In re Associated Transport, Inc.

• Decision Date: 28 February 1980
• Docket Number: Bankruptcy No. 76-B-982-RB.
• Citation: 3 BR 124
• Parties: In re ASSOCIATED TRANSPORT, INC., Bankrupt. Thomas J. CAHILL, as Trustee-in-Bankruptcy of Associated Transport, Inc., Plaintiff, v. FRUEHAUF CORPORATION, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

3 B.R. 124 (1980)

In re ASSOCIATED TRANSPORT, INC., Bankrupt.

Thomas J. CAHILL, as Trustee-in-Bankruptcy of Associated Transport, Inc., Plaintiff, v. FRUEHAUF CORPORATION, Defendant.

Bankruptcy No. 76-B-982-RB.

United States Bankruptcy Court, S.D. New York.

February 28, 1980.

COPYRIGHT MATERIAL OMITTED

Anderson, Russell, Kill & Olick, P.C., New York City, for trustee; Steven M. Pesner and Robert P. Reichman, New York City, of counsel.

Conboy, Hewitt, O'Brien & Boardman, New York City, for Fruehauf Corp.; Marvin F. Hartung and Thomas V. McMahon, New York City, of counsel.

OPINION

ROY BABITT, Bankruptcy Judge:

Associated Transport, Inc. (Associated), the bankrupt, a Delaware corporation, with New Jersey as the principal place of its pre-adjudication business as a motor common carrier of freight in interstate and intrastate commerce, came to this court as a petitioner for relief under Chapter XI of the now repealed 1898 Bankruptcy Act, Sections 301 et seq., 11 U.S.C. (1976 ed.) §§ 701 et seq.¹ Recourse to the optimism for survival generated by those debtor relief provisions was short-lived and Associated was adjudged bankrupt, its property under 70a, 11 U.S.C. (1976 ed.) § 110(a), to be liquidated within the liquidation scheme of the 1898 Act.

Acting on the authority given by Rule 610, 411 U.S. 1067, 93 S.Ct. 3146, 37 L.Ed.2d 65, to "commence . . . any action . . . in behalf of the estate," Associated's trustee, the plaintiff here, began this adversary proceeding under Part VII of the 1973 Bankruptcy Rules, 411 U.S. 1068, 93 S.Ct. 3147, 37 L.Ed.2d 66 et seq., by filing the complaint, Rule 703, for some of the relief contemplated by Rule 701. That complaint named as defendant the Fruehauf Corporation (Fruehauf), a Michigan company, said to be holding liens on property of the estate, said liens having been given to secure debts owed by Associated. The complaint sought judgment declaring Fruehauf's liens invalid in ten of its eleven causes of action; the eleventh sought a money judgment. Before turning to the legal reactions to the trustee's suit, some explanation of the relationship between Associated and Fruehauf in the context of this controversy needs to be described, for, although their history of doing business was extensive, only two specific transactions bottom the trustee's action.²

The first is relevant to the first nine causes of action. On March 27, 1975, a so-called Pay Out Agreement was executed. This agreement consolidated all the debts then owing by Associated which, with various allowances and credits, resulted in a net debt to Fruehauf of just over $930,000. This debt was to be liquidated on an installment basis—twenty four consecutive monthly payments at a 14% per annum interest rate. The last paragraph of this Pay Out Agreement was as follows:

"We further agree that all collateral you now hold for any of our obligations to you shall secure this debt and any other debt we may now owe you or may hereafter incur to you . . . and shall further extend to and secure any advances you may make to the Chase Manhattan Bank under a certain participation agreement with said Bank dated January 28, 1975."

The second transaction underlies the tenth and eleventh causes of action alleged by Associated's trustee. This was an October 14, 1975 Loan Agreement pursuant to which Fruehauf loaned Associated about $225,000 to enable it to purchase certain properties. To secure this loan, Associated gave Fruehauf a first lien on the properties purchased.³

The trustee now seeks to invalidate the liens, if any, held by Fruehauf based on the above-mentioned transactions, and seeks recovery of monies transferred to Fruehauf. The complaint sets forth eleven claims for relief, briefly summarized as follows at page 2 of the affidavit in support of the trustee's cross-motion for summary judgment:

"The first claim seeks a judgment declaring a `security\' issued by Associated to Fruehauf on or about March 27, 1975 to be null and void ab initio as a result of a violation of sections 214 and 20a of the Interstate Commerce Act in that authority was neither sought from nor granted by the Interstate Commerce Commission ("ICC") for the issuance of the `security\'. The second, third, fourth and fifth claims (all in the alternative to the first claim and to each other) each seek a judgment declaring the alleged lien of Fruehauf respecting certain property of Associated to be unenforceable as against the Trustee due to Fruehauf\'s failure to comply with a multitude of Uniform Commercial Code ("UCC") requisites for the creation and perfection of a valid and enforceable security interest."⁴

"The sixth, seventh, eighth and ninth causes of action (all in the alternative to the first five and to each other) each seeks judgment declaring the alleged lien of Fruehauf to be void and unenforceable as against the trustee because, it is pleaded, the underlying transaction constitutes a fraudulent transfer pursuant to Section 67d of the Act, 11 U.S.C. (1976 ed.) § 107d.

The tenth cause seeks judgment declaring a `security\' issued by Associated to Fruehauf on or about October 14, 1975 to be null and void ab initio as a result of a violation of sections 214 and 20a of the Interstate Commerce Act in that the Interstate Commerce Commission\'s `authorization\' for the issuance of this `security\' was based upon false representations to that agency.

The eleventh claim seeks the return to the trustee by Fruehauf of $216,409.09 plus interest, which principal sum was turned over by the trustee to Fruehauf without prejudice to his right to seek its return in the event the trustee\'s challenge to the validity of Fruehauf\'s underlying alleged lien was upheld." See footnote 3, supra.

Prior to answering the allegations made by the trustee, Fruehauf moved pursuant to Federal Rule of Civil Procedure 12(b)(6), applicable here by reason of Bankruptcy Rule 712(b), 411 U.S. 1074, 93 S.Ct. 3151, 37 L.Ed.2d 68, for an order dismissing the complaint for failure to state a claim upon which relief could be granted. F.R.Civ.P. 12(b)(6) provides as follows:

"(b) Every defense, in law or fact, to a claim for relief . . . shall be asserted in the responsive pleading thereto . . . except that the following defenses may at the option of the pleader be made by motion:

(6) Failure to state a claim upon which relief can be granted. . . .

If, on the motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56."

On a Rule 12(b)(6) motion, the well-pleaded material allegations of the complaint are taken as true, but conclusions of law or unsupported deductions of fact are not admissible. 2A Moore's Federal Practice (Second Edition) ¶ 12.08; Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Iroquois Indus., Inc. v. Syracuse China Corp., 417 F.2d 963 (2d Cir. 1969), cert. denied, 399 U.S. 909, 90 S.Ct. 2199, 26 L.Ed.2d 561 (1969); A.T. Broa v. Perlow, 375 F.2d 393 (2d Cir. 1967); M & M Transportation Co. v. U.S. Industries, Inc., 416 F.Supp. 865 (D.C.N.Y.1976). While it is true that the challenged pleading must set forth sufficient information to outline the elements of the claim, the Supreme Court has observed that:

"A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."

Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).

Fruehauf's assault on the complaint rests on the conclusions that it is insufficient on its face, that it is based on unwarranted legal conclusions, and that it is devoid of factual bases to support many of its allegations. While this complaint does not—nor must it—set forth in detail the factual underpinnings of its claims, the court finds as to the first nine causes of action, that the complaint presents well-pleaded claims for relief, cognizable at law, which give Fruehauf fair and adequate notice of the bases of these claims. Without making any determination at this point on the merits of the trustee's case, it is nonetheless clear that the pleading of these causes is more than adequate to repel this motion to dismiss. The motion to dismiss is denied as to causes of action one through nine.

Following the filing of Fruehauf's Rule 12 motion, the trustee cross-moved for summary judgment on the first, second, third, fourth and/or fifth causes of action.⁵ The court has reviewed, as part of the record on this cross-motion, all pleadings, affidavits and the local Rule 9(g) statements submitted by the parties, and agrees that as to the first four causes of action, there are no genuine issues as to any of the material facts, and that the court may "pierce the allegations in the pleadings", examine the evidence presented, and make a determination as a matter of law. Heyman v. Commerce and Industry Ins. Co., 524 F.2d 1317 (2d Cir. 1975); 6 Moore's, supra, ¶ 56.153; SEC v. Research Automation Corp., 585 F.2d 31 (2d Cir. 1978).

Turning to the first cause of action, the complaint alleges that:

"The Pay Out Agreement constituted an issuance of a security by Associated pursuant to Sections 214 and 20a of the Interstate Commerce Act, 49 U.S.C. §§ 314 and 20a.

The issuance of the security (the Pay Out Agreement) by Associated was unlawful since no application was made to the Interstate Commerce Commission to secure authority for the issuance of the security and, as a result thereof, the Interstate Commerce Commission did not by order authorize the issuance of the security. The security issued . . . is void and

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