Center Wholesale, Inc., In re, OWENS-CORNING

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Writing for the Court: Before WRIGHT, PREGERSON, and POOLE; PREGERSON
• Citation: 759 F.2d 1440
• Parties: 12 Collier Bankr.Cas.2d 1107, 13 Bankr.Ct.Dec. 163 In re CENTER WHOLESALE, INC., a California corporation, also doing business as Center Enterprises, Inc., and Western Materials Company, Debtor.FIBERGLAS CORP., Plaintiff-Appellant, v. CENTER WHOLESALE, INC., et al., Defendants-Appellees.
• Docket Number: OWENS-CORNING,No. 83-2731
• Decision Date: 10 May 1985

Page 1440

759 F.2d 1440 12 Collier Bankr.Cas.2d 1107, 13 Bankr.Ct.Dec. 163 In re CENTER WHOLESALE, INC., a California corporation, also
doing business as Center Enterprises, Inc., and
Western Materials Company, Debtor.
OWENS-CORNING FIBERGLAS CORP., Plaintiff-Appellant,
v.
CENTER WHOLESALE, INC., et al., Defendants-Appellees. No. 83-2731. United States Court of Appeals,
Ninth Circuit. Argued and Submitted Dec. 11, 1984.
Decided May 10, 1985.

Page 1441

Philip F. Atkins-Pattenson, Edward Lozowicki, Pettit & Martin, San Jose, Cal., for plaintiff-appellant.

Merle C. Meyers, Goldberg, Stinnett & MacDonald, San Francisco, Cal., for defendants-appellees.

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An Appeal from the United States District Court, Northern District of California.

Before WRIGHT, PREGERSON, and POOLE, Circuit Judges.

PREGERSON, Circuit Judge:

FACTS

On December 18, 1981, Center Wholesale, Inc., (Center) a building materials dealer, filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. On the same day, Center sent notice by Mailgram ¹ to its ten largest creditors of a hearing on December 22, 1981, before the bankruptcy court for approval of a stipulation Center had entered into with Union Bank, Center's secured lender.

Owens-Corning Fiberglas Corporation (Owens-Corning), Center's largest creditor, received the mailgram on December 21, 1981, the day before the hearing. Owens-Corning states that it was unable to send counsel to the hearing, although one of its regional credit managers did attend.

At the end of the hearing, Bankruptcy Judge King signed a Cash Collateral Order (CCO) incorporating the terms of the stipulation. The CCO accomplished two basic goals:

(1) pursuant to 11 U.S.C. Sec. 364(d), ² the CCO permitted Center to borrow additional funds from Union Bank in exchange for granting the Bank a senior lien on all of Center's pre-petition and post-petition property, and

(2) pursuant to 11 U.S.C. Sec. 363(c), ³ the CCO permitted Center to use its cash collateral ⁴ to make payments to Union Bank, thereby gradually reducing Center's indebtedness to the Bank.

At the date of filing the Chapter 11 petition, Union Bank had a senior lien on all of Center's inventory ⁵ and Owens-Corning

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had a junior lien on Center's Owens-Corning inventory. ⁶ The CCO stated that "[t]he parties believe that [the CCO] does not affect the rights of any other lienholder," and that Center "ratifies and affirms the validity, perfection and enforceability of all liens, security interests and encumbrances heretofore granted by [Center] to [Union Bank] without prejudice to the rights of any other party." (Emphasis added.) Despite this clear language, Owens-Corning argues that the CCO did affect its security interest in Center's Owens-Corning inventory and proceeds.

Owens-Corning asserts that, on the date of filing, Center owed Union Bank $990,000; that Center owed Owens-Corning $1,400,000; that the collateral subject to Union Bank's lien (all of Center's inventory, including the Owens-Corning inventory) was worth $6,313,278; and that the portion of the collateral subject to Owens-Corning's lien (Center's Owens-Corning inventory) was worth $1,214,303.

To summarize these allegations:

Center's Inventory: Other Goods Owens-Corning Total
                 Goods
                Value of Collateral: $5,098,975 k $1,214.303 = $6,313,278
                First Lienor
                 (amt. of debt): Bank--($990,000) - Bank
                Second Lienor
                 (amt. of debt): -- Owens-Corning
                 ($1,400,000)
                

Owens-Corning argues that the CCO improperly authorized Center to use the proceeds from the sale of Owens-Corning inventory (worth $1,214,303) to satisfy not only the Bank's senior lien in the amount of $990,000, but also the additional debt incurred under the CCO. Based on the above allegations, Owens-Corning argues that the CCO thereby granted the Bank a senior lien on the portion of the inventory on which Owens-Corning previously was the sole lienor, i.e., $224,303 ($1,214,303 minus $990,000) worth of Center's Owens-Corning inventory, effectively extinguishing Owens-Corning's rights in the property.

On December 24, 1981, Center mailed to all of its creditors notice of a hearing on January 14, 1982, before Judge King "to consider the debtor's application for approval of the continued effectiveness of a certain financing agreement between the debtor and Union Bank, the debtor's general lender." (Emphasis added.) Six days later, Center mailed the creditors a copy of the CCO.

Judge King held the hearing on January 14 to allow creditors who had not received notice of the December 22 hearing to express opposition to the CCO. Counsel for Owens-Corning attended the hearing and moved for a continuance on the ground that he had not had sufficient time to review the CCO. Judge King denied the motion for a continuance because he concluded that the CCO was a final order, subject to attack only by a Fed.R.Civ.P. 60(b) motion:

As I read this order: there is an order. There is nothing that seems to provide for a continued hearing. The notice says that there is to be an application for approval, but really it has already been approved. So, I think that the options that are open to creditors if they are unhappy are to take advantage of remedies provided in the approved stipulation; and if they feel that the approval was improvident or improper, then perhaps they can proceed under Rule 60(b) of the Federal Rules of Civil Procedure; but aside from that, I see nothing that can be done today, or any reason to set it for a future hearing.

On April 26, 1982, Owens-Corning filed a complaint against Center and Union Bank seeking reclamation of goods, declaration of a security interest, adequate protection of that interest, and related remedies. Pursuant to the procedure in the Northern District of California, this adversary proceeding was assigned to Judge Rainville, a bankruptcy judge different from the one presiding over the chapter proceeding (Judge King).

Center filed a motion for partial summary judgment in the adversary proceeding.

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On March 3, 1983, Judge Rainville entered a Corrected Amended Opinion and Order, granting Center's motion for summary judgment in large part, but also holding that:

Owens-Corning Fiberglas Corporation does have a perfected lien as to the value of any Owens-Corning Corporation inventory and proceeds thereof in possession of Center Wholesale, Inc. as of the commencement of the chapter 11 case on December, 1981, less the amount of Union's senior security interest on December, 1981, and less the amount of Owens-Corning Fiberglas Corporation's inventory and proceeds paid to Union pursuant to the court's cash collateral order dated December, 1981.

(Emphasis added.)

Owens-Corning appealed Judge Rainville's Opinion and Order to the District Court. On November 13, 1984, U.S. District Judge Conti affirmed Judge Rainville's Corrected Amended Opinion and Order, holding that Owens-Corning did have a valid security interest in Center's Owens-Corning inventory, but that the CCO properly permitted Center to use that inventory to pay off the Bank.

On June 15, 1983, approximately three months after Judge Rainville issued his Corrected Amended Opinion and Order, Owens-Corning brought a Rule 60(b) motion in the chapter proceeding before Judge King, alleging surprise, change of circumstances, and voidness, and seeking modification of the CCO to marshal liens as between Owens-Corning and the Bank.

Judge King held a hearing and entered an order denying Owens-Corning's Rule 60(b) motion on the grounds that it was untimely and that the requested relief would prejudice the estate. Owens-Corning appealed to the district court, but the district court entered an order denying appeal and affirming the bankruptcy court. Owens-Corning then appealed to this court.

ISSUES

I. Whether and to what extent Owens-Corning had property rights that were affected by the CCO.

II. Whether Owens-Corning's Rule 60(b)(4) motion was timely.

III. Whether Center's notice of the hearing to approve the CCO satisfied due process.

STANDARDS OF REVIEW

In Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), the Supreme Court invalidated the trial court jurisdiction accorded bankruptcy judges by the Bankruptcy Reform Act of 1978. ⁷ To prevent undue disruption, the Court held that the Marathon decision would not apply to judgments entered by bankruptcy judges before October 4, 1982. Id. at 88, 102 S.Ct. at 2880. The Court later extended this stay to December 24, 1982. 459 U.S. 813, 103 S.Ct. 200, 74 L.Ed.2d 60 (1982). In light of Marathon, we have held that a Bankruptcy Appellate Panel (BAP) may decide only those bankruptcy appeals involving judgments entered before the stay expired on December 24, 1982. In re Burley, 738 F.2d 981, 984 (9th Cir.1984). ⁸ Judgments and orders entered by bankruptcy judges after that date under the Emergency Rule ⁹ are not appealable to the BAP. ¹⁰ Id.

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Burley 's significance on the standard of review is its effect on prior Ninth Circuit cases discussing this court's review of BAP decisions. Because the district court replaced the BAP as the intermediate court in this case, ¹¹ our determinations as to the appropriate standards for reviewing BAP decisions should apply when we review the district court's decision as well. ¹²

We have consistently held that because this court is in as good a position as the BAP to review the findings of a bankruptcy judge, we independently review the bankruptcy judge's decision without deferring to the BAP's decision. See, e.g., In re Mellor, 734 F.2d 1396, 1399 (9th Cir.1984); In re Comer, 723 F.2d 737, 739 (9th Cir.1984); In re Bialac, 712 F.2d 426, 429 (9th Cir.1983). Similarly, because we are in as good a position as was the district court to review Judge King's denial of Owens-Corning's Rule 60(b) motion, we review that decision de novo.

Whether Owens-Corning had property rights and to what...