In re Rebel Rents, Inc., RS02-25442 PC.
| Decision Date | 20 February 2004 |
| Docket Number | No. RS02-25442 PC.,RS02-25442 PC. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California |
| Parties | In re REBEL RENTS, INC., a California corporation, Perris Valley Rentals, Inc., a California corporation, Debtors. Textron Financial Corporation, Movant, v. Rebel Rents, Inc., and Perris Valley Rentals, Inc., Respondents. |
David K. Eldan, Ivanjack & Lambirth, LLP, Los Angeles, CA, for Textron Financial Corporation.
Fidel J. Orantes, Winthrop Couchot Professional Corporation, Newport Beach, CA, for Rebel Rents, Inc. Gregory A. Bray, Haig M. Maghakian, Milbank, Tweed, Hadley & McCloy, LLP, Los Angeles, CA, for General Electric Credit Corporation.
Textron Financial Corporation ("Textron") filed a motion alleging unauthorized use of its cash collateral by Rebel Rents, Inc. and Perris Valley Rentals, Inc. (collectively, "Rebel"). Textron seeks either a turnover of the cash collateral or alternatively, allowance and payment of a super-priority administrative expense claim in the amount of $430,661 pursuant to 11 U.S.C. §§ 507(a)(1) and 507(b). Rebel and General Electric Capital Corporation ("GECC") oppose the motion. At the hearing, David K. Eldan appeared on behalf of Textron; Gregory A. Bray and Haig M. Maghakian appeared for GECC, and Fidel J. Orantes appeared for Rebel. The court, having considered the pleadings, evidentiary record, and arguments of counsel, makes the following findings of fact and conclusions of law1 pursuant to Fed.R.Civ.P. 52, as incorporated into Fed.R. Bankr.P. 7052 which is applicable to contested matters. Fed.R.Bankr.P. 9014.
Rebel is the largest independent equipment rental company in Southern California. Rebel conducts business at eleven locations in San Bernardino, Riverside, and San Diego Counties, offering a wide inventory of equipment for sale or lease to construction companies, industrial concerns, commercial businesses, and residential homeowners.
Sometime prior to September 14, 2000, Rebel executed a Distributor Security Agreement with Snorkel International, Inc. ("Snorkel") in conjunction with the purchase of certain inventory for use in its equipment rental business.2 On September 27, 2000, Snorkel filed a financing statement with the California Secretary of State which described the collateral in an attached Exhibit A, as follows:
Snorkel Telescoping Booms, Articulating Booms, Scissor Lifts, Aerial Work Platforms, and other new and used inventory, machinery, equipment, attachments, accessories and replacement parts therefor manufactured or sold by Snorkel International, Inc. to Debtor, now owned or hereafter acquired, wherever located, upon which any sum of money whether principal or interest remains unpaid, plus all proceeds derived therefrom.
It is understood that the "Collateral" described above excludes inventory for which the invoices have been paid.3
On September 14, 2000, Rebel executed a "Finance Plan" and "Wholesale Security Agreement" with Textron to finance its purchase of the inventory from Snorkel,4 and granted Textron a security interest in the following collateral described in Exhibit A to the Rental Inventory Addendum to Wholesale Security Agreement:
All equipment and inventory, wherever located, in which Debtor now or hereafter has rights, financed or refinanced by Secured Party for Debtor, including, but not limited to, telescopic material handlers, aerial work platforms, skid steers, wheel loaders, mini excavators, power haulers and related products; all present and future attachments, accessories and accessions thereto; all spare parts, replacements, substitutions and exchanges therefor; all trade-ins relating thereto; all instruments, accounts and chattel paper arising therefrom (including leases and conditional sales contracts); and the proceeds of all of the foregoing, including proceeds in the form of goods, accounts, chattel paper, documents, instruments and/or general intangibles.5
Textron, however, did not file a financing statement with the California Secretary of State to perfect its security interest in the collateral until January 16, 2001. There is no evidence that Snorkel expressly assigned its security interest and lien to Textron nor that Snorkel filed a statement of assignment with the California Secretary of State in conjunction with the financing arrangement with Rebel.
On December 29, 2000, Rebel obtained a $23,000,000 revolving line of credit ("Line of Credit") and a $2,000,000 term loan ("Term Loan") from GECC. The Line of Credit and Term Loan were evidenced by a Loan Agreement and Term Loan Note, each dated December 29, 2000. In conjunction therewith, Rebel executed a Security Agreement dated December 29, 2000, granting GECC a security interest in substantially all of Rebel's assets, including accounts receivable, chattel paper, contracts, documents, equipment, fixtures, general intangibles, goods, instruments, inventory, investment property, deposit accounts and other accounts, money, cash and cash equivalents, together with all "[p]roceeds and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing."6 On January 5, 2001, GECC filed a financing statement with the California Secretary of State to perfect its security interest in the collateral.7
In conjunction GECC's loan, Rebel implemented a cash management system controlled by GECC consistent with GECC's need to perfect its security interest in Rebel's depository accounts. Credit card payments processed and wired to Rebel's depository accounts, together with customer payments and other revenues deposited daily into the accounts, were swept each day by GECC. On the date of bankruptcy, the balance in Rebel's deposit accounts was ($363,434).
On September 23, 2002, Rebel filed a voluntary petition for reorganization under chapter 11 of the Bankruptcy Code8. In Schedule D, Rebel listed Textron as the holder of a claim in the amount of $1,987,117 incurred on September 14, 2000, secured by collateral having a value of $1,987,117.
On September 23, 2002, Rebel filed an emergency motion seeking, among other things, an interim order authorizing the use of cash collateral pursuant to 11 U.S.C. § 363 and identifying GECC as the only entity holding an interest in its cash collateral.9 In Paragraph C of the motion entitled "Rebel's Debt Structure," Rebel stated:
"The only debts which are secured by a lien on the Debtors' cash and cash equivalents are the loans held by General Electric Capital Corporation (`GECC'), which had an outstanding balance as of the filing of the Debtors' bankruptcy petitions of approximately $22.1 million."10
In Paragraph E entitled "Other Secured Indebtedness," Rebel further stated:
"The Debtors are also indebted to other creditors, which, by virtue of documents denominated as leases or credit agreements, hold security interests in one, or more particular pieces of equipment or vehicles owned by the Debtors."11
Textron was served with notice of Rebel's emergency motion on September 25, 2002, but did not file an objection to Rebel's proposed use of cash collateral. On September 27, 2002, the court entered an emergency interim order authorizing Rebel's use of cash collateral pending a final hearing which was set for October 18, 2002.12
On October 3, 2002, Rebel served creditors and parties in interest, including Textron and Snorkel, with notice of the date and time of the final hearing on its cash collateral motion. Neither Snorkel nor Textron objected to the use of cash collateral nor the granting of replacement liens to GECC as proposed in Rebel's motion.
On October 29, 2002, the court entered a final order authorizing Rebel's use of cash collateral pursuant to 11 U.S.C. § 363 and Fed.R.Bankr.P. 4001(b). Both Textron and Snorkel were served with a copy of the final order, according to the proof of service filed with the court. Neither Snorkel nor Textron appealed the final order.
By letter dated December 18, 2002, Textron advised Rebel that "the principal balance outstanding on the debtor's obligation under the Rental Inventory Security Agreement and Finance Plan with Textron is $1,987,116.63, with interest accrued through November 30, 2002 in the sum of $254,818.73, for a total of $2,241,935.36."13 In the letter, Textron demanded adequate protection payments from Rebel of $38,393.66 per month. On December 24, 2002, Rebel offered Textron monthly adequate protection payments of $12,200 "calculated based on the value of TFC's collateral as of the Petition Date, September 23, 2002, and an annual depreciation of 15% as estimated by our appraisers."14 By letter dated January 6, 2003, Textron advised Rebel that it would accept "adequate protection payments, in the amount of $12,200.00 with full reservation of all rights...."15 After December 24, 2002, Rebel made, and Textron accepted, monthly adequate protection payments of $12,200 per month, which continued through plan confirmation.
On January 13, 2003, Textron filed a Proof of Claim asserting a secured claim for principal and accrued interest totaling $2,241,935.36. As evidence that its security interest had been perfected,16 Textron attached to its proof of claim copies of its Finance Plan, Wholesale Security Agreement, Rental Inventory Addendum, and financing statement filed on January 16, 2001.
On February 28, 2003, Rebel filed a second emergency motion for authorization to use cash collateral.17 In its motion, Rebel again stated:
"The only debts which are secured by a lien on the Debtors' cash and cash equivalents are the loans held by GE Capital, which had an outstanding balance as of the...
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