In re Zeta Consumer Products Corp.

Decision Date10 April 2003
Docket NumberAdversary No. 00-3627.,Bankruptcy No. 00-34148 (NLW).
Citation291 B.R. 336
PartiesIn re ZETA CONSUMER PRODUCTS CORP., Debtor, Zeta Consumer Products Corp., Debtor-in-Possession, Plaintiff, v. Equistar Chemical, LP, Defendants.
CourtU.S. Bankruptcy Court — District of New Jersey

Walter J. Greenhalgh, Toni Marie McPhillips, David J. DiSabato, Duane Morris, LLP, Newark, NJ, for Plaintiff.

Ronald L. Glick, Stevens & Lee, Cherry Hill, NJ, Mark S. Finkelstein, Shannon, Martin, Finkelstein & Sayre, Houston, TX, for Defendant.

OPINION

NOVALYN L. WINFIELD, Bankruptcy Judge.

This matter came on for hearing on the motion for summary judgment filed by Zeta Consumer Products Corp. ("Zeta"), as debtor-in-possession, to avoid certain alleged preferential transfers made to Equistar Chemicals, L.P. ("Equistar"), pursuant to 11 U.S.C. § 547(b). In its complaint, Zeta alleges that two separate and distinct categories of transfers can be avoided. The first category deals with certain bulk resin shipments that were sold by Equistar to Zeta and then returned by Zeta approximately two weeks before Zeta's bankruptcy filing (the "Resin Transfers"). The second category involves certain payments made by Zeta to Equistar during the preference period (the "Monetary Transfers").

Equistar opposes Zeta's motion for summary judgment contending, among other things, that Zeta has failed to show it was insolvent at the time the transfers were made. Alternatively, Equistar argues that if insolvency is proved, then the return of resin by Zeta cannot be avoided because (i) those transfers were not property of Zeta at the time of the alleged transfer because Zeta had not taken actual possession of some of the resin; (ii) the resin was effectively reclaimed by Equistar prepetition, pursuant to state law; (iii) Equistar exercised its common law right to rescind and reclaim the resin; or alternatively that (iv) Zeta rejected or revoked its acceptance of the resin shipments. With regard to the Monetary Transfers, Equistar disputes the amount of subsequent new value credited by Zeta pursuant to 11 U.S.C. § 547(c)(4). Equistar also claims that three of the Monetary Transfers, made 81, 83, and 90 days after the invoice date, were made in the ordinary course of business pursuant to 11 U.S.C. § 547(c)(2). Because the Court finds that there are disputed material issues of fact, the Court denies Zeta's motion for summary judgment. Further, in order to narrow the issues for trial, the Court addresses herein the various defenses raised by Equistar.

This Court has jurisdiction to hear and determine this matter pursuant to 28 U.S.C. § 1334 and § 157(a) and the Standing Order of Reference issued by the United States District Court for the District of New Jersey on July 23, 1984. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(F). The following shall constitute findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.

STATEMENT OF FACTS

Zeta operated several facilities throughout the country that manufactured durable plastic houseware goods. As part of its manufacturing process, Zeta purchased various grades and types of plastic resin which were used to produce its finished products. (Cert. of Michael Grancio in Supp. of Pl. Summ. J. Mot. at ¶ 4 [hereinafter Grancio Cert.]). Equistar is one of several resin suppliers from whom Zeta regularly purchased resin.

RESIN TRANSFERS

In the beginning months of 2000, Zeta experienced limitations on the availability of funds from its lender, and also was limited in its ability to obtain resin product. (Grancio Cert. At ¶ 6). Zeta claims that because of this situation any return of resin would be unusual and outside the ordinary course of Zeta's business. (Id.). In early April, 2000 resin vendors appeared at the Zeta facilities in Arlington, Texas ("Arlington Facility") and Leominster, Massachusetts ("Leominster Facility") to obtain the return of unused resin. (Grancio Cert. at ¶ 7; Jackowski Cert. at ¶ 7) With regard to the Arlington Facility, railcars of resin were returned from the Union Pacific railyard in Grand Prairie, Texas, where they were stored for Zeta. (Jackowski Cert. at ¶ 11). Zeta regularly stored railcars of resin at the Union Pacific railyard because the rail siding at the Arlington Facility could only accommodate five railcars. In early April 2000 more than 3,700,000 pounds of resin were returned from the Arlington Facility (Jackowski Cert. at ¶ 14). Similarly, in early April 2000 more than 3,500,000 pounds of resin were returned from the Leominster Facility. (Grancio Cert. at ¶ 10). In total, Zeta returned over 8,400,000 pounds of resin to its suppliers in the early part of April 2000. (Id.). Equistar was one of the several resin vendors who received returned resin.

The resin shipments at issue in this adversary proceeding were comprised of four railcars of resin shipped to the Arlington Facility and two railcars of resin shipped to the Leominster Facility. Zeta's description of the pertinent facts regarding the delivery of the resin and its return from the Arlington Facility and the Leominster Facility are set forth in the charts annexed to this opinion.

With regard to the dates of transfer and the amount of resin transferred, Equistar does not markedly disagree with Zeta. Nonetheless, there are a couple of disputed facts. As reflected in the attached charts, Zeta contends that 932,700 pounds of resin were returned. However, Equistar supplies documentation which shows that with regard to the resin shipped to the Arlington Facility, 47,860 pounds of the third shipment was returned and 127,300 pounds of the fourth shipment was returned. (Def. Opp., Ex. E, E-3, and E-4). Thus, Equistar contends that the returned resin did not exceed 891,960 pounds. (Pease Cert. at ¶ 31). Additionally, Jackowski stated at deposition that he approximated the pounds of resin pumped from the silos in the Arlington Facility. (Def. Opp., Ex. I at pp. 50-51). Thus, there appears to be a factual dispute as to the amount of resin returned to Equistar. Additionally, Equistar has provided documentation which it claims shows that the fourth shipment to the Arlington Facility was returned on April 5, 2000, and not April 11, 2000 as claimed by Jackowski. (Def.Opp., Ex. E-4).

Another disputed matter between Zeta and Equistar involves the issue of whether the railcars of resin at the Union Pacific Grand Prairie Yard can be considered as having been received by Zeta. James Jackowski ("Jackowski") the former Plant Manager of the Arlington Facility stated in his certification that because the rail siding at the facility could only accommodate five (5) railcars, Zeta regularly stored railcars at the Grand Prairie Yard (Jackowski Cert. at ¶ 11). He stated that he received a daily report informing him of the railcars received, and that he prepared a weekly report for Alfred Teo's office which showed the cars that were received and accepted. (Id.) As further evidence of Zeta's use of the Grand Prairie Yard, Zeta produced Union Pacific Demurrage, Storage and Constructive Placement records which were submitted in the Zeta v. Osterman Trading litigation. (DiSabato Cert., Ex. D).

On the other hand, Equistar points to the deposition testimony of Alfred Teo ("Teo") the Chief Executive Officer of Zeta. Teo testified at deposition that he did not approve payment for resin until the plant manager or resin handler sent a receiver which indicated that the resin was at the plant. (Def. Opp., Ex. F at pp. 52-53). Equistar has also supplied deposition testimony from Jackowski that suggests that the railcars at the Union Pacific Yard were not completely under Zeta's control:

Q. Is it fair to say that you were directing that these cars be released per the direction you got from management to simply return all shipments to vendors?

A. Actually, on the cars that were at the Union Pacific, I never released them. They just disappeared from my report.

Q. Do you know who made the decision to release them?

A.I — with certainty, no. I presume that the supplying vendor pulled them, because they still could call the UP and have those cars moved off the yard.

Q. But as you said a moment ago, you simply don't know one way or the other who directed those returns?

A. Correct.

(Def. Opp., Ex. I at p. 46).

According to Leanne K. Pease ("Pease"), the Credit Manager for Equistar, Teo called her to request that the railcars of resin be returned; (Pease Cert. at ¶ 24; Def. Opp., Ex. H at p. 44) Teo said that he didn't need the product. (Def. Opp., Ex. H at p. 45). Thereafter, Equistar arranged with Zeta for the return of the resin from the Arlington Facility and Leominster Facility. (Pease Cert. at ¶ 24-30). Equistar also furnished deposition testimony which indicates that at Teo's direction, Michael Grancio ("Grancio") told the plant managers to let resin vendors take the resin. (Def. Opp., Ex. G at p. 20).

MONETARY TRANSFERS

Zeta calculated that in the ninety day period preceding the bankruptcy filing, payments were made to Equistar totaling $533,220.60 (King Cert., ¶ 6). It made a new value analysis regarding the resin shipments made to Zeta in that same time period and initially concluded that after accounting for resin shipments having a value of $240,284.40, Equistar received preferential payments totaling $292,936.20. After Equistar pointed out that not all of the resin from the third and fourth shipments to the Arlington Facility was returned to it, Zeta gave an additional new value credit of $68,833. (Zeta Reply Memo at p. 16; King Supp. Cert. at ¶ 4, Ex. A). Zeta thus concludes that a net preference of $224,103.20 remains. (King Supp. Cert. at ¶ 5).

However, Equistar contends that summary judgment is not appropriate with regard to the Money Transfers because material issues of fact exist with regard to...

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