In re Chase & Sanborn Corp.
| Decision Date | 10 April 1991 |
| Docket Number | Adv. No. 86-0493 BKC-AJC-A.,Bankruptcy No. 83-000889 BKC-AJC |
| Citation | 127 BR 903 |
| Parties | In re CHASE & SANBORN CORPORATION f/k/a General Coffee Corporation, Debtor. Paul C. NORDBERG, as Creditor Trustee, Plaintiff, v. ARAB BANKING CORPORATION, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
Ronald G. Neiwirth, P.A., Miami, Fla., David L. Katsy, Esanu Katsky Korins & Siger, New York City, for creditor/trustee.
Alan G. Greer, Floyd, Pearson, Richman, Greer, Weil, Brumbaugh & Russomanno, Miami, Fla., Alan H. McLean, Hughes, Hubbard & Reed, New York City, for ABC.
THIS MATTER came before the Court on February 20, 1991, at which time the Court heard oral argument of counsel for the parties on the motion of Paul C. Nordberg, the Creditor Trustee of the Estate of the Debtor, for (1) an order fixing the amount of prejudgment interest to be paid by Arab Banking Corporation ("ABC") on two voidable preferences totalling $1,550,000 which ABC previously received, and (2) the entry of final judgment herein in the Estate's favor. ABC opposes both branches of the motion.
This proceeding is before the Court on remand from the Eleventh Circuit. In re Chase & Sanborn Corp., 904 F.2d 588, 600 (11th Cir.1990). The issues before the Court on remand are the amount of prejudgment interest, if any, to which the Estate is entitled and the disposition of a counterclaim by ABC, both of which are addressed by the Creditor Trustee's motion.
ABC is a commercial bank. On March 3, 1983, the Debtor made a payment of $400,000 for principal due to ABC on a loan that ABC had made to Alberto Duque ("Duque"), who owned the Debtor. 904 F.2d at 592. On March 31, 1983, the Debtor made a second payment to ABC of $1,150,000 for principal due to ABC on its loan to Duque. Id.
On May 18, 1983, the Debtor filed a petition in this Court under Chapter 11 of the Bankruptcy Code and continued to operate the business as a debtor-in-possession. In August 1984, the Creditor Trustee was appointed. On May 27, 1986, the Creditor Trustee asserted against ABC, in the form of a cross-claim in an adversary proceeding commenced by the trustee in the Colombian Coffee Co. bankruptcy, claims to recover the preferences and other voidable transfers. The Bankruptcy Court severed the Creditor Trustee's cross-claim, with leave for him to renew his claims in a separate proceeding. On July 31, 1986, the Creditor Trustee brought this adversary proceeding against ABC and renewed his claims to recover various voidable transfers, including the $1,550,000 in preferences concerned here.
The Bankruptcy Court and the District Court initially ruled against the Creditor Trustee's claims. On appeal, the Eleventh Circuit by decision dated June 27, 1990 (a) reversed with respect to the $1,550,000 in preference claims, holding that the "March 3 and March 31, 1983 loan payments by Chase & Sanborn are voidable preferences under Section 547" and "recoverable" from ABC under Section 550 as the "initial transferee" thereof, 904 F.2d at 597, 600; and (b) remanded the case to the Bankruptcy Court "for further proceedings consistent with this opinion", id. at 600.
By orders dated January 25 and 30, 1991, the Court granted the Creditor Trustee's motion under Section 502(d) of the Bankruptcy Code and disallowed all of ABC's claims in this bankruptcy case, unless ABC repaid the $1,550,000 in preferences to the Estate. The Court also directed that payment of the preferences by ABC were to be held by the Creditor Trustee in an "interest-bearing segregated account." On February 13, 1991, ABC paid $1,550,000 (i.e., the principal amounts of the preferences, without any interest thereon) into such an account established by the Creditor Trustee.
The Creditor Trustee asserts that this Court has broad discretion to determine and compute the amount of prejudgment interest to be awarded on a preference and that the Court should award to the Estate prejudgment interest on the $1,550,000 in preferences (a) running from March 1983 when ABC obtained the preferences, and (b) calculated at the prime rate. The Creditor Trustee asserts that that such interest computation is appropriate in light of (1) the fact that ABC is a commercial bank and has loaned the preference amounts to bank customers for the past eight years, thereby earning for itself over $1,750,000 in interest; (2) the Congressional policy of creditor equality which underlies the preference statute and which would be violated if ABC were permitted to pocket the $1,750,000 in interest, for ABC would thereby receive the same distribution as all other unsecured creditors plus the interest it earned on the preferences and therefore receive far more than unsecured creditors who did not likewise receive preferences; and (3) the neutral principle of the time-value of money which calculates prejudgment interest in real economic terms and seeks to compensate a plaintiff for the loss of use of the money he recovers, but which does not punish the defendant and in the case of a preference leaves a defendant such as ABC in the same position as if it had never received the preference by requiring it to return only what it earned on the preference and nothing more.
When the Creditor Trustee commenced this adversary proceeding, ABC alleged an $11 million fraud counterclaim. The Creditor Trustee asserts that the Bankruptcy Court (Britton, C.J.) dismissed the counterclaim on the merits after trial and that ABC was unsuccessful on the appeals to the District Court and the Eleventh Circuit in reversing Judge Britton's findings as "clearly erroneous". Separately, the Creditor Trustee also asserts that the counterclaim is barred by the principle of res judicata because it was alleged by ABC for the first time long after the confirmation of the plan of reorganization.
The Creditor Trustee asks the Court to enter final judgment in its favor for prejudgment interest and to affirm that the counterclaim is dismissed and/or barred. Even were the Court to hold that the counterclaim is viable, the Creditor Trustee asks for the entry of final judgment for prejudgment interest under Bankruptcy Rule 7054(a) and Federal Rule of Civil Procedure 54(b), on the grounds that prejudgment interest raises factual and legal questions entirely distinct from those raised by the counterclaim and that there is no just reason for delaying entry of final judgment for interest due.
On June 1, 1982, ABC loaned $22 million to Alberto Duque, Chairman of the Debtor and sole owner of Domino Investments, the Debtor's holding company parent. The Debtor guaranteed payment of the loan and received $369,288 of the loan proceeds. Duque and Camilo Bautista, the Debtor's President, provided false financial statements to ABC in order to obtain the loan. 904 F.2d at 591. On March 3, 1983, the Debtor made a payment of $400,000 for principal due to ABC. 904 F.2d at 592. On March 31, 1983, the Debtor made a second payment to ABC of $1,150,000 for principal due to ABC on its loan to Duque. Id.
On March 21, 1983, ABC loaned an additional $3.3 million to another Duque-owned company, Supremo Coffee Co., and another $5 million directly to Duque on May 9, 1983. No repayment on this latter total of $8.3 million was ever made. 904 F.2d at 592.
On May 18, 1983, the Debtor filed a petition in this Court under Chapter 11 of the Bankruptcy Code. Duque's control over the Debtor ceased. The bankruptcy court then appointed a financial consultant, Mr. Frederic T. Hersey, to oversee the Debtor's financial affairs. Mr. Hersey undertook a detailed investigation of all accounting and financial transactions of the Debtor that had occurred between October 1, 1982 and May 18, 1983 and in furtherance of that investigation obtained bank statements, cancelled checks, and related data directly from the appropriate banks. (Pltf's Trial Ex. 15 at 11-12.) On October 12, 1983, Sheldon Tilney, vice president of ABC, was deposed by bank creditors of the Debtor and ABC's records relating to transactions subsequently challenged by the Trustee were subpoenaed.
On November 17, 1983, ABC filed a proof of claim for $27.78 million against the estates of the Debtor, Alberto Duque, Domino Investments, Ltd., and Colombian Coffee Co. for losses incurred in connection with loans made by ABC to Duque and his companies.
In August 1984, the Creditor Trustee was appointed pursuant to the terms of the Plan of Reorganization and Creditor Trust Agreement. The Plan is a liquidating plan under Chapter 11 providing for the sale of business assets of the Debtor followed by recovery of other property, allowance or disallowance of claims, and distribution to creditors.
On May 27, 1986, the Creditor Trustee asserted against ABC, in the form of a cross-claim in an adversary proceeding commenced by the trustee in the Colombian Coffee Co. bankruptcy, claims to recover alleged preferences and other voidable transfers. The Bankruptcy Court severed the Creditor Trustee's cross-claim, with leave for him to renew his claims in a separate proceeding.
On July 31, 1986, the Creditor Trustee brought this adversary proceeding against ABC and renewed his claims to recover over $9 million in various allegedly voidable transfers, including the $1,550,000 in preferences concerned here. On August 27, 1986 ABC filed an answer and counterclaim. The counterclaim alleged that the Debtor and its officers and Chairman, Alberto Duque, had defrauded ABC into making over $30 million in loans to Duque and his companies and sought $11 million representing the total amount of credit advanced to Duque's enterprise, including interest and other charges, less partial repayments and less $19.7 million in proceeds realized on the sale of pledged collateral. The case was tried before Judge...
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