DECKERS CONSTRUCTION INC

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IN THE UNITED STATES BANKRUPTCY COURT FOR
THE DISTRICT OF PUERTO RICO
IN RE:
CASE NO. 05-12871 MCF
DECKERS CONSTRUCTION INC 	Chapter 7
XXX-XX5856
FILED & ENTERED ON 03/31/2010
Debtor(s)
DECISION AND ORDER
This 	proceeding 	is 	before 	the 	Court 	upon 	the 	Chapter 	7 	Trustee’s
(“Trustee”) motion for summary judgment [Dkt. No. 785], Hotel Plaza Las Delicias’
(“HPLD”) cross motion for summary judgment and opposition to the Trustee’s motion
[Dkt. No. 801] Trustee’s opposition to HPLD motion for summary judgment [Dkt. No.
803] and HPLD Reply to the Trustee’s opposition [Dkt. No. 804]. For the reasons
set forth below, the Trustee’s motion for summary judgment [Dkt. No 785] is
DENIED and HPLD’s cross motion for summary judgment [Dkt. No. 801] is partially
GRANTED.
I. FACTUAL BACKGROUND:
In October 2004, HPLD and Deckers Construction (“Debtor” or “Deckers”)
executed 	a 	construction 	contract 	in 	the 	amount 	of 	$5,423,490.00 	for 	the
construction and rehabilitation of the Hotel Plaza Las Delicias in Ponce, Puerto
Rico. On February 16, 2005, as required by the construction contract, Deckers
requested United Surety & Indemnity Company (“USIC”) to issue a Performance and
Payment Bond (“Bond”) in order to guarantee Deckers’ performance and the payment
of the labor and materials incorporated to the project for coverage in the amount
of $5,423,490.00. On even date, USIC issued the performance, payment and salaries
payment guarantee bond number 05101151 to jointly and severally guarantee the
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obligations of Deckers under the contract. On February 25, 2005, Deckers paid
$56,240.00 from their business checking account to USIC for the issuance of the
bond. On March 3, 2005, HPLD paid Deckers $45,134.32 from projects funds to
defray the payment of the bond premium.
On October 31, 2005, Deckers filed the captioned bankruptcy proceeding
under the provision of Chapter 11 of the Bankruptcy Code. On July 5, 2006, USIC
issued an increase rider and charged $7,973.00 in payment and performance bond
premiums resulting from change orders increasing the construction contract price
to $6,226,724.00. On November 16, 2006, HPLD issued a check for $7,973.00 and
paid 	Deckers’ 	insurance 	broker, 	Marsh 	Saldaña 	Inc., 	for 	the 	payment 	of 	the
additional surety bond premium charged by USIC. Deckers ceased performance under
the 	construction 	contract 	in 	November 	2006. 	On 	April 	20, 	2007, 	the 	parties
submitted a “Stipulation for Voluntary Rejection of the Contract and Request for
Entry 	of 	Partial 	Judgment” 	(“Stipulation”) 	that 	included 	as 	Exhibit 	1, 	the
settlement agreement [Dkt. No. 37]. In paragraph ten (10) of the stipulation,
Debtor 	rejected 	the 	construction 	contract 	pursuant 	to 	section 	365(a) 	of 	the
Bankruptcy 	Code. 	Pursuant 	to 	paragraph 	fifteen 	(15), 	both 	Debtor 	and 	HPLD
voluntarily extinguished, released, and waived the bond, and agreed that the
Stipulation would govern all of their future relations. From there on, HPLD
entered in possession and control of the Project and its site. On September 12,
2007, this Court granted the Stipulation filed. [Dkt. No. 446]
On January 24, 2008, after notice and a hearing, the case was converted to
Chapter 7. On April 21, 2009, HPLD filed a motion seeking an order from this
Court to authorize USIC to return the bond premiums to HPLD [Dkt. No. 728]. On
April 27, 2009, USIC filed a motion informing the Court of its willingness to
return the bond premiums to HPLD upon Court authorization [Dkt. No. 732]. HPLD
reiterated their request [Dkt. No. 733], and the Trustee opposed [Dkt. No. 734].
On 	September 	25, 	2009, 	the 	Court 	entered 	an 	order 	declaring 	this
controversy to be a contested matter pursuant to rule 9014 of the Bankruptcy
Rules and ordered the filing of a Joint Pre-Trial Report five days prior to the
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Pre-Trial Hearing [Dkt. No. 780]. In the meantime, USIC requested authorization
to consign the monies with the Court, and requested to be excused from appearing
as a party in this contested matter [Dkt. No. 782]. USIC’s request was granted
and the monies were consigned with the Clerk of the Court [see Dkt. No’s 788 and
797]. 	The 	Court 	notes 	that 	during 	2009, 	USIC 	reimbursed 	HPLD 	the 	$7,973.00
premium payment made previously for the bond increase rider, as evinced by a
deposit in HPLD’s bank account on September 30, 2009. 	[Exhibit 8, Dkt. No. 800]
On November 4, 2009 the Trustee requested continuance of the pre-trial
hearing and filed a statement of uncontested facts and a motion for summary
judgment [Dkt. No. 783, 784 and 785]. HPLD filed a cross motion for summary
judgment and opposition to Trustee’s motion for summary judgment [Dkt. No. 801].
The Trustee opposed HPLD’s motion for summary judgment [Dkt. No. 803] and HPLD
Replied to the Trustee’s opposition [Dkt. No. 804]. The matter is submitted.
This Court has jurisdiction over the subject matter and the parties pursuant to
28 	U.S.C. 	§§1334 	and 	157(a) 	and 	the 	General 	Order 	of 	referral 	of 	Title 	11
Proceedings to the United States Bankruptcy Court for the District of Puerto Rico
dated July 19, 1984 (Torruella, C.J.). This is a core proceeding in accordance
with 28 U.S.C. §157(b).
II. SUMMARY JUDGMENT STANDARD:
Under the Federal Rules of Civil Procedure, Rule 56(c), made applicable in
bankruptcy by Federal Rules of Bankruptcy Procedure, Rule 7056, summary judgment
is available “if the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(c); Celotex Corporation v.
Catrett, 477 U.S. 317 (1986) (citing Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 250 (1986)). 	As to issues on which the movant, at trial, would be compelled
to carry the burden of proof, it must identify those portions of the pleadings
which it believes demonstrates that there is no genuine issue of material fact.
In 	re 	Edgardo 	Ryan 	Rijos 	& 	Julia 	E. 	Cruz 	Nieves 	v. 	Banco 	Bilbao 	Vizcaya 	&
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Citibank (In re Rijos), 263 B.R. 382, 388 (B.A.P. 1st Cir. 2001). 	A fact is
deemed "material" if it potentially could affect the outcome of the suit. Cortes-
Irizarry v. Corporación Insular, 111 F.3d 184, 187 (1st Cir. 1997). Moreover,
there will only be a "genuine" or "trial worthy" issue as to such a "material
fact," 	"if 	a 	reasonable 	fact-finder, 	examining 	the 	evidence 	and 	drawing 	all
reasonable inferences helpful to the party resisting summary judgment, could
resolve the dispute in that party's favor." Id. The Court must view the evidence
in a light most favorable to the nonmoving party. 	In re Rijos, 263 B.R. 382, at
388. Therefore, summary judgment is “inappropriate if inferences are necessary
for the judgment and those inferences are not mandated by the record.” 	Id.
III. LEGAL ANALYSIS AND DISCUSSION:
The issues object of this controversy are the return of the bond premiums
consigned with the Bankruptcy Court by USIC, and the apparent non compliance with
the terms of the stipulation filed between the parties on April 26, 2007. [Dkt.
No. 376] and approved by this Court.
The Trustee states that the bankruptcy estate is entitled to the funds
because Debtor paid USIC directly. In addition, the Trustee argues that HPLD’s
rights over the premiums were extinguished by virtue of the stipulation filed and
that HPLD’s failure to comply with the stipulated terms are grounds for the
denial of the motion to withdraw the consigned funds.
On the other hand, HPLD argues that because the amounts were disbursed from
HPLD’s account to Deckers reimbursing for the payment of the performance bond
premiums, 	that 	upon 	cancellation 	of 	the 	contract, 	HPLD 	as 	the 	owner 	of 	the
project is entitled to the devolution of the premiums. Also, HPLD argues that in
light of the joint stipulation voluntarily rejecting the construction contract
under 11 USC § 365 (a), the funds consigned for performance bond premiums are not
property of the estate and should be returned to HPLD. We agree.
Section 541 of the Bankruptcy Code specifies the types of property which
comprise the debtor's estate. Pursuant to section 541, property of the estate
includes “all legal or equitable interests of the debtor in property as of the
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commencement 	of 	the 	case.” 	11 	U.S.C. 	§ 	541(a)(1). 	Upon 	the 	rejection 	of 	an
executory contract under section 365 (a), the contract is considered to have been
in breach prior to the bankruptcy petition, leaving the nondebtor party to the
contract with a general unsecured claim for contract damages. In re Bank Vest
Capital Corp., 360 F. 3d 291 (C.A. 1, 2004)
According to the undisputed facts of this case, on February 25, 2005,
Deckers paid $56,240.00 from their business checking account to USIC for the
issuance of the bond. On March 3, 2005, HPLD paid Deckers $45,134.32 from project
funds to defray the payment of the bond premiums.
With these undisputed facts, the court is in a position to conclude that
HPLD 	reimbursed 	Deckers 	the 	monies 	pertaining 	to 	the 	bond 	premium 	and 	HPLD
performed 	and 	finished 	the 	construction 	project 	without 	Deckers 	or 	USIC.
Therefore, there is no logical reason to deny HPLD of the reimbursement of these
funds. 	It 	is 	clear 	and 	unequivocal 	that 	HPLD 	is 	entitled 	to 	the 	reimbursed
portion of the consigned monies. Accordingly, the Trustee’s motion for summary
judgment is hereby denied and HPLD’s motion is partially granted.
In 	regards 	to 	the 	parties’ 	non 	compliance 	with 	the 	terms 	of 	the
stipulation, the Court finds that this controversy has material facts still in
dispute. HPLD’s obligation on the payment of supplies, laborers and materialman
and the Trustee’s obligation to supply HPLD with information over the payments
made and the services contracted are still contested matters. Therefore, the
Court will bifurcate this matter and entertain it separately.
Having determined that the funds are not property of the estate and that
HPLD has a proprietary interest in the funds, this court concludes that HPLD has
established the right to receive the reimbursement of the bond premiums consigned
with the court.
WHEREFORE, IT IS ORDERED that the Trustee’s motion for summary judgment
shall be, and it hereby is, DENIED and HPLD’s cross motion for summary judgment
is herby partially GRANTED. HPLD is hereby authorized to withdraw $45,134.32 from
the funds consigned with the Clerk of the Bankruptcy Court by United Surety &
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Indemnity Company on November 25, 2009, Dkt. No. 797. The Chapter 7 Trustee is
authorized to withdraw the remainder $11,105.68 for the benefit of the bankruptcy
estate. The Court bifurcates the controversy regarding non compliance with the
terms of the Stipulation filed on April 20, 2007, Dkt. No. 37. 	The Clerk’s
Office shall schedule a Pre-Trial Hearing on that issue. Parties are ordered to
file any amendments to the Joint Pre-Trial Report seven (7) days prior to the
hearing.
SO ORDERED.
Ponce, Puerto Rico, this 31 day of March, 2010.
Brian K. Tester
U.S. Bankruptcy Judge
C: 	DEBTOR
HECTOR R CUPRILL
WILFREDO 	SEGARRA MIRANDA
ANGEL F. CABAN
HOTEL PLAZA LAS DELICIAS, INC.
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