In re B & L Oil Co.
| Citation | 46 BR 731 |
| Decision Date | 19 February 1985 |
| Docket Number | Adv. No. 83 G 1726.,Bankruptcy No. 82 B 4065 Mc |
| Parties | In re B & L OIL COMPANY, Debtor. Garry R. APPEL, Trustee, Plaintiff, v. MAINSTAR OIL COMPANY and Wood County Bank, Defendant. |
| Court | U.S. District Court — District of Colorado |
Rothgerber, Appel & Powers by Garry R. Appel, Denver, Colo., for plaintiff.
Kirk P. Brady and Harold W. Wilson, Denver, Colo., for defendant Wood County Bank.
Garry R. Appel ("Appel") is the Trustee for B & L Oil Company ("B & L"), the debtor in this Chapter 11 case, filed on September 7, 1982. Appel has commenced this action pursuant to 11 U.S.C.A. § 542(b) to recover money from Mainstar Oil Company ("Mainstar") and Wood County Bank ("Bank"), which Appel contends constitutes property of the estate.
The facts, established by stipulation of the parties and the evidence submitted herein, are as follows:
B & L Oil is a West Virginia corporation and owns certain oil and gas leaseholds in West Virginia. Mainstar purchased oil from B & L's leases, for which Mainstar became indebted to B & L in the amount of $35,549.47.
Mainstar also engaged in certain business transactions with an entity known as "Oil Development Company" ("Oil Development"), also referred to as "Alan Gable Oil Development Company." Oil Development obtained a line of credit on May 10, 1983, from Wood County Bank in West Virginia, in the amount of $150,000.00. This line of credit was funded from time to time, and was secured by a Security Agreement covering all inventory of crude oil and accounts receivable of Oil Development then owned or thereafter to be acquired. Financing statements perfecting these security interests were filed in the office of the Clerk of Wood County Commission, West Virginia, and the office of the Secretary of State of the State of West Virginia. These filings were on May 17, 1983 and May 26, 1983, respectively. In addition to the Security Agreement, the advances made against the line of credit were further conditioned and secured by a letter, dated May 9, 1983, from Wood County Bank to Mainstar Oil wherein Mainstar was directed to pay all funds it may owe to Oil Development for oil payments due on or after May 9, 1983, directly to Wood County Bank. Mainstar acknowledged and accepted this directive on May 9, 1983.
Thereafter, the Bank received four checks from Mainstar, on Mainstar's account with the Bartlett Farmers Bank of Bartlett, Ohio, payable to "Wood County Bank for Oil Development Co. % William Crites." These checks totaled $35,549.47. The check stubs accompanying these checks identify specific "FARM", "TICKET," and other data pertaining to each particular check. This information specifically described Farm No. 7570, which is a farm arrangement in which Mainstar was involved with B & L, not Oil Development. An examination of these stubs supports the conclusion that the obligations presented by these stubs were incurred post-petition. In any event, the checks were mailed directly to Wood County Bank and were deposited directly to the account of Oil Development Co., becoming a part of the general funds of Oil Development Co. The checks were not endorsed to Wood County Bank.
From time to time, debits were made by the Bank against the Oil Development account, purportedly pursuant to the provisions of the security instruments, in payment of advances made under the line of credit. The aforementioned $35,549.47 was part of the funds so set off.
Mainstar now acknowledges that the monies it mailed to the Wood County Bank for Oil Development Co., in the amount of $35,549.47, were paid to the Bank by mistake, and should have been paid to B & L in payment of obligations owed by Mainstar to B & L.
It appears Mainstar owed funds to Oil Development, as well as to B & L, at the time the checks herein involved were forwarded to Wood County Bank. The Bank's disposition of those funds was in accordance with instructions of Oil Development and pursuant to the business relationship between Oil Development and the Bank. Nothing in the evidence indicates the Bank had any knowledge or reason to know that any of the funds provided by Mainstar to the Bank for Oil Development and deposited to the account of Oil Development belonged to or were in any way the property of B & L Oil or Garry R. Appel, its Trustee. Further, there is nothing in the evidence to indicate Mainstar did not owe sums to Oil Development in an amount at least equal to the amounts of the checks at the time those checks were sent to the Bank.
Appel has agreed with the Bank that, if judgment is rendered against the Bank, he will attempt to collect against Mainstar first. Appel has alleged that Mainstar owes the aforementioned sums, plus other additional amounts to B & L and that these sums constitute a debt which is property of the estate which is matured or payable on demand, under § 542(b) of the Bankruptcy Code. Appel then alleges that, as a result of the foregoing facts, Wood County Bank also owes the $35,549.47 to B & L as a debt that is property of the estate and is matured or payable on demand, under § 542(b) of the Code.
The issue presented with respect to Wood County Bank is whether this bankruptcy estate is entitled, under § 542(b), to recover from a third-party (Bank) funds which it received by mistake from a party (Mainstar) who owed those funds to the debtor.
Judgment has already entered, by default, against Mainstar. That judgment was entered on July 23, 1984, in the amount of $66,104.92, plus costs in the amount of $60.00. Leave was granted for Appel to file an appropriate motion to amend the judgment to include interest from the date of sale, to the extent permitted by Colorado law.
On August 6, 1984, Appel filed a motion to amend the judgment with a supporting affidavit. Interest was computed at 8% per annum from the date the invoices were due, and was not compounded. Colorado law provides in 1973 C.R.C. § 5-12-101, et seq., for interest at 8%, compounded annually. Thus, there remains some confusion with respect to the interest computation.
Further, judgment was entered in the amount of $66,104.92, as requested in the motion for default judgment. Paragraph 6 of the motion for default judgment states that the amount of that requested judgment is based, in part, on the checks attached to the motion as Exhibits A through G. Appel represents that the checks total $62,119.63. However, my calculations indicate the total is $75,629.10.
The interest calculation is based on checks which are in excess of the amount of the judgment. Thus, either the interest calculation is in error or Appel did not request judgment in an amount supported by the evidence.
A hearing will be set to clarify the interest computations and finalize the default judgment against Mainstar.
The action against Wood County Bank was brought under 11 U.S.C. § 542. The allegations are patterned after § 542(b). That section provides:
"(b) Except as provided in subsection (c) or (d) of this section, an entity that owes a debt that is property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or on the order of, the trustee, except to the extent that such debt may be offset under section 553 of this title against a claim against the debtor."
The Complaint alleges that the Bank "owes a debt that is property of the estate and that is matured or payable on demand." However, it is clear that if the Bank owes such a debt to B & L, it derives from the debt actually owed by Mainstar and mistakenly paid to the Bank of the account of Oil Development.
The first question to be addressed is whether the action is properly under § 542 or if it is a common law lawsuit brought under the guise of a turnover proceeding under § 542. The reason such an inquiry is important is that if the matter is truly an action simply seeking an order to turn over property of the estate, it is a core proceeding subject to final order in the bankruptcy court. See 28 U.S.C. § 157(b)(2)(E). If this is a common law lawsuit, it is simply a related proceeding, wherein the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district judge. See 11 U.S.C. § 547(c)(1); General Procedure Order 1984-3. By consent of the parties, the bankruptcy judge may enter final order in such matters, subject to review under 11 U.S.C. § 158. See 11 U.S.C. § 157(c)(2). No such consent has entered here.
No contention is made that the Bank owes B & L any debt unless it is based on the mistaken receipt by the Bank of money from Mainstar, who owed the actual debt to B & L. The obligation of Mainstar was not yet in existence on September 7, 1982, when B & L filed its Chapter 11 case. The obligation and cause of action arose in 1983, during the pendency of B & L's bankruptcy. An initial reading of the legislative history indicates that subsection (b) of § 542 "requires an entity that owes money to the debtor as of the date of the petition, or that holds money payable on demand . . . to pay the money to the order of the Trustee." H.R.Rep. No. 95-595, 95th Cong. 2nd Sess. 369 (1977); S.Rep. No. 95-989, 95th Cong. 2nd Sess. 84 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5870, 6325. Neither Mainstar nor Wood County Bank owed the debtor the monies in question on the date of the petition.
However, the foregoing statement from the legislative history is not entirely accurate, in that § 542(b) provides for the turnover of "property of the estate." 11 U.S.C. § 542(b). Pursuant to the provisions of 11 U.S.C. § 541(a)(7), property of the estate includes any interest in property that the estate acquires after the commencement of the case. This section was added to the Bankruptcy Code in 1978. Thus, if a debt incurred during pendency of the case is established, it would be included as part of the...
To continue reading
Request your trial