to hold PDA harmless from liability for HBK's business operation, indemnify PDA, and carry insurance.]
13. [HBK is an independent contractor and not PDA's agent or representative.]
14. This agreement is personal to [HBK] and it shall not be assigned or transferred without the written consent of [PDA]. However, it is understood and agreed that written consent shall not be unreasonably withheld, and further more [sic] it is understood and agreed that written consent shall not be required for any assignment or transfer of this agreement by [HBK] to William Kelley and/or Ryland Kelley or any legal entity in which William Kelley and/or Ryland Kelley owns [sic] majority financial interest.
The 1986 Agreement is entitled "AGREEMENT" and recites that it is "made" on May 2, 1986 between PDA and HBK (the signatures are identified as those of PDA's President and Secretary, and of the attorney in fact for HBK's President). It provides (in pertinent part) as follows: . . .
The parties desire to construct a new conference facility in the vicinity of the currently existing Recreation Hall at the Pajaro Dunes Development located at 2661 Beach Road in Watsonville, California.
To effectuate the mutual intent of the parties, they agree as follows:
1. HBK will build, at its sole cost and expense, a new conference facility ("Conference Facility") [of a certain size with certain features, in a certain location.]
2. The cost of the Conference Facility will be approximately [$130,000] or more. [Construction costs defined, procedures concerning budget approval.]
3. [HBK to submit plans to PDA for approval within 90 days; PDA to respond within 60 days.]
4. [Decks]
5. [Landscaping]
6. [Parking]
7. [HBK responsible for government permits.]
8. Actual construction of the Conference Facility will begin no later than February 1, 1987. [Actual construction defined.]
9. Construction will be completed by May 1, 1987, unless factors beyond the control of HBK, such as natural disasters, floods or acts of God, delay construction. [Completion defined.]
10. [HBK to provide insurance for benefit of PDA.]
11. The land on which the Conference Facility is to be constructed is owned by [PDA]. [PDA] agrees to enter into a written lease (the "Lease") with HBK providing that [PDA] will rent the land on which the Conference Facility is located for a sum of [$1] per year for the time that HBK owns the Conference Facility.
12. HBK shall own the Conference Facility for a period of [10] years from the time construction is completed, as defined in ¶ 9, or until HBK has recaptured its costs (including capital and interest) incurred in constructing the Conference Facility, whichever is earlier. [HBK's cost of capital defined, method of calculating recapture period.]
13. When the time described in ¶ 12 is reached, HBK shall transfer the Conference Facility to [PDA] in fee simple, free of any liens or encumbrances of any nature whatsoever.
14. [HBK to hold PDA harmless from liability for construction costs, and to indemnify PDA.]
15. HBK to enter into a written rental agreement (the "Rental Agreement") with [PDA], which provides that as long as HBK owns the Conference Facility, it shall rent it to [PDA] for the sum of [$1] per year. [Rental Agreement to provide for PDA to maintain insurance for benefit of HBK — PDA to be responsible for internal surfaces and landscaping, HBK to be responsible for external surfaces.]
16. During the life of the Rental Agreement, [PDA] shall grant HBK [100] days per year of rent-free use of the Conference Facility. For all days exceeding the [100] rent-free days, HBK shall be charged [one-half] the then current rental rate. HBK will not be required to provide deposits on any of the rent-free use days and shall be required to provide [one-half] of the normal deposit for usage over [100] days. [PDA to set rental rates, subject to controlled increases]. HBK will be required to pay the then current rental charge after it transfers the ownership of the Conference Facility to [PDA]. HBK will at all times pay the then current rental charge for use of the Recreation Hall.
17. PDA shall refurbish the interior of the Recreation Hall. The estimated cost of this refurbishing is [$25,000]. [PDA to submit statement of items to be refurbished and cost estimates.]
18. [PDA] and HBK will extend the agreement between them dated April 26, 1982, a copy of which is attached as Exhibit "B", for [7] years, provided that the construction of the Conference Facility begins in accordance with ¶ 8 and is completed in accordance with ¶ 9, and further provided that the construction (ground breaking and grading) of the new Real Estate Office Building referred to in Exhibit "B" has begun on or before August 1, 1986. The Real Estate Office Building referred to in Exhibit "B" shall be constructed according to the plans approved by the [PDA] Design Committee on November 15, 1985.
19. [Arbitration]
20. [Counterparts]
21. [California law applies.]
22. This Agreement can be modified only by a written agreement signed by all parties to the Agreement. 23. [No assignment without consent, consent not to be unreasonably withheld.]
The 1988 Agreement is entitled "CONFERENCE CENTER AGREEMENT" and recites that it is "made" on December 18, 1988 between PDA and HBK (the signatures are identified as those of PDA's President and Secretary, and of HBK's President).
It provides (in pertinent part) as follows:
. . .
The parties desire to construct a new conference facility in the vicinity of the currently existing Recreation Hall at the Pajaro Dunes Development located at 2661 Beach Road in Watsonville, California.
To effectuate the mutual intent of the parties, they agree as follows:
1. HBK will build, at its sole cost and expense, a new conference facility ("Conference Facility") [of a certain size with certain features].
2. The cost of the Conference Facility will be approximately [$220,000] or more. [Constructions costs defined, procedures concerning budget approval.]
3. [Decks]
4. [Landscaping]
5. [Parking]
6. [HBK responsible for government permits.]
7. Actual construction of the Conference Facility will begin no later than April 15, 1989. Actual construction means ground breaking and grading.
8. Construction will be completed within [9] months of commencement, unless factors beyond the control of HBK, such as natural disasters, floods or acts of God, delay construction. [Completion defined.]
9. [HBK to hold PDA harmless from liability for HBK's construction, indemnify PDA, and carry insurance.]
10. The land on which the Conference Facility is to be constructed is owned by [PDA]. [PDA] agrees to enter into a written lease (the "Lease") with HBK providing that [PDA] will rent the land on which the Conference Facility is located for a sum of [$1] per year for the time that HBK owns the Conference Facility.
11. HBK shall own the Conference Facility for a period of [15] years from the time construction is completed, as defined in ¶ 8, or until HBK has recaptured its costs (including capital and interest) incurred in constructing the Conference Facility, whichever is earlier. [HBK's cost of capital defined, method of calculating recapture period.]
12. When the time described in ¶ 11 is reached, HBK shall transfer the Conference Facility to [PDA] in fee simple, free of any liens or encumbrances of any nature whatsoever. [Condition of external surfaces at time of transfer.]
13. [HBK to hold PDA harmless from liability for construction costs, and to indemnify PDA.]
14. HBK to enter into a written rental agreement (the "Rental Agreement") with [PDA], which provides that as long as HBK owns the Conference Facility, it shall rent it to [PDA] for the sum of [$1] per year. [Rental Agreement to provide for PDA to maintain insurance for benefit of HBK — PDA to be responsible for internal surfaces and landscaping, HBK to be responsible for external surfaces.]
15. During the life of the Rental Agreement, [PDA] shall grant HBK [100] days per year of rent-free use of the Conference Facility. For all days exceeding the [100] rent-free days, HBK shall be charged [one-half] the then current rental rate. HBK will not be required to provide deposits on any of the rent-free use days and shall be required to provide [one-half] of the normal deposit for usage over [100] days. [PDA to set rental rates, subject to controlled increases]. HBK will be required to pay the then current rental charge after it transfers the ownership of the Conference Facility to [PDA]. HBK will at all times pay the then current rental charge for use of the Recreation Hall.
16. HBK shall refurbish the interior and exterior of the Recreation Hall. The estimated cost of this refurbishing is [$40,000]. [Refurbishing to comply with architect's plans.]
17. The [PDA] and HBK agreement relating to HBK's new Real Estate office building between them dated April 26, 1982, a copy of which is attached as Exhibit B, is extended for [9] years, to April 30, 2008, provided that the construction of the Conference Facility begins in accordance with ¶ 7 and is completed in accordance with ¶ 8, and further provided that the construction (ground breaking and grading) of the new Real Estate office building referred to herein has begun on or before the construction date of the Conference Facility. The Real Estate office building referred to herein shall be constructed in accordance with the plan approved by the [PDA] Design Committee on November 15, 1985. Construction of the Real Estate office building shall be completed within [1] year, unless factors beyond the control of HBK, such as natural disasters, floods or acts of God, delay construction. [Completion defined.]
18. [Arbitration]
19. [Counterparts]
20. [California law applies.]
21. This Agreement can be modified only by a written agreement signed by all parties to the Agreement.
22. [No assignment without consent, consent not to be unreasonably withheld.]
23. This Agreement supersedes and replaces that agreement entered into by the parties hereto on May 2, 1986.
24. [HBK to provide evidence of funds available for completion of all construction and refurbishing. If performance not completed per ¶ 8 or ¶ 17, HBK subject to liquidated damages of $100 per day.]
(b) Confirmation Hearing
When the Confirmation Hearing commenced on September 6, 1995, the Plan did not provide for assumption of either the 1982 Agreement or the 1988 Agreement. At that time, the Plan provided for or of all executory contracts and unexpired except those specified on an exhibit, and the exhibit listed no contract between PDA and HBK, or between PDA and PDRA, or involving PDA in any way. During the Confirmation Hearing, Spitters' attorney Levenberg stated as follows:
Your Honor, we have one minor modification to make to the plan with respect to the assumption of executory contracts. . . . it's very simple, Your Honor. One of the agreements with PDA is the conference center agreement [i.e., the 1988 Agreement] which allows the debtor to use a conference center facility free of charge for a certain period of time every year. We are specifically assuming that contract. Of course, your Honor, we continue to maintain our position that the avoidance action will — with respect to the obligation to transfer the property in the year 2008 and the obligation to pay a license fee is going to continue to go forward. We're not doing anything inconsistent with that. So that we plan — we still plan to go forward with that action. But the conference center agreement itself, we're assuming — and, in fact, that helps PDA too, because instead of getting 60 cents on the dollar, which they've already elected to take on their $29,000 claim, which relates to that conference center agreement, they will be getting 100 cents on the dollar, Your Honor. So I think that that should not be a problem.
At that time, PDA was represented by attorney Gerald D. Bowden ("Bowden"), who appeared at the Confirmation Hearing and said nothing in response to Levenberg's remarks about modifying the Plan to assume the 1988 Agreement.
Levenberg's statement was made immediately following oral argument concerning PDA's objection to confirmation. In support of that objection, Bowden argued that the Plan could not be feasible while the 1982 Agreement was the subject of unresolved litigation, because that contract required PDRA to turn over its business site to PDA in 2008 — when that time came, there might be no other location available in or near Pajaro Dunes, so PDRA could be unable to function if its turnover duty was enforced. Bowden went on to say:
. . . I can only say that this plan appears to be grounded on some very dubious assumptions about the future. And is wholly dependent upon the cooperation of people who may not cooperate, upon the ability to negotiate something with people who may not be willing to do what Mr. Spitters needs them to do. Mr. Spitters needs a number of things that, frankly, go against the long established contractual expectations of [PDA], and assumptions that Mr. Spitters himself agreed to when he made the loan that got him in the position that he's in now, namely the right of [PDA] to the conveyance of the office building. Now we have some very fundamental cleavages of interest between {PDA] and whoever's in charge of PDRA.
And this plan assumes that those very fundamental differences can be either litigated successfully by PDRA, or negotiated successfully. I've no reason to believe that either of those things is true.
Sacks responded on behalf of the Trustee, who supported the Plan:
I wanted to say that I don't see that it assumes those things. . . . The plan provides for a continuation. And the business practice of the party has been to continue the relationship as it exists, paying PDA money every month and continuing a relationship that may or may not be ultimately upheld in the litigation. And so, even if we are unsuccessful in litigation, which seeks to say we don't have to pay them 5,000 a month, we don't have to give them an office building, it seems to me the plan doesn't presuppose — When asked by the Court what would happen in 2008, Sacks replied that a plan's feasibility should not depend upon whether "something bad might happen" thirteen years later, and the Court stated its agreement with that position.
(c) Confirmation Order
The Plan was confirmed at the Confirmation Hearing over the feasibility objection of PDA. The Confirmation Order was approved as to form by Bowden on September 12, 1995 and it was not appealed. The Plan and the Confirmation Order both provide that, pursuant to 11 U.S.C. § 1141, confirmation discharges PDRA of all claims arising prior to confirmation except as provided for by the Plan. The Confirmation Order also provides for several Plan modifications that were discussed at the Confirmation Hearing, including the following provisions in § 1:
D. Article IV of the Plan will be modified to read as follows:
ARTICLE IV. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
As of the Effective Date, each executory contract or unexpired lease which is a liability of Debtor shall be rejected, except (a) Assumed Leases and Assumed Rental Agreements which have been heretofore assumed by orders of the Bankruptcy Court referenced in docket proceedings #61 and #62 of the Reorganization Case and (b) executory contracts or leases which are expressly assumed pursuant to the schedule of assumed contracts and leases attached as exhibit A hereto. The Confirmation Order shall constitute an order of the Bankruptcy Court approving such rejections pursuant to Section 365 of the Bankruptcy Code as of the Confirmation Date. Apart from the Conference Center Agreement ("Conference Center Agreement") between Hare, Brewer Kelley and Pajaro Dunes Association ("PDA") dated December 18, 1988, neither Debtor nor Proponent believes that Debtor is bound by certain contracts between Hare, Brewer Kelley, Inc. and PDA and referenced in pleading filed by Debtor in the Bankruptcy Court in connection with the PDA Adversary Proceeding, including, without limitation, the provisions of those agreements that allegedly require Debtor to: (a) convey the Office Building ("Office Building") at Pajaro Dunes to PDA; and (b) pay license agreement fees to PDA. Nevertheless, pending a resolution or negotiated settlement of the PDA Adversary Proceeding, Debtor will continue to perform all obligations under the several contracts with PDA until a new agreement is negotiated, or prosecution of the lawsuit resumes and/or the agreements in issue are abrogated by either party. Nothing in this Plan will be construed as a rejection of any express or implied contractual right of Debtor to conduct its business at Pajaro Dunes and, to the extent that such rights may be essential to such operation, such rights are hereby assumed. . . . ¶ . . . Any holder of a Claim arising out of an executory contract or lease shall file such Claim with the Bankruptcy Court and serve same on the Proponent, the Debtor and the Trustee within sixty (60) days after the Effective Date or such Claim will be absolutely and forever barred.
E. Exhibit A to the Plan (list of executory contracts to be assumed) shall be modified as set forth in the Modified Exhibit A to [Plan] ("Modified Exhibit A") attached hereto.
All executory contracts set forth in Modified Exhibit A are hereby assumed and this Order shall constitute an order of the Bankruptcy Court approving such assumptions pursuant to Section 365 of the Bankruptcy Code.
The "Modified Exhibit A" referred to by the Confirmation Order sets forth only one contract involving PDA: Conference Center (Primary obligations under Agreement between this agreement includes [HBK] and [PDA] dated [sic] an obligation to December 18, 1988. pay rent for use of conference facility as set forth in the contract and to pay certain construction costs in an amount of $29,000).
(2) Interpretation of Confirmation Order
PDRA contends that the 1982 Agreement and the 1988 Agreement are separate contracts, and that the Confirmation Order operates to reject all executory contracts that are not included on the list of those being assumed. Therefore, according to PDRA, since the Confirmation Order names only the 1988 Agreement as being assumed, it follows that the separate 1982 Agreement was necessarily rejected.
PDA argues that the 1988 Agreement is not a separate contract distinct from the 1982 Agreement but is merely an amendment of the 1982 Agreement. With respect to the Confirmation Order, PDA takes alternative positions: first, that the Confirmation Order's provision for assumption of the 1988 Agreement necessarily operates to assume the 1982 Agreement that underlies and is amended by the 1988 Agreement; alternatively, that the Confirmation Order operates to assume the 1988 Agreement but leaves the 1982 Agreement neither assumed nor rejected and permits it to pass through bankruptcy unaffected.
The following discussion assumes for the sake of analysis that the 1982 Agreement and the 1988 Agreement are separate contracts. The issue of whether they are in fact separate contracts is discussed in Part III.A.(3)(a) below.
(a) Drafting Of Confirmation Order
PDA cites California Civil Code ("CC") § 1654, which provides that, where "uncertainty" is present, "the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist". In short, a document is to be construed against its drafter. It is not clear who drafted the Confirmation Order. The Confirmation Order is written on the letterhead of Spitters' attorney Levenberg, but is approved as to form by the Trustee's attorney Sacks and PDA's attorney Bowden. PDA has submitted deposition testimony of the Trustee, in which he stated that a meeting occurred on an unspecified date prior to confirmation and was attended by him, his attorney Sacks, Spitters, and Spitters' attorney Levenberg, at which he recalled that treatment of the 1982 Agreement and the 1988 Agreement "was an issue and that this language was inserted", i.e., Article IV of the Plan — the Trustee did not refer to the drafting of the Confirmation Order, but the Plan and the Confirmation Order are substantially similar. PDA has also submitted a memo from Trustee's attorney Sacks to Spitters' attorney Levenberg dated September 8, 1995 (two days after the Confirmation Hearing) proposing language to modify Article IV of the Plan, which language was not used in the Confirmation Order. PDRA contends that Spitters and his attorney Levenberg drafted the Confirmation Order and it therefore should not be construed against PDRA now, but PDRA does not explain why distinctions should be drawn between Spitters the 1995 drafter and Spitters the current principal of PDRA.
It is apparent that PDA did not participate in drafting the Confirmation Order beyond its attorney's approval as to form, and that PDRA (whether in its former or current incarnation) may not have been the sole creator but was not a stranger to the drafting process.
(b) Meaning of Confirmation Order
The Confirmation Order's § 1.D., which modifies Article IV of the Plan concerning treatment of executory contracts and leases, is not a model of clarity. At the Court's request, PDRA has attempted to reconcile what seem to be contradictions within the section, as follows.
1. The first part of the section ("Part 1") is an apparently unequivocal statement that all executory contracts and leases are rejected unless they have previously been assumed under Court orders or appear on the exhibit listing those that are to be assumed:
As of the Effective Date, each executory contract or unexpired lease which is a liability of Debtor shall be rejected, except (a) [those previously assumed by Court orders] and (b) executory contracts or leases which are expressly assumed pursuant to the schedule of assumed contracts and leases attached as exhibit A hereto.
Part 1 would provide for rejection of the 1982 Agreement, since that contract was not listed in the exhibit, unless the 1988 Agreement, which was assumed by virtue of being listed in the exhibitm encompassed the 1982 Agreement (which PDRA has consistently denied). PDRA says that Part 1 was intended to assume only the 1988 Agreement, and to reject the 1982 Agreement.
2. However, the second part of the section ("Part 2") seems to contradict the notion of the 1982 Agreement having been rejected by Part 1, since Part 2 provides for PDRA to continue litigating over whether the 1982 Agreement is enforceable, and to perform under the 1982 Agreement while trying to settle the litigation:
Apart from the Conference Center Agreement ("Conference Center Agreement") between [HBK] and [PDA] dated December 18, 1988 [i.e., the 1988 Agreement], neither [PDRA] nor [Spitters] believes that [PDRA] is bound by certain contracts between [HBK] and PDA and referenced in pleading filed by [PDRA] in the Bankruptcy Court in connection with the PDA Adversary Proceeding, including, without limitation, the provisions of those agreements that allegedly require [PDRA] to: (a) convey the Office Building ("Office Building") at Pajaro Dunes to PDA; and (b) pay license agreement fees to PDA. Nevertheless, pending a resolution or negotiated settlement of the PDA Adversary Proceeding, [PDRA] will continue to perform all obligations under the several contracts with PDA until a new agreement is negotiated, or prosecution of the lawsuit resumes and/or the agreements in issue are abrogated by either party.
PDRA says that Part 2 means that PDRA did consider the 1982 Agreement to have been rejected by Part 1, but: PDRA intended to proceed with the pending litigation about the enforceability of the 1982 Agreement because the Plan called for claims to be filed for damages arising out of breach by rejection; PDRA expected PDA to file such a claim; PDA never filed a claim for damages arising out of breach by rejection of the 1982 Agreement and the bar date for such claims passed in 1995. PDRA would have no liability under such a claim if the 1982 Agreement was held to be unenforceable; and, so long as negotiations to settle the litigation were pending, PDRA intended to perform under the 1982 Agreement as if it had not been rejected, so as to mitigate any damages for breach by rejection if settlement did not occur and PDRA ultimately lost the litigation and had to pay a claim filed by PDA.
3. However, the third part of the section ("Part 3") seems to be directly at odds with the rejection of the 1982 Agreement that PDRA insists was intended by both Part 1 and Part 2:
Nothing in this Plan will be construed as a rejection of any express or implied contractual right of Debtor to conduct its business at Pajaro Dunes and, to the extent that such rights may be essential to such operation, such rights are hereby assumed.
PDRA's explanation of Part 3 is that it is a "catchall" provision to ensure that PDRA retained all of the rights necessary to do business at Pajaro Dunes — should PDRA later determine that it needed rights under a contract that would otherwise have been rejected by Part 1, PDRA could fall back upon Part 3 and argue that contracts providing "essential" rights were not among those rejected by Part 1. PDRA recognizes that its ability to make use of Part 3 would be subject to the other contracting party's ability to argue that a qualified assumption was not an effective assumption.
PDRA also characterizes Part 3 as a "limited exception" to the blanket rejection called for by Part 1, available for use only if a showing could be made that a given contract was "essential". PDRA speaks in terms of Part 3 granting PDRA an "option" to decide whether any express or implied rights to operate its business were needed.
Taking PDRA at its word about what each part of § 1.D. means, and how they were intended to fit together, it appears that the Plan was not intended to assume the 1982 Agreement, but was not intended to reject it either. Rather, it seems that (as the Trustee stated in deposition testimony submitted by PDA) the Plan was intended to "punt", or defer, the issue of how to treat the 1982 Agreement by leaving PDRA an option to decide later whether the 1982 Agreement provided "essential" rights that were not provided by the assumed 1988 Agreement. PDRA has objected that the Trustee's testimony about what the Plan was intended to accomplish is irrelevant to interpreting the Plan and the Confirmation Order, since it was Spitters' Plan and not the Trustee's. However, as stated above, the Trustee testified that he and his attorney Sacks attended a meeting with Spitters and Spitters' counsel at which the treatment of PDA's executory contracts was discussed and Article IV of the Plan was drafted, so the Trustee's observations and opinions about the Plan's intended goal are not irrelevant.
Further, the Trustee supported the Plan and his attorney argued in its favor at the Confirmation Hearing, so he was not merely a "bystander" as PDRA describes him, with no involvement in the process. That conclusion is consistent with the remarks made by the Trustee's attorney Sacks at the Confirmation Hearing: The plan provides for a continuation. And the business practice of the party has been to continue the relationship as it exists, paying PDA money every month and continuing a relationship that may or may not be ultimately upheld in the litigation.
It is true that Sacks was speaking on behalf of the Trustee rather than for Plan proponent Spitters, but Spitters' attorney Levenberg was present and tacitly acceded to Sacks' description of the Plan provisions by not offering any correction or clarification. Levenberg's own comments at the Confirmation Hearing are also consistent with the notion of "punting",i.e., neither assuming nor rejecting the 1982 Agreement but instead leaving it to be dealt with in the pending litigation:
We are specifically assuming [the 1988 Agreement]. Of course, your Honor, we continue to maintain our position that the avoidance action will — with respect to the obligation to transfer the property in the year 2008 and the obligation to pay a license fee is going to continue to go forward. We're not doing anything inconsistent with that. So that we plan — we still plan to go forward with that action. But the [1988] conference center agreement itself, we're assuming. [emphasis supplied]
The emphasized language refers to obligations that are imposed only by the 1982 Agreement, so Levenberg's statement means that the 1982 Agreement is going to continue to be litigated and the Plan is "not doing anything inconsistent with" that method of handling the 1982 Agreement — i.e., litigating the 1982 Agreement is an alternative to dealing with it in the Plan.
PDRA argues that the Plan did not contemplate any treatment of executory contracts other than assumption or rejection, and was not intended to permit any unassumed contracts to pass through bankruptcy unaffected. But that third result necessarily flows from the kind of treatment that PDRA describes in explaining the Confirmation Order's § 1.D. and reconciling the section's three parts with each other. PDRA says that Part 3 granted PDRA an "option" so that, post-confirmation, PDRA could claim that any given contract had not really been rejected under Part 1 through being unlisted among the expressly assumed contracts — PDRA says that such a claim would be made only if PDRA later discovered that a contract not expressly assumed provided rights "essential" to PDRA's business operation. The Plan and the Confirmation Order impose no deadline by which PDRA must decide whether "essential" rights exist, so the "option" by which PDRA may elect to declare that any contract was assumed has an endless term. Such treatment amounts to "punting", which the Trustee described as:
["Punt"] may not be the best word, but it is saying that this issue is still out there. This issue has not been resolved. We are disclosing it. . . . My layman's understanding of what this means is that this whole dispute between PDRA and PDA was a can of worms. It is still a can of worms because four years later it still hasn't been resolved. What this is saying is we are not attempting to resolve that in this plan; we are deferring it for a later date. . . . What it says is this fight will continue and this plan does not resolve this fight.
In other words: the issue of whether PDRA is bound by the 1982 Agreement is in litigation and that is where it is going to stay and that is the only way it is going to be resolved ("we are deferring it for a later date"); the Plan does not call for the 1982 Agreement to be assumed because assumption would moot the issue of whether PDRA is bound (assumption would make PDRA bound) and PDRA intends to continue to litigate that issue; the Plan does not call for the 1982 Agreement to be rejected because, if PDRA is later held to be bound, PDRA does not want to have burned all its bridges by rejecting (and breaching) a contract that might later be found to be essential; so the Plan is not going to assume or reject the 1982 Agreement, it is instead going to let the contract pass through bankruptcy unaffected, and PDRA is either going to be bound by it or not bound by it depending on what happens with the litigation; it will be the litigation that determines whether PDRA is bound by the 1982 Agreement, not the Plan, so the Plan neither assumes the contract nor rejects it, the Plan just leaves the contract alone and the contract passes through bankruptcy unaffected, to be litigated later.
The Bankruptcy Code provides for executory contracts to be assumed or rejected — if they are neither assumed nor rejected by the time a Chapter 11 plan is confirmed, they pass through the bankruptcy case and emerge at the other end unaffected and intact, either enforceable or unenforceable as applicable non-bankruptcy law may dictate. PDRA argues that the Ninth Circuit does not permit executory contracts to remain in effect and be enforced against a reorganized Chapter 11 debtor unless they have been assumed during the bankruptcy case, citing In re Lovitt, 757 F.2d 1035 (9th Cir.), cert. den. sub nom Cheadle v. Appleatchee Riders Association, 474 U.S. 849, 106 S.Ct. 145 (1985) ("Lovitt") and In re Moreggia Sons, Inc., 825 F.2d 1179 (9th Cir 1988) ("Moreggia"). Those cases are inapposite because they deal with statutory provisions that do not apply in this matter. Lovitt concerns a liquidation case and § 70(b) of the former Bankruptcy Act, which provided that executory contracts were deemed rejected if not assumed within a certain period of time; the Court likened that section to § 365(d)(1) of the Bankruptcy Code, which applies only to cases under Chapter 7 — this matter involves a Chapter 11 case rather than a Chapter 7 case, and § 365(d)(1) does not apply outside of Chapter 7. Moreggia concerns § 365(d)(4), which provides that nonresidential real property leases are deemed rejected if not assumed within a certain period of time — this matter does not involve a nonresidential real property lease and § 365(d)(4) is therefore inapplicable. The statutes at issue inLovitt and Moreggia both require affirmative steps to assume within certain periods of time, and the contract or lease becomes automatically rejected (and therefore unenforceable) if not timely assumed. By contrast, the applicable statutes in this matter do not impose such requirements and consequences:
[With exceptions not relevant here], the trustee [or debtor-in-possession], subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor. [emphasis supplied]
In a case under chapter 9, 11, 12, or 13 of this title, the trustee [or debtor-in-possession] may assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor at any time before the confirmation of a plan but the court, on the request of any party to such contract or lease, may order the trustee [or debtor-in-possession] to determine within a specified period of time whether to assume or reject such contract or lease. [emphasis supplied]
. . . a [Chapter 11 reorganization] plan may — . . .
(2) subject to section 365 of this title, provide for the assumption, rejection, or assignment of any executory contract or unexpired lease of the debtor not previously rejected under such section. . . . [emphasis supplied]
§ 1123(b).
The Bankruptcy Code does not require that an executory contract be assumed or rejected during a Chapter 11 case (as noted, all of the applicable sections use the permissive term "may" rather than the mandatory term "shall" when providing for assumption or rejection), nor does the Code provide for the automatic rejection of a contract that is not assumed by a date certain; accordingly, there is no statutory basis upon which to hold that unassumed and unrejected executory contracts do not pass through bankruptcy unaffected. Insofar as case law is concerned, there is no prohibition in the Ninth Circuit against executory contracts passing through a Chapter 11 case unaffected and remaining enforceable against the reorganized debtor, and the only Ninth Circuit discussion of the issue that this Court has found is a footnote in a case under the former Bankruptcy Act, cited by PDA:
In Chapter XI proceedings 'failure to assume affirmatively an executory contract does not result at any time in rejection of the contract. Whether the debtor is in possession, or whether there is a receiver or trustee, the contract can be rejected only by affirmative action * * *.
Unless so rejected, the contract continues in effect.' 8 Collier Bankruptcy 376-78 (14th ed.)], at 162.Smith v. Hill, 317 F.2d 539, 542 n. 6 (9th Cir. 1963). The concept was widely recognized in other Circuits under the former Bankruptcy Act and continues to be accepted under the current Bankruptcy Code, see, e.g.:Matter of Greystone III Joint Venture, 948 F.2d 134, (5th Cir. 1991),cert. denied, 506 U.S. 822, 113 S.Ct. 72 (1992); In re Boston Post Road Ltd. Partnership, 21 F.3d 477 (2d Cir. 1994); International Union, United Automobile, Aerospace and Agricultural Implement Workers of America v. Miles Machinery Co., 34 B.R. 683 (E.D.Mich. 1982); Boland v. Parmelee, 1997 WL 642550 (N.D.N.Y.); In re Shoppers Paradise, Inc., 8 B.R. 271 (Bankr.S.D.N.Y. 1980); In re Central Watch, Inc., 22 B.R. 561 (Bankr.E.D.Wisc. 1982); In re Continental Country Club, Inc., 114 B.R. 763 (Bankr.M.D.Fla. 1990); In re Polysat, 152 B.R. 886 (Bankr.E.D.Pa. 1993); In re Day, 208 B.R. 358 (Bankr.E.D.Pa. 1997). And see: 3 King,Collier on Bankruptcy (15th ed. rev. 2000) ¶ 365.04[2][d]; 11 King,Collier on Bankruptcy (15th ed. rev. 2000) ¶ 1123.02[2].
Bankruptcy law provides only three, mutually exclusive, methods for treatment of executory contracts in Chapter 11: (1) they can be assumed; or (2) they can be rejected; or (3) they can pass through bankruptcy unaffected. If a contract is assumed, it can then be assigned to someone else, § 365(f). However, assignment is not another treatment in addition to assuming or rejecting or doing nothing, it is merely one disposition that may be made of an assumed contract (as opposed to retaining the assumed contract and performing it or breaching it). Nor is assignment an alternative treatment to assuming or rejecting or doing nothing, because a contract cannot be assigned unless it has first been assumed, § 365(f)(2)(A).
There is no legally cognizable fourth method of treatment, yet that is what PDRA's position would produce. According to PDRA, the 1982 Agreement is not assumed because it is not listed on the Confirmation Order's exhibit; but it is not rejected because, if it is someday deemed "essential", then it will be treated as having been assumed; but, even though it has been neither assumed nor rejected, it does not pass through bankruptcy unaffected and remain enforceable against PDRA because, unless it is someday deemed "essential" and treated as having been assumed (which may never happen but could happen), it was rejected. Under PDRA's analysis, since PDRA has an unlimited time within which to decide whether to declare the 1982 Agreement "essential", the contract's status during that period would be in limbo — it could not be treated as if it had been absolutely rejected because it would always be subject to being treated as if it had been assumed if it is ever declared "essential", so it must be only a little bit dead throughout the potentially endless time between confirmation and a possible declaration by PDRA that it is "essential"; and it could not be treated as if it had been assumed, because it has not yet been assumed (though it might be in the future) and it was rejected (albeit subject to being "unrejected" or resurrected by being declared essential someday, maybe). This fourth treatment renders the 1982 Agreement somewhere between dead and undead — neither alive nor dead until and unless its "essential" nature has been determined, which may or may not occur before the contract expires by its terms on April 30, 2008, thirteen years after confirmation of the Plan. Not only is such a result unprovided for by the law (and PDRA offers no authority for it), it would be impossible to apply fairly in the parties' dealings with each other: if a contract is assumed, an action for breach lies if it is not performed but PDA could not sue for breach upon lack of performance because, according to PDRA, the contract was not assumed; if a contract is rejected, a claim for damages caused by breach via rejection lies but PDA could not claim damages for breach via rejection because, according to PDRA, no actual rejection has yet occurred, since the contract is subject to being treated as assumed at any time that PDRA might elect to declare the contract "essential"; so PDA would lack the remedies flowing from either assumption or rejection, but would also lack the remedies of one whose unassumed and unrejected contract passed through bankruptcy unaffected because, according to PDRA, the contract cannot be enforced unless it was assumed and it has not yet been assumed (though it might some day be treated as having been assumed).
In fact, the Court notes that Part 3 of the Confirmation Order's § 1.D provides that rights may be assumed if they are someday found to be essential, apparently giving PDRA the option to assume only parts of the 1982 Agreement rather than the entire contract — such a result would be even more bizarre and incapable of fair application, as well as contrary to the well-settled rule that a contract must be assumed in toto or not at all, see Danning v. Brunswick Corp., 466 F.2d 1010 (9th Cir. 1972), cert. den. 409 U.S. 1126, 93 S.Ct. 939 (1973).
It is true that an unappealed confirmed plan has res judicata effect upon issues decided by confirmation even if it includes provisions that are not permitted by law, see In re Pardee, 193 F.3d 1083 (9th Cir. 1999) ("Pardee"). However, that does not mean that a plan can properly be interpreted in such a way as to create an absurdity; see generally 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 690 ("Witkin"); and see CC § 1638, providing that "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity". Interpreting the Confirmation Order to provide for rejection of executory contracts only conditionally while leaving them subject to PDRA's right to change its mind at any time in the future would lead to a result that is not only contrary to law, but also nonsensical and impractical — such a construction would produce the kind of "extraordinary or absurd" interpretation that is to be avoided, Witkin at 624, and see Baine v. Continental Assurance Co., 21 Cal.2d 1, 129 P.2d 396 (1942). In order to avoid such a result, the Court considered the possibility of excising Part 3 of the Confirmation Order's § 1.D and treating it as unenforceable. However, neither party requested such treatment or addressed the applicable standards for severing a contractual provision. Further, PDRA's position in post-argument briefing is that Part 3 was purposely included for the benefit of PDRA, and PDRA has never disavowed it; under such circumstances, it would be inequitable to relieve PDRA of the consequences of Part 3. Finally, a contract should not be interpreted in such a way as to render a provision unenforceable where an alternative interpretation is feasible, see generally Witkin.
(3) Effect of Confirmation
As discussed above, if the 1982 Agreement was a separate contract distinct from the 1988 Agreement, it was neither assumed nor rejected by the Plan as modified by the Confirmation Order; therefore, it passed through bankruptcy unaffected and intact, enforceable or not (as the case may be) under applicable non-bankruptcy law. However, it is beyond question (and the parties agree) that the 1988 Agreement was expressly assumed. Accordingly, if the 1982 Agreement was not separate from the 1988 Agreement, then it follows that the express assumption of the 1988 Agreement necessarily operated to assume the 1982 Agreement as well.
For the reasons explained following, the 1982 Agreement and the 1988 Agreement are separate contracts — further, even if they were a single unit, the Plan does not treat them as such and the confirmed Plan is res judicata on that issue.
(a) Separate Contracts
Both parties have submitted deposition testimony dated in 1998 and 1999 by people who say that they were involved in negotiating and/or drafting the 1982 Agreement and/or the 1986 Agreement and/or the 1988 Agreement. The testimony is, to some extent, contradictory. According to PDA, the consensus is that the 1982 Agreement was the "master agreement" and the two later contracts served merely to supplement and amend the 1982 Agreement by addressing circumstances that changed as time went by. Under that view, there has always been only one contract and that is the 1982 Agreement, as modified first by the 1986 Agreement and then by the 1988 Agreement (which superseded the 1986 Agreement). However, that is not what the documents say and their language will control over current expressions of intent that are not reflected by the writing:
Under the modern theory of contracts we look to objective, not subjective, criteria in ascertaining the intent of the parties.
Brobeck, Phleger, Harrison v. Telex Corp., 602 F.2d 866, 873 (9th Cir. 1979).
The 1982 Agreement is entitled "AGREEMENT", is fourteen paragraphs long, and states that: PDA gives HBK the right to perform certain business activities at Pajaro Dunes for seventeen years; HBK agrees to pay PDA monthly fees, construct an addition to an existing building ("Real Estate Office Building"), and convey the improved building and its underlying real property to PDA at the end of the seventeen year term.
Four years after the 1982 Agreement was entered into, the 1986 Agreement was created. The 1986 Agreement is entitled "AGREEMENT", is twentythree paragraphs long, and states in its preamble that:
The parties desire to construct a new conference facility in the vicinity of the currently existing Recreation Hall at the Pajaro Dunes Development located at 2661 Beach Road in Watsonville, California. To effectuate the mutual intent of the parties, they agree as follows:. . . .
The next sixteen paragraphs deal with construction and use of the conference facility, and the seventeenth paragraph concerns refurbishing the recreation hall. The 1982 Agreement is mentioned for the first and only time in the eighteenth paragraph, which states that the parties will extend that contract for seven years from its original expiration date of April 30, 1999 if HBK commences construction of the conference facility and the Real Estate Office Building by certain future dates. The remaining five paragraphs address the general subjects of arbitration, counterparts, applicable law, method of modification, and assignment.
Two years after the 1986 Agreement was entered into, the 1988 Agreement was created. The 1988 Agreement is entitled "CONFERENCE CENTER AGREEMENT", is twentyfour paragraphs long, and recites the same preamble as does the 1986 Agreement:
The parties desire to construct a new conference facility in the vicinity of the currently existing Recreation Hall at the Pajaro Dunes Development located at 2661 Beach Road in Watsonville, California. To effectuate the mutual intent of the parties, they agree as follows:. . . .
The next fifteen paragraphs deal with construction and use of the conference facility, and the sixteenth paragraph concerns refurbishing the recreation hall. The 1982 Agreement is mentioned for the first and only time in the seventeenth paragraph, which states that the parties will extend that contract for nine years from its original expiration date of April 30, 1999 if HBK commences construction of the conference facility and the Real Estate Office Building by certain future dates; that paragraph also calls for the Real Estate Office Building to be completed within one year and to comply with certain designs. The next five paragraphs address the general subjects of arbitration, counterparts, applicable law, method of modification, and assignment. The twenty-third paragraph provides that the 1988 Agreement "supersedes and replaces" the 1986 Agreement. The final paragraph requires HBK to show that it has the necessary construction funding, and provides for liquidated damages.
The 1986 Agreement and the 1988 Agreement that supersedes it are virtually identical. Each of them clearly constitutes a contract in and of itself, rather than serving merely as an amendment or supplement of the 1982 Agreement. The subject matter of the 1982 Agreement is limited: HBK will construct the Real Estate Office Building and give it to PDA in seventeen years, during which period HBK is authorized to conduct business activities at Pajaro Dunes and will pay PDA monthly fees. In contrast, the 1986 Agreement commences by saying that the parties want HBK to build a conference facility at Pajaro Dunes that will ultimately belong to PDA but can be used by HBK — after lengthy and detailed discussion about the conference center, the eighteenth paragraph provides that the term of the 1982 Agreement will be extended another seven years, and that is all that is said about the 1982 Agreement. The 1988 Agreement also calls for a conference center to be built and (in the seventeenth paragraph) extends the term of the 1982 Agreement for another nine years without further mention. The impression given by this set of documents is that the parties wanted two different things at three different times: in 1982, HBK wanted to operate its business at Pajaro Dunes and PDA agreed that HBK could do so for seventeen years if HBK would make monthly payments and give PDA a new Real Estate Office Building; in 1986, PDA wanted a conference facility built and HBK agreed to do so if HBK could use it and do business at Pajaro Dunes for another seven years; in 1988, HBK needed more time to construct the conference facility, so the 1986 Agreement was replaced by the virtually identical 1988 Agreement, which extended the deadlines for completion of the conference facility and gave HBK nine more years instead of seven to do business at Pajaro Dunes. Neither the 1986 Agreement nor the 1988 Agreement states that it supersedes the 1982 Agreement, such that the 1982 Agreement ceased to exist as a separate contract — yet the 1988 Agreement recites that it "supersedes and replaces" the 1986 Agreement, so the parties obviously were familiar with the concept of extinguishing a prior agreement and replacing it with a new one. Neither the 1986 Agreement nor the 1988 Agreement states that it is created for the purpose of amending the 1982 Agreement — to the contrary, each states that its purpose is to "effectuate the mutual intent of the parties" who "desire to construct a new conference facility" (indeed, the title of the 1988 Agreement is "CONFERENCE CENTER AGREEMENT"). It is apparent that, in negotiating the terms of the 1986 Agreement and the 1988 Agreement for construction of the conference center facility, PDA agreed to give HBK more time to do business at Pajaro Dunes than was given under the 1982 Agreement, but it is equally apparent that the sole or primary function of the 1986 Agreement and the 1988 Agreement was not to amend the 1982 Agreement. Rather, the later contracts serve to arrange for construction and use of a conference facility, and such arrangements include a grant of additional time for HBK to do business at Pajaro Dunes. There is nothing in any of the three contracts to suggest that either the 1986 Agreement or the 1988 Agreement was intended to be only an addendum or supplement to the 1982 Agreement rather than a separate contract supported by independent consideration and with its own set of reciprocal duties. Similarly, the language of the three documents does not demonstrate that the 1982 Agreement ceased to be a separate contract distinct from the 1986 Agreement and the 1988 Agreement, by virtue of the later contracts amending the earlier one by extending its term.
(b) Res Judicata
Assuming for the sake of argument that the 1982 Agreement and the 1988 Agreement were not separate, but merely two parts of a single contract, the fact remains that the Plan does not treat them as such and the confirmed Plan is res judicata on that issue, even if its provisions are incorrect as a matter of law, Pardee.
Neither the Confirmation Order nor the Plan mentions the 1982 Agreement at all, but the Confirmation Order's exhibit listing contracts to be assumed does refer to the 1988 Agreement and describes it as follows:
Conference Center (Primary obligations under Agreement between this agreement includes [HBK] and [PDA] dated [sic] an obligation to December 18, 1988. pay rent for use of conference facility as set forth in the contract and to pay certain construction costs in an amount of $29,000).
According to that description, "primary obligations" under the 1988 Agreement are merely to pay rent for use of the conference facility and bear construction costs of $29,000. Such obligations clearly do not include those that are imposed by the 1982 Agreement: to pay monthly fees for the right to do business at Pajaro Dunes, to construct the Real Estate Office Building, and to turn it and the underlying real property over to PDA by April 30, 2008. PDA's attorney Bowden signed the Confirmation Order in approval as to form, so PDA is charged with knowledge that the contract being assumed does not include the duties imposed by the 1982 Agreement, and PDA did not appeal that result.
Further, when Spitters' attorney Levenberg said at the Confirmation Hearing that the 1988 Agreement would be assumed, it was clear from his remarks that assumption of the 1982 Agreement was not intended to be accomplished by assumption of the 1988 Agreement — PDA's attorney Bowden was present and did not question Levenberg's statements:
One of the agreements with PDA is the conference center agreement [i.e., the 1988 Agreement] which allows the debtor to use a conference center facility free of charge for a certain period of time every year. We are specifically assuming that contract. Of course, your Honor, we continue to maintain our position that the avoidance action will — with respect to the obligation to transfer the property in the year 2008 and the obligation to pay a license fee is going to continue to go forward. We're not doing anything inconsistent with that. So that we plan — we still plan to go forward with that action. But the conference center agreement itself, we're assuming — and, in fact, that helps PDA too, because instead of getting 60 cents on the dollar, which they've already elected to take on their $29,000 claim, which relates to that conference center agreement, they will be getting 100 cents on the dollar, Your Honor.
Levenberg described the 1988 Agreement as "one of the agreements with PDA", referring to plural agreements rather than a single 1982 Agreement with an amendment in the form of the 1988 Agreement. He also explained the effect of assumption as full payment of the $29,000 owed under the 1988 Agreement, but did not say that the 1982 Agreement would likewise be fully performed, as it would have to be if its assumption were accomplished by the assumption of the 1988 Agreement — indeed, he specifically stated that the issue of whether PDRA was required to perform obligations under the 1982 Agreement would continue to be litigated. When Levenberg spoke, Bowden had just completed his argument that the Plan was not feasible because it depended on disputes over the 1982 Agreement being resolved in favor of PDRA, and such disputes would not have ended by the time of confirmation — had Levenberg's reference to assumption of the 1988 Agreement been intended and understood to mean that the 1982 Agreement would be included in that assumption, such a result would have disposed of PDA's feasibility objection, because assumption of the 1982 Agreement would have immediately resolved the disputes over it. PDA did not withdraw its feasibility objection after Levenberg spoke, and the objection was overruled at the end of the Confirmation Hearing. Finally, the language of the Confirmation Order (which was approved by Bowden as to form) about continuing to litigate the 1982 Agreement is directly at odds with assuming the 1982 Agreement by assuming the 1988 Agreement, since assumption of the 1982 Agreement would have mooted the litigation.
B. First Claim For Relief
PDA seeks summary judgment in its favor on the Amended Complaint's first claim for relief. PDRA opposes, arguing that material issues of triable fact exist, such as to preclude summary judgment. The first claim for relief seeks to recover payments made by PDRA to PDA both pre-petition and post-petition. The pre-petition payments are alleged to be avoidable under § 544 as fraudulent transfers, and the post-petition payments are alleged to be avoidable under § 549 as payments made outside the ordinary course of business and without Court authorization.
(1) Pre-Petition Fraudulent Transfers
By the first claim for relief, PDRA seeks, inter alia, to avoid and recover payments it made to PDA under the 1982 Agreement prior to commencement of PDRA's Chapter 11 case. With respect to pre-petition transfers, the first claim for relief is based on 11 U.S.C. § 544, which permits avoidance of transfers as provided by applicable non-bankruptcy law. In this matter, the applicable law is CC §§ 3439et seq ("CFTA"), the California version of the Uniform Fraudulent Transfer Act, which provides, in pertinent part, as follows: § 3439.04. Transfers fraudulent as to present and future creditors A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation as follows: (a) With actual intent to hinder, delay, or defraud any creditor of the debtor. (b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (1) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (2) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due. § 3439.05. Transfers fraudulent as to present creditors A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
The Amended Complaint alleges that "approximately" $250,000 was paid by PDRA under the 1982 Agreement during the three years before PDRA filed its Chapter 11 petition, at which time PDRA was insolvent, or had insufficient capital to support a transaction in which it was about to engage, or intended to incur debts that it did not reasonably believe could be paid when due.
PDA contends that PDRA's payments under the 1982 Agreement were made in exchange for reasonably equivalent value because the 1982 Agreement gave PDRA the right to do business at Pajaro Dunes, as well as access to such "collateral" benefits as the use of conference and recreation facilities, roads and common areas, and security and gatehouse services. PDRA argues that the 1982 Agreement purported to grant PDRA a license of rights held by PDA under County permits, but PDA failed to acquire valid permits and the 1982 Agreement therefore did not grant PDRA a license of anything. The parties agree that, whether such County permits as existed were valid or defective, PDRA did operate its business at Pajaro Dunes without challenge from the County or anyone else authorized to raise permit issues. Regardless of what the answers to these questions are ultimately determined to be, there is a threshold factual issue that has not yet been resolved: assuming that the 1982 Agreement did give PDRA a right to do business and collateral benefits as urged by PDA, was the value of what PDRA received reasonably equivalent to the amount that PDRA paid under the 1982 Agreement? There is no evidence of value, apart from deposition testimony of the Trustee, who said that he permitted the estate to make only such payments as he considered "appropriate" and he did authorize post-petition payments to be made under the 1982 Agreement. This evidence is entitled to virtually no weight because, as PDRA points out, the Trustee did not arrive on the scene until September 1994, when the Chapter 11 case was over three years old and the conditions under which the pre-petition payments were made had become history. The Trustee's opinion about what was "appropriate" necessarily pertains only to the situation that he knew post-petition, and there is no showing that the post-petition circumstances were identical, or even similar, to the pre-petition circumstances. "Reasonably equivalent value" for purposes of fraudulent transfer avoidance is not necessarily the same as "fair market value", see BFP v. Resolution Trust Corp., 511 U.S. 531, 114 S.Ct. 1757 (1994), but both the values of what was given and what was received must be shown, so that they can be compared and a determination can be made as to whether they are "reasonably equivalent" to each other. The Amended Complaint alleges that $250,000 was given by PDRA, but there is no showing of what value should be ascribed to that which PDA alleges was received by PDRA in exchange. PDA merely alleges that various benefits were conferred upon PDRA and that their value was reasonably equivalent to the $250,000 that PDRA gave, but PDA does not offer facts in support of that conclusion. The issue of whether PDRA received reasonably equivalent value in exchange for the amounts paid is one of material fact and its existence precludes summary judgment for PDA on the first claim for relief with respect to pre-petition transfers.
PDA also argues a legal issue: that 11 U.S.C. § 550 permits recovery of avoided transfers only for "the benefit of the estate", whereas the estate here ceased to exist upon confirmation of the Plan, the Trustee has been discharged, and all creditors have been paid except Spitters. PDA acknowledges that Spitters is an unpaid creditor, but contends that PDRA is not entitled to recover any avoided transfers because Spitters would not cause any of the recovered funds to be paid to other creditors — that point is not convincing to this Court. Under the Plan, Spitters provided cash for payment of PDRA's creditors and is thus effectively their subrogee, such that he has a right to collect funds to which they would be entitled had they not already been paid.And see In re Acequia, 34 F.3d 800 (9th Cir. 1994), adopting a broad definition of "benefit" for purposes of avoidance recovery under § 550.
(2) Post-Petition Unauthorized Transfers
By the first claim for relief, PDRA seeks, inter alia, to avoid and recover payments it made to PDA under the 1982 Agreement after commencement of PDRA's Chapter 11 case.
With respect to post-petition transfers, the first claim for relief is based on 11 U.S.C. § 549, which permits avoidance of transfers that are unauthorized by the the Bankruptcy Court or the Bankruptcy Code. The Amended Complaint alleges that "approximately" $125,000 was paid by PDRA under the 1982 Agreement from the time PDRA filed its Chapter 11 petition in 1991 until January 1996, when PDRA ceased payments upon failure of settlement negotiations.
It is undisputed that PDRA never sought or received Court approval to make the post-petition payments, but § 549 does not permit avoidance of payments that were made without Court approval if such payments were authorized by the Bankruptcy Code. PDA argues that these post-petition payments were authorized by 11 U.S.C. § 363, which permits bankruptcy trustees and debtors-in-possession to make payments "in the ordinary course of business" without receiving Court approval. PDA submits the deposition testimony of the Trustee, who said that it was not his practice "to approve payment for something which I think is inappropriate or shouldn't be paid", and that he did approve post-petition payments under the 1982 Agreement.
However, as PDRA points out, the Trustee was in office for only approximately one year (from his appointment in September 1994 until his discharge in October 1995), whereas the subject payments were made for approximately four and one-half years (from commencement of the Chapter 11 case in July 1991 until January 1996). The Trustee's opinion about whether payments made during his tenure were "appropriate" is necessarily confined to the short period of which he had direct experience, and it has little bearing on characterization of the payments that had been made for three years before he was appointed, and those that were made for several months after he was discharged. In the Ninth Circuit, the term "ordinary course of business" in the context of § 363 is measured by both an objective standard (ordinary for businesses comparable to that of the debtor) and a subjective standard (ordinary in the debtor's own business), see In re Dant Russell, Inc., 853 F.2d 700 (9th Cir. 1988) ("Dant Russell"). The objective standard is referred to as the "horizontal dimension test" and looks to what is done in other businesses of the same kind — the subjective standard is referred to as the "vertical dimension test" and "views the disputed transaction 'from the vantage point of a hypothetical creditor and inquires whether the transaction subjects a creditor to economic risks of a nature different from those he accepted when he decided to extend credit.' [citation omitted]", Dant Russell, at 705. PDA addresses neither of these tests and offers no evidence apart from the Trustee's opinion about the payments made during his year in office. PDRA notes that the post-petition payments that were made after commencement of the Adversary Proceeding on June 30, 1993 were received by PDA with notice that PDRA was formally seeking to avoid and recover all post-petition payments as unauthorized transfers. PDRA characterizes payments made after that date as having been made "under protest" pending efforts to settle the litigation, and argues persuasively that such circumstances do not constitute an "ordinary course of business" under any view. And see In re Fidelity Standard Mortgage Corp., 839 F.2d 1517, 1522 (11th Cir. 1988): "We hold that the transfer of property of the estate for purposes of settling a dispute is not within the ordinary course of business of the debtor, and that it requires the approval of the court pursuant to section 363."
Whether the post-petition payments were made in the ordinary course of business under the two tests of Dant Russell presents material factual issues, the existence of which precludes summary judgment for PDA on the first claim for relief with respect to post-petition transfers.
PDA also asserts the legal argument discussed above, that § 550 permits recovery of avoided transfers only for the benefit of the estate. For the reasons set forth above, PDA's position on that point lacks merit under the facts of this matter.
C. Counterclaims and Affirmative Defenses
In addition to seeking summary judgment on the Amended Complaint's third and fourth claims for relief, PDRA's motion seeks orders dismissing four of PDA's six Counterclaims and striking eight of PDA's thirty-four affirmative Defenses. PDRA appears to seek relief concerning the Counterclaims and Affirmative Defenses only if PDRA receives summary judgment in its favor on the third and fourth claims for relief, i.e., PDRA seeks such relief as being necessarily incidental to summary judgment for PDRA. As set forth above, PDRA is not entitled to summary judgment, so PDRA's request to have some Counterclaims dismissed and some Affirmative Defenses stricken in conjunction with granting summary judgment to PDRA is moot.
To any extent that PDRA may seek relief concerning the Counterclaims and Affirmative Defenses even if PDRA is not granted summary judgment, PDRA is not entitled to such relief, as discussed following. With respect to the Counterclaims, the Core Matter Order provides that all of them are to be determined by the District Court except to any extent that they may require interpretation of the Plan or Confirmation Order. Allegations made by the Counterclaims that the 1982 Agreement was breached by rejection are obviously mooted by this Court's finding that the 1982 Agreement was not rejected. However, if the 1982 Agreement is ultimately found by the District Court to be enforceable against PDRA and to have been breached in some manner other than by rejection, the subject Counterclaims would not necessarily be moot for all purposes.
With respect to the Affirmative Defenses, the Amended Complaint contains fifteen claims for relief and only two of those claims are partially determined by this decision, so the Affirmative Defenses have not been rendered moot or unmeritorious, nor has PDRA established that any of them should be stricken for some other reason. All of the Affirmative Defenses do or could pertain to claims for relief other than the two that have been partially determined by this decision, with the possible exception of the twenty-ninth. That Affirmative Defense asserts that PDA "was and is justified in taking the position that the 1982 Agreement was assumed through incorporation into the 1988 Agreement". As discussed above, this Court has interpreted the Plan as modified by the Confirmation Order to provide for no assumption of the 1982 Agreement, whether as a separate contract or as combined with the 1988 Agreement. However, that ruling does not determine whether PDA "was and is justified" in taking a contrary position.
Whether PDA's position on that point "was and is justified" appears to this Court to be irrelevant, but this Court is ruling on only part of the litigation and it is conceivable that this issue is somehow relevant to the matters that will be determined by the District Court. In any event, the issue of PDA's position being "justified" has not been addressed or disposed of by this decision, and PDRA has not demonstrated that this Affirmative Defense should be stricken.
IV. CONCLUSION
For the reasons set forth above:
1. PDA is entitled as a matter of law to summary judgment in its favor on the Amended Complaint's third and fourth claims for relief, providing that the 1982 Agreement was neither assumed nor rejected by the Plan, and passed through PDRA's bankruptcy unaffected. PDA's motion for such relief will be granted.
2. PDRA is not entitled as a matter of law to summary judgment in its favor on the Amended Complaint's third and fourth claims for relief, and any obligations that may be enforceable against PDRA under the 1982 Agreement and/or ¶ 17 of the 1988 Agreement have not been discharged in bankruptcy. PDRA's motion for such relief will be denied.
3. PDRA is not entitled to have any of PDA's Counterclaims dismissed, nor is PDRA entitled to have any of PDA's Affirmative Defenses stricken. PDRA's motion for such relief will be denied.
4. PDA is not entitled to summary judgment in its favor on the Amended Complaint's first claim for relief, inasmuch as: triable issues of material fact exist with respect to both pre-petition and post-petition transfers and, PDRA is not precluded by the provisions of 11 U.S.C. § 550 from recovering any transfers that may be avoided. PDA's motion for such relief will be denied.
Counsel for PDA shall submit a form of order and a form of judgment so providing, after review by counsel for PDRA as to form.