In re Nardulli & Sons Co., Inc.
| Decision Date | 19 September 1986 |
| Docket Number | Bankruptcy No. 80-1723,Adv. No. 86-0102. |
| Citation | 66 BR 871 |
| Parties | In re NARDULLI & SONS CO., INC., Debtor. GENERAL ELECTRIC CREDIT CORPORATION, Plaintiff, v. NARDULLI & SONS CO., INC. and Carlotta Bohm, Trustee, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
Stanley G. Makoroff, Mary Anne McKeen, Lampl, Sable, Makoroff & Libenson, Pittsburgh, Pa., for plaintiff.
Carlota M. Böhm, Schaffler & Böhm, Pittsburgh, Pa., Trustee.
In January, 1986, the Plaintiff, General Electric Credit Corporation ("GECC") filed a Complaint for Reclamation of Property, Adequate Protection and/or Relief from Stay of the Debtor's six pieces of heavy equipment. The Trustee denies that GECC has a security interest in the equipment first because the confirmation of the Chapter 11 plan did not provide for a retention of such a security interest, and alternatively because after confirmation of the plan GECC did not maintain its perfected security interest under state law.
On October 22, 1980, the Debtor, a strip mining operator, filed a Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code. On November 29, 1983, the Court confirmed the Debtor's Chapter 11 Plan. The plan was consummated by payment of administrative expenses and by substantial payments to creditors. Taxes were not paid. On January 8, 1986, on motion of the taxing bodies; the case was converted to a Chapter 7 and a Trustee appointed.
On October 24, 1979, the Debtor, Nardulli & Sons Co., Inc. ("Nardulli"), entered into a security agreement and promissory note with GECC under which GECC loaned the Debtor $482,749.72. With this transaction, Nardulli granted GECC a security interest in five pieces of equipment:
GECC originally perfected its security interest in the five pieces of equipment by filing financing statements on October 29, 1979 with the Secretary of the Commonwealth of Pennsylvania and with the Prothonotary of Allegheny County. GECC also filed continuation statements on April 23, 1984 with the Secretary of the Commonwealth and with the Prothonotary of Allegheny County.
By Order of Court dated July 28, 1981, the Bankruptcy Court approved a Stipulation between the Debtor and GECC, that affirmed GECC's security interest in the five pieces of equipment, and also authorized the Debtor to grant GECC a security interest in a 1972 Caterpillar Wheel Loader, Model No. 992, Serial No. 25K665. GECC perfected its security interest in the sixth piece of equipment by filing a financing statement with the Secretary of the Commonwealth of Pennsylvania on September 11, 1981 and with the Prothonotary of Allegheny County on September 10, 1981.
Article 1, Part A, Paragraph 1 of the plan only states:
General Electric Credit Corporation ("GECC"), secured by assets of Debtors shall be designated as the sole Class 1 claimant.
Although the plan provides a payment schedule to GECC, the plan does not expressly provide that GECC retains any security interest in the six pieces of equipment.
Nardulli's plan of reorganization provides that the Bankruptcy Court will retain jurisdiction after consummation date of the plan for all purposes until the Class 13 claimants, the unsecured creditors, are paid as provided under the plan. The plan provides that the consummation date is 30 days after the Order of Court confirming the plan becomes final and nonappealable. On November 29, 1983, the Court confirmed the plan and thus consummation would have occurred on December 29, 1983. Nardulli's Disclosure Statement, filed in August, 1983, discloses that Nardulli obtained a contract to mine coal in the state of Indiana and that it would start operations there once it obtained the required Indiana permits.
In support of its Complaint, GECC filed an affidavit from Nardulli that is not disputed. It recites that Nardulli maintained a place of business at 947 Butler Street, Etna, Allegheny County until October, 1983, when it closed its Allegheny County office. Nardulli had also maintained a place of business in Washington County until June, 1984. Nardulli opened a place of business in Butler County in March, 1982 and closed it in January, 1986. Thus, the only place of business Nardulli maintained from June, 1984 until January, 1986 was in Butler County. Nardulli originally owed GECC $482,749.72. GECC now claims $84,246.56 plus legal fees and court costs.
Debtor's affidavit states that in March, 1984, Nardulli moved two Caterpillar dozers, two wheel loaders and the truck scale to the state of Indiana, where they remain. This heavy equipment is being used in strip mining operations. Earlier in March, 1983, Nardulli moved two Caterpillar dozers to Butler County, Pennsylvania. After the plan was confirmed, Nardulli leased the Indiana equipment to an Indiana corporation, Whole Nine Yards Coal Company, Inc. ("WNY"). According to the lease, this equipment was repaired by WNY which also placed an Indiana artisan's lien on the equipment. On June 11, 1986, the Trustee conducted a bidding sale of this equipment. WNY was the highest bidder. The Trustee sold the equipment for $250,000. Payments were to be made in installments. GECC has appealed this sale to the District Court. The Butler County equipment remains unsold
Additionally, WNY has filed for bankruptcy in the state of Indiana and has listed this artisan's lien as an asset. WNY filed after the conversion date of Nardulli to Chapter 7.
The Court confirmed Nardulli's plan of reorganization on November 29, 1983. Section 1141(a) of the Bankruptcy Code provides upon confirmation that the debtor and all creditors are bound by the plan, whether or not the individual creditors have accepted the plan or have claims which are impaired under Section 1141. In re White Farm Equipment, 38 B.R. 718 (N.D.Ohio E.D.1984). GECC accepted the plan. Furthermore, Section 1141(b) provides that:
Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.
Section 1141(c) of the Code provides that after confirmation of the plan, except as provided in the plan or in the order confirming the plan, the property dealt with by the plan is free and clear of all claims and interests of creditors of the debtor. See U.S. v. Redmond, 36 B.R. 932, 934 (D.Kan.1984). The reorganization plan affects all creditors and their security interest. All their rights are defined and limited by the plan. Since the plan does not provide that GECC will retain a security interest until payment of the GECC debt, the property held by Nardulli upon confirmation is free and clear of GECC's security interests.
After confirmation, unless the plan provides otherwise, the Debtor is free to use its unsecured equipment as security for future loans. Future lenders are permitted to rely on the plan and the filing and notice provisions of § 9401 and § 9302(a) of the Pennsylvania Uniform Commercial Code (see infra) to determine if the property is collateral to perfected security interests. In this case, the Debtor leased the equipment to WNY.
Except as provided in the plan, confirmation of the debtor's plan also discharges the debtor from any debt that arose before the confirmation date. 11 U.S.C. § 1141(d)(1).
In Matter of Wood, 47 B.R. 774, 778 (Bkrtcy.W.D.Wis.1985), the Bankruptcy Court noted that:
Creditors have the opportunity to protect their interests by the requirement of continued ownership of the cows property of Wood\'s estate when they voted to confirm it. At the time the plan was confirmed, it was apparent that Wood\'s dairy operations were somewhat unstable, but no provisions were included in the plan to deal with his dairy herd. With the exercise of reasonable foresight, the creditors who negotiated with Wood could have sought the inclusion of provisions restraining the sale of the cows and any other necessary assets.
In Wood, the creditors' failure to protect themselves in the plan resulted in the debtor's cows being free and clear of all claims and interests of the debtor's creditors. Id. at 780. Under the terms of Nardulli's confirmed plan, and 11 U.S.C. § 1141, the Debtor takes free of GECC's security interests in these six pieces of equipment.
Alternatively, GECC could have argued that the plan's failure to expressly provide its security interest in the plan was an oversight. It did not so argue. The Court would not be easily persuaded by such an experienced creditor that inadvertance was the cause of failure to expressly include a retention of a security interest or that the parties intended to include such an interest. However, if the plan is so interpreted, then post-confirmation GECC must comply with perfection requirements under the Uniform Commercial Code of Pennsylvania and Indiana.
GECC filed its financing statements with the Prothonotary of Allegheny County and with the Pennsylvania Secretary of State for five pieces of equipment on October 29, 1979. The bankruptcy petition was filed on October 20, 1980. The plan was confirmed on November 29, 1983. Continuation statements were filed for these five pieces on April 23, 1984 in Allegheny County. GECC filed its financing statement for the sixth piece of equipment with the Secretary of the Commonwealth on September 4, 1981 and with the Prothonotary of Allegheny County on September 10, 1981.
Nardulli closed its Allegheny County...
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