CF-TownC CHC-CS 861208Insurance Company of Nodrl America
Aetna Insurance Company
CIGNA companies
600 East Las Col~as Boulevard
P.O. Box152035
Irving, TX 75015
(214)869-8700
December 8, 1986
City of Coppell
P.O. Box 48
Coppell, TX 75019
RE: Howard U. Freeman, Inc.
Case # : 386-33670-M-11
Claim #: 220 B 548845-0
Project: Coppell Town Center
Gentlemen:
As surety for Howard U. Freeman, Inc., Insurance Company of North America
and/or Aetna Insurance Company, hereby authorize you to distribute project
funds on above captioned project in accordance with the attached court
order entered in the bankruptcy proceeding once you have received consent
of surety.
After you have approved monthly pay requests, kindly forward said
application to the surety for surety's written consent prior to releasing
any funds.
Any questions regarding payment procedures may be directed to Kim
Dombrowski (telephone 214/869-8754) or Frank Ehrle (telephone
214/869-8682).
Very truly you~,
~ohn A. Mooney /
· ond Claims Supervisor /
/
cc: O'Brien, O'Brien, Callaway
10210 N. Central Expy., Suite 301
Dallas, TX 75231
Howard U. Freeman, Inc.
P.O. Box 15167
Irving, TX 75015
Dwaine Boydstun, Esq.
5550 LBJ Freeway, Suite 800
Dallas, TX 75240
Duncan Clore, Esq.
P.O. Box 50100
Dallas, TX 75250
Mr. A.J. Campitellt
JAM ~ In
ENTERED
IN THE UNITED STATES BANKRUPTCY COURT NOV !Z 1986
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION BANKF~UPTCY COURT
-- U. LL~.% ','EX~.~
IN RE'. )
)
HOWARD U. FREEMAN, INC. ) CASE NO. 386-33670-M-11
)
Debtor. )
)
AETNA INSURANCE COMPANY AND )
INSURANCE COMPANY OF NORTH )
AMERICA )
)
Movant s, )
)
v. )
)
HOWARD U. FREEMAN, INC. )
)
Respondent. )
ORDER
On this day came on for consideration the Emergency Motion
for Relief from Automatic Stay, Requesting Adequate Protection,
for Turnover of Contract Balances and Retaina~es and for Turnover
of Progress Payments (hereinafter referred to as the "Emergency
Motion") of Aetna Insurance Company and Insurance Company of North
America (hereinafter referred to, individually and collectively,
as "INA/AETNA") The Court having reviewed the pleadings and the
evidence before it, and having heard the argument of counsel,
finds as follows:
1. Howard U. Freeman, Inc. ( hereinafter referred to as
"Freeman") filed for relief under Chapter' 11 of the Bankruptcy
Code on October 1, 1986.
2. Freeman is a ~eneral contractor in t,he building construc-
tion business. Freeman is currently. ~eneral contractor on the
followin~ construction projects (hereinafter referred to~,F~.%~.~.~collec-
tively as the "Construction Projects").'
NOV 1 &. 86
City of McKinney/Elm Street Project/Job No. 248
Episcopal Church/Parish Day School/Job No. 177
City of Irving/Irving Arts Center/Job No. 169
Trammel Crow Co./Richardson Commons/Job No. 165
Dallas lSD/Bushman/Miller School/Job No. 173
Lewisville ISD/Flower Mound Elementary/Job No. 162
Lewisville lSD/Indian Creek Elementary/Job No. 163
Fellowship Bible Church/Sanctuary & Ed. Facility/Job No. 167
City of Irving/Story Road Improvements/Job No. 246
Crow-Williams-Henry/Waterside Commons/Job No. 164
City of Coppell/Coppell Town Center/Job No. 172
C. Hurst Trust Rosewood Prop./Collin Creek Village/Job 168
City of Garland/Glenbrook/Beltline Road
Dallas ISD/Seagoville School/Job No. 175
Red Oak ISD/Red Oak Middle School/Job No. 176
Lancaster IDS/Lancaster Elementary School/Job No. 174
3. INA/AETNA, as surety, issued payment and performance
bonds on the Construction Projects as identified in the Emergency
Motion. Freeman has defaulted on each of said Construction
Projects by (a) failure to pay subcontractors and materialmen for
labor performed and materials supplied to the Construction
Projects prior to filing for bankruptcy protection and/or (b)
because of claims for defective workmanship and/or materials,
and/or (c) failure to adequately man the Construction Projects
in compliance with the contract documents.
4. INA and AETNA have, to date, received payment bond claims
exceeding $4 million for pre-petition work on the Construction
Projects. INA/AETNA further have contingent performance bond
liability for the Construction Projects to the extent said con-
tracts have not yet been fully performed and resolved, are in
default and/or claims for defective work exist.
5. Several of the Construction Projects and, in particular,
the Parish Day School Building project, are at a critical stage
of construction. As revealed by the evidence, certain of the
ORDER - Page Two
project owners are withholding contract funds pending cure of
Freeman's existing defaults, unpaid subcontractors and materialmen
are refusing to return to the work pending payment for their pre-
petition services and materials and pending confirmation that they
will be paid for any post-petition services and materials rendered
on the Construction Projects.
6. Evidence presented at the hearing further establishes
that interest and attorneys' fees on unpaid contract balances owed
subcontractors and materialmen for the Construction Projects are
accruing, and potential liquidated damages and other potential
delay damages are accruing or may begin to accrue increasing
claims against INA/AETNA and the Debtor's estate minimizing the
likelihood of potential "profits" in the form of contract balances
and retainages available to pay the claims of creditors.
7. INA and AETNA, to the extent of their performance under
payment and performance bonds issued on the Construction Projects,
are entitled to m reimbursement by Freeman and from the~contract
balances and retainages held by the owners on the'~onstruction
Projects. INA/AETNA's rights, as surety, to the contract balances
and retainages are derived from the rights of the project owners
and subcontractors and materialmen whose claims are satisfied pur-
suant to the terms and conditions of the payment and performance
bonds issued on the above Construction Projects. Pearlman v.
Reliance Insurance ComDany, 371 U.S. 132, 83 S.Ct. 232, 9 L.Ed.2d
190 (1962).
8. That any contract' balances and retainages on the
Construction Projects which may be received by Freeman are
ORDER - Pa.~e Three
impressed with a constructive trust to secure the rights of sub-
contractors and suppliers and to reimburse INA/AETNA to the extent'
of thei~ performance under the payment and performance bonds
issued on the Construction Project.
9. Notice of the Emergency Motion was appropriate under the
Bankruptcy Rules and by prior Order of this Court.
10. To effect orderly distribution of further project pay-
ments made by the project owners and to adequately protect the
interests of completing subcontractors and suppliers to the
Construction Projects, INA/AETNA and the perfected mechanics and
materialmen whose claims INA/AETNA's bonds secure, and to insure
the orderly completion of the Construction Projects, it is hereby:
ORDERED, ADJUDGED AND DECREED:
1. That the automatic stay of 11 U.S,C. §362 is hereby
modified for cause to permit the owners of the aforementioned
Construction Projects to (i) direct progress payments toApost-
petition suppliers, materialmen and subcontractors and to setoff
the amounts so paid against any amounts which are due Freeman;
(ii) permit the/%project owners to release any remaining contract
balances and/or retainagesAto INA/A~TNA for the payment of pre-
petition suppliers, materialmen and subcontractors who have duly
perfected payment bond claims and to reimburse INA/AETNA, as
surety, for the payment of Apayment or performance bond claims they
have pai~, such payments also being entitled to offset by the
~3~%~w~ers-- against any amounts which are due Freeman; and (iii) after
satisfaction of the aforesaid perfected claims, to pay any re-
maining sumsAinto the~Registry of the courtA.~ bc hc!~ tc recure.
ORDER -,P&ge Four
2. To effect the orderly payment of claims by post-petition
claimants and perfected pre-petition claimants on the Construction
Projects, payments by the project owners will be as follows=
a. Freeman shall submit applications for 9a~ent in accor-
dance with the contract documents to the respective
project owners for payment.
b. Following receipt of such applications for payment, and
approval of same by the respective project owners or
their authorized r~presentatives in accordance with the
contract documents, said appliCations for payment shall
be submitted to INA/AETNA, as project surety, for
approval.
c. Thereafter, the respective project owner shall pay
directly to such subcontractors, suppliers and/or
materialmen as approved, by INA/AETNA and Freeman.
3. Upon completion of the Construction. Projects, final pay-
ment~by the project owners shall be made to INA/AETNA to the
extent INA/AETNA shall have paid perfected payment or ~erformance
bond claims on the project and shall have submitted{ for same to
the project owner, and any remaining monies owed to Freeman shall
be deposited into the Registry of the Court,pending
disbursement ,
by further order of this court. To the extent INA/AETNA shall
directly receive any such funds from the project owners, INA/AETNA
shall timely submit an accounting to the Court and Freeman of all
funds so received and claims paid.
4. Freeman shall immediately make arrangements for the com-
pletion .of_ the Construction Projects pending further determina-
tion, upon application to the Court by any interested party as
to whether any or all of the Construction Projects shall be
assumed or rejected by the Debtor.
5. This Order shall supersede the Agreed Interim Order
Modifying Automatic Stay or Authorizing Owner to Pay Suppliers
~and Subcontractors of Debtor to Permit Setoff of Payments Against
Money Due Debtor entered November 5, 1986.
6. Counsel for INA/AETNA shall give further notice of this
Order to the Debtor, the 20 largest creditors, all known project
owners, the unsecured creditors committee, the United States
Trustee's office, and all other parties in interest who have
~pecifically requested notice by mailing same certified mail,
return receipt requested.
DATED this .. day of November, 1986.
UN TED STAT[S NKRUPTCY JUDGE
AGRE~D~/~TO FO~ ~D CONTENT:
BOYDSTUN
Attorney for Howard U. Freeman, Inc.
DUNCAN L. CLORE
Attorney for Aetna Insurance Company
and Insurance Company of North America