In re OPM Leasing Services, Inc.

Decision Date18 May 1984
Docket NumberAdv. No. 81-5670 A.,Bankruptcy No. 81 B 10533
Citation40 BR 380
PartiesIn re O.P.M. LEASING SERVICES, INC., Debtor. James P. HASSETT, as Chapter 11 Trustee of O.P.M. Leasing Services, Inc., Plaintiff, v. FAR WEST FEDERAL SAVINGS AND LOAN ASSOCIATION, Euramlease, Inc. and Henry L. Bauer, as Trustee for Euramlease, Inc., Defendants.
CourtU.S. Bankruptcy Court — Southern District of New York



Zalkin, Rodin & Goodman, New York City, for trustee; Henry L. Goodman and Harold N. Schwinger, New York City, of counsel.

Richards, O'Neil & Allegaert, New York City, for Far West Federal Sav. and Loan Ass'n, Henry C. Bauer as Trustee for Euramlease, Inc. and Euramlease, Inc.; Winthrop J. Allegaert and Brad Steenland, New York City, of counsel.


BURTON R. LIFLAND, Bankruptcy Judge.

I. Introduction

In this adversary proceeding, James P. Hassett, the Chapter 11 trustee ("Trustee") of O.P.M. Leasing Services, Inc. ("OPM"), a computer leasing concern, seeks to recover certain sums from the defendants Far West Federal Savings and Loan ("Far West"), Euramlease, Inc. ("Euramlease") and Henry L. Bauer as trustee for Euramlease ("Bauer"), allegedly obtained as a result of fraudulent conveyances, preferences, or postpetition transactions.

Each of the varied transactions scrutinized in this decision are tested by the full panoply of a trustee's avoiding powers applied singly or in combination. The transactions at issue took place at a point in time when the parties' economic and performance expectations no longer conformed to their original written agreements. Almost all of the transactions are found herein vulnerable to the trustee's avoiding powers.

At a trial based predominantly upon documentary evidence, parts of the transcripts containing the depositions of Far West by Kenneth L. Schmit and Edwin Sweeting, the deposition of Euramlease by William P. Umbs, and the deposition of the trustee for Euramlease by Henry L. Bauer were read into the record as evidence in chief. Trial witness testimony was minimal.

OPM filed its voluntary petition in this Court on March 11, 1981, under Chapter 11 of the Bankruptcy Reform Act of 1978 ("the Code"). On October 15, 1981, the Trustee commenced this adversary proceeding. The Trustee asserts claims against Far West, located in Oregon, Euramlease, a New York corporation, and Bauer, on various grounds and under Code Sections 544, 547, 548, 549, 362 and under Sections 270 et seq. of New York's Debtor and Creditor Law ("DCL").

A. Payments the Trustee Seeks to Avoid

The payments the Trustee claims were fraudulent conveyances may be categorized into five groups.

The first group consists of five payments made by OPM to Euramlease on behalf of Far West between December 1979 and April 1980.

The second group consists of reimbursement in advance by OPM to Far West for three monthly rental payments for May through July 1980 (more fully described hereinafter).

The third group consists of payments made into a trust account established by OPM at Far West ("Account" or the "Trust Account"). Euramlease was the purported beneficiary of this Trust Account even though it did not consent to it or even know of its existence.

The fourth group of payments were made by OPM to Far West pursuant to an afterthought or sham sublease agreement.

The fifth group of payments the Trustee seeks to recover are postpetition transfers from the Trust Account made by Bauer and paid to Far West.

This Court finds that the payments made by OPM in the first four categories were gratuitous, not legally required, and unsupported by consideration. They may therefore be recovered by the Trustee as fraudulent conveyances pursuant to the Code and state law. The fifth group of payments may be avoided by the Trustee as postpetition transfers made in violation of the Code's automatic stay provision.

B. Applicable Law

Most of the Code provisions relevant to this decision deal with the broad powers of a trustee, who in this case is a chapter 11 trustee, to avoid transfers of property of the estate.

Code § 544(b)1 enables the trustee to avoid transfers that are voidable under applicable state law by a creditor holding an allowed, unsecured claim under § 502.2 By referring to state law to determine whether a transfer may be avoided, "the trustee's powers of avoidance under section 544(b) are not circumscribed by the time period, or other restrictions, to be found in sections 547 and 548." 4 Collier on Bankruptcy ¶ 544.031 at 544-15 (15th ed. 1983) (footnotes omitted). Frequently this period is longer than the one-year limitation of Code § 548, discussed below, thereby enabling the trustee to reach further back to recover more for the estate.

Under the authority of Code § 544(b) and New York DCL, the Trustee here may recover the payments made by OPM to Far West pursuant to an April 1980 agreement, the payments made to Euramlease between December 1979 and April 1980, the payments made by OPM to Far West pursuant to a sublease which this Court determines to be a sham, and the payments into the Trust Account.

Code § 547(b) enables a trustee to avoid preferential transfers made ninety days before the debtor filed its petition. The trustee seeking to avoid the transfer has the burden of proving all of the statutory elements of a preference.3 Failure to do so will prevent the avoidance of the transfer pursuant to that section. 4 Collier on Bankruptcy ¶ 547.01 at 547-12.

The Trustee seeks to recover under Code § 547(b) three out of six payments made within 90 days of the filing of the bankruptcy petition pursuant to the sham sublease between Far West and OPM. The Trustee's failure to discharge his burden of proof under this section, as detailed infra, is not fatal because he may nonetheless recover these payments under the webbing of Code § 544(b).

Although Code § 548 is not explicitly pleaded in the Trustee's Amended Complaint, this Court will nonetheless consider its possible applicability to the instant case. A court may examine a complaint to determine whether it justifies relief "under any legal theory." Thompson v. Allstate Insurance Co., 476 F.2d 746, 749 (5th Cir. 1973). Code § 5484 is the codification of Sections 4, 5, 6 and 7 of the Uniform Fraudulent Conveyance Act. See 4 Collier on Bankruptcy ¶ 548.02 at 548-22. Like Code § 544(b), it enables a trustee to avoid transfers made either with actual intent to defraud or constructive intent implied in law based upon less than reasonably equivalent consideration while the debtor was insolvent. See 4 Collier on Bankruptcy ¶ 548.02 and 548.03. However, unlike Code § 544(b), § 548 may be used only to avoid transfers effected within one year of the filing of the debtor's petition. Because of the one-year limitation, if this section applies, it will enable the Trustee to avoid only the last two of the five payments in the first group of payments made by OPM to Far West between December 1979 and April 1980 as well as all of the payments made in the second, third and fourth groups enumerated above.

Under Code § 549(a)5 a trustee may avoid postpetition transfers of property of the estate made without the Bankruptcy Court's consent. The trustee must bring any claims under this section within the earlier of two years from the time of the transfer and the time the case is closed or dismissed. See Code § 549(d).6

Pursuant to § 549, the Trustee seeks to recover postpetition transfers made from the Trust Account by Bauer and Far West as well as the remaining balance in the Account. As discussed infra, he may do so.

Code Section § 3627 imposes an automatic stay, upon the filing of the debtor's petition, of actions "which would affect or interfere with property of the estate, property of the debtor, or property in the custody of the estate." 2 Collier ¶ 362.011 at 362-6. The automatic stay is broad in scope and "continues until the property is no longer property of the estate." 2 Collier ¶ 362.06 at 362-43. Upon a proper showing, a creditor may obtain relief from the stay by bringing on a motion for that purpose. 2 Collier ¶ 362.08 at 362-52. Where an act or action is knowingly brought or committed in violation of the automatic stay, "contempt is an appropriate remedy," although inadvertent violations should not be so punished. 2 Collier ¶ 362.11 at XXX-XX-XX, citing Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47 (2d Cir.1976), cert. denied 429 U.S. 1093, 97 S.Ct. 1107, 51 L.Ed.2d 540 (1977).

A detailed description of the transactions which gave rise to the payments sought to be avoided by the Trustee will provide the factual framework of this Opinion, as well as a piquant glimpse at the nether side of business.

II. Factual Background

In October 1977, OPM as lessor and Far West as lessee entered into a Master Lease. The Master Lease was to govern all subsequent leasing transactions entered into by the parties. These transactions were to be referred to as "Equipment Schedules" ("ES"). In March 1978, OPM as lessor and Far West as lessee entered into ES-3, which incorporated the terms and conditions of the Master Lease. Pursuant to ES-3, OPM leased a computer and related equipment ("the ES-3 equipment") to Far West for 60 months beginning on May 1, 1978. The rental payments were $26,185.00 per month for the first 12 months, and $29,110.00 for the remaining 48 months.

On May 2, 1978, OPM executed a nonrecourse promissory Note payable to defendant Euramlease in the amount of $1,337,230.96, under a Note Agreement dated March 21, 1978, as security for a loan made by Euramlease to OPM. The Note was collateralized by a Security Agreement, also dated March 21, 1978, and executed by OPM and Euramlease. Pursuant to the terms of the Security Agreement, OPM assigned all of its right, title and interest...

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