In the matter of Earl Brice Equipment, LLC., Case No. BK04-84283. A05-8060 (Bankr.Neb. 10/9/2007), Case No. BK04-84283. A05-8060.
| Decision Date | 09 October 2007 |
| Docket Number | Case No. BK04-84283. A05-8060. |
| Court | U.S. Bankruptcy Court — District of Nebraska |
| Parties | IN THE MATTER OF: EARL BRICE EQUIPMENT, L.L.C., CH. 7, Debtor(s). FIRST NATIONAL BANK OF OMAHA, Plaintiff, v. JAMES KILLIPS, Trustee; DOUGLAS COUNTY, NEBRASKA; CATERPILLAR FINANCIAL SERVICES CORPORATION; and M & S GRADING, INC., Defendants. |
This matter is before the court on cross-motions for summary judgment by Douglas County, Nebraska (Fil. #173) and Caterpillar Financial Services Corporation and First National Bank of Omaha (Fil. #238). Bernard Monbouquette and Kim Hawekotte represent Douglas County, Richard Garden, Jr., represents Caterpillar Financial Services Corporation, and Alan Pedersen represents First National Bank of Omaha. The motions were taken under advisement as submitted without oral arguments. This memorandum contains findings of fact and conclusions of law required by Federal Rule of Bankruptcy Procedure 7052 and Federal Rule of Civil Procedure 52. This is a core proceeding as defined by 28 U.S.C. § 157(b)(2)(K).
The motion by First National Bank of Omaha and Caterpillar Financial is granted. The motion by Douglas County is denied.
First National Bank of Omaha ("FNBO") filed this adversary proceeding to obtain resolution of various competing claims to the proceeds of the sale of assets owned by Earl Brice Equipment, L.L.C. ("Earl Brice"). FNBO and Caterpillar Financial Services Corporation ("Cat Financial") claim first- and second-priority liens on equipment and the proceeds thereof, while Douglas County claims a statutory first-priority lien on the proceeds for the unpaid personal property taxes. There is no dispute between FNBO and Cat Financial as to their respective priorities. The dispute centers on the priority of Douglas County's tax lien vis-á-vis the perfected security interests of the two equipment financing entities. Douglas County seeks summary judgment in its favor, as do FNBO and Cat Financial.
Summary judgment is appropriate only if the record, when viewed in the light most favorable to the non-moving party, shows there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c) (); see, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986); Aviation Charter, Inc. v. Aviation Research Group/US, 416 F.3d 864, 868 (8th Cir. 2005); Ferris, Baker Watts, Inc. v. Stephenson (In re MJK Clearing, Inc.), 371 F.3d 397, 401 (8th Cir. 2004).
In ruling on a motion for summary judgment, the court must view the facts in the light most favorable to the party opposing the motion and give that party the benefit of all reasonable inferences to be drawn from the record. Widoe v. District No. 111 Otoe County Sch., 147 F.3d 726, 728 (8th Cir. 1998); Ghane v. West, 148 F.3d 979, 981 (8th Cir. 1998). A summary judgment motion should be interpreted by the court to dispose of factually unsupported claims and defenses. Tiffey v. Speck Enter., Ltd., 418 F. Supp. 2d 1120, 1123 (S.D. Iowa 2006). To withstand a motion for summary judgment, the nonmoving party must submit "sufficient evidence supporting a material factual dispute that would require resolution by a trier of fact." Austin v. Minnesota Mining & Mfg. Co., 193 F.3d 992, 994 (8th Cir. 1999) (quoting Hase v. Missouri Div. of Employment Sec., 972 F.2d 893, 895 (8th Cir. 1992), cert. denied, 508 U.S. 906 (1993)).
FNBO, Cat Financial, and Douglas County agree to the following matters of fact:
1. At all times prior to January 27, 1999, M & S Grading, Inc. ("M & S") was the owner of heavy construction equipment that it utilized in its earth-moving business.
2. On January 27, 1999, M & S executed a purchase agreement to sell equipment that it owned to Earl Brice.
3. The sale of equipment from M & S to Earl Brice closed on January 29, 1999, when M & S issued a bill of sale to Earl Brice.
4. M & S and Earl Brice entered into a lease dated January 27, 1999, where Earl Brice leased the equipment described therein to M & S.
5. Pursuant to the terms of the lease, M & S agreed, among other things, to pay the personal property taxes on the equipment that it leased from Earl Brice.
6. From April 9, 1999, through September 12, 2000, Earl Brice acquired equipment that was financed by Cat Financial under 14 installment sale contracts which were secured by purchase money security interests in the equipment described therein (the "Cat Financial Collateral"). Cat Financial holds a valid perfected purchase money security interest in the equipment described in the 14 installment sale contracts financed by Cat Financial.
7. FNBO holds a valid perfected security interest in all of the assets of Earl Brice and M & S, including the equipment referenced in the purchase agreement, bill of sale, and lease, with the exception of the Cat Financial Collateral. FNBO holds a second valid perfected security interest in the Cat Financial Collateral subject only to the security interest of Cat Financial.
8. M & S filed a voluntary petition under Chapter 11 of the Bankruptcy Code on May 20, 2002, and operated as debtor in possession until it discontinued operations in December 2004.
9. On January 9, 2003, Douglas County filed a pre-petition proof of claim in the M & S case claiming that M & S was indebted to it for personal property taxes.
10. M & S converted its case to a Chapter 7 case on June 13, 2005.
11. Earl Brice filed a voluntary petition under Chapter 11 of the Bankruptcy Code on December 21, 2004.
12. On January 7, 2005, Douglas County filed a pre-petition proof of claim in the Earl Brice case claiming that Earl Brice was indebted to it for personal property taxes.
13. Earl Brice converted its case to a Chapter 7 case on June 23, 2005.
14. On January 7, 2005, James Killips was appointed trustee for Earl Brice. Mr. Killips was also previously appointed as trustee for M & S on December 20, 2004.
15. On February 25, 2005, the trustee filed a motion to sell all of the assets of Earl Brice.
16. Cat Financial and other creditors objected to the motion.
17. On March 11, 2005, the court entered the sale order that authorized the trustee to sell substantially all of the assets of Earl Brice.
18. The sale order required the immediate payment of $3,906,092 to Cat Financial at the closing of the sale, free and clear of all liens and claims, together with the escrow of $900,000 to a segregated interest-bearing account (the "Caterpillar Escrow Account").
19. The sale order also required the immediate payment of $2,262,307 to FNBO at the closing of the sale, free and clear of liens.
20. The trustee sold all of the remaining Earl Brice equipment at an auction held on May 12, 2005.
21. The sale closed and the trustee placed $900,000 proceeds from the sale of the Cat Financial Collateral in the Cat Escrow Account. Overage from the sale was split in the following manner pursuant to the court order as established in the agreement between FNBO and Douglas County regarding Earl Brice:
FNBO — 25% ($106,250.00)
Douglas County Escrow Account — 25% ($106,250.00)
Earl Brice Equipment, L.L.C. — 50% ($212,500.00)
22. The trustee has remitted $3,906,092 to Cat Financial as proceeds from the sale of the Cat Financial Collateral.
23. The trustee has remitted $2,262,307 to FNBO as proceeds from the sale of the remaining equipment.
24. Personal property taxes on the equipment for the years 2000-2005 have not been paid.
25. On May 19, 2005, Cat Financial requested a certificate of assessment for M & S from the County.
26. On May 26, 2005, Cat Financial requested a certificate of assessment for Earl Brice from the County.
27. Neither Earl Brice nor M & S have ever appealed the County's claim that personal property taxes are owed on the equipment.
Joint Stip. (Fil. #241).
In addition, the same principals owned M & S and Earl Brice, and operated them in essence as one business enterprise. The escrow account for the Cat Financial collateral contains $900,000, and the escrow account for the FNBO collateral contains $180,000. Douglas County is owed more than $800,000 for personal property taxes and interest. A balance of more than $5 million remains outstanding on the FNBO loans. A balance of slightly more than $1 million remains outstanding on the Cat Financial debt.
Douglas County's claim to the funds is premised on Neb. Rev. Stat. Ann. § 77-203 (LexisNexis 2006):
All property taxes levied for any county, city, village, or other political subdivision therein shall be due and payable on December 31 next following the date of levy . . . . Taxes on personal property shall be a first lien upon the personal property of the person to whom assessed until paid.
A lien for personal property taxes takes precedence over all other encumbrances on the property, including U.C.C. liens. Bird Watchers, L.L.C. v. Johnson County, Nebraska (In re MBA Poultry, L.L.C.), 295 F.3d 886, 889 (8th Cir. 2002).
In resistance, Cat Financial and FNBO focus on the portion of the statute creating a lien on the property "of the person to whom [the tax was] assessed" and argue that Douglas County assessed the taxes against M & S as the lessee, rather than against Earl Brice as the owner.
Under Nebraska law, "assessment" means "the act of listing the description of all real property and taxable tangible personal property, determining its taxability, determining its taxable value, and placing it on the assessment roll." Neb. Rev. Stat. Ann. § 77-126 (LexisNexis 2006). The "assessment roll" is "a complete and verified list of all real property and the taxable tangible personal property in a county and the associated...
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