In re Leprechaun Trucking, Inc., Bankruptcy No. 05-78104.

• Decision Date: 04 January 2007
• Docket Number: Adversary No. 06-7054.,Bankruptcy No. 05-78104.,Adversary No. 06-7122.
• Citation: 356 B.R. 190
• Court: U.S. Bankruptcy Court — Central District of Illinois
• Parties: In re LEPRECHAUN TRUCKING, INC., Debtor. Jeffrey D. Richardson, Trustee, Plaintiff, v. Pana Limestone Quarry Co., Defendant. Jeffrey D. Richardson, Trustee, Plaintiff, v. Truman L. Flatt and Sons Co., Inc., Defendant.

356 B.R. 190

In re LEPRECHAUN TRUCKING, INC., Debtor.

Jeffrey D. Richardson, Trustee, Plaintiff, v. Pana Limestone Quarry Co., Defendant.

Jeffrey D. Richardson, Trustee, Plaintiff, v. Truman L. Flatt and Sons Co., Inc., Defendant.

Bankruptcy No. 05-78104.

Adversary No. 06-7122.

Adversary No. 06-7054.

United States Bankruptcy Court, C.D. Illinois.

January 4, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Jeffrey D. Richardson, Decatur, IL, pro se.

Philip Kaufmann, David O. Edwards, David A. Herman, Springfield, IL, for Defendants.

OPINION

MARY P. GORMAN, Bankruptcy Judge.

This matter is before the Court on the Cross-Motions for Summary Judgment filed by Plaintiff/Trustee and by the respective Defendants in the above-captioned related adversary proceedings.

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E) and (F).

Leprechaun Trucking, Inc. ("Debtor") filed its voluntary Chapter 7 petition in bankruptcy on October 16, 2005. Jeffrey D. Richardson ("Trustee") was appointed Trustee of Debtor's bankruptcy estate. Debtor was a trucking company and, in the course of its business, purchased crushed limestone for use in road construction projects and for resale. In 2002, Debtor began purchasing crushed limestone from Pana Limestone Quarry Co. ("Pana Quarry" or, collectively with Truman L. Flatt & Sons Co., Inc., "Defendants").

Pana Quarry is owned by David Flatt and is headquartered in Springfield, Illinois. Pana Quarry sells limestone to a number of trucking companies. Charles Brian "Barney" Flatt, who is a cousin to David Flatt, oversees production and sales at Pana Quarry.

David Flatt also owns Truman L. Flatt & Sons Co., Inc. ("Truman Flatt" or, collectively with Pana Quarry, "Defendants"). Truman Flatt shares its headquarters in Springfield, Illinois with Pana Quarry. Truman Flatt is engaged in the construction business, primarily in the area of road construction. In the course of its operations, Truman Flatt hired Debtor to perform hauling services, and Debtor did so on an ongoing basis until several weeks before its bankruptcy filing.

During the relevant time period, David Flatt's wife, Christine Flatt, worked in the Springfield office of Truman Flatt and Pana Quarry. She oversaw financial operations for both companies. In early 2005, she recognized that a large balance had become due and owing by Debtor to Pana Quarry. She decided to have Truman Flatt, Pana Quarry, and Debtor enter into a three-way payment arrangement.

Christine Flatt asked Barney Flatt to contact Debtor about the arrangement. Barney Flatt called Sandy Lowrance, office manager of Debtor. After the conversation and beginning April 2, 2005, the parties undertook a "check swap" arrangement. Under the arrangement, Truman Flatt would continue to utilize Debtor to perform hauling services and Pana Quarry would continue to sell crushed limestone to Debtor. Truman Flatt would pay Debtor for performing hauling services, but Debtor was to concomitantly pay on its account with Pana Quarry every dollar Truman Flatt would pay to Debtor. The mechanics involved an actual check swap — Sandy Lowrance would go to the Springfield offices of Truman Flatt and Pana Quarry, pick up a check payable to Debtor from Truman Flatt, and deliver a check (or checks) from Debtor payable to Pana Quarry in the same amount. There was more than one occasion when Debtor was permitted to pay to Pana Quarry less than it received from Truman Flatt. In total, the "check swap" occurred on ten occasions.

Following the filing of Debtor's bankruptcy petition on October 16, 2005, Trustee filed two related adversary complaints. On February 15, 2006, Trustee filed his Complaint against Truman Flatt. Trustee alleges that Debtor rendered services to Truman Flatt totaling $33,392, and that that amount has not been paid.¹

On May 3, 2006, Trustee filed his Complaint against Pana Quarry. Trustee alleges that, within 90 days of the filing of the bankruptcy, Debtor, while insolvent, made payments to Pana Quarry which totaled $99,394.33, and that said payments allowed Pana Quarry to receive more than it would have received in a Chapter 7 bankruptcy case had the transfers not been made.²

Pana Quarry and Truman Flatt both assert as a defense their contention that Debtor, in April, 2005, when it entered into the "check swap" arrangement, orally assigned to Pana Quarry all of its rights to future payments from Truman Flatt for trucking services yet to be rendered. Consequently, Defendants argue, the $99,460.33 received by Pana Quarry from Debtor during the preference period was absolutely assigned and transferred by the Debtor outside of the preference period and, thus, is not subject to the claim of the Trustee. Additionally, because of the oral assignment, Truman Flatt argues that any amounts which Truman Flatt owed Debtor at the time of the bankruptcy filing are actually owed to Pana Quarry. Thus, Trustee has no claim against Truman Flatt for said amounts.

Pana Quarry offers a second affirmative defense in response to the Trustee's Complaint filed against it. Pana Quarry contends that any alleged preferential payments were paid in the ordinary course of business and, thus, are not subject to avoidance as preferential by the Trustee.

Trustee, Pana Quarry, and Truman Flatt have all filed Motions for Summary Judgment. As set forth above, the issue of whether the "check swap" created an absolute assignment which defeats the Trustee's rights is common to both cases and is raised by all parties in their summary judgment motions.

Defendants argue that oral assignments are recognized as valid under Illinois, and that the funds claimed by the Trustee in both cases were subject to a valid oral assignment. According to the Defendants, as of April 2, 2005 — the date the "check swap" arrangement was put into place — Pana Quarry acquired all of Debtor's rights to payments to become owing to Debtor by Truman Flatt. Consequently, they argue that the implementation of the "check swap" constituted an absolute and irrevocable transfer of Debtor's rights in and to said funds, or right to receive said funds.

Trustee disputes the contention that the parties have a valid oral assignment. At most, Trustee contends, the record shows that the parties entered into an informal arrangement where, between April, 2005, and September, 2005, checks were exchanged by mutual assent. However, Trustee proffers, the record also shows that on not every occasion was there an even swap, and that fact is evidence of the absence of a true assignment. Finally Trustee contends that the "check swap" arrangement may have been an attempt to create a security interest with respect to future accounts receivable owed to Debtor from Truman Flatt. However, to be enforceable against the Trustee, the security interest would have to have been in writing and a financing statement would have to have peen filed to perfect the secured interest. No such documents exist.

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories and admissions on file, together with 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." Fed.R.Bankr.P. 7056, incorporating by reference Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Summary judgment will be granted only where it is clear that there is no dispute about the facts or inferences to be drawn therefrom. Central Nat. Life Ins. Co. v. Fidelity and Deposit Co. of Maryland, 626 F.2d 537, 539 (7th Cir.1980) citing U.S. v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962). On a motion for summary judgment, the court must view the evidence in the light most favorable to the non-moving party. In re Chambers, 348 F.3d 650, 654 (7th Cir. 2003). It is not the role of the trial court to weigh the evidence or to determine its credibility, and the moving party cannot prevail if any essential element of its claim for relief requires trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). The movant bears the burden to prove each fact material to its claim and to establish that each fact is not in genuine dispute. If the movant fails to make that showing, summary judgment is not proper and must be denied. See In re Rogstad, 126 F.3d 1224, 1227-28 (9th Cir.1997).

"The primary purpose of granting a summary judgment motion is to avoid unnecessary trials when there is no genuine issue of material fact in dispute." In re JII Liquidating, Inc., 341 B.R. 256, 263 (Bankr.N.D.Ill.2006). Where the material facts are not in dispute, the sole issue is whether the moving party is entitled to a judgment as a matter of law. ANR Advance Transp. Co. v. International Brothel hood of Teamsters, Local 710, 153 F.3d 774, 777 (7th Cir.1998). The entry of summary judgment against a party is mandated, if, after adequate time for discovery and upon motion, that party fails to make a showing sufficient to establish the existence of an element essential to that party's case. Celotex Corp. v. Catrett, supra, 477 U.S. at 322, 106 S.Ct. at 2552.

An "assignment" is a transfer of some identifiable property, right, claim, or interest, from the assignor to the assignee. An equitable assignment is an assignment that gives the assignee a title which, although not cognizable at law, equity will recognize and protect. National Bank of Albany Park in Chicago v. Newberg, 7 Ill.App.3d 859, 866, 289 N.E.2d 197, 202 (1972).

An assignment operates to transfer to the assignee all of the assignor's right, title, or interest in the thing assigned; the assignee, by acquiring the same rights as the assignor, stands in the shoes of the assignor. In re Estate of Martinek, 140 Ill.App.3d 621, 629-30, ...