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April 20, 2004.


The opinion of the court was delivered by: DENISE COTE, District Judge


Homemaker Industries, Inc. and A&M, Inc. (together, "A&M")*fn1 bring this appeal from a Memorandum Decision and Order of the Honorable Robert D. Drain, United States Bankruptcy Judge. The July 18, 2003 Decision ("Decision") granted summary judgment to the Official Committee of Unsecured Creditors of HMKR, Inc. (the "Committee") on its claim for declaratory judgment that HMKR, Inc. ("HMKR") retained its right in letter of credit proceeds in excess of the obligations it owed to Fireman's Fund Insurance Company ("FFIC"), the beneficiary of the letters of credit and issuer of HMKR's workmen's compensation insurance policies. The Decision also denied A&M's claim for summary judgment that it acquired the excess letter of credit proceeds when it purchased substantially all of HMKR's assets pursuant to Section 363(b) of Title 11, United States Code (the "Bankruptcy Code"). For the reasons that follow, the Decision is affirmed.


  The facts of this case are set forth in the Decision at In re HMKR, Inc. f/k/a Homemaker Industries, Inc., 2003 WL 21696521 (RDD) (Bankr. S.D.N.Y. July 18, 2003). The following undisputed facts provide the context for the issue on appeal.

  Prior to filing for relief under chapter 11 of the Bankruptcy Code, HMKR purchased three workmen's compensation insurance policies from FFIC, collectively covering the period from May 1995 to May 1998 (the "Deductible Policies").*fn2 On May 24, 1995, HMKR and FFIC entered into a Security Agreement for Deductible Policy Provisions ("Security Agreement"), which states in Section I that

  From time to time the parties may make any insurance policy issued to [HMKR] by [FFIC] subject to this Agreement by completing and executing a Declaration substantially in the form set forth as Exhibit A (a "Declaration"). The execution of a Declaration shall make any insurance policy or endorsement incident to the policy described in the Declaration subject to this Agreement. (Emphasis supplied.) HMKR and FFIC executed Declarations on May 24, 1995, May 24, 1996, and May 24, 1997, rendering each of the Deductible Policies subject to the terms of the Security Agreement. The Security Agreement, Deductible Policies and Declaration are treated as a single, integrated agreement under Section XXII of the Security Agreement ("Section XXII"):

Entire Agreement. This Agreement, and (when executed and delivered) the Deductible Policies and the Declarations, together with the schedules, exhibits, and endorsements hereto and thereto, constitute the entire agreement among the parties hereto with respect to the Deductible Policies and the security for the payment of the premiums thereof.
(Emphasis supplied.)

  HMKR was obligated under the terms of the Security Agreement to furnish a letter of credit to support its obligations under the Deductible Policies. HMKR therefore arranged for the issuance by First Union National Bank ("First Union") of three irrevocable letters of credit totaling $491,000 for the benefit of FFIC (the "Letters of Credit"). The parties' rights with respect to any Letter of Credit proceeds remaining after satisfaction of the Debtor's obligations to FFIC (the "Excess Proceeds") are governed by Section VI.5.b of the Security Agreement, which provides

[HMKR] and [FFIC] expressly agree that the Proceeds,*fn3 if any, remaining in [FFIC's] possession after payment of the Obligations [to FFIC] then due . . . shall be the property of [FFIC], to be held by [FFIC] for itself and as agent for the [FFIC] Affiliates, for application to the Obligations as they become due. The Proceeds may be commingled with any other funds by [FFIC] or the [FFIC] Affiliates, applied to pay [HMKR's] Obligations as they become due . . ., and otherwise handled in any manner deemed appropriate by [FFIC]. [HMKR's] sole right with respect to the Proceeds shall be an unsecured contractual right running to [FFIC], not the Proceeds, to have the issuer of the Letter of Credit receive for the account of [HMKR] an amount equal to the excess of the proceeds*fn4 over the Obligations after Final Settlement of all Deductible Policies.
(Emphasis supplied.) Section VI.5.c of the Security Agreement requires that FFIC credit HMKR with interest an any unapplied Proceeds that it holds until "Final Settlement"*fn5 of the Deductible Policies.

  On October 22, 1999, HMKR filed a petition for voluntary relief under chapter 11 of the Bankruptcy Code. The United States Trustee appointed the Committee on November 5. On November 10, FFIC drew on the entire amount of the Letters of Credit, although at that time HMKR had no fixed, liquidated obligations to FFIC under the Deductible Policies.

  On April 5, 2000, the Bankruptcy Court approved the sale of substantially all of HMKR's assets to A&M pursuant to the Asset Purchase Agreement ("APA") executed by the parties. Section 1.1 of the APA provides that A&M purchased

all of the right, title and interest of [HMKR] in and to the business, properties (real, personal, mixed, tangible and intangible), assets, goodwill and rights of [HMKR], of every kind, nature and description, owned or leased, wherever located and whether or not carried or reflected on the books and records of [HMKR], as the same shall exist on the closing date. . . .
(Emphasis supplied.) Following this general description, the APA offers a nonexhaustive list of certain types of assets purchased by A&M, including
Section 1.1(i) each contract . . . to which [HMKR] is a party or by which it is bound or under which it has any rights or is entitled to benefit. . . .
Section 1.1(1) the proceeds of any insurance, and the right to receive the proceeds of any insurance, with respect to any claims which may be asserted in connection with any of the Purchased Assets or Assumed Liabilities . . . subject to certain rights of [HMKR] with respect to any insurance claim specifically identified as an Excluded Asset or Excluded Liabilities [sic], including without limitation, proceeds of insurance with respect to any claim for personal injury, negligence, deceptive trade practice or product liability arising out of any occurrence, state of facts, or circumstances prior to the Closing Date;
Section 1.1(o) all cash and cash equivalents of [HMKR] on hand or on deposit; and all deferred charges and prepaid items, advance payments, customer advances and prepayments of [HMKR], and all right, title and interest of Seller in escrow accounts and deposits which relate to the properties, assets or business being acquired by [A&M]. . . .
Most significantly for the issues presented on this appeal, the APA also provides that certain listed items are not acquired by A&M under the agreement. Section 1.2(d) of the APA ("Section 1.2(d)") specifically describes as an "Excluded Asset" "all rights in and to [HMKR's] directors and officers liability insurance and any other insurance policies and rights thereunder as do not relate to the Purchased Assets or the business of [HMKR]." (Emphasis supplied.) Section 2.5(f) of the APA ("Section 2.5(f)") lists under "Excluded Liabilities" "any and all debts, liabilities and obligations of [HMKR] incurred or accrued with respect to any period, or circumstances, or state of facts or occurrences, on or prior to the Closing Date, relating to . . . workmen's compensation."

  When the APA closed on April 18, 2000, Final Settlement of the Deductible Policies had not yet occurred. On November 20, 2001, the Bankruptcy Court expunged the proof of claim filed in HMKR's Chapter 11 case by FFIC, asserting a contingent unsecured claim of $1,773,130. It was not until July 26, 2002 that FFIC resolved all workmen's compensation claims under the Deductible Policies issued to HMKR. The Excess Proceeds, including accrued interest, amounted to $400,245 as of November ...

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