In re VN Deprizio Const. Co.
| Decision Date | 27 April 1988 |
| Docket Number | No. 87C7435,83B4804 and 85A927.,87C7435 |
| Citation | 86 BR 545 |
| Parties | In re V.N. DEPRIZIO CONSTRUCTION COMPANY, Debtor. Louis W. LEVIT, Trustee, v. INGERSOLL RAND FINANCIAL CORPORATION, CIT Corporation, Construction Workers' Pension Trust Fund for Lake County & Vicinity, State of Indiana District Council, Construction and General Laborers' Fringe Benefit Funds, Railroad Maintenance Industrial Health and Welfare Funds, United States Internal Revenue Service, All Motive Equipment Company, Central States Pension Fund, and Central States Health and Welfare Fund, Defendants-Appellees. |
| Court | U.S. District Court — Northern District of Illinois |
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Louis Levit, Wendy Ponader, Levit & Mason, Chicago, Ill., for trustee.
Sarah Read, Melville Washburn Sidley & Austin, Chicago, Ill., for Ingersoll Rand Financial Corp.
M. Leslie Kite, Robin Kite, M. Leslie Kite & Associates, Chicago, Ill., for CIT Group Equipment Financing, Inc.
Gerard Brost, Dept. of Justice, Washington, D.C., for I.R.S.
Francis Carey, Chicago, Ill., for Central States Pension Fund and Central States Health & Welfare Fund.
Gregory Catrambone, Maywood, Ill., for All Motive Equipment Co.
John Etzkorn, Arnold & Kadjan, Chicago, Ill., for Railroad Maintenance Indus. Health & Welfare Funds and Const. and General Laborer's Fringe Benefit Fund.
Lee Burkey, Asher, Pavalon, Gittler & Greenfield, Chicago, Ill., for Construction Workers' Pension Trust Fund for Lake County and Vicinity.
In this case, we are asked to determine whether certain payments made by the debtor, V.N. Deprizio Construction Company ("Deprizio" or "Debtor") to some of its creditors in the year before it filed for bankruptcy are voidable preferences under the Bankruptcy Code, and if so from whom those preferences may be recovered. Because both determinations rest in large part on language of two sections of the Bankruptcy Code, we begin by setting forth the relevant portions of sections 547 and 550 of the Bankruptcy Code, 11 U.S.C. §§ 547, 550.
The Bankruptcy Code, 11 U.S.C. § 101 et seq. (the "Code"), makes voidable at the option of the trustee in bankruptcy any transfer1 satisfying the requirements set forth in section 547(b):
Once a transfer is found to be preferential, section 550 of the Code governs from whom the trustee may recover. Section 550 provides in relevant part as follows:
Deprizio was in the construction business. Apparently, over the course of several years before its bankruptcy, Deprizio borrowed money from various lenders, including Ingersoll Rand Financial Corporation ("IRFC"), CIT Corporation (now known as The CIT Group/Equipment Financing Inc.) ("CIT"), and All Motive Equipment Company ("AMEC"). Although the record is devoid of detail on this point, the parties' discussion assumes that one or more of Deprizio's insiders4 personally guaranteed some of Deprizio's debts to its creditors. Deprizio was also a signatory to various collective bargaining agreements which required it to contribute to the several employee pension, health and welfare, and fringe benefit funds named in the caption (the "Funds"). At some point prior to 1983, Deprizio could not meet its current obligations to the Funds. Deprizio and the Funds reached an agreement whereby the Funds allowed Deprizio to structure its payments in return for security interests on Deprizio's construction equipment, vehicles, inventory, and accounts receivable. Since IRFC, AMEC, and CIT already had security interests in some of the company's construction equipment and vehicles, the Funds' security interests were in some instances junior liens. Richard Deprizio, one of Deprizio's owners, personally guaranteed the company's indebtedness to the Funds.
Deprizio continued to operate its business and to make such payments to its creditors as it was able. In the year immediately prior to its bankruptcy, Deprizio paid $54,000 (all figures are rounded to the nearest thousand) to CIT, $6,000 to AMEC, $108,000 to IRFC, and unknown amounts to the United States Internal Revenue Service ("IRS") and to the Funds. Deprizio's financial situation deteriorated further, and on April 13, 1983, Deprizio filed for protection under Chapter 11 of the Code. Louis W. Levit was duly appointed Trustee of the debtor's estate. The case was later converted to a dissolution proceeding under Chapter 7.
On August 22, 1985, the Trustee filed an adversary proceeding in the bankruptcy court for the Northern District of Illinois seeking to avoid certain transfers. In the adversarial complaint, the Trustee alleged that the payments to CIT, AMEC, IRFC, IRS, and the Funds made by Deprizio from one year to ninety days prior to the filing of the bankruptcy petition were avoidable transfers under Code section 547. The complaint alleged that each of these payments was for the benefit of one or more of the Debtor's insiders because those insiders were contingently liable on each of the debtors' obligations, by contract or operation of law, and because each payment had the effect of reducing the insiders' potential liability. The complaint further alleged that at the time of each transfer, the debtor was insolvent and that each of the insiders who benefitted by the transfers had reasonable cause to believe the Debtor was insolvent. The adversarial complaint also alleged that each transfer was on account of an antecedent debt; was made within one year and ninety days of the filing of the petition; and enabled the creditor receiving the transfer and/or the insiders benefitting from the transfer, to receive more than such creditor or insiders would have received if the transfer had not been made and the creditors received payment only to the extent provided in Chapter 7 of the Code.
Each of the defendants named in the adversarial complaint answered and denied that the Trustee was entitled to relief and some of the defendants asserted affirmative defenses. For instance, IRFC alleged that it had received court permission to seize and dispose of the Debtor's equipment in which IRFC held a security interest. IRFC did so, and turned over to the Trustee the surplus resulting from the sale of secured assets. That turnover was purportedly in complete satisfaction of IRFC's obligations to the Debtor, its estate, the trustee, or any junior lienholder with respect to the equipment. Also, the IRS asserted sovereign immunity as a defense and the Funds claimed that provisions of the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA") prohibited the Trustee from recovering any voidable preferences from the Funds.
Judge Eisen, the bankruptcy judge to whom the case was assigned, decided to tackle the insider-guarantee issue before ruling on either the adequacy of the remainder of the complaint or the legitimacy of the creditors' defenses. The Trustee sought entry of an order declaring that the extended preference period described in section 547(b)(4)(B) applied, and that if all the other elements of section 547 were met, the amount of the avoidable transfers could be recovered from the non-insider transferees. The Trustee's theory was straightforward. The insiders had agreed to guarantee Debtor's obligations to the commercial creditors (IRFC, CIT, and AMEC), and the insiders were liable to the Funds and the IRS for Debtor's delinquent contributions and tax payments by operation of law. Thus, Debtor's insiders were contingently liable on each of the obligations on which Debtor made payments during the expanded preference period. The Trustee claimed that each payment was a transfer for the benefit of an insider and the expanded preference period applied. Because any preferential transfer is recoverable from either the initial transferee or the entity for whose benefit the payment was made, the Trustee sought recovery from the creditors.
After considering the parties' briefs, Judge Eisen ruled against the Trustee and for the creditors. In re V.N. Deprizio Construction Company, 58 B.R. 478 (Bankr. N.D. Ill.1986). Judge Eisen...
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