Opinion
Case No. 03-67707, Adv. Pro. No. 04-2473.
September 28, 2006
Tyler L. Matthews, Attorney for Plaintiff, 2100 Bank One Center, 600 Superior Avenue E, Cleveland, OH 44114.
Susan L. Rhiel, Attorney for Defendant, 124 S. Washington Avenue, Columbus, OH 43215 Office of the U.S. Trustee, 170 N. High Street, Suite 200, Columbus, OH 43215.
MEMORANDUM OPINION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
I. Factual and Procedural Background
This adversary proceeding stems from a post-confirmation dispute between the SKK Liquidation Trust and SP Acquisition, LLC, now known as Spinnaker Coating, LLC ("SP"), over whether SP has fully complied with its obligation under an amended asset purchase agreement ("Amended APA") to reimburse the Debtors for certain professional fees they incurred in the course of their jointly administered Chapter 11 cases ("Professional Fee Obligation"). Having agreed that there are no genuine issues of material fact, the parties have submitted the case for disposition on cross-motions for summary judgment. The following pleadings are before the Court: (1) motion for summary judgment filed by Plaintiff Mark Stickel ("Stickel"), Liquidation Agent of the SKK Liquidation Trust ("Stickel S/J Motion") (Doc. 33); (2) SP's response to Stickel S/J Motion ("SP Response to Stickel S/J Motion") (Doc. 40); (3) Stickel's reply ("Stickel Reply") (Doc. 42); (4) motion for summary judgment filed by SP ("SP's S/J Motion") (Doc. 35); (5) Stickel's response to SP's S/J Motion ("Stickel Response to SP's S/J Motion") (Doc. 39); and (6) SP's reply ("SP Reply") (Doc. 41). The cross-motions were filed on February 23, 2006, and briefing was completed on March 23, 2006.
The parties also have filed joint stipulations of fact ("Joint Stipulations") (Doc. 36), which are set forth below:
Except for three minor alterations, the parties' Joint Stipulations are set forth verbatim. First, to distinguish between the footnotes to this opinion and the parties' footnotes to the Joint Stipulations, the Court has denoted the parties' footnotes with asterisks(*). Second, the defined terms in the Joint Stipulations that are inconsistent with those used by the Court in this opinion have been deleted. Third, references in the Joint Stipulations to exhibits "attached hereto" are altered to make clear that the exhibits are attached to the Joint Stipulations rather than this opinion.
1. Plaintiff Mark Stickel is the duly appointed liquidation agent of the SKK Liquidation Trust pursuant to Findings of Fact, Conclusions of Law and Order confirming the Joint Plan of Liquidation, entered on April 10, 2003 [Chapter 11 Docket hereinafter "Doc. 514"] ("Confirmation Order"), the Joint Plan filed on February 24, 2003 [Doc. No. 498], and the Liquidation Trust Agreement dated April 3, 2003.
2. Defendant, SP was formed as a Delaware limited liability corporation for the purpose of purchasing substantially all of the assets of the Debtors, as set forth herein.
3. On November 13, 2001 (the "Petition Date") each of Spinnaker Industries, Inc., Spinnaker Coating, Inc., and Spinnaker Coating-Maine, Inc. (herein collectively referred to as the "Debtors" or the "Sellers") filed a voluntary petition for relief pursuant to chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") with the Clerk of this Court. [Doc. 1] On November 14, 2001 the Debtors administratively consolidated their cases into a single proceeding by order of this Court. [Doc. 39]
As a result of the Sale, each of Spinnaker Industries, Inc., Spinnaker Coating, Inc. and Spinnaker Coating-Maine, Inc. amended their respective Articles of Incorporation to change their names to SKK, Inc., SKK-Ohio, Inc. and SKK-Maine, Inc., respectively.
Entoleter, Inc., a wholly-owned subsidiary of SKK, Inc. f/k/a Spinnaker Industries, Inc., also filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code on November 13, 2001. Although having sold substantially all of its assets during the course of the above-captioned bankruptcy proceeding, Entoleter, Inc.'s assets were not the subject of the Sale and Amended APA, nor implicated in this litigation.
4. The Official Committee of Unsecured Creditors (the "Committee") employed the law firm of Hahn Loeser Parks ("Hahn Loeser") as counsel for the Committee. The Court approved the retention of Hahn Loeser by Order dated January 25, 2002. [Doc. 194] The law firm of McDonald Hopkins Co., L.P.A. was substituted in place of Hahn Loeser by Order dated August 1, 2002 [Doc. 408] with Hahn Loeser continuing to represent the Committee as special counsel. [Doc. 418]
5. On January 4, 2002 the Debtors filed a motion to sell substantially all of their business assets (the "Sale Motion"), attached to which as Exhibit A was an executed letter of intent (the "LOI") dated December 31, 2002, between the Debtors and the stalking-horse bidder, WR Capital Partners, LLC ("WRC"). [Doc. 138]
6. On January 18, 2002 the Debtors entered into an asset purchase agreement (the "APA") for the sale of substantially all of their assets (the "Sale") to Newco, a legal entity to be formed by WRC. WRC subsequently formed SP as the acquiring legal entity pursuant to the APA. SP is now known as Spinnaker Coating, L.L.C., the Defendant herein. It is engaged in the business of manufacturing and selling pressure sensitive roll and sheet products.
7. An auction (the "Auction") for the Sale commenced on March 4, 2002. During the Auction, the Buyer and another bidder, Charlesbank Capital Partners, LLC ("CB"), engaged in competitive bidding and negotiations with the Debtors until early the following morning of March 5, 2002. CB withdrew from the bidding immediately prior to the scheduled March 5, 2002 hearing on the Sale, and the Debtors subsequently accepted the Buyer's most recent offer.
8. The Court entered an order (the "Sale Order") on March 6, 2002 [Doc. No. 283], approving the Sale to SP pursuant to the APA, as revised and amended by SP and the Debtors during the course of the Auction. A true and correct copy of the Amended APA is attached to the Joint Stipulations.
9. The closing on the Sale (the "Closing") occurred on or about March 28, 2002, whereby SP acquired substantially all of the Debtors' business assets pursuant to the Amended APA.
10. On March 22, 2002 each of the estate professionals retained pursuant to 11 U.S.C. § 327(a) filed first interim fee applications with the Court. The first interim fee applications requested Court approval of fees and expenses for the period of time from the Petition Date through to February 28, 2002. That amount totaled $1,525,390.06. ( See Exhibit B to the Joint Stipulations).
11. In April 2002, these same professionals filed supplemental interim fee applications for the period of March 1, 2002 through to March 30, 2002, which sought approval of an additional $352,238.49 (both the first and supplemental interim fee applications will be referred to collectively as the "Fee Applications").
12. The total amount of fees and expenses requested in the Fee Applications to be approved by the Court was $1,877,628.40.
13. On April 23, 2002 and April 26, 2002 this Court entered orders approving the Fee Applications of the professionals from the Petition Date through and including March 30, 2002. [Doc. Nos. 357-360, 366].
14. Prior to the Fee Applications being filed, and in accordance with the Court's December 12, 2001 administrative order [Doc. No. 92] (the "Fee Order") allowing the interim payment of professional fees up to 90% and 100% reimbursement of costs and expenses, each of the Debtors' professionals and the Committee's professionals submitted monthly invoices to the Debtors for payment. The Debtors paid certain invoices submitted by certain professionals. See Exhibit C to the Joint Stipulations, a payment spreadsheet submitted to the Committee by the Debtors on or about April 20, 2002, which identifies the professionals' invoices that were paid, and approximately when they were paid. The spreadsheet does not include amounts owing for the month of March 2002 and is incomplete in that respect.
15. As identified on Exhibit C to the Joint Stipulations, the total amount of professional fees and expenses paid as of April 19, 2002 was $371,837.14. The total sum of post-petition amounts paid is made up of: Kaye Scholer ($277,256.46); FTI Consulting ($28,846.65); Coolidge Wall ($32,229.01); Hahn Loeser ($30,456.05); Poorman Douglas ($3,048.97). Of this amount, a total of $123,991.78 was paid directly by SP to the Debtors' professionals on April 8, 2002. The remaining $247,845.36 was paid by the Debtors to the professionals prior to Closing by drawing down on their bank facility.
16. Prior to the Petition Date, Debtors had also paid retainers to certain of the professionals totaling $377,683.68, which retainers were applied to invoices submitted by the professionals as set forth in Exhibit C to the Joint Stipulations.
17. At Closing, one of the liabilities assumed by SP pursuant to the Amended APA was the Debtor's [sic] bank facility, including the $247,845.36 borrowed by the Debtors to satisfy professional fee obligations as set forth in Paragraph 15 of the Joint Stipulations.
18. On or about May 20, 2002, SP paid the Debtors' Estates (the term "Estates" as used herein has the same meaning as used in Section 1.50 of the Joint Plan) $500,479.18.
Section 4 of the Amended APA — entitled "Liabilities and Obligations" — sets forth the obligations of the Debtors that were assumed by SP in the Sale. Section 4(a) — entitled "Non-Assumption of Liabilities" — states that, except as otherwise provided in § 4(b), "[SP] does not assume and shall have no responsibility or obligation whatsoever for any liabilities, commitments or obligations of [the Debtors]. . . ." Amended APA § 4(a), at 14. Among the liabilities expressly assumed by SP under § 4(b)(i) of the Amended APA is the Professional Fee Obligation. Section 4(b)(i) states:
(b) Assumed Obligations. At the Closing, subject to the limitation set forth in Section 4(c), Buyer shall assume the following liabilities and obligations (the "Assumed Obligations") of Sellers:
(i) post-Petition trade payables and liabilities incurred in the Ordinary Course of Business consistent with present practice in Sellers' chapter 11 cases ( including an aggregate of up to $1,250,000 for court-retained professionals' fees and reimbursement of Sellers for court-approved amount already paid, but excluding (x) any such professionals' fees in excess of such amount and (y) any amounts payable to Deloitte Touche under Section 3 of this Agreement)[.]
Amended APA § 4(b)(i), at 14 (emphasis added). Section 4(c) of the Amended APA, which is entitled "Proceeds of Buyer Financing," imposed an additional contractual obligation on SP — to repay the total outstanding balance due on the Debtors' debtor-in-possession credit facility ("DIP Facility") at Closing. See Amended APA § 4(c), at 15 (requiring SP to "use all or a portion of the proceeds of the Buyer Financing . . . to repay the total amount of principal, accrued interest and other charges on Sellers' debtor in possession financing with the DIP Lenders at Closing. . . .").
The parties have stipulated that SP made cash payments totaling $624,470.96 to the Debtors in partial satisfaction of the Professional Fee Obligation. See Joint Stipulations ¶¶ 15, 18 (stipulating that cash payments of $123,991.78 and $500,479.18 were made to or on behalf of the Debtors by SP on April 8, 2002 and May 20, 2002, respectively). The dispute in this case centers on whether, under the terms of the Amended APA, SP is entitled to satisfy all or part of the remaining balance of the $1,250,000 Professional Fee Obligation by (1) crediting against the Professional Fee Obligation the $377,683.68 in retainers ("Retainers") paid to certain of the professionals retained by the Debtors ("Professionals"), which SP claims were acquired along with the other assets of the Debtors in the Sale; and (2) crediting against the Professional Fee Obligation the sum of $247,845.36, which is the amount drawn by the Debtors on the DIP Facility prior to Closing that was used to pay professional fees ("DIP Fee Payment"). See Joint Stipulations ¶¶ 15-17.
II. Legal Analysis
A. Summary Judgment Standard
Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c) (made applicable in these adversary proceedings by Fed.R.Bankr.P. 7056). On motion for summary judgment, the inferences drawn from the underlying facts must be viewed in the light most favorable to the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Anthony v. BTR Auto. Sealing Sys., Inc., 339 F.3d 506, 511 (6th Cir. 2003); McKenzie v. BellSouth Telecomms., Inc., 219 F.3d 508, 512 (6th Cir. 2000). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986); Leary v. Daeschner, 349 F.3d 888, 897 (6th Cir. 2003); Street v. J.C. Bradford Co., 886 F.2d 1472, 1479 (6th Cir. 1989). Once the moving party satisfies its burden, the non-moving party must then "come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 587 (quoting Fed.R.Civ.P. 56(e)); Lanier v. Bryant, 332 F.3d 999, 1003 (6th Cir. 2003); McKenzie, 219 F.3d at 512. The non-moving party may not meet this burden by resting on mere allegations in the pleadings. See Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 324; Mounts v. Grand Trunk W.R.R., 198 F.3d 578, 580 (6th Cir. 2000). "Merely alleging the existence of a factual dispute is insufficient to defeat a summary judgment motion; rather, there must exist in the record a genuine issue of material fact." McKenzie, 219 F.3d at 512 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50 (1986)). A material fact is one that has the "potential to affect the outcome of the suit under applicable law." FDIC v. Anchor Props., 13 F.3d 27, 30 (1st Cir. 1994) (citations and internal quotation marks omitted). "As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248. See also Niecko v. Emro Mktg. Co., 973 F.2d 1296, 1304 (6th Cir. 1992).
B. Contractual Interpretation
The Amended APA provides that the agreement "is governed by the law of the State of New York." See Amended APA § 16(j), at 35. Under New York law, contractual interpretation "is a matter of law for the court to decide." Int'l Multifoods Corp. v. Commercial Union Ins., 309 F.3d 76, 83 (2d Cir. 2002) (applying New York law) (internal quotation marks omitted). See Alternatives Fed. Credit Union v. Olbios, LLC, 787 N.Y.S.2d 508, 510 (N.Y.App.Div. 2005) ("[Q]uestion[s] of contract interpretation . . . [are] to be resolved by the court in the first instance." (citation omitted)); Nat'l Union Fire Ins. Co. v. Robert Christopher Assocs., 691 N.Y.S.2d 35, 43 (N.Y.App. Div. 1999) ("[T]he interpretation of a contract is a question of law for the court."). Matters of "contract[ual] interpretation [are] particularly suited to disposition by summary judgment. . . ." United States v. 4500 Audek Model No. 5601 AM/FM Clock Radios, 220 F.3d 539, 542 (7th Cir. 2000). See Tantleff v. Truscelli, 493 N.Y.S.2d 979, 982 (N.Y.App.Div. 1985) ("[W]here . . . the parties rely upon a written agreement [and] agree that the facts are not in dispute . . . the interpretation of th[e] written contract presents an issue of law which the court may determine on a motion for summary judgment." (citation omitted)), aff'd, 513 N.Y.S.2d 113 (N.Y. 1987). The crucial issue is "whether [a] contract is unambiguous with respect to the question disputed by the parties." Int'l Multifoods Corp., 309 F.3d at 83. The Second Circuit set forth the following test for determining ambiguity:
An ambiguity exists where the terms of a . . . contract could suggest more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business. If an ambiguity is found, the court may accept any available extrinsic evidence to ascertain the meaning intended by the parties during the formation of the contract. We have explained that if the court finds that the contract is not ambiguous it should assign the plain and ordinary meaning to each term and interpret the contract without the aid of extrinsic evidence and it may then award summary judgment.
Id. (internal citations and quotation marks omitted). See also Wyeth v. King Pharm., Inc., 396 F. Supp. 2d 280, 287 (E.D.N.Y. 2005) ("`A contract is ambiguous where reasonable minds could differ on what a term means, but no ambiguity exists where the alternative construction would be unreasonable.'" (quoting Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 299 (2d Cir. 1996))). A court may not admit parol evidence, however, merely to create ambiguity. See Wyeth, 396 F. Supp. 2d at 287-88 ("[E]xtrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face[.]" (internal quotation marks omitted)).
Here, the parties agree that the terms of the Amended APA are clear and unambiguous and, thus, this adversary proceeding is ripe for adjudication by way of summary judgment. See Stickel S/J Motion at 8-10 (asserting that because the Amended APA is a fully integrated, clear and unambiguous contract, the Court need not look beyond the four corners of the contract and should adjudicate this adversary proceeding on summary judgment); SP's S/J Motion at 5 ("SP submits that the issues in this adversary proceeding are appropriate for summary judgment. Other than those facts stipulated by the parties, no matters outside of the record in the Debtors' chapter 11 proceedings need be considered by this Court in deciding the instant Motion. The Court need only apply these facts to the express language of the [Amended] APA and determine which of the parties has correctly interpreted the contract."). C. The Retainers
Although it made the foregoing statement in its summary judgment motion, in footnote 2 to the SP Response to Stickel S/J Motion, SP included the following disclaimer: "If this Court adopts some or all of the interpretations of Plaintiff, it may well be that parol evidence is necessary and this matter should be scheduled for trial." See footnote 2 to SP Response to Stickel S/J Motion (Doc. 40) at 2. Essentially, SP advances the absurd proposition that if the Court fully adopts its interpretation of the Amended APA, then the contract is clear and unambiguous, but should the Court disagree in any way with the interpretation of the Amended APA offered by SP, then, in that case, ambiguity exists and a trial should be set in order for the Court to hear parol evidence. SP cannot have it both ways — it cannot simultaneously assert that it agrees with Stickel that this case should be determined as a matter of law based on the Court's interpretation of an unambiguous, fully integrated contract, yet assert that the very same contract may in fact be ambiguous if the Court happens to adopt an interpretation with which it disagrees. SP's attempt to hedge its bets in this manner is particularly distressing because its counsel, in pretrial proceedings, strongly urged the Court not to set this case for trial, but instead to determine this case on cross-motions for summary judgment. Equally distressing is the fact that SP's counsel — after insisting that this adversary proceeding should be disposed of on cross-motions for summary judgment — repeatedly attempted to inject parol evidence into the proceeding and made several arguments that were totally unsupported by the summary judgment record. See, e.g., SP Response to Stickel S/J Motion at 4 ("Had the Retainers not been acquired by SP as part of the purchase price, the price, at Closing, would have reduced by the exact amount of the Retainers."); SP's S/J Motion at 7 ("The final working capital adjustment to the purchase price was based on an assumption that prepaid deposits, such as the Retainers, were included in the Acquired Assets. Were they not included, the final purchase price would have been reduced dollar for dollar, pursuant to the formulae agreed upon by the parties, so the net result would have been the same."); id. at 13 ("Payment of th[e] amount [sought by Stickel in this adversary proceeding] would represent a serious blow to SP's efforts to rebuild the company into a viable enterprise and to provide a source of employment for the City of Troy and the surrounding communities.").
Prior to the Petition Date, the Debtors paid the Retainers to the Professionals. See Joint Stipulations ¶ 16. And, as noted above, there is no dispute that the Retainers, which totaled $377,638.68, were applied to invoices submitted by the Professionals. See id., Ex. C. Stickel argues that (1) the express terms of the Amended APA require SP to reimburse the estates for the full $1,250,000 Professional Fee Obligation, and (2) SP is not entitled to credit against that amount the $377,683.68 in Retainers held by the Professionals on the Closing Date. For its part, SP contends that the Retainers were an Acquired Asset within the meaning of the Amended APA. And by acquiring the Retainers in the Sale, SP argues, it was entitled to offset them against the Professional Fee Obligation and thereby reduce this contractual liability by $377,683.68.
Terms not otherwise defined in this opinion have the meaning given to them in the Amended APA, which is attached as Exhibit A to the Joint Stipulations. See Joint Stipulations (Doc. 36), Ex. A.
Section 2 of the Amended APA — entitled "Purchase and Sale" — lists the assets acquired by SP and those excluded from the Sale. Section 2(a) of the Amended APA, which describes the Acquired Assets, provides in pertinent part as follows:
(a) The Acquired Assets. Subject to the terms and conditions of this Agreement and except as provided in Section 2(b), on the Closing Date Sellers shall sell, transfer, assign and deliver to Buyer, and Buyer shall purchase and acquire from Sellers, all right, title and interest of Sellers in and to all of the assets of Sellers as of the Closing Date (other than the Excluded Assets), free and clear of Liens other than Permitted Encumbrances, including without limitation the following assets (collectively, the "Acquired Assets"):
(i) All accounts receivable, notes receivable, trade accounts, security deposits, education loans receivable and other debts due or accruing to Sellers, but excluding the items identified in Section 2(b) (collectively, the "Accounts Receivable"); . . .
. . . .
(iv) All cash and cash equivalents on hand and in bank accounts; . . .
. . . .
(xiii) Except for items identified in Section 2(b) below, prepaid interest and other prepaid items and deposits of any Seller as of the Closing Date, and the leasehold improvements, prepaid rent and security deposits in respect of any lease assigned to Buyer pursuant to this Agreement; . . .
. . . .
(xv) All rights of recovery, rights of set-off, claims and causes of action of Sellers relating to the Business, whether known or unknown, other than those set forth in Section 2(b)[.]
Amended APA § 2(a), at 8-10. Section 2(b) of the Amended APA lists those assets of the Debtors that were excluded from the Sale. The parties acknowledge that the Retainers were not expressly referred to in either subsections 2(a) or 2(b) of the Amended APA.
In support of its assertion that SP did not acquire the Retainers in the Sale, Stickel advances several arguments. First, he points out that — as noted above — § 2(a) of the Amended APA does not specifically reference the Retainers as one of the assets to be acquired by SP in the Sale. Second, Stickel claims that the Retainers do not fall within any of the specific categories of assets listed in § 2(a). Finally, he directs the Court to the preamble of the Amended APA, noting that it provides for SP's acquisition of "all of the assets used in the [ Debtors'] Business." Amended APA, ¶ 4 of preamble, at 1 (emphasis added). Because the term "Business" is defined in the Amended APA as "the business of manufacturing and selling pressure sensitive adhesive roll and sheet products," Stickel argues that the Retainers cannot be Acquired Assets as they were not used in the ordinary course of the Debtors' business operations. According to Stickel, "it is not typical and ordinary to retain bankruptcy professionals, and that was not part of the "Business" of the Debtor[s]." Stickel S/J Motion at 12.
SP responds by arguing that the plain language of the Amended APA requires a finding that the Retainers were in fact an Acquired Asset. According to SP, § 2(a) of the Amended APA clearly provides that SP acquired "all of the assets of the Sellers" except those specifically excluded under § 2(b). Amended APA § 2(a), at 8. Because the Retainers are not listed as an "Excluded Asset" in § 2(b) of the APA, SP claims that the Retainers were among the assets it purchased in the Sale. The Court agrees.
Section § 2(a) of the Amended APA expressly provides that SP purchased all of the Debtors' assets, except those specifically identified in § 2(b): "Subject to the terms and conditions of this Agreement and except as provided in Section 2(b) . . . Buyer shall purchase and acquire from Sellers, all right title and interest of Sellers in and to all of the assets of Sellers . . . including without limitation the following assets. . . ." Amended APA § 2(a), at 8 (emphasis added). The only assets excluded from the Sale are those enumerated in § 2(b) of the Amended APA. Eleven specific items of property (or types of property) that were not acquired by SP in the Sale are listed in § 2(b) of the Amended APA. See Amended APA § 2(b)(i)-(xi), at 10-11. As noted above, the Retainers are not included on that list of excluded property.
Even if the catch-all language contained in § 2(a) of the Amended APA was not sufficiently broad to encompass the Retainers (which is not the case), the Court concludes that the Retainers would nevertheless fall within the specific category of Acquired Assets described in § 2(a)(xiii) of the Amended APA — i.e., the Retainers constitute a "prepaid item and deposit of Seller. . . ." See Amended APA § 2(a)(xiii), at 10. "[W]ords and the phrases used in an agreement must be given their plain meaning so as to define the rights of the parties." Matz v. Matz, 802 N.Y.S.2d 707, 709 (N.Y.App.Div. 2005) (citations omitted). See also Rodgers v. Piscopo, 2006 WL 151940, at *3 (N.Y.Sup.Ct. 2006) ("Where the terms of the agreement are unambiguous, the meaning must be gleaned from the plain meaning of the words used by the parties and the parties' reasonable expectations."). Although the drafters of the Amended APA did not define the term "retainer," and the only reference to the word is found in the Amended APA's definition of "Net Working Capital" ( see Amended APA § 1, at 6), a retainer is generally defined as "[a] fee paid to a barrister to secure his services" or "[a] sum paid to secure special services if required." Oxford English Dictionary (2d ed. 1989), http://dictionary.oed.com. Black's Law Dictionary defines a retainer as a "fee paid to a lawyer to secure legal representation." Black's Law Dictionary 1317 (7th ed. 1999). A "deposit" is defined as "[m]oney placed with a person as earnest money or security for the performance of some contract, to be forfeited if the depositor fails in his undertaking." Id. at 450. The term "prepaid" is generally understood to mean something paid before it becomes due. See Oxford English Dictionary (2d ed. 1989), http://dictionary.oed.com.; Black's Law Dictionary 599 (7th ed. 1999) (defining a "prepaid expense" as an "expense . . . that is paid before the due date or before a service is rendered").
Chapter 11 debtors often pay retainers to professionals to secure their services throughout the case. Generally, the professionals are not permitted to draw fees and expenses against the retainer unless and until approved by the bankruptcy court. Retainers on deposit with bankruptcy professionals remain property of the debtor's estate under 11 U.S.C. § 541. See Specker Motor Sales Co. v. Eisen, 393 F.3d 659, 663 (6th Cir. 2004) ("[R]etainers . . . are held in trust for the estate, and remain property of the estate."); Mapother Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 478 (6th Cir. 1996) ("Retainers paid to counsel for the debtor are to be held in trust for the debtor, and the debtor's equitable interest in the trust is property of the estate."). Here, the Retainers held by the Professionals on the Closing Date fall within the definition of either a prepaid item or a deposit — as described in § 2(a)(xiii) of the Amended APA — given the generally understood meaning of those terms. Thus, the Court concludes that the Retainers fall both within the broad scope of § 2(a) of the Amended APA and the specific category of assets described in § 2(a)(xiii).
Further, the Court is not persuaded by Stickel's argument that the preamble to the Amended APA excluded the Retainers from the ambit of "Acquired Asset[s]." Stickel first points out that the preamble to the Amended APA states that "[Debtors] desire to sell to [SP] substantially all of the assets used in the Business." Amended APA, ¶ 4 of preamble, at 1. He next cites the language of the Amended APA defining the Debtors' "Business" as "the business of manufacturing and selling pressure sensitive adhesive roll and sheet products." Because the retention of bankruptcy professionals "was not part of the `Business' of the Debtor[s]," Stickel concludes that the Court should determine that the Retainers were not among the assets SP acquired in the Sale. Stickel S/J Motion at 12. Stickel's argument based on the purported limiting effect of the Amended APA's preamble fails to gain traction for several reasons. First, it runs counter to the established rule of contractual construction that where there is an inconsistency between specific and general contractual provisions, the specific provisions control over the general. See Muzak Corp. v. Hotel Taft Corp., 133 N.E.2d 688, 690 (N.Y. 1956) ("[I]f there [is] an inconsistency between a specific provision and a general provision of a contract . . . the specific provision controls."); Lewiston-Porter Cent. Sch. Dist. v. Sobol, 546 N.Y.S.2d 227, 229 (N.Y.App.Div. 1989) ("[W]here there are general and specific provisions in a contract relating to the same subject, the specific provisions normally control if there is an inconsistency between the provisions." (citations omitted)). Section 2 of the Amended APA specifically describes both the assets acquired by SP and those excluded from the Sale. This specific contractual provision controls over the general language in the preamble to the Amended APA reciting that the Debtors desired to sell substantially all of their "Business" assets. Second, as SP points out, the Amended APA was negotiated during a pending Chapter 11 case, and the services of the Professionals — in that context — were absolutely necessary to the Debtors' continued operation as a going concern. Finally, and perhaps most importantly, Stickel's argument that the Retainers were excluded from the Sale because they were not "Business" assets is belied by the language of § 4(b) of the Amended APA. That provision, which imposed the Professional Fee Obligation, required SP to assume "post-Petition trade payables and liabilities incurred in the Ordinary Course of Business consistent with present practice in Sellers' chapter 11 cases (including an aggregate of up to $1,250,000 for court-retained professionals' fees and reimbursement of Sellers for court-approved amount already paid . . .)[.]" Amended APA § 4(b), at 14 (emphasis added). Thus, in § 4(b) of the Amended APA the parties included the unpaid professional fees among the Debtors' ordinary-course-of-business liabilities assumed by SP in the Sale. Having characterized the bankruptcy-related fees generated by the Professionals as an ordinary-course liability to be assumed by SP, it would not make sense to conclude — as Stickel argues — that the parties to the Amended APA intended to exclude the Retainers from the universe of property transferred to SP in the Sale because they did not constitute an ordinary-course, or "Business," asset. The Court accordingly finds that the Retainers were an Acquired Asset under the Amended APA and that SP is entitled to a credit in the amount of $377,683.68 against the Professional Fee Obligation.
D. The DIP Fee Payment
The parties also offer differing interpretations of the meaning of §§ 4(b)(i) and 4(c) of the Amended APA. At issue is whether SP, by paying off the DIP Facility — as it was required to do by § 4(c) of the Amended APA — partially satisfied the Professional Fee Obligation imposed by § 4(b). The parties stipulate that "[a]t Closing, one of the liabilities assumed by SP pursuant to the Amended APA was the Debtor's bank facility, including the $247,845.36 [DIP Fee Payment]." Joint Stipulations ¶ 17. Because the Debtors borrowed $247,845.36 from the DIP Lenders under the DIP Facility in order to make the DIP Fee Payment and thereby "satisfy professional fee obligations," see Joint Stipulations ¶ 17, and because SP assumed the Debtors' obligations under the DIP Facility in full as required by § 4(c) of the Amended APA, SP argues that it should be entitled to a credit in the amount of the DIP Payment against the Professional Fee Obligation. According to SP, a contrary interpretation of the Amended APA would, in effect, result in SP's double payment of a portion of the Professional Fee Obligation. See SP Reply at 3 ("SP did not negotiate to pay twice, either for the Retainers, or for the assumed liabilities.").
Stickel disputes the notion of a double payment by SP. See discussion infra at 19-20 regarding the Deposit Reduction and Stickel's position as to its economic effect.
Stickel counters by pointing out that under subsections 4(b) and 4(c) of the Amended APA, SP undertook two entirely separate and independent contractual obligations: (1) to assume and pay the full $1,250,000 Professional Fee Obligation; and (2) to assume and pay the balance due on the DIP Facility. Had the parties intended for SP to receive a credit against the Professional Fee Obligation for the DIP Fee Payment, then they could have so provided in the Amended APA, Stickel argues. See Stickel Response to SP's S/J Motion at 6 ("[The] Professional Fee Obligation . . . is in no way limited or modified by SP's DIP Obligation contained in Section 4(c). . . . If the parties intended for the payment of the DIP Obligation to satisfy SP's Professional Fee Obligation they could have so stated. They did not however.").
Because the plain and unambiguous language of the Amended APA simply does not support the construction of the contract urged by SP, the Court concludes that SP is not entitled to a credit against the Professional Fee Obligation in the amount of the DIP Fee Payment. As Stickel correctly asserts, the contractual obligation undertaken by SP in § 4(b)(i) of the Amended APA is separate and distinct from that imposed by § 4(c). Under § 4(b)(i) of the Amended APA, SP was required to assume "post-Petition trade payables and liabilities incurred in the Ordinary Course of Business . . . (including an aggregate of up to $1,250,000 for court-retained professionals' fees and reimbursement of Sellers for court-approved amount already paid . . .)[.]" Amended APA § 4(b)(i), at 14. Section 4(c) of the Amended APA imposed an independent contractual obligation: "Buyer shall use all or a portion of the proceeds of the Buyer Financing (and any other funds required) to repay the total amount of principal, accrued interest and other charges on Sellers' debtor in possession financing with the DIP Lenders at Closing. . . ." Amended APA § 4(c), at 15. SP claims that "[u]nder no scenario can [it] have been expected — or would [it] have negotiated — to do both, namely, assume the liability and reimburse the Debtors." SP Response to Stickel S/J Motion at 7. While that may not have been SP's intent in negotiating the Amended APA, it failed to manifest that intent within the four corners of the contract. And contrary to SP's suggestion that it should be given an opportunity to introduce testimony to establish that the parties intended to afford SP a credit against the Professional Fee Obligation ( see footnote 2 supra), it would not be appropriate to set this adversary proceeding for trial in order to receive parol evidence because "[e]vidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing." W.W.W. Assocs., Inc. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990) (citations omitted).
In sum, the Amended APA simply does not call for any credit against the Professional Fee Obligation based on SP's assumption of the outstanding amount owed on the DIP Facility. Thus, the Court finds that SP is not entitled to offset the $247,845.36 DIP Fee Payment against the Professional Fee Obligation.
E. The Pre-Closing Modifications to the Amended APA
To acquire the Debtors' assets in the Sale, SP was contractually required to: (1) pay the cash consideration required under § 3 of the Amended APA; (2) assume and pay the Professional Fee Obligation; and (3) assume and pay the outstanding balance of the DIP Facility. See Amended APA § 1, at 7 ("`Purchase Price' means the cash consideration paid pursuant to Section 3 plus the amount of Assumed Obligations and repayment of Sellers' debtor-in-possession financing pursuant to Section 4. . . ."). Section 3(a) of the Amended APA required SP to make a total deposit of $2,000,000 ("Deposit"), which was to be paid to the Debtors at Closing. This cash payment was subject to a Working Capital Adjustment to be made in accordance with the formula set forth in § 3(d) of the Amended APA. See Amended APA § 3(d), at 12-14. Ultimately, § 3(d) was stricken from the final version of the Amended APA and the Working Capital Adjustment to the cash component of the Purchase Price was eliminated. See Amendment No. 3 to Amended APA at 1 ("Section 3(d) is hereby deleted in its entirety."). By way of Amendment No. 3 to the Amended APA, the parties also agreed that $626,000 of the $2,000,000 Deposit would be returned to SP at Closing ("Deposit Reduction"). See id. at 2 ("Seller and Buyer shall execute and deliver to the Escrow Agent immediately after the execution and delivery of this Amendment an irrevocable instruction to the Escrow Agent in the form attached hereto as Exhibit 1 directing the Escrow Agent to return $626,000 in immediately available funds to Buyer."). The parties have characterized the Deposit Reduction as a "firm and final Working Capital Adjustment." Stickel S/J Motion at 17. See SP's S/J Motion at 12.
The Amended APA — and the summary judgment record — are silent as to why the parties agreed to (1) the deletion of the Working Capital Adjustment to the cash component of the Purchase Price and (2) the Deposit Reduction. Yet the parties attempt to support their respective positions in this case either by referring to certain provisions of the Amended APA that were no longer operative after the pre-Closing modifications to the Amended APA were made, or attempting to inject parol evidence as to the parties' intent in making those modifications. For example, SP argues that because the Amended APA's definition of "Net Working Capital" included "refundable retainers," see Amended APA § 1, at 6, the Retainers were in fact an Acquired Asset. Arguing to the contrary, Stickel points out that the fact that the parties failed to include the $377,683.68 in Retainers on Schedule 3(d)(i) to the Amended APA, entitled "Target Statement of Net Working Capital as of February 28, 2002," reflects that the Retainers were not an Acquired Asset within the meaning of § 2(a)(xiii) of the Amended APA. Each of the parties also attempts to spin the Deposit Reduction in its favor. According to SP, the Deposit Reduction "was premised on the [$1,250,000] Fee Cap," and "[h]ad SP understood that it could be responsible for professional fees exceeding the Fee Cap, it makes logical sense that it either would not have consented to Amendment No. 3, or it would have negotiated some additional protection." SP's S/J Motion at 12. For his part, Stickel argues that, "[i]f anything, th[e] [Deposit] [R]eduction demonstrates that SP's alleged satisfaction of its Professional Fee Obligation by way of its alleged `debt assumption' of the [DIP Facility] was negated by a reduction in the amount it paid the Debtors . . . at Closing. This cannot be viewed as a `reimbursement' as required by Section 4(b)(i) [of the Amended APA] — it is revenue neutral with no benefit to the Debtors' Estates." Stickel Reply at 4.
In reaching the conclusions explained above — (1) that the Retainers were an Acquired Asset and (2) that SP may not offset the DIP Fee Payment against the Professional Fee Obligation — the Court did not consider the parties' respective arguments based on the pre-Closing modifications to the Amended APA. As noted above, neither the Amended APA nor the summary judgment record provides any hint as to why the parties agreed to delete the Amended APA's Working Capital Adjustment or why they agreed to — and how they arrived at the amount of — the Deposit Adjustment. What is absolutely clear, however, is that if, in making the pre-Closing amendments described above, the parties intended to alter the effect of the Amended APA's provisions governing (1) the universe of assets sold to SP, and/or (2) the extent of SP's assumed liabilities, they failed to state that intent within the four corners of the contract. Again, because those provisions of the Amended APA that are dispositive of the parties' dispute are plain and unambiguous, it would not be appropriate for the Court to receive parol evidence from SP "as to what was really intended but unstated or misstated. . . ." Giancontieri, 566 N.E.2d at 642.
III. Conclusion
For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART the Stickel S/J Motion and GRANTS IN PART and DENIES IN PART SP's S/J Motion. A separate judgment entry shall be entered.
IT IS SO ORDERED.