In re AOV Industries, Inc.
Decision Date | 18 July 1986 |
Docket Number | Adv. No. 84-0226.,Bankruptcy No. 81-00617 |
Citation | 62 BR 968 |
Parties | In re AOV INDUSTRIES, INC., Alla-Ohio Valley Coals, Inc., Morehead City Coal Terminals, Inc., Camden Coal Terminal, Inc., A & T Associates, Inc., Fairmont Energy, Inc., Noralla Corporation, Birnen Coal Co., Inc. and Diggem Coal Co., Inc., Debtors. William J. PERLSTEIN as Disbursing Agent for the AOV Industries Fund, Plaintiff, v. Robert A. SALTZSTEIN, Defendant. |
Court | United States Bankruptcy Courts – District of Columbia Circuit |
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Max O. Truitt, Jr. and Alan S. Tenenbaum, Wilmer, Cutler & Pickering, Washington, D.C., for the Disbursing Agent.
Stephen M. Feldman, Wyatt & Saltzstein, Washington, D.C., for Robert A. Saltzstein.
MARTIN V.B. BOSTETTER, Jr., Chief Judge, Sitting by Designation.
The dispute here arises on two separate motions: a motion to dismiss filed pursuant to Bankruptcy Rule 7012 and Federal Rule of Civil Procedure 12(b)(6) and a motion for summary judgment pursuant to Bankruptcy Rule 7056 and Federal Rule of Civil Procedure 56. The underlying complaint is an action to avoid and recover a preferential transfer of property pursuant to sections 547 and 550 of the Bankruptcy Reform Act of 1978, 11 U.S.C. §§ 101-151326 ("the Code"). The plaintiff in this action, William J. Perlstein ("Perlstein"), filed suit in his capacity as Disbursing Agent for the AOV Industries Fund. As Disbursing Agent, Perlstein has authority under the Court-approved Plan of Reorganization and section 1123(b)(3)(B) of the Code to bring preference actions.
After the Disbursing Agent filed his preference action, the defendant, Robert A. Saltzstein ("Saltzstein"), filed his Motion to Dismiss for Failure to State a Claim Upon Which Relief Can Be Granted. This motion, raising section 546(a)(1)'s two-year statute of limitation as a bar to the preference action, was heard and taken under advisement. Thereafter the Court heard argument on the Disbursing Agent's summary judgment motion. The Court granted partial summary judgment on two issues raised by the motion and took the remaining issue, the applicability of the "ordinary course of business" defense provided by section 547(c)(2), under advisement.
The facts of the case are not disputed. On November 6, 1981, AOV Industries, Inc. and several of its subsidiaries filed for reorganization under chapter 11 of the Code and became debtors-in-possession. The debtors' cases were consolidated. A plan of reorganization was approved by the Court on July 30, 1983. Among other things, this plan provided for the appointment of a Disbursing Agent empowered to institute preference actions and perform other duties.1
The Disbursing Agent filed the instant preference action against Saltzstein on October 5, 1984 to set aside a transfer of $20,403.56 made by check and paid by the drawee, Equibank, N.A., on August 13, 1981. This transfer had been made pursuant to an agreement between Saltzstein, J. Richard Knop ("Knop"), and Alla-Ohio Valley Coals, Inc. ("Alla") executed on May 19, 1978. The $20,403.56 transfer represented the fourth of a scheduled five annual payments of $20,000.00 each.
In numbered paragraph 2 of the May 19, 1978 agreement, Alla, through its representative, Knop, agreed to retain Saltzstein as an international business consultant for a period of five years.2 Paragraph 2 provides in full:
2. Alla agrees to retain Saltzstein as a consultant for a period of five (5) years from the date hereof for an annual fee of TWENTH corrected by hand to read "TWENTY" and initialed THOUSAND DOLLARS ($20,000.00) per year to be paid in semi-annual payments with the first payment due on or before June amended by hand to read "July" and initialed 1, 1978 and to be secured by the execution by Alla\'s subsidiary, Noralla, Inc., and the proper recordation, on or before June amended by hand to read "July" and initialed 1, 1978 in favor of Saltzstein of a security interest on the facility owned by Noralla, Inc., at St. Paul, Virginia which will be subordinated only to the existing security interests on the facility on the date hereof. Alla shall have the right to prepay said fees at any time. Saltzstein agrees to provide such advice and consultation as Alla shall request from time to time during the term hereof regarding international business transactions and affairs of Alla. As founder\'s compensation, said fees shall on the death of Saltzstein be paid as specifically directed by his Last Will and Testament, and failing such specificity, to the residuary beneficiary of his personalty.3
Thus, Saltzstein was to be paid $100,000.00 in payments of $20,000.00 annually and in turn was to provide consulting services upon Alla's request.4 The first payment of $20,000.00 was received on August 2, 1978, and subsequent payments were received on July 17, 1979 and July 16, 1980. The fourth payment, the one the Disbursing Agent seeks to avoid as a preference, was made by a check dated August 10, 1981, and paid by the drawee bank on August 13, 1981. The amount of the transfer — $20,403.56 — reflects the fourth payment plus a late charge. Alla filed its petition in bankruptcy before the fifth payment fell due.
The facts present a prima facie preference. Section 547(b) sets forth the five conditions that must be met before a transfer can be avoided:
11 U.S.C. § 547(b). These five conditions are satisfied in the case at hand. The $20,403.56 transfer was (1) made directly to Saltzstein, who was a creditor; (2) for or on account of a debt that even Saltzstein agrees was incurred before the transfer was made; (3) made while the debtor was insolvent5; (4) made on August 13, 1981, within ninety days before the filing of the bankruptcy petitions on November 6, 1981; and (5) such that it enabled Saltzstein to receive more than he would have received in a chapter 7 liquidation if the transfer had not been made.6
Although there is no serious dispute that the elements of a preference have been satisfied in the case at bar, Saltzstein argues nevertheless that the transfer should not be avoided. In his motion to dismiss, Saltzstein claims that the Disbursing Agent's action is barred by the two-year statute of limitation found in section 546(a) of the Code. In his opposition to the Disbursing Agent's motion for summary judgment, Saltzstein raises the "ordinary course" defense of section 547(c)(2).
Saltzstein filed a motion to dismiss the Disbursing Agent's action that was argued on June 12, 1985. The material issue raised by the motion is whether the two-year limitation period of section 546(a) of the Code bars the avoidance action. Section 546(a) provides:
11 U.S.C. § 546(a). Salzstein argues that the two-year period of limitations began running on November 6, 1981, the date AOV Industries, Inc., et al. ("AOV") filed for reorganization and became debtors-in-possession under chapter 11 of the Code. Although section 546(a)(1) refers to "the appointment of a trustee" and no trustee has been appointed in this case, Saltzstein reasons syllogistically that the two-year period nevertheless applies:
Since the Disbursing Agent filed his complaint on October 5, 1984, more than two years after November 6, 1981, the complaint is clearly time-barred, concludes Saltzstein.
In opposition, the Disbursing Agent maintains that if section 546(a)(1) of the Code is applicable, the two-year period began running from the date of his appointment, June 30, 1983. He reasons that he is not an agent of the reorganized debtor "but, like a trustee, acts independently of the reorganized debtor." As a result, the Disbursing Agent believes that he should be considered a trustee for the purposes of computing the two-year limitation period of section 546(a)(1). In the alternative, the Disbursing Agent argues that the two-year period has no application unless in fact a trustee is appointed under section 1104. Since no such trustee has been appointed, the Disbursing Agent asserts that section 546(a)(2) allows him to institute preference actions at any time until the debtors' consolidated case is closed or dismissed. By either of the Disbursing Agent's arguments, the complaint at issue here would be timely filed.
In support of his position Saltzstein asserts a two-part argument, first citing section 1107 of the Code, which states that "subject to any limitations on a trustee under this chapter, and to such...
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