In re Balducci Oil Co., Inc.

• Decision Date: 16 September 1983
• Docket Number: Bankruptcy No. 82 B 1319 C,Adv. No. 83 G 0509.
• Citation: 33 BR 847
• Parties: In re BALDUCCI OIL COMPANY, INC., Debtor. Richard T. ECKLES, Trustee, Plaintiff, v. PETCO INC., INTERSTATE, Defendant.
• Court: U.S. Bankruptcy Court — District of Colorado

33 B.R. 847 (1983)

In re BALDUCCI OIL COMPANY, INC., Debtor Richard T. ECKLES, Trustee, Plaintiff, v. PETCO INC., INTERSTATE, Defendant.

Bankruptcy No. 82 B 1319 C, Adv. No. 83 G 0509.

United States Bankruptcy Court, D. Colorado.

September 16, 1983.

COPYRIGHT MATERIAL OMITTED

Mark Fulford, Sherman & Howard, Denver, Colo., for Richard T. Eckles, Trustee.

Michael Hensick, of Kissinger & Lansing, Denver, Colo., for Petco, defendant.

MEMORANDUM OPINION

JAY L. GUECK, Bankruptcy Judge.

THIS MATTER comes before the Court on the Trustee's Motion for Summary Judgment filed by Richard Eckles, Chapter 7 Trustee for the Debtor, Balducci Oil Company, Inc. (hereinafter "Balducci"). Balducci filed for protection under the Bankruptcy Code, 11 U.S.C. § 101 et seq. on March 31, 1982. The Trustee for Balducci has initiated a myriad of avoidance actions in which he seeks to recover substantial sums for equitable distribution to allowed unsecured claimants. This adversary proceeding arises out of the commercial relationship between Balducci, Petco Inc., Interstate (hereinafter "Petco") and Pinon Gas Company (hereinafter "Pinon"). The Trustee filed a Complaint to avoid as a preferential transfer to Petco, a setoff by Petco of $16,464.02, on March 24, 1982. Petco answered and alleged that it legally set off a substantial portion of the amount sought, under § 553 of the Code. Subsequently, Petco and the Trustee entered into a "Joint Stipulation of Facts" and Eckles interposed a Motion for Summary Judgment thereupon.

I. FACTS

The parties have entered into a "Stipulation of Facts" which, they contend, disposes of all material issues of fact in this proceeding. The pertinent parts are reproduced herein:

1. Plaintiff is the duly appointed, qualified, and acting Trustee in the bankruptcy of Balducci Oil Company, Inc. ("Balducci"), the Debtor in a bankruptcy proceeding commenced March 31, 1982.

2. Petco was a creditor of Balducci.

3. On or about November 12, 1981 Petco provided services to Balducci for which Balducci owed Petco $751.33. As of January 1, 1981 (sic), 90 days before Balducci\'s bankruptcy petition on March 31, 1982, Balducci owed Petco the $751.33.

4. On or about January 19, 1982 Petco provided transportation services to Balducci for which Balducci owed Petco $520.98.

5. On or about January 20, 1982 Petco\'s wholly owned subsidiary Pinon Gas Company ("Pinon") sold Balducci $13,873.86 worth of low lead aviation gasoline.

6. Pinon\'s relationship to Petco is as follows:

(a) Its stock is owned 100% by Petco;

(b) Both have identical officers and directors;

(c) Pinon has no employees, all are employed by Petco;

(d) All Pinon\'s expenses of operation are paid by Petco;

(e) Pinon has no separate capitalization from Petco;

(f) Pinon maintains no substantial corporate existence separate from that of Petco.

7. On or about March 10, 1982 Balducci sold to Petco $8,233.38 worth of No. 2 diesel fuel.

8. On or about March 11, 1982 Balducci sold to Petco $8,230.64 worth of diesel fuel.

9. The March 10 and 11 sales by Balducci were in the ordinary course of business of both Petco and Balducci, were made for new value, were not made for the purpose of creating a setoff between the parties, nor were they on account of an antecedent debt.

10. On March 24, 1982, Balducci\'s comptroller demanded immediate payment from Petco for the March 10 and 11, 1982 sales of diesel fuel. Petco told Balducci that Petco would setoff the cost of the March 10 and 11 sales, totaling $16,464.02, against the amounts owed Petco and Pinon, totaling $15,146.17.

11. Interest in the amount of $574.56, at the rate of 21 percent (21%) per year, accrued against Balducci on account of Balducci\'s unpaid account with Petco.

. . . .

13. Petco paid First National Bank of Denver $743.59 on or about July 13, 1982, pursuant to the bank\'s demand based upon the Bankruptcy Court\'s May 19, 1982 order modifying stay in adversary proceeding 82J0953, permitting the bank `to enforce its security interest against any interest of Balducci in the property set forth in the Complaint.\' This amount was arrived at after the March 24, 1982 setoff by also deducting the interest referred to in paragraph eleven (11) above.

14. The claims of Petco and Pinon against Balducci were not transferred by an entity other than Balducci to Petco and Pinon.

. . . .

II. SUMMARY JUDGMENT

Fed.R.Civ.P. 56 applies herein through newly enacted Fed.R.Bankr.P. 7056. Pursuant to Fed.R.Civ.P. 56(c) stipulations are considered to be admissions and are a proper evidentiary basis upon which to interpose a motion for summary judgment. F & D Property v. Alkire, 385 F.2d 97 (10th Cir.1967); Stone v. Maher, 527 F.Supp. 10 (D.C.Conn.1980).

Summary Judgment is a drastic remedy (Jones v. Nelson, 484 F.2d 1165, 1168 (10th Cir.1973) only available where there exists no genuine issue of material fact. Fed.R.Civ.P. 56(c); Adickes v. Kress and Company, 398 U.S. 144, 157-159, 90 S.Ct. 1598, 1608-1609, 26 L.Ed.2d 142 (1970); Luckett v. Bethlehem Steel Corp., 618 F.2d 1373, 1383 (10th Cir.1980). The burden is on the movant to show that he is entitled to judgment, as a matter of law, beyond all reasonable doubt. Norton v. Liddel, 620 F.2d 1375, 1381 (10th Cir.1980); S.E.C. v. International Mining Exchange Inc., 515 F.Supp. 1062, 1065 (D.C.Colo.1981). While I can determine legal consequences of undisputed facts, I must deny the motion if a triable issue of fact exists. Carpenters & Millrights Health Benefit Trust Fund v. Domestic Insulation Co., 387 F.Supp. 144, 147 (D.C.Colo.1975). Finally, the stipulation and all influences therefrom must be construed in favor of the party against whom the motion is made. Otteson v. U.S., 622 F.2d 516, 519 (10th Cir.1980). With these principles of procedure in mind, I turn to the substantive issues.

III. SETOFF UNDER THE BANKRUPTCY CODE: § 553

A general discussion of the doctrine of setoff is a logical starting point in light of its complexity and the absence of precedent in this district. The Bankruptcy Code, like the Bankruptcy Act, does not itself create a right of setoff. Rather, it preserves the pre-existing common law right of setoff, subject to some limitations. In re Donato, 17 B.R. 708 (Bkrtcy.Va.1982); In re Tonyan Construction Co. Inc., 28 B.R. 714 (Bkrtcy.Ill.1983). In Colorado, the doctrine of setoff has long been recognized. Thatcher v. Rockwell, 4 Colo. 375, appeal dismissed 105 U.S. 467, 26 L.Ed. 949 (1878); Walter E. Heller & Co. v. Lindsey, 146 Colo. 452, 361 P.2d 979 (1961). Section 553 is not self-executing; affirmative acts must be taken by the creditor which evidence a clear intent to setoff. In re McCormick, 5 B.R. 726 (Bkrtcy.Ohio 1980) citing Baker v. National City Bank of Cleveland, 511 F.2d 1016 (6th Cir.1975); 4 Collier on Bankruptcy, ¶ 553.02 at 553-10 (15 ed. 1982). In this case, there is no dispute on this issue. Finally, the burden of proof is on the creditor asserting the setoff right to show that it comes within the confines of § 553. In re Carpenter, 14 B.R. 405 (Bkrtcy.Tenn.1981); In re Wilson, 29 B.R. 54 (Bkrtcy.Ark.1982).

Three important bankruptcy limitations have been placed upon the right of setoff by § 553. First and foremost is the requirement that only "mutual debts" may be setoff. That is, the debts must be due between the same parties acting in the same capacity. § 553(a); In re Dartmouth Nursing Home, 24 B.R. 256 (Bkrtcy.Mass. 1982); 4 Collier on Bankruptcy, ¶ 553.044 at 553-10 (15th ed. 1982); Ahart, Bank Setoff Under The Bankruptcy Reform Act of 1978, 53 Amer.Bankr.L.J. 205, 215-218 (1978). "For mutuality to exist, each party must own his own claim in his own right severally, with the right to collect it in his own name against the debtor or in his own right." In re Virginia Block, 16 B.R. 560, 562 (Bkrtcy.Va.1981). Also, the requirement of mutuality is strictly construed under the Code. Virginia Block, supra, at 562.

The second group of limitations on the right of setoff under § 553(a) is that a creditor may not procure a claim against the debtor within 90 days of the date on which the petition is filed if the debtor was insolvent. § 553(a)(2). Also, the creditor may not incur a debt against the debtor while the debtor was insolvent, within 90 days of the date of which the petition is filed, for the purpose of effecting a setoff. § 553(a)(3). Section 553(c), like § 547(f), creates a presumption of insolvency on and during the 90 days immediately preceding the date on which the petition is filed. This subsection is not relevant to a determination of the issues herein.

The third limitation is commonly referred to as the "insufficiency test." The mathematical application of this subsection is similar to the "improvement in position" test used to determine the voidability of pre-petition transfers to creditors who have perfected security interests in inventory and accounts receivable. See § 547(c)(5). The § 553(b)(1) insufficiency (insufficiency is defined in § 553(b)(2) as the, "amount, if any, by which a claim against the debtor exceeds a mutual debt owing to the debtor by the holder of such claim") test has been described as follows:

The limitation invalidates or precludes the setoff of any amount that is a betterment in the creditor\'s `secured\' position during a 90 day pre-petition period. The amount of any such improvement is treated as an ordinary unsecured claim. The test requires determination of the creditor\'s `insufficiency\' at two points in time: 1) the later of 90 days before petition or the first date during that 90 days on which there is an insufficiency; and 2) the date of setoff, whether on the date of petition or within the 90 days immediately preceding. To the extent that the insufficiency at setoff is less than it was at the earlier date, a setoff will be invalid.

Comment, Setoff in Bankruptcy; Is the Creditor Preferred or Secured?, 50 U.Colo.L.R. 511, 522 (1980). Any recovery by the estate under § 553(b) is...