In re Colonial Distributing Company
| Decision Date | 16 October 1968 |
| Docket Number | No. 67-28.,67-28. |
| Citation | 291 F. Supp. 154 |
| Parties | In the Matter of COLONIAL DISTRIBUTING COMPANY, Bankrupt. |
| Court | U.S. District Court — District of South Carolina |
George E. Lewis, of Turner, Padget, Graham & Laney, Columbia, S. C., Trustee in Bankruptcy.
Roy D. Bates, of Marchant, Bristow & Bates, Columbia, S. C., for Trustee.
William K. Easterling, of Easterling & Brantley, Columbia, S. C., for Gilbert Ross.
David N. Wilburn, Jr., of Jolly & Wilburn, Union, S. C., for Pete N. Leventis and Kicidis Enterprises.
ORDER CONFIRMING THE REPORT OF SPECIAL MASTER IN BANKRUPTCY
The Special Master in Bankruptcy filed, October 4, 1968, his Report on the claims of Gilbert Ross, Pete N. Leventis and Kicidis Enterprises, Inc. No written objections were filed with the court within the ten (10) days allowed and required by Rule 53(e) (2),1 Federal Rules of Civil Procedure.
The controversy stems from an arrangement wherein each of the claimants, in order to take advantage of volume discounts, arranged with bankrupt to purchase, without immediate delivery in full, certain wines and liquors. As need arose each claimant expected to go to, or send, to bankrupt's warehouse, for further delivery. The goods were not marked, segregated or set aside in any way in the warehouse. On February 27, 1967, learning of the closing of bankrupt's warehouse by the South Carolina Department of Agriculture, claimants sought further delivery which was denied. They instituted claim and delivery2 proceedings in the South Carolina courts resulting in the taking of wares of values later admitted. Each claimant later filed claim against the bankrupt estate, to which the Trustee objected and filed counterclaim insisting that the particular creditors had received a preference. The Trustee asked the Court of Bankruptcy to set aside the preferences, void the claim(s) and order reimbursement.
After a hearing at which all interested parties were represented, the Special Master in Bankruptcy rendered his decision (report). He granted the complete relief sought by the Trustee and concluded:
Title to goods transferred to claimants was in the Bankrupt and such transfer meets all of the elements of a voidable preference under Section 60 of the Bankruptcy Act. This establishes the basis for the trustee's objection to the allowance of claimants' claims under Section 57(g) of the Bankruptcy Act pending a return of the goods and invokes the summary jurisdiction of the Bankruptcy Court to order such a return of the goods to the Trustee.
The Special Master in Bankruptcy recommended:
This court adopts the Master's Report in full, and its Conclusions and Recommendations, and same are directed to be carried out by the parties involved.
The Trustee is ordered to file appropriate statement of interests and costs to be taxed against claimants.
Nothing herein ordered shall prevent claimants from pursuing their claims as common creditors.
And it is so ordered.
(s) Robert W. Hemphill, United States District Judge.
REPORT OF SPECIAL MASTER IN BANKRUPTCY
I, the undersigned Special Master in Bankruptcy, report that on August 6, 1968, after due notice to all parties, a hearing was had before me, attended by the attorneys of record, on the merits of the Trustee's objection to claims of Gilbert Ross, Peter N. Leventis and Kicidis Enterprises, Inc., filed herein, on the ground that said Claimants had received a preference from the bankrupt voidable under Section 57(g) of the Bankruptcy Act.
After careful consideration of evidence taken, stipulations submitted and arguments of the attorneys, I make and report Findings of Fact and Conclusions of Law as follows:
FINDINGS OF FACT
1. That in January of 1967, Claimants, retail liquor dealers, entered into agreements with Bankrupt, Colonial Distributing Company, for the purchase of certain wines and liquors at a specified purchase price which was paid in full by Claimants to Bankrupt.
2. That, according to the terms of said agreement, a portion of the wines and liquors were delivered by Bankrupt to Claimants, the remainder to be delivered at a later time upon notification.
3. That Claimants did not call for further delivery of the goods until February 27, 1967 when they learned that Bankrupt's warehouse had been closed by order of the South Carolina Department of Agriculture.
4. That on February 28 and March 1, 1967 claimants received possession from Bankrupt of a portion of the wines and liquors called for in the agreements through Claim and Delivery proceedings in the Richland County Court.
5. That the wines and liquors so received by Claimants through Claim and Delivery proceedings were less than the amounts called for in the agreements and in some instances were of a bottle size different from that described in the agreements.
6. That the value of the wines and liquors taken by Claimants on February 28, 1967 and March 1, 1967 is as follows:
7. That at no time after contracting for the sale of wines and liquors and payment by Claimant to Bankrupt was an attempt made to ascertain whether all the wines and liquors to be delivered at a later time were in possession of or owned by Bankrupt and during this period there were at least occasions when the bankrupt did not have possession of all wines and liquors called for.
8. It was the understanding between bankrupt and claimants that if wines and liquors could not be delivered when requested by claimants, bankrupt would refund the purchase price paid for such merchandise.
9. That during the period from the execution of the agreements and the Claim and Delivery actions, wines and liquors called for in the agreement were never set aside, marked, segregated or otherwise identified to the contract.
10. That within 30 days after the agreements, Bankrupt reported the transactions and paid taxes thereon to the South Carolina Tax Commission as required by law.
11. That at the time Claimants received possession of the wines and liquors by Claim and Delivery proceedings in the latter part of February and early March of 1967, Bankrupt was insolvent and Claimants knew or had reasonable grounds to know of the insolvency.
12. That on April 21, 1967 Colonial Distributing Company was adjudged a bankrupt by order of the United States District Court for the District of South Carolina.
13. That in May of 1967, Claimants filed Proofs of Claim in Bankruptcy for the difference in the value of wines and liquors received and the purchase price paid to Bankrupt.
This matter arises out of a common business practice in the marketing of alcoholic beverages. To enjoy a quantity discount price, retailers enter into an arrangement with distributors to purchase larger amounts of wines and liquors than they can conveniently store in their shops, paying the entire purchase price at the time of the agreement, with the wholesaler to hold possession of a part of the order until notice of delivery from the retailer. Claimants and the Bankrupt, Colonial Distributing Company, were operating under such a "bill and hold" arrangement. Upon learning of Bankrupt's financial difficulties, Claimants seized a portion of undelivered wines and liquors called for in the arrangements and after bankruptcy adjudication filed claims against the estate for the value of the remainder.
The Trustee invokes the summary jurisdiction of the Bankruptcy Court in filing objections to the claims of creditors under Section 57(g) of the Bankruptcy Act, 11 U.S.C. § 93(g) (1964), on the ground that these creditors have received preferences under Section 60 of the Act. 11 U.S.C. § 96 (1964). While a direct action under Section 60 to set aside a preference must be brought in plenary proceedings, the United States Supreme Court has held that once summary jurisdiction has attached to determine the allowance of claims, the Bankruptcy Court retains jurisdiction to order surrender of the preference. Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966).
The essence of the Trustee's contention is that the "bill and hold" agreement in January of 1967 created a creditor-debtor relation between the Bankrupt and Claimants. That is, when Claimants paid the full purchase price and received partial delivery of the goods they become mere creditors of the bankrupt for the value of the liquors held for future delivery. Thus when the goods were delivered to claimants on February 28 and March 1, 1967 through Claim and Delivery proceedings, this was in payment of the debt created earlier when the purchase price had been paid under the terms of the agreement. If the Trustee's major premise of the creditor-debtor relation is correct, there is no duobt of the sylogistic conclusion that the transfer of possession was a preference under Section 60 of the Bankruptcy Act. In paraphrasing the elements of a preference, this would constitute transfers of the debtor's property, to and for the benefit of the creditors which would give them a greater percentage of their debts than other creditors, on account of antecedent debts, made...
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