In re BNT Terminals, Inc., Bankruptcy No. 85 B 13006
| Decision Date | 21 February 1991 |
| Docket Number | Adv. No. 87 A 1232.,Bankruptcy No. 85 B 13006 |
| Citation | 125 BR 963 |
| Parties | In re BNT TERMINALS, INC., Debtor. Nathan YORKE, not individually but solely as Trustee of the Bankruptcy Estate of B.N.T. Terminals, Inc., Plaintiff, v. CITIBANK, N.A., the Home State Bank of Kansas City, Kansas, Commerce Bank of Kansas City, N.A., Shopko Stores, Inc., Norwest Bank, N.A., Metro Title & Escrow Company, Chicago Title & Trust Company, Marvin Juron, Juron, Pauker & Rubin, Ltd., Harry F. Chaddick Realty, Inc., Vicar Insurance Agency, Inc., and First American Title Insurance Company, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Richard J. Mason and John F. Pollick, of Ross & Hardies, Chicago, Ill., for plaintiff.
Benjamin D. Schwartz, of Altheimer & Gray, Chicago, Ill., for defendants.
This matter comes before the court on the motion of plaintiff Nathan Yorke, Trustee ("Trustee"), for partial summary judgment and the cross-motion of the defendant, Home State Bank of Kansas City ("Home State"), for summary judgment. For the reasons set forth herein, the court, after considering the pleadings, exhibits, and memoranda filed, does hereby grant the Trustee's motion for partial summary judgment and denies Home State's motion for summary judgment.
The court has jurisdiction to entertain this motion pursuant to 28 U.S.C. § 1334 and General Orders of the United States District Court for the Northern District of Illinois. The motion constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (H), and (O).
In order to prevail on a motion for summary judgment, the moving party must meet the statutory requirements set forth in Rule 56 of the Federal Rules of Civil Procedure. This rule is applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056. See Fed.R. Civ.P. 56.
Summary judgment is appropriate only if there remain no genuine issues of material fact for trial and the moving party is entitled to judgment as a matter of law. Moore v. Marketplace Restaurant, Inc., 754 F.2d 1336, 1339 (7th Cir.1985). If a nonmoving party fails to establish an element essential to his case on which he carries the burden of proof, summary judgment is proper. Samuels v. Wilder, 871 F.2d 1346 (7th Cir.1989). The facts alleged by the movant must be such that the court can reasonably conclude on a preponderance of the evidence that the movant is entitled to a verdict. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986).
On October 1, 1985, BNT Terminals, Inc. ("BNT") filed a voluntary petition under Chapter 11 of the Bankruptcy Code ("Code")1 and served as a debtor-in-possession until May 21, 1987. At that time the court entered an order converting BNT's case to one under Chapter 7. On June 4, 1987, Nathan Yorke was appointed trustee.
A few months prior to BNT's filing bankruptcy, one of its principal officers instigated a series of financial transfers which resulted in the dispute currently before the court. Avery Eliscu ("Eliscu"), BNT's principal officer, used BNT assets to secure an indebtedness of $1,471,018.33 in personal loans owed to Citibank N.A. ("Citibank"). (This loan is hereinafter referenced as "$1,500,000 Personal Loan.") Although BNT assets were used to secure this $1,500,000 Personal Loan, BNT received no benefit directly or indirectly from the transaction.
Two of BNT's assets that were given as security for the $1,500,000 Personal Loan were truck terminals, one located in Peoria, Illinois ("Peoria Terminal"), and the other one located in Omaha, Nebraska ("Omaha Terminal"). When the security was given to Citibank around July 1, 1985, the terminals were already subject to liens so that BNT granted Citibank a second lien in each asset. Specifically, BNT granted to Citibank a second mortgage and an assignment of rents in the Peoria Terminal ("Peoria Mortgage"). Regarding the Omaha Terminal, BNT granted to Citibank a second deed of trust and an assignment of rents ("Omaha Encumbrance").
Within three months, Eliscu gave Citibank a mortgage on his home as additional collateral, and Citibank agreed to release its liens on the Peoria and Omaha Terminals. For unknown reasons, Leonard Lewensohn ("Lewensohn"), a principal of BNT, instructed Citibank to assign the Peoria Mortgage and Omaha Encumbrance to Home State rather than release the liens on the BNT assets. Citibank complied with Lewensohn's instructions and assigned the liens on September 30, 1985. The note representing the $1,500,000 Personal Loan made by Citibank and secured by the Peoria Mortgage and Omaha Encumbrance ("Liens") was not released by Citibank nor was it assigned to Home State as the assignee of the Liens.
The assignment of the Liens to Home State was ostensibly to secure Home State's $250,000 loan to yet another Eliscu company, Federal Transport, Inc. ("Federal"). Home State never attempted a modification of the Peoria and Omaha lien documents to reflect that they were meant to secure Home State's $250,000 loan to Federal. On October 1, 1985, the day after Citibank's assignment of the Liens to Home State, BNT filed for Chapter 11 bankruptcy. The recording of the assignment of the Liens took place after October 1, 1985.
Crucial to the chain of events is the post-petition sale of the Omaha Terminal. Four months (March 15, 1985) before granting Citibank the Liens on the Peoria and Omaha Terminals, BNT entered into a lease with Shopko Stores, Inc. ("Shopko") for the Omaha Terminal. The lease granted Shopko an option to purchase the Omaha Terminal for $750,000 free of all liens and encumbrances.
On March 3, 1986, approximately five months after BNT filed bankruptcy, Shopko exercised its option to purchase the Omaha Terminal. Shopko was offered a $50,000 price reduction if it closed the purchase by April 1, 1986, which it did. On April 2, 1986, BNT conveyed by warranty deed fee simple title to the Omaha Terminal to Shopko. The transfer was closed through an escrow with the Chicago Title and Trust Company ("Chicago Title"). The $630,000 was transmitted by Shopko per BNT's instructions to Chicago Title as escrowee. In connection with the closing of this sale, Home State received a payment of $257,419.80 from Chicago Title, and Home State then released its purported interest in the Omaha Terminal. However, Home State did not release its purported interest in the Peoria Terminal although both liens were alleged to have secured only one $250,000 loan. At no time was bankruptcy court approval sought or obtained for the sale of the Omaha Terminal to Shopko or the disposition of the sale proceeds, including the payment of $257,419.80 to Home State. (Needless to say, no approval was ever obtained to record the assignment of Liens to Home State.)
The Trustee filed a adversary complaint against Home State and others on December 29, 1987, seeking to recover the cash proceeds from the Omaha Terminal's sale. The Trustee received $600,000 in joint settlement from Shopko and Chicago Title. The settlement agreement provides that if the Trustee makes any further recoveries from other defendants, he will pay to Chicago Title an amount equal to one-half (½) of the amount recovered less: (a) $35,000; (b) the Trustee's costs and legal expenses incurred in prosecuting claims against the other defendants; and (c) amounts of secured claims imposed by the court on the amounts recovered from the other defendants or another parcel of real estate.
The Trustee asks the court to declare that Home State does not now, nor ever did, have any interest in the Peoria Mortgage and Omaha Encumbrance.2 Additionally in Count IV, relative to Shopko's purchase of the Omaha Terminal, the Trustee requests the court to void the $257,419.80 transfer of funds from the escrow to Home State as violative of the automatic stay. In the alternative, the Trustee seeks to avoid the transfer under § 549 as it occurred post-petition and thus recover the amount transferred under the powers granted him by § 550. The Trustee requests a judgment against Home State in the amount of $257,419.80, plus interest from the date of the transfer to the date of judgment, and the costs and attorney's fees of this action. The Trustee has now moved for summary judgment.
Home State raises several affirmative defenses to the Trustee's Motion for Partial Summary Judgment. Specifically, Home State argues that the relief the Trustee requests is barred pursuant to §§ 549(d), 550(b)(1), 550(c), the doctrine of laches, the doctrine of unclean hands, and the Trustee's failure to join Federal as a party defendant. Home State alleges in its Cross Motion for Summary Judgment that the Trustee may not void the transfer under § 362 or avoid the transfer under § 549 because the funds were not property of the estate.3 Finally, Home State claims that the transfer is avoidable, if at all, under § 549 and not § 362.
Prior to addressing the issues raised by the Trustee, the court must first determine whether the issue is properly before the court. Thus, in order to pass the jurisdictional threshold the court must determine whether the cash deposited by Shopko was property of the estate and, if so, whether the escrow operated to divest the estate of this property. It is undisputed that BNT held title to the Peoria and Omaha Terminals. These two terminals constituted property of the estate upon the commencement of BNT's bankruptcy. United States v. Whiting Pools, Inc., 462 U.S. 198, 203-6, 103 S.Ct. 2309, 2312-14, 76 L.Ed.2d 515 (1983); In re Jones, 768 F.2d 923, 926-27 (7th Cir.1985); In re Galvan, 110 B.R. 446, 449 (9th BAP 1990). Shopko deposited the purchase price into the escrow established for the purpose...
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