Matter of US Marketing Concepts, Inc.
| Decision Date | 29 March 1990 |
| Docket Number | Bankruptcy No. 89-10202. |
| Citation | 113 BR 487 |
| Parties | In the Matter of U.S. MARKETING CONCEPTS, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Indiana |
COPYRIGHT MATERIAL OMITTED
Ward W. Miller, Fort Wayne, Ind., for movant.
Mark A. Warsco, Fort Wayne, Ind., for trustee.
DECISION
This matter is before the court on a motion for relief from stay filed on behalf of Don Jacobs Toyota, Inc. and Don Jacobs Buick-Subaru, Inc. (collectively "Don Jacobs"). The motion presents no factual issues — only legal ones. Accordingly, the matter was submitted based upon the contents of the parties' various pre-trial submissions and the briefs of counsel.
On May 25, 1988, Don Jacobs obtained a judgment against the debtor in the Wisconsin state courts. This judgment was domesticated in Indiana on August 5, 1988. On October 19, 1988, proceedings supplemental were initiated with the Allen Superior Court in an effort to collect the judgment. As part of these proceedings, Herbert J. Weber and Advertising and Marketing Services, Inc. were named as garnishee-defendants. On that date, the appropriate notices and garnishment summonses were issued to the garnishees and, shortly thereafter, served upon them. The garnishment proceedings against these two parties were the result of transfers they had received from the debtor, allegedly made with the intent to hinder, delay or defraud debtor's creditors.
The issues raised by the garnishment proceedings were tried to the Allen Superior Court on January 17, 1989. Before the state court could render its decision, however, on February 16, 1989, the debtor filed a petition for relief under Chapter 7 of the United States Bankruptcy Code. Following the petition, Mark A. Warsco was appointed and qualified as the bankruptcy trustee.
As a result of an earlier motion, by an order dated March 14, 1989, this court vacated the automatic stay to the extent necessary to allow the Allen Superior Court to enter its findings of fact, conclusions of law, and decision in the garnishment proceeding. Don Jacobs was also authorized to enforce any judgment which might be entered in its favor. In spite of this relief, the order specifically provided that Don Jacobs' rights to any such judgment or recovery would be held subject to the rights of the bankruptcy trustee.
Following this court's order of March 14, 1988, the state court entered findings of fact, conclusions of law, and an order on April 3, 1989. In doing so, Judge Hines found that the garnishee-defendants, Herbert J. Weber and Advertising and Marketing Services, Inc., had received fraudulent transfers from the debtor in amounts which were "far greater" than debtor's obligations to Don Jacobs. As a result, the garnishees were ordered to satisfy the judgment against the debtor. This obligation was made joint and several. Although appealed, the trial court's decision was affirmed on December 27, 1989. See U.S. Marketing Concepts, Inc. v. Don Jacobs Buick-Subaru, Inc., 547 N.E.2d 892 (Ind.App.1989), reh'g denied, February 14, 1990.
Presently pending before this court, as adversary proceeding 89-1055, is the trustee's suit against Herbert J. Weber and Advertising and Marketing Services, Inc. That proceeding seeks to recover judgment on behalf of the bankruptcy estate as a result of the same fraudulent conveyances which were the subject of Don Jacobs' garnishment proceedings in the Allen Superior Court.
By the current motion, Don Jacobs renews their original request that we fully vacate the automatic stay and allow them to collect and retain for their own benefit the garnished property, free from the claims of the bankruptcy trustee. Movants contend they hold a lien against the proceeds of debtor's fraudulent conveyances in the hands of the garnishee-defendants, which is a paramount to the interests of the bankruptcy trustee. In opposition, the trustee maintains that movants did not hold a perfected lien as of the date of the petition. Relying on the status given to the bankruptcy trustee by 11 U.S.C. § 544(a), the trustee contends that its interest in any proceeds recoverable on account of the fraudulent conveyances is superior to that of Don Jacobs. Accordingly, the motion requires the court to determine the relative priority of competing interests in the proceeds recoverable on account of a fraudulent conveyance, as between a bankruptcy trustee and a judgment creditor who initiated proceedings to set aside that conveyance, through proceedings supplemental and the garnishment process, prior to the petition for relief.
A petition for relief under title 11 creates the automatic stay of § 362 and the bankruptcy estate of § 541. Both are incredibly broad. The automatic stay prohibits any action to collect or recover a pre-petition debt from property of the estate. This prohibition extends to the use of judicial process, the enforcement of judgments, and the creation, perfection or enforcement of liens against property of the estate. See generally 11 U.S.C. § 362(a). The bankruptcy estate is equally broad. Wherever located and by whomever held, the estate consists of all interests the debtor may have in property, as of the commencement of the case, and any interest in property the trustee may recover by using the various powers it is given by the Bankruptcy Code. See generally 11 U.S.C. § 541(a). As a result, the bankruptcy estate consists of much more than what one might traditionally associate with the concept of property of a debtor and the debtor's claims against third parties. The bankruptcy estate extends to include any cause of action that the trustee may be entitled to prosecute against third parties for the benefit of the estate and, ultimately, its creditors.
While the automatic stay does not directly protect non-debtors, when these two portions of the Bankruptcy Code are combined, their full impact prohibits a creditor's prosecution of an action against a non-debtor where the claim is one which could also be asserted by the bankruptcy trustee. Thus, by protecting property of the estate, the automatic stay prevents the prosecution of certain claims against non-debtors where those claims are property of the estate. Matter of S.I. Acquisition, Inc., 817 F.2d 1142, 1148 (5th Cir.1987). Included within this type of prohibited proceeding are actions against the officers, directors, or shareholders of a corporation to pierce the corporate veil under various theories. Koch Refining v. Farmers Union Central Exchange, Inc., 831 F.2d 1339 (7th Cir.1987); Matter of S.I. Acquisition, Inc., 817 F.2d 1142 (5th Cir.1987); Steyr-Daimler-Puch of America Corp. v. Pappas, 852 F.2d 132 (4th Cir.1988); In re MortgageAmerica Corp., 714 F.2d 1266 (5th Cir.1983). Also included are actions to recover fraudulent conveyances of a debtor's property. Carlton v. BAWW, Inc., 751 F.2d 781 (5th Cir.1985); MortgageAmerica, supra, 714 F.2d at 1275-1276.
In this way the breadth of the automatic stay helps to ensure one of the primary goals of the bankruptcy process — a ratable distribution of the bankruptcy estate — by protecting creditors from each other. See Young v. Higbee Co., 324 U.S. 204, 210, 65 S.Ct. 594, 597, 89 L.Ed. 890 (1945). It "prevents a multi-jurisdictional rush to judgment whose organizing principle could only be first-come-first-served, and protects the interests of all creditors by treating like-situated claimants equally." MortgageAmerica, supra, 714 F.2d at 1274. Bankruptcy vests the right to prosecute such claims in the trustee, who is given complete authority over them, for the benefit of all creditors. Steyr-Daimler-Puch, supra, 852 F.2d at 136; Koch Refining, supra, 831 F.2d at 1348; Carlton, supra, 751 F.2d at 785. By doing so, "the trustee's single effort eliminates the many wasteful and competitive suits of individual creditors." Koch Refining, supra, 831 F.2d at 1342-1343.
A bankruptcy petition not only creates the automatic stay and the bankruptcy estate but it also confers upon the trustee a certain status vis-a-vis the estate and its creditors. The trustee is vested with a number of powers which can be exercised for the benefit of the estate and all of its various claimants. A primary source of the trustee's status and authority is found in the "strong arm powers" of § 544(a).
Since the trustee obtains this status only as of the date of the petition, its rights may be subject or...
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