Eisenberg v. Toledo-Lucas Cnty. Port Auth. (In re BX Acquisitions, Inc.)

• Decision Date: 04 May 2018
• Docket Number: Adv. Pro. No. 17–03024,Case No. 15–33538
• Citation: 588 B.R. 798
• Parties: IN RE: BX ACQUISITIONS, INC., Debtor. Scott E. Eisenberg as Trustee of the BX Acquisitions, Inc. Liquidating Trust, Plaintiff, v. Toledo–Lucas County Port Authority, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

588 B.R. 798

IN RE: BX ACQUISITIONS, INC., Debtor.Scott E. Eisenberg as Trustee of the BX Acquisitions, Inc. Liquidating Trust, Plaintiff,

v.Toledo–Lucas County Port Authority, Defendant.

Case No. 15–33538

Adv. Pro. No. 17–03024

United States Bankruptcy Court, N.D. Ohio, Western Division.

Signed May 4, 2018

Patricia B. Fugee, FisherBroyles, Perrysburg, OH, Robert Michaels, Chicago, IL, for Plaintiff.

Michael W. Bragg, Spengler Nathanson P.L.L., Toledo, OH, for Defendant.

MEMORANDUM OF DECISION AND ORDER REGARDING CROSS MOTIONS FOR SUMMARY JUDGMENT

John P. Gustafson, United States Bankruptcy Judge

This Adversary Proceeding is before the court on Plaintiff–Trustee Scott E. Eisenberg's ("Plaintiff–Trustee") Motion for Summary Judgment [Adv. Doc. # 28]¹ , Defendant Toledo–Lucas County Port Authority's ("Defendant" or "Port Authority") Motion for Summary Judgment [Adv. Doc. # 29], Defendant's Opposition Reply to Trustee's Motion [Adv. Doc. # 32], and Plaintiff–Trustee's Objection to Port Authority's Motion [Adv. Doc. # 33]. In the Complaint, Plaintiff–Trustee seeks to avoid and recover Debtor's post-petition transfers to Defendant pursuant to 11 U.S.C. §§ 549 and 550. [Adv. Doc # 1, pp 4–5].

The court has jurisdiction over the underlying Chapter 11 case and this adversary proceeding pursuant to 28 U.S.C. §§ 1334, 157(a), and Local General Order 2012–7 of the United States District Court for the Northern District of Ohio. Actions to avoid and recover post-petition transfers are core proceedings that this court may hear and determine. 28 U.S.C. § 157(b)(1) and (b)(2)(A), (M), and (O ).

For the following reasons, Plaintiff–Trustee's Motion for Summary Judgment will be denied and Defendant's Motion for Summary Judgment will be granted.

Factual Background

Debtor BX Acquisitions, Inc. ("Debtor") was a Delaware corporation² with its principal place of business located at One Air Cargo Parkway East, Swanton, Ohio. [Adv. Doc. # 30–1, Ex. 1, p. 5]. Debtor provided customized logistics solutions to the transportation and distribution industries. [Adv. Docs. # 1, p. 2, ¶ 1; # 14, p. 1, ¶ 1.]. Defendant is an Ohio port authority, political subdivision, and a body corporate and politic, organized and operating under the applicable provisions of Chapter 4582 of the Ohio Revised Code. [Adv. Doc. # 30–1, Ex. A, p. 1]. Defendant's principal place of business is located at One Maritime Plaza, Toledo, Ohio. [Adv. Doc. # 30–1, Ex. 1, p. 5]. Among other duties, Defendant owns and manages the facility at issue in this case, an intermodal cargo sort facility ("Facility") located at Toledo Express Airport. [Adv. Doc. # 30, p. 4].

On October 31, 2011, Debtor entered into a Facilities and Services Management Agreement ("Management Agreement") with Defendant that outlined the relationship between the parties as it pertained to Debtor's use of the Facility located at the Toledo Express Airport. [Adv. Docs. # 1, p. 3, ¶ 8; # 14, p. 2, ¶ 8; # 28–1, Ex. A]. The Management Agreement provided that in exchange for Debtor's use, management, and maintenance of the Facility, Debtor promised to pay Defendant: 1) a periodic fixed annual fee ("Fixed Fee") due semiannually in 2012 and 2013 and then monthly beginning in 2014; and 2) a percentage-based fee based on Debtor's gross annual revenues. [Adv. Doc. # 28–1, pp. 5–6].

After two amendments were made to the Management Agreement during the course of 2013 that are not relevant here, Defendant alleges that the Port Authority and the Debtor began operating under a Third Amendment to the Management Agreement beginning in 2014. [Adv. Doc. # 30–1, p. 2]. The Third Amendment, finalized in July 2015 per Defendant, provided that instead of periodic Fixed Fee payments, Debtor would pay Defendant a Fixed Fee of $500,000.00 on or before December 31 of each contract year. [Adv. Doc. # 28–2; Adv. Doc. # 30–1, Ex. 1, pp. 5–9]. Notably, the Third Amendment does not contain the signatures of the parties [Id. , p. 9]. Defendant avers that both the Port Authority and the Debtor treated the Third Amendment as effective and binding until it was later rejected during the course of Debtor's bankruptcy. [Adv. Doc. # 30–1, pp. 9, 2].³ The Third Amendment reflects that it was authorized by the Port Authority's Board of Directors and "Manager's" (i.e ., Debtor's) Board of Directors. [Doc. # 30–1, p. 5, ¶ D].

Defendant's general counsel's affidavit states that "[u]nder the terms of the Third Amendment, BX owed the Port Authority a fee of $500,000.00 by December 31, 2015. BX was entitled to take a credit against that payment in the amount of $350,000.00...." [Id. , p. 2]. Defendant's general counsel also maintains that Debtor paid the 2014 Fixed Fee via a single annual payment as required under the Third Amendment⁴ and had not made any 2015 Fixed Fee payments as of the date of Debtor's bankruptcy filing. [Id. ]. Further, according to Defendant's general counsel's affidavit, Debtor had post-petition communication with Defendant regarding Debtor's intent to assume the Management Agreement during the course of its Chapter 11 proceedings and eventually extend its terms. [Id. , p. 3, ¶ 13].

On November 2, 2015, Debtor filed a voluntary Petition for Chapter 11 bankruptcy relief [Doc. # 1] that included reference to Defendant and the Management Agreement on Schedule G, "Executory Contracts and Unexpired Leases." [Id. , p. 30]. On that same day, Debtor filed a Motion to Use Cash Collateral [Doc. # 6] with an attached budget, running from November 1, 2015 through December 31, 2015. The Motion did not include any payments intended for Defendant, either in the Motion itself or the attached budget. [Doc. # 6–4]. The court entered an Order shortening the time for notice to one day. [Doc. # 8]. The Hearing on cash collateral was held on November 3, 2015, and the court's proceeding memo reflected that the parties were "to circulate and submit an agreed Order." [Doc. # 13]. The Agreed First Interim Order for use of cash collateral, adequate protection, and setting an additional hearing was entered on November 4, 2015. [Doc. # 15].

The proposed Agreed First Interim Order that was submitted (and signed) included a budgeted payment to Defendant of $208,685.45 on December 30, 2015. [Doc. # 15, p. 25]. On November 4, 2015, prior to the second cash collateral hearing on November 10, 2015, notice went out to the creditors listed in Doc. # 14, pp. 3–7. By the court's count, notice went out to three parties electronically, and to 73 creditors by first class mail. [Id. ] That notice included the text of an Agreed Second Interim Order authorizing the use of cash collateral, and an Exhibit 1, which included a budgeted payment of $208,685.45 to Defendant. [Doc. # 14–1, p. 25].

In the body of the Notice Regarding Entry of Second Interim Order [Doc. # 14], it states: A copy of this proposed order and the related budget is attached hereto. A hearing is to be set by the Court on the entry of this Order for November 10, 2015, at 11:00 A.M., at the United States Bankruptcy Court for the Northern District of Ohio, 1716 Spielbusch Avenue, Courtroom No. 2, Toledo, OH.

Notice is hereby given that any party wishing to object to the entry of the Second Interim Agreed Order for the Use of Cash Collateral should attend this hearing and/or file an objection to the entry of the Order. Any Objection should be filed with the Clerk of the Court and served on counsel for the Debtor and the Office of the U.S. Trustee, prior to the time of the hearing set by the Court on the matter; otherwise, the Court may deem any opposition waived, and issue an order granting the requested relief without further notice of hearing. [Doc. # 14, p. 2].

The proposed Second Interim Order attached to the Notice also states: "21. Controlling Effects of Interim Order. To the extent any provision of this Interim Order conflicts or is inconsistent with any provision prior [sic ] Motion, the provisions of this Interim Order shall control." [Doc. # 14–1, p. 12]. When the final version of the Second Interim Order was submitted, it included the same $208,685.45 payment in the budget. [Doc. # 39, p. 25].

The court later entered an Agreed Second Interim Cash Collateral Order (collectively "Cash Collateral Orders"), on November 10, 2015 after a hearing held the same day. [Doc. # 39].⁵ Relevant here, both Cash Collateral Orders provided as follows:

7. Findings Regarding the Use of Cash Collateral and Pre-petition Collateral

(a) Good cause has been shown for immediate entry of this Interim Order.

(b) The Debtor has an immediate and critical need to use the Cash Collateral in which it has an interest. Authorization to use the Cash Collateral is therefore (i) critical to the Debtor's ability to maximize the value of its chapter 11 estate, (ii) in the best interests of the Debtor and its estate, and (iii) necessary to avoid immediate and irreparable harm to the Debtor, its creditors, and its assets, businesses, goodwill, reputation, and employees.

(c) The terms of the use of the Cash Collateral pursuant to this Interim Order are fair and reasonable solely for purposes of this Interim Order, and reflect the Debtor's exercise of prudent business judgment consistent with its fiduciary duties.

(d) The Lender has consented to, conditioned upon entry of this Interim Order, the Debtor's proposed use of the Cash Collateral on an interim basis, on the terms and conditions set forth in this Interim Order.

(e) The Debtor's use of Cash Collateral has been negotiated in good faith and at arms' length between the Debtor and the Lender, and the Lender's consent to the Debtor's use of its Cash Collateral on an interim basis in accordance with the terms of this Interim Order shall be deemed to have been made in "good faith."

8. Authorization of Use of Cash Collateral. The Debtor is hereby authorized to use Cash Collateral...solely in accordance with the Budgets (as defined herein) and the other terms and conditions set forth in this Interim Order.

[Doc. #...