Walter & SCI Construction (USA), Inc. v. Daley's Dump Truck Services, Inc. (In re Daley's Dump Truck Services, Inc.)

We examine the interplay of claims between a general contractor on the Downtown Seattle Transit Project and one of its subcontractors which filed for bankruptcy under Chapter 11.

I

Daley’s Dump Truck Services, Inc. (“Daley’s”) was a subcontractor to SCI Contractors, Inc. (“SCI”) on the Pine Street Tunnel/Westlake portion of the Downtown Seattle Transit Project for the Municipality of Metropolitan Seattle (“Metro”) in 1987. The job became significantly more costly to perform than originally contemplated, and in the course of performance Daley’s became insolvent. In December 1988, Daley’s filed a Chapter 11 bankruptcy petition.

In April 1990, Daley’s filed suit against SCI seeking $1.9 million in damages for losses sustained during performance of the contract, and SCI counterclaimed for $1.5 million. Subsequently, the parties settled the litigation and entered into a claims prosecution agreement releasing claims against each other and establishing a procedure for jointly asserting “pass through” claims against Metro.

The claims prosecution agreement gave broad powers to SCI to settle Daley’s claims with Metro, but included a limitation requiring SCI to seek prior approval from…