In re Environmental Aspecs, Inc.
| Decision Date | 05 May 1999 |
| Docket Number | No. 5:99-CV-38-BR.,5:99-CV-38-BR. |
| Citation | 235 BR 378 |
| Court | U.S. District Court — Eastern District of North Carolina |
| Parties | In re ENVIRONMENTAL ASPECS, INC., Environmental Aspecs, Inc. of North Carolina, and Environmental Aspecs, Inc. of Georgia, Debtors. Advanced Analytics Laboratories, Inc., Plaintiff-Appellee, v. Environmental Aspecs, Inc. of North Carolina and Southtrust Bank, National Association, Defendant-Appellants. |
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Holmes P. Harden, Maupin, Taylor, Ellis & Adams, Raleigh, NC, for Southtrust Bank, N.A.
Roderick H. Willcox, Jr., LeCroy, Ayers & Willcox, Morganton, NC, for Advanced Analytics, Laboratories, Inc.
Defendant-appellants Environmental Aspecs, Inc. of North Carolina (EAI of NC) and SouthTrust Bank, National Association (SouthTrust) (collectively "appellants" or "defendant-appellants") appeal an order issued by the United States Bankruptcy Court for the Eastern District of North Carolina, Raleigh Division, (bankruptcy court), Judge A. Thomas Small presiding, in Chapter 11 Case Nos. 98-00752-5-ATS, 98-00753-5-ATS, 98-00754-5-ATS, Adversary Proceeding No. S-98-00053-5-AP. That order was issued on 30 November 1998. Appellate jurisdiction is based on 28 U.S.C. § 158(a).
On 2 April 1998, Environmental Aspecs, Inc. (EAI), EAI of NC, and EAI of Georgia filed voluntary Chapter 11 bankruptcy petitions in the Bankruptcy Court for the Eastern District of North Carolina, and the three cases were administratively consolidated. (30 November 1998 Order at 2.) EAI of NC and EAI of Georgia are wholly-owned subsidiaries of EAI. During the bankruptcy proceedings, defendant-appellant SouthTrust filed a proof of claim in the amount of approximately $1.4 million dollars, at least $379,521 of which SouthTrust maintained was secured by EAI of NC's inventory, equipment, accounts receivable, intangibles, instruments, and chattel paper. (Id.) Advanced Analytics Laboratories, Inc. (AAL) also filed a proof of claim against EAI of NC in the amount of $338,311.73, which it maintained was partially secured by a blanket lien on EAI of NC's accounts receivable, instruments, documents, chattel paper, equipment, inventory and general intangibles. (Id.) On 14 July 1998, plaintiff-appellee AAL filed an adversary proceeding to determine the priority of the security interests held by SouthTrust and AAL. Both AAL and SouthTrust moved for summary judgment before the bankruptcy court. While the motions were pending, EAI of NC filed a plan of reorganization acknowledging SouthTrust's first lien position. The bankruptcy court granted summary judgment in favor of plaintiff-appellee AAL on 30 November 1998, holding that AAL's lien on the assets of EAI of NC had priority over that of SouthTrust. (30 November 1998 Order at 9.)
SouthTrust extended a line of credit to EAI, EAI of NC's parent corporation, in June 1994. (30 November 1998 Order at 2; Appellants' Br. at 1-2.) EAI executed a note and a security agreement evidencing that loan, and SouthTrust perfected its security interest by filing UCC-1 financing statements listing EAI as debtor with the North Carolina Secretary of State's Office and the Wake County Register of Deeds as required by N.C.Gen.Stat. §§ 25-9-401 and 25-9-402. (30 November 1998 Order at 2; Appellants' Br. at 2.) SouthTrust continued to lend money to EAI throughout 1995 and 1996. (30 November 1998 Order at 2-3.) EAI executed all of the documents evidencing those loans. (Appellants' Br. at 2.)
As described by SouthTrust, through counsel, the loans extended to EAI were similar to factoring arrangements. (12 November 1998 Transcript of Hearing on Motion for Summary Judgment at 1-2 (hereinafter "Transcript").) The Bank advanced funds to EAI and its subsidiary corporations based on invoices submitted by those companies. (Stafford Aff. ¶ 9.) When the invoices were paid, the money was given to the Bank. (Transcript at 2.) EAI of NC submitted invoices to the Bank (Stafford Supp.Aff. ¶ 4 and Ex. L), received advances from the Bank, and endorsed its customers' checks over to the Bank. (Id.; Stafford Supp. Aff. ¶¶ 5-6.) SouthTrust credited funds received from EAI of NC against the outstanding balance of SouthTrust's loans to EAI. (Stafford Supp.Aff. ¶ 7.) In sum, some of the advances of funds on the loans made to EAI in 1995 and 1996 were approved based on SouthTrust's review of EAI of NC's invoices identifying that company's accounts receivable. (Appellants' Br. at 2; Stafford Aff. ¶ 9.)
The bankruptcy court found that SouthTrust apparently believed that the subsidiaries and the parent corporation were operating as a single business represented by EAI. The bankruptcy court found that, although SouthTrust knew of the existence of EAI of NC, SouthTrust did not require EAI of NC to execute a security agreement, nor did SouthTrust file financing statements to perfect its interest in property owned by EAI of NC or any other subsidiary at that time. (30 November 1998 Order at 3.)
EAI eventually defaulted on its SouthTrust loans. (Appellants' Br. at 2.) As a result, on 31 October 1997, EAI and its subsidiary corporations executed a forbearance agreement, as part of a negotiated loan modification, recognizing SouthTrust's security interests in the subsidiary corporations' assets. (Id.) According to Gina A. Stafford, a Vice President of SouthTrust, as a condition to SouthTrust's consent to the terms of that Agreement, the subsidiaries were required "to formally acknowledge all obligations of the Business under the 1996 Loan as if such entities were original parties thereto. . . ." (Stafford Aff. ¶ 12.) In November 1997, SouthTrust filed financing statements listing EAI and EAI of NC, among others, as debtors. (Appellants' Br. at 2; 30 November 1998 Order at 3.)
Meanwhile, back in September 1996, approximately 11 months before SouthTrust filed financing statements naming EAI of NC as a debtor, EAI of NC had executed a Term Promissory Note, a Subordinated Loan Agreement, and a Security Agreement in the amount of $299,694.00 in favor of appellee AAL, an Ohio corporation, as creditor and secured party. (30 November 1998 Order at 3.) On 27 and 31 December 1996, AAL filed UCC-1 financing statements with the North Carolina Secretary of State and the Wake County Register of Deeds, respectively. When asked to identify the debtor on the financing statements, AAL named EAI — the same legal entity listed as debtor on SouthTrust's 1994 financing statements. (See AAL's Compl., Exs. J and K.) Both the description boxes on the financing statements, located immediately below the debtor's name, and the debtor's signature lines on the statements, contained the words, "See Exhibit A Attached for description and debtor's signature" and "See Exhibit A attached." (Id.) The Security Agreements were attached to the financing statements as Exhibit A and filed with the Secretary of State and Wake County. The Security Agreements indicated, both in the introductory paragraphs and on the signature pages, that the debtor was EAI of NC. (30 November 1998 Order at 3; Appellee's Br. at 2.) The Agreements were signed by Dennis L. Mast as President of EAI of NC. (30 November 1998 Order at 4.)
In April 1998, EAI and EAI of NC filed for bankruptcy under Chapter 11, and AAL subsequently filed an adversary proceeding to determine the priority of the security interests held by SouthTrust and AAL. The bankruptcy court resolved the issue in AAL's favor, and SouthTrust appeals.
A bankruptcy court's findings of fact are binding on the district court unless they are found to be clearly erroneous. Bankr.Rule 8013. "A finding of fact is `clearly erroneous' when it is (1) not supported by substantial evidence; (2) contrary to the clear preponderance of evidence; or (3) based upon an erroneous view of the law." In re Cheatham, 91 B.R. 377, 378 (E.D.N.C.1988). The clearly erroneous standard "does not entitle the court to reverse the trier of fact simply because the court would have decided the case differently." In re LeMaire, 898 F.2d 1346, 1349 (8th Cir.1990). Moreover, absent extraordinary circumstances, an appellate court should not disturb a factfinder's credibility determinations. Columbus-America Discovery Group v. Atlantic Mut. Ins. Co., 56 F.3d 556, 566 (4th Cir. 1995), cert. denied, 516 U.S. 938, 116 S.Ct. 352, 133 L.Ed.2d 248 and 516 U.S. 990, 116 S.Ct. 521, 133 L.Ed.2d 429 (1995). A district court reviews a bankruptcy court's conclusions of law de novo. Umholtz v. Brady, 169 B.R. 569, 572 (E.D.N.C.1993), aff'd, 27 F.3d 564, 1994 WL 266066 (4th Cir.1994).
Here, the court reviews the bankruptcy court's grant of summary judgment in favor of AAL. Summary judgment is appropriate in those cases in which there is no genuine dispute as to a material fact, and in which it appears that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Haavistola v. Community Fire Co. of Rising Sun, Inc., 6 F.3d 211, 214 (4th Cir.1993). Summary judgment should be granted in those cases "in which it is perfectly clear that no genuine issue of material fact remains unresolved and inquiry into the facts is unnecessary to clarify the application of the law." Id. In making this determination, the court draws all permissible inferences from the underlying facts in the light most favorable to the party opposing the motion. "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, disposition by summary judgment is appropriate." Teamsters Joint Council No. 83 v. Centra, Inc., 947 F.2d 115, 119 (4th Cir.1991).
In granting summary judgment for AAL, the bankruptcy court concluded that AAL perfected its security interest in the assets of EAI of NC in December of 1996, 11 months before SouthTrust perfected an interest in those assets in November...
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