In re D.A.B. Constructors, Inc.

1

In re D.A.B. Constructors, Inc., Debtor.

No. 6:21-bk-04053-GER

United States Bankruptcy Court, M.D. Florida, Orlando Division

March 15, 2022

ORDER DENYING WESTERN SURETY COMPANY'S MOTION TO ALTER, AND AMEND AND FOR RELIEF FROM ORDER AUTHORIZING TRUSTEE'S SALE FREE AND CLEAR OF LIENS SALE

Grace E. Robson, Judge.

This case came on for consideration of Western Surety Company's Motion to Alter, and Amend and for Relief from Order Authorizing Trustee's Sale Free and Clear of Liens Sale^[1] (the "Motion to Amend") filed by Western Surety Company (the "Surety") and the Responses^[2] thereto filed by Truist Bank and the Trustee. The Surety requests the entry of an order amending modifying, and granting relief from the Bid Procedures Order.^[3] The Court, after consideration of the Motion to Amend and the Responses, FINDS, ORDERS, AND ADJUDGES as follows:

Background

A. Prior to this bankruptcy case, the Debtor, D.A.B Constructors, Inc. (the "Debtor"), operated a construction company that primarily focused on the Florida Department of Transportation ("FDOT") and county road construction projects.

B. The Debtor owns two asphalt plants that contain large stockpiles of raw materials.

C. On September 20, 2016, the Debtor and the Surety entered into a General Agreement of Indemnity ("GAI"), pursuant to which the Surety issued certain bonds for various projects including the Diamond Interchange Project. In the event of default, the GAI provides, in part:

Upon the occurrence of an Event of Default: . . . b. the Indemnitors hereby assign, transfer, and set over to the Surety all of their rights under the Bonded Contracts including . . . ii. all machinery, plant, equipment, tools and materials upon the site of the work or elsewhere for the purposes of the Bonded Contracts, including all material ordered for the Bonded Contracts . . . .

D. On July 1, 2021, the Debtor filed a lawsuit against FDOT in state court for unforeseen additional work it had performed and for additional costs associated with the Diamond Interchange Project.

E. On July 1, 2021, FDOT declared the Debtor in default on the Diamond Interchange Project by written correspondence.

F. On July 20, 2021, the Surety filed its UCC-1 financing statement with the Florida Secured Transaction Registry.

G. On July 28, 2021, the Debtor sent a default notice to FDOT and others stating it was financially unable to perform or complete the work on the projects.

H. FDOT then demanded the Surety perform the Debtor's obligations on the Diamond Interchange Project, as well as other projects.

I. On August 10, 2021, the Surety and FDOT entered into a Takeover Agreement. The Surety agreed to engage a completion contractor in order to complete the Diamond Interchange Project. The Takeover Agreement provided, in part:

Insofar as [FDOT] has any right, title or interest therein, [FDOT] agrees that the Surety and the Completion Contractor shall have the right to use, without charge by [FDOT], any of the equipment, materials and appurtenances furnished or supplied by D.A.B. which may be stored on or about the premises of the Project site or materials which may have been fabricated for [FDOT] in connection with the Original Contract, whether or not presently upon the Project site.

J. On September 3, 2021, the Debtor filed a voluntary petition under chapter 7 of the Bankruptcy Code.^[4]

K. On January 10, 2022, the Court held a continued status conference. The Trustee stated that he intended to file a motion to sell the Debtor's asphalt plants and related assets. The Court set a hearing for February 9, 2022, at which time it would hear and consider the yet-to-be-filed motion to sell and any objections thereto.^[5]

L. On January 21, 2022, the Trustee filed the Sale Motion^[6] seeking to sell certain assets, including both asphalt plants, the stockpile materials at both asphalt plants, and the Debtor's rights, title, and interest in the unregistered trademark "D.A.B. Constructors" (collectively, the "Acquired Assets") to a stalking horse bidder for a total of $9, 771, 005.77, subject to higher and better offers. The Sale Motion sought approval of bid and sale procedures to be used in connection with a public auction of the Acquired Assets and requested that the sale be free and clear of all liens, claims, encumbrances, and interests.

M. On January 25, 2022, the Trustee filed a Notice of Preliminary Hearing on the Sale Motion, ^[7] reflecting that a hearing would be held on February 9, 2022. The Notice of Preliminary Hearing was served via CM/ECF on counsel for the Surety.

N. On February 3, 2022, the Surety filed an Objection to the Sale Motion, arguing that it has an interest in the materials based on equitable subrogation, the assignment provision of the GAI, or its financing statement.^[8] The Surety also objected to the proposed break-up fee, the existence of a bona fide dispute, and its ability to make a credit bid under section 363(k) of the Bankruptcy Code.^[9] The Trustee filed a Response to the Objection.^[10]

O. On February 8, 2022, the Trustee filed a complaint against the Surety, seeking avoidance of preference and declaratory relief regarding the validity, priority, and extent of the Surety's interests in personal property of the Debtor.^[11]

P. After a 3-hour hearing on February 9, 2022 (the "Hearing"), wherein the Court heard arguments from both sides, the Court overruled the Surety's objections. The Court found that the Trustee had demonstrated an objective basis in law and fact exists regarding the validity, priority, and extent of the Surety's claims and interests and concluded there was a bona fide dispute sufficient to authorize a sale of the asphalt plants and raw materials pursuant to section 363(f)(4) of the Bankruptcy Code, free and clear of all liens, claims, interests, rights and encumbrances. Because of the existence of a bona fide dispute, the Court sustained the objection to the Surety's right to credit bid.

Motion to Amend

The Surety seeks reconsideration of the Bid Procedures Order pursuant to Federal Rules of Civil Procedure 59 and 60.^[12] As noted by the Trustee, the order is not a final judgment or order to which those rules apply.^[13] However, in reviewing a motion to reconsider an interlocutory order, a court has broad discretion to determine what standards to apply.^[14] The Court believes it appropriate to analyze the Surety's request under Rules 59 and 60. "The only grounds for granting [a Rule 59(e)] motion are newly-discovered evidence or manifest errors of law or fact."^[15]"Reconsideration under this rule is an 'extraordinary remedy to be employed sparingly' due to interests in finality and conservation of judicial resources. The function of a Rule 59 motion is not to ask the court 'to rethink what it has already thought through-rightly or wrongly.'"^[16] A party may also obtain relief from a judgment or order under Federal Rule of Civil Procedure 60 for the following reasons: 1) mistake, inadvertence, surprise, or excusable neglect; 2) newly discovered evidence; 3) fraud, misrepresentation, or misconduct by an opposing party; 4) the judgment is void; 5) the judgment has been satisfied, released, or discharged; or 6) any other reason that justifies relief.^[17] Here, the Surety fails to meet the standard for reconsideration under either Rule 59 or Rule 60.

A Rule 59 or Rule 60 motion cannot be used to relitigate issues already decided or as a substitute for an appeal.^[18] The majority of the Surety's arguments are identical to those raised in its Objection to the Sale Motion and at the Hearing-arguments that were ultimately rejected by this Court. The arguments regarding adequate protection, ^[19] the right to credit bid, ^[20] equitable subrogation, ^[21] the Surety's interest in the materials, ^[22] and whether a bona fide dispute exists^[23] are a rehash of previously raised and rejected arguments, and the mere disagreement with the Court's determination does not justify amending the Bid Procedures Order.

The Surety's arguments regarding the Hearing and the wording of the Bid Procedures Order are without merit. First, the Surety raises arguments regarding the demonstrative exhibits proffered by the Trustee at the Hearing, contending they were not shared on the screen and that it is uncertain as to what weight the Court gave the exhibits. However, the Surety failed to object to these demonstrative exhibits, counsel for the Surety acknowledged that the demonstrative exhibits were filed the morning of the Hearing and that he had a copy, ^[24] the demonstrative exhibits were used only to give the Court a visual for what the Sale Motion encompassed, and the Court did not need these exhibits to make its ruling.

Additionally, the Surety argues it was denied procedural due process. However, the Surety was given notice of the Hearing^[25] and the opportunity to be heard.^[26] The Surety filed its Objection, a notice regarding the case law it intended to rely on, ^[27] and a notice of demonstrative aids it would use at the Hearing.^[28] The Court granted the Surety time to present its arguments and objections, and, after thorough consideration of the written and oral arguments and interests of all parties, the Court granted the Sale Motion, subject to a final hearing. The Court therefore concludes that the Surety, which was given notice of the Hearing and provided ample opportunity to present its position, was not denied due process.^[29]

The Surety also argues that it was denied substantive due process because it was unable to present evidence in opposition to the Sale Motion and maintains that "the Court essentially determined both the property rights of the Surety under its established rights of equitable subrogation, and the...