In The Matter of BILL HEARD Enter.S Inc. . United Serv. Prot. Corp. v. Bill Heard Enter.s INC.
| Decision Date | 19 October 2010 |
| Docket Number | Adversary No. 08-80187-JAC-11.,Bankruptcy No. 08-83029-JAC-11. |
| Citation | 438 B.R. 745 |
| Parties | In the Matter of BILL HEARD ENTERPRISES, INC., et al., Debtor(s). United Service Protection Corporation and United Service, Protection, Inc., Plaintiff(s), v. Bill Heard Enterprises, Inc., et al., Defendant(s). |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
OPINION TEXT STARTS HERE
COPYRIGHT MATERIAL OMITTED.
Jeffrey W. Kelley, Stephen Roach, Troutman Sanders LLP, Atlanta, GA, for Columbus Bank & Trust.
Kevin A. Rogers, Wells Marble & Hurst, PLLC, Jackson, MS, for United Service Protection Corp. and United Protection Inc.
United Service Protection Corporation and United Service Protection, Inc. (collectively “USP”) and Columbus Bank & Trust (“CB & T”) assert competing claims to approximately $53,346 being held in one of the Bill Heard debtors' general operating accounts maintained at CB & T. CB & T argues that it has a right to setoff the funds against prepetition obligations owed by the Bill Heard debtors. USP asserts that it is entitled to a constructive trust over the sums held in the account and that its claim to the funds is superior to CB & T's right to setoff. USP seeks an injunction to prevent CB & T from offsetting the funds held in the account. For the reasons set forth herein, the Court will grant CB & T's motion for summary judgment and finds that CB & T is entitled to exercise its setoff rights in the deposit account.
1. On September 28, 2008, the Bill Heard debtors filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Prior to filing bankruptcy, Bill Heard owned and operated fourteen Chevrolet dealerships in seven states. The issue before this Court involves only one of the dealerships, the Bill Heard Chevrolet Company in Columbus, Georgia (the “Columbus dealership”).
2. Prior to the petition date, USP entered into certain dealer agreements with the Columbus dealership, as well as other Bill Heard dealerships, pursuant to which the Columbus dealership agreed to offer its customers motor vehicle extended service contracts (“VSCs”) written on USP paper. The Columbus dealership collected the purchase price for each VSC at the point of sale along with the purchase price for the automobile sold.
3. Under the dealer agreements, the Columbus dealership agreed within fifteen days after the last day of the calendar month in which the Columbus dealership issued a VSC to remit a portion of the money collected (the “dealer cost”) to USP. The dealer agreements required the Columbus dealership to “hold the Dealer Cost in a segregated account in a fiduciary capacity as trustee for [USP] and under conditions satisfactory to [USP] until remitted to [USP].” 1 Failure to remit dealer cost constitutes a material breach of the agreement.
4. The Columbus dealership failed to segregate the dealer costs as required by the dealer agreements. Instead, the dealership deposited the funds into its general operating account maintained at CB & T, account number 1488503.
5. As of the petition date, the Columbus dealership's operating account had a balance of $170,056.21. From this amount, USP asserts that on the petition date, a sum of $53,346 had been paid into the operating account from the sale of VSCs. CB & T admits that between August 11, 2008 and September 22, 2008 the debtors deposited approximately $53,117 into the Columbus dealership's operating account as a result of VSC sales.
6. As of the petition date, CB & T held a claim against the Bill Heard debtors in excess of $75,000,000 pursuant to a number of promissory notes. 2 Postpetition CB & T has reduced its claim against the Bill Heard debtors through the foreclosure of collateral and other means. CB & T currently has a deficiency claim against the debtors in excess of $10,000,000. Pursuant to certain guaranties executed by the Columbus dealership in favor of CB & T, the Columbus dealership is responsible for the entire amount of the deficiency. 3
7. CB & T's Operating Account Agreement provides in the section titled “Setoff” that CB & T may setoff against the operating account, as follows:
[CB & T] may ... set off the funds in this account against any due and payable debt owed to us now or in the future, by any of you having the right of withdrawal, to the extent of such persons' or legal entity's right to withdrawal. If the debt arises from a note, “any due and payable debt” includes the total amount of which we are entitled to demand payment under the terms of the note at the time we set off, including any balance the due date for which we properly accelerate under the note. 4
8. On October 21, 2008, approximately three weeks after the petition date, CB & T filed a motion for relief from the stay to permit setoff. The motion sought relief from the stay to setoff $170,056.21 in prepetition funds held in the Columbus dealership operating account and other amounts.
9. On October 31, 2008, USP filed an objection to CB & T's motion and asserted an interest in the funds. Objections to the motion were also filed by GMAC, LLC and the Official Committee of Unsecured Creditors.
10. On December 18, 2008, USP filed the present adversary proceeding asserting its interest in the funds.
11. In February of 2009, the Court entered an order consolidating USP's adversary proceeding and CB & T's setoff motion with an adversary proceeding filed by GMAC on January 15, 2009. Subsequently, GMAC was paid in full for all its claims against the debtors and no longer asserts any claim in the subject funds.
12. On January 14, 2010, the Court entered an order severing the USP adversary proceeding from the GMAC adversary. William F. Perkins as liquidating trustee, successor in interest to the debtors and creditors committee, no longer claims an interest in the funds in the operating account. 5
13. CB & T asserts, and there has been no evidence presented otherwise, that at no time prior to filing the setoff motion was CB & T aware of any dealer agreements between the Columbus dealership and USP. CB & T was not aware that there were funds received and held by the Columbus dealership resulting from the sale of VSCs until USP filed its objection to CB & T's setoff motion.
14 CB & T asserts that using a first-in, first-out method of accounting, all funds on deposit in the Columbus dealership operating account as of the petition date were deposited by sources other than from proceeds of VSC sales with the possible exception of $1,262.00.
Pursuant to Fed.R.Civ.P. 56(C), summary judgment should be rendered “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Hyman v. Nationwide Mut. Fire Ins. Co., 304 F.3d 1179 (11th Cir.2002).
The moving party bears the initial burden of showing that there are no genuine issues of material fact to be decided at trial. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. When the moving party has satisfied its burden, the non-moving party cannot rest upon the pleadings. Instead, the non-moving party must go beyond the pleadings and demonstrate by affidavit or other appropriate means that there is a genuine issue of material fact for trial. Id. at 324, 106 S.Ct. 2548.
The evidence and all factual inferences therefrom must be viewed in the light most favorable to the party opposing the motion and all reasonable doubts about the facts must be resolved in favor of the non-moving party. Acevedo v. First Union Nat. Bank, 476 F.3d 861, 865 (11th Cir.2007); Andreini & Co. v. Pony Express Delivery Servs., Inc. (In re Pony Express Delivery Servs., Inc.), 440 F.3d 1296, 1300 (11th Cir.2006); see also Loren v. Sasser, 309 F.3d 1296, 1301-02 (11th Cir.2002); Hyman, 304 F.3d 1179 (citing Burton v. City of Belle Glade, 178 F.3d 1175, 1187 (11th Cir.1999)).
“[Q]uestions of setoff are governed exclusively by section 553 of the Bankruptcy Code.” Woodrum v. Ford Motor Credit Co. (In re Dillard Ford, Inc.), 940 F.2d 1507, 1512 (11th Cir.1991). Section 553(a) of the Bankruptcy Code reads, in relevant part:
Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case ...
11 U.S.C. § 553(a).
Although the Bankruptcy Code does not create a federal right of setoff, § 553 of the Bankruptcy Code preserves, with certain exceptions, any right of setoff that a creditor possessed prepetition against the debtor under applicable non-bankruptcy law. Citizens Bank of Md. v. Strumpf, 516 U.S. 16, 20, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995); In re Prudential of Florida Leasing, Inc., 478 F.3d 1291, 1297 (11th Cir.2007); Carlton Co. v. Jenkins (In re Jenkins), 2004 WL 768574 *2 (Bankr.S.D.Ga.2004). Georgia law clearly governs the validity of CB & T's prepetition right of setoff in this instance wherein the subject funds are in an operating account that is maintained at CB & T, a Georgia banking corporation operating in Georgia, and the account was maintained by the Columbus dealership, a Georgia corporation that operated in Georgia.
USP argues that Florida law governs the outcome of this case because the dealer agreements executed by the Columbus dealership required the dealership to...
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