In re Lease-A-Fleet, Inc., Bankruptcy No. 91-12996S.
| Decision Date | 26 September 1991 |
| Docket Number | Bankruptcy No. 91-12996S. |
| Citation | 131 BR 945 |
| Parties | In re LEASE-A-FLEET, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Jonathan H. Ganz, Rawle & Henderson, Philadelphia, Pa., for debtor.
Karen Lee Turner, Dechert Price & Rhoads, Philadelphia, Pa., for Lauderhill.
Domenic Pacitti, Lesser & Kaplin, P.C., Blue Bell, Pa., for Meridian Bank.
David E. Fraimow, Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa., for United Valley Bank.
Frederic Baker, Asst. U.S. Trustee, Philadelphia, Pa.
The parties to the instant dispute agree that the result requires application of Pennsylvania law regarding allocation of payments made on account. We believe that the overriding relevant legal principle of that law is that, in the absence of an express contract to the contrary, the obligor has the right to dictate the allocation of payments. We find, on the basis of the present record, that, as to each of the three factual settings in issue, there was no express contract relative to allocation, and that the respective obligors' manifested intentions to allocate payments to their post-petition indebtednesses to the obligee-Debtor controls their disposition. Therefore, we conclude, on this record, that Morse Operations, Inc. d/b/a Lauderhill Leasing ("Lauderhill") is entitled to prevail in asserting its entitlement to each of the payments in issue as against the rights thereto of United Valley Bank ("UVB") and Meridian Bank ("Meridian") (collectively UVB and Meridian are referred to as "the Banks").
LEASE-A-FLEET, INC. ("the Debtor") filed the voluntary Chapter 11 bankruptcy case underlying the instant dispute on May 30, 1991. The business of the Debtor was serving as an intermediate lessor-lessee of motor vehicles between vendor-manufacturers of motor vehicles and relatively small auto rental companies who dealt with the public. The Debtor provided fleets of vehicles to such small rental companies.
In recent years, the Debtor, rather than obtaining its vehicles directly from vendor-manufacturers, had contracted to obtain all of its vehicles from Lauderhill, which was also a competitor of the Debtor as an intermediate lessor-lessee of vehicles. Depression in the auto-rental industry in Florida, where many of the Debtor's customers were located, had resulted in payment defaults, and in some cases bankruptcy filings, by some of the Debtor's largest customers. This, in turn, caused the Debtor to fall behind in payments to Lauderhill. Lauderhill then threatened action to recover its vehicles leased to the Debtor, which constituted virtually all of the Debtor's fleet. Litigation in the Pennsylvania and Florida state courts, featuring cross-accusations of unfair practices between the Debtor and Lauderhill, preceded the bankruptcy filing.
On May 31, 1991, the day after the Debtor's filing, Lauderhill filed a comprehensive motion seeking, inter alia, relief from the automatic stay to recover its vehicles, recovery of adequate protection payments, and the appointment of an examiner. On June 6, 1991, the designated expedited hearing date, these parties reported an interim settlement, which included promises of the Debtor to make certain payments to Lauderhill and of Lauderhill to restrictions in doing business with certain of the Debtor's customers. This truce proved to be uneasy, because the parties never did agree on the nature of Lauderhill's remedies in the event of the Debtor's default.
The continuing attempts of Lauderhill and the Debtor to reach a firm agreement culminated in a proposed Consent Order, presented to the court on July 15, 1991. Appearing and opposing certain aspects of the Consent Order were the Banks, which had made the loans (UVB — late 1989, $600,000; Meridian — spring, 1990, $500,000; Meridian — fall, 1990, "standby credit" of $1,000,000) to the Debtor secured by the Debtor's accounts receivable. All parties ultimately agreed to the form of Order which provided Lauderhill with a right to recover about seventy-five (75%) percent (later determined to be 75.8%) of certain post-petition rental payments received by the Debtor from its customers, but would, by implication, allow the Banks to enforce their respective security interests and recover all pre-petition rental payments received by the Debtor.
The Debtor defaulted on the terms of the July 15, 1991, Order almost immediately thereafter. Lauderhill, on July 25, 1991, moved to enforce those terms of the Order providing that it would be granted relief from the automatic stay to pursue collection of post-petition rental payments due to the Debtor in the event of default. On August 6, 1991, the Banks jointly moved for relief from the stay to pursue collection of pre-petition rental payments made to the Debtor. The Debtor failed to appear at a hearing on August 14, 1991, on Lauderhill's motion. By agreement of Lauderhill and the Banks, we entered an Order on August 20, 1991, granting relief from the automatic stay and other relief provided in the Order to Lauderhill. However, in that Order, we also scheduled a hearing on September 4, 1991, the date that the Banks' joint motion for relief was already scheduled, for the purpose of resolving disputes regarding the relative rights of the Debtor, Lauderhill, and the Banks to certain payments received by the Debtor. The Debtor was directed to appear and indicate what its records showed as to these payments.
At the outset of the proceedings on September 4, 1991, we granted the Banks' unopposed motion for relief from the automatic stay. Lauderhill and the Banks then stipulated that their differences were confined to three payment transactions (one of which was a series of transactions). Lauderhill and the Debtor also expressed a point of difference over interpretation of the July 15, 1991, Order, i.e., whether or not Lauderhill was entitled to recover the 75.8% of post-petition payments received by the Debtor after Lauderhill was granted relief from the automatic stay on August 20, 1991. This dispute raised a question about certain payments on two accounts. Testimony relevant only to the disputes between Lauderhill and the Banks was adduced from Gerald Monagle, the Debtor's Controller; Steven Wolk, the Debtor's President; and Dennis J. Fedorovich ("Fedorovich"), the Controller of related businesses which were customers of the Debtor known as Lindo's Rent-a-Car, Inc. ("Lindo's") and Scamp Auto Rental d/b/a Dollar Rent A Car ("Scamp").
After the hearing, we entered an Order of September 5, 1991, resolving the dispute between Lauderhill and the Debtor in the Debtor's favor, holding that the panoply of relief accorded to it by relief from the stay was all that Lauderhill was entitled after it obtained relief from the stay, rather than having the right to recover 75.8% of the post-petition payments in issue as well. The Order also provided that Lauderhill and the Banks had the opportunity to file Opening Briefs on or before September 13, 1991, and Reply Briefs on or before September 20, 1991, supporting their respective positions as to their dispute. Both of these entities filed Opening Briefs, but only Lauderhill filed and served a Reply Brief.
Most of the facts are not in dispute. The common owner of Lindo's and Scamp was identified as Don Lindo ("Lindo"). In March, 1991, Lindo transferred possession, custody, and control of most of the motor vehicles leased by Lindo's from the Debtor to Scamp pursuant to an agreement of Lindo's to sell its assets to Scamp. Fedorovich testified that the Lindo's vehicles were transferred to Scamp as an accommodation to the Debtor, since the vehicles leased by Lindo's from the Debtor were not eligible to be "defleeted," i.e., repossessed by the Debtor, even if payment were not made to the Debtor, because they had been leased too recently to permit this remedy. Although the Debtor assumed that Scamp had executed an agreement to assume Lindo's debts, the Debtor treated Scamp as a separate customer with a separate account and account number distinct from its account for Lindo's. However, no lease or other contract was ever executed between the Debtor and Scamp.
The first two disputed payments involve, respectively, the June, 1991, and July, 1991, payments from Lindo's/Scamp to the Debtor. In response to an invoice of the Debtor setting forth the amount due on the Scamp account for June, 1991, as $234,111.78, Scamp issued its own check in that precise amount to Lindo's, which Lindo's in turn endorsed to the Debtor. There was no cover letter accompanying the check. The Debtor initially deposited the check into a separate account maintained for post-petition payments, and credited Scamp's account on its books. The Debtor also sent a statement of account to Scamp crediting Scamp for the payment.
In mid-July, 1991, Lauderhill's counsel (ironically) pointed out to the Debtor that it had no written contract with Scamp, as opposed to Lindo's. The Debtor then proceeded to transfer the $234,111.78 payment to the Lindo's pre-petition account, where it ultimately determined that it belonged.
The second payment in issue is the July, 1991, payment from Lindo's/Scamp. The Debtor, as in June, billed Scamp directly, in the amount of $174,365.03. Scamp, after receiving the bill, issued its cashier's check to Lindo's. Lindo's then issued its own cashier's check to the Debtor in payment. A check in the amount of $174,365.03 was thus sent to the Debtor by Lindo's with a copy of a letter from Scamp to Lindo's requesting Lindo's to make the payment to the Debtor for its July invoice. The check from Lindo's to the Debtor contained the inscription "July payment for Dollar." "Dollar" was a name in which Scamp, but not Lindo's, did business. By this time aware that it had no written contract with Scamp, the Debtor applied the check to its oldest Lindo's...
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