IN RE ALEXANDER DISPOS-HAUL SYSTEMS

• Decision Date: 30 December 1983
• Docket Number: Adv. No. 83-0205.,Bankruptcy No. 382-02636
• Citation: 36 BR 612
• Parties: In re ALEXANDER DISPOS-HAUL SYSTEMS, INC., an Oregon corporation, Debtor. HOWCO LEASING CORPORATION, an Oregon corporation and Howard-Cooper Corporation, an Oregon corporation, Plaintiffs, v. ALEXANDER DISPOS-HAUL SYSTEMS, INC., an Oregon corporation, and Robert Morrow, Trustee, Defendants, and Aid Disposal and Recycling Services, Inc.; One-Way Disposal Service, Inc.; and Plew's Drop Box Service, Inc., Oregon corporations, Intervenors.
• Court: U.S. Bankruptcy Court — District of Oregon

36 B.R. 612 (1983)

In re ALEXANDER DISPOS-HAUL SYSTEMS, INC., an Oregon corporation, Debtor HOWCO LEASING CORPORATION, an Oregon corporation and Howard-Cooper Corporation, an Oregon corporation, Plaintiffs, v. ALEXANDER DISPOS-HAUL SYSTEMS, INC., an Oregon corporation, and Robert Morrow, Trustee, Defendants and Aid Disposal and Recycling Services, Inc.; One-Way Disposal Service, Inc.; and Plew's Drop Box Service, Inc., Oregon corporations, Intervenors.

Bankruptcy No. 382-02636, Adv. No. 83-0205.

United States Bankruptcy Court, D. Oregon.

December 30, 1983.

John M. Berman, Portland, Or., for plaintiffs.

Kevin D. Padrick, Portland, Or., for trustee.

Ronald A. Watson, Portland, Or., for Plews.

FINDINGS OF FACT AND CONCLUSIONS OF LAW ALLOWING FORECLOSURE BY PLAINTIFFS

DONAL D. SULLIVAN, Bankruptcy Judge.

Howco Leasing Corporation ("Howco") filed a complaint to permit foreclosure of its security interest under 11 U.S.C. § 362 against most of the remaining assets of the debtor, Alexander's Dispos-Haul Systems, Inc., ("ADS"). The trustee for ADS counterclaimed, seeking a judgment avoiding the security interest of Howco as fraudulent under 11 U.S.C. § 548. The issues arose primarily from guarantees given by the debtor in connection with the sale of the assets of a refuse business by the Plew family ("Plews") to Harold Alexander, who was the chief officer and co-owner with his wife, of the debtor. AID Disposal and Recycling Services, Inc., One-Way Disposal Service, Inc., and Plew's Drop Box Service, Inc. were corporations controlled by the Plew family which sold their assets to Harold Alexander and which by agreement intervened in this case to protect certain drop boxes and containers in possession of the debtor. Howard-Cooper Corporation ("HCC") holds a security interest in some of the assets involved in the Plews' sale and joined the litigation as a co-plaintiff with Howco ("plaintiffs"). According to plaintiffs, the debtor owes a combined balance of over $615,000.00 secured by the property sought. The Court tried the issues pursuant to an agreed pretrial order.

On December 23, 1981, the three Plews' companies sold their assets to Harold Alexander for $755,106.17; $350,000.00 as down payment and the balance, less adjustments, payable in annual installments of at least $100,000.00 commencing on March 15, 1983 until paid. The buyer also assumed the seller's obligations owing to plaintiffs on equipment obligations. Mr. Alexander paid $200,000.00 cash at the time of closing and promised to pay the $150,000.00 balance of the down payment in about three months. The intangible assets sold consisted primarily of customer lists. A significant portion of the tangible assets sold were various drop boxes, containers and trucks, which were subject to five agreements held by the plaintiffs consisting of two equipment leases and three installment purchase contracts. At the time of the Plews' sale, these agreements secured an aggregate balance of $834,793.61 payable at $23,782.00 per month. The Plews consented in the sale contract to a further transfer of the assets to the debtor by Alexander. At the same time, plaintiffs also consented in separate agreements to the sale of their collateral to Mr. Alexander and made certain modifications to the leases. In return, plaintiffs received $83,795.00 of the initial down payment, most of which was applied to Plews' delinquencies on one of the leases. Alexander also agreed to pay to plaintiffs the unmatured balance of the down payment for application mostly to the other lease and a contract. If the down payment is allocated to reduce the balance owed to plaintiffs, the resulting effective price for the business appears to be approximately $1,304,104.00 less adjustments claimed in the estimated amount of $55,000.00.

As additional consideration for plaintiffs' consent, Harold Alexander, acting on his own behalf, assumed the Plews' obligation to plaintiffs and on behalf of ADS, jointly and severally guarantied performance. Mrs. Alexander also added her guarantee, limited to $100,000.00. The Alexanders and ADS secured their guarantees by a pledge of real estate and personal property which, in addition to separately-owned assets, apparently included all of the assets of ADS. Almost as an afterthought, Harold Alexander added, as a postscript to the Plews' sale contract, ADS's handwritten guarantee and also promised to pledge to the seller all of ADS's assets as security for the guarantee. Howco within a few days perfected its security interest against all guarantors by obtaining separate and all-encompassing security agreements covering all tangible and intangible assets and by filing appropriate financing statements. The Plews' efforts at perfection appear to be limited to the filing of financing statements against Harold Alexander with respect to certain scheduled equipment which was also included in plaintiffs' broader security agreements.

Harold Alexander, also on December 23, 1981, signed documents leasing the physical assets acquired from the Plews to ADS in return for 34 monthly payments of $44,400.00 which Harold Alexander explained would have covered somewhat more than his remaining liability on the Plews' sale contracts. Mr. Alexander testified that, although ADS made a few payments, he defaulted on the assumed equipment obligations held by plaintiffs within one or two months thereafter. He did not pay the $150,000.00 balance of the down payment which was due in March of 1982. One of the Plew brothers testified that the Plews' share of the initial down payment was used mostly to pay the general presale debts of their business.

ADS filed for reorganization under Chapter 11 of the Bankruptcy Code on August 20, 1982. After an unsuccessful and stormy effort at reorganization, and the appointment of an examiner, the debtor voluntarily converted the case to a liquidation proceeding under Chapter 7 of the Bankruptcy Code on February 25, 1983. During the period of Chapter 11 operation, the Court approved a cash collateral stipulation entered under 11 U.S.C. § 363(c)(2)(A) continuing plaintiffs' security interest in assets generated during the Chapter 11 to protect plaintiffs against loss arising from the debtor's collection and use of cash proceeds of its collateral. The trustee turned over to secured creditors most of the assets, including those assets subject to plaintiffs' five equipment agreements. The trustee did not turn over certain former assets of the Plews' companies and those assets of ADS which became subject to a security agreement running in favor of the plaintiffs at the time of the Plews' sale. At the commencement of the present litigation, the trustee, among other assets, held approximately $200,000.00 claimed by plaintiffs. Of this sum $80,762.53 is attributable to the sale of the customer lists and general intangibles of the debtor and the balance resulted from the collection of accounts receivable.

The trustee asserts that the debtor's obligations and pledge of assets to the plaintiffs were fraudulent because ADS received less than "reasonably equivalent value in exchange" within 11 U.S.C. § 548(a)(2)(A) and because ADS before, during and after the transaction was insolvent or became insolvent because of the transaction.

The ultimate issue is whether the debtor's December 23, 1981 guarantee of the five Plews' obligations to plaintiffs and pledge of its assets as security to plaintiffs are fraudulent under 11 U.S.C. § 548 for any reason and, if not, whether the security interest claimed by the Plews is, in any event, avoidable under 11 U.S.C. § 544(a) because of failure to perfect against the debtor. If the guarantee and pledge to plaintiffs are fraudulent under § 548(a), there is the further issue of whether plaintiffs can, nevertheless, retain a lien as a good faith transferee or obligee under 11 U.S.C. § 548(c) because plaintiffs gave sufficient value as measured on December 23, 1981.

I find that the debtor was either insolvent or rendered insolvent as a result of its guarantee of Harold Alexander's obligation to Plews, but that the debtor's guarantee of the five equipment obligations to plaintiffs was not made or accepted with actual intent to defraud creditors and was not fraudulent because the debtor received reasonably equivalent value in exchange.

In addition, I find that the Plews failed to perfect their security interests in those tangible and intangible assets which were not described in the financing statements which were filed against Harold Alexander as the debtor. Their interest is subordinate to plaintiffs' security interest which plaintiffs perfected both against Harold Alexander and against the debtor.

I specifically find that the debtor was a surety for the payment of the obligation to Howco and that Harold Alexander as buyer and the Plews as seller were principals to that obligation. As surety, the debtor received equitable rights against Harold Alexander and the Plews as principals in return for its...