In re Funding Systems Asset Management Corp.
| Decision Date | 30 March 1987 |
| Docket Number | Bankruptcy No. 81-2861,Adv. No. 84-191. |
| Citation | 72 BR 87 |
| Parties | In re FUNDING SYSTEMS ASSET MANAGEMENT CORPORATION, Debtor. FUNDING SYSTEMS ASSET MANAGEMENT CORPORATION, Plaintiff, v. KEY CAPITAL CORPORATION, f/k/a FBI Leasing Ltd., f/k/a FCB Leasing Ltd., Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
Thomas S. Galey, Pittsburgh, Pa., for debtor/plaintiff; M. Bruce McCullough, Buchanan Ingersoll, P.C., of counsel.
Stephen J. Laidhold, Lampl, Sable, Makoroff & Libenson, Pittsburgh, Pa., for defendant.
Before the Court is Debtor's Complaint For Recovery Of Property Of The Estate pursuant to 11 U.S.C. § 549(a), and Defendant's Counterclaim thereto. The Debtor seeks Court approval for the return of lease payments made to the Defendant, pursuant to § 549(a) of the Bankruptcy Code, from the date of the bankruptcy filing. Defendant seeks Court authorization to retain said payments, and further requests a finding that the Debtor remains liable for the outstanding balance due under said lease.
A hearing was held on the aforementioned issues, at which time testimony was offered; briefs were submitted thereafter. Based upon these offerings and this Court's further research, we find that the Debtor is not entitled, pursuant to § 549, to avoid the lease payments made; further, Defendant is entitled to payment for monthly rental fees from February 1984 through December 1985; however, because Defendant failed to timely file a claim, as required by the Court Order confirming Debtor's Plan of Reorganization, Defendant is not entitled to any payments due after December 1985.
Defendant purchased a telephone system on March 8, 1979 from F/S Communications Corporation ("F/S Comm. Corp."), the Debtor's sister corporation, for the sum of $85,000.00. Pursuant to an equipment lease also dated March 8, 1979, Defendant, as lessor, entered into an agreement with Debtor, as lessee, for the rental of said system. The lease was for a term of seven (7) years, with monthly payments of $1,614.59, including sales and use taxes. This lease obligation was guaranteed by FSC Corp., the Debtor's parent corporation. Payments were made by the Debtor through February of 1984, leaving twenty-four (24) monthly installments unpaid.
Concurrently, in June of 1980, Debtor leased new equipment and, without notice to Defendant, transferred the bulk of Defendant's equipment to F/S Comm. Corp., the Debtor's sister corporation and original owner, which ultimately transferred said equipment to a bona fide purchaser for value. The only items retained by Debtor were one (1) CRT and one (1) teletype terminal. Debtor, mysteriously, has no ability to determine the name of the bona fide purchaser, the amount of the consideration, the whereabouts of the equipment or, the whereabouts of the proceeds of their sale.
Debtor filed for Chapter 11 bankruptcy protection on October 23, 1981. In the ordinary course of the Debtor's operation of the estate, rental payments pursuant to the lease provisions continued. In May of 1984, Debtor filed with the Clerk of Courts a petition to reject this equipment lease. For reasons unknown to this Court, Debtor chose not to pursue this motion, and no order was entered thereon. On December 18, 1985, Debtor's Plan of Reorganization was confirmed, which called for the rejection of all executory contracts and unexpired leases not previously assumed or rejected. Said Plan granted interested parties thirty (30) days after said Plan Confirmation to file claims resulting from such rejections.
Although service of the Plan was made pursuant to their instructions, Defendant did not timely file such a claim, but first raised said claim in its Answer and Counterclaim filed in May of 1986.
Debtor's reliance upon §§ 549(a)(1) and (2)(B) and 1107, founded upon the above-stated facts, clearly lacks any reasonable and equitable basis. Section 549(a) states in pertinent part:
Pursuant to § 1107, the debtor-in-possession has the right to bring this action, in its capacity as the trustee in this case. We acknowledge that the Debtor is attempting to retrieve property transferred after the commencement of the case, and that no Court Order has been entered authorizing the transfer. However, it is not necessary to obtain such Court approval, as the Code itself provides the necessary authorization in § 1108, wherein it states:
Unless the court, on request of a party in interest and after notice and a hearing, orders otherwise, the trustee may operate the debtor\'s business.
This section has been consistently interpreted as including the debtor-in-possession's authority to operate the business and to exercise reasonable business judgment with regard to its payments made in the ordinary course of its business. In re Simasko Production Company, 47 B.R. 444 (D.Colo.1985); In re James A. Phillips, Inc., 29 B.R. 391 (S.D.N.Y.1983); In re Manwell, 62 B.R. 533 (Bankr.N.D.Ind. 1986); In re Dave Noake, Inc., 45 B.R. 555 (Bankr.D.Vt.1984).
The case of In re Manwell, supra, is especially poignant, wherein the debtor-in-possession managed to accumulate $1.6 million in postpetition debt before his death. The successor Trustee sought to recover funds paid out by the debtor during the course of the bankruptcy, in order to fund the administrative expenses. In dismissing the action, the Court stated:
The expenses which a Chapter 11 debtor incurs and pays in the ordinary course of his business cannot be avoided . . . The alternative would make it impossible for any prudent business person to voluntarily do business, even on a cash basis, with a Chapter 11 debtor.
In the case at bar, the Debtor made regular lease payments and retained the equipment. Although the Debtor insists that the majority of said equipment was transferred to its sister corporation, F/S Comm. Corp., which transferred same to an undisclosed buyer for an undisclosed consideration, the equipment still remains withheld from Defendant. That the Debtor gave up possession of the equipment to another party does not change the fact that the Debtor is deemed to have received full and fair value for the lease payments made. Therefore, Defendant is entitled to retain those lease payments made by the Debtor through February of 1984.
Defendant argues that it is entitled to the remaining lease installments not yet paid. We agree in part and disagree in part. Debtor did not effectively reject the unexpired lease until December 18, 1985, the date of its Plan confirmation. It is well recognized, that until a determination to assume or reject is made, the estate is liable for the reasonable value of the use and occupancy of the leased object; this amount is usually equal to the rental payments. In re Stable Mews Associates, 35 B.R. 603 (Bankr.S.D.N.Y.1983); 3 Collier on Bankruptcy, ¶ 365.03, pp 365-32 to 365-34.
While some courts have allowed claims only to the extent of the debtor's actual use, e.g., In re Peninsula Gunite, Inc., 24 B.R. 593 (9th Cir.1982); In re Cardinal Export Corporation, 30 B.R. 682 (Bankr. E.D.N.Y.1983), this Court finds the more logical and rational method of determination to be measuring...
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