In re Kreidler Import Corp., Bankruptcy No. 79-11947.

• Decision Date: 14 May 1980
• Docket Number: Bankruptcy No. 79-11947.
• Citation: 4 BR 256
• Parties: In re KREIDLER IMPORT CORPORATION, Alleged Debtor.
• Court: U.S. Bankruptcy Court — District of Maryland

4 B.R. 256 (1980)

In re KREIDLER IMPORT CORPORATION, Alleged Debtor.

Bankruptcy No. 79-11947.

United States Bankruptcy Court, D. Maryland.

May 14, 1980.

Alan S. Kerxton, Martin Jacobs, Earl W. Kinther, Washington, D. C, for Kreidler Import Corp., Inc.

E. Stephen Derby, Baltimore, Md., for Kreidler Werke, GmbH.

MEMORANDUM OPINION

GLENN J. GOLDBURN, Bankruptcy Judge.

On October 30, 1979, Kreidler Werke GmbH (hereafter KW) filed a petition alleging that the Kreidler Import Corporation (KIC) is not paying its debts as they become due. KIC is the United States marketer for KW's mopeds which are manufactured in Germany. The parties stipulated that there are more than twelve holders of claims which aggregate over $5,000.00.

In view of these stipulations, Section 303(b)(1) of the Bankruptcy Code requires two or more additional entities to join KW's petition to commence an involuntary case against KIC. To that effect, J. Ruel Baker, Richard A. Bartl, Rockville Mopeds, Inc., Ronald Alverson and M.L. Alverson d.b.a. Alverson's Moped Land, Daniel Brown, Slemons Leasing and Auto Rental, Inc., d.b.a. Jim Slemons Imports — JAWA and Robert Barnes fined intervening creditor's petitions. Richard A. Bartl, Rockville Mopeds, Inc. and Robert Barnes subsequently moved for leave to withdraw their petitions. Orders were entered authorizing withdrawal by Bartl and Rockville Mopeds but no such authorization was granted to Barnes because his application to withdraw was not filed until the trial had commenced.

At this stage, the intervening petitions of Barnes, Baker, Brown, Alversons and Slemons remained, and the alleged debtor, KIC, challenged the validity of each of them. The Court determined that it was in the best interests of judicial economy to rule on the intervention by all five of the claimants.

The Alversons' claim arose out of a March 21, 1979 distribution agreement entered into by KIC and Ronald and M.L. Alverson. The Alversons agreed to represent "Kreidler Mopeds" in the State of California, and were to receive ten percent of gross sales for dealers they established through June 30, 1979, and four percent thereafter. Ronald Alverson testified that he and his wife established twenty-two dealers before June 30, 1979, and that they have received partial compensation. In July of 1979, Philip Poling, president of KIC, sent the Alversons a payment and a payment schedule. On the reverse of the schedule was a handwritten note: "Mel and Ron: Sorry for this delay — Future payments will be made timely every 15th of each month." (Plaintiff's Exhibit 1). Alverson also testified that there was an oral agreement that the distribution contract could be terminated by thirty (30) days written notice, and that neither party has so terminated the contract, although Charlie Small became the KIC California distributor in October, 1979. On cross examination, Alverson stated that his wife "had the final say" regarding their Moped business and that a meeting took place in August 1979, between Poling, Mrs. Alverson and Daniel Brown, the office manager and sales representative for the Alversons.

Philip Poling, the president of KIC, testified that through conversations with Mrs. Alverson, he determined that their contractual relationship was terminated in August 1979. Prior to that, Mrs. Alverson indicated to Poling that "things weren't working out as they should", and that she had a new proposal "to become a full blown distributor". However, Mrs. Alverson never sent a new proposal to KIC, nor did she present one when Poling met with her in California in August 1979. Poling testified that he made his final payment to the Alversons around August 15, 1979. He stated that nothing more was due because Mrs. Alverson said she was no longer interested in the arrangement, that she had shipped certain parts back to KIC, and that she had the business phone disconnected. Poling also testified that the Alversons never made a written demand for payment nor did they call to complain about payment due.

In rebuttal, Mr. Alverson testified that parts were shipped back at Poling's insistence, and that the Alversons have not been compensated ten percent of $72,428.00 in sales made.

The definition of "claim" in Section 101(4) is extremely broad and includes, "(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured." The Court finds from the testimony and exhibits that the Alversons have a claim against KIC although such claim is disputed. Since, under the new Code, disputed claims are nonetheless claims, the Alversons' intervening petition will be allowed. The Court also finds that the August payment to the Alversons did not constitute a voidable preference which would prevent their claim from being counted to reach the requisite number of creditors. This payment falls within the Section 547(c)(2) exception which protects transfers in the ordinary course of business.

KIC also challenged the intervening petition of Robert Barnes as unqualified because Barnes received a preferential transfer on November 7, 1979, after the petition was filed. Plaintiff's exhibit 2 shows that a settlement agreement was entered into between KIC and Barnes obligating KIC to pay him $2,500.00 payable $500.00 each month. One thousand dollars is still outstanding. KIC challenged the November 1979 payment as a preferential transfer.

Initially, it is not clear that the Code requires each of the three petitioning entities to be free of the taint of a preferential transfer. Section 303(b)(2) requires that no such claimant could be counted to determine whether there are fewer than twelve total creditors. However, Section 303(b)(1) refers merely to "three or more entities" without the exclusions of Section 303(b)(2). Under former Bankruptcy Act, case law developed the policy that although a creditor with a voidable preference may have had a provable claim, that creditor was only qualified to join in the involuntary petition if he surrendered his preference at some time prior to adjudication. 3 Collier on Bankruptcy, para. 59.06(1.2) p. 573 (14th Ed.1977), and cases cited therein. Collier states that the petition will be dismissed if without the preferred creditor the petition is insufficient in the necessary number of petitioning creditors. Id.

The Court finds that neither the new Code nor its legislative history requires a departure from the case law existing under the Act with respect to the disqualification of creditors in receipt of voidable preferences. The Act's treatment of this requirement is similar to the Code's in that the preference section is Section 59(e) of the Act dealing with whether there are more than twelve creditors of an alleged bankrupt. The Code also separates the preference section from the counting section, as pointed out above, in Sections 303(b)(1) and 303(b)(2). Thus, the construction advanced by KW that preferred creditors are not counted but are eligible to join in an involuntary petition was not accepted under the Act, and for similar policy reasons, this Court rejects such construction of the Code. Thus, if Robert Barnes received a preference, his intervening petition will not be allowed unless he surrenders the amount of the preference.

The Court finds that Barnes did receive a voidable preference under Section 547(b) when he received the $500.00 payment after the involuntary petition was filed. Since none of the exceptions to Section 547 apply, Barnes will not be allowed to intervene because he has not surrendered the preference.

J. Ruel Baker is the alleged debtor's landlord pursuant to a lease agreement executed between Baker and Philip Poling. KIC had advanced various theories including the nonassignability of the lease and the statute of frauds to prevent the qualification of Baker's petition. The Court, however, finds it unnecessary to decide these contentions because it finds that Baker has no claim against KIC at this time. Testimony by Poling and Edward L. Snyder, the interim trustee in this case, established that the rent has been timely paid and is now paid up some months in advance. Since no rent is due and owing, Baker has no right to payment as required by the definition of claim in Section 101(4). KW's argument that KIC qualified Baker by listing Baker as a creditor on its Rule 104(e) list is without merit since it is customary to list an alleged debtor's lessor along with the computed amount of rent which will be due under the unexpired portion of the lease. Since Baker did not have a claim against KIC at the time the petition was filed, his petition will not be counted in determining whether three entities have joined in the petition.

KIC has objected to the intervening petition of Slemons Leasing and Auto Rental, Inc., d.b.a. Jim Slemons Imports — J.A.W.A. The basis of the Slemons claim is in a distribution agreement between Slemons and KIC executed in January 1977. KIC and KW have stipulated that during 1978 Slemons did not order or purchase 2600 mopeds from KIC which KIC contends was a breach of the distribution contract. (See joint exhibit 1.) The contract contains a liquidated damages clause. Slemons instituted suit on his claim in Orange County, California. In that suit, KIC has counterclaimed under the liquidated damages clause of the contract in an amount in excess of $100,000.00. If KIC's counterclaim is successful, it would completely set off the amount of Slemons' claim.

KW contends that KIC's counterclaim is only relevant to challenge the $5,000.00 jurisdictional amount required by the Code and not for the...