In re Psa, Inc.

• Decision Date: 28 December 2005
• Docket Number: Adversary No. 03-55569.,Bankruptcy No. 00-3570.
• Citation: 335 B.R. 580
• Parties: In re PSA, INC., et al., Debtors. ETS Payphones, Inc., Plaintiff, v. AT & T Universal Card, Defendant.
• Court: U.S. Bankruptcy Court — District of Delaware

335 B.R. 580

In re PSA, INC., et al., Debtors ETS Payphones, Inc., Plaintiff, v. AT & T Universal Card, Defendant.

Bankruptcy No. 00-3570.

Adversary No. 03-55569.

United States Bankruptcy Court, D. Delaware.

December 28, 2005.

COPYRIGHT MATERIAL OMITTED

Brenda Linehan Shannon, for Debtors.

MEMORANDUM OF OPINION AND ORDER

RANDOLPH BAXTER, Bankruptcy Judge.

Before the Court is Defendant AT & T Universal Card's ("Citi")¹ Motion for Summary Judgment in the above-styled adversary proceeding.

*

The general factual background of this case is undisputed. ETS and its related entities (collectively, the "Debtors") filed a petition for relief under Chapter 11 of the United States Bankruptcy Code (the "Code") on September 11, 2000. The Court confirmed the Debtors' Joint Reorganization Plan (the "Plan") on November 14, 2001. Citi was not a creditor of ETS, and was not included in the Plan.

It was later discovered that Janet Williams ("Williams"), a former ETS employee, had misappropriated ETS funds to pay personal credit card, auto insurance, and other of her personal debts, and the debts of her family members. These payments included an amount of $330,948.52 made to Citi for her personal credit card accounts.

On August 20, 2003, ETS filed the above-styled adversary proceeding against Citi, alleging that the payments made by Williams to Citi were fraudulent transfers. ETS seeks to avoid and recover the transferred funds pursuant to 11 U.S.C. §§ 549 and 550.

Only the transfers made between August 20, 2001 and December 5, 2002, totaling $247,992.96, remain in controversy.² Citi asserts that although ETS, as debtor-in-possession, has been granted the authority to continue to manage and operate its business, it remains subject to Georgia³ state laws. Since Citi did not have a duty to inquire into the source of an individual customer's payments, Citi claims that ETS would not be able to recover under state law. Citi argues that it would be contrary to the policy of the Code to permit ETS to recover funds to which it would not be entitled during the operation of its business outside of bankruptcy. Further, Citi alleges that ETS has a duty under 28 U.S.C. § 959 to act in the ordinary course of business, pursuant to state law. Therefore, CTS argues that § 549 cannot operate to shield ETS from the effects of the negligent behavior which allegedly permitted Williams' criminal behavior to occur.

ETS replies that the plain language of §§ 549 and 550 unambiguously encompass the remaining transfers, and that Georgia state law cannot be used to contradict the policy or language of the Code.

* *

Summary judgment is appropriate if a review of the record, in a light most favorable to the non-moving party, demonstrates 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.CIV.P. 56(c); Maple Properties, Inc. v. Township of Upper Providence, 151 Fed.Appx. 174, 177-78 (3rd Cir.2005). See generally Celotex v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The party moving for summary judgment has the initial burden of proving that there is no genuine issue as to any material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 161, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). "Facts that could alter the outcome are `material' ... and disputes are `genuine' if evidence exists from which a rational person could conclude that the position of the person with the burden of proof on the disputed issue is correct." Horowitz v. Fed. Kemper Life Assurance Co., 57 F.3d 300, 302 n. 1 (3d Cir.1995) (internal citations omitted). "Merely establishing the absence of genuinely disputed facts will not carry the day for the summary judgment movant. The movant must also demonstrate that the applicable controlling law requires a decision in the movant's favor." 11 MOORE'S FEDERAL PRACTICE § 56.11[8]; Celotex, 477 U.S. at 322, 106 S.Ct. 2548; Dworman v. Mayor and Bd. of Aldermen, Governing Body of Town of Morristown, 370 F.Supp. 1056, 1065-66 (D.N.J.1974) (citing Bushie v. Stenocord Corp., 460 F.2d 116, 119 (9th Cir.1972)) ("[t]he showing of a genuine issue for trial is predicated upon the existence of a legal theory which remains viable under the asserted version of the facts, and which would entitle the party opposing the motion ... to a judgment as a matter of law.").

Once the moving party has met this initial burden of proof, the non-moving party must present specific facts sufficient to raise a genuine issue for trial and may not rest on its pleadings or mere assertions of disputed facts to defeat the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (stating that the party opposing the motion "must do more than simply show that there is some metaphysical doubt as to the material facts"). The mere existence of a scintilla of evidence in support of the opposing party's position will not be sufficient to forestall summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A party may not defeat a motion for summary judgment unless it sets forth specific facts, in a form that would be admissible in evidence, establishing the existence of a genuine issue of material fact for trial. See Fireman's Ins. Co. of Newark, N.J. v. DuFresne, 676 F.2d 965, 969 (3d Cir.1982) ("Rule 56(e) does not allow a party resisting the motion to rely merely upon bare assertions, conclusory allegations or suspicions"); Olympic Junior, Inc. v. David Crystal, Inc., 463 F.2d 1141, 1146 (3d Cir.1972) ("Conclusory statements, general denials, and factual allegations not based on personal knowledge would be insufficient to avoid summary judgment") (citations omitted); Tripoli Co. v. Wella Corp., 425 F.2d 932, 935 (3d Cir.1970) (holding that to defeat a summary judgment motion, "a party must now come forward with affidavits setting forth specific facts showing that there is a genuine issue for trial"). In ruling on a motion for summary judgment, "the evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson, 477 U.S. at 255, 106 S.Ct. 2505.

Therefore, Citi is entitled to summary judgment if there is no genuine issue of material fact, and if ETS' complaint to avoid and recover transfers fails as a matter of law.

* * *

Section 549 provides the Trustee (or debtor in possession) with the authority to avoid a transfer of property of the estate that is not authorized by the Bankruptcy court or the Code. Section 549(a) provides:

(a) Except as provided in subsection (b) or (c) of this section, the trustee may avoid a transfer of property of the estate —

(1) that occurs after the commencement of the case; and

(2) (A) that is authorized only under section 303(f) or 542(c) of this title; or

(B) that is not authorized under this title or by the court.

11 U.S.C. § 549(a). To the extent a transfer is avoidable under § 549(a), § 550(a) provides that the debtor in possession may recover the property transferred or its value from the initial transferee or from any subsequent transferee. 11 U.S.C. § 550(a).

"The purpose of section 549 is to allow the trustee to avoid those postpetition transfers which deplete the estate while providing limited protection to transferees who deal with the debtor. Fraud by the debtor and, except with respect to purchasers of real property, good faith on the part of the transferee are irrelevant to the application of this section." 5 COLLIER ON BANKRUPTCY ¶ 549.02 (15th ed. rev.2005). "Section 549 is geared to protecting the estate against unauthorized, post-petition transfers by the debtor or by creditors seizing property in order to perfect their liens." In re Taft, 262 B.R. 55, 60 (Bankr.M.D.Pa.2001); 40235 Washington Street Corp. v. Lusardi, 329 F.3d 1076, 1081 (9th Cir.2003) ("The purpose of section 549, in contrast, is to provide a just resolution when the debtor himself initiates an unauthorized postpetition transfer.").

The debtor in possession bears the burden of proving what may properly be recovered under § 549 and 550. In re Rochez Bros., Inc., 326 B.R. 579, 588 (Bankr.W.D.Pa.2005). To satisfy the elements of § 549(a), the debtor in possession must demonstrate that,

1) after the commencement of the bankruptcy case in question,

2) property of the estate

3) was transferred, and

4) the transfer was not authorized by the Bankruptcy Court or by a provision of the Bankruptcy Code.

E.g., In re Blair, 330 B.R. 206, 213 (Bankr.N.D.Ill.2005); In re APF Co., 274 B.R. 408, 418 (Bankr.D.Del.2001); In re Dartco, Inc., 197 B.R. 860, 865 (Bankr.D.Minn.1996). In this case, it is clear that ETS has satisfied the requirements of § 549, since the transfers in dispute were made post-petition, involved property of the estate, were transferred to Citi, and were unauthorized by the Bankruptcy Court or the Bankruptcy Code.

The trustee's powers under § 549 are subject only to certain enumerated exceptions. In re Ward, 837 F.2d 124, 127 (3d Cir.1988) ("We are guided in its resolution by the fact that subsection 549(a) states a general rule favoring the trustee's power of avoidance, to which subsections (b) and (c) create ... very narrow exceptions."); In re Shelton, 331 B.R. 700, 702-03 (Bankr.W.D.Ky.2005) ("Thus, Section 549 of the Bankruptcy Code serves as a powerful tool to assist a trustee in upholding the all-important duty of orderly and efficient liquidation of a debtor's assets for the benefit of all creditors. It expressly enables the trustee to avoid unauthorized post-petition transfers of estate property with very limited exceptions."); In re Ford 296 B.R. 537, 549 (Bankr.N.D.Ga.2003) ("Section 549(a) establishes the general rule that the trustee may avoid such transfers to protect creditors, subject to the protections in § 549(c) for certain innocent purchasers."). Section 549(b) applies...