In re Machinery, Inc., Bankruptcy No. 01-43526-293.

• Citation: 337 B.R. 368
• Decision Date: 16 November 2005
• Docket Number: Adversary No. 04-4028.,Bankruptcy No. 01-43526-293.
• Parties: In re MACHINERY, INC., Debtor. JCB, Inc., Plaintiff, v. Union Planters Bank, N.A. and Machinery, Inc., Defendants
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Eastern District of Missouri

337 B.R. 368

In re MACHINERY, INC., Debtor JCB, Inc., Plaintiff, v. Union Planters Bank, N.A. and Machinery, Inc., Defendants

Bankruptcy No. 01-43526-293.

Adversary No. 04-4028.

United States Bankruptcy Court, E.D. Missouri, Eastern Division.

November 16, 2005.

Brian C. Walsh, Kevin M. Abel, King & Spalding LLP, Atlanta, GA, for Plaintiff.

Jeffrey S. Heuer, Blackwell Sanders Peper Martin LLP, for Defendant Union Planters Bank.

Norman W. Pressman, Goldstein & Pressman, for Defendant Machinery, Inc.

Anthony Soukenik, St. Louis, MO, for Debtor.

DAVID P. McDONALD, Bankruptcy Judge.

MEMORANDUM OPINION

This case is before the Court on JCB's Motion for Partial Summary Judgment. The dispute in this case is which creditor JCB or Union Planters, possessed the senior security interest in certain collateral (the "Collateral") owned by the debtor, Machinery, Inc. ("Machinery"). Because the confirmed plan of reorganization (the "Plan") preserved JCB's senior pre-petition purchase money security interest in Debtor's post-confirmation assets, including the Collateral, the Court will grant JCB's motion.

JURISDICTION AND VENUE

This Court has jurisdiction over the parties and subject matter of this proceeding under 28 U.S.C. §§ 1334, 151, and 157 and Local Rule 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding under 28 U.S.C. § 157(b)(2)(K), which the Court may hear and determine. Venue is proper in this District under 28 U.S.C. § 1409(a).

FACTUAL AND PROCEDURAL BACKGROUND

Viewing the summary judgment record in the light most favorable to the non-movant, Union Planters, the following facts appear from the record. JCB and Machinery entered into a financing arrangement in 1996 whereby JCB financed Machinery's purchase of equipment and parts manufactured by JCB (the "JCB Financing Agreement"). Machinery granted JCB a purchase money security interest in all" . . . equipment, machines, products, attachments and parts manufactured or sold by JCB and all proceeds thereof" to secure its obligation to JCB under the JCB Financing Agreement (the "JCB Security Agreement"). The JCB Security Agreement also contained an after-acquired property clause that gave JCB a purchase money security interest in any property of the type listed in the JCB Security Agreement that Machinery may acquire in the future. JCB properly perfected its security interest contained in the JCB Security Agreement.

Union Planters extended a line of credit to Machinery in March, 2000. Machinery executed a series of promissory notes in favor of Union Planters in exchange for the line of credit. Machinery secured its obligations under the promissory notes by granting Union Planters a security interest in specific items as well as a blanket lien on Machinery's inventory, accounts and proceeds from the inventory, which Union Planters properly perfected. (the "Union Planters Financing Agreement").

Machinery filed a petition for relief under Chapter 11 of the United States Bankruptcy Code on March 29, 2001. Machinery did not execute a new security agreement post-petition in favor of JCB or Union Planters. JCB continued to provide Machinery with post-petition financing to facilitate Machinery's purchase of equipment from JCB. Machinery filed the Plan on August 28, 2001. This Court confirmed the Plan in an order dated October 5, 2001. The Plan contains the following provisions relating to the parties' relative interest in the Collateral.

Concerning the Plan's treatment of JCB's security interest in Machinery's assets, Section 2.11 of the Plan states that JCB possessed a secured claim against Machinery's estate in an amount equal to the value of "Debtor's Equipment on which it holds a purchase money security interest". Sections 3.4.9 and 3.6 of the Plan recited that JCB's claim against Machinery's estate was fully secured in the amount of $456,879.40 and Machinery would pay the claim in full. The Plan further provided in Section 3.4.14.b that all pre-petition documents executed by Machinery shall remain in full force and effect post-confirmation.

With respect to Union Planters' interest in Machinery's assets, Section 3.7 of the Plan gave Union Planters a first priority secured position in all of Machinery's equipment, except that Union Planters' security interest would be junior to any perfected purchase money security interest in Machinery's assets. Section 3.7 further provides that no party shall hold a security interest in Machinery's post-confirmation assets except for Union Planters and ". . . any secured creditor, with respect only to specific items and accounts receivable stemming from the sale . . . of any collateral on which it holds a properly perfected security interest.".

After the Court confirmed the Plan, JCB continued to provide Machinery with equipment under the terms of the JCB Financing Agreement. And Machinery acquired the Collateral at issue here post-confirmation.

Machinery defaulted on its obligation to its secured creditors under the Plan shortly after confirmation. And in April, 2003 Machinery notified all of its secured creditors, including both JCB and Union Planters, that it was ceasing operations and winding up its business affairs. Machinery surrendered most of the machines that were subject to JCB's security interest (the "Machine Collateral") to JCB on March 10, 2003. JCB placed the Machine Collateral on its lot (the "Lot") and planned to sell the equipment through its dealer system. Machinery also retained some of the Machine Collateral on its real property.

Union Planters, through its agent ATEC, Inc. ("ATEC"), entered upon the Lot on May 12, 2003 and removed the Machine Collateral without the consent of JCB. ATEC also removed several machine parts that were subject to JCB's security interest (the "Parts Collateral") from the Lot. Machinery sold the remaining Machine Collateral to third-parties.

Union Planters notified JCB on June 12, 2003 that it intended to sell the Machine Collateral at a public auction. JCB replied to Union Planters' notification by remitting a letter to Union Planters dated July 15, 2003 demanding that Union Planters not conduct the sale and immediately return the Machine Collateral to JCB. Union Planters refused JCB's demands and ATEC conducted the auction of the Machine Collateral on behalf of Union Planters on July 17, 2003 (the "Public Auction"). The sale of the Machine Collateral at the Public Auction yielded approximately $838,500.00, net of ATEC's fees.

Union Planters also arranged for ATEC to sell the Parts Collateral at a private sale on August 18, 2003. As with the Machine Collateral, JCB demanded that Union Planters immediately deliver the Parts Collateral to JCB in a letter dated July 18, 2003. Union Planters refused JCB's demand and ATEC conducted the private sale of the Parts Collateral on August 18, 2003 (the "Private Sale").

JCB filed the instant adversary proceeding on September 19, 2003. JCB's complaint contains five counts. Count I is a declaratory judgment action requesting the Court to declare that JCB had the senior security interest in the Collateral. JCB contends in Count II that if the Court finds that Union Planters possessed the senior security interest in the Collateral, Union Planters should be required to marshal its other collateral to satisfy its claim against Machinery. JCB argues in Count III that Union Planters failed to dispose of the Collateral in a commercially reasonable manner as required by Mo. Rev. Stat. § 400.9-610. Count IV contains a claim that Union Planters trespassed upon JCB's Lot when Union Planers took possession of the Collateral. Count V is an allegation that Union Planters converted JCB's property interest in the Collateral by refusing to return both the Machine and Parts Collateral to JCB upon JCB's demand.

Union Planters countered in its answer that it possessed the only security interest in the Collateral under the Plan. Union Planters also asserted a four count counterclaim against JCB. Union Planters requests in Count I that the Court declare that it possessed the senior security interest in the Collateral. Union Planters argues in Count II that JCB converted Union Planters' security interest in the Collateral. Union Planters seeks an accounting from JCB in Count III for any proceeds JCB may have received upon disposing of a portion of the Collateral. Union Planters maintains in Count IV of its counterclaim that JCB failed to provide Union Planters with sufficient notice of JCB's sale or other disposition of a portion of Collateral so that Union Planters is entitled to damages under Mo. Rev. Stat. § 400.9-625.¹

Union Planters filed a motion for summary judgment arguing that there were no material facts in dispute that the Plan eliminated JCB's security interest in Machinery's post-petition assets, including the Collateral. Union Planters, therefore, contended in its motion for summary judgment that the Plan only provided it with a valid security interest in the Collateral.

This Court denied Union Planters' motion for summary in an order and memorandum opinion dated January 25, 2005 (the "Summary Judgment Order"). The Court disagreed with Union Planters' premise that the Plan only provided it with a valid security interest in the Collateral. Specifically, the Court found that Section 3.4.14.b of the Plan preserved JCB's pre-petition senior purchase money security interest in Machinery's post-confirmation assets, including the Collateral. (Summary Judgment Order, p. 10). Accordingly, the Court held that JCB, not Union Planters, possessed the senior security interest in the Collateral.

JCB filed the instant motion for partial summary judgment on August 19, 2005. JCB maintains in its motion that because the Plan preserved its pre-petition senior purchase money security interest in Machinery's post-confirmation assets, there are no material facts in dispute that it possessed the...