In re Erie Marine Enterprises, Inc.
| Decision Date | 08 January 1998 |
| Docket Number | Adversary No. 95-1103.,Bankruptcy No. 95-10597 |
| Citation | 216 BR 529 |
| Parties | In re ERIE MARINE ENTERPRISES, INC., Debtor. ERIE MARINE ENTERPRISES, INC., Plaintiff, v. NATIONSBANK, N.A. and the Jonathan Corporation, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
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Lawrence C. Bolla, Erie, PA, for Debtor.
Matthew W. Levin, Atlanta, GA, for Nationsbank, N.A.
William A. Lascara, Norfolk, VA, for Jonathan Corporation.
Erie Marine Enterprises, Inc. ("Debtor") filed a voluntary Petition under Chapter 11 of the Bankruptcy Code on July 20, 1995. On December 27, 1995, Debtor filed the within multi-count Complaint against its parent, The Jonathan Corporation ("Jonathan") and Nationsbank, N.A. ("Bank").
The Debtor advances several theories to recover funds from the Bank.1 In Count I, Debtor alleges a constructive trust remedy; Count II, resulting trust; Count III, equitable lien; Count IV, preferential transfer; Count V, fraudulent transfers pursuant to 11 U.S.C. § 548 and 550(b); and Count VI, fraudulent transfers pursuant to 12 Pa.Cons. Stat.Ann. § 5101 to 5110.
Presently before the Court are the Debtor's Motion for Partial Summary Judgment as to Counts IV, V and VI and the Bank's Motion for Summary Judgment on all counts of the Complaint.
We have considered the numerous briefs and exhibits filed in this matter and heard arguments of counsel. We find that there are no material issues of fact and that the Bank is entitled to summary judgment.
Debtor was incorporated in 1991. Jonathan owned 80% of the Debtor's stock. Gary Bowers ("Bowers") served as president of both Jonathan and the Debtor. Bowers owned 70% of the stock of Jonathan.
The Bank served as Jonathan's primary lender. Both Bowers and his wife executed personal guarantees of Jonathan's loan obligations to the Bank.
Debtor was one of Jonathan's subsidiaries. Debtor's accounting functions were handled from Jonathan's offices in the same manner in which it handled the accounting functions of other subsidiaries. Jonathan paid the Debtor's bills and collected its receivables. Debtor invoiced its customers and sent copies of the invoices to Jonathan. Most of Debtor's customers made payment to the Debtor by mailing checks to Jonathan's offices. In circumstances where customer checks were mailed to the Debtor, Debtor forwarded the checks to Jonathan. Similarly, Debtor forwarded bills which it received from its vendors to Jonathan for payment.2 Debtor's obligations, including its payroll, were paid directly by Jonathan.
At Debtor's inception in 1991, Jonathan loaned or gave numerous pieces of equipment to the Debtor which it needed to carry out its business. All of the Debtor's working capital was provided by Jonathan. Jonathan infused substantial amounts of money into the Debtor's operation. Debtor's operation was seasonal. Debtor's receivables increased during the winter months when most of its customers had work completed and decreased during the spring as it collected on the prior winter's receivables.
Transactions between Jonathan and the Debtor were recorded in an intercompany account. Jonathan's payment of Debtor's bills and the value of services provided by Jonathan to Debtor was booked as an intercompany loan.3 The intercompany account was reduced by the amount of the receivables which Jonathan collected on behalf of the Debtor.
The winter of 1994-1995 was the Debtor's best year as far as the amount of work it obtained from customers. Jonathan provided Debtor with the working capital to complete its jobs. A year prior to the Debtor's bankruptcy, Debtor owed Jonathan $4,042,852. By February, 1995, the amount due Jonathan from Debtor exceeded $5,000,000. As the Debtor collected its receivables for the work performed during the winter of 1994-1995, the balance due Jonathan decreased. On April 20, 1995, three months prior to the Debtor's bankruptcy filing, the balance was $4,363,746. As of the filing date, the balance was reduced to $3,748,247.
In June, 1995, Jonathan suffered an unanticipated setback. Its major customer refused to pay a substantial invoice and Jonathan was forced to cease operations. As a consequence, it could no longer finance the Debtor and the decision was made to shut down Debtor's operations.
The Bank was the primary lender for Jonathan. Jonathan began experiencing financial difficulties in 1991 or 1992. The Bank cooperated with Jonathan. The loans between Jonathan and the Bank were restructured on several occasions.
On January 29, 1993, Jonathan and its subsidiary, Tidewater Steel Company, Inc., and the Bank entered into a Third Amendment to a Third Master Loan Agreement. The Third Amendment established a Temporary Guidance Line of Credit (the "Guidance Line") which permitted Jonathan to borrow up to $500,000 to assist with short term cash flow needs.
In June, 1993, Jonathan sought to use the funds available under the Guidance Line for services to be provided by the Debtor on the M/V George A. Stinson. Prior to this time, there were no formal loan documents between the Debtor and Jonathan to evidence the intercompany obligation. The Bank requested a pledge of the Debtor's receivable on the Stinson job to secure the $500,000 additional loan. On June 28, 1993, Debtor signed a note in favor of Jonathan in the amount of $500,000 ("Stinson Note"). At the time the Stinson Note was executed, Debtor owed Jonathan approximately $3,000,000. The Stinson Note was secured by the receivable for work done on the M/V George A. Stinson. The Stinson Note and security agreement were assigned by Jonathan to the Bank as collateral for repayment of Jonathan's liability under the Guidance Line.
On December 10, 1993, Jonathan filed a Petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Virginia ("Virginia Bankruptcy Court"). On December 13, 1993, Jonathan, Tidewater Steel and the Bank entered into a Postpetition Loan Agreement which was approved by the Virginia Bankruptcy Court under 11 U.S.C. § 364. As part of the postpetition loan agreement, Jonathan intended to utilize proceeds available under its revolving line with the Bank to provide the Debtor with a working capital revolving line of credit in the amount of $500,000. As a condition for providing money for that purpose, the Bank required Jonathan to obtain a note from the Debtor in the amount of $500,000 and a security agreement in the Debtor's accounts and inventory to secure the note and to assign the interest to the Bank.
On or about February 28, 1995, Jonathan exited bankruptcy with a confirmed plan of reorganization. As part of the reorganization plan, the Bank agreed to provide Jonathan exit financing. The terms of the exit financing are reflected in the Fourth Master Loan Agreement between Jonathan and the Bank dated March 23, 1995. The Fourth Master Loan Agreement amended and restated the obligations of Jonathan. It provided for the first time that the Debtor's receivables were included in the borrowing base formula which enabled Jonathan to borrow additional funds. The maximum amount of Jonathan's revolving loans remained at $5,000,000. The Bank's loan was secured by all collateral securing the prior loans and the assignment of Jonathan's rights under an "Erie Marine Line Note." Jonathan agreed to pledge to the Bank all of its rights under the "Erie Marine Line Note" in the amount of $5,000,000 which was executed by the parties at the closing date of the Fourth Master Loan Agreement. On March 23, 1995, Debtor executed a promissory note and security agreement in favor of Jonathan in the amount of $5,000,000 to evidence all advances previous and subsequent to the date of execution. As of March 23, 1995, Jonathan's books reflected a balance due of $4,467,581 from the Debtor.
The Fourth Master Loan Agreement provided that Jonathan would maintain its cash collateral account with the Bank and that it would deposit all collections, including collections from the Debtor's receivables into the account. Jonathan, just as it had done prior to the execution of the Fourth Master Loan Agreement, continued to put all of the cash it received into the cash collateral account. The Bank had sole dominion and control and sole access to the cash collateral account.
Jonathan was required to continue to make periodic financial reports to the Bank which included a schedule of advances to and payments from the Debtor.
Rule 56(c) of the Federal Rules of Civil Procedure is made applicable to the adversary proceeding by Fed.R.Bank.P. 7056. Fed.R.Civ.P. 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."
In determining whether any genuine issue of material fact exists, the record "must be viewed in the light most favorable to the party opposing the motion." U.S. v. Diebold, Inc., 369 U.S. 654, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962). "The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Id.
"Once it appears from the record that there are no genuine issues of material facts, the burden shifts to the opposing party to establish that genuine issues of material facts in fact exist." In re Weinhardt, 156 B.R. 677, 679 (Bankr.M.D.Fla.1993). The factual dispute necessary to defeat a motion for summary judgment must be genuine and the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. In re Tennessee Valley Steel Corp., 183 B.R. 795, 799 (Bankr. E.D.Tenn.1995). The court may grant summary...
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