Coral Petroleum, Inc. v. Banque Paribas-London

• Decision Date: 25 August 1986
• Docket Number: PARIBAS-LONDON,No. 85-2718,85-2718
• Citation: 797 F.2d 1351
• Parties: Bankr. L. Rep. P 71,434 CORAL PETROLEUM, INC., Plaintiff-Appellant, v. BANQUE, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1351

797 F.2d 1351

Bankr. L. Rep. P 71,434

CORAL PETROLEUM, INC., Plaintiff-Appellant, v. BANQUE PARIBAS-LONDON, et al., Defendants-Appellees.

No. 85-2718.

United States Court of Appeals Fifth Circuit.

Aug. 25, 1986.

Rehearing and Rehearing En Banc Denied Sept. 22, 1986.

Daniel H. Johnston, Jr., Ross, Banks, May, Cron & Cavin, Brooke E. Smith, Mark A. Shaiken, Houston, Tex., for plaintiff-appellant.

Joel R. Ohlgren, Los Angeles, Cal., Andrews & Kurth, Alan Weichsel Harris, Houston, Tex., Julianne Bloomer, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before, GEE, POLITZ and GARWOOD, Circuit Judges.

GARWOOD, Circuit Judge:

The district court, on motion for summary judgment by defendants-appellees Banque Paribas-London (Paribas-London) and Banque Paribas (Suisse) S.A. (Paribas-Suisse), formerly Banque de Paris et des Pays-Bas (Suisse) S.A., dismissed with prejudice the voidable preference claim under the Bankruptcy Code, 11 U.S.C. Sec. 547, of the Creditors' Committee (the Committee) of Coral Petroleum, Inc. (Coral), a debtor now in chapter 11. The district court held that the $35,000,000 pledged by Leeward Petroleum Company, Ltd. (Leeward), a solvent, indirect, offshore subsidiary of Coral, to Paribas-Suisse was "earmarked" to repay Coral's $35,000,000 debt to Paribas-Suisse and thus never became a part of Coral's estate with respect to the preference claim. Finding that this Leeward collateral never came into the general control of Coral, we affirm the district court's dismissal of the Committee's preference action.

Facts and Proceedings Below

On August 26, 1982, Paribas-Suisse loaned Coral $35,000,000 pursuant to a term note. The note obligated Coral to repay the principal on September 1, 1984, and to bring the interest current on three designated dates. The loan was prepayable without penalty at any time. As collateral for this loan, Coral executed a stock pledge of sixty-five percent of the stock of each of its subsidiaries. Coral also granted Paribas-Suisse a general security interest in all its assets. To avoid being charged with certain interbank taxes and charges, interbank arrangements were made for the funds to be provided Coral from Paribas-London as agent for Paribas-Suisse. Thus, Paribas-London funded the loan on behalf of Paribas-Suisse, which assumed the credit risk and carried the loan on its books. Coral's term note evidencing this loan was payable to Paribas-Suisse. ¹

Leeward, an indirect subsidiary of Coral, deposited $35,000,000 with Paribas-Suisse that the evidence established was to serve as pledged collateral for Paribas-Suisse's loan to Coral. Paribas-Suisse thereafter placed a fiduciary deposit of this amount in its own name at Paribas-London to avoid certain taxes, and Paribas-Suisse retained control of the funds at all times with respect to Coral and Leeward. ² On January 14, 1983, this pledge agreement was memorialized in a "General Form of Pledge Agreement" that gave Paribas-Suisse a right of pledge and offset on any Leeward deposit against any claims Paribas-Suisse might have against Coral. Moreover, the sixty-five percent pledge of all of Coral's subsidiaries' stock also included Leeward's stock.

On May 9, 1983, William Sudhaus, the president of Coral, telephoned Ilan Hayim, the vice president of Paribas-Suisse and the loan officer on the Coral account, and informed him that Coral had decided to prepay the note. Coral also informed Leeward of this fact. On the same day, Leeward sent a telex to Paribas-Suisse (Nassau), a branch office of Paribas-Suisse, instructing Paribas-Suisse to break its $35,000,000 fiduciary deposit at Paribas-London and to transfer this sum to Leeward's Paribas-Suisse account in Geneva. A few minutes thereafter, Leeward telexed Paribas-Suisse in Geneva, instructing it to transfer the $35,000,000 from Leeward's Paribas-Suisse account in Geneva into Coral's account at Paribas-Suisse in Geneva. Also on May 9, 1983, Coral telexed Paribas-Suisse directing that the incoming $35,000,000 be applied to repay its loan obligation to Paribas-Suisse. On May 10, 1983, Paribas-Suisse debited and credited Coral's account--and also Leeward's--at Paribas-Suisse in Geneva in a simultaneous bookkeeping transaction in accordance with these instructions, thus paying off Coral's loan. Lastly, Paribas-Suisse refunded to Paribas-London the $35,000,000 that Paribas-London had advanced for Paribas-Suisse to Coral to originally fund the loan.

On June 2, 1983, Coral filed for bankruptcy under chapter 11, and the Committee was appointed shortly thereafter to safeguard the rights of the unsecured creditors. The Committee determined that the above transaction, having occurred within ninety days of the bankruptcy petition, constituted a voidable preference under 11 U.S.C. Sec. 547 of the Bankruptcy Code. Coral, however, would not bring suit and informed the Committee that it had proposed a settlement with Paribas-Suisse of a dispute in a matter unrelated to this transaction in which Coral would issue Paribas-Suisse a general release of all claims, including those for preferences. The bankruptcy court heard argument on the preference claim in its determination of whether to approve this release, and it denied the Committee's preference claim and approved the settlement. The bankruptcy court's ruling approving the settlement was made conditional on an ultimate finding that no preference existed. The settlement was approved and adopted by the district court, Judge DeAnda.

In July 1984, the Committee filed the present suit in the district court, seeking a separate determination of whether this transaction constituted a preference. The Committee claimed standing to sue Paribas-Suisse or Paribas-London in light of Coral's refusal to proceed in this matter against either of them. In February 1985, a stipulation executed by Coral was filed in the bankruptcy court expressly granting the Committee the right to sue Paribas-London for any reason, including preference claims. In April 1985, a stipulation by Coral was filed in the bankruptcy court granting the Committee standing to pursue any action that Coral did not bring by April 1, 1985. In July 1985, the Committee obtained the signature of Coral's counsel on a document stating that the April stipulation was intended to allow the Committee to prosecute the instant preference claim.

In October 1984, Paribas-Suisse and Paribas-London filed a motion to dismiss the preference claim under Fed.R.Civ.P. 12(b), which the district court treated as a motion for summary judgment under Fed.R.Civ.P. 56. On August 29, 1985, after reviewing the evidentiary record before it, the district court, Judge McDonald, dismissed the Committee's preference claim. The district court held that the Committee did not have standing to sue Paribas-Suisse, but that it could sue Paribas-London because the latter was specifically mentioned in the standing stipulation. Moreover, intervention under 11 U.S.C. Sec. 1109(b) was not warranted because there were no extenuating circumstances that would permit it. As to the merits of the preference action, the district court held that as to Paribas-London there was no preference because the funds were "earmarked" to repay Coral's underlying debt and Coral had no control over their use. This appeal followed.

Discussion

I. Voidable Preferences

Summary judgment is appropriate in the district court if the record discloses "that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fed R.Civ.P. 56(c). On review we apply the same standard. See, e.g., Simon v. United States, 711 F.2d 740, 743 (5th Cir.1983); Miles v. American Telephone & Telegraph, Inc., 703 F.2d 193, 194 (5th Cir.1985). The moving party carries the burden of demonstrating the absence of a material issue of fact, and therefore the evidence and all reasonable inferences therefrom must be viewed in the light most favorable to the opponent of the summary judgment motion. See, e.g.,Impossible Electronic Techniques, Inc. v. Wackenhut Protective Systems, Inc., 669 F.2d 1026 (5th Cir.1982); Joplin v. Bias, 631 F.2d 1235, 1237 (5th Cir.1980). After reviewing the record and resolving all reasonable doubts in favor of the Committee, we determine that as a matter of law the $35,000,000 repayment of Coral's loan was not a preference under section 547 of the Bankruptcy Code as to either Paribas-Suisse or Paribas-London. ³

In general, a voidable preference under section 547 is a transfer by a debtor of his property to a creditor on account of an antecedent debt within ninety days of bankruptcy whereby the creditor receives more than he would have received had the debtor liquidated under chapter 7. ⁴ There is no dispute among the parties as to this maxim. We find that the drafters of the Bankruptcy Code made clear the purpose of section 547:

"The purpose of the preference section is two-fold. First, by permitting the trustee to avoid prebankruptcy transfers that occur within a short period before bankruptcy, creditors are discouraged from racing to the courthouse to dismember the debtor during his slide into bankruptcy. The protection thus afforded the debtor often enables him to work his way out of a difficult financial situation through cooperation with all of his creditors. Second, and more important, the preference provisions facilitate the prime bankruptcy policy of equality of distribution among creditors of the debtor. Any creditor that received a greater payment than others of his class is required to disgorge so that all may share equally. The operation of the preference section to deter 'the race of diligence' of creditors to dismember the debtor before bankruptcy furthers the second goal of the preference section--that of equality of distribution." H.R.Rep. No. 595, 95th Cong. 1st sess. 177-78 (1977), U.S.Code Cong. &...