In re Delta Resources, Inc.
| Decision Date | 21 December 1993 |
| Docket Number | Bankruptcy No. 92-72874. Adv. No. 93-70406. |
| Citation | 162 BR 562 |
| Parties | In re DELTA RESOURCES, INC., Debtor. AMSOUTH BANK, N.A., Plaintiff, v. ORIX CREDIT ALLIANCE, INC., Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
Jerry W. Schoel, Birmingham, AL, for debtor Delta Resources, Inc.
Michael L. Hall and William S. Hereford, Birmingham, AL, for ORIX Credit Alliance.
David B. Anderson, Birmingham, AL, for AmSouth Bank, N.A.
Helen H. Ellis, Acting Bankruptcy Administrator and Estate Analyst, Bankruptcy Administrator's Office, Birmingham, AL.
David L. Carroll, Tuscaloosa, AL, for Navistar Financial Corp.
Donald M. Wright, Birmingham, AL, for Concord Commercial Credit Corp.
This matter came before the court on cross-motions for summary judgment of the plaintiff, AmSouth Bank, N.A. (AP Doc. 26) and of the defendant, ORIX Credit Alliance, Inc. (AP Doc. 34). After reviewing the record of this adversary proceeding (lawsuit), the Delta Resources, Inc., bankruptcy case as a whole, and conducting its own research, the court finds that the "transformation rule" controls on security interests in the Eleventh Circuit and thus in Alabama. Therefore, AmSouth's prior perfected lien in accounts receivable and equipment takes priority over the ORIX security interest in equipment and accounts. The summary judgment motion of the plaintiff is due to be GRANTED; the summary judgment motion of the defendant due to be DENIED.
Delta Resources Inc. of Boligee, Alabama, is a business primarily engaged in excavating and disposing of waste, hazardous and/or otherwise, from various sites around Alabama and the nation. It filed its petition for protection from its creditors under Chapter 11 reorganization on November 30, 1992 (BK Doc. 1).
This adversary proceeding is part of a multi-faceted dispute involving the debtor and two creditors competing legally for a first-priority interest in the debtor's equipment and accounts. Two interlocutory orders involving the equipment most directly in issue in this suit have already been appealed to the District Court where this court was reversed. Both are now on appeal on the merits to the Eleventh Circuit Court of Appeals.
"On the merits" is the correct phraseology because ORIX has already obtained some $570,000.00 in cash from sale of the equipment and collected another approximate $80,000.00 in escrowed adequate protection payments which the debtor paid into the court during the pendency of this adversary proceeding litigation. (Delta Resources intervened to interplead the payments after both ORIX and AmSouth demanded the money.)
This suit is to settle which creditor has the right to that money and to any future adequate protection payments on proceeds or payments on equipment and accounts — the amount to be decided by the Eleventh Circuit Court of Appeals.
The court will attempt to trace the history of this dispute through its various postures as simply as possible.
ORIX Credit Alliance, Inc. filed a motion for relief from bankruptcy's automatic stay December 29, 1992. (BK Doc. 48) It sought to enforce what it claimed to be a purchase money security interest (PMSI in credit parlance) against certain equipment purchased at Warrior Tractor and Equipment, and financed by ORIX. That included the following equipment:
ORIX, itself, stated in the text of the motion that the four notes for purchase of the equipment "also provides that the Debtor grants to the holder of each Note" (ORIX):
a security interest in the property and in any and all inventory, goods, equipment, machinery, general intangibles, contract rights, furniture, fixtures and assets of any and every kind, wherever located, now or hereafter.
Exhibit B to ORIX's motion was a UCC-1 financing statement filed with the Alabama Secretary of State October 10, 1991 which perfected ORIX's security interest in the following:
All machinery, inventory, equipment, goods and accounts receivable as described in attached entire agreement and/or in any schedule prepared in connection therewith. This UCC form together with the attached security agreement and/or schedule are being submitted for filing herewith as a financing statement.
ORIX asked the court for relief from stay because it said its rights in its collateral were not adequately protected and that the excavation equipment was not necessary to the reorganization of the debtor's excavation business. (The creditor January 4, 1993 amended its motion to delete the two 544E wheel loaders.)
Further, on January 25, 1993, ORIX objected (BK Doc. 99) to the debtor's motion to sell various property, including many items which ORIX had not helped finance. (BK Doc. 69, filed January 8, 1993) On February 8, 1993, the court entered a document approving the sale — but preserving ORIX's claimed interest in this collateral.
Further, February 11, 1993, ORIX filed an adversary proceeding seeking to gain control of a federal income tax return Delta Resources had coming as "a general intangible" — in which ORIX claimed a security interest via its perfection on the alleged purchase money security interest. (AP 92-72874, Doc. 1) In an October 25, 1993 consent order, the debtor agreed to pay the estimated $82,446.46 tax return over to ORIX when Delta received the refund. The order was signed by counsel for ORIX and Delta Resources and executed by the court.
During the course of the dispute over this equipment listed in the motion for relief from stay, two lengthy hearings were held. AmSouth asserted its contention that it, and not ORIX was the first lien holder, based on a prior perfected security interest on the equipment in a question.
AmSouth's Claim No. 85 for a total $1,904,047.43 and the attached documents show a series of security agreements and UCC-1 financing statements (the earliest filed with the Secretary of State in 1987). The last was signed by the debtor January 31, 1991. This UCC-1 granted AmSouth a security interest in:
All accounts receivable, machinery and equipment of Debtor, whether now owned or hereafter acquired, including any and all additions and accessions thereto and substitutions therefor, including, without limitation, Borrowers\' present fleet of trucks and vehicles and any hereinafter acquired trucks and vehicles. (emphasis added)
AmSouth filed this adversary proceeding seeking to have the matter of priority finally decided by the court on March 29, 1993.
ORIX' Proof of Claim No. 109 for $1,039,436.83 was filed April 12, 1993. It claimed a security interest in Delta Resources' equipment, inventory, accounts and general intangibles (the category for which it garnered rights to the tax return). As stated above, the UCC-1 financing statement perfecting the interest was filed October 10, 1991—11 months after AmSouth perfected its security interest in all equipment and accounts.
The court in a bench order March 17, 1993 denied ORIX relief from stay on a finding that the equipment was needed in the debtor's reorganization and granted ORIX a $9,972.41-a-month adequate protection payment to protect its interest until a Chapter 11 plan was confirmed or a decision in this adversary proceeding changed the priority of the liens.
For if AmSouth holds the first lien, this obviously would affect disposition of all funds paid on all equipment. The bench order was memorialized in a written order dated April 14, 1993. (BK Doc. 242)
ORIX had defined itself as slightly oversecured, but this court reserved a formal finding on this issue (which would entitle the creditor to post-confirmation interest) until confirmation of the plan. (Since the AP was still pending, it was impossible to determine exactly what collateral ORIX held, so a formal valuation of its secured interest was impossible.)
BK Doc. 243(A) is a "Statement of AmSouth Bank" (filed April 13, 1993) which says the following:
AmSouth sought to reach an agreement with ORIX concerning the escrowing of the adequate protection payments and the preservation of the status quo pending the outcome of Adversary Proceeding No. 93-70406 which AmSouth has commenced in order to resolve the priority dispute. ORIX refused to agree to the preservation of the status quo by any form of escrowing of the required payments.
Nevertheless, ORIX on April 5, 1993 filed a motion to compel payment of the adequate protection due April 1, 1993, even though the adversary proceeding was then pending and the funds being interpleaded. (Doc. 225) The court denied the motion to compel April 19, 1993. (Doc. 247)
On April 26, 1993, ORIX filed formal notice of appeal to the United States District Court of the April 14, 1993 order denying it relief from stay but granting it the adequate protection payments. On April 29, 1993, ORIX filed notice of appeal of the court's denial of its motion to compel payment of the adequate protection payment it was appealing, and which was in dispute in this adversary proceeding which had been pending since March.
The District Court consolidated the two interlocutory orders for appeal June 23, 1993. (BK Doc. 345) On October 19, 1993, the District Court reversed and remanded both orders, construing the United Savings Association v. Timbers of Inwood Forest Associates Ltd., 484 U.S. 365, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988) to mean that oversecured creditors in a Chapter 11 should be paid interest in addition to adequate protection payments in the...
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