Folger Adam Security, Inc. v. DeMatteis/MacGregor, JVFolger Adam Security, Inc. v. DeMatteis/MacGregor, JV
Lead Opinion
OPINION OF THE COURT
In this appeal, we are asked to decide whether the affirmative defenses of setoff, recoupment, and other contract defenses, which arose as a consequence of alleged defaults under certain contracts with the debtors, constitute an “interest” under section 363(f) of the Bankruptcy Code such that a sale of the debtors’ assets in a consolidated Bankruptcy Court auction free and clear, extinguished such affirmative defenses and effectively transformed such contract rights into unimpeachable
We find that the affirmative defenses do not constitute an “interеst” for purposes of section 363(f) and, therefore, were not extinguished by the Bankruptcy sale. A set-off right, however, may only be asserted to the extent the creditor can prove it actually took the setoff prior to the bankruptcy filing. Moreover, we find that the notice of the section 363 sale given by the debtors failed to give the creditor notice that it would lose its defenses and, therefore, was constitutionally inadequate. Accordingly, we will reverse the judgment of the District Court and remand for further proceedings consistent with this opinion.
I.
For the most part, the parties do not dispute the facts. Folger Adam Security, Inc. (“Folger”) instituted the underlying declaratory judgment action against De-Matteis/MacGregor Joint Venture (“De-Matteis”), along with three sureties, Insurance Company of North America, Fidelity & Deposit Company of Maryland, and Swiss Reinsurance America Corporation, seeking $370,446.67 in unpaid “accounts receivable” relating to equipment sold to DeMatteis for a construction project. Fol-ger acquired substantially all of the assets of three bankrupt companies through a bankruptcy auction “free and clear” of all claims and other interests.
The alleged debts that are the basis of Folger’s claim against DeMatteis arose from a construction project at the Curran Fromhold Prison in Northeast Philadelphia (the “Northeast Project”). DeMatteis sells and installs security systems for use within prisons. In October 1993, Peri-ni/TriState, the general contractor on the Northeast Project, hired DeMatteis as a subcontractor to supply security equipment for the project. Prior to contracting with DeMatteis, Perini/TriState executed a labor and materialman’s bond on the Northeast Project, with Fidelity & Deposit Company of Maryland and Swiss Reinsurance America Corporation (then known as the North American Reinsurance Company) acting as sureties. Insurance Company of North America issued a similar subcontractor’s bond in favor of DeMatteis.
After contracting with Perini/TriState to supply the security equipment, DeMatteis sought and received proposals from thе William Bayley Company (“Bayley”) and the Folger Adam Company (“FAC”) (collectively the “Companies” or “Debtors”) to supply security hardware and furniture for the Northeast Project. In response to the proposals, DeMatteis sent letters to Bay-ley and FAC informing them that it intended to issue a purchase order for the equipment. On January 12, 1994, DeMat-teis issued a purchase order to FAC for security equipment in the amount of $801,-500.
Pursuant to the purchase orders, Bayley and FAC began supplying materials and equipment to DeMatteis for the Northeast Project sometime after April 20, 1994. They continued to supply materials and equipment until June 6, 1995 in the case of
Bayley and FAC advised DeMatteis that they would try to cure their defective performances. Shortly thereafter, on February 8, 1996, the Companies filed separate petitions for reorganization relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. On that same date, Bayley and FAC filed a motion, pursuant to sections 363 and 365 of the Bankruptcy Code, for approval of the sale of substantially all of their assets to Folger which had been newly formed and whose management was comprised of many of the principals from Bayley and FAC. The Notice of Auction and Final Hearing on Motion to Approve the Sale of Substantially All of the Debtors’ Assets and Assumption and Assignment of Certain Contracts Pursuant to
DeMatteis maintains that although it was listed on an affidavit of service, it did not receive the Notice of Auction from either of the Debtors. In support of this statement, DeMatteis provided the affidavit of M. MacGregor, Project Director for DeMatteis/MacGregor Security Constructors. In his affidavit, MacGregor stated that the official Notice of Auction was never received but, on February 15, 1996, an incomplete copy of the notice was reсeived by fax from another party. He further stated that he did not understand the Debtors’ accounts receivable to include monies claimed by the Debtors but denied by DeMatteis because of nonperformance of contracts. Because it believed that the disputed amounts were not included among the assets being sold at the bankruptcy auction, DeMatteis did not file an objection to the sale.
At the March 7, 1996 auction, Folger was the sole bidder and, therefore, successfully acquired substantially all of the assets of the Debtors. The Bankruptcy
Between March 20 and 22, 1996, DeMat-teis completed four proofs of claim which it filed in the Chapter 11 bankruptcy cases, one each with respect to the two projects which form the basis for the claims in this consolidated appeal, and the two others relating to cases pending in other courts. In the proofs of claim, DeMatteis asserted claims for replacement costs, late/incomplete delivery costs, quality problems, third party claims, productivity loss, extended overhead, loss of cash flow and interest paid, warranty costs, and additional bond premium associated with each project. On August 21, 1996, the Debtors filed an objection to the proofs of claim filed by DeMatteis, claiming that the March 8, 1996 order approving the sale and asset purchase agreement transferred the Debtors’ accounts receivables from De-Matteis to Folger “free and clear” of all rights of setoff, recoupment, counterclaim and other defenses and claims of DeMat-teis (the “Omnibus Motion”). DeMatteis contested this assertion, disagreeing with the Debtors’ re-characterization of the ex-ecutory contracts (which were specifically excluded from the sale) as “accounts receivable.” Nonetheless, the Bankruptcy Court entered an order on October 10, 1996, disallowing and expunging the proofs of claim objected to in the Omnibus Motion.
In the meantime, on May 31, 1996, Fol-ger instituted two lawsuits against DeMat-teis in the United States District Court for the Eastern District of Pennsylvania asserting breach of contract. In Civil Action No. 96^4072, Folger sought money damages of $310,648, plus interest and costs, from DeMatteis on its contract with Bay-ley; and in Civil Action 96-4073, Folger sought money damages of $59,798.67, plus interest and costs, from DeMatteis on its contract with FAC. On September 19, 1996, the District Court dismissed the case at No. 96-4072 without prejudice to give the parties an opportunity to seek relief in the Bankruptcy Court. Thereafter, on December 5, 1996, Folger filed with the Bankruptcy Court a Motion for Determination that the March 8, 1996 order of the Bankruptcy Court approving the sale and asset purchase agreement transferred accounts receivable free and clear of all set-offs, defenses, and counterclaims, which DeMatteis opposed. The Bankruptcy Court concluded, however, that it lacked jurisdiction and dismissed Folger’s Motion for Determination, advising the parties that the March 8, 1996 order spoke for itself and should be interpreted by the courts in which the accounts receivable claims were pending. After the Bankruptcy Court entered its order on February 13, 1997, the parties agreed to resolve both cases together before the District court on a motion for summary judgment.
We have jurisdiction over this appeal pursuant to
II.
The dispute before us centers around the sale of the Debtors’ assets pursuant to
In reaching its conclusion, the District Court relied, in part, on the express language of the Sale Order, which provided in relevant part:
The sale of the Acquired Assets and the assignment of the Assigned Contracts to Purchaser is made free and clear of all liens, mortgages, security interests, encumbrances, liabilities, claims, or any other interests, other than the Assumed Liabilities, whether arising before or after the Petition Date,....
Sale Order, ¶ 3, p. 7 (emphasis added). Although the Sale Order did not explicitly state that the sale included defenses, the District Court nonetheless concluded that “[t]he term ‘any other interests’ necessarily include[d] defenses within its scope.” Folger Adam Security, Inc. v. DeMatteis/MacGregor, JV, et al, No. 96-4072/4073, slip op. at 6 (E.D.Pa. Nov. 24, 1998).
The District Court found further support for its conclusion in Parаgraph 4 of the Sale Order, which stated:
Any and all creditors of the Debtors are permanently enjoined and restrained from seeking to obtain payment or satisfaction of their claims against the Debtors from the Purchaser or the Acquired Assets, except for and only to the extent of the Assumed Liabilities.
Sale Order, 1Í 4, p. 8. Because this provision specifically enjoined creditors from seeking to obtain payment or satisfaction of their claims, the District Court found the Sale Order was made free and clear of all interests including contract defenses. Folger Adam Security, slip op. at 6. Our review of the case law and other authority requires us to find, contrary to the District Court, that “any interest” under
The maxim noscitur a sociis, that a word is known by the company it keeps, while not an inescapable rule, is often wisely applied where a word is capable of many meanings in order to avoid the giving of unintended breadth to Acts of Congress.
Id. (quoting Jarecki v. G.D. Searle & Co.,
Courts faced with the task of defining the scope of the term “any interest” have been unable to provide a precise definition. 3 Collier on Bankruptcy ¶ 363.06[1]. Although some courts have narrowly interpreted that phrase to mean only in rem interests in property, see e.g., In re Fairchild Aircraft Corp.,
In Leckie, certain employer-sponsored benefit plans (the “plans”) objected to the extinguishment of their right to payment of plan liabilities from a successor-in-interest by operation of
The court of appeals then noted that:
... while the plain meaning of the phrase “interest in such property” suggests that not all general rights to payment are encompassed by the statute, Congress did not expressly indicate that, by employing such language, it intended to limit the scope ofsection 363(f) to in rem interests, strictly defined, and we decline to adopt such a restricted reading of the statute here.
Id. at 582 (citations omitted). The court abstained frоm defining the term “any interest” categorically, preferring to let future decisional law frame the boundaries of the term.
In both PKR Convalescent Centers and WBQ Partnership, a state agency had the right under state law to recapture depreciation from operators of nursing homes if the operators realized a gain on the sale of their real property. The statute further provided that if the operators failed to reimburse the state, the agency had the right to pursue the purchasers for the amount owed. In those cases, the Bankruptcy Courts held that because the state agency could be compelled in a legal or equitable proceeding to accеpt a money satisfaction of its statutory right to depreciation recapture, such interest fell within
The terms “lien” and “setoff’ have also been distinguished within the purview of
It is clear from the definitions of “lien” and “setoff’ that the term “setoff’ does not refer to the same type of interest as a “lien.” A lien is distinct from the obligation it secures while the same is not true of a right of setoff or recoupment. They have no value separate and apart from a debtor’s or purchaser’s claim. Thus, under the canons of construction set forth previously, the phrase “any other interests” would not include setoff and recoupment since those interests are not similar to those enumerated in the Notice of Auction.
Folger equates the affirmative defenses raised by DeMatteis to “claims” in order to subject them to the “free and clear” provision of
right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; ...
Although the Bankruptcy Code’s definition of claim is broad, a claim requires an enforceable obligation of the debtor to pay the claimant. Pennsylvania Dep’t of Public Welfare v. Davenport,
In this ease, DeMatteis has asserted several contract defenses, including a right of recoupment as well as setoff. Along these lines, a number of courts have held that a right of recoupment is a defense and not a claim in the bankruptcy context. See, e.g., Lee v. Schweiker,
Recoupment ... allows the creditоr to assert that certain mutual claims extinguish one another in bankruptcy, in spite of the fact that they could not be “setoff’ under11 U.S.C. § 553 . The justification for the recoupment doctrine is that where the creditor’s claim against the debtor arises from the same transaction as the debtor’s claim, it is essentially a defense to the debtor’s claim against the creditor rather than a mutual obligation, and application of the limitations on setoff in bankruptcy would be inequitable. See In re Monongahela Rye Liquors, 141 F.2d [864,] at 869 [ (3d Cir.1944) ].
Moreover, in In re Lawrence United Corp., the Bankruptcy Court held that an insurance company’s alleged right of re-coupment was not an “interest” in property within the meaning of
The right of recoupment is not itself a claim and any right of recoupment [the insurance company] may have does not even fall under the broadest interpretation of an “interest” in property. Under common law, the right of recoupment is a defense to a debtor’s claim against the creditor; it is not a mutual obligation.
Id. (citations omitted). The Bankruptcy Court distinguished the In re Lawrence United Corp. case from In re Leckie Smokeless Coal Co. and P.K.R. Convalescent Ctrs., Inc., cases whiсh both involved an “interest” in property by virtue of statutes that created a purchaser’s liability on the sale of assets. In In re Lawrence United Corp., the Court noted that the dispute over the right to recoupment centered on what was actually purchased in the “free and clear” sale as opposed to what purchaser liabilities resulted from the purchase. Id. Because any right of recoupment that the insurance company had derived from the collected premiums the debtor owed to it and arose from the same transaction or set of transactions involving the commissions the insurance company owed to the debtor, the court found the sale of the debtor’s insurance policy accounts did not extinguish the insurance company’s recoupment defense.
In the case before us, Folger argues that In re Lawrence United Corp. is not dispositive for several reasons. It points to three distinguishing factors in that case — that the insurance company actually filed an objection to the sale, the express language of the contract provided for a right of recoupment, and that the Bankruptcy Court eventually found that thе insurance company did not have a right of recoupment against the commissions earned post-petition. But none of these factors informed the court’s holding that a right of recoupment is a defense and thus does not fall under the broadest interpretation of “an interest in property.” Rather, the court looked to the common law in concluding that the right of recoupment is a defense to the debtor’s claim against the creditor. Moreover, we have previously held that an express contractual right is not required to effect a recoupment. In re University Medical Ctr.,
As noted previously, we have likewise held that the right of recoupment is a defense, not a claim. Lee v. Schweiker, supra. Accordingly, we are not persuaded by Folger’s attempts to distinguish Lawrence United Corp. Thus, whether or not DeMatteis properly failed to object to the
Neither the parties nor the District Court has cited a single decision which has held that a defense may be extinguished as a result of a “free and clear” sale. Likewise, we have not found any such authority to exist. We note that all of the cases cited by the District Court in support of its holding that “an interest in property” should be construed broadly to include defenses, involved affirmative claims brought by a creditor; none of these cases raised a defense to a debtor’s or purchaser’s claim. On the other hand, at least one Bankruptcy Court has found that a recoupment defense is not extinguished by a “free and clear” sale, and a number of other courts, including this one, have held that a right of recoupment is a defense and not a claim. Thus, we agree with the Bankruptcy Court in In re Lawrence United Corp. and hold that a right of recoupment is a defense and not an interest and therefore is not' extinguished by a
Although its primary defense to Folger’s claims is recoupment, DeMatteis has also asserted a defense of setoff based on amounts owed by Bayley and FAC to De-Matteis as a result of breaches of other contracts for other prison construction projects. DeMatteis has conceded that property that is otherwise subject to a right of setoff under
In response, Folger argues that this case is distinguishable from Pioneer because DeMatteis has not actually taken a setoff against the receivables. Because DeMatteis did not actually take a setoff, but merely asserted a right to setoff, Fol-ger contends the receivables were property of the estatе and therefore the right of setoff was extinguished by
The District Court noted the exception raised by DeMatteis but found, nonetheless, that it had no application here since the amounts DeMatteis attempted to setoff before the filing of the bankruptcy petition had not yet been received.
To decide this question, we turn first to
Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the deb1> or that arose before commencement of the case, ...
This section [553] preserves, with some changes, the right of setoff in bankruptcy cases.... One exception to this right is the automatic stay, discussed in connection with proposed11 U.S.C. § 362 . Another is the right of the trustee to use property undersection 363 that is subject to a right of setoff.
S.Rep. No. 95-989, 95th Cong., 2d Sess., at 91 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5877. Thus, in order to maintain a right of setoff under
1. A debt exists from the creditor to the debtor and that debt arose prior to the commencement of the bankruptcy case.
2. The creditor has a claim against the debtor which arose prior to the commencement of the bankruptcy case.
3. The debt and the claim are mutual obligations.
Braniff Airways, Inc. v. Exxon Co., U.S.A.,
In this case, the Debtor invoked
It is possible that an exception to this finding exists where the setoff rights are actually taken prior to the commencement of the bankruptcy proceeding. In Pioneer Commercial Funding Corp., the account debtor of the debtor’s accounts receivable filed a motion for relief from stay.
The record before us does not show if or when DeMatteis actually toоk a setoff against the construction contracts. Because the motion for summary judgment was filed before any discovery took place, DeMatteis may not have had an opportunity to develop the record to adduce evidence that it had actually taken a setoff against some of the contracts prior to the bankruptcy filing. On remand, the District Court should allow DeMatteis an opportunity to supplement the record to supply any needed documentation. In our view, DeMatteis must prove that it actually took a setoff, the amounts and against which contracts, before the bankruptcy filing. This does not mean it actually must have received funds, but that its accounts receivable were reduced or offset. To the extent that DeMatteis is able to prove an actual setoff prior to bankruptcy, the property subject to setoff is not deemed part of the bankruptcy estate and therefore was not subject to the
. We note that the facts here indicate that DeMatteis is seeking to offset Folger’s claims by the costs it incurred due to the Debtors’ alleged breach of contract arising out of the same contract, as well as out of other contracts from other construction projects. To the extent the amount being claimed by Folger and the amount of reduction sought by DeMatteis arise from the same contract, DeMatteis’ defense will be one of recoupment. However, to the extent the amount being claimed by Folger and the amount of reduction sought by DeMatteis arise from different contracts, DeMatteis’ defense will be one of setoff. We express no opinion as to whether De-Matteis has established the requisite ele
Our holding is further supported by good policy reasons. First of all, if we were to hold that DeMatteis’ contrаct defenses were extinguished by the
III.
Even if we were to find that the term “any interest” included affirmative defenses, the notice to DeMatteis was insufficient to give it notice that by failing to object it was waiving its affirmative defenses.
(1) “after notice and a hearing”, or a similar phrase—
(A) means such notice as is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances; but
(B) authorizes an act without an actual hearing if such notice is given properly and if—
(1) such a hearing is not requested timely by a party in interеst; or
(2) there is insufficient time for a hearing to be commenced before such act must be done, and the court authorizes such act;
In addition to the Bankruptcy Rules, we are guided by due process considerations. Due process requires “notice reasonably calculated, under all the circumstances, to apprize interested parties of the pendency of the action and afford them an opportunity to prеsent their objections.” Mullane v. Central Hanover Bank & Trust Co.,
Informed by these rules and constitutional considerations, we conclude that the Notice of Auction here did not provide DeMatteis with any information to put it on notice that the phrase “any other interests” included contract defenses and, by failing to object, it would waive such defenses. Our conclusion is based upon consideration of the express language of the Notice of Auction as well as the surrounding facts and circumstances. The Notice of Auction expressly provided that the proposed. sale of the Debtors’ assets would be “free and clear of all liens; mortgages, security interests, encumbrances, liabilities, claims or any other interests, of any nature.” We have already found that the phrase “any other interests” does not include defenses. Moreover, nowhere in the Notice of Auction do the Debtors state that affirmative defenses will be waived, nor are we aware of any court to have ever ruled that affirmative defenses are extinguished in a
Moreover, the two DeMatteis contracts originally listed in the Designation Notice as being assumed and assigned to Folger were subsequently removed from the list, leaving DeMatteis with the impression that none of its contracts were being assumed and assigned in the proposed sale to Folger. Indeed, the express language of the Designation Notice implies that only those non-debtor counter parties whose interests were being assumed and assigned to Folger needed to file an objection and, since none of DeMatteis’s contracts were assumed/assigned to Folger, the permanent bar simply does not apply to DeMat-teis.
Accordingly, we hold that DeMatteis is entitled to raise the defense of recoupment and any other defenses it may have with respect to the disputed Bayley and FAC contracts, in response to the lawsuits brought by Folger. On remand, DeMat-
IV.
For the reasons set forth above, we will reverse the judgment of the District Court granting summary judgment in favor of Folger and remand to the District Court for further proceedings.
Notes
. In addition to the William Bayley Company and Folger Adam Company, Folger also purchased the assets of a third debtor, Stewart-Dicatur Security Systems, Inc., through the Bankruptcy auction.
. FAC accepted DeMatteis’ purchase order subject to its letter of exception.
. The Notice of Auction stated that Folger was to file with the Bankruptcy Court, on or before February 18, 1996, a list of those exec-utory contracts and leases that it desired to accept by assignment. Pursuant to the terms of the notice of auction, on February 16, 1996, Folger filed a Notice of Designation of Executory Contracts and Leases to be Assumed and Assigned to Folger (the "Designation Notice”). Folger did not list any of the DeMatteis contracts with Bayley in the Designation Notice; however, Folger listed two De-Matteis contracts with FAC, one pertaining to the Northeast Project, and the other relating to another project not at issue in this case. Subsequently, on March 7, 1996, the Debtors and Folger filed a Notice of Removal of Designation in which they removed and deleted certain executory contracts previously listed in the Designation Notice. Included among these delisted contracts were the two DeMat-teis contracts with FAC. Thus, none of the DeMatteis contracts were assumed and assigned to Folger.
. The Bankruptcy Court entered its approval of the sale in its Order Granting Motion to Approve the Sale of Substantially All of the Debtors' Assets to Purchaser and Assumption and Assignment of Certain Contracts Pursuant to
. On April 9, 1997, the Debtors and DeMat-teis entered into a stipulation whereby they agreed that the Bankruptcy Court's October 10, 1996 order disallowing and expunging certain claims against the Debtors would be vacated as to the claims. Thus, the amended joint liquidation plan was not deemed to discharge, bar, enjoin, or otherwise preclude De-Matteis from asserting any defense, including defenses of setoff or recoupment, in any action or proceeding by the Debtors or Folger. Approval of the stipulation agreement was included in the Bankruptcy Court’s order confirming the plan. Ultimately, DeMatteis did not recover any money on its proofs of claim against Bayley and FAC because the bankruptcy estate lacked sufficient assets.
.By stipulation of the parties, No. 96-4073 was plaсed in suspense at the time the parties sought relief in the Bankruptcy Court. When the Bankruptcy Court dismissed Folger’s motion, No. 96-4073 was taken out of the suspense file, transferred to the District Court and dismissed without prejudice while the parties prepared the cases for summary judgment. Although Nos. 96-4072 and 96-4073 were not formally consolidated, they have been litigated together from that point forward.
. After DeMatteis filed its notice of appeal in the two cases, Folger moved for entry of a single money judgment in the two cases that included the total alleged debt plus prejudgment interest and costs, for a total of $448,-695.51. The District Court entered judgment in that amount on the following day, January 21, 1999, before DeMatteis had received service of the motion. DeMatteis also took a timely appeal from the judgment entered on Januaiy 21, 1999 in both cases and this court consolidated these appeals with the earlier two appeals on February 5, 1999.
.
. In Marley, the government had asserted a right of setoff in a contract dispute with the debtor in the Court of Claims prior to the commencement of the bankruptcy proceeding.
. Although DeMatteis filed proofs of claim against the Debtors on unsecured and non-priority claims relating to the alleged substandard performances of the Debtors, those proofs of claim are not at issue here. Insufficient assets existed in the estate for a distribution on these claims. ■ Moreover, because the Sale Order enjoins DeMatteis and other creditors from seeking payment from Folger of any claims against the Debtors, Folger does not have an enforceable obligation to pay such claims against the Debtors in this or any other litigation.
. The Sale Order enjoined creditors from seeking to obtain рayment or satisfaction of their claims against the Debtors from the Purchaser or Acquired Assets. Since we have determined that affirmative defenses are not claims under
. The basis for the District Court’s conclusion, that the amounts DeMatteis attempted to setoff before the bankruptcy filing had not yet been received, is unclear. As we note infra, the record here does not provide any evidence of actual setoffs taken or received prior to the filing of the bankruptcy petition.
. DeMatteis makes a persuasive argument that prior to the sale, separate "accounts receivable" and "contracts” did not exist between itself and the Debtors, and that Folger has recharacterized the contracts as "accounts receivable” because the contracts were removed from the Designation Notice. De-Matteis' argument appears to have merit. The only way Folger can prevail here is to recharacterize the contracts аs accounts receivable since the Joint Liquidating Plan approved by the Bankruptcy Court specifically preserved DeMatteis' right to raise its defenses (in particular, recoupment and setoff,) to claims against it arising out of the contracts not assumed or assigned to Folger.
. Although DeMatteis appears to raise an issue of fact with regard to whether it actually received the Notice of Auction sent by Debtors’ counsel, we will assume, for sake of argument, that the Notice of Auction was received so that we may proceed to what we perceive as the determinative issue, that is, whether the Notice of Auction was sufficient to inform DeMatteis that its affirmative defenses would be extinguished by the proposed
. Subsection (i) of Rule 2002 is not relevant to this appeal.
. The Designation Notice specifically states that unless a non-debtor counter party to an "Assigned Contract" filed a written objection to the assumption/assignment by the deadline, the counter-party shall be forever barred from asserting any default, loss or liability against the аssignee of such Assigned Contract (i.e., Folger) based on any event or circumstance arising prior to the date of the assignment.
. Because we have found that the bankruptcy sale did not extinguish DeMatteis’ affirmative defenses, we need not address DeMatteis’ additional argument that the District Court erred in calculating the award of prejudgment interest.
Concurrence Opinion
concurring:
I would resolve this appeal by answering a single question: Does
“Property interests are сreated and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.” Butner v. United States,
Thus, for present purposes, an account receivable is a right to payment which arises upon the inception of the contract at a point when no performance has been rendered and no payment earned. This understanding of a receivable is inconsistent with the notion that defenses arising from the performance or non-performance of the contract giving rise to it are “interests in” the receivable. A recoupment defense simply does not constitute an interest in the right to payment under the contract. Rather, it serves only to define and limit that right. See 5 Collier on Bankruptcy § 553.10 (explaining that “re-coupment applies to define the obligation in question”).
Moreover, to construe
Because I find in
. The effect of a
. In response to Folger’s motion for summary judgment, DeMatteis had the burden of eithеr coming forward with evidence that would support a judgment in its favor, i.e. evidence that its set-offs were exercised more than ninety days prior to the bankruptcy petition, or filing a Rule 56(f) affidavit specifying that discovery was necessary to secure a basis for a defense. See