In re Builders Transport, Inc., No. 05-15900.

CourtU.S. Court of Appeals — Eleventh Circuit
Writing for the CourtBirch
Citation471 F.3d 1178
PartiesIn Re: BUILDERS TRANSPORT, INC., Debtor. Two Trees, a New York general partnership, David C. Walentas, Jane Walentas, The CIT Group/Business Credit, Inc., Plaintiffs-Appellants, v. Builders Transport, Inc., Defendant-Appellee.
Decision Date05 December 2006
Docket NumberNo. 05-15900.
471 F.3d 1178
In Re: BUILDERS TRANSPORT, INC., Debtor.
Two Trees, a New York general partnership, David C. Walentas, Jane Walentas, The CIT Group/Business Credit, Inc., Plaintiffs-Appellants,
v.
Builders Transport, Inc., Defendant-Appellee.
No. 05-15900.
United States Court of Appeals, Eleventh Circuit.
December 5, 2006.

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Kevin J. Nash, Finkel, Goldstein, Rosenbloom & Nash, LLP, New York City, Phillip S. McKinney, Rogers & Hardin, Brad A. Baldwin, Powell, Goldstein, Frazer & Murphy, LLP, Atlanta, GA, for Plaintiffs-Appellants.

David G. Bisbee, Atlanta, GA, for Debtor.

Appeals from the United States District Court for the Northern District of Georgia.

Before EDMONDSON, Chief Judge, and BIRCH and ALARCON,* Circuit Judges.

BIRCH, Circuit Judge:


This appeal involves a turnover action in bankruptcy pursuant to 11 U.S.C. § 542 filed by the debtor, Builders Transport, Inc. ("BTI"). BTI seeks to recover certain standby letter of credit proceeds that were drawn down and retained by The CIT Group/Business Credit, Inc. ("CIT"), which was the assignee of BTI's lessor, Two Trees, whose two general partners are David C. Walentas and Jane Walentas. The standby letter of credit was created to secure BTI's obligations to Two Trees under a lease agreement that was part of a sale-leaseback transaction. The complicated facts surrounding the sale-leaseback transaction in this case belie a simple conclusion. The letter of credit proceeds, minus certain lessor damages, belong to BTI's estate and should be turned over. We AFFIRM the judgments of the bankruptcy and district courts as to both liability and damages.

I. BACKGROUND

A. Factual Background

Most of the facts in this case are undisputed. Quoting liberally and making changes as necessary, we largely adopt the bankruptcy court's statement of the facts in its 30 September 2002 order: BTI was in the trucking business. Its headquarters facility located in Camden, Kershaw County, South Carolina had been constructed with the proceeds of industrial revenue bonds, and BTI leased the facility from Kershaw County until 1995. In that year, the bonds were paid, and BTI was entitled to purchase the property for $1.

BTI's primary lender was CIT. BTI and CIT entered into an amended and restated financing agreement in 1993, which was thereafter amended from time to time, pursuant to which CIT provided to BTI a revolving line of credit, term loan, and letter of credit facilities, secured by virtually all of BTI's assets. In 1990 BTI had written off worthless stock of a satellite messaging company, producing a capital loss carryforward for tax purposes that would expire on 31 December 1995. For several months prior to October 1995, BTI had explored selling and leasing the Camden property.

In the fall of 1995, $1,530,000 of the capital loss carryforward remained unused and could not be used unless BTI had sufficient income in that fiscal year to offset the loss. Stanford M. Dinstein was an officer and director of BTI's parent company, Builders Transport Incorporated ("BTI Parent"), a public company and sole shareholder

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of BTI, and was apparently the architect of the sale and leaseback plan involving Two Trees; that is, Two Trees would purchase the Camden property and lease it back to BTI.

In considering Dinstein's proposal, officers of BTI and BTI Parent consulted their outside accountants, Ernst & Young, who advised them concerning the structure of the deal and what facts would support the legitimacy of the sale and leaseback and hence the ability to successfully use the loss carryforward. For tax reasons, Ernst & Young advised against having BTI guarantee the obligations of Two Trees to CIT.

On 5 October 1995, the Board of Directors of BTI Parent met to consider the sale and leaseback deal with Two Trees. At that time, David Walentas was a general partner in Two Trees and Chairman of the Board of BTI Parent, as well as Chairman of the Board of BTI. Walentas did not attend the 5 October 1995 Board meeting, however. Nor did he act on behalf of Two Trees, as one of its general partners, in connection with these transactions. Instead, Dinstein chaired that Board meeting. He also represented Two Trees as its attorney in fact in the sale and leaseback transactions. The Board, with Dinstein abstaining, unanimously approved resolutions authorizing the sale and leaseback transactions between BTI and Two Trees.

The following day, BTI Parent, as the sole shareholder of BTI, by Robert Garner, its corporate secretary, executed a written consent in lieu of a shareholder meeting adopting resolutions on behalf of BTI approving the transactions and authorizing officers to execute and deliver the appropriate documents. That consent, attached as an exhibit to Mr. Garner's affidavit filed on 26 June 2000, states in part: "FURTHER RESOLVED, that it is in the best interest of [BTI] to obtain a letter of credit in the amount of up to $1.6 million in favor of Two Trees ... securing [BTI's] lease obligations to Two Trees."

The deal closed on or about 11 October 1995. Two Trees purchased the Camden property from BTI for $3.5 million and leased the property back to BTI. The lease agreement provided for a five-year term, commencing on 12 October 1995, with BTI having the option to renew the lease for four successive periods of five years each at then fair market rent. The lease agreement provided that BTI would obtain a letter of credit to secure its obligations under the lease. On or about 12 October 1995, Dai-Ichi Kangyo Bank ("DK Bank") issued a letter of credit in favor of Two Trees in its capacity as lessor, on behalf of BTI, in the amount of $1.6 million "to support [BTI's] obligation to pay rent and other amounts under the lease."

Two Trees borrowed from CIT the $3.5 million it paid to BTI for the Camden property. In agreements executed by Dinstein, Two Trees secured its obligation to CIT with a mortgage on the Camden property and with an assignment of its interest in the lease agreement with BTI and in the letter of credit issued by DK Bank. The rent paid by BTI went directly to CIT pursuant to a lockbox agreement between CIT and Two Trees. The amount of BTI's monthly lease payment was $37,825, which was the amount of the note payment due from Two Trees to CIT. Had the note of Two Trees to CIT been amortized according to its terms, Two Trees would still have owed CIT in excess of $2,000,000 at the end of the 60-month lease term.

CIT and DK Bank executed a reimbursement agreement, wherein CIT was obligated to reimburse DK Bank for any payments made by DK Bank on standby letters of credit that DK Bank issued at the request of CIT, in its role as assignee

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of Two Trees. In the event that CIT was obligated to reimburse DK Bank for money paid under a letter of credit issued for BTI's benefit, the financing agreement between BTI and CIT obligated BTI to reimburse CIT for the same amount. During the course of these transactions, the financial institutions collected their fees associated with the issuance of the letter of credit and related agreements.

On 21 May 1998, BTI Parent, BTI, and related companies filed for Chapter 11 of the Bankruptcy Code. 11 U.S.C. § 101 et seq. Subsequent to the petition date, BTI continued for a few weeks to operate the business as debtor-in-possession. Virtually all of BTI's assets secured prepetition debt to CIT and to the CIT Group/Equipment Financing, Inc. With court approval, BTI and CIT companies stipulated to the use of cash collateral by BTI and to the grant of a postpetition security interest in BTI's assets to secure the claims of the CIT companies.

It quickly became obvious to everyone involved in the case that BTI's efforts at reorganization as a going concern could not be successful. BTI conducted a public auction of certain parts of its business on 29 June 1998, and the bankruptcy court approved the sale of those assets to Schneider National, Inc., in an order entered on 10 July 1998. The asset purchase agreement between BTI and Schneider permitted Schneider to occupy the Camden property on a shared use basis with BTI for four months with Schneider to pay 75% of the rent to Two Trees.

On 9 July 1998, CIT, as BTI's lender, sent a notice to DK Bank that BTI's obligations under the lease agreement had been accelerated. On 15 July 1998, DK Bank notified CIT, as the lender to and assignee of Two Trees, that because CIT had accelerated the debt of BTI, the letter of credit would expire in 30 days. On 15 July 1998, CIT, as lender to and assignee of Two Trees, submitted to DK Bank a completed "Default Draft" for $1.6 million.

On or about 22 July 1998, DK Bank paid $1.6 million to CIT, as lender to Two Trees, and CIT, as BTI's lender, reimbursed DK Bank in the amount of $1.6 million. On or about 22 July 1998, CIT, as BTI's lender, charged the amount of $1.6 million to BTI's line of credit, which was secured by property of the estate. Also on 22 July 1998, CIT, as lender to Two Trees, used the $1.6 million received from DK Bank, to pay down the debt Two Trees owed CIT.

The sale of assets to Schneider closed on 3 August 1998. At the closing, Schneider, BTI, and CIT executed a termination agreement and a closing statement, which set forth the amount of CIT's secured claim, which included the $1.6 million charge to BTI's line of credit for the reimbursement of DK Bank. CIT received payment of its claim from the purchase price paid by Schneider. CIT released its lien on BTI's assets, with the exception of certain accounts created pursuant to the termination agreement, and the financing agreement between CIT and BTI was terminated.

In October or November 1998, Schneider vacated the Camden property; BTI had previously moved out. On 10 September 1999, Two Trees sold the Camden property to a third party.

B. Procedural History

On 12 October 1999, BTI...

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21 practice notes
  • Morton v. Kievit ( In re Vallecito Gas, LLC), CASE NO. 07-35674-BJH-11
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas
    • July 19, 2011
    ...estate" in the broadest possible sense. See, e.g., In re Graves, 609 F.3d 1153, 1156 (10th Cir. 2010); In re Builders Transport, Inc., 471 F.3d 1178, 1185 (11th Cir. 2006); In re Burgess, 438 F.3d 493, 509 (5th Cir. 2006). It further noted that legions of cases have held that even contingen......
  • Morton v. Kievit (In re Vallecito Gas, LLC)
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Northern District of Texas
    • July 19, 2011
    ...the estate” in the broadest possible sense. See, e.g., In re Graves, 609 F.3d 1153, 1156 (10th Cir.2010); In re Builders Transport, Inc., 471 F.3d 1178, 1185 (11th Cir.2006); In re Burgess, 438 F.3d 493, 509 (5th Cir.2006). It further noted that legions of cases have held that even continge......
  • Admanco Inc. By Michael S. Polsky v. 700 Stanton Drive LLC, No. 2007AP2791.
    • United States
    • United States State Supreme Court of Wisconsin
    • July 13, 2010
    ...from letters of credit exceeding their obligation); see also Two Trees v. Builders Transport, Inc. (In re Builders Transport, Inc.), 471 F.3d 1178, 1187 (11th Cir.2006) (a letter of credit beneficiary had a duty to return to the debtor excess proceeds not used to secure the debtor's obligat......
  • Gordon v. Webster (In re Webster), Case No. 18-62322-JWC
    • United States
    • United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia
    • March 31, 2021
    ...law determines the nature of a debtor's interest in property. See Two Trees v. Builders Transp., Inc. (In re Builders Transp., Inc.) , 471 F.3d 1178, 1185 (11th Cir. 2006). Under Georgia law, courts recognize the doctrine of equitable distribution of marital assets at divorce. Stokes v. Sto......
  • Request a trial to view additional results
21 cases
  • Morton v. Kievit ( In re Vallecito Gas, LLC), CASE NO. 07-35674-BJH-11
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas
    • July 19, 2011
    ...estate" in the broadest possible sense. See, e.g., In re Graves, 609 F.3d 1153, 1156 (10th Cir. 2010); In re Builders Transport, Inc., 471 F.3d 1178, 1185 (11th Cir. 2006); In re Burgess, 438 F.3d 493, 509 (5th Cir. 2006). It further noted that legions of cases have held that even contingen......
  • Morton v. Kievit (In re Vallecito Gas, LLC)
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Northern District of Texas
    • July 19, 2011
    ...the estate” in the broadest possible sense. See, e.g., In re Graves, 609 F.3d 1153, 1156 (10th Cir.2010); In re Builders Transport, Inc., 471 F.3d 1178, 1185 (11th Cir.2006); In re Burgess, 438 F.3d 493, 509 (5th Cir.2006). It further noted that legions of cases have held that even continge......
  • Admanco Inc. By Michael S. Polsky v. 700 Stanton Drive LLC, No. 2007AP2791.
    • United States
    • United States State Supreme Court of Wisconsin
    • July 13, 2010
    ...from letters of credit exceeding their obligation); see also Two Trees v. Builders Transport, Inc. (In re Builders Transport, Inc.), 471 F.3d 1178, 1187 (11th Cir.2006) (a letter of credit beneficiary had a duty to return to the debtor excess proceeds not used to secure the debtor's obligat......
  • Gordon v. Webster (In re Webster), Case No. 18-62322-JWC
    • United States
    • United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia
    • March 31, 2021
    ...law determines the nature of a debtor's interest in property. See Two Trees v. Builders Transp., Inc. (In re Builders Transp., Inc.) , 471 F.3d 1178, 1185 (11th Cir. 2006). Under Georgia law, courts recognize the doctrine of equitable distribution of marital assets at divorce. Stokes v. Sto......
  • Request a trial to view additional results

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