In re Kenval Marketing Corp., Bankruptcy No. 83-02723G.
| Decision Date | 31 May 1984 |
| Docket Number | Bankruptcy No. 83-02723G. |
| Parties | In re KENVAL MARKETING CORPORATION, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Marvin Krasny, Adelman Lavine Krasny Gold & Levin, Philadelphia, Pa., for debtor, Kenval Marketing Corp. Jay G. Ochroch, Shelley V. Sodomsky, Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa., for Larry Waslow, Assignee for Benefit of Creditors.
Leonard J. Cook, Roger F. Wood, Dilworth, Paxson, Kalish & Kauffman, Philadelphia, Pa., for petitioning creditors, Churny Co., Inc., Cher-Make Sausage Co. and D.S. Stauffer Biscuit Co., Inc.
The question before the bench is whether we should grant a motion filed by the debtor, in which the assignee for the benefit of creditors joins,1 to vacate our recent order granting relief on an involuntary petition against said debtor. The motion is predicated, in part, on the assignee's allegation that the trustee will not be able to assert successfully the preference avoiding powers that could have been pressed by the assignee had relief on the petition not been granted. For the reasons expressed herein we will deny the motion.
Although we previously stated the facts in our original opinion on this case,2 we will reiterate them here for the sake of continuity and clarity.3 The debtor executed an assignment for the benefit of its creditors on March 8, 1983. Four months later, on July 6, 1983, three qualified creditors, to whom was owed 72% in amount of the claims against the debtor, filed an involuntary petition for relief against it under chapter 7 of the Bankruptcy Code ("the Code"), charging that the debtor, after the assignment, "was generally not paying such debtor's debts as such debts became due" in accordance with the standard set forth in § 303(h)(1) of said Code. During the four month period prior to the assignment, the debtor made substantial payments to each of the petitioning creditors for a total of $347,000.00. More than four months prior to the assignment, but not more than one year prior to the filing of the petition, the debtor had made transfers of $275,000.00 to its president and his family and during this time the debtor also satisfied a $735,000.00 loan that was guaranteed by the debtor's president. The issue before us arises as a result of the assignee's motion for dismissal of the petition, in which the debtor has joined.
In our original opinion we held that the petitioning creditors had established a prima facie case for the entry of relief under 11 U.S.C. § 303(h),4 which conclusion is not challenged in the motion for reconsideration. But the debtor has renewed its assertion that this is a proper case for abstention under 11 U.S.C. § 305.5 The legislative history of this section provides some illumination with the following language:
H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 325 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 6281-82. Although § 305(c) clearly provides that an order denying abstention is not reviewable, the continued vitality of this bar to appellate review is subject to some uncertainty in the wake of Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), and the "Emergency Rule" which was adopted by the federal district courts across the country in December of 1982 to preclude a complete lapse of the bankruptcy court's jurisdiction. Notwithstanding these issues, the legislative history indicates that the bankruptcy court should abstain only on the basis of its informed discretion, and thus, if such an order is now appealable, it may be overturned only on the basis of an abuse of discretion. Apparently § 305(c) will not bar us from reconsidering our own order.
The debtor asserts two bases for vacating our order for relief, the first of which is based on the following language from our prior opinion:
The assignee asserts that he will be able to avoid transactions amounting to $347,000.00 made within the fourth month vulnerability period provided by state law, although said transfers occurred more than ninety days prior to the filing of the involuntary petition and thus ostensibly are not avoidable under 11 U.S.C. § 547(b) of the Code. But see, 11 U.S.C. § 544(b).
Kenval, at 244-245. In obliquely referring to § 544(b)6 we were alluding to the possibility that the trustee may be able to assert the same avoiding powers under this provision as the assignee. The assignee asserts that Copter, Inc. v. Gladwin Leasing, Inc., 725 F.2d 37, 39 (3d Cir.1984) precludes a trustee from utilizing state law avoidance powers through § 544(b). In Copter the court construed Pa.Stat. Tit. 39, § 1517 which states that if a debtor is insolvent or in contemplation of insolvency a preference made to one of his creditors shall inure to the benefit of all creditors if, within four months after such preference, insolvency proceedings are commenced or if an assignment for the benefit of creditors is made.
The court in Copter held that the filing of a petition for relief was not sufficient to trigger the applicability of § 151. The court expressed its rationale in the following language:
As the district court properly recognized, the Pennsylvania legislature was referring to state insolvency proceedings when it addressed voidable preferences in section 151. References throughout the Insolvency Act indicate that the reference to "proceedings in insolvency" in section 151 was intended to incorporate the state insolvency procedure set forth in 39 Pa.Stat.Ann. § 31; there is no indication that section 151 referred to federal bankruptcy proceedings. See 39 Pa. Stat.Ann. §§ 31, 151, 152. Moreover, there had been no assignment for the benefit of creditors, nor had a state court insolvency proceeding commenced. (Footnote omitted).
725 F.2d at 39. Thus, Copter is not authority for the applicability of § 151 in bankruptcy proceedings when, prior to the filing of the petition, an assignment for the benefit of creditors has been made or insolvency proceedings have been commenced. Unlike Copter, in the case at bench there has been an assignment for the benefit of creditors. The situation at bench is governed by First National Bank of Delta, Pennsylvania v. Weaver (In Re McElwain), 296 F. 112 (3d Cir.1924), which is quoted approvingly in Copter. In that case the debtor had confessed judgment in favor of one of his creditors, and within four months thereafter insolvency proceedings were commenced against him under the laws of the state of Pennsylvania, with a view of setting aside the judgment as a preference. Shortly after the debtor was adjudged insolvent by the state court and after the lapse of more than four months from the confession of the judgment the debtor filed his petition in bankruptcy hoping thereby to avail himself of the time limitation and also to avoid the operation of the state insolvency law already set afoot. The court held that the trustee in bankruptcy was subrogated to the rights of creditors obtained by the institution of the insolvency proceedings in the state court and might enforce same to invalidate the confession of judgment, although the proceedings in the state court were held to be superseded by the proceeding in bankruptcy, and although the judgment, having been confessed more than four months prior to bankruptcy, could not have been avoided under the provision of the Bankruptcy Act itself. Judge Buffington, speaking for the court, said:
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