In re Cash Currency Exchange, Inc.
| Decision Date | 27 January 1984 |
| Docket Number | 83 C 2641,83 C 3017,83 C 3015,83 C 3021 (83 B 1933 thru 83 B 1989) (83 A 0499).,83 C 3016,No. 83 C 2640,83 C 2640 |
| Citation | 37 BR 617 |
| Parties | In re CASH CURRENCY EXCHANGE, INC., et al., Debtors. CASH CURRENCY EXCHANGE, INC., et al., Plaintiffs, v. Donald C. SHINE, Receiver, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
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Nicholas B. Dozoryst III, Abraham Brustein, David K. Welch, Dozoryst & Brustein, Chicago, Ill., for debtor.
David R. Heroy, Stephen R. Bedell, Bardner, Carton & Douglas, Chicago, Ill., for trustee.
David Brown, Asst. U.S. Trustee, Chicago, Ill., trustee.
Frank O. Wetmore II, Duane M. Kelley, Kevin J. Egan, James R. Vogler, Rosalind B. Hebert, Winston & Strawn, Chicago, Ill., for Travel Express Co., Inc.
The primary issue in this case is whether a currency exchange can be a debtor under Chapter 11 of the Bankruptcy Reform Act of 1978 ("Bankruptcy Code"). On February 10, 1983, 57 currency exchange corporations filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. Thirty-three of these currency exchanges were located in Illinois. A week prior to the filing of these bankruptcy petitions, the 33 Illinois exchanges had been placed under administrative receiverships pursuant to the Illinois Community Currency Exchanges Act, Ill.Rev.Stat. ch. 17 § 4802-4852 (1981) ("Act"). The Director also had filed 33 separate injunction actions to liquidate the exchanges pursuant to the Act. The Act regulates the operation of currency exchanges in Illinois, setting forth licensing, bonding and insurance requirements. The Illinois Director of Financial Institutions ("Director") is authorized to issue licenses to applicants and generally administer the various provisions of the Act. If the Director determines that any licensee is insolvent or is violating the Act, the Director is authorized to appoint a receiver to take possession and title to the books, records and assets of the exchange. Id. at § 4825. The receiver may operate the exchange until the Director determines that possession should be restored to the licensee or that the business should be liquidated. Id. at §§ 4825 & 4826. Until possession of a currency exchange is turned back to the licensee or until a liquidation proceeding is complete, the Director or the Director's receiver controls the exchange's assets.
In the instant case, the Director's receiver was in control of the 33 currency exchanges when the exchanges filed Chapter 11 petitions. The debtor-exchanges therefore sought an order requiring the Director's receiver to turn over the property of the exchanges to the bankruptcy trustee. The Director sought and was granted leave to intervene in these turnover proceedings and the 33 Chapter 11 petitions, although on a limited basis. The bankruptcy court subsequently ordered the Director's receiver to turn over the property of the exchanges to the bankruptcy trustee and denied the Director's motion to dismiss the 33 Chapter 11 petitions. The Director appeals from these orders to this court.1
The thrust of the Director's argument focuses on § 109 of the Bankruptcy Code.2 Section 109 of the Bankruptcy Code defines who may be a debtor under the various chapters of the Code, 7, 9, 11 and 13. The section states, in relevant part.
The Director maintains that currency exchanges perform financial services and are regulated by the state of Illinois in a manner substantially equivalent to those entities listed in § 109(b)(2). Because of these similarities between the banks and banking institutions listed in § 109(b)(2) and currency exchanges, the Director concludes that currency exchanges are within the purpose of § 109(b)(2) and cannot be debtors under chapters 7 or 11 of the Bankruptcy Code. After examining relevant cases and carefully weighing the arguments presented, this court concludes that a currency exchange does not fall within § 109(b)(2) and may be debtor in a Chapter 11 proceeding.
DETERMINING WHAT ENTITIES ARE EXCLUDED UNDER § 109(b)(2)
In determining whether a particular corporation is an excluded corporation under § 109(b)(2), courts have used two approaches: (1) a state classification based upon the law of the state of incorporation, and (2) an independent classification test based upon the court's own construction of the Bankruptcy Code. 2 King, Klee, Levin, Miller and Murphy, Collier on Bankruptcy § 109.02 (1983). hereinafter cited as Collier's 15th ed. 1983.
Under the state classification test, the court determines the corporation's status by examining the law of the state of incorporation. If the state statute denominates the corporation as one which the Bankruptcy Code excludes, the corporation cannot be a debtor under the Bankruptcy Code.3 If the statute is not definitive, the court will more closely examine the substance of the statute, especially the powers given the corporation under the statutory scheme. In some instances, a comprehensive statutory liquidation scheme may indicate that the corporation is to be excluded from the reach of the Bankruptcy Code, although statutory provision for state supervised liquidation does not necessarily bring a corporation within the exclusionary language of § 109. Id. If an examination of the state statute indicates that the state does not equate the corporation in question with corporations in the excluded class, the corporation is a proper debtor.
Under the second, independent classification test, the court defines the words of the bankruptcy statute itself and then determines if the corporation in question falls within the defined words. Cases employing the independent classification test have utilized a common sense approach, guided by legislative history and rules of statutory construction. In re Prudence, 79 F.2d 77, 79 (2d Cir.1938); State of Kansas ex rel. Boynton v. Hayes, 62 F.2d 597, 598 (10th Cir.1932); Gamble v. Daniel, 39 F.2d 447, 450 (8th Cir.1930).
In the instant case, applying either test, the entities in question do not fall within the § 109(b)(2) exclusion and are therefore proper debtors in a Chapter 11 proceeding. Under the state classification test, currency exchanges are not defined as banking institutions nor are they so similar to banking institutions as to fall within the exclusionary language of § 109(b)(2). Currency exchanges possess very different and more limited powers under the Currency Exchanges Act than banks and banking institutions possess under the Illinois Banking Act, Ill.Rev.Stat. ch. 17 §§ 301-394 (1981) (Illinois Banking Act). In addition, the statutory liquidation provisions governing currency exchanges are more meager and limited than the comprehensive liquidation provisions governing banks and banking institutions. All these factors indicate that the state of Illinois does not classify currency exchanges as banking institutions or their substantial equivalent. Similarly, under the independent classification test, the words of the Bankruptcy Code itself do not indicate that Congress intended to include in § 109(b)(2) entities which function like the Illinois currency exchanges at issue herein.
Applying the state classification test, several circuits have refused to find that a particular entity fell within § 109(b)(2)'s exclusion because the entity rendered some services similar to the services rendered by a bank. In Gamble v. Daniel, 39 F.2d 447 (8th Cir.1930), for example, the state of Nebraska argued that a trust company was a banking corporation and thus excluded from being a debtor under the bankruptcy law.4 Under Nebraska law, the trust company was empowered to do several of the essential and usual things that banks could do. The court found that simply because the trust company and banks carried out similar activities, the trust company did not become a banking corporation under state law. The court looked to the state statute defining and regulating banks and found that deposits were an integral part of the business of banks; under state law banks were authorized to receive deposits, required to hold cash reserves based upon deposits, interest payable on deposits was specified, guaranty funds for depositors were specified and reports regarding deposits were required. Although the statute defining and regulating trust companies authorized a trust company to carry on many functions performed by banks, a trust company was not permitted to receive deposits in a banking sense. Therefore, the court concluded that the trust companies in question were not banking institutions under the state statute. The court affirmed the bankruptcy court's order requiring state officers charged with liquidating the trust company to turn over the property of the trust company to the receiver appointed by the bankruptcy court. Accord In re Prudence, 79 F.2d 77, 79 (2d Cir.1938).
In the instant case, as in Gamble, the currency exchanges in question are not empowered to receive deposits as are the state banks organized under the Illinois Banking Act. The Illinois Banking Act, in the section entitled "Formation and primary powers," provides:
3. It shall be lawful to form banks, as herein provided, for the purpose of discount...
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