Bellanca Aircraft Corp., In re

• Decision Date: 20 July 1988
• Docket Number: Nos. 87-5269,ANDERSON-GREENWOOD,s. 87-5269
• Citation: 850 F.2d 1275
• Parties: 20 Collier Bankr.Cas.2d 19, Bankr. L. Rep. P 72,385, 7 UCC Rep.Serv.2d 656 In Re BELLANCA AIRCRAFT CORPORATION, Debtor (Three Cases). Edward W. BERGQUIST, Trustee of the Bankruptcy Estate of Bellanca Aircraft Corporation, Appellant, v.AVIATION CORP., a Texas Corporation; Anderson Greenwood & Co., a Texas Corporation, Appellees (Two Cases). Edward W. BERGQUIST, Trustee of the Bankruptcy Estate of Bellanca Aircraft Corporation, Appellee, v.AVIATION CORP., a Texas Corporation; Anderson Greenwood & Co., a Texas Corporation, Appellants. to 87-5271.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1275

850 F.2d 1275

20 Collier Bankr.Cas.2d 19, Bankr. L. Rep. P 72,385,

7 UCC Rep.Serv.2d 656

In Re BELLANCA AIRCRAFT CORPORATION, Debtor (Three Cases).

Edward W. BERGQUIST, Trustee of the Bankruptcy Estate of Bellanca Aircraft Corporation, Appellant, v. ANDERSON-GREENWOOD AVIATION CORP., a Texas Corporation;

Anderson Greenwood & Co., a Texas Corporation,

Appellees (Two Cases).

Edward W. BERGQUIST, Trustee of the Bankruptcy Estate of Bellanca Aircraft Corporation, Appellee, v. ANDERSON-GREENWOOD AVIATION CORP., a Texas Corporation;

Anderson Greenwood & Co., a Texas Corporation, Appellants.

Nos. 87-5269 to 87-5271.

United States Court of Appeals,

Eighth Circuit.

Submitted Dec. 17, 1987.

Decided June 22, 1988.

As Amended on Denial of Rehearing

July 20, 1988.

Brian Todd, Minneapolis, Minn., for appellant.

Richard T. Thomson, Minneapolis, Minn., for appellees.

Before LAY, Chief Judge, and HEANEY and MAGILL, Circuit Judges.

LAY, Chief Judge.

The primary issues in this complex bankruptcy case involve the attempt by the trustee for the estate of Bellanca Aircraft Corp. (Bellanca) to set aside allegedly preferential transfers made to Anderson Greenwood & Co. (AGCO), and its subsidiary, Anderson-Greenwood Aviation Corp. (Aviation). The bankruptcy court ¹ set aside certain transfers as preferential, but held that other transfers were not preferential. The district court ² affirmed and all parties have appealed. We affirm in part, but remand to the district court with directions to remand to the bankruptcy court for further findings.

I. TRUSTEE'S APPEAL

A. Preferential Transfers

The facts are set forth in the bankruptcy court's sixty-three page opinion ³ and need only be briefly mentioned here. In 1976 Bellanca, Aviation, and AGCO entered into a series of transactions related to the manufacturing and marketing of aircraft. In July 1980 Bellanca filed Chapter 11 proceedings in bankruptcy.

The trustee sought to avoid a number of transfers of airplanes Bellanca made to AGCO. The bankruptcy court determined that most of the transfers were not preferential because not made "for or on account of an antecedent debt owed by" Bellanca. See 11 U.S.C. Sec. 547(b)(2) (1982). ⁴ Underlying this determination was the finding that the transactions at issue involved airplane sales from Bellanca to AGCO rather than loans of money by AGCO to Bellanca with airplanes as security. The trustee attacks this finding, contending that the transactions were part of a floor plan financing arrangement.

The bankruptcy court found, however, that the parties intended the transfers to be sales. As the bankruptcy court stated, the parties "intended to and did implement a financing plan which shared many of the attributes of a revolving credit line"--a plan that was "certainly subject to contradictory interpretations * * *." 56 B.R. at 374-75. Nevertheless, based on the testimony and evidence received, the court found that the parties intended that AGCO would not be reimbursed for the funds dispersed to Bellanca unless third parties subsequently bought the airplanes. 56 B.R. at 375. Thus, the hallmark of a loan--an absolute right to repayment of funds advanced--was missing. See, e.g., United States v. Investors Diversified Servs., Inc., 102 F.Supp. 645, 647 (D.Minn.1951). Stated simply, the court found that title to the airplanes passed from Bellanca to AGCO for a price. See Minn.Stat. Sec. 336.2-106(1) (1986) (defining a sale as "the passing of title from the seller to the buyer for a price"). Although witness testimony and documentary evidence presented conflicting versions of the parties' intent, "[w]here there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Anderson v. City of Bessemer City, 470 U.S. 564, 574, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985). We therefore affirm the finding that the transactions between Bellanca and AGCO were sales.

The trustee next contends that the bankruptcy court erred in holding that the time of perfection of AGCO's interests in the planes was governed by Minnesota law. An interest is perfected when a "creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee." Sec. 547(e)(1)(B). State law ordinarily determines when a creditor on a contract cannot acquire a superior judicial lien. See Carlson v. Farmers Home Admin. (In re Newcomb), 744 F.2d 621, 625-26 (8th Cir.1984). The trustee argues that state laws regarding perfection of interests in aircraft have been preempted by the Federal Aviation Act, 49 U.S.C.App. Sec. 1403(c) (FAA), which requires aircraft bills of sale to be filed with the Secretary of Transportation to validate conveyances of aircraft. ⁵

The FAA provides that until the bill of sale has been filed, a conveyance of aircraft is invalid against any person "other than the person by whom the conveyance or other instrument is made or given * * *." 49 U.S.C.App. Sec. 1403(c). The conveyance is nevertheless valid as between the buyer and the seller. As we held in Compass Ins. Co. v. Moore, 806 F.2d 796, 799 (8th Cir.1986), "a judgment creditor's lien on personal property is merely derivative of the judgment debtor's rights and interests in such property." If the seller of the planes has lost its interest in them, a subsequent judgment creditor of the seller cannot obtain an interest in the planes. Id. ⁶ Thus, because the FAA does not address when an airplane transfer is valid as against a judgment creditor of the transferor, the lower courts were correct to apply state law to determine when AGCO's interests were perfected.

We therefore reject the trustee's challenge to the holding that the transfers were not preferential, with the exception of three transfers--those identified by work order numbers B-129, B-130, and B-138--which require further discussion.

Bellanca sold three planes to third parties after it had sold them to AGCO. According to the district court, the third parties paid Bellanca, which deposited the checks to its general account and then drew its own checks to pay AGCO.

The district court held that these payments were not preferential because the proceeds of the airplane resales never became Bellanca's property; a necessary component of a preferential transfer is that the property transferred be "property of the debtor." See Brown v. First Nat'l Bank, 748 F.2d 490, 491 (8th Cir.1984); Sec. 547(b). The district court's analysis was limited to the following:

The bankruptcy court reasonably found that the aircraft at issue belonged to AGCO, not to Bellanca. The proceeds from those sales also belonged to Bellanca. [sic] The mere fact that Bellanca deposited the proceeds in its own account before transferring them to AGCO does not mean that the proceeds were property of Bellanca. "The mechanics of the transfer may not necessarily be determinative." Brown v. First National Bank of Little Rock, 748 F.2d 490, 492 n. 6 (8th Cir.1984).

In re Bellanca Aircraft Corp., Nos. Civ. 4-86-128, 699; Bky. 4-81-959; Adv. 4-81-323, slip op. at 16 (D.Minn. May 12, 1987).

These findings are insufficient to allow us to determine if the law was correctly applied, and we must remand for further findings. ⁷ A finding that the planes did not belong to Bellanca does not automatically mean that proceeds of the plane sales were not "property of the debtor" within the meaning of the Bankruptcy Code. Whether the proceeds became property of the debtor is initially a question of state law that depends on several unresolved factual issues. See, e.g., N.S. Garrott & Sons v. Union Planters Nat'l Bank (In re N.S. Garrott & Sons), 772 F.2d 462, 466 (8th Cir.1985) (nature and extent of debtor's interest in property are determined by state law).

The trustee asserts that the general rule is that "[d]eposits in a bank to the credit of a debtor become property of the estate under section 541(a)(1)." 4 Collier on Bankruptcy p 541.11 at 541-71 (15th ed. 1988) (hereinafter, "Collier"). ⁸ The trustee then contends that to avoid application of this rule and prove that the proceeds were not property of Bellanca's, AGCO was required both to prove its entitlement to a constructive trust on those funds and to trace the funds, neither of which AGCO apparently even attempted to do.

AGCO counters that because Bellanca received the resale payments as agent for AGCO, Bellanca never had any sort of an interest in those payments. AGCO further contends that the evidence did not show that AGCO instructed Bellanca to deposit the proceeds in Bellanca's general account; the implication is that Bellanca wrongfully converted the funds, thereby entitling AGCO to a constructive trust. Finally, AGCO argues that because Bellanca placed the proceeds in a bank account the balance of which never fell below the amount of the proceeds, the proceeds were adequately traced pursuant to the "lowest intermediate balance" rule.

All of these arguments, however, are premised on factual assertions unsupported by findings of the bankruptcy court. The court did not explicitly make a finding that Bellanca sold the planes as AGCO's agent, nor did the court find whether Bellanca segregated the funds pending payment to AGCO. ⁹ We therefore find it necessary to remand for the bankruptcy court to make the factual findings necessary to determine the propriety of the district court's conclusion that property seemingly in the hands and under the control of Bellanca was not "property of the debtor."

B. Subsequent Advances of New Value

The trustee's next set of challenges to the judgment relates to AGCO's partially successful invocation of the section 547(c)(4) "subsequent advance" defense to the trustee's recovery of preferential transfers. The bankruptcy court held that certain payments AGCO made to Bellanca's creditors, employees, and suppliers constituted subsequent advances of new value. The trustee contends that the lower courts erred in...