In re Medina

• Decision Date: 11 October 1994
• Docket Number: Bankruptcy No. 693-62021-psh11.
• Parties: In re Miguel MEDINA and Vicki Kathleen Medina, Debtors.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Oregon

177 B.R. 335 (1994)

In re Miguel MEDINA and Vicki Kathleen Medina, Debtors.

Bankruptcy No. 693-62021-psh11.

United States Bankruptcy Court, D. Oregon.

October 11, 1994.

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Penny L. Austin, Medford, OR, for debtors.

Wesley F. McNamara, Sp. Asst. U.S. Atty., Portland, OR, for I.R.S.

Larry C. Hammack, Stark & Hammack, P.C., Medford, OR, for Offord Fin. Co.

MEMORANDUM OPINION

POLLY S. HIGDON, Bankruptcy Judge.

Creditor the United States of America through the Internal Revenue Service (hereafter IRS) has moved the court for relief from the automatic stay to apply certain proceeds arising from contracts entered into between Medina Reforestation and the United States Department of Agriculture (hereafter USDA) to the debtors' tax debt. The IRS has waived its right to a final determination within the time otherwise required by 11 U.S.C. § 362(e). Offord Financing, Inc. (hereafter Offord) is claiming priority to these payments. The debtors in possession do not claim the contract proceeds. In conjunction with this contested matter the creditors stipulate to the following facts:

1. Prepetition the debtors in possession were in the business of reforestation. Reforestation consists of planting and maintaining trees on forest lands. This service was provided under contracts with third parties, primarily the United States Forest Service through the USDA.

2. The debtors are husband and wife. Medina Reforestation is a proprietorship owned solely by Miguel Medina during the periods at issue. Vicki Medina Church Company is a proprietorship owned solely by Vicki Medina during the periods at issue.

3. The Medinas filed their Chapter 11 case on May 17, 1993. On June 25, 1993 the IRS filed a timely proof of claim for $730,120.48.

4. The IRS has on file federal tax liens against the debtors as follows:

                Lien filing                                                Amount Due on
                    Date                    Place of Filing                 Filing Date              Taxpayer   
                  6/15/92              Oregon Secretary of State            $18,975.08             Miguel Medina
                  6/15/92              Oregon Secretary of State             11,025.92             Vicki Medina
                  6/17/92              Jackson County Clerk                  18,975.08             Miguel Medina
                  6/17/92              Jackson County Clerk                  11,025.92             Vicki Medina
                  1/20/93              Jackson County Clerk                  21,436.87             Miguel Medina
                

The total amount due and secured by these liens as of the petition date was $47,521.

5. On January 27, 1993 the IRS seized a parcel of real estate owned by the Medinas located at 6101 Adams Rd., Talent, Oregon. The following liens on the debtors' Talent property are superior to the lien under which the IRS seized the property:

                                                                             Approximate Balance
                           Lienor                  Priority Date             on January 27, 1993
                Trend Colleges, Inc.                 10/10/88                      $  1,561.65
                Southern Oregon Credit               03/27/91                           418.00
                Service                              07/24/91                         2,479.57
                                                     11/14/91                         4,242.10
                Jackson County Tax Warrant           05/07/91                           123.33
                Jackson County Property Tax          10/01/92                        19,981.97
                Oregon State Accident                05/13/91                         8,374.58
                Insurance Fund                       07/19/91                        51,375.43
                                                                                   ___________
                              Approximate Total of Superior Liens                  $ 88,433.30
                

6. On February 22, 1993 the IRS gave notice of a sealed bid sale on the Talent property. This sale was not consummated due to a Chapter 13 filing by the Medinas. After the Chapter 13 was dismissed, on May 6, 1993 the IRS gave another notice of a sealed bid sale which also was not consummated because of their Chapter 11 filing.

7. After the Medinas dismissed their Chapter 13 filing, on May 3, 1993 the IRS gave notices of levy to the USDA with regard to certain assessed taxes due from the Medinas. The addressees received the notices on May 10, 1993.

8. The Medinas filed their Chapter 11 on May 17, 1993. Before they filed their Chapter 11 petition, Medina Reforestation entered into three separate contracts with the USDA governing tree planting and related reforestation services. The contracts, by number, date of contract and commencement date of work are:

A. XX-XXXX-X-XXXXX, awarded March 16, 1993. Work commenced on April 26, 1993.

B. 53-9A28-3-1N21, awarded February 3, 1993. Work commenced on April 22, 1993.

C. XX-XXXX-X-XXXX, awarded March 16, 1993. Work commenced and completed after May 16, 1993.

9. On April 7, 1993 Offord entered into a financing, assignment and security agreement with "Vicki Kathleen or Miguel Medina dba Medina Reforestation." The security agreement was duly perfected by filing on April 16, 1993.

10. Medina Reforestation assigned to Offord its right to receive proceeds in the contracts described in paragraph 8 A and B above. On May 13, 1993 the USDA received a notice of assignment regarding Contract Number 53-9A28-3-1N21. On May 14, 1993, the USDA received notice of assignment regarding Contract Number XX-XXXX-X-XXXXX.

11. Pursuant to its agreement with Medina Reforestation, Offord purchased from it certain invoices for work performed on the contract described in paragraph 8 A and B above. The date of the invoices, their amounts, the purchase price paid by Offord to the Medinas, and the current status of the payment on each is:

A. Contract # XX-XXXX-X-XXXXX:

1. Invoice dated May 6, 1993, in the sum of $19,939.00 for work performed from April 26, 1993 to May 5, 1993.

a. Purchased by Offord on May 14, 1993 for the face amount less 5%, with proceeds paid directly to debtors.

b. Invoice being held by USDA awaiting this Court\'s order concerning disposition.

B. Contract # 53-9A28-3-1N21:

1. Invoice dated April 19, 1993, in the sum of $11,701.72 for work performed from April 12, 1993 to April 19, 1993.

a. Purchased by Offord on April 19, 1993 for the face amount less 5%, purchase proceeds paid directly to debtors.

b. Invoice was paid in the face amount by USDA directly to debtors on May 17, 1993, before it was administratively able to take notice of the bankruptcy c. Debtors delivered payment by USDA to Offord after receipt.

2. Invoice dated April 26, 1993, in the sum of $19,449.73 for work performed from April 19, 1993 to April 26, 1993.

a. Purchased by Offord on April 26, 1993 for the face amount less 5%, purchase proceeds paid directly to debtors.

b. USDA paid the face amount of this invoice directly to debtors on or about May 26, 1993, before it was administratively able to take notice of the bankruptcy.

c. Debtors delivered the check that they received to their attorney, Penny Austin, who continues to hold the draft awaiting the Court\'s order concerning disposition.

3. Invoice dated April 28, 1993, in the sum of $16,805.69 for work performed from April 12, 1993 to April 27, 1993.

a. Purchased by Offord on April 28, 1993 for the face amount less 5%, purchase proceeds paid directly to debtors.

b. Adjustments to this invoice lowered the amount actually received to the sum of $16,179.94.

c. USDA paid the adjusted amount directly to debtors on or about May 28, 1993 before it was administratively able to take notice of the bankruptcy. Debtors delivered this check to their attorney, Penny Austin. Penny Austin presently holds these funds awaiting this Court\'s order concerning disposition.

4. Invoice dated May 14, 1993, in the sum of $32,056.33 for work performed from April 12, 1993 to May 12, 1993.

a. Purchased by Offord on May 14, 1993 for face amount less 5%, purchase proceeds paid directly to debtors.

b. USDA currently holds these funds awaiting this Court\'s order concerning disposition.

12. In addition to the foregoing and as it pertains to Contract Number XX-XXXX-X-XXXXX, Medina Reforestation performed services under that agreement and submitted an invoice dated May 18, 1993, in the sum of $18,899.55, representing work performed from May 10, 1993 to May 16, 1993. This invoice was not purchased by Offord. The USDA has not paid this invoice and the sum is being held by the USDA awaiting this court's order concerning disposition.

13. Invoices generated by Medina Reforestation on the three contracts described above for work performed by the Medinas postpetition are:

A. Contract # XX-XXXX-X-XXXXX:

I. Invoice dated June 1, 1993 in the sum of $19,545.00.

B. Contract # 53-9A28-1N21:

I. Invoice dated June 10, 1993 in the sum of $1,642.60.

C. Contract # XX-XXXX-X-XXXX:

I. Invoice dated June 1, 1993 in the sum of $11,487.50.

These invoices and the invoices described in paragraph 12 were not factored by Offord.

14. The invoices described in paragraph 13 have been paid by the USDA (except for the sum of $850.02 from the invoice dated June 10, 1993) and were used by the debtors as cash collateral pursuant to an order of this court.

15. Medina Reforestation has fully performed its obligation under the contracts described in paragraph 8 above and the invoices described in paragraphs 11, 12, and 13 above cover all payments earned by the debtors under the contracts.

The court makes further findings of fact as follows:

16. The United States' June, 1993 proof of claim since has been amended several times. The latest proof is for $750,491.97. It reflects that the majority of the taxes were assessed for tax years 1988-1992. Offord has filed a timely proof of claim in the amount of $87,661.60.

17. All the USDA contracts contain provisions which...