In re Stanton
| Decision Date | 17 September 1999 |
| Docket Number | Bankruptcy No. 94-02481-R3B. Adversary No. A96-0169-R3B. |
| Citation | 239 BR 222 |
| Court | U.S. Bankruptcy Court — Eastern District of Washington |
| Parties | In re Kevin M. STANTON & Mary Ann Stanton, Debtors. Gregory Beeler, As Trustee for the above-entitled estate, Plaintiff, v. Kevin M. Stanton and Maryann G. Stanton, husband and wife, Debtors/Defendants, and International Factors, Inc. a Washington corporation, Fleet Manufacturing Company, Inc., a Washington corporation, Defendants. |
COPYRIGHT MATERIAL OMITTED
Gregory Beeler, Tri-Cities, WA, for trustee.
Sigurd B. Borgersen, Seattle, WA, for Harrison Jewell (Successor to IFI).
Kevin & Maryann Stanton, Yakima, WA, debtors pro se.
This adversary proceeding was filed by Gregory Beeler, Chapter 7 Trustee in the bankruptcy of Kevin and Maryann Stanton, cause number 94-02481-R3B. The proceeding was brought against Kevin and Maryann Stanton, International Factors Inc., and Fleet Manufacturing Inc. Kevin and Maryann Stanton were dismissed as defendants on February 27, 19971. International Factors filed an answer and actively defended its position.2 Fleet Manufacturing did not appear and defend in this matter.
The issues in this matter involve administration of the bankruptcy estate, and determination of the validity, extent and priority of liens. It is a core proceeding. 28 U.S.C. § 157(b)(2)(A) & (K).
Fleet Manufacturing Inc. (Fleet) was a business operated by the debtors herein, Kevin and Maryann Stanton. On April 22, 1994 Fleet entered into a Recourse Factoring, Short Term Financing, & Security Agreement (factoring agreement) with International Factors Inc. (IFI).3 On the same date Kevin and Maryann Stanton executed and delivered to IFI a Continuing Guaranty and Waiver. The guaranty covered all obligations owing from Fleet to IFI. Kevin and Maryann Stanton granted IFI a deed of trust on their personal residence on July 28, 1994.4 The deed of trust states that it was granted to secure all obligations owed by Fleet to IFI. Finally, on August 4, 1994 Fleet and IFI entered into an Addendum to Recourse Factoring, Short Term Financing & Security Agreements5. This agreement increased the maximum amount that could be outstanding between Fleet and IFI from $150,000 to $250,000. It also created a special discount rate for advances on a contract Fleet had with K-Mart.
The relationship between Fleet and IFI generally involved Fleet assigning to IFI accounts receivable and IFI advancing to Fleet the amount of the invoices assigned less a discount factor. IFI handled the billing and collection of the invoices. If the invoices were not timely paid IFI could seek recovery from Fleet. IFI kept separate ledgers for each Fleet customer. The ledgers noted the invoice upon which the advance was made. When a payment was received it was credited to the appropriate invoice. The K-Mart contract presented a variation from the pattern in that it involved work in progress rather than invoices for completed work.6
Kevin and Maryann Stanton filed a Chapter 11 bankruptcy on September 30, 1994. After the filing, the factoring arrangement continued to function with advances being made and payments credited. No motion was made seeking approval of the continued post petition secured guaranty of the Stantons. The Stanton's bankruptcy proceeding was converted to a Chapter 7 on May 11, 1996. The Chapter 7 Trustee sold the debtors residence and IFI claimed that the lien created by it's deed of trust attached to the proceeds of the sale. The Chapter 7 Trustee filed the present action on September 27, 1996. In the complaint the Trustee sought to have the mortgage and post-petition transfers thereunder avoided. Further, the Trustee sought to have the transferee, IFI, held liable for the transfer and the transfer preserved pursuant to Section 551 as an avoided lien. Finally, that the claim of In be disallowed. Both the Trustee and IFI have filed motions for summary judgement.
The following issues are presented by the motions for summary judgement:
Discussion
Federal Rule of Civil Procedure 56 sets out the requirements for summary judgement.
The judgement sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgement as a matter of law.
FRCP 56(c). "A material fact is one that is relevant to an element of a claim or defense and whose existence might affect the outcome of the suit." T.W. Electrical Service Inc. v. Pacific Electric Contractors Association, 809 F.2d 626, 630 (9th Cir. 1987). The moving party bears the burden of identifying the documents listed in Rule 56 which demonstrate the absence of a genuine issue of material fact. However, the moving party is not required to provide affidavits or declarations which negate the opponents claim. Celotex v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In analyzing a motion for summary judgement the evidence presented by the non moving party is to be believed and all justifiable inferences are to be drawn in favor of the non moving party. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Affidavits presented in opposition to a motion for summary judgement must be admissible under the rules of evidence. Hal Roach Studios v. Richard Feiner & Co., Inc. 896 F.2d 1542, 1550 (9th Cir.1989).
IFI takes the position that it is currently owed by the debtors an amount which ranges from $39,586 to $243,7637. IFI argues that its debt is secured by the guaranty and deed of trust and therefore IFI has a lien on the proceeds from the sale of the debtors' residence. The Chapter 7 Trustee and the debtors dispute IFI's claim of a lien.
The parties agree that the guaranty and deed of trust secured pre-petition advances from IFI to Fleet. The parties disagree as to the whether the guaranty and deed of trust are enforceable against the estate as to post-petition advances from IFI to Fleet. The first question that needs to be answered is what effect the bankruptcy filing had on the guaranty and deed of trust.
The filing of a bankruptcy petition creates a "cleavage" in time. In re B & L Oil Company, 782 F.2d 155 at 158 (10th Cir.1986). On one side of the dividing line is the pre-petition debt and on the other is post-petition debt. The effect of the dividing fine is that generally pre-petition debt is paid from pre-petition assets while post-petition debt is paid from post-petition assets.
The Bankruptcy Code creates and defines this dividing fine in a number of ways. The filing of a voluntary petition under section 301 constitutes an order for relief. 11 U.S.C. § 301. Commencement of a case under sections 301, 302 or 303 creates the bankruptcy estate. 11 U.S.C. § 541(a). Property of the bankruptcy estate includes "all legal and equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). Likewise, upon filing of a petition for relief, a stay of acts against the debtor and property of the estate comes into existence under 11 U.S.C. § 362(a). Included within the scope of the stay is the creation or enforcement of liens and any act to collect or enforce a claim arising pre-petition. 11 U.S.C. § 362(a)(3)-(4) & (6). In 11 U.S.C. § 544 the trustee is given the power to avoid certain pre-petition transfers.
A creditor's claim is determined as of the date of the filing of the petition. 11 U.S.C. § 502(b). The Bankruptcy Code defines "claim as follows"
11 U.S.C. § 101(5)(A). "Creditor" is defined as an entity that has a claim against the debtor that arose at the time of or before the order for relief. 11 U.S.C. § 101(10)(A). The effect of these provisions is to fix the amount of the debtors liability as of the time the petition is filed.
There are circumstances where property of the estate can be subject to post-petition debt. Administrative expenses allowed under 11 U.S.C. § 503 and adequate protection payments arising pursuant to 11 U.S.C. § 361 are post-petition debts payable by the estate. Likewise properly accepted executory contracts under 11 U.S.C. § 365 and extensions of secured credit approved pursuant to 11 U.S.C. § 364 are payable from assets of the estate. Upon the filing of a bankruptcy petition the debtor loses the ability to further encumber assets of the estate without court approval. In re Mahendra, 131 F.3d 750, 755 (8th Cir.1997). In every instance above post petition claims against the estate arise only upon court approval.
The Court concludes that the guaranty and deed of trust executed by the debtors only encumbered estate property with respect to advances from IFI to Fleet which were made prior to the filing of the bankruptcy with regard to property of the estate. The guaranty and deed of trust did not...
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