Capital Credit Union v. Pro-Mark Services, Inc. et al

3:25-ap-07001NdbOct 14, 2026

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UNITED STATES BANKRUPTCY COURT
DISTRICT OF NORTH DAKOTA
In re: Pro-Mark Services, Inc.,
Debtor.
Bankruptcy No. 24-30167
Chapter 7
Capital Credit Union,
Plaintiff,
vs.
Pro-Mark Services, Inc., Erik Ahlgren, as
Trustee for Debtor’s Estate; United States
Air Force; and Hartford Accident and
Indemnity Company,
Defendants.
Adversary No. 25-7001
MEMORANDUM AND ORDER
I. 	INTRODUCTION
Plaintiff Capital Credit Union (CCU) filed a Complaint seeking declaratory relief
resolving competing claims to payment owing to Debtor Pro-Mark Services, Inc., for
work performed on federal contracts. It also seeks declaratory relief resolving
competing claims to Pro-Mark’s personal property. Specifically, CCU seeks
determinations that Pro-Mark owns all legal and equitable interest in Pro-Mark’s
accounts receivables and the accounts receivables constitute property of the estate
under 11 U.S.C. § 541(a); CCU’s security interest in the accounts receivable is superior
to any competing claims; Pro-Mark owns all legal and equitable interest in Pro-Mark’s
equipment and the equipment constitutes property of the estate under 11 U.S.C. §
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541(a); and CCU’s security interest in the equipment is superior to any competing
claims.
Chapter 7 Trustee Erik Ahlgren filed an Answer on behalf of Pro-Mark’s estate,
requesting determinations that Pro-Mark owns all legal and equitable interests in the
equipment, including titled vehicles, trailers or other personal property subject to a
certificate of title, and Pro-Mark’s equipment constitutes property of Pro-Mark’s estate
under 11 U.S.C. § 541(a); CCU holds a properly perfected security interest in the
equipment other than titled vehicles, trailers or other personal property subject to a
certificate of title; CCU’s security interest in titled vehicles, trailers or other personal
property subject to a certificate of title is subject to avoidance under 11 U.S.C. § 544
and that the parties have agreed that the estate is entitled to retain all proceeds from
the sale of titled vehicles, trailers or other personal property subject to a certificate of
title.
In its Answer, the United States asserted that CCU’s Complaint lacks subject
matter jurisdiction to the extent that it seeks to establish a claim against the United
States for money damages, the Complaint fails to state a claim upon which relief may
be granted, the United States is not a proper party, and CCU lacks standing against the
United States.
Hartford Accident and Indemnity Company, the surety that executed payment
and performance bonds on behalf of Pro-Mark, filed an Answer, asserting various
affirmative defenses. Hartford performed some of Pro-Mark’s obligations when Pro-
Mark failed to do so and seeks reimbursement by claiming an interest in federal
construction contract payments and insurance proceeds Pro-Mark received or is entitled
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to receive. Specifically, Hartford asserted a counterclaim for breach of contract and
seeks determinations that Hartford has an interest superior to CCU in the $587,707.49
owed to Pro-Mark from work performed on Air Force contracts. Hartford also claims an
interest superior to CCU in Pro-Mark’s equipment used on bonded contracts.
Additionally, Hartford asserted crossclaims seeking determinations that Hartford’s
interest in the earned but unpaid bonded contract proceeds is such that the funds
should not become part of Pro-Mark’s estate, and Hartford’s interest in Pro-Mark’s
equipment (or the proceeds derived from the sale of Pro-Mark’s equipment) are owed to
Hartford and should not become part of the bankruptcy estate. Finally, Hartford seeks a
determination that it has the right to bonded contract funds deposited in the account that
CCU setoff.
CCU filed an answer to Hartford’s counterclaims. The Trustee also filed a
response to Hartford’s answer and counterclaims and crossclaims. Likewise, the United
States filed an answer to Hartford’s crossclaims.
In May 2024, CCU brought a motion for relief from the automatic stay in Pro-
Mark’s main bankruptcy case seeking to set off $3,306,470.14 in deposit accounts
against Pro-Mark’s indebtedness to CCU. Hartford objected. After a hearing, the Court
granted CCU’s motion, prompting CCU to set off the full sum held in Pro-Mark’s deposit
accounts.1
1 According to Hartford, when CCU’s Motion for Relief from Stay was before the
Court, “Hartford had not yet received and paid bond claims and incurred losses on its
bonded projects, and, thus, likely could not have utilized the doctrine of equitable
subrogation. Now – and at the time this Adversary proceeding was initiated – Hartford
had paid millions of dollars in bond claims and is equitably subrogated to both the
obligee on bonded projects and its principal, Pro-Mark.” Doc. 58 at 29 n.6.
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Hartford appealed the Court’s ruling on the motion for relief from the automatic
stay to the Bankruptcy Appellate Panel, which reversed the Court’s ruling and
remanded the case for further proceedings.
On March 6, 2026, CCU filed a Motion for Summary Judgment with a brief in
support of it, seeking judgment on all of its claims and causes of action. On the same
day, Hartford filed a Motion for Summary Judgment and supporting brief, seeking
judgment on its counterclaims and crossclaims. The United States also filed a Motion
for Summary Judgment and supporting brief. The parties filed response and reply
briefs.
Each of the parties maintains there is no genuine dispute regarding any material
fact, and the moving party is entitled to judgment as a matter of law. In support of this
proposition, the parties submitted a Stipulated Statement of Undisputed Material Facts.
The Court’s findings, conclusions and rulings follow.
II. 	FINDINGS OF FACT
The Court adopts the facts as stipulated by the parties. Doc. 56. Additionally, to
the extent not included in the Stipulated Statement of Undisputed Material Facts, the
Court finds:
From October 8, 2020, to September 28, 2022, Hartford executed construction
surety bonds on behalf of Pro-Mark and for the benefit of the Air Force and Space
Force. The bonds carry a total penal sum of $16,716,186.00.
On July 14, 2020, and July 8, 2022, as consideration for and in connection with
the execution of the Air Force/Space Force Bonds and other bonds executed for
government agencies, Pro-Mark and the individual owners of Pro-Mark executed
General Indemnity Agreements in favor of Hartford. Doc. 58-3.
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According to Brian Bragg, a claims consultant for Hartford, Pro-Mark filed its
bankruptcy petition on April 22, 2024, and “thereafter” ceased work on all its active
construction projects. Doc. 58-2 at ¶ 8. The Air Force and Space Force contracts were
at various stages of performance when Pro-Mark ceased work on them.
Hartford received and paid payment bond claims on the following Pro-Mark
projects in the following sums:
• 	Minot Air Force Base 	$795,799.79
• 	Offutt Air Force Base 	$183,819.00
• 	Grand Forks Air Force Base 	$156,937.50
• 	Cavalier Space Force Station 	$92,862.41
• 	Buckley Space Force Base 	$86,935.73
To date, Hartford paid $2,092,448.30 in payment bond payments and $2,854,639.44 in
performance bond payments on federal contracts it bonded on behalf of Pro-Mark.
Hartford received $2,736,354.92 in remaining contract balances from the federal
government on projects Hartford elected to complete as the performing surety.
Hartford’s current losses total at least $2,210,732.82 on bonded government contracts.
III. 	CONCLUSIONS OF LAW
A. 	Jurisdiction
This adversary action is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and
(O). The Court has jurisdiction under 28 U.S.C. §§ 1334 and 157 and authority to enter
a final order in this matter. This opinion constitutes findings of fact and conclusions of
law in accordance with Federal Rule of Bankruptcy Procedure 7052.
B. 	Summary Judgment
Summary judgment is appropriate when there is no genuine dispute regarding
any material fact, and the moving party is entitled to judgment as a matter of law. Fed.
R. Bankr. P. 7056; Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322
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(1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). The party seeking
summary judgment bears the initial responsibility of identifying pleadings, discovery,
testimony and other evidence which it believes demonstrate “the absence of a genuine
issue of material fact.” Celotex Corp., 477 U.S. at 323. The moving party satisfies this
burden by showing “an absence of evidence to support the nonmoving party’s case.” Id.
at 325. The Court must deny summary judgment “where the evidentiary matter in
support of the motion . . . does not establish the absence of a genuine issue of fact.”
Heath v. John Morrell & Co., 768 F.2d 245, 249 (8th Cir. 1985); see also Cuffley v.
Mickes, 208 F.3d 702, 705 (8th Cir. 2000) (“‘The party seeking summary judgment must
establish the absence of a genuine issue of material fact and his entitlement to
judgment as a matter of law.’” (citation omitted)). “‘[E]ven if no opposing evidentiary
matter is presented,’ summary judgment is improper ‘if a genuine issue of material fact
remains.’” Hugler v. Li Ying Li, 2017 WL 5633299, at *4 (S.D. Iowa Apr. 20, 2017) (citing
Heath v. John Morrell & Co., 768 F.2d at 249; Adickes v. Kress & Co., 398 U.S. 144
(1970)). Additionally, if the movant does not fulfill its initial burden of demonstrating a
critical element of his or her cause of action, the Court must deny summary judgment
even if no opposing evidence is offered. See Adickes, 398 U.S. at 158–61.
When the moving party has met its burden, the nonmoving party must then “go
beyond the pleadings and by her own affidavits, or by the ‘depositions, answers to
interrogatories, and admissions on file,’ designate ‘specific facts showing that there is a
genuine issue for trial.’” Celotex Corp., 477 U.S. at 324 (citing Fed. R. Civ. P. 56).
In 	opposing 	summary 	judgment, 	a 	plaintiff may 	not 	“simply 	point 	to
allegations” in the complaint, Howard v. Columbia Pub. Sch. Dist., 363 F.3d
797, 800 (8th Cir. 2004), or “rest on the hope of discrediting the movant’s
evidence at trial,” In re Citizens Loan & Sav. Co., 621 F.2d 911, 913 (8th
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Cir. 1980), “but must identify and provide evidence of ‘specific facts creating
a triable controversy.’” Howard, 363 F.3d at 800 (quoting Jaurequi v. Carter
Mfg. Co., 173 F.3d 1076, 1085 (8th Cir. 1999)).
Robbins v. Becker, 794 F.3d 988, 993 (8th Cir. 2015). “[U]nsupported, self-serving
allegations and denials are insufficient to create a genuine issue of material fact.”
Anuforo v. Comm’r of Internal Revenue, 614 F.3d 799, 807 (8th Cir. 2009) (citations
omitted). Likewise, “[c]onclusory assertions and citations to one’s own arguments are
insufficient to survive summary judgment.” Johnson Tr. of Operating Eng’rs. Loc. #49
Health & Welfare Fund v. Charps Welding & Fabricating, Inc., 2020 WL 597213, at *5
(8th Cir. Feb. 7, 2020).
The Court views the record in the light most favorable to the nonmoving party and
must afford that party all reasonable inferences. Blocker v. Patch (In re Patch), 526 F.3d
1176, 1180 (8th Cir. 2008) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986)).
C. 	Competing Claims to Pro-Mark’s Accounts Receivable, Funds
Paid 	to 	Pro-Mark 	for 	Work 	Performed 	on 	Nonbonded 	and
Bonded Contracts and Insurance Proceeds
The parties assert competing claims to sums owed to or paid to Pro-Mark for
work performed on federal contracts.
1. 	Unpaid Funds Pro-Mark Earned for Work Performed on
Bonded and Nonbonded Contracts
Between September 2020 and January 2024, the United States awarded many
contracts to Pro-Mark for the performance of various construction-related activities at
federal facilities, including Air Force and Space Force bases in Colorado, Nebraska,
and North Dakota. Pro-Mark obtained payment and performance bonds from Hartford
to secure these contracts as required by the Miller Act, 40 U.S.C. § 3131 et seq. To
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memorialize Pro-Mark’s agreement to indemnify Hartford for losses it may incur, Pro-
Mark and Hartford signed two General Indemnity Agreements, one dated July 14, 2020,
and the second dated July 8, 2022. See Bankr. Case No. 24-30167, Doc. 72-1; Doc. 58-
3.
On April 22, 2024, the petition date, the Air Force contracts were at various
stages of completion, ranging from no performance to substantially complete.
According to Bragg, Pro-Mark halted performance on these contracts after the petition
date.
As of the petition date, the United States held payments on many of these
contracts. According to the United States, it only terminated contracts or remitted
payment on fully and partially completed contracts pursuant to Court Orders.
In its Brief in Support of Motion for Summary Judgment, the United States agreed
to remit payments on the remaining bonded contracts with outstanding sums due to
Pro-Mark as directed by the Court in ruling on the pending summary judgment motions.
On the petition date, the United States held approximately $587,707.49 owed to Pro-
Mark for work it performed.
On August 15, 2025, Erik Ahlgren, as Trustee of Pro-Mark’s estate, filed a Joint
Settlement Agreement in which all parties agreed that the United States would remit
payments in the sum of $146,831.25 to the bankruptcy estate for work Pro-Mark
performed on nonbonded contracts. The Joint Settlement Agreement provided that
CCU and Hartford retain any claims they may have against each other, the Trustee, or
third parties with respect to the $146,831.25 paid to the Trustee on the nonbonded
contracts identified in the Joint Settlement Agreement.
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Subtracting the sum paid to the Trustee, the United States is now holding
approximately $440,876.24. Hartford asserts that the “remaining $440,876.24 are
derived from Air Force Projects bonded by Hartford.” Doc. 58 at 28 n.5. The Stipulated
Statement of Undisputed Material Facts does not directly support this proposition.
The United States concedes that it owes Pro-Mark $440,876.24 for work
performed by Pro-Mark, but the Stipulated Statement of Undisputed Material Facts
shows only $128,771.86 is derived from bonded contracts where Hartford paid claims in
excess of the sum the United States currently owes to Pro-Mark: $89,273.85 for work
Pro-Mark performed on the Offutt AFB – Simulator Contract and $39,409.01 for work
completed on the Minot AFB – Windows Task Order. For all other contracts where
Hartford paid claims on bonded contracts at issue, the United States does not owe Pro-
Mark for the work performed. In other words, there is no documentation linking
$312,104.38 ($440,876.24 - $128,771.86) of payments owed to Pro-Mark to
reimbursement owed to Hartford for claims it paid. The parties agree, however, that
Hartford incurred losses of no less than $1,034,081.31 on Air Force and Space Force
contracts that were bonded by Hartford on behalf of Pro-Mark and for the benefit of the
Air Force and Space Force. By way of example, Hartford paid a claim for $183,819 for
work on the Offutt AFB – Simulator Contract, but the United States only holds
$89,273.24 in earned but unpaid contract payments on this project, leaving Hartford
with a loss of no less than $94,545.15 on this contract.
The parties also agree that “[i]n total to date, inclusive of the foregoing
$1,034,081.34, Hartford has made no less than $3,686,542.42, in performance and
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payment bond payments on federal contracts that were bonded by Hartford on behalf of
Pro-Mark and for the benefit of the United States Government.” Doc. 56 at ¶ 183.
a. 	Equitable 	Subrogation: 	Unpaid 	Funds 	Pro-Mark
Earned for Work Performed on Bonded Contracts
where Surety’s Losses are Greater than the Sum Held
Hartford argues it is equitably subrogated to Pro-Mark’s earned but unpaid
contract receivables, and its rights to these funds are superior to those of the
bankruptcy estate and CCU. CCU argues that Hartford’s right to equitable subrogation
is not ripe. It also asserts that any right to equitable subrogation Hartford holds does
not entitle it to proceeds from nonbonded contracts or to apply any excess proceeds
from one bonded contract to pay a loss on another bonded contract.
Equitable subrogation in the context of this dispute between Pro-Mark, its surety
and a lien holder is governed by state law. See Hamada v. Far East Nat’l Bank (In re
Hamada), 291 F.3d 645, 651 (9th Cir. 2002); United Specialty Ins. Co. v. Colony Ins.
Co., 2024 WL 4004051, at *5 (C.D. Cal. July 1, 2024); Glaspell v. United States (In re
Glaspell), 626 B.R. 272, 276 (Bankr. D. W. Va. 2021); In re Brodkey Bros., Inc., 2013 WL
5636484, at *4 (Bankr. D. Neb. Oct. 15, 2013). North Dakota courts have applied
equitable subrogation without adopting a specific list of criteria. See, e.g., Am. Nat’l Fire
Ins. Co. v. Hughes, 658 N.W.2d 330, 335–34 (N.D. 2005). In Star Ins. Co. v. Cont’l Res.,
Inc., the United States District Court summarized the principles that apply:
“Subrogation is an equitable remedy that provides for an adjustment
between the parties to secure the ultimate discharge of a debt by the person
who, in equity and good conscience, ought to pay for it.” St. Paul Fire &
Marine Ins. Co. v. Amerada Hess Corp., 275 N.W.2d 304, 308 (N.D. 1979).
Equitable subrogation is founded on principles of equity and justice and is
intended to protect the rights of one who has paid an obligation which should
be imposed on another. State Farm Mut. Ins. Co. v. Wee, 196 N.W.2d 54,
59–60 (N.D.1971); Am. Commercial Lines, Inc. v. Valley Line Co., 529 F.2d
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921, 924 (8th Cir. 1976). The doctrine permits a party who is not a volunteer
or intermeddler to stand in the shoes of another with reference to all lawful
claims and rights. BancInsure, Inc. v. BNC Nat. Bank, N.A., 263 F.3d 766,
772–73 (N.D. 2001). Equitable subrogation rests on the principle that no one
should be enriched by another’s loss. In re Yanke, 230 B.R. 374, 377 (8th
Cir. 1999). The doctrine is highly favored and is to be given a liberal
application. Id. at 379.
89 F. Supp.3d 1015, 1032 (D.N.D. 2015); see also BancInsure, Inc. v. BNC Nat’l Bank,
263 F.3d 766, 772 (8th Cir. 2001) (applying North Dakota law) (“Equitable subrogation ...
is based on the theory that the one invoking it has rightfully discharged debt at the
instance and for the benefit of the debtor.” (quoting State Farm Mut. Auto. Ins. Co. v.
Wee, 196 N.W.2d 54, 59–60 (N.D. 1971))).
Other courts apply a list of five factors derived from In re Leedy Mortg. Co., Inc.,
111 B.R. 488, 492 (Bankr. E.D. Pa. 1990), sometimes referred to as the Leedy test. See
Photo Mech. Servs., Inc. v. E.I. DuPont De Nemours & Co., Inc. (In re Photo Mech.
Servs.), 179 B.R. 604, 618–19 (Bankr. D. Minn. 1995). Under this test, equitable
subrogation is appropriate if five factors are present:
(1) 	The payment must have been made by the subrogee to protect his
own interest;
(2) 	The subrogee must not have acted as a volunteer;
(3) 	The debt paid must be one for which the subrogee was not primarily
liable;
(4) 	The entire debt must have been paid; and
(5) 	Subrogation must not work any injustice to the rights of others.
Id. at 618; In re Leedy Mortg. Co., 111 B.R. at 492.
In the suretyship context, equitable subrogation is one of a surety’s principal
mechanisms for reducing loss. Pa. Nat’l Mut. Cas. Ins. Co. v. City of Pine Bluff, 354
F.3d 945, 951 (8th Cir. 2004) (citing Prairie State Bank v. United States, 164 U.S. 227,
231 (1986)). “Arising by operation of law, the doctrine permits the surety to acquire and
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assert the rights of those parties whom the surety pays.” Id. (citation omitted). In other
words, the surety is subrogated to the contractor whose obligations are discharged, the
owners to whom it was bound, or the subcontractors whom it paid. Dwyer v. The Ins.
Co. of the State of Pa. (In re Pihl, Inc.), 560 B.R. 1, 9 (Bankr. D. Mass. 2016) (citations
omitted). If the surety completes all contract obligations, “equitable subrogation permits
the surety to proceed against retainage and remaining contract funds for
reimbursement.” City of Pine Bluff, 354 F.3d at 952. This property interest of the surety
never becomes a part of the bankruptcy estate to be administered, liquidated, and
distributed to general creditors of the bankrupt. See Pearlman v. Reliance Ins. Co., 371
U.S. 132, 136 (1962); In re J.B. Const. Co., Inc., 2011 WL 830101, at *1–2. This
property interest also takes priority over perfected security interests in bonded contract
funds. See United Prairie Bank v. Molnau Trucking LLC, 23 N.W.3d 535, 547 (Minn.
2025) (“a performing surety’s right to equitable subrogation has priority over a secured
creditor as to the bonded contract funds”); In re J.B. Constr. Co., 2011 WL 830101, at 3
(Bankr. D. Neb. Mar. 4, 2011) (“sureties generally prevail over banks with perfected
Article 9 security interests”) (citation omitted); Kappa Dev. & Gen. Contracting Inc. v.
Hanover Ins. Co. (In re Kappa Dev. & Gen. Contracting Inc.), 2019 WL 2867110, at *6
(Bankr. S.D. Miss. Jul. 2, 2019) (a surety’s right of equitable subrogation is superior to a
secured creditor’s rights); Century Ins. Co. v. Guerrero Bros., 2010 WL 997112, at *5
(N. Mar. I. Mar. 17, 2010) (“a creditor who perfected its security interest pursuant to the
UCC does not enjoy priority over a surety”); Transamerica Ins. Co. v. Barnett Bank of
Marion Cnty., 540 So.2d 113, 117 (Fla. 1989) (surety’s equitable subrogation claim had
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priority over bank’s security interest); Riverview State Bank v. Wentz, 34 F.2d 419, 422
(8th Cir. 1929) (same).
Consistent with the Leedy factors, the Eighth Circuit Court of Appeals clarified
that a “prerequisite to equitable subrogation is the surety’s full satisfaction of any
underlying debt or obligation.” City of Pine Bluff, 354 F.3d at 951 (citations omitted); see
also Berkley Ins. Co. v. Hawthorn Bank, 2017 WL 4391774, at *4 (Bankr. W.D. Mo. Sep.
29, 2017) (the right of equitable subrogation generally only arises upon total satisfaction
of the underlying obligation) (citations omitted). “[W]hen a surety completes work or
pays laborers and material suppliers, equitable subrogation permits the surety to
proceed against retainage and remaining contract funds for reimbursement.” City of
Pine Bluff, 354 F.3d at 952 (citing Equilease Corp. v. United States Fid. & Guar. Co.,
262 Ark. 689, 565 S.W.2d 125, 126 (1978); Pearlman, 371 U.S. at 139 (“[T]he same
equitable rules as to subrogation . . . exist whether a surety completes a contract or
whether, though not called upon to complete the contract, it pays the laborers and
materialmen.”)).
CCU argues that Hartford’s right to equitable subrogation of any of the sums held
by the United States is not yet enforceable because it has not established full
satisfaction of any underlying debt or obligation. CCU highlights statements in the
Stipulated Statement of Undisputed Material Facts suggesting that Hartford’s surety
obligations under some bonded contracts remain unsatisfied.2 It argues that Hartford
2 CCU lists four paragraphs in the Undisputed Statement of Material Fact that it
claims suggest Hartford has not established full satisfaction of its bond obligations. Two
of the four paragraphs relate to contracts where the United States owes no money to
Pro-Mark for work it performed, the United States demanded nothing from Hartford
related to the completion of these contracts, and the United States terminated the
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may not exercise any equitable subrogation rights unless its surety obligations are fully
satisfied. CCU’s suggestion that Hartford must satisfy all obligations on all of its
contracts with the United States while insisting that the Court must evaluate each bond
obligation independently for purposes of determining Hartford’s equitable subrogation
claim is inconsistent and unpersuasive.
The parties stipulated that “Hartford and/or its agents have not performed any
work on the Offutt AFB – Simulator Contract post-Petition Date, but are negotiating a
takeover agreement with the Air Force.” Doc. 56 at ¶ 29. As of March 6, 2026, Hartford
had not completed its work on this contract (which is 96.5% complete). Consequently, it
has not yet met the prerequisite to equitable subrogation. This conclusion does not
mean that either Pro-Mark or CCU are entitled to the earned but unpaid funds held on
this bonded contract totaling $89,273.85, however.
Upon completion of the work on this contract, Hartford will have satisfied the
prerequisite to equitable subrogation. Hartford satisfied all other factors necessary for
equitable subrogation by paying $183,819.00 to a contractor (which is in excess of the
sum the United States owes to Pro-Mark on this contract); it paid this claim to protect its
own interest under the bond contract; it established that was not acting as a volunteer;
and Pro-Mark was primarily liable for completing the contract and paying
subcontractors. Granting Hartford the right of equitable subrogation in the context of the
Offutt AFB – Simulator Contract will not work an injustice on other parties because
Hartford’s right to the $89,273.85 is superior to Pro-Mark’s or the bankruptcy estate’s
contracts. The Court does not see the relevance of these contracts to the equitable
subrogation analysis.
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rights upon default and this right relates back to the time Pro-Mark entered into the
suretyship contracts with Hartford. See N.D.C.C. § 22-03-12 (“A surety is entitled to the
benefit of every security for the performance of the principal obligation held by the
creditor or by a cosurety at the time of entering into the contract of suretyship or
acquired by the surety afterwards, whether the surety was aware of the security or
not.”); United States ex rel Home Indem. Co. v. Am. Emp.s’ Ins. Co., 192 F. Supp. 873,
877 (D.N.D. 1961) (“The Home Indemnity rights arising by subrogation relate back to
the date of the execution of the performance bond.”); City of Pine Bluff, 354 F.3d at 952
(a surety’s rights relate back to the time of the bond or contract of suretyship was
entered) (citations omitted); In re Jones Const. & Renovation, Inc., 337 B.R. 579, 583
(Bankr. E.D. Va. 2006) (same) (citations omitted). As the court in In re Jones
Construction & Renovation explained, there is a
body of case law that holds when a debtor contractor breaches its contract
with a project owner, it precludes debtor’s entitlement to retained funds, and
thus these funds are not property of the estate. See, e.g., In re Modular
Structures, 27 F.3d at 72; In re Pacific Marine, 79 B.R. at 929. The court is
less concerned with whether payment has yet been made than with
Western Surety’s obligation to pay claimants. It is this obligation, brought
about by Jones Construction’s breach of contract, that makes the doctrine
of equitable subrogation applicable. Western Surety is therefore entitled to
any funds that may hereafter become due on the CNU project to reimburse
it for any losses it has sustained that are not satisfied by the $152,054.93
currently being held. It is also entitled to any remaining contract funds on
the Henrico project to reimburse it for any payments it makes under the
bond to satisfy the claims on that project. Any remaining contract funds
exceeding Western Surety’s payments on claims under the bonds are
property of the estate and should be turned over to the trustee.
337 B.R. at 585.
Like the In re Jones Construction & Renovation court, this Court finds that
Hartford’s obligations under the bond arose, and its rights to equitable subrogation
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triggered, when Pro-Mark defaulted and relate back to the 2020 and 2022 General
Indemnity Agreements between Pro-Mark and Hartford. See id.; Nobel Ins. Co. v. City
of New York, 2006 WL 2848121, at *20 (S.D.N.Y. Sep. 29, 2006).3 Its right to equitable
subrogation entitles it to any remaining contract funds on the Offutt AFB – Simulator
Contract ($89,273.85) because it paid claims in excess of this sum. These funds are
not payable, however, until Hartford satisfies all its obligations under the bonded
contract. See City of Pine Bluff, 354 F.3d at 951. To avoid increasing Hartford’s risk of
undermining its subrogation rights, the United States must hold $89,273.85 or arrange
for a deposit in trust until Hartford completes its obligations under the bond.4
3 Although Pro-Mark defaulted on or after the petition date, as a matter of equity
and public policy, the Court finds that Hartford is entitled to enforce its right to
subrogation and resulting equitable lien in unpaid contract proceeds Pro-Mark earned
prepetition for work performed on bonded contracts where its losses are greater than
contract proceeds. See generally United Pac. Ins. Co. v. Mottner (In re The Massart
Co.), 105 B.R. 610, 613 (Bankr. W.D. Wa. 1989); Tri-City Serv. Dist. v. Pac. Marine
Dredging & Constr. (In re Pac. Marine Dredging & Constr.), 79 B.R. 924, 929 (Bankr. D.
Or. 1987).
4 This ruling is consistent with City of Pine Bluff which highlighted the general
surety law proposition that a creditor must preserve a surety’s right of recourse in
collateral and the risk to a bond obligee who is on notice of a contract default yet
undermines the surety’s subrogation rights. See City of Pine Bluff, 354 F.3d at 951; see
also N.D.C.C. § 22-03-06 (“A surety is exonerated … to the extent to which the surety is
prejudiced by any act of the creditor which would naturally prove injurious to the
remedies of the surety or inconsistent with the surety’s rights, or which lessens the
surety’s security[.]”). In City of Pine Bluff, the Eighth Circuit observed:
These principles, considered with the equitable rights of laborers and
material suppliers (and therefore the subrogated surety) to payment from
remaining funds, have led federal courts to recognize the obligee’s duty as
a “stakeholder” to ensure proper application of collateral (contract funds and
retainages) upon appropriate notice of the general contractor’s default. See
Transamerica, 32 Fed. Cl. at 314; Int’l Fid. Ins. Co. v. United States, 25
Cl.Ct. 469, 477 (1992); Home Indem. Corp., 376 F.2d at 894. Indeed, “the
entire 	doctrine 	of 	subrogation 	in 	suretyship 	is 	dependent 	upon 	the
immediate investment of the creditor with the obligations of a trustee
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Hartford’s right to equitable subrogation also entitles it to the $39,498.01 in
earned but unpaid contract proceeds from Pro-Mark’s work on the Minot AFB –
Windows Order. The United States has not demanded that Hartford complete the work
remaining on this project. Instead, it partially terminated the contract and “de-obligated
as to the amount of work that was not finished.” Doc. 56 at ¶ 41. Accordingly, the Court
finds that Hartford fully satisfied its obligations under this contract. It is entitled to
immediate reimbursement in the sum of $39,498.01, the earned but unpaid funds the
United States is holding on this contract.
To the extent the United States is retaining funds on a contract bonded by
Hartford where Hartford’s losses exceed the sum retained on that contract, Hartford is
also entitled to these retained proceeds.
b. 	Equitable 	Subrogation: 	Unpaid 	Funds 	Pro-Mark
Earned for Work Performed on Nonbonded Contracts
and Bonded Contracts Where Funds Exceed Surety
Losses
Hartford maintains the doctrine of equitable subrogation applies to earned but
unpaid contract funds owed to Pro-Mark under both bonded and nonbonded contracts.
whenever any rights or interests of the debtor, applicable to the debt, are
placed in his control....” Arthur Adelbert Stearns, The Law of Suretyship §
6.46 (James L. Elder, ed., 5th Ed.1951). If, after appropriate notice of
default, the government chooses to pay funds to the general contractor that
are or become equitably owed to the surety, the government is liable for the
actual loss visited upon the surety.
City of Pine Bluff, 354 F.3d at 953; see also Nobel Ins. Co. v. City of New York, 2006
WL 2848121, at *16 (Bankr. S.D.N.Y. 2006) (citing Pa. Nat. Mut. Cas. Ins. Co., 354 F.3d
at 953) (“notice, even in the absence of payment, is sufficient to trigger a right of
equitable subrogation”)). Accordingly, the surety’s obligations under the bond and rights
to equitable subrogation arise upon default. Upon notice, it is entitled to reimbursement
after it satisfies its obligations under the surety agreement.
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While the Court is persuaded that Hartford is entitled to earned but unpaid bonded
contract proceeds if their losses equal or exceed these proceeds under the doctrine of
equitable subrogation, it is not convinced the same holds true for proceeds of
nonbonded contracts.
Hartford argues that under the “common obligee doctrine,” a surety who has
suffered a loss on one bonded project from a common owner can assert the project
owner’s right to use profit from another project to cover its loss on bonded projects.
Employing this doctrine, Hartford argues it is entitled to $146,831.26 in proceeds
payable to Pro-Mark under nonbonded contracts, as well as all other earned but unpaid
proceeds of contracts between Pro-Mark and the United States.
After Hartford completes all obligations under the bonded contracts, CCU “would
not deny” that Hartford is entitled $128,771.86 of the $440,876.24 the United States still
holds because this sum is derived from bonded contracts where Hartford paid claims in
excess of the sum the United States currently owes to Pro-Mark on those contracts.
See Doc. 62 at 17. CCU argues, however, that “Hartford cannot by subrogation obtain
payments owing on non-bonded contracts, or apply any excess on a particular bonded
contract to a loss on another bonded contract.” Id. In other words, CCU claims that the
Court should reject Hartford’s attempt to employ the doctrine of equitable subrogation to
support the proposition that it is entitled to more than $128,771.86 of the $440,876.24
held by the United States. It also argues Hartford is not entitled to any of the
$146,831.25 paid to the Trustee on the nonbonded contracts. Rather, CCU maintains
that these sums are property of the bankruptcy estate subject to CCU’s properly
perfected security interest in accounts receivable.
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Courts and commentators disagree on whether a surety’s equitable subrogation
right extends to earned but unpaid contract funds on other projects between the
principal and the obligee. Hartford cites four cases in which courts ruled that a surety
was entitled to nonbonded contract receivables or proceeds from other contracts
between the surety, oblige and principal.
In Travelers Casualty & Surety Company of America v. Paderta, 2013 WL
3388739 at *2 (N.D. Ill. Jul. 8, 2013), the surety paid losses arising from both bonded
and nonbonded contracts. The equities favored equitable subrogation in Travelers.
In District of Columbia v. Aetna Insurance Company, 462 A.2d 428 (D.C. 1983),
the only claimants to the earned but unpaid contract funds were the surety and the
contractor. The court observed:
The more fundamental analysis of the right of subrogation, however, is
equitable in nature and allows the surety to be viewed as the owner because
he has met the responsibilities of a defaulting contractor to the owner.
Fairness would dictate that the surety be accorded the owner’s rights and
remedies with respect to the contractor. In circumstances, like the present,
where the same contractor is engaged in more than one project, it becomes
clearer that it is the reach or scope of the remedy rather than the equitable
right itself which is at issue.
D.C. v. Aetna Ins. Co., 462 A.2d at 431. Consequently, the District of Columbia court
adopted the view that “[t]he right of subrogation is not founded on contract. It is a
creature of equity; is enforced solely for the purpose of accomplishing the ends of
substantial justice; and is independent of any contractual relations between the parties.”
Id. (citations omitted); see also State Farm Mut. Auto. Ins. Co. v. Wee, 196 N.W.2d 54,
59–60 (N.D. 1971) (“Equitable subrogation is founded upon principles of equity and
justice, intended to afford protection of the rights of a creditor.… The doctrine of
subrogation will be applied only in equitable discretion.”) (citations omitted).
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Like the circumstances discussed in District of Columbia, no interests other than
the surety and the defaulting contractor claimed the contract proceeds at issue in
Transamerica Ins. Co v. United States, 989 F.2d 1188 (Fed. Cir. 1993). The
Transamerica court ruled, “On the facts of this case, when there are no government
claims to be counterbalanced, it would be against fairness and good conscience to
allow the defaulting contractor to benefit, through the government’s error, at the
expense of the fully performing surety.” 989 F.2d at 1195. Similarly, in Kentucky
Central Insurance Co. v. Brown (In re Larbar Corp.), 177 F.3d 439, 447 (6th Cir. 1999),
the court allowed setoff against the proceeds of multiple contracts, noting that there
were no third party secured creditors whose legal rights would be impaired by enforcing
the surety’s right to equitable subrogation and setoff under 11 U.S.C. § 553.
Like the District of Columbia court and the North Dakota Supreme Court in Wee,
this Court recognizes the equitable nature of the equitable subrogation remedy, but it is
not convinced that employing the common obligee doctrine under the circumstances of
this case is equitable. Unlike the cases Hartford cites, allowing Hartford the right to
proceeds of nonbonded contracts or contract proceeds in excess of the claims Hartford
paid on specific contracts impairs both CCU and the bankruptcy estate. The balance of
equities in this case favors granting Hartford the right of equitable subrogation to the
extent bonded contract proceeds are sufficient to pay its losses. Bonded contract
proceeds in excess of Hartford’s losses on any particular contract are property of the
bankruptcy estate unless assigned under the General Indemnity Agreement or subject
to a security interest. See W. Cas. & Sur. Co. v. Brooks (In re Bruns Coal Co.), 362
F.2d 486, 491 (4th Cir. 1966) (“The doctrine of subrogation arises out of the unpaid
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debts on each contract; relates back in time to the execution of that specific bond; and
is limited in scope to the debts arising under one contract.”); Liberty Mut. Ins. Co. v.
SBN V FNBC LLC, 2019 WL 346707, at *3-4 (E.D.N.C. Jan. 28, 2019) (concluding that
each bonded project must be treated separately and a surety cannot use surplus funds
from one project to defray losses taken on other projects, even if the projects have
common owners; to the extent that there were excess receivables on any particular
project, the secured party was entitled to them; a surety is entitled to receivables and
contract funds on a particular bonded project up to the amount of its net loss on that
project); Intercargo Ins. Co. v. United States, 41 Fed. Cl. 449, 457 (Fed. Cl. 1998)
(noting that “the surety’s right to subrogation arises only as to the monies due under the
contract in question”) (citation omitted). Likewise, sums owed under nonbonded
contracts are property of the bankruptcy estate unless assigned under the General
Indemnity Agreement or subject to a security interest. See generally In re Bruns Coal
Co., 362 F.2d at 491. Finally, the Court is unwilling to recognize an equitable lien in
these funds outside the context of equitable subrogation for the reasons discussed
above.
c. 	Assignment: Unpaid Sums Pro-Mark Earned for Work
Performed on Bonded and Nonbonded Contracts
Under the terms of the General Indemnity Agreements, Pro-Mark assigned all its
rights “arising from, or related to Bonds or any bonded or nonbonded contracts,
subcontracts and subcontract bonds and any extensions, modifications, alterations and
additions” to Hartford. Bankr. Case No. 24-30167, 72-1 at ¶ 9(a); Doc. 58-3 at ¶9(a).
Pro-Mark also assigned “[a]ll right, title and interest of the Indemnitors in and to; (1)
work performed on any Bonded or unbonded contract[.]” Bankr. Case No. 24-30167,
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72-1 at ¶ 9(b); Doc. 58-3 at ¶ 9(b). Additionally, Pro-Mark assigned “[a]ny and all
accounts receivable, … deferred payments, refunds, retainage or retainage account in
which the Indemnitors have an interest.” Bankr. Case No. 24-30167, Doc. 72-1 at ¶
9(d); Doc. 58-3 at ¶ 9(d). Upon Pro-Mark’s default, Hartford maintains the agreement
granted it the absolute right to enforce this assignment.
Hartford contends that these assignment provisions in the General Indemnity
Agreement conferred upon Hartford contractual rights that created an interest in the
proceeds of bonded contract funds. It is not clear from Hartford’s pleadings or
arguments whether Hartford claims an assignment under general property or contract
law or an assignment intended as security. The General Indemnity Agreement purports
to be a security interest (Bankr. Case No. 24-30167, Doc. 72-1 at ¶ 20; Doc. 58-3 at ¶
20), and Hartford refers to the assignment in the Intercreditor Collateral Agreement as a
“lien,” but Hartford claims the assignment is governed by contract law, not the Uniform
Commercial Code as adopted by North Dakota.
As the Eighth Circuit Court of Appeals explained,
Often, the law will attach a different meaning to the same word
depending upon the area of law in which it is being used. For example, an
offer for purposes of § 5 of the Securities Act of 1933 may or may not be an
offer under general contract law. Similarly, an assignment for purposes of
Article 9 may or may not be an assignment under general property law. An
assignment has traditionally been defined in the law of contracts as a
transfer by the assignor of all rights in the property assigned to the assignee.
It effects an absolute and irrevocable transfer of ownership. Article 9, which
governs secured transactions, uses the term assignment, but under Article
9 it does not always mean a complete and absolute transfer of ownership.
See Texas Bus. & Com.Code Ann. § 9.102(b) (states that Article 9 applies
to security interests created by contract, including an assignment). Indeed,
Article 9’s primary purpose is to regulate security agreements, not transfers
or sales, which are governed primarily by Article 2. When an assignment is
intended for purposes of security, which § 9.102 permits, it is subject to
Article 9.
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Artoc Bank & Trust v. Apex Oil Co. (In re Apex Oil Co.), 975 F.2d 1365, 1369 (8th Cir.
1992), reh’g denied and opinion modified (Nov. 19, 1992).
Hartford avoids the characterization of the General Indemnity Agreement as a
security interest, apparently concerned about the attachment and perfection
requirements under the Uniform Commercial Code as adopted by North Dakota.
To prevail on its claim that the assignment in the General Indemnity Agreement
transferred ownership in contracts, accounts receivable and retainage, Hartford must
show Pro-Mark intended to transfer and retain no control over the funds with no
authority to collect and no power to revoke. See Armstrong v. United States (In re
Bagley), 1988 WL 1015997, at *2 (Bankr. D.N.D. Mar. 4, 1988) (analyzing whether an
assignment absolutely conveyed all of a debtor’s right to payments or whether the
parties intended the assignment to serve as security); Cascades Dev. of Minn., LLC v.
Nat’l Specialty Ins., 675 F.3d 1095, 1098–99 (8th Cir. 2012) (“Under Minnesota law, no
particular form of words is required for an assignment, but the assignor must manifest
an intent to transfer and must not retain any control or any power of revocation.”)
(citations omitted); Broadcast Music, Inc. v. Hirsch, 104 F.3d 1163, 1167 (9th Cir. 1997)
(“Under New York law, ‘an assignment occurs only where the assignor retains no
control over the funds, no authority to collect and no power to revoke.’”) (citation
omitted); Banque Arabe et Int’l D’Investissement v. Bulk Oil (USA) Inc., 726 F.Supp.
1411, 1417 (S.D.N.Y. 1989) (same); Restatement (Second) of Contracts § 317(a)
(1981).
Facts offered in support of Hartford’s Motion for Summary Judgment show Pro-
Mark executed two General Indemnity Agreements in favor of Hartford as partial
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consideration for Hartford’s execution of bonds and other consideration. Pro-Mark
needed the bonds for government contracts and agreed to convey rights in
consideration for the bonds. Pro-Mark’s signature suggests intent to convey rights at
the time it signed the General Indemnity Agreements, but Pro-Mark’s obligation to
transfer ownership of assets under the agreement is not triggered until default5 and any
collateral or collateral proceeds in excess of Hartford’s losses must be returned to Pro-
Mark under the terms of the agreements.6 Consequently, Pro-Mark’s intent to
immediately convey ownership of the assets assigned is suspect.7 There is no
evidence that Hartford demanded immediate conveyance of contract proceeds or that
Pro-Mark intended to convey all bonded contract proceeds on the date they signed the
General Indemnity Agreements.8 Similarly, there is no evidence that Hartford
demanded any collateral under the assignment provisions until after Pro-Mark
defaulted.
5 See Bankr. Case No. 24-30167, Doc. 72-1 at ¶ 10 (“Upon Default, Hartford shall
have the absolute right to take any or all of the following actions: (a) Assert, enforce,
and use all the assigned, transferred or conveyed rights;”); Doc. 58-3.
6 See, e.g., Bankr. Case No. 24-30167, 72-1 at ¶ 6; Doc. 58-3.
7 See Nw. Elec. Co of Ohio v. A.P. O’Horo Co. (In re Nw. Elec. Co. of Ohio), 84
B.R. 400, 402 (Bankr. W.D. Pa. 1988) (“The contention of the defendants that they
became the outright owners of the account is also disregarded since the plain terms of
the assignment agreements state that the assignments are only valid to the extent of
the claim of the subcontractor against Northwest even though both assignments are
otherwise blanket assignments of the entire claim of Northwest against the owner. It is
quite clear and we find that the assignments were for security purposes.”).
8 See Moon v. Big R Sand & Gravel, Inc. (In re Ellison), 245 B.R. 361, 364
(Bankr. W.D. Mo. 1999) (“An assignment is valid if the circumstances evidence a clear
present intention on one side to assign and on the other side to receive. A mere
agreement to assign a debt at some future time does not operate as an assignment and
does not vest any interest in the assignee.”) (footnotes omitted).
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Conversely, there is evidence suggesting the parties intended the collateral
assigned to serve as security for any losses Hartford incurs. Paragraph 20 of the
General Indemnity Agreement provides that the “Agreement constitutes a Security
Agreement in favor of Hartford.” Bankr. Case No. 24-30167, Doc. 72-1; Doc. 58-3. The
language in and purpose of the General Indemnity Agreement and the parties’ course of
conduct show the parties intended the assignment provision to be security for any loss
Hartford incurred. See In re Apex Oil Co., 975 F.2d at 1369. The Court finds that the
parties to the General Indemnity Agreement intended the assignment to serve as
security, and the agreement is evidence of a security interest in the collateral assigned.
The record also shows that Pro-Mark granted Hartford a security interest that
attached under North Dakota law. N.D.C.C. § 41-09-13 outlines the attachment
requirements and provides, in relevant part:
1. 	A security interest attaches to collateral when the security interest
becomes 	enforceable 	against 	the 	debtor 	with 	respect 	to 	the
collateral,
2. 	Except as otherwise provided in subsections 3 through 9, a security
interest is enforceable against the debtor and third parties with
respect to the collateral only if:
a. 	Value has been given;
b. 	The debtor has rights in the collateral or the power to transfer
rights in the collateral to a secured party; and
c. 	One of the following conditions is met:
(1) The debtor has signed a security agreement that provides
a description of the collateral and, if the security interest
covers timber to be cut, a description of the land concerned;
* * *
(6) The attachment of a security interest in collateral gives the
secured party the rights to proceeds provided by section 41-
09-35 and is also attachment of a security interest in a
supporting obligation for the collateral.
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N.D.C.C. § 41-09-13; see PHI Fin. Servs., 874 N.W.2d at 919.
As partial consideration for Hartford’s execution of bonds and other
consideration, Pro-Mark signed two General Indemnity Agreements in favor of Hartford,
dated July 14, 2020, and July 8, 2022. Berg Aff. ¶ 4. Hartford provided the bonds Pro-
Mark needed in consideration for the security provided in the General Indemnity
Agreements.9 Pro-Mark held prepetition rights to payments under the contracts it
entered with the United States, and Pro-Mark signed the General Indemnity Agreement
purporting to be a security agreement creating a security interest in favor of Hartford.
The General Indemnity Agreement also satisfies the last requirement, a
description that reasonably identifies the collateral. Under N.D.C.C. § 41-09-08(1), a
description of the collateral in a security agreement is sufficient “regardless of whether
the description is specific, if the description reasonably identifies what is described.”
Section 41-09-08(2) provides, in relevant part:
[A] description of collateral reasonably identifies the collateral if it identifies
the collateral by:
a. 	Specific listing;
b. 	Category;
c. 	Except as otherwise provided in subsection 5, a type of collateral
defined in the Uniform Commercial Code;
d. 	Quantity;
e. 	Computational or allocational formula or procedure; or
9 See Doc. 58-1; N.D.C.C. § 41-01-12 (“a person gives value . . . [i]n return for
any consideration sufficient to support a simple contract.”); Thompson v. Danner, 507
N.W.2d 550, 555 (N.D. 1993) (“The Bank gave value in the form of a renewal of a prior
operating loan plus additional operating funds for the 1990 crop year.”).
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f. 	Except as otherwise provided in subsection 3, any other method,
if the identity of the collateral is objectively determinable.
N.D.C.C. § 41-09-08(2); see also Royal Jewelers Inc. v. Light, 859 N.W.2d 921, 927
(N.D. 2015). Subsection 9(a) of the General Indemnity Agreement grants Hartford an
interest in “All rights of the Indemnitors in, arising from, or related to Bonds or any
bonded or unbonded contracts[.]” Bankr. Case No. 24-30167, Doc. 72-1; Doc. 58-3.
Similarly, subsection 9(b) of the General Indemnity Agreement grants an interest to
Hartford in “All right, title and interest of the Indemnitors in and to; (1) the work
performed on any Bonded or unbonded contract; [.]” Id. Additionally, subsection 9(d)
grants to Hartford an interest in:
Any and all accounts receivable, accounts, chattel paper, documents of title,
intangibles, claims, judgments, choses in action, purchaser orders, bills of
lading, 	federal 	or 	state 	tax 	refunds, 	tort 	claims, 	premiums, 	deferred
payments, refunds, retainage or retainage account in which the Indemnitors
have an interest.
Id. In light of the references to bonded and nonbonded contracts, work performed on
these contracts and accounts receivable, the Court finds that the assignment provision
in the General Indemnity Agreement sufficiently describes the earned but unpaid funds
the United States is holding under bonded contracts.
In its objection to the Court’s Provisional Memorandum and Order, CCU argued
that the language in the General Indemnity Agreement was insufficient to create a
security interest in bonded contract receivables and their proceeds because the
agreement did not include an after-acquired property clause.10 The stipulated facts
10 During oral argument at the hearing on CCU’s Motion for Relief from the
Automatic Stay, CCU argued that the language in the General Indemnity Agreement
was insufficient to create a security interest in bonded contract receivables and their
proceeds because the agreement did not include an after-acquired property clause. At
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confirm that the United States and Pro-Mark entered into many of the bonded contracts
at issue after the parties executed the General Indemnity Agreements in 2020 and
2022. Accordingly, the question is whether Hartford’s security interest attached to
contracts entered after 2022 and the accounts receivable due to Pro-Mark arising from
them.
Under North Dakota law, “a security agreement may create or provide for a
security interest in after-acquired property.” N.D.C.C. § 41-09-14; Horob v. Farm Credit
Servs. of N.D. ACA, 777 N.W.2d 611, 615 (N.D. 2010). Neither the statute nor North
Dakota case law requires specific language to create an interest in after-acquired
collateral. Because accounts (including accounts receivable) are self-liquidating and
cyclical, many courts have concluded that using the word “accounts” is sufficient to
include presently existing and after-acquired accounts. See ARA Inc. v. City of
Glendale, 2018 WL 1411787, at *2 (D. Ariz. Mar. 21, 2018) (citing a Minnesota practice
guide that notes that a majority of courts hold that the mere use of the word ‘inventory’
or ‘accounts’ was sufficient to cover presently existing and after-acquired inventory and
accounts); Paulman v. Gateway Venture Partners III (In re Filtercorp, Inc.), 163 F.3d
570, 579 (9th Cir. 1998) (“we find more persuasive the contrary position, adopted by the
majority of jurisdictions, that a security interest in inventory or accounts receivables
presumptively includes an interest in after-acquired inventory or accounts receivables,
respectively.”) (citations omitted); Claytor v. Shenandoah Warehouse Co. (In re
Shenandoah Warehouse Co.), 202 B.R. 871, 875 (Bankr. W.D. Va. 1996) (“The
the time of the hearing, neither party cited the cases standing for the proposition that a
security interest in accounts receivables presumptively includes an interest in after-
acquired accounts receivables, and the Court was unaware of them.
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commercially reasonable interpretation of the phrase ‘accounts receivable’ in a security
agreement is that it includes all receivables existing as of the date of the security
agreement and after-acquired receivables generated during the life of the security
agreement.”).
Importantly, “the majority of courts and commentators reason that the
presumption of a floating lien on inventory and accounts receivable is not created by
particular language but rather springs from an appreciation of the cyclical nature of the
collateral itself.” In re Filtercorp, Inc., 163 F.3d at 580. Based on this premise—which
the Court adopts11—the assignment language in the General Indemnity Agreement
providing Hartford and interest in all “accounts” and “accounts receivable” sufficiently
describes the earned but unpaid bonded contract funds held by the United States to
create a presumption that Hartford holds a security interest in accounts receivable, even
if the funds were derived from contracts Pro-Mark received after 2022.
The language in the General Indemnity Agreement supports this interpretation.12
The collateral description in the assignment provision includes broad terms like “all
11 The Court adopts this premise because it believes the North Dakota Supreme
Court would hold that security interests in accounts receivable presumptively include
after-acquired receivables, subject to rebuttal evidence that the parties intended
otherwise.
12 As the North Dakota Supreme Court explained:
Determining what obligations are secured by the collateral listed in a
security agreement is a “matter of construing the parties’ agreement under
applicable law.” Unif. Commercial Code § 9–204 cmt. 5, 3 U.L.A. 136. “The
language of a contract is to govern its interpretation if the language is clear
and explicit and does not involve an absurdity.” N.D.C.C. § 9–07–02. We
have stated:
“Written contracts are construed to give effect to the
parties’ mutual intention when the contract was formed, and if
possible, we look to the writing alone to determine the parties’
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rights of the Indemnitors in, arising from, or related to Bonds or any bonded or
unbonded contracts,” and “any and all accounts receivable, accounts[.]” Bankr. Case
No. 24-30167, Doc. 72-1; Doc. 58-3 at ¶ 9. The “Application of the Agreement”
paragraph provides that the agreement shall apply to “all Bonds Underwritten by
Hartford, whether prior to, simultaneously with, or subsequent to this Agreement’s
execution[.]” Doc. 58-3 at ¶ 2. The provision reinforces the proposition that “Hartford
shall have the absolute right to apply any amount owed to any Indemnitor against the
amount owed by that Indemnitor to Hartford.” Id. This language supports Pro-Mark’s
and Hartford’s intent to include accounts receivable arising from all contracts Hartford
bonded as security for any obligations Pro-Mark may owe Hartford. CCU produced no
evidence rebutting this presumption. Accordingly, Hartford holds a security interest that
attached to earned but unpaid bonded contract funds/accounts receivable existing as of
the date of the General Indemnity Agreement and after-acquired receivables generated
during the life of the agreement.
intent. The interpretation of a written contract is a question of
law, if the parties’ intent can be determined from the language
of the writing alone. Whether a written contract is ambiguous
is a question of law, which we review independently. A written
contract is ambiguous if rational arguments can be made for
different interpretations. If a written contract is ambiguous,
extrinsic 	evidence 	may 	be 	considered 	to 	determine 	the
parties’ intent, and the terms of the contract and the parties’
intent 	are 	questions 	of 	fact. 	If 	a 	written 	contract 	is
unambiguous, however, extrinsic evidence is not admissible
to contradict the written language.”
Horob, 777 N.W.2d at 615–16 (quoting Doeden v. Stubstad, 755 N.W.2d 859, 864–65
(N.D. 2008) (citations omitted)).
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“While ‘attachment’ relates to the creation and enforceability of a security interest
between the parties to the transaction, ‘perfection’ is an additional step which makes the
security interest effective against third parties.” PHI Fin. Servs., Inc. v. Johnston Law
Office, P.C., 874 N.W.2d 910, 919 (N.D. 2016) (quoting Thompson v. Danner, 507
N.W.2d 550, 554 (N.D. 1993)). Although there is no evidence that Hartford perfected its
security interest in the assigned right to contracts, accounts receivable and retainage in
the possession of the United States, this status does not impair Hartford’s right to
earned but unpaid bonded contract funds because the Intercreditor Collateral
Agreement grants it priority to this collateral as between CCU and Hartford. Hartford’s
security interest in bonded contract funds is a lien under the Intercreditor Collateral
Agreement. Bankr. Case 24-30167, Doc. 72-4 at Covenants ¶ 2; see also 11 U.S.C. §
101(51A) (“The term ‘security interest’ means lien created by an agreement.”). Under
the Intercreditor Collateral Agreement, Hartford’s liens in Surety Priority Collateral are
senior and superior to CCU’s liens, regardless of the relative times of attachment or
perfection. Surety Priority Collateral includes Bonded Contracts and the proceeds of
these contracts. Accordingly, Hartford’s claim to $440,876.24 held by the United States,
less nonbonded contract proceeds, is senior and superior to CCU’s liens.13 Hartford’s
claim to these funds is also superior to the bankruptcy estate.14
13 As noted above, there is no documentation linking $312,104.38 ($440,876.24 -
$128,771.86) of payments owed to Pro-Mark to reimbursement owed to Hartford for
claims it paid. There is a question of fact regarding whether these funds are retainage
on contracts where Hartford suffered losses, retainage on nonbonded contracts or some
other characterization.
14 The Trustee’s opportunity to avoid Hartford’s security interest expired. See 11
U.S.C. § 546(a)(1). Even if the Trustee had pursued lien avoidance, it is unlikely he
would have prevailed. See Three Rivers Bank of Mont. v. N. End Timber Prods., LLC
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The definition of Surety Priority Collateral in the Intercreditor Collateral
Agreement includes no reference to nonbonded contracts or receivables. Accordingly,
the $146,831.25 held by the bankruptcy estate for work Pro-Mark performed on
nonbonded contracts may be disbursed according to Bankruptcy Code priorities.
2. 	Funds Pro-Mark Deposited in its Accounts with CCU
On the petition date, Pro-Mark held two deposit accounts with CCU: the S-1
account, a savings account, and S-12, a business account.
Pro-Mark “received $1,900,000 arising from a settlement with Atlantic Specialty
Insurance Company on July 18, 2023, arising out of a claim related to a Directors and
Officers’ Insurance Policy asserting a failure by said insurance company to defend
Debtor with respect to a criminal investigation.” Doc. 56 at ¶ 18. Pro-Mark deposited
these funds in Pro-Mark’s S-1 Deposit Account. Id.
The S-1 Deposit Account received three transfers from Pro-Mark’s S-12 Deposit
Account in the sum of $284,434.88 each on January 15, 2024, February 15, 2024, and
March 15, 2024, totaling $853,304.64. Pro-Mark made these transfers in accordance
with the terms of the Amendment to Modification Agreement dated January 12, 2024.
From January 2024 to April 2024, Pro-Mark received 28 deposits in its S-12
Account for work Pro-Mark performed on government projects. Doc. 56 at ¶ 20. These
deposits total $3,047,276.36.
Pro-Mark petitioned for bankruptcy relief on April 22, 2024.
(In re N. End Timber Prods., LLC), 2007 WL 4468706 at *9–*10 (Bankr. D. Mont. Dec.
17, 2007); Robinson v. Howard Bank (In re Kors, Inc.), 64 B.R. 163, 169–70 (D. Vt.
1986), aff’d, 819 F.2d 19, 23-24 (2d Cir. 1987); Betta Prods., Inc. v. DS-MAX Mgmt.,
Inc. (In re Betta Prods., Inc.), 2003 WL 22945664, at *1 (Bankr. N.D. Cal. July 7, 2003).
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As of May 17, 2024, Pro-Mark maintained $3,306,470.14 in its Deposit Accounts
held at CCU. Doc. 56 at ¶ 21. S-1 held $2,754.143.98, and S-12 held $552,326.16.
On May 17, 2024, S-1 may have included proceeds from the settlement
discussed above. Pro-Mark obtained a payment and performance bond from Hartford
on some of the projects it performed for the United States. Payments made for work on
these bonded contracts were deposited in Pro-Mark’s S-12 account and may have
comprised some of the money held in S-1 and S-12 on May 17, 2024. See Doc. 56 at ¶
20.
On August 2, 2024, the Court granted CCU relief from the automatic stay to set
off the funds in these accounts. Currently, there is $0.00 in the S-12 Account, and
$0.00 in the S-1 Account due to CCU’s setoff.
a. 	Funds Deposited in Pro-Mark’s Deposit Accounts
Were 	Not 	Subject 	to 	Equitable 	Subrogation 	or
Assignment that Created an Ownership Interest
Unlike the discussion of the parties’ rights to funds held by the United States or
the Trustee, Hartford’s right to equitable subrogation does not apply to payments the
United States made to Pro-Mark and Pro-Mark deposited before Pro-Mark defaulted or
failed to perform. See Int’l Fid. Ins. Co. v. United States, 949 F.2d 1042, 1046 (8th Cir.
1991) (reciting Missouri’s general rule “that when sums earned under the contract are
paid generally to the contractor, such funds are thereby freed of any equity or right of
subrogation in the surety,” and ruling that the surety’s right to unpaid progress payments
arise after the contractor defaulted); City of Pine Bluff, 354 F.3d at 952 (“Thus, if the City
were still holding retainage or contract funds, extant Arkansas law would provide for
Penn National’s reimbursement, and Penn National would be entitled to priority over
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[the contractor] and [the contractor’s] creditors.”); Arch Ins. Co. v. FVCbank, 881 S.E.2d
785, 794 (Va. 2022) (“[A]ny equitable interest [the surety] had in [the debtor’s] deposit
account funds was destroyed when the funds were deposited in a general deposit
account, and [the debtor] and the bank never agreed to create a trust account.”);
Berkley Ins. Co., 2018 WL 1516885, at *3 (“The right of subrogation attaches only to ‘all
funds, earned but unpaid progress payments, as well as contract retainages, in the
hands of contractee at the time of default.’”) (applying Missouri law); In re Union City
Contractors, Inc., 2010 WL 1226882, at *9 (Bankr. W.D.N.Y. Mar. 31, 2010) (agreeing
“with the Eighth Circuit Court of Appeals in International Fidelity that, sums, fully earned
and paid-out are free of any superior equitable interest or right of subrogation in a
surety, in order to promote the free flow of commerce, and in order to insure that parties
that receive such progress funds from a contractor do not have to be concerned with
potential future claims for the return of the money.”).
For the reasons provided above, the assignment language in the General
Indemnity Agreement did not assign an ownership interest in bonded or nonbonded
contract proceeds deposited in Pro-Mark’s accounts with CCU because: (1) the Court
is not convinced that the assignment provision transferred ownership interest in these
funds; (2) the default triggering Hartford’s right to an assignment did not occur until after
the United States transferred the funds to Pro-Mark; and (3) there is no evidence in the
record that Hartford gave the United States notice of its assigned rights or demanded
enforcement of the right conveyed.
Consequently, to resolve the dispute over funds deposited in Pro-Mark’s
accounts, the Court looks to the General Indemnity Agreement between Pro-Mark and
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Hartford and the Intercreditor Collateral Agreement, which established the relative
priorities of Hartford and CCU and their respective rights to Pro-Mark’s assets.
b. 	The $1,900,000 in Settlement Proceeds Are Not
Surety Priority Collateral Under the Intercreditor
Collateral Agreement
Hartford argues that the $1,900,000 in settlement proceeds Pro-Mark received
from Atlantic Specialty Insurance Company on July 18, 2023, is collateral assigned to it
under the General Indemnity Agreement between Pro-Mark and Hartford executed in
July 2020 and 2022. Paragraph 9(c) provides that Pro-Mark assigned “all rights arising
out of insurance policies in which any Indemnitor has an interest[.]” Bankr. Case No.
24-30167, Doc. 72-1 at ¶ 9(c); Doc. 58-3. 	Under the Indemnity Agreement, the
insurance rights assignment to Hartford was not triggered until one of the default events
occurred. See In re Pihl, 560 B.R. at 12–14. Failure to perform under paragraph 1(b)(i)
or the commencement of insolvency proceedings under paragraph 1(b)(i) both occurred
on April 22, 2024. Until then, Hartford held no claim to “rights arising out of insurance
policies in which Pro-Mark had an interest.” Pro-Mark received the insurance proceeds
more than nine months before Hartford’s rights under the assignment vested. By then,
Pro-Mark deposited the funds.
To the extent Hartford argues that the General Indemnity Agreement is a security
agreement granting a security interest in insurance proceeds, Hartford’s interest did not
attach to the $1,900,000 in settlement proceeds that Pro-Mark received in 2023, months
after the parties signed the 2022 General Indemnity Agreement, because the language
in this agreement does not reasonably identify or sufficiently describe a security interest
in after-acquired insurance proceeds. Unlike accounts, there is no presumption of a
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floating lien applicable to insurance proceeds. The Court declines to find, as a matter of
law, that Hartford’s security interest in insurance proceeds attached to the $1,900,000 in
settlement proceeds. There is also no evidence that Hartford perfected any claimed
security interest in the settlement proceeds.
Even if Hartford had demonstrated a claim or security interest in the insurance
proceeds, its purported right to this collateral is not senior and superior to CCU’s
security interest under the Intercreditor Collateral Agreement.
In the Intercreditor Collateral Agreement, CCU and Hartford agreed that:
Regardless of the relative times of the attachment or perfection of Liens or
the order of filing of security agreements, financing statements, or other
documents, the Liens of [Hartford] in the Surety Priority Collateral shall in
all respect be senior and superior to the Liens of [CCU] in the Surety Priority
Collateral.
Bankr. Case No. 24-30167, Doc. 72-4, Covenants ¶ 4; Doc. 56 at ¶ 17. Under this
agreement, Surety Priority Collateral is defined as “all Bonded Contracts, Bonded
Intangibles, Bonded Receivables including affirmative claims, Bonded Records, Bonded
Intellectual Property, Bonded Working Assets and all Proceeds thereof.” Id. at Doc. 72-
4, Covenants ¶ 2. Hartford does not argue that proceeds of a settlement arising out of a
claim related to a Directors and Officers’ Insurance Policy asserting a failure by the
insurance company to defend Pro-Mark during a criminal investigation are Bonded
Contracts, Bonded Receivables, Bonded Records, Bonded Intellectual Property,
Bonded Working Assets and all Proceeds thereof. Instead, Hartford argues that the
settlement proceeds fall within the definition of Bonded Intangibles.
In the Intercreditor Agreement, “Bonded Intangible” is defined, in relevant part,
as:
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all rights, actions causes of action, claims and demands of [Pro-Mark] in, or
arising from or out of: . . . (iii) any and all payments under insurance
(whether or not [Hartford] is the loss payee), or any indemnity warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect
to Surety Priority Collateral.
Id. at Doc. 72-4, Covenants ¶ 2.
Section 9-07-02, N.D.C.C., provides, “The language of a contract is to govern its
interpretation if the language is clear and explicit and does not involve an absurdity.”
Further, under N.D.C.C. § 9-07-12, “A contract may be explained by reference to the
circumstances under which it was made and the matter to which it relates.” Given the
plain language of the contractual provision in the context of an Intercreditor Collateral
Agreement where the Surety’s collateral relates to bonded contracts with Pro-Mark, an
insurance payment is only a “Bonded Intangible” if “payable by reason of loss or
damage to or otherwise with respect to Surety Priority Collateral.” Although “or
otherwise” is broad, that phrase immediately follows “loss or damage to.” The terms
“loss or damage to” modify “or otherwise” to only include similar things. See N.D.C.C. §
9-07-13 (“However broad may be the terms of a contract, it extends only to those things
concerning which it appears that the parties intended to contract.”). A payment made
by an insurance company as a settlement of a claim against it for failing to defend
corporate officers is not of the same type or nature as a payment made due to loss or
damage to equipment or other Surety Priority Collateral.
Accordingly, the Court finds that the settlement proceeds are not Surety Priority
Collateral. To the extent these proceeds are traceable to Pro-Mark’s S-1 account and
set off by CCU in August 2024, Hartford did not offer sufficient evidence to show that
CCU breached the Intercreditor Collateral Agreement by doing so.
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c. 	Funds Pro-Mark Received for Work on Bonded
Federal Construction Contracts that It Deposited in
CCU Accounts May Be Surety Priority Collateral
Hartford argues it is entitled to summary judgment on its breach of contract claim
against CCU because CCU breached the Intercreditor Collateral Agreement by failing to
deliver “Surety Priority Collateral” to Hartford, and by setting off “Surety Priority
Collateral” and applying it to debt that Pro-Mark owed to CCU. More specifically,
Hartford claims that CCU wrongfully set off $3,306,470.14 in deposit accounts because
all or part of this money is traceable to proceeds from bonded contracts, which Hartford
claims is Surety Priority Collateral.
i. 	Hartford Failed to Show That, As a Matter of
Law, the Provisions of the General Indemnity
Agreement 	Created 	a 	Valid 	Trust 	Under
North Dakota Law
Hartford argues that the trust provision in the General Indemnity Agreement
independently establishes that bonded contract funds deposited into Pro-Mark’s
account were held in trust for Hartford, giving Hartford a direct and enforceable interest
in those funds. It maintains that, by offsetting these funds, CCU breached the
Intercreditor Collateral Agreement.
To meet its burden of showing that the General Indemnity Agreement created an
enforceable trust under North Dakota law, Hartford must show Pro-Mark had the
capacity to create a trust, intention to create the trust, listed a beneficiary, and the
trustee has duties to perform. See N.D.C.C. § 59-12-02. Hartford failed to show, as a
matter of law, that Pro-Mark intended to create a trust.
The only evidence Hartford offered in support of its argument is the General
Indemnity Agreement, which includes trust language. The Stipulated Statement of
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Undisputed Material Facts and bank statements filed as exhibits to Hartford’s Motion for
Summary Judgment show Pro-Mark deposited contract proceeds into an account from
which it paid payroll and other routine expenses. It did not deposit bonded contract
proceeds in a separate account which would suggest the creation of the trust. Pro-Mark
and Hartford worked together on bonded contract related matters since 2020, yet there
is no evidence that Pro-Mark honored this trust provision or that Hartford demanded it.
The trust language in the General Indemnity Agreement, without any evidence of
restrictions on the use of funds, is not sufficient as a matter of law to show an intention
to create a trust. See Guarantee Co. of N. Am. USA v. Associated Bank, 2019 WL
4897171, at *4 (D. Minn. Aug. 27, 2019); Shapiro v. Jacob’s Elec. Constr., Inc. (In re E.
Concrete Paving Co.), 293 B.R. 704, 710 (Bankr. E.D. Mich. 2003) (“A provision
contained in an indemnity agreement between the surety and contractor purporting to
create a trust, without any evidence of the intention of the settlor to create a trust or
impose restrictions on the use of the funds by the purported trustee, is insufficient by
itself to create an enforceable express trust.”); Acuity v. Planters Bank, Inc., 362
F.Supp.2d 885, 892 (W.D. Ky. 2005) (finding under Kentucky law that a “settlor and
trustee must take some action to create a trust by declaration . . . to agree to do so at
some future time, unaccompanied by later action or evidence of intent to create a trust,
is not enough”).
ii. 	Hartford Holds a Security Interest in Bonded
Contract Receivables and Their Proceeds
As discussed in detail above, Hartford holds a security interest that attached to
earned but unpaid bonded contract funds/accounts receivable existing as of the date of
the General Indemnity Agreement and after-acquired receivables generated during the
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life of the agreement. The question is whether this security interest attaches to
proceeds of bonded contract receivables after Pro-Mark deposited them in its accounts
with CCU. Under North Dakota law, the answer is “yes” if the proceeds are identifiable.
Section 41-09-13 of the North Dakota Century Codes outlines security interest
attachment requirements. Subsection 6 of this statute provides:
The attachment of a security interest in collateral gives the secured party
the rights to proceeds provided by section 41-09-35 and is also attachment
of a security interest in a supporting obligation for the collateral.
N.D.C.C. § 41-09-13(6). Section 41-09-35, in turn, provides:
1. 	Except as otherwise provided in this chapter and in subsection 2 of
section 41-02-48:
a. 	A security interest or agricultural lien continues in collateral
notwithstanding 	sale, 	lease, 	license, 	exchange, 	or 	other
disposition thereof unless the secured party authorized the
disposition free of the security interest or agricultural lien; and
b. 	A security interest attaches to any identifiable proceeds of
collateral.
2. 	Proceeds that are commingled with other property are identifiable
proceeds:
a. 	If the proceeds are goods, to the extent provided by section
41-09-56; and
b. 	If the proceeds are not goods, to the extent that the secured
party identifies the proceeds by a method of tracing, including
application of equitable principles, that is permitted under law
other than this chapter with respect to commingled property
of the type involved.
N.D.C.C. § 41-09-35. Although there appears to be no North Dakota common law
interpreting these statutes, courts interpreting similar statutes agree that the security
agreement that attached to the collateral (including accounts receivable), attaches to
the proceeds as well. See Swanson v. Applied Process Tech. Int’l (In re Delta-T Corp.),
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475 B.R. 495, 531 (Bankr. E.D. Va. 2012) (“By definition, the funds collected on the
accounts created in favor of Delta–T by the sales of the steel to Central City and Pasco
constitute proceeds of the accounts because the accounts constituted collateral under
the Security Agreements at their creation.”); Inv. Hotel Props. v. New W. Fed. Sav. &
Loan Assoc. (In re Inv. Hotel Props.), 109 B.R. 990, 995 (Bankr. D. Colo. 1990) (“Also,
the payment on an account receivable is proceeds of the account receivable.”) (citations
omitted).
Hartford’s security interest attached to bonded contract receivables and the
rights to proceeds of these receivables under section 41-09-13. Pro-Mark deposited
these proceeds in a bank account with CCU. Under section 41-09-35(1)(a), this
security interest continues in the receivables unless Hartford authorized the disposition
free of the security interest. There is no evidence Hartford released these proceeds.
To the extent Pro-Mark commingled these proceeds, the security interest attaches only
to those proceeds that are identifiable. See N.D.C.C. § 41-09-35(2)(b); In re Vision
Care of Me. Ltd. Liab. Co., 2025 WL 816725, at *3 (Bankr. D. Me. Mar. 13, 2025)
(“Commingling alone, however, would not have prevented Besse Medical’s security
interest from attaching to, becoming automatically perfected in, and remaining perfected
in the cash proceeds. If Besse Medical can identify, through a permissible tracing
method, any cash proceeds of its original collateral among funds in the joint bank
account, Besse Medical’s security interest would have (1) attached to those identifiable
cash proceeds[.]”) (citations omitted).
Although there is no evidence that Hartford perfected its security interest in the
assigned right to bonded contract receivables and their proceeds, this status does not
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impair Hartford’s right to earned but unpaid bonded contract funds because the
Intercreditor Collateral Agreement grants it priority to this collateral as between CCU
and Hartford. Hartford’s security interest in bonded contract funds is a lien under the
Intercreditor Collateral Agreement. Bankr. Case 24-30167, Doc. 72-4 at Covenants ¶ 2;
see also 11 USC § 101(51A) (“The term ‘security interest’ means lien created by an
agreement.”). Under the Intercreditor Collateral Agreement, Hartford’s liens in Surety
Priority Collateral are senior and superior to CCU’s liens, regardless of the relative times
of attachment or perfection. Surety Priority Collateral includes Bonded Contracts and
the proceeds of these contracts. Accordingly, Hartford’s claim to identifiable bonded
contract receivables and their proceeds less nonbonded contract proceeds is senior and
superior to CCU’s liens.
Hartford offered bank statements showing deposits of several bonded contract
payments. Without briefing on the method of tracing and details regarding the complete
scope of identifiable bonded contract receivables, there remain questions of fact
precluding summary judgment in favor of either Hartford or CCU on their claims and
causes of action related to these funds.
The definition of “Surety Priority Collateral” in the Intercreditor Collateral
Agreement includes no reference to nonbonded contracts or receivables. Accordingly,
to the extent these proceeds are identified, they are not Surety Priority Collateral.
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iii. 	CCU Did Not Establish, As a Matter of Law,
That 	Funds 	Held 	for 	Ordinary 	Course
Payments 	Were 	“Ordinary 	Course
Payments” Under the Intercreditor Collateral
Agreement
According to the Undisputed Statement of Material Facts, the S-1 Deposit
Account received three transfers from Pro-Mark’s S-12 Deposit Account in the sum of
$284,434.88 each on January 15, 2024, February 15, 2024, and March 15, 2024,
totaling $853,304.64. CCU made these transfers according to the terms of the
Amendment to Modification Agreement dated January 12, 2024. CCU claims these
transfers were “Ordinary Course Payments” under the terms of the Intercreditor
Collateral Agreement, and its setoff of these funds was not a breach of this agreement.
Section 5.e of the Intercreditor Collateral Agreement provides that, regardless of
Hartford’s liens in Surety Priority Collateral, CCU “may accept and retain all Ordinary
Course Payments.” Bankr. Case No. 24-30167, Doc. 72-4, Covenants § 7(e). The
Intercreditor Collateral Agreement defines an “Ordinary Course Payment” as any
“payment, prepayment, or repayment” from Pro-Mark to CCU, providing these payments
are not made: (a) after CCU accelerated Pro-Mark’s debt following a “Bank Event of
Default”; or (b) during a “Surety Event of Default Period.” Id. at Covenants § 2. The last
sentence of this definition provides clarifying language: “For the avoidance of doubt, all
insurance and condemnation proceeds received by the Bank in accordance with
Section 13.a., below, shall be deemed, to the extent applied to the Bank Debt, to be
Ordinary Course Payments.” Id.
CCU asserts that under this definition, any portion of the Deposit Account Funds
that were payments, prepayments, or repayments from Pro-Mark to CCU, made prior to
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CCU’s acceleration of Pro-Mark’s debt, and outside a Surety Event of Default Period,
were Ordinary Course Payments that CCU may retain even if Hartford held a lien
against the same funds that attached to Surety Priority Collateral. CCU claims these
$284,434.88 monthly transfers were payments, prepayments, or repayments to CCU on
Pro-Mark’s loan.
The parties agree, and the Stipulated Statement of Undisputed Material Facts
confirms that CCU’s transfer of these funds from the S-12 account to the S-1 account
took place before either of the conditions included in the definition of Ordinary Course
Payments. The parties stipulated that, “As of the Petition Date, CCU had not
accelerated Pro-Mark’s debts owed to CCU.” Doc. 56 at ¶ 22. The parties also
stipulated that, “As of the Petition Date, Hartford had not provided written notice to CCU
of any default by Pro-Mark under the Intercreditor Agreement or related documents.” Id.
at ¶ 23. In fact, there is no evidence that Pro-Mark defaulted on any duty owed to
Hartford until it stopped performing on its bonded contracts, which Bragg testified
occurred after Pro-Mark petitioned for bankruptcy relief.
Hartford insists CCU’s transfer of funds from Pro-Mark’s deposit account into its
restricted account are not Ordinary Course Payments. Instead, Hartford claims CCU
and Pro-Mark entered into a modification agreement after bonded contract funds were
deposited into Pro-Mark’s deposit account and redirected those funds (which CCU
agreed to hold in trust for Hartford in the Intercreditor Collateral Agreement) to pay
down a preexisting debt it was owed by Pro-Mark. Hartford characterizes this conduct
as “an after-the-fact modification of the rights of Hartford’s collateral, without Hartford’s
consent.” Doc. 58 at 25.
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In light of the timing, the Court is not persuaded by Hartford’s suggestion that
CCU needed Hartford’s consent to make the fund transfers or that CCU facilitated “an
after-the-fact modification of the rights of Hartford’s collateral.” Between January and
March 2024 when CCU transferred the funds, Pro-Mark had not yet stopped performing
or defaulted on the General Indemnity Agreement assignment. Until the petition
date/default date, Pro-Mark retained the right to transfer and spend the money it
earned, and Hartford had no right to claim the bonded contract proceeds or to demand
that CCU hold them on its behalf.
Given the timing and the circumstances outlined by the January 12, 2024,
Amendment to the Modification Agreement, the Court is also not convinced that CCU’s
transfer of $853,304.64 from Pro-Mark’s S-12 account to the S-1 account equates to an
“Ordinary Course Payment.”
Under the terms of the Amendment to the Modification Agreement, CCU allowed
Pro-Mark to defer payments toward a revolving line of credit loan to May 15, 2024. In
return, Pro-Mark agreed to allow CCU to transfer the $853,304.64 to “Pro-Mark’s
restricted Regular Share account.” Pro-Mark also agreed:
[T]he funds in the S1 will be held and controlled in the account within the
sole discretion of the Credit Union. The parties agree said funds shall be
subject to the Credit Union’s right of set-off against the loan balances owing
by Pro-Mark to the Credit Union and shall also be considered as additional
collateral on said loans and are pledged as collateral for said loans. To
avoid any doubt, Pro-Mark agrees the funds will be unavailable to Pro-Mark
and it will not have control over any of the current or future funds deposited
in the restricted share account. The Credit Union will have full control over
the restriction on the funds.
Bankr. Case No. 24-30167, Doc. 72-3 at 19-20 (emphasis added). The parties agreed
to the following payment structure:
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(a) 	For the period from January 15, 2024 through April 15, 2024, Pro·
Mark will make the following monthly payments (the "Monthly
Payments") on the following due dates:
• 	January 15, 2024 - $11,940.32
• 	February 15, 2024 - $11,940.32
• 	March 15, 2024 - $11,940.32
• 	April 15, 2024 - $11,940.32
(b) 	Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on May 15, 2024.
Id. at 20.
It is apparent from the terms of the Amendment to Modification Agreement that
CCU’s fund transfers to a restricted account were intended to serve as additional
security—not payments.15 Pro-Mark did not deliver the funds to CCU, CCU did not
accept or setoff the funds at the time, and CCU did not apply the funds and reduce Pro-
Mark’s debt obligation accordingly. Rather, CCU transferred the funds to a restricted
Pro-Mark account, and they remained there until after the petition date. Even the last
sentence of the definition of Ordinary Course Payment suggests that money CCU
receives is not an Ordinary Course Payment until applied to debt.
15 Under North Dakota law related to contract interpretation, “Performance of an
obligation for the delivery of money only is called payment.” N.D.C.C. § 9-12-06.
Black’s Law Dictionary defines payment as:
1. 	Performance of an obligation by the delivery of money or
some other valuable thing accepted in partial or full discharge of the
obligation.
2. 	The money or other valuable thing so delivered in satisfaction
of an obligation.
Payment, Black’s Law Dictionary (12th ed. 2024).
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The parties anticipated that Pro-Mark would make four $11,940.32 payments
between January 2024 and April 2024 and a large lump sum payment on May 15, 2024.
The $11,940.32 payments Pro-Mark made before the petition date are “Ordinary Course
Payments” under the Intercreditor Collateral Agreement. The transfer of $853,304.64
from the S-12 account to the S-1 account as additional collateral is not, as a matter of
law, an “Ordinary Course Payment.”16 CCU’s arguments to the contrary are rejected.
D. 	Competing Claims to Pro-Mark’s Equipment
1. 	Pro-Mark’s 	Equipment 	is 	Not 	Subject 	to 	Hartford’s
Equitable Subrogation Claim and the Assignment in the
General 	Indemnity 	Agreement 	did 	not 	Transfer 	an
Ownership Interest in Pro-Mark’s Equipment to Hartford
CCU argues that Hartford’s right to equitable subrogation does not extend to Pro-
Mark’s equipment. The Court agrees. The rationale for finding an equitable right to
subrogation and attaching an equitable lien against bonded contract receivables does
not apply to Pro-Mark’s equipment. See State Bank & Tr. Co. v. Ins. Co. of the W., 132
F.3d 203, 207 (5th Cir. 1997) (noting that the “courts that have considered this issue
have held that secured creditors holding perfected security interests in a defaulting
contractor’s tangible personal property retain their priority over a completing surety’s
equitable claims” and agreeing that “when tangible personal property—distinct from
16 Hartford claims that CCU transferred the $853,304.64 in “bonded contract
funds into an account subject to CCU’s unilateral control and then applying them to Pro-
Mark’s outstanding debt” or that CCU made a “unilateral payment to itself of bonded
contract funds” confuses the issue. See Doc. 68 at 8-9. CCU does not argue, and the
Court does not find, that CCU’s setoff of sums deposited in Pro-Mark’s accounts
following the Order Granting Relief from the Automatic Stay is an “Ordinary Course
Payment.” CCU claims the $284,434.88 monthly transfers from Pro-Mark’s S-12
account to its S-1 (a restricted account) were payments, prepayments, or repayments
qualifying them as “Ordinary Course Payments” under the Intercreditor Collateral
Agreement. Doc. 62 at 12.
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contract proceeds—is at issue, the rationale for elevating the surety over the secured
creditor has no application”).
As one court explained:
[T]he surety has done nothing with respect to the bankrupt creditor’s
equipment which raises up in the surety an equity superior to that of later
judgment 	creditors. 	The 	equitable 	lien 	protects 	the 	surety 	whose
performance enables 	funds 	to 	become available, 	but 	in the 	case 	of
equipment the surety is in no better position than any other unsecured
creditor. The surety cannot accede to the general assets of the contractor
absent some assignment of title or attachment through a perfected security
interests [sic].
U.S. Fid. & Guar. Co. v. Leach (In re Merts Equip. Co.), 438 F.Supp. 295, 298 (M.D. Ga.
1977); see also Aetna Cas. & Sur. Co. v. J. F. Brunken & Son, Inc., 357 F.Supp. 290,
293–94 (D.S.D. 1973) (holding that equitable subrogation does not apply to the
proceeds from the sale of equipment and the surety was not entitled to an equitable lien
in sale proceeds; finding that the interest the surety sought to enforce is a security
interest subject to Article 9); U.S. Fid. & Guar. Co. v. United Penn Bank, 524 A.2d 958,
965 (Pa. Super. Ct. 1987) (“We hold, therefore, that where a creditor has obtained a
perfected security interest in personal property owned by a defaulting contractor, the
rights of the secured creditor in and to such personal property are superior to and have
priority over a claim thereto asserted by an unsecured surety which has been compelled
to pay claims made by materialmen against the contractor.”). Accordingly, Hartford does
not have the right to equitable subrogation, and it is not entitled to an equitable lien in
Pro-Mark’s equipment.
Additionally, the assignment language in the General Indemnity Agreement did
not assign an ownership interest in equipment because: (1) the Court is not convinced
that the assignment provision transferred an ownership interest in equipment when the
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parties signed the General Indemnity Agreement; and (2) there is no evidence in the
record that Hartford demanded enforcement of the right conveyed.
Consequently, to resolve the dispute over funds deposited in Pro-Mark’s
accounts, the Court looks to the General Indemnity Agreement between Pro-Mark and
Hartford and the Intercreditor Collateral Agreement, which establish the relative
priorities of Hartford and CCU and their respective rights to Pro-Mark’s assets.
2. 	Hartford Holds a Security Interest in Pro-Mark’s
Equipment
Paragraph 20 of the General Indemnity Agreement provides that the “Agreement
constitutes a Security Agreement in favor of Hartford.” Bankr. Case No. 24-30167, Doc.
72-1; Doc. 58-3. The language in and purpose of the General Indemnity Agreement
and Hartford’s and Pro-Mark’s course of conduct show the parties intended the
assignment provision to be security for any loss Hartford incurred. See In re Apex Oil
Co., 975 F.2d at 1369. As with bonded contract receivables discussed above, the Court
finds that the parties to the General Indemnity Agreement intended the assignment to
serve as security, and the agreement is evidence of a security interest in the collateral
assigned.
The evidence also shows that Pro-Mark granted Hartford a security interest that
attached under North Dakota law. As partial consideration for Hartford’s execution of
bonds and other consideration, Pro-Mark executed two General Indemnity Agreements
in favor of Hartford, dated July 14, 2020, and July 8, 2022. Hartford provided the bonds
Pro-Mark needed in consideration for the security provided in the General Indemnity
Agreements. Pro-Mark held prepetition rights to payments under the contracts it
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entered with the United States, and Pro-Mark signed the General Indemnity Agreement
purporting to be a security agreement creating a security interest in favor of Hartford.
The General Indemnity Agreement also satisfies the last requirement, a
description that reasonably identifies the collateral. Under N.D.C.C. § 41-09-08(1), a
description of the collateral in a security agreement is sufficient “regardless of whether
the description is specific, if the description reasonably identifies what is described.”
Subsection 9(b) of the General Indemnity Agreement grants an interest to Hartford in
“All right, title and interest of the Indemnitors in and to; (2) all supplies, tools, plant,
machinery, inventory, equipment, and materials[.]” Bankr. Case No. 24-30167, Doc. 72-
1, at ¶ 9(b); Doc. 58-3. The Court finds that the assignment provision in the General
Indemnity Agreement sufficiently describes Pro-Mark’s equipment. See United Bank of
Bismarck v. Selland, 425 N.W.2d 921, 922–24 (N.D. 1988) (holding that a collateral
description of “All Equipment, Machinery and Farm Products … adequately fulfills the
purpose ascribed to it under the Uniform Commercial Code and is not unacceptably
vague in its designation of the property involved.”); Ziebarth v. Dakota W. Bank (In re
Ziebarth), 1989 WL 1107877, at *4 (Bankr. D.N.D. Mar. 2, 1989) (citation omitted) (“The
North Dakota Supreme Court has concluded that the description, ‘all farm machinery,
equipment and farm products’ was sufficient for a security agreement.”).
Pursuant to section 41-09-35 of the North Dakota Century Code, Hartford’s
security interest in equipment continues in the identifiable proceeds from the sale of
Pro-Mark’s equipment, if any.
Accordingly, Hartford holds a security interest that attached to Pro-Mark’s
equipment existing as of the date the parties signed the General Indemnity Agreement.
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The security interest does not attach to equipment Pro-Mark purchased after the parties
signed the July 2022 General Indemnity Agreement because there is no language in
this agreement suggesting the parties intended the assignment to apply to after-
acquired equipment. See In re Ferro, 228 B.R. 700, 705–06 (Bankr. W.D. Mo. 1999);
Nacio Inv. Grp. v. Nacio Sys., Inc. (In re Nacio Sys., Inc.), 410 B.R. 38, 42 (Bankr. N.D.
Cal. 2009). Unlike accounts, there is no presumption of a floating lien applicable to
equipment.
Although there is no evidence that Hartford perfected its security interest in the
assigned right to equipment, this status does not impair Hartford’s right to Pro-Mark’s
equipment purchased for, installed in, or allocated to any bonded contract or the
proceeds of this equipment because the Intercreditor Collateral Agreement grants it
priority to this collateral as between CCU and Hartford. Hartford’s security interest in
bonded contract funds is a lien under the Intercreditor Collateral Agreement. Bankr.
Case No. 24-30167, Doc. 72-4 at Covenants ¶ 2; see also 11 U.S.C. § 101(51A) ( “The
term ‘security interest’ means lien created by an agreement.”). Under the Intercreditor
Collateral Agreement, Hartford’s liens in Surety Priority Collateral are senior and
superior to CCU’s liens, regardless of the relative times of attachment or perfection.
Surety Priority Collateral includes Bonded Working Assets and the proceeds of these
assets. Accordingly, Hartford’s claim to equipment Pro-Mark owned on or before July 8,
2022, that Pro-Mark purchased for, installed in, or allocated to any bonded contract as
well as the proceeds of this equipment, is senior and superior to CCU’s liens.
IV. 	SUMMARY OF CONCLUSIONS AND RULINGS ON MOTIONS
For the reasons provided above, IT IS ORDERED:
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1. 	CCU’s Motion for Summary Judgment on Count I, seeking a declaration
that Pro-Mark owns all legal and equitable interest in accounts receivable
under 11 U.S.C. § 541, is granted in part and denied in part. CCU’s Motion
for Summary Judgment on Count II, seeking a declaration that CCU’s
security interest in Pro-Mark’s accounts receivables is superior to
Hartford’s claims against the accounts receivables is granted in part and
denied in part.
a. 	Hartford holds an equitable interest in earned but unpaid bonded
contract receivables totaling $89,273.85 for work Pro-Mark
performed on the Offutt AFB – Simulator Contract, but the United
States is not authorized to release these funds until Hartford
completes the work remaining on this project. Hartford’s equitable
interest in these proceeds is superior to the bankruptcy estate’s
interest and CCU’s security interest. To the extent CCU seeks a
declaratory judgment to the contrary, its Motion for Summary
Judgment is denied.
b. 	Hartford also holds an equitable interest in earned but unpaid
bonded contract receivables totaling $39,498.01 from Pro-Mark’s
work on the Minot AFB – Windows Task Order. The United States
is authorized to release these bonded contract funds to Hartford.
Hartford’s equitable interest in these proceeds is superior to the
bankruptcy estate’s interest and CCU’s security interest. To the
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extent CCU seeks a declaratory judgment to the contrary, its Motion
for Summary Judgment is denied.
c. 	To the extent the United States is holding retained funds on a
contract bonded by Hartford where Hartford’s losses exceed the
sum retained on that contract, Hartford has an equitable interest in
these retained proceeds. Hartford’s equitable interest in these
proceeds is superior to the bankruptcy estate’s interest and CCU’s
security interest. To the extent CCU seeks a declaratory judgment
to the contrary, its Motion for Summary Judgment is denied.
d. 	Hartford holds a security interest in earned but unpaid bonded
contract receivables that is senior and superior to CCU’s security
interest under the Intercreditor Collateral Agreement. Hartford’s
interest in these proceeds is superior to the bankruptcy estate’s
interest. To the extent CCU seeks a declaratory judgment to the
contrary, its Motion for Summary Judgment is denied.
e. 	Hartford does not hold an equitable or legal interest in earned but
unpaid nonbonded contract receivables. The $146,831.25 in
contract receivables disbursed to the bankruptcy estate for work
Pro-Mark performed on nonbonded contracts is property of the
bankruptcy estate and may be disbursed according to Bankruptcy
Code priorities. CCU’s security interest in these proceeds is
superior to Hartford’s interests. CCU’s Motion for Summary
Judgment is granted as to these funds.
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f. 	Hartford does not hold an equitable or legal interest in nonbonded
contract receivables Pro-Mark deposited in its account with CCU.
These proceeds are property of the bankruptcy estate and may be
disbursed according to Bankruptcy Code priorities. CCU’s security
interest in these proceeds is superior to Hartford’s interests. CCU’s
Motion for Summary Judgment is granted as to these funds.
g. 	Hartford does not hold a legal or equitable interest in the $1,900,000
settlement proceeds Pro-Mark received in July 2023 and deposited
in its account with CCU. The bankruptcy estate’s interest and
CCU’s interest in these proceeds is superior to Hartford’s interests.
CCU’s Motion for Summary Judgment is granted as to these funds.
h. 	Hartford holds a security interest in identifiable bonded contract
receivables and their proceeds Pro-Mark deposited in its account
with CCU. Without briefing on the method of tracing and details
regarding the complete scope of identifiable bonded contract
receivables, there remain questions of fact precluding summary
judgment in favor of either Hartford or CCU on their claims and
causes of action related to these funds.
i. 	CCU did not establish, as a matter of law, that funds
transferred from Pro-Mark’s S-12 account to Pro-Mark’s
restricted regular share account were “Ordinary Course
Payments” under the Intercreditor Collateral Agreement.
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2. 	CCU’s Motion for Summary Judgment on Count III, seeking a declaration
that Pro-Mark owns all legal and equitable interests in its equipment under
11 U.S.C. § 541, is denied. CCU’s Motion for Summary Judgment on
Count IV, seeking a declaration that CCU’s security interest in Pro-Mark’s
equipment is superior to Hartford’s claims against the equipment is denied
because there are questions of fact precluding summary judgment. To the
extent Hartford seeks judgment on its Counterclaim - Third Claim for Relief,
declaring that Hartford has an interest superior to CCU in Pro-Mark’s
equipment used on bonded contracts, its motion is denied because there
are questions of fact precluding summary judgment. To the extent Hartford
seeks judgment on its Crossclaim - Second Claim for Relief, declaring that
Hartford’s interest in Pro-Mark’s equipment, or the proceeds derived from
the sale of Pro-Mark’s equipment are owed to Hartford and should not
become part of Pro-Mark’s estate, its motion is denied because there are
questions of fact precluding summary judgment.
a. 	Pro-Mark’s equipment is not subject to Hartford’s equitable
subrogation or equitable lien claims and the assignment in the
General Indemnity Agreement did not transfer an ownership interest
in Pro-Mark’s equipment to Hartford.
b. 	Hartford holds a security interest in the equipment Pro-Mark owned
at the time Pro-Mark and Hartford signed the General Indemnity
Agreements and the proceeds traceable to the sale of this
equipment. This security interest is senior and superior to CCU’s
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liens in equipment Pro-Mark purchased for, installed in, or allocated
to any bonded contract.
c. 	Because it is not clear whether any of Pro-Mark’s equipment falls
within the scope of Hartford’s security interest, questions of fact
preclude the Court from ruling as a matter of law.
3. 	Hartford’s Motion for Summary Judgment on its Counterclaim - First Claim
for Relief, Breach of Contract is denied because there are questions of fact
precluding summary judgment.
4. 	Hartford’s Motion for Summary Judgment on its Counterclaim - Second
Claim for Relief, seeking a declaration that Hartford has an interest
superior to CCU in the $587,707.49 owed to Pro-Mark stemming from work
performed on Air Force Contracts is granted in part and denied in part.
Hartford’s Motion for Summary Judgment on its Crossclaim – First Claim
for Relief, seeking a declaration that Hartford’s interest in the earned but
unpaid bonded contract proceeds is such that the funds should not become
part of Pro-Mark’s estate is granted in part and denied in part.
a. 	Hartford holds an equitable interest in earned but unpaid bonded
contract receivables totaling $89,273.85 for work Pro-Mark
performed on the Offutt AFB – Simulator Contract, but the United
States is not authorized to release these funds until Hartford
completes the work remaining on this project. Hartford’s equitable
interest in these proceeds is superior to the bankruptcy estate’s
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interest and CCU’s security interest. Hartford’s Motion for Summary
Judgment is granted as to these funds.
b. 	Hartford also holds an equitable interest in earned but unpaid
bonded contract receivables totaling $39,498.01 from Pro-Mark’s
work on the Minot AFB – Windows Task Order. The United States
is authorized to release these bonded contract funds to Hartford.
Hartford’s equitable interest in these proceeds is superior to the
bankruptcy estate’s interest and CCU’s security interest. Hartford’s
Motion for Summary Judgment is granted as to these funds.
c. 	To the extent the United States is holding retained funds on a
contract bonded by Hartford where Hartford’s losses exceed the
sum retained on that contract, Hartford has an equitable interest in
these retained proceeds. Hartford’s equitable interest in these
proceeds is superior to the bankruptcy estate’s interest and CCU’s
security interest. Hartford’s Motion for Summary Judgment is
granted as to these funds, if any.
d. 	Hartford holds a security interest in earned but unpaid bonded
contract receivables that is senior and superior to the bankruptcy
estate’s interest and CCU’s security interest under the Intercreditor
Collateral Agreement. Hartford’s Motion for Summary Judgment is
granted as to these funds.
e. 	Hartford does not hold an equitable or legal interest in earned but
unpaid nonbonded contract receivables. The $146,831.25 in
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contract receivables disbursed to the bankruptcy estate for work
Pro-Mark performed on nonbonded contracts is property of the
bankruptcy estate and may be disbursed according to Bankruptcy
Code priorities. The bankruptcy estate’s interest and CCU’s
security interest in these proceeds is superior to Hartford’s interests.
Hartford’s Motion for Summary Judgment is denied as to these
funds.
i. 	Hartford failed to show, as a matter of law, that the provisions
of the General Indemnity Agreement created a valid trust
under North Dakota law.
5. 	The United States’ Motion for Summary Judgment, seeking a ruling that it
may make payments in accordance with the United States Air Force’s
accounting of the pending work performed and amounts owed on the date
Pro-Mark petitioned for bankruptcy relief is granted. The United States is
authorized to pay the $440,876.24 to Hartford providing Pro-Mark earned
these funds on bonded contracts. To the extent Pro-Mark earned these
funds on nonbonded contracts, these funds must be paid to the bankruptcy
estate to be distributed according to Bankruptcy Code priorities.
Dated: October 14, 2026.
SHON HASTINGS, JUDGE
UNITED STATES BANKRUPTCY COURT
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