In re Appalachian Oil Co. Inc. v. Virginian Travel Plaza, Inc., 09-50259
| Decision Date | 28 June 2011 |
| Docket Number | No. 09-50259,Adv. Pro. No. 10-5063,09-50259 |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
| Parties | In re APPALACHIAN OIL COMPANY, INC., Debtor. APPALACHIAN OIL COMPANY, INC., Plaintiff, v. THE VIRGINIAN TRAVEL PLAZA, INC., Defendant. |
[This opinion is not intended for publication as the precedential effect is deemed limited.]
Appearances:
MEMORANDUMMark S. Dessauer, Esq.
Hunter, Smith & Davis
Daniel R. Bieger, Esq.
Copeland & Bieger, P.C.
In this adversary proceeding, the debtor Appalachian Oil Company ("AppCo") seeks to avoid and recover as preferential transfers under § 547 of the Bankruptcy Code $78,764.10 in prepetition payments to The Virginian Travel Plaza Inc. ("VTP"). In a counterclaim, VTP seeks return of funds which AppCo allegedly holds as a constructive bailee or trustee. Both parties have moved for summary judgment. Regarding AppCo's preference claim, VTP's motion will be granted and AppCo's denied, the court having concluded that the transfers were not property of the debtor. Summary judgment on the counterclaim will be denied because there is a genuine issue of material fact for trial. This is a core proceeding. See 28 U.S.C. 157(b)(2)(F).
The following facts do not appear to be in dispute.1 Prior to AppCo's bankruptcy filing, AppCo supplied VTP with gasoline and other petroleum products that VTP sold at its convenience store. The parties' agreement provided that AppCo would supply gasoline and other petroleum products upon credit terms to VTP, with AppCo then directly collecting the proceeds from credit card purchases that were made by customers at VTP's store.2 AppCo would process the credit card transactions, deposit the proceeds into its general operating account, and after deducting the amounts owed to it for the petroleum products, refund the balance to VTP.
In late 2008, AppCo informed VTP that it was unable to supply gasoline and granted VTP permission to obtain an alternate supplier for 30 days or until it was notified that AppCo could resume deliveries. Consequently, VTP began purchasing gasoline from Mack Oil. Nonetheless, AppCo continued to collect the proceeds from the credit card sales at VTP's store, even though AppCo was no longer supplying any products to VTP, and continued to refund the collected proceeds to VTP, with no deductions for any obligations owed to AppCo. After VTP switched to a new supplier of gasoline, AppCo refunded to VTP proceeds totaling $78,764.10 by transfers thattook place in December 2008 and January 2009.3 With the exception of the last payment which was by check, all of the refunds from AppCo to VTP were accomplished by wire disbursement from AppCo's bank account.
On January 22, 2009, AppCo executed a "Sales Agreement Release" that permanently released VTP from its obligation to purchase gasoline and other petroleum products from AppCo. The Release noted that AppCo was still obligated to pay VTP "for the total outstanding balance for credit cards." Apparently, the latter was a reference to the fact that AppCo had failed to refund to VTP all of the proceeds from the credit card purchases it had collected on VTP's behalf in the preceding six weeks.
On February 9, 2009, AppCo filed for bankruptcy relief under chapter 11. Subsequently, VTP filed a proof of claim, asserting that it was still owed $24,886.84 for credit card transactions collected by AppCo for VTP between December 2, 2008, and January 8, 2009.
On August 9, 2010, AppCo initiated the current adversary proceeding against VTP, later amending its complaint on January 24, 2011. AppCo alleges that the $78,764.10 in transfers it made to VTP in December 2008 and January 2009 are avoidable and recoverable as preferences. In its answers, VTP denies that the funds it received were property of AppCo, a required element of a preference, and contends that AppCo held the funds either in a constructive bailment or constructive trust for VTP's benefit. VTP also denies that the payments were on account of an antecedent debt or that they enabled it to receive more than it would have received if the payments had not been made and AppCo liquidated, other essential preference elements. In its counterclaim, VTP asserts that the $24,886.84 in credit card proceeds that AppCo failed to refund to VTP do not constitute property of the estate and must be turned over to VTP, or alternatively, that AppCo is liable in this amount for conversion.
Both parties have now moved for summary judgment on AppCo's amended complaint, andAppCo seeks summary judgment on VTP's counterclaim. VTP's memorandum in support of its motion for summary judgment presents only one argument: that the transfers to it were not property of AppCo.
Federal Rule of Civil Procedure 56, applicable in adversary proceedings through Federal Rule of Bankruptcy Procedure 7056, provides that the court shall grant summary judgment if the movant shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. In deciding such a motion, the court is not to "weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Browning v. Levy, 283 F.3d 761, 769 (6th Cir. 2002) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505 (1986)). There is a genuine issue for trial "only when there is sufficient 'evidence on which the [court] could reasonably find for the plaintiff.'" Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. at 252).
The movant bears the initial burden of showing a lack of supporting evidence. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 254 (1986). After it does so, the nonmoving party must provide evidence to support denying the motion; even though all inferences are construed in his favor, the nonmoving party "may not rest upon mere allegations or denials of his pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Spradlin v. Jarvis (In re Tri-City Turf Club, Inc.), 323 F.3d 439, 442 (6th Cir. 2003). Summary judgment is appropriate if a rational factfinder, after reviewing the entire record, could not find for the nonmoving party. Braithwaite v. Timken Co., 258 F.3d 488, 493 (6th Cir. 2001).
The foregoing standard does not change simply because both parties move for summary judgment. Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991). "Rather the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Id. (quoting Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987)).
Under section 547(b) of the Bankruptcy Code, a chapter 11 debtor-in-possession may avoid any transfer of an interest of the debtor in property:
11 U.S.C. § 547(b); see also Union Bank v. Wolas, 502 U.S. 151, 154-55, 112 S. Ct. 527 (1991). As the party seeking to avoid the transfers, the debtor-in-possession has the burden of proof on all elements. 11 U.S.C. § 547(g).
The first requirement of a preference is that the debtor have an interest in the transferred property. The Supreme Court has found that this element is satisfied if the property would have been property of the estate had it not been transferred. Begier v. IRS, 496 U.S. 53, 58, 110 S. Ct. 2258 (1990). Property of the estate encompasses "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). However, if a debtor only holds legal title in property and not an equitable interest, the property only becomes property of the estate to the extent of the debtor's legal title, not to the extent of any equitable interest that the debtor does not hold. 11 U.S.C. § 541(d). Because a debtor does not own an equitable interest in property it holds in trust for another, that property would not be property of the estate. Begier v. IRS, 496 U.S. at 59; Stevenson v. J.C. Bradford & Co. (In re Cannon), 277 F.3d 838, 849 (6th Cir. 2002).
Similarly, property in which a bailee holds a possessory interest, but no legal or equitableinterest, would not constitute property of its bankruptcy estate. Lyon v. Contech Constr. Prods., Inc. (In re Computrex, Inc.), 403 F.3d 807, 812 (6th Cir. 2005). See also City of Springfield v. Ostrander (In re LAN Tamers, Inc.), 329 F.3d 204, 210 (1st Cir. 2003) (). Applying these principles to the present case, to the extent that AppCo held the funds it collected on VTP's behalf in trust or pursuant to a bailment, as VTP's argues, these funds would not be property of the bankruptcy estate and, consequently, not property of the debtor within the meaning of § 547(b).
AppCo disputes the contention that it did not hold a property interest in the funds it transferred to VTP. AppCo observes that there was no requirement that it segregate from its other funds the proceeds from VTP's credit card transactions and notes that the proceeds were deposited in its general account, where they were commingled with AppCo's other funds. According to AppCo, it had unlimited control...
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