Matter of B & W Enterprises, Inc.
| Decision Date | 13 April 1982 |
| Docket Number | Adv. No. 81-0344. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Idaho |
| Parties | In the Matter of B & W ENTERPRISES, INC., Debtor. In the Matter of SHOEMAKER TRUCKING CO., INC., Debtor. B & W ENTERPRISES, INC. and Shoemaker Trucking Company, Inc., Plaintiffs, and Loren Wetzel, Trustee, Substituted Plaintiff, v. GOODMAN OIL COMPANY; Interstate Mack; Trebar, Inc., (formerly known as Boise Kenworth Sales, Inc.); Mountain Bell Telephone, Inc.; Usatab; Cummins Intermountain Idaho; Bowen Oil Co.; American Express; Global Travel; Krueger's Auto Truck Stop; Idaho Bank and Trust Co.; Caldwell Basque Charity; Idaho Power Co.; Utility Equipment Co.; Time Automotive Distributors; Ore-Ida Foods, Inc.; and Olancha Truck Stop, Defendants. |
Green, Service, Gasser & Kerl, Pocatello, Idaho, for substituted plaintiff/trustee, Loren Wetzel.
Anderson, Kaufman, Ringert & Clark, Boise, Idaho, for defendants Goodman Oil Co. and Krueger's Auto Truck Stop.
David G. Ballard, Boise, Idaho, for defendant, Trebar, Inc.
Ellis, Brown, Sheils & Steele, Boise, Idaho, for defendant Interstate Mack, Inc.
Plaintiff seeks to avoid certain post-petition transfers made by debtors-in-possession. B & W Enterprises, Inc. and Shoemaker Trucking filed for relief under chapter 11 of Title 11, U.S.C., on April 17, 1981. The case was converted to a liquidating bankruptcy under chapter 7 of the Code on December 15, 1981, and the chapter 7 trustee has been substituted as party plaintiff herein.
The following facts have been established by stipulation:
That Goodman Oil was paid a total of $65,798.00 by debtor-in-possession on pre-petition debts;
That Krueger's Truck Stop was paid $4,361.75 by debtor-in-possession on pre-petition debt;
That Trebar, Inc., doing business under the names of Boise Kenworth Sales, Bokenco, Bokenco Leasing, and Magic Valley Kenworth, was paid $36,569.95 by debtor-in-possession on prepetition debt; and
That debtor-in-possession paid Interstate Mack $53,320.08 on prepetition debt.
The parties have further stipulated as to which portions of the payments made on the prepetition debt were made with funds on hand or proceeds of accounts receivable owed as of the date of the filing of the petition for relief and which portions were paid with funds generated during the pendency of the chapter 11 proceeding.
The facts as agreed to by the parties also reflect that, following the filing of the petition for relief under chapter 11, all major trade creditors of the debtor corporations with the exception of Trebar and Interstate Mack refused to extend further credit and placed all services and goods provided on a "cash only" basis.
The officers of the debtors-in-possession and Trebar agreed to continue credit with all accounts being payable on a monthly basis and with debtors also obligated to bring current the outstanding prepetition balances for January and February, 1981. In return, the credit line with Trebar and its related entities was kept open, and during the pendency of the chapter 11 proceeding over $75,000 worth of business was transacted.
In a similar vein, debtors-in-possession agreed with Goodman Oil to continue their business relationship on the condition that debtors would pay, upon receipt of a load of fuel, not only for that current load but for a prior, prepetition load for which payment was past due as well. The fuel supply relationship with Goodman Oil continued until November, 1981, when another supplier offered a lower price per gallon.
Krueger's, the only Portland, Oregon area truck stop which would extend credit to debtors-in-possession and which also provided a fuel discount, provided some $XXXX-XXXX per month in credit transactions during the pendency of the chapter 11 proceeding, but was paid only some $4000 on prepetition debt.
The parties have agreed that the credit arrangements for the fuel and services provided by Goodman Oil and Krueger's, and the parts and services provided by Interstate Mack and Trebar were necessary and essential to the operation of the debtors-in-possession's business following April 17, 1981. In order to secure this credit the prepetition debts to these entities were paid.
There is no stipulation that any of the goods and services in question could not have been obtained from other suppliers on a C.O.D. basis.
The debtors-in-possession made the various credit agreements summarized above without notice, hearing, or authorization under the Code or by the court.
The defendants rely on three theories to avoid the effect of 11 U.S.C. § 549: (1) that the property transferred, at least in part, was not "property of the estate"; (2) that the "necessity of payment" rule sanctions the payments made by the debtor-in-possession; and (3) that the "six months" rule gives an effective priority to these defendants so as to sanction the payments and allow their retention.
First, defendants contend that Section 541(a)(6), supra, excepts the funds used to pay the prepetition obligation from the definition of property of the estate, because they were "earnings from services performed by an individual debtor after commencement of the case." Defendants note that 11 U.S.C. § 101(12) says "debtor" means person, and 11 U.S.C. § 101(30) states that the word "person" "includes individual, partnership, and corporation."
This argument ignores the clear import of the above language. An "individual debtor", when the definitional sections are reconciled, is a debtor who is an "individual", not a single or sole individual, partnership or corporation. In the context of 541(a)(6), the use of "individual" as a synonym for "single" would be meaningless. The purpose of the exception is to insulate the income of an individual, earned by personal services after commencement of the case, from becoming property of the estate subject to administration by a trustee.
The other two defenses are interrelated; both stem from historical practices when the law of railroad reorganizations under the Bankruptcy Act and that of equity receivership intersected. The "necessity of payment" rule and the "six months" rule are...
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