In re Mary Holder Agency, Inc.
| Decision Date | 03 December 2012 |
| Docket Number | Adversary No.: 12-1423,Case No.: 11-34280 (MBK) |
| Parties | In re: MARY HOLDER AGENCY, INC., Debtor. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
NOT FOR PUBLICATION
David Fornal, Esq.
Kimberly Pelkey Sdeo, Esq.
Maselli Warren, P.C.
Attorney for Plaintiff, JP Morgan Chase Bank, N.A.
Andrea Dobin, Esq.
Graig P. Corveleyn, Esq.
Sterns & Weinroth, A.P.C.
Attorney for Andrea Dobin, Esq., Chapter 7 Trustee
This matter is before the Court by way of a Motion for Summary Judgment ("Motion") filed on behalf of JP Morgan Chase Bank, N.A. ("Chase"). Through the Motion, Chase seeks entry of a judgment establishing its security interest in the amount of $65,076.07 in Mary Holder Agency, Inc.'s ("Debtor") collateral, including accounts and proceeds. The Chapter 7 Trustee("Trustee") opposes Chase's Motion and has filed a Cross Motion for Summary Judgment ("Cross Motion") seeking summary judgment in her favor and seeking an Order establishing that the funds at issue in Chase's Motion are property of the bankruptcy estate and, thus, not subject to Chase's lien. A hearing on the Motion was held on November 19, 2012. For the reasons set forth below, Chase's Motion is DENIED and Debtor's Cross Motion is DENIED.
The Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(K). Venue is proper in this Court pursuant to 28 U.S.C. § 1408. The following constitutes the Court's finding of fact and conclusions of law as required by Fed. R. Bankr. P. 7052.1
Business Creditlink Agreement, Docket Entry No. 12-4 at *10. Chase subsequently acquired this loan from the Bank of New York.
On August 15, 2011, the Debtor filed for relief pursuant to Chapter 11 of the Bankruptcy Code. On December 8, 2011, the case was converted to a Chapter 7 bankruptcy and Andrea Dobin, Esq. was appointed as the Chapter 7 Trustee ("Trustee"). The first meeting of creditors was held on January 23, 2012. On February 1, 2012, Chase filed its Proof of Claim and evidenced the amount due to Chase on the date of the petition as $65,076.07. Chase then filed the current adversary proceeding on May 2, 2012 seeking a determination as to the extent and validity of its lien. Chase now brings this Motion seeking an Order establishing that any and all funds in the Debtor's bank accounts on the day of conversion are proceeds of the Debtor's real estate listing agreements and, as such, are subject to the security interest of Chase. The Trustee asserts that Chase has failed to submit evidence to support its position; specifically, that Chase has failed to trace the proceeds of the collateral; that Chase has failed to establish that it obtained a replacement lien; and that Chase's interest is not perfected as to the Debtor's deposit accounts. The Trustee also questions the credibility of the Certification which serves as the basis for Chase's Motion. The Trustee seeks an Order granting summary judgment in her favor. For the reasons set forth below, Chase's Motion for Summary Judgment is DENIED and the Trustee's Cross Motion for Summary Judgment is DENIED.
The Trustee submits that Chase has not established that it is entitled to the funds in the Debtor's bank accounts. The Trustee asserts that Chase carries the burden of tracing the proceeds of collateral and that Chase has failed to satisfy that burden. The Court disagrees with the Trustee's allocation of the respective burdens. The Trustee cites to N.J.S.A. 12A:9-315 which addresses a secured party's rights on disposition of collateral and in proceeds. The statute provides for a continuation of security interest and states, in relevant part:
In the case at bar, there has been no assertion that the funds in the Debtor's account have been commingled. Rather, Chase submits the Certification of the Debtor's principal which indicates that the funds in the Debtor's account are derived solely from commissions and, as such, are identifiable proceeds of collateral covered under N.J.S.A. 12A:9-315(a)(2). The Trustee has not provided evidence to contradict Chase's contention that the funds are the proceeds of collateral, and, as stated above, the Trustee makes no claim that the funds are commingled. A plain reading of the language of the statute, and a common sense interpretation of same, indicates that tracing is only required if commingling has occurred. Therefore, under the circumstances of this case, there is no need for an analysis as to the identifiability of commingled proceeds via a method of tracing under N.J.S.A. 12A:9-315(b). In re Quaker Distributors, Inc. 189 B.R. 63 (Bankr.E.D.Pa. 1995)( that testimony of the debtor's president was sufficient to show that funds in the account at issue were not commingled and, thus, there was no need to reach the issue of whether the creditor could have lost its security interest). The Court's discussion regarding tracing could conclude here. Nevertheless, the Court will address the remainder of the Trustee's argument regarding Chase's alleged tracing obligation.
Despite the absence of commingling, the Trustee submits that Chase has an affirmative burden to trace the proceeds. The Trustee makes this assertion without providing any statutory support and without citing to any binding case law which indicates that such a burden exists.The Court's own research did not reveal any authority which places an affirmative burden on a creditor to trace funds that have not been commingled. To the contrary, there is significant case law in this jurisdiction which establishes that if commingling occurs, then the burden to trace the proceeds of collateral is triggered. In re KI Liquidation, Inc. 2008 WL 5109369, 5 (D.N.J. December 1, 2008) () (emphasis added) (citing Goldberg v. N.J. Lawyers' Fund for Client Protection, 932 F.2d 273, 280 (3d Cir. 1991)); see also In re Magna Entertainment Corp., 438 B.R. 380, 395 (Bankr.D.Del. 2010); City of Farrell v. Sharon Steel Corp., 41 F.3d 92, 95-96 (3d Cir. 1994); Official Comm. of Unsecured Creditors of the Columbia Gas Transmission Corp. v. Columbia Gas Sys. Inc. (In re Columbia Gas Sys. Inc.), 997 F.2d 1039, 1063 (3d Cir.1993). In addition, the cases from the Ninth Circuit which are relied by the Trustee seem to support the proposition that commingling triggers the tracing requirement. In re Skagit Pacific Corp., 316 B.R. 330, 338 (9th Cir. BAP 2004) ( )(emphasis added). As discussed above, there has been no evidence, by means of affidavit or otherwise, which suggests that the Debtor's accounts are commingled; therefore, no genuine issue of fact appears of record as to the need for tracing.
Finally, the Court notes that the Trustee relies upon Stoumbos v. Kilimnik, a case in which the court imposed a burden upon a creditor to establish that funds in a deposit account came solely from the proceeds of collateral on the creditor's loan. Stoumbos v. Kilimnik, 988 F.2d 949(9th Cir. 1993). The court in Stoumbos also held that the creditor's testimony, alone, was insufficient to satisfy that burden. Id. at 957-958. The Trustee in this case relies on Stoumbos in support of her contention that Chase has not met its burden of proof because the only evidence submitted by Chase is the Certification of the Debtor's principal. A careful review of the Stoumbos case, however, reveals that it is factually distinguishable from the case at bar. In Stoumbos, the creditor had already received funds from the debtor's deposit account and was attempting to defeat the trustee's claim of preference. Thus, the burden had shifted to the creditor in order to defeat the presumption against him. Id. at 958. We are not faced with a similar situation in the case presently before the Court. Accordingly, this Court does not find the holding in Stoumbos persuasive or applicable to the facts...
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