Wes Dor, Inc., In re
| Decision Date | 18 June 1993 |
| Docket Number | No. 92-1228,92-1228 |
| Citation | 996 F.2d 237 |
| Parties | , Bankr. L. Rep. P 75,320 In re WES DOR, INCORPORATED, also known as N.M.L., Incorporated, doing business as Lumber Yard Supply, Debtor. H. Christopher CLARK, Trustee, Plaintiff-Appellee, v. SECURITY PACIFIC BUSINESS CREDIT, INC., Defendant-Appellant, and H. Carter Espedal; Crown Industries, Inc.; April Eighty-Four Corp.; and Crown Door of Colorado, Defendants. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Paul G. Quinn (Charles F. Kaiser with him on the briefs), Denver, CO, for plaintiff-appellee.
Christopher L. Richardson (Thomas C. Bell with him on the briefs), Davis, Graham & Stubbs, Denver, CO, for defendant-appellant.
Before LOGAN, MCWILLIAMS, and MOORE, Circuit Judges.
This is an appeal in a bankruptcy adversary proceeding. Defendant Security Pacific Business Credit, Inc. (Bank), a pre-bankruptcy lender to the Debtor, Wes Dor, Inc., and its affiliates, appeals a bankruptcy court order, affirmed by the district court, permitting Debtor's Trustee to recover the bulk of a fraudulent transfer made to the Bank. The bankruptcy court, however, allowed the Bank to set off, as an innocent transferee, a portion of the funds it received. On appeal, the Bank contends as an innocent party it was entitled to retain the entire amount of the transfer. In support of that basic position, the Bank raises issues pertaining to the value it extended to Debtor as part of the transfer and whether the bankruptcy and district courts appreciated the concept of that value. Finding no error, we affirm.
At the genesis of this case, the Bank was a lender to West Coast Dor, Inc. (WCD), the parent corporation of the Debtor. WCD had two wholly-owned subsidiaries, Debtor and Southwest Dor, Inc. (SWD). H. Carter Espedal was the president and corporate principal of WCD and its subsidiaries.
In 1983 and 1985, the Bank and the parent, WCD, entered into loan arrangements, personally guaranteed by Mr. Espedal, in which the Bank agreed to finance WCD's business operations. 1 Because WCD was a holding company that conducted business through its subsidiaries, the loan proceeds were transferred to the subsidiaries through intercompany loans carried on the parent's books as accounts receivable. The subsidiaries then used the funds to pay their operating costs and repaid the loans by depositing proceeds from their receivables into a lock box controlled by the Bank. In turn, the Bank applied the lock box funds to the advances it made to the parent.
Although the subsidiaries were not parties to the written loan agreements, it was understood by all parties the only assets available to the Bank as security for its loans were owned by the subsidiaries, and WCD's only asset of value was the stock of the Debtor and its sister company. In apparent recognition of that understanding, the subsidiaries gave the Bank financing statements in its favor, but no security agreements were executed in support of those financing statements.
This arrangement persisted until October 1985, when employees of the Bank circulated an internal memo discussing the potential problems created by obtaining financing statements without the backing of security agreements executed by the purported Debtor. 2 However, because WCD sought additional financing at the time, the Bank decided not to request documentation from the subsidiaries. 3 Thus, the Bank continued lending money to WCD despite knowledge it did not have separate documentation from the subsidiaries upon which to enforce a security interest in their assets.
In July 1986, a Bank internal memo was circulated indicating the Bank's concern that Debtor was operating at a substantial loss. The Bank also received a memo from its attorney stating that WCD's loans were not properly secured, and the Bank should do something about the problem. Consequently, in early August 1986, the Bank informed Mr. Espedal that if he wanted additional financing he would have to sign an Addendum to the written loan agreements pledging the subsidiaries' assets as collateral for WCD's outstanding loans. 4
On August 5, 1986, when WCD's outstanding obligation to the Bank stood at $3,761,052, Mr. Espedal executed the Addendum on the subsidiaries' behalf. This "August 5 transfer" forms the basis of the parties' dispute. The bankruptcy court found that at this time Debtor's assets exceeded the amount of the obligation it assumed; therefore, the court concluded the value of Debtor's assets transferred to secure the Bank's loans was the amount of the obligation or $3,761,052.
In late November, Debtor sold all its assets except accounts receivable to Crown Industries, Inc. The proceeds of the sale and the subsequent collection of the lock box funds paid from Debtor's accounts receivable permitted the Bank to recover the full amount of its loan balance. The bankruptcy court found but for the August 5 transfer, all of Debtor's unsecured creditors would have been paid pro rata, and the Bank would not have received full recovery.
In a manner not relevant to this appeal, Debtor found its way into liquidating bankruptcy, and Trustee was appointed to marshal its assets. As part of that process, Trustee subsequently filed this adversary proceeding seeking to recover the $3,761,052 received by the Bank through the enforcement of the Addendum executed on August 5.
Although Trustee prosecuted alternatively under 11 U.S.C. § 547 to recover a preferential transfer and 11 U.S.C. § 548(a)(1) to recover a fraudulent transfer, 5 the bankruptcy court concluded Trustee was entitled to recover only under § 548(a)(1). 6 In that context, the court properly concluded the Bank's intent in formulating the transfer was irrelevant because the focus under § 548(a)(1) is on the motives of the debtor, not the obligee. On the basis of the evidence, then, the court found Debtor "clearly" desired to prefer the Bank over other creditors.
Recognizing preferential intent alone was insufficient to invoke § 548(a)(1), the court identified additional evidence of an actual intent to defraud. The court pointed to the desires of Mr. Espedal, who had executed his personal guarantee of the WCD debt to the Bank backed by his own property given as security. Mr. Espedal had no similar liability to the Debtor's trade creditors. Additionally, the court noted, in the sale to Crown Industries Mr. Espedal did not disclose Debtor's execution of the financing statement in favor of the Bank. Indeed, the list of creditors furnished to Crown Industries in compliance with the Colorado bulk sales law did not even list the Bank as one of Debtor's creditors. When Crown Industries discovered the outstanding financing statement, Mr. Espedal not only denied the existence of any obligation to the Bank, but also gave Crown Industries the loan documents between the Bank and Debtor's parent WCD, and said that was the only existing obligation. The court found Mr. Espedal's intent in this charade was to "avoid creating unnecessary unrest with the trade creditors so that the transactions with Security Pacific would go unnoticed and the sale could be closed, and the dollars utilized to pay Security Pacific." Based on these findings, the court concluded "Mr. Espedal, on his own behalf and on behalf of his corporations, entered into the August transaction, made the transfer, committed the assets of Wes Dor to the payment of the Security Pacific debt with the actual intent to hinder or delay or defraud the creditors of Wes Dor."
Finally, the court addressed the Bank's contention that, as a good faith creditor who gave equal value in exchange for the transfer, under § 548(c) 7 it was protected against Trustee's action. The court determined that although Trustee conceded the Bank gave value to the extent of $958,093, the intercompany debt traceable to the Bank financing on the day of the transfer, the value of the property transferred to the Bank was at least equal to the debt owed by WCD. Thus, Trustee was entitled to recover the difference between the value of the property transferred and the value given by the Bank. Consequently, the court awarded Trustee the amount of the August 5 transfer, $3,761,052, less $958,093, set off in accordance with § 548(c).
On initial appeal from the bankruptcy court, the district court considered three issues: whether Debtor was indebted to the Bank before the August 5 transfer; whether the Bank gave equivalent value for the transfer; and whether there was sufficient evidence of an actual intent to defraud on the part of Debtor. After reviewing each of the bankruptcy court's findings, the district court concluded I think these were difficult calls and there were a lot of disputed facts; but in looking at the disputed facts, not only can I find no determinations of fact that were clearly erroneous, but I would probably have found the same way myself, had I been confronted with the facts.... [I]t does not appear to me that there are any findings of fact that were clearly erroneous, nor any conclusions of law that are in error.
On appeal to this court, the Bank re-urges its fundamental position that despite the Debtor's intent, the Bank was an innocent creditor who extended value of at least $3,761,052 to the Debtor in exchange for the execution of the Addendum. Because of its innocence and the value it gave, the Bank should be entitled to the entire amount under § 548(c). To support this contention, the Bank submits several points.
The Bank first contends the district court erroneously reviewed the bankruptcy court's finding of the extent of Debtor's "indebtedness" under a clearly erroneous standard. "Rather than analyzing the facts within the framework of the Bankruptcy Code, including 11 U.S.C. § 548(c)," the Bank claims the district court "summarily affirmed the Bankruptcy Court's ill-founded conclusion that SPBC gave value to WDI in an amount of ... the intercompany debt...
To continue reading
Request your trial
-
Hansen, Jones & Leta, PC v. Segal, 2:96-CV-572-B
... ... § 158(a), and reviews the bankruptcy court's denial of compensation for abuse of discretion. In re Interwest Business Equipment, Inc., 23 F.3d 311, 315 (10th Cir.1994). The orders appealed from are the initial order of December 1, 1992, published at In re Bonneville Pacific ... See In re Wes Dor, Inc., 996 F.2d 237, 241 (10th Cir.1993) (citing Uselton v. Commercial Lovelace Motor Freight, Inc., 940 F.2d 564, 572 (10th Cir.), cert. denied, ... ...
-
In re Tousa, Inc.
...United States, 547 U.S. 715, 754 n. 14, 126 S.Ct. 2208, 165 L.Ed.2d 159 (2006). 54. See, e.g., Clark v. Security Pacific Business Credit, Inc. (In re Wes Dor), 996 F.2d 237, 243 (10th Cir.1993) (noting that defendant "fails to point to any evidence quantifying the amount of such [indirect] ......
- Riley v. Countrywide Home Loans, Inc. (In re Duplication Mgmt., Inc.)
-
In Re Tronox Incorporated
... ... denied, 519 U.S. 1007, 117 S.Ct. 509, 136 L.Ed.2d 399 (1996); ... see also ... Ryder Energy Distrib. Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir.1984). On a motion to dismiss for failure to state a claim under Rule 12(b)(6), “a court must accept as true all of ... Clark v. Sec. Pac. Business Credit, Inc. (In re Wes Dor, Inc.), 996 F.2d 237, 242 (10th Cir.1993) (internal citations omitted); ... In re Solomon, 299 B.R. at 636 (Oklahoma UFTA case); ... see also ... ...
-
Chapter IV Proving the Elements
...carry the burden of proof to provide evidence quantifying the value received. See Clark v. Sec. Pac. Bus. Credit (In re Wes Dor Inc.), 996 F.2d 237, 243 (10th Cir. 1993) ("To the extent indirect benefits could be considered ... the Bank fails to point to any evidence quantifying the amount ......
-
Jessica D. Gabel, the Terrible Tousas: Opinions Test the Patience of Corporate Lending Practices
...additional loans or new managerial talent does not constitute fair consideration); Clark v. Sec. Pac. Bus. Credit (In re Wes Dor, Inc.), 996 F.2d 237, 243 (10th Cir.1993) (“To the extent indirect benefits could be considered . . . the Bank fails to point to any evidence quantifying the amou......