In Re: Corporate Resource Services, Inc.

Background

Staff Management Solutions, LLC and PeopleScout MSP, LLC, together called Staff Management, appealed an October 10, 2019 order from the U.S. Bankruptcy Court for the Southern District of New York. That order denied Staff Management’s motion to enforce a settlement agreement involving James Feltman, the Chapter 11 trustee for the debtors’ estate, and Noor Staffing Group, LLC and Noor Associates, Inc., together called Noor.

Staff Management had a contract with Corporate Resource Development, Inc. (CRD) under which CRD supplied temporary workers and Staff Management processed and forwarded payments. The contract described Staff Management as CRD’s “paying agent.” After CRD sold its business to Noor, Staff Management entered into a separate contract with Noor. From May 11, 2015, through January 27, 2016, Staff Management sent payments under the Noor contract to a Wells Fargo account designated in its earlier contract with CRD.

CRD and related debtors later filed Chapter 11 bankruptcy cases. The trustee sued Noor in a bankruptcy adversary proceeding over funds held at Wells Fargo. The trustee and Noor entered into a settlement agreement that was approved on July 14, 2017. The agreement addressed disputed funds and claims between the trustee and Noor and included broad releases of Noor’s claims against the trustee, the debtors, and related persons and entities.

Noor later sued Staff Management in the U.S. District Court for the Northern District of Illinois to recover funds Staff Management had sent to the Wells Fargo account. Staff Management argued in that case that Noor’s claims were released by the settlement agreement. Staff Management then moved in the bankruptcy court to enforce the settlement agreement, arguing that it was released from liability concerning the payments. The bankruptcy court denied that motion.

Appeal and legal standard

The district court had authority to hear appeals from bankruptcy court orders under 28 U.S.C. § 158(a). It reviewed factual findings for clear error and legal conclusions independently. The court explained that a party seeking to enforce a contract generally must be a contracting party or an intended third-party beneficiary. An intended third-party beneficiary must show that the contract clearly indicates an intent to allow that third party to enforce it.

Standing

The district court agreed with the bankruptcy court that Staff Management lacked prudential standing to enforce the settlement agreement. Prudential standing, as used here, limits who may assert rights under an agreement or claim rights belonging to others.

Staff Management argued that it was CRD’s agent because it submitted invoices, received payments, and forwarded payments under the CRD contract. The district court rejected that argument because being an agent for one business purpose does not make a party an agent for every purpose. Staff Management’s role as CRD’s paying agent under the CRD contract did not clearly establish that it was CRD’s agent under the settlement agreement.

Staff Management also argued that it was CRD’s “associate.” The court rejected that argument for the same reason. The settlement agreement’s context showed that it was intended to resolve the dispute between the trustee and Noor concerning funds at Wells Fargo. Staff Management did not show that it was CRD’s associate for purposes of that agreement.

Scope of the release

The court separately considered Staff Management’s argument that Noor’s release of claims to money in the Wells Fargo account prevented Noor from suing Staff Management. The court rejected that argument. Releasing claims to disputed funds between Noor and the trustee did not resolve whether Staff Management’s payments constituted payment under Staff Management’s separate contract with Noor or what remedies Noor might have under that contract.

The court concluded that the settlement agreement’s release applied to claims arising from the transactions and disputes addressed in the trustee’s adversary proceeding and related claim. It did not extend to Noor’s claims against Staff Management concerning the separate Noor contract.

Staff Management also argued that the settlement agreement’s purpose of finally resolving claims required treating Staff Management as a third-party beneficiary. The court rejected that argument. The motion did not seek, and the bankruptcy court’s order did not grant, relief from the debtors’ estates or the trustee. Any claims Staff Management had against the trustee were not properly before the district court in this appeal.

Disposition

The court held that Staff Management lacked prudential standing to enforce the settlement agreement. It further held that, even if Staff Management had standing, the settlement agreement would not provide the relief it sought because it did not release Noor’s claims arising from Staff Management’s relationship with Noor.

The court dismissed Staff Management’s appeal and affirmed the bankruptcy court’s decision. It directed the clerk to terminate all outstanding motions and close the case.