In re Buffalo Molded Plastics, Inc.

• Decision Date: 28 November 2006
• Docket Number: Adversary No. 05-01111-TPA.,Bankruptcy No. 04-12782-TPA.
• Citation: 354 B.R. 731
• Parties: In re BUFFALO MOLDED PLASTICS, INC., d/b/W Andover Industries, Debtor. Buffalo Molded Plastics, Inc., d/b/a Andover Industries, Plaintiff, v. Plastic Mold Technology, Inc. and Comerica Bank, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

354 B.R. 731

In re BUFFALO MOLDED PLASTICS, INC., d/b/W Andover Industries, Debtor Buffalo Molded Plastics, Inc., d/b/a Andover Industries, Plaintiff, v. Plastic Mold Technology, Inc. and Comerica Bank, Defendants.

Bankruptcy No. 04-12782-TPA.

Adversary No. 05-01111-TPA.

United States Bankruptcy Court, W.D. Pennsylvania.

November 28, 2006.

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Willard E. Hawley, Bingham Farms, MI, David B. Salzman, Pittsburgh, PA, for Debtor.

Mary Kay Shaver, Beverly Weiss Manne, Pittsburgh, PA, for Plastic Mold Technology, Inc.

Ralph E. McDowell, Detroit, MI, for Comerica Bank.

MEMORANDUM OPINION

THOMAS P. AGRESTI, Bankruptcy Judge.

The Debtor, Buffalo Molded Plastics, Inc. d/b/a Andover Industries ("Buffalo Molded") filed the within adversary against Defendants Comerica Bank ("Comerica") and Plastic Mold Technology, Inc. ("PMT") seeking an order distributing certain, escrowed funds held by its counsel as a result of prior court Order. Currently before the Court is the Joint Motion for Summary Judgment filed by Buffalo Molded and Comerica and the Cross-Motion for Summary Judgment filed by PMT. For the reasons expressed below, although numerous issues are now resolved allowing it to proceed to trial, genuine issues of material fact exist in this dispute. Therefore, the Joint Motion for Summary Judgment filed by Buffalo Molded and Comerica is denied. PMT's Cross-Motion for Summary Judgment is likewise denied.¹

FACTS

Since its 1953 beginning the Debtor engaged in the plastic injection molding business, and was a primary supplier of interior and exterior parts for the automotive and consumer products industries. In that capacity, Buffalo Molded routinely entered into contracts and purchase order arrangements with automotive companies such as General Motors ("GM") to supply parts as well as the tooling necessary to manufacture the parts.² The sale of the related tooling for manufacture of these parts constituted approximately 10 to 20% of Buffalo Molded's overall sales revenue. In 1986, Comerica assumed responsibility for financing Buffalo Molded's manufacturing operation. On July 24, 1986 Comerica filed a financing statement and perfected its security interest in substantially all of the personal property assets of Buffalo Molded.

Prior to Buffalo Molded's bankruptcy filing, GM issued purchase orders to Buffalo Molded for certain parts and tooling which involved, among others, the GMX-001 Chevy Painted Rocker, GM Part No. 22728688/89 ("Rocker Panel Part") and the Chevy Base Front Door, GM Part No. 15118288/89 ("Front Door Part"). The manufacture of the tooling for the respective parts ("Shipped Tooling") was subcontracted by the Debtor to PMT. Thereafter, PMT manufactured the Shipped Tooling in its Michigan plant. Prior to delivery of the tooling, PMT took certain steps intended to perfect its interest in the same. On December 8, 2003, PMT entered into a "Purchase Money Security Interest Agreement" with Buffalo Molded in anticipation of creating a purchase money security interest in the Shipped Tooling. With the intent of creating a separate lien in the Shipped Tooling pursuant to the Michigan Ownership Rights in Dies, Molds and Forms Act, M.C.L. §§ 445.611 et seq. ("Michigan Tooling Lien Act") PMT recorded its name and address on the Shipped Tooling and noted the same on the December 22, 2003 Pennsylvania financing statement filed in conjunction with its purchase money security interest. Despite Comerica's 1986 perfection of a valid security interest in substantially all of Buffalo Molded assets, including its inventory, at no time subsequent to taking these "steps" did PMT formally notify Comerica of PMT's intent to claim a purchase money security interest or lien in the Shipped Tooling.

PMT's cost for the Shipped Tooling as charged to Buffalo Molded was $377,210 which included $360,910 for the Rocker Panel Part and $16,300 for the Front Door Part.³ On October 1, 2004, after "permanent" delivery of the Shipped Tooling to Buffalo Molded in early June, 2004, GM paid Buffalo Molded the full, designated purchase price for the Shipped Tooling as part of a larger wire transfer. Immediately thereafter, Comerica "swept" the Debtor's account taking receipt of the wired funds. No payment was ever made by Buffalo Molded to PMT for the Shipped Tooling. PMT is currently owed $377,210 for the same.

On October 21, 2004, Buffalo Molded filed its voluntary petition in the present action under Chapter 11 of the Bankruptcy Code. Prior to the filing Buffalo Molded subcontracted with PMT for the manufacture of tooling for other, unrelated GM parts which as of the filing date had not been shipped to Buffalo Molded ("Unshipped Tooling"). Subsequent to the bankruptcy filing, PMT asserted that its "priority" lien in the Shipped Tooling continued and demanded payment for the same from GM. As a result PMT was unwilling to forward the Unshipped Tooling to Buffalo Molded for production of the unrelated GM parts until it was paid for the Shipped Tooling. Buffalo Molded believed PMT's demand for payment inappropriate since upon its receipt of the Shipped Tooling it became property of the Debtor free and clear of any claim of PMT subject only to the blanket lien of Comerica. Since GM had already paid Buffalo Molded for the Shipped Tooling, GM refused to pay for the tooling a second time. By the same token, Buffalo Molded and GM were in immediate need of the Unshipped Tooling.

In order to facilitate Buffalo Molded's possession of the much-needed Unshipped Tooling and allow it to meet its obligation to GM, while at the same time creating a fund to protect PMT in the event it prevailed in the within dispute, on December 16, 2004, the Parties entered into a Court-approved Stipulation filed at Document No. 185 ("2004 Stipulation"). In the 2004 Stipulation, GM agreed to advance $377,210 to Buffalo Molded representing full payment of PMT's required purchase price for the Shipped Tooling. These monies were then placed in escrow and held by Buffalo Molded's counsel pending resolution of the current dispute. In return, GM was allowed to exercise set off rights it held against monies due Buffalo Molded in regards to other, unrelated purchases. The 2004 Stipulation allowed transfer of title to GM for the Shipped Tooling free and clear of the competing lien claims raised by the Parties in the present matter. The 2004 Stipulation transferred the claims of Buffalo Molded, PMT and Cornerica "with the same validity, and in the same rank and priority" as held by the claimants in the Shipped Tooling prior to entering the 2004 Stipulation. Except for releasing GM from any further liability, the 2004 Stipulation preserved the status quo as of that time, the respective liens of the Parties, if any, being transferred solely to the escrow funds. Stipulation, Document No. 185, VI 10, 11. As such, GM has no further interest in the pending dispute.

PROCEDURAL HISTORY

As noted, Buffalo Molded filed its bankruptcy on October 21, 2004. On May 4, 2005, Buffalo Molded filed the within adversary proceeding to resolve the competing interests of Comerica and PMT in the monies placed in escrow as a result of the 2004 Stipulation. In its Complaint, Buffalo Molded claimed that any security interest or lien asserted by PMT was terminated when GM purchased the tooling in its capacity as a good faith purchaser in the ordinary course of business. Since Comerica immediately swept the Debtor's lockbox account upon receipt of the GM purchase monies, the Debtor claimed that no traceable proceeds existed upon which PMT could assert any lien rights or claim. Accordingly, the Debtor claimed any potential lien on the proceeds of the GM sale disappeared and the Debtor was entitled to the escrow funds. In most parts and for obvious reasons, Comerica's Answer agreed with the allegations in Buffalo Molded's Complaint. Comerica reiterated that GM's purchase was free and clear of PMT's alleged security interest in the Shipped Tooling. Even if PMT possessed a security interest in the receivable created by the GM sale, Comerica claimed PMT's lien was junior to its prepetition/postpetition security interest since the Shipped Tooling proceeds were neither identifiable cash proceeds, chattel paper or an instrument.

In its Answer PMT specifically denied GM's alleged "buyer in the ordinary course" status and that the sale was in the ordinary course of the Debtor's business. PMT asserted that its claim to the sale proceeds continued despite deposit of the GM purchase monies in the Debtor's lockbox.⁴ By way of affirmative defense, PMT claimed it held a perfected lien in the Shipped Tooling pursuant to the Michigan Tooling Lien Act and Michigan common law, and possessed a perfected purchase money security interest pursuant to Article 9 of the Michigan Commercial Code, MCL §§ 440.9101 to 440.9994, all of which survived the sale to GM. As a result of its alleged lien status in the Shipped Tooling, PMT claimed a right to the proceeds of the same following the GM sale.

On January 31, 2006, Buffalo Molded and Comerica filed their joint Motion for Summary Judgment asserting Comerica's right to the escrow funds as a result of its 1986 blanket lien. Buffalo Molded and Comerica argue in their motion that Comerica has a valid pre-existing purchase money security interest in Buffalo Molded's "inventory," as that term is defined and interpreted under Pennsylvania's Uniform Commercial Code. See 13 Pa.C.S. § 9324(b).⁵ Buffalo Molded and Comerica further claimed in their Motion that based on the characterization of the Shipped Tooling as inventory, in order to achieve priority PMT must prove that it possessed a perfected security interest in the Shipped Tooling before it was delivered to Buffalo Molded. PMT must also establish that it formally notified Comerica of PMT's intent to claim a security interest in that same collateral. Id....