Barton Industries, Inc., In re

• Decision Date: 21 January 1997
• Docket Number: 96-6032,Nos. 96-6020,s. 96-6020
• Citation: 104 F.3d 1241
• Parties: , 31 UCC Rep.Serv.2d 883, 97 CJ C.A.R. 133 In re BARTON INDUSTRIES, INC., Debtor. AMERICAN BANK AND TRUST COMPANY, an Oklahoma banking corporation, Plaintiff-Appellee, Cross-Appellant, v. JARDINE INSURANCE SERVICES TEXAS, INC., a foreign corporation, and Transamerica Insurance Finance Corporation, a foreign corporation, Defendants-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1241

104 F.3d 1241

30 Bankr.Ct.Dec. 269, 31 UCC Rep.Serv.2d

883, 97 CJ C.A.R. 133

In re BARTON INDUSTRIES, INC., Debtor.

AMERICAN BANK AND TRUST COMPANY, an Oklahoma banking

corporation, Plaintiff-Appellee, Cross-Appellant, v. JARDINE INSURANCE SERVICES TEXAS, INC., a foreign

corporation, and Transamerica Insurance Finance

Corporation, a foreign corporation,

Defendants-Appellants, Cross-Appellees.

Nos. 96-6020, 96-6032.

United States Court of Appeals, Tenth Circuit.

Jan. 21, 1997.

G. Blaine Schwabe, III (Sarah A. Hall with him on the briefs), of Mock, Schwabe, Waldo, Elder, Reeves & Bryant, Oklahoma City, OK, for Appellants.

Michael A. Bickford (Joe Heaton with him on the briefs) of Fuller, Tubb & Pomeroy, Oklahoma City, OK, for Appellee.

Before SEYMOUR, Chief Judge, ANDERSON, and BRORBY, Circuit Judges.

STEPHEN H. ANDERSON, Circuit Judge.

This case involves a dispute between two secured creditors over rights to unearned, return insurance premiums ("return premiums") involved in the Chapter 11 bankruptcy plan of Barton Industries, Inc. ("Barton"). The core issues on appeal are: (1) whether the appellants, Transamerica Insurance Finance Corporation ("TIFCO") and Jardine Insurance Services Texas, Inc. ("Jardine"), received adequate notice that TIFCO's security interest in the return premiums would be extinguished by operation of the bankruptcy plan; and (2) a determination of the priority between competing security interests in the return premiums held by TIFCO and appellee, American Bank and Trust Company ("ABT").

On cross motions for summary judgment, the bankruptcy court held that appellants, TIFCO and Jardine, did not receive sufficient notice that TIFCO's security interest in the return premiums would be affected by Barton's bankruptcy plan, and therefore TIFCO retained a valid security interest. The court also determined that appellee, ABT, had a prior security interest in part of the return premiums, and accordingly awarded ABT $39,780.00. The court held that TIFCO and Jardine should retain the remaining balance of return premiums. See Appellants' App. Vol. I at 216-18 (Bankr.Ct.Order). The district court affirmed, and this appeal followed. We affirm.

I. Background

Prior to filing for bankruptcy, Barton entered an insurance premium finance agreement with the appellant, TIFCO. Premium finance agreements generally allow distressed companies to borrow money in order to purchase casualty insurance policies. In this case, TIFCO loaned Barton $119,338.25 to pay the premiums on policies with various insurers. See Appellants' App. Vol. I at 133 (premium finance agreement). Rather than giving the money directly to Barton, TIFCO advanced the money to appellant Jardine, an insurance agent, for remittance to the insurance carriers on behalf of Barton. See Id. at 128, pp 3-4 (TIFCO Aff.).

As part of the premium finance agreement, Barton agreed to repay the money advanced by TIFCO with finance charges. To secure repayment, Barton assigned to TIFCO any and all unearned return premiums. Id. at 132 (premium finance agreement). Return premiums are those premiums paid in advance by the insured, but unearned in the event the insurance coverage is reduced or canceled, and therefore refunded by the insurance companies.

Another part of the premium finance agreement required Barton to pay TIFCO $39,780.00 as a down payment. Barton borrowed the money for this down payment from its primary creditor, appellee ABT, under a pre-existing credit agreement which they entered on February 10, 1993. Appellants' App. Vol. I at 78-92 (February 10th Agreement); id. at 195-96 (Rusco Aff.). The February 10th Agreement granted ABT a security interest in all intangible assets of Barton, and confirmed prior security interests in all contract rights and general intangibles, which arguably included return insurance premiums. Id. at 80-81, pp 3.1, 3.2.4. Shortly after ABT loaned Barton the money for the down payment, the parties amended the February 10th credit agreement to specify that ABT had a security interest in return insurance premiums. Id. at 108, p 3.1 (June 4th Amendment).

The chronology of these transactions is important to determine the priority of the security interests. ABT and Barton entered their general credit arrangement on February 10, 1993. TIFCO and Barton entered the premium finance agreement on May 21, 1993. ABT loaned Barton the money for the down payment to TIFCO on May 27, 1993. ABT and Barton amended the February 10th credit agreement on June 4, 1993.

On August 4, 1993, Barton filed a voluntary Chapter 11 petition, and shortly thereafter canceled the insurance policies. After the insurance policies were canceled, the insurance companies repaid $60,842.29 in unearned premiums. They gave the return premiums to Jardine, who then remitted $54,486.04 to TIFCO. Appellants' App. Vol. I at 122, pp 7-8.

On June 15, 1994, ABT commenced an adversary proceeding against TIFCO and Jardine, alleging that the Chapter 11 plan conveyed to ABT all of the return premiums, or provided ABT a security interest in the premiums superior to TIFCO's interest in them. ABT further argued that TIFCO had notice of and an opportunity to respond to the Chapter 11 plan, and was therefore bound by its terms. TIFCO replied that its lien on the return premiums passed through the bankruptcy proceedings unaffected, and that it did not receive meaningful notice of, and was therefore not bound by, the bankruptcy plan.

II. Discussion

We review the grant of summary judgment by the bankruptcy court de novo, applying the same legal standards as those applied by the bankruptcy and district courts. Hollytex Carpet Mills, Inc. v. Oklahoma Employment Sec. Comm'n (In re Hollytex Carpet Mills, Inc.), 73 F.3d 1516, 1518 (10th Cir.1996); CCF, Inc. v. First Nat'l Bank & Trust Co. of Okmulgee (In re Slamans), 69 F.3d 468, 472 (10th Cir.1995). "Summary judgment is appropriate where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Stat-Tech Int'l Corp. v. Delutes (In re Stat-Tech Int'l Corp.), 47 F.3d 1054, 1057 (10th Cir.1995).

A. Due Process

ABT challenges the bankruptcy and district courts' holdings that TIFCO's security interest in the return premiums remained valid because ABT failed to provide TIFCO and Jardine meaningful notice that the bankruptcy plan would affect the security interest. Appellants' App. Vol. I at 216-17 (Bankr.Ct.Order). Generally, due process requires:

notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. The notice must be of such nature as reasonably to convey the required information, and it must afford a reasonable time for those interested to make their appearance.

Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950) (citations omitted). These due process requirements apply equally to bankruptcy proceedings, see Bank of Marin v. England, 385 U.S. 99, 102, 87 S.Ct. 274, 276-77, 17 L.Ed.2d 197 (1966); Turney v. Federal Deposit Ins. Co., 18 F.3d 865, 868 (10th Cir.1994), and a creditor's claim is not subject to a confirmed bankruptcy plan when the creditor is denied due process because of inadequate notice. Reliable Elec. Co., Inc. v. Olson Const. Co., 726 F.2d 620, 622-23 (10th Cir.1984).

A confirmed Chapter 11 bankruptcy plan may extinguish a lien such as TIFCO's. See 11 U.S.C. § 1141(c); Federal Deposit Ins. Co. v. Union Entities (In re Be-Mac Trans. Co., Inc.), 83 F.3d 1020, 1025 (8th Cir.1996). ¹ However, the bankruptcy court may only confirm a Chapter 11 plan after notice that "is appropriate in the particular circumstances." See 11 U.S.C. §§ 102(1), 1128(a); see also 2 Collier on Bankruptcy p 102.02 (15th ed. 1993). In order to satisfy due process, TIFCO and Jardine had to receive notice that specified the treatment of their class of claim, and allowed them to make an informed judgment about Barton's Chapter 11 plan. See 11 U.S.C. §§ 1123(a)(3), 1125(a). Because TIFCO and Jardine admittedly received the required notices in this case, see Appellants' Response Br. at 13, the issue is whether, under the particular circumstances, the notices they received were "of such nature as reasonably to convey the required information." Mullane, 339 U.S. at 314, 70 S.Ct. at 657; see also In re Linkous, 990 F.2d 160, 162-63 (4th Cir.1993) (holding plan properly vacated with respect to Chapter 13 creditor who received actual notice of proceedings, but did not receive adequate notice that court would value secured claim at the confirmation hearing).

While a close case, we agree with the bankruptcy and district courts that TIFCO and Jardine did not receive sufficient notice, and Barton's Chapter 11 plan therefore did not affect TIFCO's interest. The plan stated that all allowed claims, other than those specifically mentioned, were Class 4 entitled only to a pro rata share of funds from the Creditor Trust if and when such funds became available. See Appellants' App. Vol III at 605, 611 (Plan). However, the plan and the disclosure statement sent to TIFCO and Jardine did not specifically refer to the return premiums, TIFCO's interest therein, or the plan's effect on them.

The only reference pertaining to the return premiums was in an agreement (the ERC agreement), which was incorporated into the plan, but not sent to TIFCO or Jardine. The ERC agreement provided that Barton would "sell and convey to ABT without representation or warranty the assets listed on Schedule 2.1 free and clear of all liens, claims and encumbrances...." Appellants' App. Vol. II at 280 (ERC Agreement). Schedule 2.1 listed all tangible or intangible assets of Barton in which security interests had been granted in favor of ABT, including all contract rights and general intangibles. Id. at 299. This obscure reference did not provide...