Chattanooga Wholesale Antiques, Inc., In re
| Decision Date | 10 April 1991 |
| Docket Number | 89-6417,Nos. 89-6416,s. 89-6416 |
| Citation | 930 F.2d 458 |
| Parties | 24 Collier Bankr.Cas.2d 1556, Bankr. L. Rep. P 73,895 In re CHATTANOOGA WHOLESALE ANTIQUES, INC., Debtor. C. Kenneth STILL, Trustee, Plaintiff-Appellant/Cross-Appellee, v. ROSSVILLE BANK, Defendant-Appellee/Cross-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Fred T. Hanzelik, James A. Fields (argued), Hanzelik & Associates, Chattanooga, Tenn., for defendant-appellee/cross-appellant.
Harold L. North, Jr. (argued), Shumacker & Thompson, Chattanooga, Tenn., for plaintiff-appellant/cross-appellee.
Before MARTIN and KRUPANSKY, Circuit Judges, and LIVELY, Senior Circuit Judge.
The appeal and cross-appeal in this bankruptcy case involve a Chapter 7 trustee's right to recover allegedly preferential and unauthorized payments made by the debtor in possession under Chapter 11 prior to conversion of the case to a Chapter 7 proceeding.
Chattanooga Wholesale Antiques, Inc. (the debtor) filed bankruptcy under Chapter 11. Within ninety days prior to filing the petition, the debtor made two payments on promissory notes to the appellee Rossville Bank (the bank) totalling $10,571. After filing the petition, but prior to confirmation of the debtor's Chapter 11 plan, the debtor made a single payment of $4,061 to the bank. After confirmation of the debtor's plan of reorganization, the debtor made several payments to the bank totalling $30,600, which were expressly required under the confirmed plan.
After conversion to Chapter 7 a trustee was appointed who filed suit against the bank seeking to recover the pre-petition payments as avoidable preferences under 11 U.S.C. Sec. 547(b) and seeking to recover all post-petition payments as unauthorized payments under 11 U.S.C. Sec. 549(a). The bank now appeals the district court's decision affirming the bankruptcy court's ruling that the pre-petition payments could be avoided as preferential transfers under Sec. 547(b). The bank also appeals the district court's decision which reversed the bankruptcy court and determined that the $4,061 post-petition, pre-confirmation payment was unauthorized and could be recovered by the trustee. Finally, the trustee appeals the decision of the district court which affirmed the bankruptcy court's ruling that the $30,600 in post-confirmation payments were authorized and could not be recovered.
The debtor filed its petition in bankruptcy under Chapter 11 on October 7, 1982, and thereafter continued to operate the business as a debtor in possession. When the Chapter 11 petition was filed, the debtor's schedule A-3 indicated an unsecured debt to the bank in the amount of $72,000. The debt was not listed as disputed, contingent or unliquidated. This debt stemmed from two promissory notes that were personally guaranteed by James H. Wilkinson, president of the debtor corporation. The notes recited "purchase inventory continuing guarantee-operating funds" of the debtor as security.
Less than ninety days prior to the petition, the debtor had issued two checks to the bank totalling $10,571.
Fourteen days after the petition was filed, the debtor issued a third check to the bank in the amount of $4,061, which amount was also applied against the same antecedent debt.
On December 22, 1982, the debtor and the bank entered into a "Stipulation Authorizing Debtor to Use Cash Collateral and for Adequate Protection." This stipulation recited that the bank held a valid security interest in the debtor's cash collateral to secure an outstanding obligation to the bank of $75,490. The stipulation permitted the debtor to use its pre-petition cash account (which totalled $128.83 at filing of the petition as per the debtor's schedule B-2) and all cash generated by the debtor during post-petition operation of the debtor's business. In return, the bank received a valid and enforceable first lien and security interest in the debtor's inventory and the debtor obligated itself to pay the outstanding loan balance at a rate of $1,800 per month plus 14% interest per annum. The bankruptcy court approved the stipulation and entered an order implementing the agreement on December 23, 1982.
On January 7, 1983, the debtor filed its Disclosure and Solicitations Statement and its Plan of Reorganization. Article I of the plan established March 23, 1983, as the last date to file claims. Article II of the plan defined "Secured Claims" as "[a]llowed claims of creditors to the extent of a perfected lien on property or interest in the estate of the Debtor, ..." (emphasis supplied). Although the bank never perfected its inventory lien under Tennessee law, Article III of the plan listed the bank as a secured creditor with a security interest in inventory and provided that the bank's claim would be paid in monthly installments as set forth in the stipulation. The debtor's plan was transmitted to creditors and after notice and hearing the bankruptcy court determined that the plan had been Following conversion of the case to Chapter 7, C. Kenneth Still, who was the disbursing agent under the confirmed Chapter 11 plan, was appointed trustee in bankruptcy. The trustee initiated an adversary proceeding against the bank claiming the bank's security interest in the debtor's inventory had not been perfected and was therefore subject to the trustee's avoidance powers in the Chapter 7 proceedings. The bankruptcy court issued an order on December 10, 1984, stating that the bank's claimed lien was unperfected under Tennessee law and thus avoided by the trustee. Immediately thereafter, the trustee filed another action in bankruptcy court seeking to recover all pre-petition and post-petition payments to the bank under Secs. 547(b) and 549(a).
accepted in writing by those creditors whose acceptance was required by law. An order confirming the plan was entered by the bankruptcy court on April 20, 1983. Payments to the bank continued under the confirmed plan until conversion of the case to Chapter 7 in August 1984. Post-confirmation payments totalled $30,600. The bank filed its proof of claim on September 1, 1983, more than five months after the bar date established in the confirmed plan.
After submission of briefs by the parties and a trial, the bankruptcy court issued an order denying the trustee recovery of all pre-petition and post-petition payments. As to the two pre-petition payments totalling $10,571 made within 90 days of the petition, the bankruptcy court determined that the trustee failed to show that the bank received more than it would have received had the case been commenced under Chapter 7 and the assets liquidated at the time of the original petition. Thus, these payments were not recoverable under Sec. 547(b) 1. As to the $4,061 post-petition, pre-confirmation payment and the $30,600 in payments under the confirmed plan, the bankruptcy court determined that all of these payments were authorized and not recoverable under Sec. 549(a) 2. Finally, the bankruptcy court ruled that its reconsideration of the bank's claim pursuant to Sec. 502(j) in its order of December 10, 1984, and the resultant reclassification of the bank's claim as unsecured, did not permit the trustee to recover payments already made under the confirmed plan. The trustee moved for reconsideration.
The bankruptcy court denied the trustee's motion for reconsideration as to all post-petition payments, but granted the motion to the extent of ruling that the evidence respecting the pre-petition payments should be reopened to determine whether the court should have taken judicial notice of the debtor's schedules to satisfy the "more than" requirement of Sec. 547(b)(5). After a second hearing pursuant to the order reopening proof, the bankruptcy court determined that Sec. 547(b)(5) had been satisfied, thus permitting the trustee to recover the $10,571 in pre-petition payments as avoidable preferences. The order also allowed prejudgment interest from the date of the trustee's complaint. The bank then appealed, and the trustee cross-appealed, to the district court.
The district court issued an opinion and order holding that the bankruptcy court's decision to reopen proof as to the Sec. 547(b)(5) claim did not constitute an abuse of discretion, and it affirmed the bankruptcy court's order determining that Sec. 547(b)(5) had been satisfied by the new evidence and allowing the trustee to recover the $10,571 in pre-petition payments. The district court reversed the bankruptcy
court's determination that the $4,061 post-petition, pre-confirmation payment was not recoverable by the trustee. The district court noted that this payment was made prior to the order of December 23, 1983, authorizing adequate protection and also prior to confirmation of the debtor's plan. Therefore, this payment to the bank was not authorized either by the court or by Title 11 and was recoverable by the trustee under Sec. 549(a). The district court affirmed the bankruptcy court's determination that the $30,600 in post-confirmation payments were authorized by the debtor's confirmed plan and therefore not recoverable by the trustee. The district court further affirmed the bankruptcy court's ruling that reconsideration of the bank's claim under Sec. 502(j) did not mandate recovery of payments made under the confirmed plan.
The trustee appeals from the judgment of the district court to the extent it held that the $30,600 in monthly payments to the bank under the confirmed plan are not recoverable. Although the bank never perfected its security interest in the debtor's inventory, the confirmed plan treated the bank as a secured creditor and provided for the monthly payments. On this basis, the district court held that these payments were authorized by the bankruptcy court's order confirming the debtor's plan. Thus, they did not come within Sec. 549(a)'s definition of "not authorized" and therefore avoidable.
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