In re Blevins Elec., Inc.
| Decision Date | 02 August 1995 |
| Docket Number | Bankruptcy No. 94-21188. Adv. No. 94-2130. |
| Parties | In re BLEVINS ELECTRIC, INC., Debtor. BLEVINS ELECTRIC, INC., Plaintiff, and United States Fidelity & Guaranty Co., Intervenor, v. FIRST AMERICAN NATIONAL BANK, Defendant. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Eastern District of Tennessee |
Fred M. Leonard, Bristol, TN, for Blevins Elec., Inc.
Hunter, Smith & Davis, William C. Argabrite, Mark S. Dessauer, Kingsport, TN, for First American Nat. Bank.
Manier, Herod, Hollabaugh & Smith, John M. Gillum, John H. Rowland, Nashville, TN, for U.S. Fidelity & Guar. Co.
This is an action by the debtor in possession, Blevins Electric, Inc. ("Blevins"), pursuant to 11 U.S.C. §§ 547 and 550, for the avoidance and recovery of certain alleged preferential transfers made by Blevins to the defendant, First American National Bank ("First American"), within the one year preceding the filing of Blevins' chapter 11 petition. This adversary proceeding is presently before the court on a partial motion to dismiss filed by First American pursuant to Fed.R.Civ.P. 12(b)(6), as incorporated by Fed.R.Bankr.P. 7012(b). First American asserts that the portion of the complaint seeking avoidance and recovery of the transfers made between 90 days and one year prior to the bankruptcy filing (the "extended preference period") fails to state a claim upon which relief can be granted. First American notes that the ability of a debtor or trustee to recover transfers made during the extended preference period from a non-insider was eliminated by the Bankruptcy Reform Act of 19941 (the "94 Act"), and submits that because this adversary proceeding was commenced after the effective date of the 94 Act, this portion of the complaint must be dismissed. Since the court finds that First American's motion is without merit as set forth below, the motion will be denied.
The chapter 11 petition initiating this bankruptcy case was filed by Blevins on August 12, 1994. Some three months later, on November 18, 1994, Blevins commenced the present adversary proceeding against First American. As stated above, not only does Blevins seek the avoidance and recovery of certain transfers made by Blevins to First American during the ninety-day preference period, but also those transfers made during the extended preference period, alleging that the transfers made within the extended preference period benefitted certain insiders of Blevins who had guaranteed the First American debt. The liability of a non-insider to disgorge transfers received from a debtor during the extended preference period to the extent that the transfers benefitted an insider2 was first recognized in Levit v. Ingersoll Rand Financial Corp. (In re Deprizio Const. Co.), 874 F.2d 1186 (7th Cir.1989), and is often referred to by the Deprizio name. The Deprizio theory of recovery has been adopted by all six circuit courts of appeals that have addressed the issue,3 including the Sixth Circuit Court of Appeals in Ray v. City Bank and Trust Co. (In re C-L Cartage Co., Inc.), 899 F.2d 1490 (6th Cir.1990).
After the filing of Blevins' chapter 11 case, but before the filing of this adversary proceeding, Congress, on October 22, 1994, enacted the Bankruptcy Reform Act of 1994. Section 2024 of the 94 Act overrules Deprizio and its progeny by amending § 550 of the Bankruptcy Code to specifically provide that preferential transfers made during the extended preference period may not be recovered from a transferee that is a non-insider. The implementing section of the 94 Act indicates that the amendment to § 550 of the Code has prospective application only; it does not apply to cases commenced before October 22, 1994, the date of enactment. First American asserts that even though this chapter 11 case was initiated prior to the enactment of the 94 Act, the amendment to § 550 is applicable to this adversary proceeding because it was commenced after October 22, 1994. It is First American's contention that this interpretation is supported by the legislative history to the 94 Act, and that this court is precluded by the legal doctrines of stare decisis and the "law of the case" from rendering a contrary finding because this court in an earlier ruling in this action construed the word "cases" to exclude adversary proceedings.5 Blevins and United States Fidelity and Guaranty Company ("USF & G"), a plaintiff-intervenor in this proceeding, oppose First American's motion. This is a core proceeding. 28 U.S.C. § 157(b)(2)(F).
An analysis of this issue must begin with an examination of the 94 Act. Section 702 of the 94 Act, which sets forth the effective date of the Act and the application of the amendments contained therein, provides as follows:
Pub.L. No. 103-394, § 702, 108 Stat. 4106, 4150.
First American directs this court's attention to the directive in subsection 702(a) that the 94 Act shall take effect on its enactment and maintains that because this adversary proceeding was filed after the date of the enactment, the 94 Act, including § 202 overruling Deprizio, is the controlling law in this adversary proceeding. First American further asserts that the exception in subsection 702(b)(1) to the 94 Act's immediate applicability for "cases commenced under title 11 of the United States Code before the date of the enactment of this Act" does not apply to this adversary proceeding because this adversary proceeding is not a "case."
First American's argument, while disingenuous, does not pass muster. Although First American is correct that the word "case" is not synonymous with the term "adversary proceeding," neither are the words mutually exclusive. Generally, in the bankruptcy context, the word "case" is a term of art which refers to "that which is commenced by the filing of a petition; it is the `whole ball of wax,' the chapter 7, 9, 11, 12 or 13 case." 5 COLLIER ON BANKRUPTCY ¶ 1109.02 (15th ed. 1993). Adversary proceedings, on the other hand, are subactions which are raised within a "case" and are commenced by the filing of a complaint. See Fed.R.Bankr.P. 7003, incorporating Fed. R.Civ.P. 3; 2 COLLIER ON BANKRUPTCY ¶ 301.03 (15th ed. 1994); Berge v. Sweet (Matter of Berge), 37 B.R. 705, 706 (Bankr. W.D.Wis.1983) ().
The distinction between "case" and "proceeding" in bankruptcy matters was officially recognized by Congress in the former bankruptcy rules approved by Congress in 1973. As stated in the Advisory Committee Note to former Bankruptcy Rule 101:
A proceeding initiated by a petition for an adjudication under the Bankruptcy Act is designated a "bankruptcy case" for the purpose of these rules. The term embraces all controversies determinable by the court of bankruptcy and all matters of administration arising during the pendency of the case. . . . The word "proceeding" as used in these rules generally refers to a litigated matter arising within a case during the course of administration of an estate.
2 COLLIER ON BANKRUPTCY ¶ 301.03 (15th ed. 1994), citing 12 COLLIER ON BANKRUPTCY ¶ 101.01 (14th ed. 1978).
The bankruptcy treatise Collier on Bankruptcy notes that even though these terms are not defined in the Bankruptcy Code of 1978 or in the present bankruptcy rules, there is no indication that Congress in enacting the 1978 Code and subsequent amendments thereto intended a different meaning for these terms than those historically used in bankruptcy matters. 5 COLLIER ON BANKRUPTCY ¶ 1109.2 (15th ed. 1993). To the contrary, the courts have observed that Congress has continued to recognize this distinction in enacting the Bankruptcy Code of 1978 and related bankruptcy statutes. 5 COLLIER ON BANKRUPTCY ¶ 1109.02 (15th ed. 1993); see also Fuel Oil Supply and Terminaling v. Gulf Oil Corp., 762 F.2d 1283, 1286-87 (5th Cir.1985) ().
Thus, applying this well-recognized definition of "case" as used in the bankruptcy context to the word "case" as used in § 702 of the 94 Act, it is clear that when Congress stated in § 702 that the amendments made by the 94 Act do not apply to "cases" commenced prior to the Act's enactment, Congress was referring to the bankruptcy case which is commenced by the filing of a petition, which in this instance is the debtor's chapter 11 case. Therefore, because this chapter 11 case was commenced on August 12, 1994, before the 94 Act was enacted on October 22, 1994, the amendments to the Code contained in the 94 Act do not apply to this chapter 11 case (with the exception of those amendments referred to in § 702(b)(2)(A), (B) and (...
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