67 B.R. 557 (D.N.J. 1986), 85-1728, Matter of Bevill, Bresler & Schulman Asset Management Corp.

Docket Nº:Civ. A. Nos. 85-1728, 85-2224.
Citation:67 B.R. 557
Party Name:In the Matter of BEVILL, BRESLER & SCHULMAN ASSET MANAGEMENT CORPORATION, Debtor. Saul S. COHEN, Trustee of Bevill, Bresler & Schulman Asset Management Corporation, Plaintiff, v. ARMY MORAL SUPPORT FUND: Bay Ridge Federal Savings & Loan; Broker's Capital; Bushnell Federal Savings & Loan; Champlain Valley Federal Savings & Loan; Chester Bank; Citize
Case Date:October 23, 1986
Court:United States District Courts, 3th Circuit, District of New Jersey

Page 557

67 B.R. 557 (D.N.J. 1986)

In the Matter of BEVILL, BRESLER & SCHULMAN ASSET MANAGEMENT CORPORATION, Debtor.

Saul S. COHEN, Trustee of Bevill, Bresler & Schulman Asset Management Corporation, Plaintiff,

v.

ARMY MORAL SUPPORT FUND: Bay Ridge Federal Savings & Loan; Broker's Capital; Bushnell Federal Savings & Loan; Champlain Valley Federal Savings & Loan; Chester Bank; Citizens Savings & Loan, Bellefontaine; Cross Country Federal Savings & Loan; Fidelity Savings & Loan, Berwyn, Illinois; First Federal Savings Bank; First Federal Savings & Loan, Freeport; First Federal Savings & Loan, Washington Court House; First National Bank of Elkhart; First National Bank of Skokie; First National Bank of Toms River; First Savings & Loan Association (Perth Amboy); Fort Lee Savings & Loan; Gibraltar Savings & Loan; Glen Ridge Savings & Loan; Government Employees Credit Union; Great American Federal Savings & Loan; Greenville Federal Savings & Loan; Harvest Home Savings & Loan; Hi-Plains Savings & Loan Association; Home Savings Association; Imperial Savings & Loan; Jefferson Building & Savings; Lesney Products Corp.; Lincoln Way Federal Savings & Loan; Mainland Savings & Loan; Mercer Savings & Loan Association; Merritt Commercial Savings & Loan; Midwest Government Securities; Niagara County Savings Bank; Newport National Bank of Providence; Old Borough Savings & Loan; Old Court Savings & Loan; Pennbank; Peoples Savings & Loan Assn.; Provident Savings & Loan; Prudential Federal Savings & Loan; Saranac Lake Federal Savings & Loan; Savers Bank; Savings Building & Loan; Security Savings & Loan; Seneca Federal Savings & Loan; Security Pacific Clearing & Services Corp.; Sentry Savings; Sewickley Savings & Loan Assn.; Southern Illinois Bank; United Financial Savings Bank, F.S.B.; Universal Savings & Loan; Vernon Savings & Loan; Village Bank; First Federal Savings & Loan Assn. of Waterbury; General Trading Co., Inc.; Fidelity New York, F.A.; Wallkill Valley Federal Savings & Loan Assn.; First Federal Savings & Loan Assn. of Lincoln, Nebraska; Mutual Federal Savings & Loan Assn. of Sidney, Ohio; Morton Federal Savings & Loan; Odessa Savings Assn.; Calvert Insurance Company; Fairbanks Broadcasting Co., Inc.; Bradford Trust Company; Mona Williams; Westbury Savings & Loan; Worthen Bank & Trust Company, N.A.; Yonkers Savings Bank and Yorkridge Calvert Savings & Loan, Defendants.

In the Matter of BEVILL, BRESLER & SCHULMAN, INC., Debtor.

Richard W. HILL, Trustee for the Liquidation of Bevill, Bresler & Schulman, Inc., Plaintiff,

v.

FIDELITY NEW YORK, F.A., Champlain Valley Federal Savings & Loan Association; Worthen Bank & Trust Company, N.A.; Mainland Savings & Loan Association; City of Harrisburg, Pennsylvania; Maryland Savings-Share Insurance Corporation, as Conservator of Old Court Savings and Loan Inc.; and Security Pacific Clearing & Services Corporation, Defendants.

Civ. A. Nos. 85-1728, 85-2224.

Adv. Nos. 85-2103, 85-5274.

United States District Court, D. New Jersey.

October 23, 1986

Page 558

[Copyrighted Material Omitted]

Page 559

Ravin, Greenberg & Zackin by Jack M. Zackin, Gary N. Marks, Roseland, N.J., for Saul S. Cohen.

McCarter & English by Hayden Smith, Jr., Anne W. Crawford, John F. Brenner, Charles J. Benjamin, Newark, N.J., for Richard W. Hill.

Theodore H. Focht, Gen. Counsel, Securities Investor Protection Corp., by Michael E. Don, George F. Bingham, Washington, D.C.

Kirkpatrick & Lockhart by Joseph J. Brigati, Charles Lee Eisen, Douglas J. Scheidt, Washington, D.C., for Bayamon Federal Sav. & Loan Ass'n.

Rhoads & Sinon by Charles J. Ferry, Dean H. Dusinberre, Harrisburg, Pa., for City of Harrisburg, Pa.

Cowen, Liebowitz & Latman, P.C. by J. Christopher Jensen, New York City, for Federal Sav. & Loan Ins. Corp. as Receiver of Mainland Sav. Ass'n.

Page 560

Buckley, Kremer, O'Reilly, Pieper, Hoban & Marsh, Mineola, N.Y., for Fidelity N.Y., FSB.

Milbank, Tweed, Hadley & McCloy by Russell E. Brooks, Joseph S. Genova, Stephen J. Shimshak, New York City, for Huntington Sav. & Loan Ass'n.

Weil, Gotshal & Manges by Martin J. Bienenstock, Tonny K. Ho, Deryck A. Palmer, New York City, for Cuero Federal Sav. & Loan Ass'n.

William J. Scanlon Law Offices by Kathleen M. Scanlon, Fort Lee, N.J., for Fort Lee Sav. & Loan Ass'n.

Rose Law Firm, P.A. by Allen W. Bird, II, Michael R. Johns, Little Rock, Ark., and Scarpone & Edelson, P.C. by James A. Scarpone, Newark, N.J., for Worthen Bank & Trust Co. N.A.

Gaston, Snow, Beekman & Bogue by Catherine A. Ludden, New York City, for Sec. Pacific Clearing & Services Corp.

Wilkie, Farr & Gallagher by Roger D. Blanc, James J. Calder, William H. Rooney, New York City, for Prudential Federal Sav. & Loan Ass'n.

Kraft & Hughes by John B. Hall, Newark, N.J., and Ira Lee Sorkin, Regional Adm'r S.E.C. by Jason R. Gettinger, New York City.

Federal Reserve Bank of N.Y. by Mary Sue Sullivan, Andrew C. Harvard, New York City.

Cadwalader, Wickersham & Taft by Barry J. Dichter, H. Peter Haveles, Jr., Leslie R. Caldwell, Leonard J. Cali, New York City, for Official Committee of Reverse Repurchase Participants.

Carpenter, Bennett & Morrissey by Jerome E. Sharfman, Newark, N.J., and Okin, Pressler, Cohen & Hollander by Paul S. Hollander, Fort Lee, N.J., and Hahn & Hessen by Gilbert Backenroth, New York City, for Unofficial Committee of Repo Participants, Champlain Valley Federal Sav. & Loan Ass'n, First Federal Sav. & Loan Ass'n of Freeport, and Lesney Products Corp.

Hannoch Weisman by Ronald M. Sturtz, Arlene E. Mirsky, Roseland, N.J., for Official Creditors' Committee.

Clancy & Foster by Charles Clancy, East Orange, N.J., for Gibraltar Sav. & Loan Ass'n.

Gagliano, Tucci, Iadanza & Reisner by Ronald L. Reisner, West Long Branch, N.J., for East Jersey Sav. & Loan Ass'n.

Porter, Wright, Morris & Arthur by H. Grant Stephenson, Columbus, Ohio, for Connie J. Harris, Successor-in-Interest to Jefferson Bldg. & Sav. Co.

TABLE OF CONTENTS ------------------------------------------------------------------------------- I. INTRODUCTION II. PROCEDURAL BACKGROUND III. FACTUAL BACKGROUND A. The Debtors B. Repos and the Repo Market C. The Test Cases 1. Overview 2. The AMC Test Case Transactions a. GNMA Pool #69692 b. GNMA Pool #61337 c. U.S. Treasury Notes, 11.125% d. GNMA Pool #40566 e. GNMA Pool #57318 3. The BBS, Inc. Test Case Transactions a. GNMA Pool #47448 b. GNMA Pool #63571 c. FHLB, Cusip #31388MX5 d. U.S. Treasury Bills, Cusip #912794HQ0 IV. ISSUES V. DISCUSSION A. Legal Characterization of Repo and Reverse Repo Transactions 1. Contentions of the Parties 2. Applicable Law 3. Express Terms of Repo and Reverse Repo Agreements 4. Extrinsic Evidence of Intent a. Books and Records of the Parties b. Accounting Conventions c. Regulatory Treatment d. Trade Custom and Usage 5. Decisional Law a. Tax Cases b. Securites Fraud Cases c. Bankruptcy Cases 6. Conclusion B. Customer Status under SIPA C. Treatment of Reverse Repo Agreements D. Delivery/Transfer of Securities to AMC Repo Participants 1. Section 8-313(1)(a) of the N.Y.U.C.C. and N.J.U.C.C. 2. N.J.U.C.C. § 12A:8-313(1)(e) and N.Y.U.C.C. § 8-313(1)(g) 3. N.J.U.C.C. § 12A:8-313(1)(d) 4. N.J.U.C.C. § 12A:8-313(1)(c) and N.Y.U.C.C. § 8-313(1)(d) 5. Conclusions as to Deliver/Transfer a. Certified and Book-Entry Securities in the AMC Clearing Account b. Certified Securities in the AMC Safekeeping Account b. Book-Entry Securities in the AMC Safekeeping Account E. Imposition of Constructive Trusts over Securities in the AMC Clearing Account VI. CONCLUSIONS GROSSARY OF ABBREVIATIONS ------------------------------------------------------------------------------- AMC - Bevill, Bresler & Schulman Asset Management Corporation Bayamon - Bayamon Federal Savings & Loan Association of Puerto Rico BBS, Inc. - Bevill, Bresler & Schulman, Inc. Bradford - Bradford Trust Company Champlain - Champlain Valley Federal Savings & Loan Association of Plattsburgh Clearing Agreement - Clearing, Custody and Financing Agreement The Code - The Bankruptcy Code, 11 U.S.C. § 101, et seq. Cuero - Cuero Federal Savings & Loan Association Dauphin - County of Dauphin, Pennsylvania Dominion - Dominion Bank, N.A. FHLB - Federal Home Loan Bank Board Fidelity - Fidelity New York, F.A. FRBNY - Federal Reserve Bank of New York Freeport - First Federal Savings & Loan Association of Freeport GAAP - generally accepted accounting principles GNMA - Government National Mortgage Association Hamilton - Hamilton Bank Harrisburg - City of Harrisburg, Pennsylvania Huntington - Huntington Savings & Loan Association Lesney - Lesney Products Corp. Mainland - Mainland Savings & Loan Association Merritt - Merritt Commercial Savings & Loan Association NASD - National Association of Securities Dealers, Inc. N.J. U.C.C. - Uniform Commericial Code of New Jersey, N.J.S.A. 12A:1-101, et seq. N.Y. U.C.C. - Uniform Commericial Code of New York, N.Y. Consolidated Laws, Uniform Commercial Code § 1-101, et seq. (McKinney Supp. 1986) Perth Amboy - First Savings & Loan of Perth Amboy PSA - Public Securities Association Prudential - Prudential Federal Savings & Loan Association Repo - Repurchase transaction in government or agency securities Repo Committee - Unofficial Committee of Repurchase Participants Repo participant - Participant in repurchase transaction with AMC or BBS, Inc. Reverse Repo - Reverse repurchase transaction in government or agency securities Reverse Repo Committee - Official Committee of Reverse Repurchase Participants Reverse repo participant - Participant in reverse repurchase transaction with AMC or BBS, Inc. SEC - Securities and Exchange Commission SIPA - Securities Investor Protection Act SIPC - Securities Investor Protection Corporation SPCSC - Security Pacific Clearing and Services Corporation SPEED - Security Pacific Easy Electronic Delivery SPNTCo. - Security Pacific...

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