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Raymond Professional Group, Inc. and v. William A. Pope Co

February 8, 2011

RAYMOND PROFESSIONAL GROUP, INC. AND
RAYMOND PROFESSIONAL GROUP -- DESIGN/BUILD, INC. F/K/A RAYMOND MANAGEMENT SERVICES, INC., APPELLANTS,
v.
WILLIAM A. POPE CO., APPELLEE.



The opinion of the court was delivered by: Judge George W. Lindberg

(consolidated)

MEMORANDUM OPINION AND ORDER

These consolidated cases are the appeals of various judgments and orders entered by the bankruptcy court in adversary proceeding 07 C 639. For the reasons stated below, the bankruptcy court's judgments and orders are affirmed.

I. Factual Background and Procedural History

The following facts are taken from the bankruptcy court's findings of fact. See In re Raymond Prof'l Group, Inc., 408 B.R. 711 (Bankr. N.D. Ill. 2009). In 2000, appellant Raymond Professional Group - Design/Build, Inc., f/k/a Raymond Management Services, Inc. ("RMS") entered into a contract with AES Medina Valley Cogen, LLC ("AES"), under which RMS agreed to build a power plant for AES. Id. at 750-51. RMS, in turn, entered into a subcontract with appellee William A. Pope Co. ("Pope"). Id. at 754. The subcontract between RMS and Pope did not specify an amount of money to be paid to Pope, but rather provided that the revenues paid to the project would be allocated as follows:

First, to pay the costs incurred by the Project to third parties; second, to reimburse RMS and [Pope] for their own costs and the time spent by their own personnel on the Project, including costs incurred in the preparation of the proposal; third, to provide an allowance to each of RMS and [Pope] for the succeeding month's projected expenses; and finally, the remainder shall be divided equally between RMS and [Pope].

Id. at 755. According to RMS's president, the approximate value of this subcontract, including profit, was $22,010,000. Id. at 756. Pope was not a party to any contract with AES. Id. at 752.

The subcontract required RMS and Pope to create an escrow account for the purpose of depositing excess project revenues and making distributions by agreement of the parties' principals. Id. at 757. However, in order to get a higher rate of return on deposited funds, RMS and Pope agreed to open a commercial checking account (the "Account") instead. Id. at 757. The Account required the dual signatures of an RMS representative and a Pope representative to disburse funds or make changes to the Account. Id. at 757-58. Money was deposited into the Account beginning in February 2001. Id. at 760.

As work proceeded on the project, Pope submitted invoices to RMS for payment, and RMS in submitted invoices to AES for work that Pope and others did. Id. at 759-61. Various disputes arose between RMS and Pope, and RMS stopped paying Pope for Pope's work after March 2001. Id. at 760-61. According to RMS's March 6, 2001 Sworn Statement for Contractor to Owner, submitted to AES in connection with RMS's February 2001 pay request, Pope's Balance to Complete at that time was $3,198,057.34. Id. at 761. Pope made a claim on RMS's payment bond on May 23, 2001, and executed a Notice of Claim of Subcontractor on June 19, 2001. Id.

RMS and Pope entered into an interim settlement agreement on September 26, 2001. Id. at 762. Under this interim agreement, RMS agreed to pay Pope $2,808,671 from the Account after making payments for various third-party costs. Id. at 764. Pope claimed that RMS owed it more than this amount. Id. at 764. Only $220,000 was paid to Pope under the interim settlement agreement. Id. at 770.

After the project was completed in September 2001, disputes also arose between RMS and AES. Id. at 770, 772-73. In order to assist RMS in settling its claims with AES, RMS asked Pope to provide a final lien waiver. Id. at 774. On January 30, 2003, Pope executed a final lien waiver which stated:

THE undersigned for and in consideration of Ten Dollars ($10.00) Dollars, and other good and valuable consideration, the receipt whereof is hereby acknowledged, do(es) hereby waive and release any and all lien or claim of, or right to, lien . . . .

Id. at 774-75. Pope's lien waiver also included a section entitled "CONTRACTOR'S AFFIDAVIT," which listed Pope's contract value for the project as $22,900,000, and acknowledged that Pope had received $19,656,738.54 in payments. Id. at 775-76. The difference between the contract value and the amount Pope had been paid, as indicated in the contractor's affidavit, was $3,243,261.46. Id. at 776. RMS also provided a lien waiver of its own to AES in connection with the settlement. Id. at 776. On February 4, 2003, pursuant to the settlement agreement between RMS and AES, AES deposited $2.5 million directly into the Account. Id. at 777.

Several days later, Pope again demanded payment from RMS. Id. RMS refused to release any funds to Pope. Id. On September 9, 2003, RMS filed a demand for arbitration against Pope pursuant to the subcontract, requesting that the arbitrators allocate between RMS and Pope the sums previously paid by AES. Id. at 782-83. In its answer and counterclaim in the arbitration proceeding, Pope sought a determination of what additional sums were due Pope under the interim settlement agreement between Pope and RMS. Id. at 783. The arbitration was an audit of project costs. Id. at 785. Neither party sought a determination regarding the ownership of the Account. Id. at 783.

On November 30, 2006, the arbitration panel issued its award. Id. at 785. The award found that Pope was to be paid $3,634,714, with the Account to be one source of payment. Id. at 786. Any remaining balance was to be paid by RMS. Id. The arbitration award also denied all of RMS's claims. Id. at 785. The amount due Pope exceeded the amount held in the Account. See id. at 786.

RMS and appellant Raymond Professional Group, Inc. ("RPG") filed for voluntary Chapter 11 bankruptcy relief on December 18, 2006. Id. at 787. RPG is the 100 percent shareholder of RMS. Id. at 750.

In the bankruptcy case, RMS brought an adversary proceeding against Pope, in which it sought to vacate the arbitration award. See In re Raymond Prof'l Group, Inc., 397 B.R. 414 (Bankr. N.D. Ill. 2008). The bankruptcy court confirmed the arbitration award, and entered judgment in Pope's favor. Id. at 420, 437-38. This judgment was not appealed.

Meanwhile, RPG (later joined by RMS) also brought adversary proceeding 07 A 00639 against Pope. See In re Raymond Prof'l Group, Inc., 408 B.R. at 711. Among other things, RPG and RMS sought a declaration that the funds in the Account are not held in trust, and sought to avoid the arbitration award as a preference. Id. at 720-21. The bankruptcy court bifurcated Count VI for trial separately from the other counts, and entered ...


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