In Re Bubble Up Delaware, Inc., a Delaware Corporation, Debtor. Irving Sulmeyer and Arnold Kupetz, Co-Trustees v. United States

The controversy in this case centers around the proper characterization of a damages clause in a government contract. Specifically, the main issue is whether the clause is an allowable liquidated damages clause or a non-allowable penalty provision. We affirm the district court’s conclusion that the clause was one for liquidated damages. We also affirm the district court’s holding that the government did not fail to perform any condition precedent which would affect its entitlement to liquidated damages.

I. BACKGROUND

In 1970, the debtor, Bubble Up Delaware, Inc. (“Bubble Up”), filed a Chapter X petition in bankruptcy. In 1976, the United States Department of Labor (“Labor”) filed a final proof of claim against Bubble Up in the amount of $700,000. That claim was based upon a breach of a contract that had been entered into by the debtor and the United States acting through the Secretary of Labor.

The original contract provided that Labor would provide $1,000,000 to Bubble Up. In return, Bubble Up was to employ 275 hardcore unemployed residents of South Los An-geles for a period of six months. The final amended version of the contract provided that Bubble Up was to employ 300…

(dissenting):

I respectfully dissent. I am convinced that, contrary to the majority’s conclusion, the Bankruptcy Court’s findings and conclusions were correct and that the District Court’s judgment should be reversed.

The initial portion of the majority opinion concerns the proper standard of review of the Bankruptcy Court’s findings and conclusions. Implicit in this discussion is the conclusion, I believe, that we should review the Bankruptcy Court’s findings directly and should not undertake some type of review of the District Court’s conclusions. I do not wholly agree with this approach. If a District Court’s conclusions of law are wrong, then we should correct them. Although the majority does not reach the point, I believe that the Bankruptcy Court’s findings and conclusions can and should be upheld under both standards, the clearly erroneous standard and the contrary to law standard.

It is clear to me that the Bankruptcy Court applied the correct legal standards and that its factual findings pursuant to those legal standards were not clearly erroneous. The correct legal standards are: (1) was the liquidated damages clause the result of a reasonable effort by both parties…

684 F.2d 1259 30 Cont.Cas.Fed. (CCH) 70,299 In re BUBBLE UP DELAWARE, INC., a Delaware corporation, Debtor. Irving SULMEYER and Arnold Kupetz, Co-Trustees, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. No. 81-5168. United States Court of Appeals, Ninth Circuit. Argued and Submitted March 2, 1982. Decided Aug. 23, 1982. Clifford J. Meyer, Buchalter, Nemer, Fields, Chrystie & Younger, Los Angeles, Cal., for plaintiffs-appellants. Philip Malinsky, Asst. U. S. Atty., Los Angeles, Cal., for defendant-appellee. Appeal from the United States District Court for the Central District of California. Before ELY, NELSON and CANBY, Circuit Judges. NELSON, Circuit Judge: 1 The controversy in this case centers around the proper characterization of a damages clause in a government contract. Specifically, the main issue is whether the clause is an allowable liquidated damages clause or a non-allowable penalty provision. We affirm the district court's conclusion that the clause was one for liquidated damages. We also affirm the district court's holding that the government did not fail to perform any condition precedent which would affect its entitlement to liquidated…