Chase & Sanborn Corp., In re

• Decision Date: 27 June 1990
• Docket Number: No. 89-5125,89-5125
• Citation: 904 F.2d 588
• Parties: , 23 Collier Bankr.Cas.2d 5, 20 Bankr.Ct.Dec. 1146, Bankr. L. Rep. P 73,503 In re CHASE & SANBORN CORPORATION, Debtor. Paul C. NORDBERG, Creditor Trustee, Plaintiff-Appellant, v. ARAB BANKING CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 588

904 F.2d 588

59 USLW 2085, 23 Collier Bankr.Cas.2d 5,

20 Bankr.Ct.Dec. 1146,

Bankr. L. Rep. P 73,503

In re CHASE & SANBORN CORPORATION, Debtor Paul C. NORDBERG, Creditor Trustee, Plaintiff-Appellant, v. ARAB BANKING CORPORATION, Defendant-Appellee.

No. 89-5125.

United States Court of Appeals Eleventh Circuit.

June 27, 1990.

David L. Katsky, Joel S. Weiss, Esanu, Katsky, Korins & Siger, New York City, Ronald G. Neiwirth, Miami, Fla., for plaintiff-appellant.

Alan G. Greer, Miami, Fla., Alan H. McLean, Hughes, Hubbard & Reed, New York City, for defendant-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before KRAVITCH and JOHNSON, Circuit Judges, and KAUFMAN, ^* Senior District Judge.

JOHNSON, Circuit Judge:

Plaintiff Nordberg, the Creditor Trustee of Chapter 11 debtor Chase & Sanborn Corporation ("Chase & Sanborn"), ¹ appeals from the district court's affirmance of the bankruptcy court's decision denying the Creditor Trustee's fraudulent conveyance and voidable preference claims against defendant Arab Banking Corporation ("ABC"). ²

I. STATEMENT OF THE CASE

This case originates from one individual's "desperate, and ultimately unsuccessful, efforts to keep both his own and his family's overextended business empires afloat financially ... efforts [which] included obtaining falsely collateralized loans and engaging in insider bank fraud." United States v. Castro [and Duque, et al.], 829 F.2d 1038, 1039 (11th Cir.1987), withdrawn in nonrelevant part and reh'g denied, 837 F.2d 441 (11th Cir.1988). The result has been "a series of related financial transactions accurately described by the bankruptcy court as 'bewildering.' " In re Chase & Sanborn Corp. (Nordberg v. Sanchez), 813 F.2d 1177, 1179 (11th Cir.1987). The central character in this litigious brouhaha, which has by now produced its own extensive body of caselaw at every level of the federal judiciary, ³ is a rather remarkable man by the name of Alberto Duque Rodriguez ("Duque"), a citizen of Colombia who developed a group of Miami-based enterprises revolving around the importation of coffee from his native land to the United States.

In the spring of 1982, Duque, then-owner of Chase & Sanborn and several other companies, and Camilo Bautista, then-president of Chase & Sanborn and an associate of Duque who held his power of attorney, sought a $22 million loan for Duque from ABC. They provided false financial statements to ABC in order to obtain the loan. During the loan negotiations, the senior official at ABC's New York City branch office, Samir Kaldawy, learned that Duque's business empire was in far more desperate straits than Duque alleged. Kaldawy thereafter accepted bribes totalling more than half a million dollars from Duque in return for recommending approval of the loan. ⁴ ABC loaned the $22 million to Duque in June 1982. The loan was secured by Duque's stock in City National Bank of Miami, which was then valued in excess of $22 million; the loan was also guaranteed by four companies controlled by Duque, including Chase & Sanborn. Chase & Sanborn received $369,288 in loan proceeds in return for its guarantee. Duque also opened a checking account at ABC, on which ABC frequently honored checks despite large overdrafts, thus effectively loaning Duque additional funds. After Duque failed to make the first loan payment as scheduled, Chase & Sanborn and other Duque-owned companies paid a total of $5 million on the $22 million principal through March 1983, but no further payments were made. Nevertheless, ABC loaned an additional $3.3 million to another Duque-owned company on March 21, 1983, and another $5 million directly to Duque on May 9, 1983. No payment on this latter total of $8.3 million was ever made.

On May 18, 1983, Chase & Sanborn filed for bankruptcy under Chapter 11 of the Bankruptcy Code, 11 U.S.C.A. Secs. 1101-1174. Duque and Duque's other companies filed separately for bankruptcy at the same time. In 1984, the bankruptcy court denied a motion by several creditors for consolidation of the cases. Duque was later convicted of 62 fraud-related counts in connection with his financial dealings, and is currently imprisoned. ⁵ At issue in this case are Chase & Sanborn's June 1, 1982 guarantee of ABC's $22 million loan to Duque, and ten transfers from Chase & Sanborn to ABC, four involving payments applied to principal or interest on Duque's loan, and six involving payments applied to overdrafts which Duque incurred on his checking account with ABC. The four loan payments were as follows:

The six overdraft payments were as follows:

                1. October 8, 1982    $  440,212
                2.  October 22, 1982      200,000
                3.  December 15, 1982     685,745
                4.  February 2, 1983      909,000
                5.  February 15, 1983   1,000,000
                6.  March 3, 1983          48,543
                

The Creditor Trustee alleges that the loan guarantee and all of the above transfers are voidable as fraudulent conveyances under 11 U.S.C.A. Sec. 548(a)(2), because Chase & Sanborn received no "reasonably equivalent value in exchange." ⁶ The Creditor Trustee also alleges that the last two loan transfers, which occurred within 90 days of Chase & Sanborn's bankruptcy petition, are voidable preferences under 11 U.S.C.A. Sec. 547.

The bankruptcy court dismissed the Creditor Trustee's complaint on September 19, 1986. In re Chase & Sanborn Corp. (Nordberg v. Arab Banking Corp.), No. 86-0493-BKC-TCB-A (Bkr.S.D.Fla. Sept. 19, 1986) (hereafter "Bkr.Ct.Op."). The court found that Chase & Sanborn was insolvent at all relevant times during the June 1982-March 1983 period, a necessary prerequisite for recovery under either the fraudulent conveyance or voidable preference theory. See Bkr.Ct.Op. at 2; 11 U.S.C.A. Secs. 547(b)(3), 548(a)(2)(B)(i). As to the fraudulent conveyance issue, the court found that Chase & Sanborn had received "reasonably equivalent value" for the overdraft payments and for the loan guarantee. Bkr.Ct.Op. at 7, 11-12. As to the voidable preference issue, the court found that although the Creditor Trustee had otherwise established the statutory elements, ⁷ the transfers were not voidable because they were "contemporaneous exchange[s] for new value" under section 547(c)(1). Id. at 4, 10-11. Finally, the court found that even if the transfers were voidable under either theory, Chase & Sanborn could not recover them from ABC because ABC was neither an "initial transferee" under 11 U.S.C.A. Sec. 550(a)(1), nor a bad-faith "mediate transferee" under 11 U.S.C.A. Sec. 550(a)(2), (b)(1). Id. at 4-5, 10-11.

The Creditor Trustee appealed to the district court, which affirmed the judgment of the bankruptcy court on December 29, 1988. In re Chase & Sanborn Corp. (Nordberg v. Arab Banking Corp.), No. 86-2575-Civ-Scott (S.D.Fla. Dec. 29, 1988) (hereafter "Dist.Ct.Op."). ⁸ The Creditor Trustee appeals to this Court. ABC, while urging affirmance of the judgments below on the grounds relied on by the courts below, also contends that the Creditor Trustee's complaint should be dismissed on two alternative grounds asserted before the bankruptcy court and preserved on appeal before the district court and this Court. These alternative grounds for affirmance are discussed in Part II(D) below. ⁹

II. ANALYSIS

This case raises a number of important, if somewhat technical, questions concerning the interpretation and application of the Bankruptcy Code. ¹⁰ This Court's standard of review as to such issues of law is de novo; as to the bankruptcy court's findings of fact, "clearly erroneous" review applies. In re Sublett, 895 F.2d 1381, 1383 (11th Cir.1990). The bankruptcy court must make all necessary findings of fact; if the bankruptcy court's findings are "silent or ambiguous as to an outcome determinative factual question," remand to the bankruptcy court is required. See id. at 1384, citing Wegner v. Grunewaldt, 821 F.2d 1317, 1320 (8th Cir.1987).

A. The Fraudulent Conveyance Issue

It has long been established that "[w]hether fair consideration has been given for a transfer is 'largely a question of fact, as to which considerable latitude must be allowed to the trier of the facts.' " Mayo v. Pioneer Bank & Trust Co., 270 F.2d 823, 829-30 (5th Cir.1959) (Wisdom, J.), cert. denied, 362 U.S. 962, 80 S.Ct. 878, 4 L.Ed.2d 877 (1960). ¹¹ The burden of proving lack of "reasonably equivalent value" under 11 U.S.C.A. Sec. 548(a)(2)(A) rests on the trustee challenging the transfer. In re Duque Rodriguez (General Electric Credit Corp. v. Murphy), 895 F.2d 725, 726 n. 1 (11th Cir.1990). The bankruptcy court found that most of the transfers from Chase & Sanborn to ABC paying off Duque's overdrafts were preceded, a few days before, by payments from Duque's account to Chase & Sanborn and other Duque-owned companies which created those overdrafts in the first place. While the Creditor Trustee disputes whether each individual overdraft transfer was balanced by a precisely equivalent prior transfer to Chase & Sanborn, there is evidence that the overall amount transferred to Chase & Sanborn from overdrafts on Duque's ABC account exceeded the amount transferred to the account by Chase & Sanborn in exchange. Under these circumstances, we find that the bankruptcy court's factual conclusion that the overdraft transfers were made for "reasonably equivalent value" is not clearly erroneous. ¹²

As to Chase & Sanborn's guarantee of ABC's loan to Duque, the Creditor Trustee contends that the $369,288 in loan proceeds received by Chase & Sanborn in exchange for the guarantee did not constitute "reasonably equivalent value." The Creditor Trustee argues principally that this amount was far less than the loan principal and the amounts actually paid by Chase & Sanborn on the loan. It is well established, however, that a contingent liability cannot be valued at its potential face amount; rather, "it is necessary to discount it by the probability that the contingency will occur and the liability...