In re Bridge Information Systems, Inc.

• Decision Date: 19 November 2001
• Docket Number: No. 01-41593-293.,01-41593-293.
• Citation: 288 B.R. 133
• Parties: In re BRIDGE INFORMATION SYSTEMS, INC., et. al., Debtors. Dell Receivables, L.P., Movant.
• Court: U.S. Bankruptcy Court — Eastern District of Missouri

288 B.R. 133

In re BRIDGE INFORMATION SYSTEMS, INC., et. al., Debtors.

Dell Receivables, L.P., Movant.

No. 01-41593-293.

United States Bankruptcy Court, E.D. Missouri, Eastern Division.

November 19, 2001.

COPYRIGHT MATERIAL OMITTED

Gregory D. Willard, Bryan Cave, St. Louis, MO, for Debtor.

J. Talbot Sant, Jr., Armstrong Teasdale, LLC, St. Louis, MO, Sabrina L. Streusand, Hughes & Luce, L.L.P., Austin, TX, for Dell Receivables, L.P.

J. Eric Ivester, Samuel S. Ory, Skadden, Arps, Slate, Meagher & Flom, Chicago, IL, Steven Wallace, Carr, Korein, Tillery, Kunin, et al., East St. Louis, IL, for Goldman Sachs Credit Partners L.P.

Michael A. Becker, Helfrey, Simon & Jones, P.C., Clayton, MO, Mark L. Prager, Michael J. Small, Peter E. Pinnow, Foley & Lardner, Chicago, IL, for Official Unsecured Creditors Committee.

MEMORANDUM OPINION

DAVID P. MCDONALD, Chief Judge.

This case is before the Court on the motion of Dell Receivables, L.P. ("Dell") for allowance of a priority administrative claim under 11 U.S.C. § 546(c)(2)(A). Because Dell failed to establish by a preponderance of the evidence that it had the right to reclaim the goods in question under Missouri law, the motion will be denied.

JURISDICTION AND VENUE

This Court has jurisdiction over the parties and subject matter of this proceeding pursuant to 28 U.S.C. §§ 1334, 151, and 157 and Local Rule 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a "core proceeding" pursuant to 28 U.S.C. §§ 157(b)(2)(B) and (K), which the Court may hear and determine. Venue is proper in this District under 28 U.S.C. § 1409(a)

PROCEDURAL & FACTUAL BACKGROUND

Bridge Information Systems ("Bridge") purchased computer equipment from Dell on credit in January 2001. Bridge received the equipment on various dates between January 22 and February 5, 2001. The aggregate purchase price for the equipment was $72,536.00 and Bridge did not render payment to Dell for the equipment. Dell asserts that is sent a written demand to Bridge to reclaim the goods on February 2, 2001. However, the only evidence produced concerning the date of the demand was a letter dated February 7, 2001.

Several of Bridge's creditors filed an involuntary petition pursuant to 11 U.S.C. § 303 on February 1, 2001 against Bridge for relief under Chapter 11 of the Bankruptcy Code. Bridge subsequently filed a voluntary petition on February 15, 2001 for relief under Chapter 11 of the Bankruptcy Code pursuant to 11 U.S.C. § 301. This Court dismissed the involuntary petition on May 30, 2001 as moot in light of Bridge's filing of the voluntary petition.

Dell filed the present motion seeking an order that it is entitled to an administrative claim for the entire unpaid purchase price of the equipment. Dell premises its motion on an argument that its right to reclaim the equipment under applicable state law is preserved in the bankruptcy and given priority status under 11 U.S.C. § 546(c)(2)(A). The Official Unsecured Creditors' Committee (the "Committee") and Goldman Sachs Creditor Partners L.P. ("Goldman Sachs") have filed objections to Dell's motion. Dell has failed to produce any evidence that its state law right to reclaim the equipment survived Goldman Sachs' blanket security interest in Bridge's assets as provided in the Court's order approving Goldman Sachs' provision of post-petition financing to Bridge (the "DIP Order"). Accordingly, Dell's motion will be denied.

DISCUSSION

A. Missouri Law Applies With Respect to Dell's Right to Reclaim the Equipment

Section 546(c) generally preserves a seller's state law right under the Uniform Commercial Code to reclaim goods it sold on credit to an insolvent purchaser. Pester Refining Co. v. Ethyl Corp. (In re Pester Refining Co.), 964 F.2d 842, 845 (8th Cir.1992). Thus, as initial matter, the Court must determine which state law applies with respect to Dell's right to reclaim the equipment.

Apparently, Bridge transmitted the order for the equipment from its St. Louis, Missouri office to Dell's office in Austin, Texas. Also, it appears Dell shipped the equipment from its warehouse in Austin to Bridge's facilities in St. Louis. The record does not indicate the location of any negotiations that may have taken place between the parties. Thus, it is conceivable that either Missouri or Texas law could apply.

A bankruptcy court will apply the conflict of laws principles of the state in which it sits. Amtech Lighting Services Co. v. Payless Cashways, Inc. (In re Payless Cashways), 203 F.3d 1081, 1084 (8th Cir.2000). Under Missouri law, in the absence of proof that an alternative state's law differs from Missouri law, the court will presume that the alternative state's law is the same as Missouri's law and will apply Missouri law. Aman Collection Service, Inc. v. Burgess, 612 S.W.2d 405, 407 (Mo.Ct.App.1981). Here, because there is no evidence that Missouri law differs from Texas law with respect to a seller's right to reclaim goods sold on credit, Missouri law will apply as to whether Dell has the right to reclaim the equipment.

B. Dell's Demand to Reclaim the Equipment was Timely under Section 546(c)(1).

As outlined above, section 546(c) in general preserves a seller's state law right to reclaim goods. Under Missouri law, a seller may reclaim goods it sells to an insolvent buyer on credit if the seller makes a written demand to the buyer within ten days of the buyer's receipt of the goods. Mo.Rev.Stat. § 400.2-702(2). Section 546(c), however, extends the time in which the seller must make demand to twenty after the debtor receives the goods if the case under the Code is commenced before the expiration of the ten day period. 11 U.S.C. § 546(c)(1)(B).

Here, Bridge received the equipment on various dates between January 22 and February 5 and made its written demand to reclaim the equipment on February 7. An involuntary petition was filed against Bridge on February 1 and Bridge filed its voluntary petition on February 15. The Court dismissed the involuntary petition as moot on May 30.

The Committee contends in its objection to Dell's claim that because the Court eventually dismissed the involuntary petition, the case was commenced on February 15 when Bridge filed its voluntary petition. Accordingly, the Committee asserts that the extended twenty day limitation under § 546(c)(1)(B) is not applicable and Dell's written reclamation demand sent on February 7 was untimely under Missouri law with respect to any equipment Bridge received before January 26. The Court rejects this argument for two reasons.

First, the Code explicitly states that the filing of an involuntary petition commences the case. 11 U.S.C. § 303(b). The fact that the original involuntary petition is later superseded by a subsequent petition does not render the filing of the original petition inoperative. Bixby v. First Nat'l Bank of Elwood, 250 F.2d 713, 718-19 (7th Cir.1957). Rather, provided that the subsequent petition invokes the same substantive issues as the original involuntary petition, the original petition commences the case even if it is later dismissed. Id. For example, in Bixby, the Seventh Circuit held that the operative date for determination of whether a pre-petition transfer was a fraudulent conveyance was the date of the original involuntary petition when a subsequent petition contained the same factual allegations as the original petition. Id.

A second reason to reject the Committee's argument is that it runs counter to two important policy concerns. First, federal courts adhere to a policy that, absent some overriding concern, disputes should be adjudicated based on the merits rather than technical irregularities. In re Gale, 177 B.R. 531, 536 (Bankr.E.D.Mich.1995). Also, bankruptcy courts should examine the realities of a transaction and avoid exalting form over substance when adjusting disputes under the Bankruptcy Code. Virginia Electric & Power Co. v. Caldor, Inc., 117 F.3d 646, 650 (2d Cir.1997).

Here, the reason why the Court dismissed the involuntary petition is that the voluntary petition raised the exact same substantive issues as the involuntary petition. Also, the involuntary petition was still pending and Bridge had not even filed its voluntary petition when Dell transmitted its written demand to Bridge to reclaim the equipment. Clearly, accepting the Committee's position that the involuntary petition did not commence this case would ignore the reality underlying this bankruptcy case. Under this record, the Court finds that the Committee's argument runs counter both to the plain language of 11 U.S.C. § 303(b) and fundamental public policy. Accordingly, the Court finds that the involuntary petition filed on February 1, 2001 commenced the case and that the twenty day time limitation contained in 11 U.S.C. § 546(c)(1)(B) applies. Thus, Dell's written demand to Bridge to reclaim the equipment was timely under § 546(c)(1)(B).

C. Dell's State Law Reclamation Right Did Not Survive Goldman Sachs' Lien

As indicated above, section 546(c)(1) preserves a seller's right to reclaim goods under state law and gives the seller priority over the general unsecured creditors. Provided the creditor has a valid state law right to reclaim goods, if the court denies the seller's request to reclaim the goods in question, it must provide the seller with a priority administrative claim under § 503(b) or a lien that secures the value of the reclamation claim. 11 U.S.C. §§ 546(c)(2)(A) and (B); Griffin Retreading Co. v. Oliver Rubber Co. (In re Griffin Retreading Co.), 795 F.2d 676, 679 (8th Cir.1986).

Here, Dell states in its motion that it is entitled to an administrative priority claim under § 546(c)(2)(A). A party seeking a priority administrative claim has the burden of proving by a preponderance of the evidence that it has the right to such a claim. In re Food Barn Stores, Inc., 175 B.R. 723, 726 (Bankr.W.D.Mo.1994). Because Dell has failed to produce...