In re L & T Steel Fabricators, Inc.
| Decision Date | 23 June 1989 |
| Docket Number | Adv. No. 87-0210.,Bankruptcy No. 86-01147 |
| Citation | 102 BR 511 |
| Parties | In re L & T STEEL FABRICATORS, INC., Debtor. Joan B. PARMELEE, Trustee, Plaintiff, v. BANK OF GREENSBURG, Defendant. |
| Court | U.S. Bankruptcy Court — Middle District of Louisiana |
Robert J. Carter, Greensburg, La., for plaintiff/trustee.
W. Hugh Sibley, Amite, La., for defendant, Bank of Greensburg.
REASONS FOR DECISION
This adversary proceeding, brought by the Trustee against the Bank of Greensburg (the Bank) seeking recovery of an alleged preferential transfer, came on for trial on January 31, 1989, pursuant to and in conformity with a "Memorandum Opinion and Order Pursuant to Rule 56(d)" (the Opinion and Order). The Opinion and Order was rendered after hearing on a Motion for Summary Judgment brought by the Trustee. Pursuant to Rule 56(d), made applicable to this proceeding by Bankruptcy Rule 7056, the Court determined that certain material facts existed without controversy and could be found without the necessity of trial; and therefore, certain issues were resolved without the necessity of trial. Within the Opinion and Order the Court fixed a trial date and set forth what factual issues were reserved for trial.
Rather than attach the Opinion and Order as an appendix to these reasons, the Court, for the sake of convenience, will recast its previously issued Memorandum Opinion, supplemented by findings of fact and conclusions of law emanating from the trial of this proceeding.
On May 28, 1986 the debtor, L & T Steel Fabricators, Inc. (L & T Steel), through its president and sole owner, Joseph Lombardo, executed a promissory note in the principal amount of $337,919.93, payable on demand to the Bank of Greensburg (the Bank). This note, according to the stipulations between the parties, represented a renewal of existing antecedent debt in the amount of $297,919.93 and an extension of a new loan in the amount of $40,000. As security for payment of all indebtedness evidenced by the note, L & T Steel had executed a pledge agreement dated May 27, 1986, by which it purported to pledge its accounts receivable to the Bank, and had also executed a $500,000 collateral chattel mortgage, dated May 27, 1986, purporting to encumber most, if not all, of the equipment owned by L & T Steel. This mortgage was apparently recorded in the office of the Clerk of Court and Recorder of Mortgages in and for the Parish of St. Helena, State of Louisiana, on May 29, 1986.
On May 30, 1986, two days after the execution of the note and three days after execution of the collateral chattel mortgage and pledge of the accounts receivable, the Bank filed an executory process petition in state court seeking to foreclose on the collateral covered by the pledge of accounts receivable and the collateral chattel mortgage. The equipment and accounts receivable were sold to the Bank at sheriff's sale on June 25, 1986 for the bid price of $350,000. The Bank, on July 10, 1986, sold the equipment and accounts to a third party corporation, Southland Steel, for the price of $345,258.82 (see Exhibit D-1 introduced at trial by agreement of the counsel).1 An involuntary bankruptcy petition seeking an order of relief under Chapter 7 was filed against L & T Steel on August 5, 1986, within ninety days after May 27, 1986. Pursuant to a motion filed by L & T Steel prior to trial of the involuntary petition, an order was signed on September 2, 1986 converting the case to a case under Chapter 11. Other than filing schedules and statements of affairs, there was no activity in the Chapter 11 case until a motion to convert the case to one under Chapter 7 was filed by a creditor on March 17, 1987. On April 9, 1987, the Debtor-in-Possession filed a plan and disclosure statement. Notwithstanding the plan and disclosure statement the case was converted to a case under Chapter 7 by Order dated April 17, 1987.
On December 11, 1987, the trustee brought this adversary proceeding specifically seeking an order avoiding the transfer of the accounts receivable and equipment to the Bank to the extent of $297,919.93 (the amount of the preexisting indebtedness "collateralized" by the May 27, 1986 security agreements) and ordering the return of $297,919.93 to the estate. The trustee also prayed for "all relief that may be proper in the premises."
The Trustee subsequently brought a Motion for Summary Judgment (the Trustee's Motion). After hearing, the aforementioned Opinion and Order was rendered. In summary, the Court found, based upon the stipulated facts, affidavits, depositions and other exhibits in support of and in opposition to the Trustee's Motion, that there was no issue of fact that required resolution regarding the transfer to the Bank, to the extent of $297,919.93. This amount was found to be preferential. The Court found that the remaining $40,000 of the principal indebtedness paid by means of the transfer of accounts and equipment had been new value given in consideration of the granting of the collateral chattel mortgage. Therefore, as $40,000 worth of the debt had been properly secured by an unavoidable security interest, the transfer was found to be unavoidable to that extent. However, as the sales price paid by the Bank at sheriff's sale was stipulated by the parties to be $350,000, it appeared that there was some $12,080.87 of the purchase price paid by the Bank which remained unaccounted for.
On the authority of Rule 54(c), Federal Rules of Civil Procedure, made applicable to the proceeding by Bankruptcy Rule 7054, trial was ordered for the purpose of determining whether the $12,080.87 constituted an additional component of the preference and also for the purpose of allowing the introduction of evidence "relevant to the issues of the right to prejudgment interest," the time at which the accrual of prejudgment interest, if granted, would commence and the appropriate rate that should apply (the Trustee had alleged a right to interest from June 11, 1986, which, as shown below, was not a meaningful date; rather it was the date on which the property was advertised by the sheriff). There was also a factual dispute regarding the validity of the pledge of the accounts as between the parties prior to the execution of the May 27, 1986 agreement purporting to pledge the accounts receivable which was reserved for trial. As will be shown, the Court has assumed, for purposes of the prior Opinion and Order and these reasons, that the pledge was valid between the parties prior to the execution of the agreement and 90 days before the petition date, and therefore need not decide whether the pledge of accounts was valid between the parties.
This is a proceeding arising under Title 11 U.S.C. over which the United States District Court for the Middle District of Louisiana has original jurisdiction pursuant to 28 U.S.C. § 1334(b). Under the authority of 28 U.S.C. § 157(a), the United States District Court for the Middle District of Louisiana, by Local Rule 29 (now Rule 22) has referred all such cases to the Bankruptcy Judge for the district and has ordered the Bankruptcy Judge to exercise all authority permitted by 28 U.S.C. § 157.
This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(F). Pursuant to 28 U.S.C. § 157(b)(1), the Bankruptcy Judge for this district may hear and determine all core proceedings and may enter appropriate orders and judgments.
No party has objected to the exercise of jurisdiction by the Bankruptcy Judge. No party has filed a motion for discretionary abstention pursuant to 28 U.S.C. § 1334(c)(1) or pursuant to 11 U.S.C. § 305. No party filed a timely motion for mandatory abstention under 28 U.S.C. § 1334(c)(2). No party has filed a motion under 28 U.S.C. § 157(d) to withdraw all or part of the case or any proceeding thereunder, and the District Court has not done so on its own motion.
Stipulated Facts:
The parties at hearing on the Trustee's Motion stipulated certain facts agreed to be material, and further agreed that there were no additional facts which needed to be considered prior to a determination of the rights of the parties regarding the alleged $297,919.93 preference.
At hearing on and for purposes of the Trustee's Motion, the parties agreed that there was no dispute as to the following material facts:
(1) As of May 26, 1986, L & T Steel was indebted to the Bank in the amount of $297,919.93.
(2) On May 28, 1986 L & T Steel executed a promissory note in the principal amount of $337,919.93, which evidenced a renewal of the preexisting indebtedness and the extension of a $40,000 new loan.
(3) There was no preexisting chattel mortgage or security interest in favor of the Bank in, to or upon the equipment of L & T Steel prior to the May 27, 1986 collateral chattel mortgage.
(4) Prior to 90 days before the filing of the involuntary petition which initiated this case, the Bank was in possession of the invoices of L & T Steel to third party account debtors, which were made subject of the May 27, 1986 pledge agreement regarding the accounts receivable and invoices of L & T Steel.2
(5) The account debtors under the invoices held by and allegedly pledged to the Bank did not receive written notice of the alleged pledge prior to the Sheriff's sale from the Bank, L & T Steel or Mr. Joseph Lombardo (and there were no affidavits or other papers in opposition to the Trustee's Motion which would tend to show that any other party provided such notice).
(6) L & T Steel was insolvent as of ninety (90) days prior to the involuntary petition initiating this case, and as of the execution of the collateral mortgage, the agreement purporting to pledge the accounts receivable and the sheriff's sale.
(7) The Bank bid the sum of $350,000 for accounts receivable and equipment of L & T Steel at the sheriff's sale held pursuant to the executory process petition foreclosing on the property covered by the...
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