In re Whitacre Sunbelt, Inc., Bankruptcy No. 94-61954-JB
| Decision Date | 06 February 1997 |
| Docket Number | Bankruptcy No. 94-61954-JB,Adversary No. 95-6632. |
| Citation | 206 BR 1010 |
| Parties | In re WHITACRE SUNBELT, INC., Debtor. John W. RAGSDALE, Jr., as Trustee for the Estate of Whitacre Sunbelt, Inc., and Morton P. Levine, as Trustee for the Estate of Whitacre International, Inc., Plaintiffs, v. BANK SOUTH, N.A., David A. Whitacre, and Mark C. Pope, III, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
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William Russell Patterson, Jr., Ragsdale, Beals, Hooper & Seigler, Atlanta, GA, for Plaintiff John W. Ragsdale, Jr., Trustee for Estate of Whitacre Sunbelt, Inc.
Stephen H. Block, Levine & Block, Atlanta, GA, for Plaintiff Morton P. Levine, Trustee for Estate of Whitacre International, Inc.
Ezra Cohen, Troutman, Sanders, Atlanta, GA, for Defendant Bank South, N.A.
John C. Pennington, Wilson, Strickland & Benson, Atlanta, GA, for Defendant David A. Whitacre.
J. Michael Lamberth, Lamberth, Bonapfel, Cifelli, Willson & Stokes, P.A., Atlanta, GA, for Defendant Mark C. Pope, III.
This adversary proceeding was brought by two plaintiffs, both of whom are trustees in the pending Chapter 7 cases of two affiliated debtor corporations. Plaintiff John W. Ragsdale, Jr., is the trustee of Whitacre Sunbelt, Inc. ("Whitacre Sunbelt"), and Plaintiff Morton P. Levine is the trustee of Whitacre International, Inc. ("Whitacre International"). Both plaintiffs seek to set aside a transfer of $335,700.00 and to recover that amount from Defendants Bank South, N.A. ("Bank South") and Mark C. Pope, III ("Mr. Pope"). The funds transferred flowed from Whitacre Sunbelt to Whitacre International and then to Defendant Bank South. The funds paid off a loan from Bank South to Defendant David A. Whitacre ("Mr. Whitacre"), which had been guaranteed by Defendant Pope. Both corporations filed bankruptcy within one year of the payment to Bank South. Mr. Ragsdale, as trustee of Whitacre Sunbelt, has alleged both preference and fraudulent conveyance claims, while Mr. Levine, as trustee of Whitacre International, seeks recovery only on a preference theory. This is a core proceeding under 28 U.S.C. § 157(b)(2)(F) and (H).
This avoidance action raises issues regarding the expanded reachback of one year for preference claims under 11 U.S.C. § 547(b)(4)(B), whether a maker of a note has a contingent claim against a co-indemnitor of a guarantor, and the applicability of the earmarking doctrine to a preference claim.
The parties have filed a number of motions. Initially, the trustees filed a joint complaint, seeking relief only against Bank South and Mr. Whitacre. Four months later, plaintiffs filed a motion to add Mr. Pope as a defendant, which the Court granted, and the plaintiffs then filed an amended complaint, alleging all claims against all defendants. Plaintiffs Levine and Ragsdale and Defendants Bank South and Pope have all filed motions for summary judgment. In Mr. Levine's motion for summary judgment, he seeks a judgment jointly and severally against Bank South and Mr. Pope on a preference claim. In Mr. Ragsdale's motion for summary judgment, he sought a judgment jointly and severally against Mr. Pope and Mr. Whitacre on a preference claim.1 However, on September 18, 1996, Mr. Ragsdale filed a pleading requesting permission to file a supplemental motion for summary judgment, in which he sought to add Bank South and Whitacre International to his original request for judgment against Mr. Pope. By the terms of that motion, Mr. Ragsdale sought a judgment against the estate of Whitacre International to the extent that the Court determined that Whitacre International was the initial transferee of a preferential transfer by Whitacre Sunbelt. To complicate matters further, Messrs. Ragsdale and Levine filed a motion to settle and compromise, stating that they have agreed to divide equally any recovery obtained by either estate in this adversary proceeding.
Bank South filed a motion for summary judgment requesting dismissal of Mr. Levine's preference claim based on the earmarking doctrine, dismissal of Mr. Ragsdale's preference claim on the theory that the extended reachback period is not available here since Mr. Whitacre was not a creditor of Whitacre Sunbelt, and dismissal of Mr. Ragsdale's fraudulent transfer claim on the grounds that Bank South was not the initial transferee and that it took the payment in good faith and for value. Mr. Pope filed motions for summary judgment as to all the claims of both trustee plaintiffs. Mr. Pope joins Bank South's arguments, and he further asserts that all claims against him should be dismissed because the extended reachback provision was never intended to apply to noninsiders who were not transferees. Mr. Pope also filed a motion to dismiss all claims against him, asserting that he was improperly joined as a defendant. The Court held a hearing on all these motions on December 5, 1996. Following the hearing, the parties filed additional briefs, and Mr. Ragsdale filed a motion to amend the complaint to add claims to set aside the transfer from Whitacre Sunbelt to Whitacre International.
Many of the material facts are undisputed for purposes of the pending motions. On March 20, 1992, Mr. Whitacre, individually, borrowed $330,000.00 from Bank South and signed a promissory note, with the loan to come due on August 5, 1992. At the time Bank South made this loan to Mr. Whitacre, Bank South understood that Mr. Whitacre intended to use the monies for the business of Whitacre International. Mr. Whitacre took the $330,000.00 Bank South check payable to himself, endorsed it to Whitacre International, and delivered it to the chief financial officer of Whitacre International, Robert Humberstone. Mr. Humberstone deposited the funds into the Bank South account of Whitacre International.
On the same day, Defendant Pope signed a guaranty in favor of Bank South, guaranteeing the $330,000.00 loan to Mr. Whitacre. A typewritten special stipulation on the guaranty fixed Mr. Pope's maximum liability at $330,000.00 plus interest, costs, and attorney's fees related to this principal amount. Messrs. Pope and Whitacre, Whitacre International, and Whitacre Sunbelt, also signed an indemnification agreement in which Mr. Whitacre and the two corporations agreed to indemnify Mr. Pope for any payment Mr. Pope might make on his guaranty. Finally, the two corporations each signed security agreements in favor of Mr. Pope, pursuant to which the corporations granted Mr. Pope a security interest in various pieces of equipment to secure payment of their obligations under the indemnification agreement.
The record reflects that Whitacre International received the $330,000.00 from Mr. Whitacre with the understanding that Whitacre International was to repay Bank South this sum together with interest either according to the terms of the note between Mr. Whitacre and Bank South or on such other terms as the parties could agree. This transaction was recorded on the balance sheets of Whitacre International as a loan payable to Bank South in the principal amount of $330,000.00 until the loan was paid. Bank South renewed the loan to Mr. Whitacre twice, such that the loan finally came due in June of 1993.
On June 25, 1993, Whitacre Sunbelt transferred $335,720.00 by check payable to Whitacre International. The check request stated that the check was needed for a "loan to pay off bank note at Bank South, check to be made out to Whitacre International." The stub on the check from Whitacre Sunbelt to Whitacre International bore the notation "WII0625 loan." On the same day, Whitacre International drew a check payable to Bank South in the amount of $335,720.00, and typewritten on the check stub were the words "Whitacre International Note Payment." Robert Humberstone, CFO of Whitacre International, immediately delivered the check to Bank South, who then issued a receipt in the same amount listing Mr. Whitacre as the customer. Bank South's file concerning the $335,720.00 payment includes a handwritten note from Mr. Whitacre reading as follows: Upon Bank South's receipt of these monies, the bank caused its records to reflect the payment of Mr. Pope's guaranty. These June 1993 transactions were reflected in Whitacre International's records as a satisfaction of its liability to Bank South and the creation of an identical liability from Whitacre International to Whitacre Sunbelt.
On February 9, 1994, both Whitacre Sunbelt and Whitacre International filed petitions for bankruptcy relief. Whitacre Sunbelt filed a petition under Chapter 7 of the Bankruptcy Code, and Mr. Ragsdale was appointed as the Chapter 7 trustee. Whitacre International originally filed a case under Chapter 11 of the Bankruptcy Code, but the case was converted to Chapter 7, and Mr. Levine was appointed as the Chapter 7 trustee.
The parties agree that Whitacre Sunbelt and Whitacre International had different ownership and management structures and different business purposes from the time Bank South made its loan to Mr. Whitacre on March 20, 1992, until it was repaid on June 25, 1993. It is undisputed that Whitacre International was insolvent at the time of the June 25, 1993 transfer, and for purposes of these motions, it is also undisputed that Whitacre Sunbelt was insolvent in June of 1993. Finally, it is undisputed that Mr. Whitacre was an insider of Whitacre Sunbelt as that term is defined in 11 U.S.C. § 101(31), and for purposes of these motions, the parties agree that Mr. Whitacre was an insider of Whitacre International.
Fed.R.Civ.P. 56 and Bankruptcy Rule 7056 provide for the granting of summary judgment if there is no genuine issue as to any material fact and if the moving party is entitled to a judgment as a matter of...
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