In re Bennett Funding Group, Inc.
| Decision Date | 29 November 2000 |
| Docket Number | 97-CV-1675TJM,97-CV-1838RSP-97-CV-1840RSP,97-50047L,98-CV-96LEK-98-CV-98LEK,97-CV-1674TJM,98-CV-279TJM-98-CV,98-CV-476FJS-98-CV-478FJS,97-CV-1705TJM,97-CV-1377RSP,98-CV-613RSP-98-CV-615RSP,97-50048CON,97-CV-1671RSP-97-CV-1673RSP,No. 61376,61376 |
| Citation | 255 BR 616 |
| Parties | In re THE BENNETT FUNDING GROUP, INC., Debtor. Marine Midland Bank, Plaintiff-Appellee Plaintiff-Cross Appellant, v. Richard C. Breeden, Trustee and the Official Committee of Unsecured Creditors, Respondents-Appellants Respondents-Cross-Appellees, The Ohio Bank, f/k/a American Community Bank, N.A. and Mid Am Bank f/k/a First National Bank Northwest Ohio, Amici Curiae. Stoneham Savings Bank, Plaintiff-Appellee Plaintiff-Cross Appellant, v. Richard C. Breeden, Trustee and the Official Committee of Unsecured Creditors, Respondents-Appellants Respondents-Cross-Appellees. ESB Bank, FSB, Plaintiff-Appellee Plaintiff-Cross Appellant, v. Richard C. Breeden, Trustee and the Official Committee of Unsecured Creditors, Respondents-Appellants Respondents-Cross-Appellees. American State Bank & Trust Company of Williston, Plaintiff-Appellee Plaintiff-Cross Appellant, v. Richard C. Breeden, Trustee and the Official Committee of Unsecured Creditors, Respondents-Appellants Respondents-Cross-Appellees. First State Bank of Wabasha, Plaintiff-Appellee Plaintiff-Cross Appellant, v. Richard C. Breeden, Trustee and the Official Committee of Unsecured Creditors, Respondents-Appellants Respondents-Cross-Appellees. 617*617 La Crescent State Bank, Plaintiff-Appellee Plaintiff-Cross Appellant, v. Richard C. Breeden, Trustee and the Official Committee of Unsecured Creditors, Respondents-Appellants Respondents-Cross-Appellees. Wilber National Bank, Plaintiff-Appellee Plaintiff-Cross Appellant, v. Richard C. Breeden, Trustee and the Official Committee of Unsecured Creditors, Respondents-Appellants Respondents-Cross-Appellees. Mid Am Bank f/k/a American Community Bank, N.A., Plaintiff-Appellee Plaintiff-Cross Appellant, v. Richard C. Breeden, Trustee and the Official Committee of Unsecured Creditors, Respondents-Appellants Respondents-Cross-Appellees. The Ohio Bank, f/k/a First National Bank Northwest Ohio, Plaintiff-Appellee Plaintiff-Cross Appellant, v. Richard C. Breeden, Trustee and the Official Committee of Unsecured Creditors, Respondents-Appellants Respondents-Cross-Appellees. Citrus Bank, Plaintiff-Appellee Plaintiff-Cross Appellant, v. Richard C. Breeden, Trustee and the Official Committee of Unsecured Creditors, Respondents-Appellants Respondents-Cross-Appellees. First National Bank of Carmi, Individually and as Agent, Bank of Utica, the Commercial Bank, Amocore Bank, N.A., Rockford, Security Bank, Story County Bank & Trust, First Federal Savings & Loan of Galion, Norwest Bank of Redwing, N.A., American Trust Federal Savings Bank, Minnesota Valley Bank, Farmers State Bank, First Community Bank, FSB, First United Security Bank, Union State Bank, the Howard Bank, N.A., Merchants National Bank of Winona, Sprague National Bank, Oxford Bank & Trust, Tucker Federal Savings & Loan Assoc., Gloucester Bank & Trust Company, State Bank & Trust of Seguin, and Metrobank, Movants-Appellees Movants-Cross Appellants, v. Richard C. Breeden, Trustee and the Official Committee of Unsecured Creditors, Respondents-Appellants Respondents-Cross-Appellees. |
| Court | U.S. District Court — Northern District of New York |
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Memorandum — Decision and Order
Presently before the Court are bankruptcy appeals and cross-appeals from various decisions the Honorable Stephen D. Gerling, Chief United States Bankruptcy Judge, issued in relation to the Bennett Funding Group's Chapter 11 case by Marine Midland Bank, Stoneham Savings Bank, ESB Bank, F.S.B., American State Bank & Trust Company of Williston, First State Bank of Wabasha, La Crescent State Bank, Wilber National, Mid Am Bank, Ohio Bank, Citrus Bank, First National Bank of Carmi, Bank of Utica, the Commercial Bank, Amcore Bank N.A., Rockford Security Bank, Story County Bank Trust, First Federal Savings & Loan of Galion, Norwest Bank of Redwing, American Trust Federal Savings Bank, Minnesota Valley Bank, Farmers State Bank, First Community Bank, Union State Bank, Howard Bank, Merchants National Bank of Winona, Sprague National Bank, Oxford Bank & Trust, Tucker Federal Savings & Loan Assoc., Gloucester Bank & Trust of Seguin, State Bank & Trust of Seguin, and Metrobank (collectively "Banks"). Also before the Court are various appeals and cross appeals from these same decisions by Richard C. Breeden, the Trustee ("Trustee"), and the Official Committee of Unsecured Creditors ("OCUS").1
This series of appeals arises out of one of the largest bankruptcy cases ever brought in this District. The debtors, Bennet Funding Group ("BFG"), are a series of financial and investment institutions formerly controlled by the Bennett family of Syracuse, New York. BFG's primary business was the multilateral leasing of office equipment.
In a typical transaction BFG, would purchase office equipment from a vendor. The vendor would deliver the equipment to an end-user who would promise to make periodic lease payments to BFG. BFG would then pledge or assign its lease in the underlying equipment or lease proceeds to other investors in exchange for cash. BFG obtained its profit because of the interest rate spread between the rates an end-user paid on the lease and the effective interest rate paid to the investors. Alternatively, BFG sometimes assembled multiple leases into aggregate portfolios and then pledged these portfolios to institutional investors in exchange for cash.
As BFG struggled to maintain liquidity, it allegedly began pledging and re-pledging multiple and fictitious leases to various investors. In the spring of 1996, BFG proved unable to maintain its liquidity and it filed for Chapter 11 protection. On April 18, 1996, Richard C. Breeden, a former chairman of the Securities and Exchange Commission, was appointed Chapter 11 Trustee of BFG's assets.
At the outset of the bankruptcy case, approximately 245 banks claimed to have perfected security interests in the office equipment and leases that comprised a large portion of the assets in BFG's bankruptcy estate. The Trustee reached Bankruptcy Court-approved settlements with slightly over 200 of these banks. The remaining banks, the appellees, have not been able to reach any settlement with the Trustee and have sought to lift the automatic stay imposed by section 362(a) of the Bankruptcy Code. Each has asserted claims on unpaid principal and assets totaling approximately $62 million.
The Banks' attempt to lift the automatic stay resulted in a status conference in July of 1996 and a series of eleven evidentiary hearings before the Bankruptcy Court in the spring and summer of 1997. In October of 1996, the Bankruptcy Court rendered the first decision that is, in part, the subject of this appeal. See In re the Bennett Funding Group, Inc., 203 B.R. 30 (Bankr.N.D.N.Y.1996) (hereinafter "UCC"). In that decision the Bankruptcy Court concluded, in relevant part, that financing statements that identified BFG as "Aloha Leasing, a Div. of The Bennett Funding Group, Inc." were sufficient to perfect the Banks' security interest in the underlying leases and lease payments. See id. at 37-38.
The rationale underpinning this conclusion rested upon the Bankruptcy Court's belief that "whether the trade name precedes or follows the legal name of the debtor should not make a difference, particularly in this age of computer indexing." UCC, 203 B.R. at 37. The Bankruptcy Court stated further that its decision "unless reversed on appeal, shall constitute the `law of the case,' and the legal determination made herein controls if and when the same question again presents itself by other parties similarly situated." Id. at 32 n. 1.
After the UCC Decision was issued the Bankruptcy Court conducted two hearings involving Marine Midland and Wilber National Banks that resulted in two nearly identical decisions. See In re Bennett Funding Group, Inc., Case No. 96-61376, Adv. Proc. 96-70061A, slip op. (Bankr. N.D.N.Y. May 30, 1997) (hereinafter "Marine Midland I"); In re Bennett Funding Group, Inc., Case No. 96-61376, Adv. Proc. 96-70064A, slip op. (Bankr. N.D.N.Y. June 4, 1997) (hereinafter "Wilber I").
In Marine Midland I and Wilber I, Judge Gerling ruled that "there are two types of collateral in which the bank asserts it has a security interest, namely chattel paper and the proceeds derived therefrom." Marine Midland I, slip op. at 24. He further held that the banks had perfected their security interests in the chattel paper because they had maintained possession of them. See id. at 31. However, he reconsidered his earlier conclusion that the UCC-1 statements identifying the debtor as "Aloha Leasing, a Div. of the Bennett Funding Group, Inc." were valid. Id. at 34.
In essence the Bankruptcy Court held that, because the filing statement listed as the debtor, a diligent creditor searching for liens against BFG would not be placed on notice as to the existence of the liens. See id. Finally, Judge Gerling held, that although the Banks had perfected their security interests in the underlying chattel paper by possession, they had not perfected any security interest in post-petition payments flowing from the chattel paper because the banks had neither filed a sufficient UCC-1 financing statement nor taken possession of the post-petition payments as required by NYUCC §...
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