In re WL Mead, Inc.
| Citation | 42 BR 57 |
| Decision Date | 05 June 1984 |
| Docket Number | Bankruptcy No. 83-02239. |
| Parties | In re W.L. MEAD, INC., Debtor. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
Suzanne Cotner Mandross, John J. Schlageter, Toledo, Ohio, for debtor.
This cause comes before the Court upon the Motion for Relief From Stay filed by the Citizens National Bank of Norwalk, one of the major creditors in this case. The parties have agreed that the issues addressed by the Motion are primarily issues of law which may be submitted to the Court upon a set of stipulated facts and the written arguments of counsel. The Court has reviewed the arguments as well as the entire record of this proceeding. Based upon that review and for the following reasons the Court finds that the Motion for Relief From Stay should be GRANTED.
The Debtor-In-Possession is an entity which is engaged, among other activities, in interstate trucking. On July 2, 1982, prior to the filing of the Petition, W.L. Mead, Inc. was issued a certificate of deposit by the Citizens National Bank of Norwalk (hereinafter referred to as Citizens) in the amount of Fifty Thousand and no/100 Dollars ($50,000.00). At the same time, W.L. Mead, Inc. assigned the certificate to Citizens in return for the issuance of an irrevocable letter of credit to the Protective Insurance Company (hereinafter referred to as Protective) in the amount of Fifty Thousand and no/100 Dollars ($50,000.00). Protective is the company with whom the Debtor-In-Possession maintains its liability insurance and the protective bonds required by interstate commerce regulations. Through a series of renewals and extensions, the letter of credit and certificate of deposit were to remain in effect until July 2, 1984.
On December 23, 1983, the Debtor-In-Possession filed its voluntary Chapter 11 Petition with this Court. On February 24, 1984, Protective issued a draft demand to Citizens for Fifty Thousand and no/100 Dollars ($50,000.00) on the letter of credit. Accompanying that draft were all the documents required under the terms of the letter. Citizens communicated to the Debtor-In-Possession the fact that such an Order had been made. Apparently, the Debtor-In-Possession offered no response. On March 9, 1984, Citizens transferred Fifty Thousand and no/100 Dollars ($50,000.00) into Protective's account at the Merchants National Bank and Trust Co.
Prior to the filing of the Petition, a number of suits were initiated by Plaintiffs against the Debtor-In-Possession and its bonding company. At the present time, however, it appears as though none of these suits have resulted in a final judgment or award of damages for which Protective is liable. It also appears as though Protective has not disbursed any of the Fifty Thousand and no/100 Dollars ($50,000.00) which was transferred to its account. On March 13, 1984, the Debtor-In-Possession filed an adversary action against Protective and Citizens, wherein it seeks recovery of the Fifty Thousand and no/100 Dollars ($50,000.00).
The issue raised by this Motion is whether or not the issuer of a letter of credit that has become liable to the beneficiary is entitled to assume the debtors property which was offered as security for the letter. This issue appears to be one of first impression, in that it has not been directly addressed in any of the prior decisions which have dealt with this financial arrangement. Although it seems clear that a debtor is not entitled to enjoin the transfer of funds from the issuer to the beneficiary, see, Planes, Inc. v. Fairchild Aircraft Corp. (Matter of Planes, Inc.), 29 B.R. 370 (Bkcy.N.D.Ga.1983), it has not been decided whether or not the issuer may "foreclose" on its collateral once performance on the letter has been rendered.
Prior cases have made it clear that collateral which has been pledged by a debtor as security for a letter of credit is property of the bankruptcy estate. See for example, In re M.J. Sales & Distributing Co., Inc., 25 B.R. 608 (Bkcy.S.D.N.Y.1982). Accordingly, the automatic stay prevents a pledgee from assuming title to the collateral. Relief from the stay is addressed by 11 U.S.C. § 362(d) which reads in pertinent part:
Under this section, if the value of the collateral is equal or greater than the amount of the debt owed to the creditor, then the creditor is deemed to be adequately protected and is not entitled to relief from the stay. In re London Tiles, 35 B.R. 681 (Bkcy.N.D.Ohio 1983). Similarly, if the debtor has equity in the collateral, or the property is necessary for an effective reorganization, relief from the stay should not be allowed.
Applying, the criteria of these provisions to the case at hand, it is apparent that the value of the collateral and the debt owed to Citizens are identical. Therefore, under the test of 11 U.S.C. § 362(d)(1), the creditor is adequately protected. Inasmuch as the collateral in this case is not the type in which equity is easily associated, the only applicable test under the provisions of 11 U.S.C. § 362(d)(2) is whether or not the collateral is necessary for an...
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