Matter of Kennesaw Mint, Inc.
| Decision Date | 25 August 1983 |
| Docket Number | Adv. No. 82-0455A.,Bankruptcy No. 81-03381A |
| Citation | 32 BR 799 |
| Parties | In the Matter of KENNESAW MINT, INC., Debtor. Ezra H. COHEN, Trustee, Plaintiff, v. Peter C. KERN, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
Mary Grace Diehl, Atty. at Law, Troutman, Sanders, Lockerman & Ashmore, Atlanta, Ga., for plaintiff.
Elizabeth A. Edelman, Atty. at Law, Rubin, Winter, Goger & Kirwan, P.C., Atlanta, Ga., for defendant.
This is a preference action before the Court on Plaintiff's motion for summary judgment. The Plaintiff, Trustee in bankruptcy of the estate of Kennesaw Mint, Inc. Debtor, seeks to recover $34,797.45 in alleged preferential payments made by the Debtor to Peter C. Kern, the Defendant herein.
The Debtor in this case was engaged in the business of refining and selling precious metals. Customers routinely placed orders for gold or silver by paying cash to the Debtor, with the metal to be delivered at a later specified time. On or about June 16, 1981, the Defendant Kern gave the Debtor a check for $206,340.00 for the purchase of silver to be delivered to him on June 30, 1981. No silver was delivered pursuant to that order. From July 14, 1981, to September 4, 1981, within 90 days of the filing of the petition and shortly thereafter, the Plaintiff Trustee alleges that the following transfers of the Debtor's property were made to Kern by the Debtor or at the Debtor's direction:
(1) July 14, 1981 Kern withdrew
$7,000.00 from the Debtor's
bank account
(2) August 6, 1981 The Debtor endorsed a
check for $1,000.02 received
from PETER
UMBERTO/WHAT
NERVE, INC. (representing
partial payment
for the purchase of
stock in the Debtor) to
Kern
(3) August 13, 1981 Kern received $11,361.12
by check from SIPI
METALS CORP. (representing
funds owed to
the Debtor by SIPI)
(4) August 21, 1981 Kern received $8,741.62
from SIPI which SIPI
owed to the Debtor
(5) September 4, 1981 Kern received $5,694.71
from SIPI which SIPI
owed to the Debtor;
(6) September 4, 1981 The Debtor endorsed a
second check for
$1,000.03 from UMBERTO/WHAT
NERVE, INC., to Kern.
The Trustee contends that these payments are voidable preferences recoverable under either 11 U.S.C. § 547(b) or 11 U.S.C. § 549(a). Section 547(b) permits the trustee to avoid a pre-petition transfer of property of the debtor which is (1) to or for the benefit of a creditor; (2) on account of an antecedent debt; (3) made while the debtor was insolvent; (4) on or within 90 days before the bankruptcy; and (5) which enabled the creditor to receive more than he would have received in a liquidation case if the transfer had not been made. Section 549(a) allows the trustee to avoid a post-petition transfer of property of the estate that is not authorized by the Code or the Court.
Kern admits receipt of the payments but denies that they constitute avoidable preferences. He contends that the avoidance provisions of the Code do not apply because the transfers did not come from the Debtor and were not all funds of the Debtor. He also maintains that the Debtor was not insolvent at the time the transfers were made and that the Trustee has failed to carry his burden of proof regarding the other essential elements of the preferences. Alternatively, Kern alleges that the transfers are not avoidable because they were contemporaneous exchanges for new value given the Debtor, as permitted under 11 U.S.C. § 547(c)(1), and were made in the ordinary course of business and within 45 days after the debt was incurred, as permitted by 11 U.S.C. § 547(c)(2). Finally, he argues that it would be a gross injustice to allow the Trustee to recover these payments without pursuing recovery from other creditors to the extent they benefited from the Debtor's use of Kern's $206,340.00.1
Both parties have submitted affidavits and supporting documents as contemplated by Rule 56(c) of the Federal Rules of Civil Procedure, which applies to this proceeding by virtue of Bankruptcy Rule 756.
Under both Code provisions on which the Trustee relies, his power to recover property preferentially transferred depends on the ownership of that property. Avoidable prepetition transfers must be property of the debtor, 11 U.S.C. § 547(b); and post-petition transfers must be property of the estate, 11 U.S.C. § 549(a). Ownership of the transferred property is disputed in this case.
The Trustee has offered the affidavit of Connie Mack Berry Berry, former president of the Debtor, to the effect that all six transfers were property of the Debtor or the estate, although three of them were payments of funds owed to the Debtor by a third party and were transferred to Kern at Berry's direction. Such indirect transfers are avoidable as preferences. See 11 U.S.C. § 101(40); In re Moskowitz, 13 B.R. 357, 7 B.C.D. 1314 (Bkrtcy.S.D.N.Y.1981). Berry's affidavit recites the amount and source of each transfer; its contents are based on his personal knowledge and constitute evidence which would be admissible at trial. It therefore meets the basic requirements for affidavits set out in Rule 56(e). See McDaniel v. Waits (In re National Buy-Rite, Inc.), 7 B.R. 407, 3 C.B.C.2d 431, 434 (Bkrtcy.N.D.Ga.1980) National Buy-Rite.
The Trustee's affidavit is accompanied by copies of letters, checks, and other business records exchanged by the parties which are referred to in the affidavit. However, no documents are offered to evidence Kern's withdrawal of $7,000.00 from the Debtor's bank account on July 14, 1981,2 contrary to the requirement of Rule 56(e) that sworn or certified copies of all papers referred to in an affidavit must be attached to it. The Court may, however, consider any material that would be usuable at trial for purposes of a motion for summary judgment. Wright, Miller & Kane, Fed.Prac. & Proc.: Civil 2d § 2721 Wright & Miller. This includes a defective affidavit if there is no timely objection to it and if its consideration would not result in a gross miscarriage of justice. Id. at §§ 2722 and 2738. National Buy-Rite, at 409, 3 C.B.C.2d at 434. Kern has not challenged the sufficiency of the affidavit or objected to the omission of any of the documents to which it refers. The Court therefore finds that no gross injustice will result if the affidavit is considered for purposes of this motion.
Kern's pleadings dispute the Debtor's ownership of the transferred funds but his affidavit does not address the issue.3 Instead, he has submitted copies of U.C.C. financing statements showing his security interest in virtually all the assets of various debtor-related entities and individuals. It is not clear to the Court how proof of others' indebtedness to Kern is relevant to the Debtor's indebtedness, or how such proof provides evidence of the ownership of the funds transferred.
Although for purposes of a motion for summary judgment the opposing party is given the benefit of every reasonable doubt in determining whether a genuine factual issue exists, Kellerman v. Askew, 541 F.2d 1089 (5th Cir.1976); Wright & Miller, supra, at § 2727, Rule 56 requires that if the moving party supports his motion with appropriate evidentiary material, the opposing party cannot merely rely on his pleadings, but must furnish some proof of his own. If he does not do so, summary judgment, if appropriate, shall be entered against him. Stifel, Nicolaus & Co. v. Dain, Kalman & Quail, Inc., 578 F.2d 1256, 1263 (8th Cir.1978). The Court finds that Kern has for the most part relied on his pleadings and that the proof he has offered is insufficient to raise a genuine issue of material fact. The Court further finds that on the basis of the facts stated in the Trustee's affidavit and the entire record, summary judgment is appropriate, and that as a matter of law the transfers were property of the Debtor or the estate within the meaning of the applicable provisions of the Bankruptcy Code.
The second issue raised by this motion is whether or not the Debtor was insolvent at the time of the pre-petition transfers.4 For purposes of avoiding a preferential transfer, 11 U.S.C. § 547(f) creates a presumption of insolvency for the 90 days immediately preceding bankruptcy. This means that although the burden of persuasion regarding insolvency remains with the Trustee, the party against whom the presumption exists must come forward with some evidence to rebut it. National Buy-Rite, 7 B.R. at 410, 3 C.B.C.2d at 435. Kern has offered no evidence to rebut the presumption; he has merely alleged the Debtor's solvency, claiming, inter alia, that the Debtor owned contract rights, accounts receivable, real property and other assets in excess of its liabilities.
Because of the presumption of § 547(f), it is unnecessary for the Trustee to present evidence of the Debtor's insolvency where, as here, the creditor has not come forward with evidence of solvency. Ellenberg v. DeKalb County, Georgia (In re Maytag Sales & Service, Inc.), 23 B.R. 384, 386 (Bkrtcy.N.D.Ga.1982). Here, however, the Trustee has offered the affidavit of Berry which states that the Debtor was insolvent for at least 45 days prior to the filing of the petition, which would encompass the dates on which the pre-petition transfers were made. The Court finds that there is no genuine issue of material fact regarding the insolvency of the Debtor during the...
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