Bridgeport Co., Inc. v. US Postal Service
| Decision Date | 24 February 1984 |
| Docket Number | No. LR 83-438F. AP No. 83-350F.,LR 83-438F. AP No. 83-350F. |
| Citation | 39 BR 118 |
| Parties | BRIDGEPORT COMPANY, INC. f/d/b/a Comex, Inc., Plaintiff, v. UNITED STATES POSTAL SERVICE and Worthen Bank and Trust Company, N.A., Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Arkansas |
John R. Buzbee, Attorney for Debtor, Little Rock, Ark., for debtor.
Markham Lester, Little Rock, Ark., for Worthen Bank & Trust, N.A.
ORDER GRANTING DEBTOR'S COMPLAINT FOR TURNOVER OF FUNDS, DENYING DEBTOR'S PETITION FOR CONTEMPT AND SETTING DEBTOR'S SUPPLEMENTAL ISSUE SEEKING AVOIDANCE OF CERTAIN PREFERENTIAL TRANSFERS FOR HEARING
Pending before the court is a Complaint filed by the debtor in possession in these Chapter 11 proceedings wherein the debtor asks this court for an Order directing the defendant, United States Postal Service, to immediately permit the changing of its lockbox number in order that the debtor might begin to receive certain of its mail directly instead of through defendant, Worthen Bank and Trust Company, N.A. (Worthen). The debtor also asks for an Order directing defendant Worthen (1) to remit to the debtor estate any funds taken from said post office box from the time Worthen allegedly "froze" the accounts of the debtor; (2) cease taking any further funds from the post office box and (3) account to the debtor and court for all funds previously taken. This Complaint was filed May 6, 1983 three (3) days after the debtor filed its voluntary petition under the Bankruptcy Code.
Separate defendant Worthen timely responded to this Complaint generally denying the allegations of the Complaint. Worthen asserts that Worthen and the debtor (Bridgeport Company, Inc., f/d/b/a Comex, Inc.) entered into an Operating Agreement for Lock Box Mail Collection (Agreement) on October 20, 1981.1 Pursuant to the express terms of the Agreement, Worthen asserts that it removed and inspected the contents of the lockbox and deposited any money and checks contained therein to the account of Comex, Inc. at Worthen. Worthen admits that from May 3, 1983, the date the debtor filed its voluntary petition under the Bankruptcy Code, through May 18, 1983, deposits totaling $17,342.83 and representing receipts from the contents of the lockbox have been properly made by Worthen into the Comex, Inc. account. These funds remain frozen by Worthen and thus unavailable for use by the debtor. Worthen proposed, pending adjudication of the conflicting claims of the parties, to deposit in the registry of the court $17,342.83, the amount received from May 3, through 18, 1983 through lockbox receipts and deposited in the Comex, Inc. account. Worthen also made the same proposal regarding any funds collected from the lockbox pursuant to the agreement after the May 18, 1983 date.
On May 24, 1983, the debtor/plaintiff filed a Petition for contempt wherein the debtor asserted that Worthen violated the automatic stay provisions of 11 U.S.C. § 362. The debtor specifically alleges that Worthen is holding estate funds, having applied those funds to an alleged overdraft in the debtor's account. Further, the debtor alleges that Worthen continued to receive funds through the lockbox agreement between the parties after the entering of the order for relief and has held these funds by freezing the debtor's account or applied these funds to an alleged overdraft in the debtor's account. The debtor contends that Worthen has failed and refused to turn over this property of the estate although written and oral demand has been made upon it by the debtor. The debtor asks that the court hold Worthen in contempt for violation of the automatic stay and for failure to turn over property of the estate pursuant to 11 U.S.C. § 542.
Separate defendant Worthen countered the allegations in the Petition for contempt by general denial and an assertion that it has acted only within the terms set out in the lockbox agreement between the parties.
A preliminary hearing was held August 30, 1983. After the debtor and separate defendant Worthen filed proposed findings of fact and conclusions of law the debtor was directed to file an additional brief or proposed findings of fact and conclusions of law by September 1, 1983 with a reply by separate defendant Worthen due September 15, 1983.2
The debtor and Worthen on August 30, 1983, agreed to the following stipulations which the court reproduces verbatim as representing not only the facts agreed to between the parties but as a recitation of the essential facts in this case upon which the court bases its final decision herein:
1. On or about October 14, 1981, Comex, Inc. (Comex) established a corporate demand deposit account No. XXXX-XXX-X (checking account) at Worthen. On or about July 16, 1982 Comex amended its articles of incorporation and changed its name to Bridgeport Company. Comex gave no notice of this change to Worthen, and, in fact, continued to do business with Worthen and others in the name of Comex, Inc.
2. On or about October 20, 1981, Comex, by its president, Dwight Pierce, entered into a contract with Worthen entitled "Operating Agreement for Lockbox Mail Collection Service" (lockbox agreement).
3. While the lockbox agreement does not so state, it was known to Worthen that Comex had contracted to provide billing and collection services to persons or organizations which Comex denominated its "subscribers," most of whom were health care providers. It was contemplated that the patients of the subscribers would be billed by Comex for services rendered by the subscribers, and that the patients would mail payments and a remittance slip or form to Comex at a post office box provided by Worthen pursuant to the lockbox agreement. That post office box is sometimes referred to as "the lockbox", both in the lockbox agreement and herein. The lockbox agreement provided that Comex would direct payments from its clientele (the patients of the subscribers) to the lockbox and that Worthen would have exclusive and unrestricted access to the lockbox.
4. The lockbox agreement provided that Worthen would collect, on a daily basis, the items addressed to Comex which were delivered to the post office box; that Worthen would open the items, endorse checks in the name of Comex, and prepare a deposit of the payments to the Comex checking account; and, finally, that Worthen would deliver to Comex all documents which accompanied the payments sent in by the patients, together with a copy of the deposit slip reflecting the deposit of those payments in the Comex checking account.
5. The amounts deposited in the Comex checking account by reason of the lockbox agreement accounted for a very small, if not insignificant, part of the total activity in the account. For example, during the month of February, 1983, the average daily deposits to the account totaled $842,861.85; of that only an average of $3,993.34 resulted from the lockbox arrangement.
6. Since sometime before 1983, Comex maintained a checking account at First National Bank in Little Rock (First National) and an account with Merrill Lynch, Pierce, Fenner and Smith's Ready Assets Trust (Merrill Lynch).
7. On April 11, 1983, after analysis of the account and the return of certain checks by First National Bank, Worthen determined that, in its opinion, a check kiting scheme was in progress.
8. In Worthen's opinion, the scheme was operated by officers and/or employees of Comex and involved deposits and withdrawals in the accounts at Worthen, First National and Merrill Lynch made when there were not, in fact, adequate funds to cover the amounts being transferred or kited among those accounts.
9. After the scheme was discovered and outstanding items had cleared or been dishonored, there were positive balances in checking accounts maintained by Comex at First National and overdrafts in the Comex accounts at Worthen and Merrill Lynch.
10. From on or about October 20, 1981 through June 14, 1983, items received at the lockbox were processed and deposited to the Comex checking account at Worthen in accordance with the terms of the lockbox agreement. Because of the large overdraft which existed in the checking account at all times on and after April 12, 1983, the deposits made pursuant to the lockbox agreement have had the effect of reducing, but not eliminating the overdraft; there has not been, at any time since April 11, 1983, a positive balance in the account. Any items received and deposited, but later returned because of insufficient funds or for other reasons, have been charged back to the account, and to that extent have increased the amount of the overdraft.
11. The first date during the 90 day period preceding the filing of Comex's bankruptcy petition on May 3, 1983 on which the amount of Worthen's claim against Comex (arising out of a note and/or overdrafts in the checking account) exceeded Worthen's debt to Comex (arising out of positive balances in the checking account) was April 12, 1983. Prior to April 12, 1983 there were positive balances in the checking account at all times; on February 1, 2, and 3, 1983, the account balances were $179,638.19, $196,012.38, and $208,903.30, respectively. On and after 12, 1983, there were overdrafts exceeding the amounts of deposits, thus creating a situation where Worthen's claim arising out of the overdraft balance exceeded Worthen's debt to Comex caused by deposits from the lockbox.
12. The lockbox agreement provides for a termination by either party only upon thirty (30) days' written notice. Worthen received from counsel for Comex a letter dated May 15, 1983 which, while not expressly requesting termination of the agreement, strongly implied such a request, and it has been so treated by Worthen.
13. Beginning June 15, 1983, Worthen has transferred to Comex, unopened, all items addressed to Comex and delivered to the lockbox.
14. Comex has, from time to time, obtained loans and extensions of loans from Worthen. The...
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