In re Advance Insulation & Supply, Inc., Bankruptcy No. 92-5-3450-JS to 92-5-3453-JS. Adv. No. 93-5034-JS
Citation | 176 BR 390 |
Decision Date | 28 June 1994 |
Docket Number | 93-5133-JS and 93-5304-JS.,Bankruptcy No. 92-5-3450-JS to 92-5-3453-JS. Adv. No. 93-5034-JS |
Parties | In re ADVANCE INSULATION & SUPPLY, INC., et al., Debtors. FIRST AMERICAN BANK OF MARYLAND, Plaintiff, v. Michael G. RINN, Trustee, Defendant. Michael G. RINN, Trustee, Plaintiff, v. FIRST AMERICAN BANK OF MARYLAND, Defendant. Michael G. RINN, Trustee, Plaintiff, v. FIRST AMERICAN BANK OF MARYLAND and Maryland National Bank, Defendants. |
Court | U.S. Bankruptcy Court — District of Maryland |
COPYRIGHT MATERIAL OMITTED
Paul D. Trinkoff, Tydings & Rosenberg, Baltimore, MD, for Michael G. Rinn, Trustee.
Lawrence J. Gebhardt, Gebhardt & Smith and Edmund A. Goldberg, Office of the U.S. Trustee, Baltimore, MD, for First American Bank of Maryland and Maryland Nat. Bank.
1. On May 5, 1992, involuntary Chapter 7 bankruptcy petitions were filed in this Court against Advance Insulation & Supply, Inc., Baltimore Home Insulation, Inc., Colonial Insulation & Supply, Inc., and Wade Insulation, Inc. The debtors consented to the involuntary petitions and Chapter 7 orders for relief were entered in due course.
2. On September 15, 1992, Michael G. Rinn was appointed Chapter 7 trustee for the debtors' jointly-administered cases.
3. Baltimore Home Insulation, Inc. was a Maryland corporation; Advance Insulation & Supply, Inc., and Colonial Insulation, Inc., were Virginia corporations; and Wade Insulation, Inc. was a Delaware corporation. The four debtors were wholly-owned subsidiaries of Ruppert Brothers of Maryland, Inc., a Maryland corporation. The parent corporation acted as a holding company for the assets of the debtors. The debtors were engaged as contractors in the business of residential insulation and the installation of windows and doors.
4. Before 1989, Maryland National Bank financed the operations of Ruppert Brothers and its subsidiaries by various credit transactions, including loans and a revolving line of credit, secured by perfected first security interests in all the existing and after-acquired inventory of Ruppert Brothers and in all the existing and after-acquired accounts receivable, instruments, chattel paper, documents, general intangibles and proceeds of the subsidiaries. Maryland National perfected its security interests by the filing of financing statements in Maryland, Virginia and Delaware. To date, the said financing statements have not been released of record.
5. On January 6, 1989, First American Bank of Maryland extended credit to Ruppert Brothers in the principal amount of $5.5 million, in the form of a $3 million line of credit, a $2 million term loan, and a $500,000 loan for the purchase of automobiles. Of the $5.5 million, $4.05 million was paid directly to Maryland National Bank to retire the debt owed by Ruppert Brothers, according to the intention of the parties. The $3 million line of credit and $300,000 of the $2 million term loan paid off a $3.3 million balance due on the Maryland National line of credit. The remainder of the $2 million term loan paid off the $750,000 balance of the Maryland National term loan, with the $950,000 residue designated as general working capital and start-up costs for a new franchise in Delaware. Thus, the only funds actually received by Ruppert Brothers as a result of the various First American credit transactions was $1,450,000.
6. The debtors and other corporations and individuals were guarantors of the various credit transactions made by First American as lender to Ruppert Brothers, pursuant to an unconditional guaranty dated January 6, 1989.
7. According to the terms of its loan documents and commitment letter, First American intended that it be granted perfected, first priority security interests in all the existing and after-acquired assets of Ruppert Brothers and the debtors.
8. Ruppert Brothers granted the required security interests in all its assets to First American Bank at the time of the closing on the loans and line of credit, but more than three years passed before the debtors executed such security interests in favor of the Bank on February 7, 1992. The Bank allegedly perfected its security interests in the debtors' assets by the filing of financing statements on February 12, 1992.
9. On March 25, 1992, within 90 days of the filing date, the debtors sold all of their tangible assets by bulk sales that produced proceeds totalling $755,043.82, according to schedules filed in this Court by the debtors. The trustee currently holds net proceeds from the sales in an undisclosed amount.
10. On January 26, 1993, First American Bank sued the trustee for the turnover of funds held by him and for a declaratory judgment that First American holds a perfected, first priority security interest in the funds as proceeds of the debtors' collateral by reason of the doctrine of equitable subrogation. The trustee filed motions to dismiss and for summary judgment.
11. On March 1, 1993, the trustee sued First American Bank to avoid its liens pursuant to §§ 544, 547 and 550 of the Bankruptcy Code. First American filed a counterclaim based upon the same cause of action set forth in Complaint No. 1. The trustee moved to dismiss the counterclaim.
12. On June 21, 1993, the trustee sued First American Bank and Maryland National Bank for breach of contract, tortious interference with contractual relations, violation of automatic stay and for a permanent injunction based upon the failure and refusal of the defendants to terminate the financing statements of Maryland National Bank in the debtors' collateral. The defendants filed a motion to dismiss, or in the alternative, for summary judgment.
For the reasons that follow, Complaints Nos. 2 and 3 will be dismissed, and the trustee's motions to dismiss and for summary judgment in Complaint No. 1 will be denied.
1. First American's lawsuit (Complaint No. 1) asserts its secured claim to cash proceeds generated from pre-petition bulk sales of the debtors' assets now held post-petition by the trustee.
Although the material facts are not in dispute in Complaint No. 1, neither side is entitled to judgment as a matter of law. Miller v. Federal Deposit Ins. Corp., 906 F.2d 972, 973 (4th Cir.1990).
2. In order to recover on Complaint No. 1, First American must do more than merely assert that its security interests against the debtors' collateral relate back to Maryland National's perfected security interests. As indicated in Finding of Fact No. 9, the trustee is holding net proceeds from pre-petition bulk sales of all of the debtors' tangible assets. In order to be entitled to these funds, First American must be able to prove that the funds are "proceeds" of its collateral.
3. Section 9-306 of the Maryland Commercial Code provides:
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