Stickel v. SP Acquisition

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