Oliver Rubber Co. v. Griffin Retreading Co., Inc., Civ. No. 4-85-918.
Decision Date | 23 December 1985 |
Docket Number | Civ. No. 4-85-918. |
Parties | OLIVER RUBBER COMPANY, Appellant, v. GRIFFIN RETREADING CO., INC., Appellee. |
Court | U.S. District Court — District of Minnesota |
Lauren R. Lonergan, O'Connor & Hannan, Minneapolis, Minn., for appellant.
Sharon N. Fullmer, Kampf, Orey, Landsman & Zerby, St. Paul, Minn., for appellee.
Oliver Rubber Co. (Oliver), appeals from a bankruptcy court order dated May 7, 1985, denying an administrative expense claim for the value of certain rubber delivered to appellee Griffin Retreading Co. (Griffin).
On May 2, Oliver delivered 35,000 pounds of rubber to Griffin, which was insolvent at that time.1 The following day, Griffin filed a Chapter 11 bankruptcy petition. On May 10, Oliver sent and Griffin received a mailgram demanding return of the rubber. It is undisputed that Griffin had the rubber, valued at $27,922.36, in its possession on May 10. It is also undisputed that Griffin properly preserved its right of reclamation under 11 U.S.C. § 546(c) (1982) and Minn. Stat. § 336.2-702 (1984). On August 20, 1984, Oliver brought an adversary proceeding against Griffin seeking reclamation of the rubber or an administrative expense claim for its value. Appellee states that the rubber was no longer in its possession at the time of this suit because "it had sold the rubber to its retail outlets in the ordinary course of its business." In other words, Griffin ignored its obligation to return the reclaimed goods to Oliver.
Minnesota has adopted UCC § 2-702 which provides a right of reclamation:
11 U.S.C. § 546(c) (1982). 11 U.S.C. § 503(b) provides for the allowing of administrative expenses.
Where the seller has properly preserved the right to reclaim, but the court must for some reason deny actual reclamation of the goods, § 546(c) provides that the court must order an administrative lien. See, e.g., In re Coast Trading Co., 744 F.2d 686 (9th Cir.1984). The instant case presents a slightly different situation. It was technically possible to award reclamation, but it was impossible for Oliver to reclaim the goods. The issue before the court is whether the bankruptcy court should have denied reclamation so that it could award the alternative and more useful remedy of an administrative expense.
The bankruptcy court found that Oliver had properly preserved its right to reclaim the rubber and therefore granted reclamation. The court recognized that this remedy was "meaningless" in the circumstances because Griffin no longer possessed the rubber, but found that Oliver had brought this hollow victory upon itself by failing to press its claim more promptly. The court refused to grant Oliver an administrative expense claim, reasoning that such a remedy was alternative to the right to reclaim and therefore unavailable because reclamation had, at least technically, been granted.
A seller seeking reclamation must show that it delivered goods to the buyer while the latter was insolvent and must make a demand for the goods within ten days of delivery and while the goods remained in the insolvent buyer's possession. The bankruptcy court's approach in this case adds an additional requirement, that the seller file an adversary action before the buyer disposes of the goods or suffer a hollow victory. Oliver may have been careless in failing to act more quickly, but the bankruptcy court's reasoning would provide the same result where a seller filed an adversary action the day after demanding reclamation from an unscrupulous insolvent buyer.
Oliver does not contest the bankruptcy court's factual findings, but...
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