Roblin Industries, Inc., In re

• Decision Date: 26 February 1996
• Docket Number: No. 588,D,588
• Citation: 78 F.3d 30
• Parties: , 28 Bankr.Ct.Dec. 882, Bankr. L. Rep. P 76,903 In re ROBLIN INDUSTRIES, INC., Debtor. William E. LAWSON, Trustee, in Bankruptcy of Roblin Industries, Inc., Plaintiff-Appellee, v. FORD MOTOR COMPANY, Defendant-Appellant. ocket 95-5036.
• Court: U.S. Court of Appeals — Second Circuit

Page 30

78 F.3d 30

64 USLW 2595, 28 Bankr.Ct.Dec. 882, Bankr.

L. Rep. P 76,903

In re ROBLIN INDUSTRIES, INC., Debtor William E. LAWSON, Trustee, in Bankruptcy of Roblin Industries, Inc., Plaintiff-Appellee, v. FORD MOTOR COMPANY, Defendant-Appellant.

No. 588, Docket 95-5036.

United States Court of Appeals Second Circuit.

Argued Nov. 29, 1995.

Decided Feb. 26, 1996.

Appeal from an order of the United States District Court for the Western District of New York (Richard Arcara, Judge) affirming Bankruptcy Court (Beryl E. McGuire, Chief Judge) judgment for debtor on action to recover preferential transfer.

The order is affirmed.

Donald P. Sheldon, Buffalo, New York, for Plaintiff-Appellee.

Gabriel J. Ferber, Nesper, Ferber & DiGiacomo, L.L.P., Buffalo, New York, for Defendant-Appellant.

Before: McLAUGHLIN and LEVAL, Circuit Judges, and KOELTL, ^* District Judge.

KOELTL, District Judge:

This is an appeal by Ford Motor Company ("Ford") from an order of the United States District Court for the Western District of New York, Richard Arcara, District Judge, affirming a final judgment and order of the Bankruptcy Court, Beryl E. McGuire, Chief Judge. See Lawson v. Ford Motor Co. (In re Roblin Indus., Inc.), 127 B.R. 722 (Bankr.W.D.N.Y.1991). The underlying bankruptcy case was filed originally by the debtor Roblin Industries, Inc. ("Roblin") as a Chapter 11 petition on July 1, 1985, and later converted to a Chapter 7 liquidation in August 1987. The Chapter 7 trustee, William E. Lawson (the "Trustee") brought a complaint in this case against Ford to recover a payment made by Roblin to Ford on the basis that the payment was a preferential transfer recoverable under 11 U.S.C. § 547. Following a two day non-jury trial, judgment was entered for Roblin and the District Court affirmed.

On this appeal, Ford contends that the Bankruptcy Court erred in concluding that the Trustee proved that Roblin was insolvent when it made the preferential payment to Ford. Ford also contends that the transfer should not have been avoided in any event because the payment fell within the statutory exception under 11 U.S.C. § 547(c)(2) for certain specified payments made in the ordinary course of business.

Our review of an order of the district court acting as an appellate court in a bankruptcy proceeding is plenary. We review independently the factual findings of the bankruptcy court for clear error, while questions of law are reviewed de novo. Resolution Trust Corp. v. Best Prods. Co., Inc. (In re Best Prods. Co., Inc.), 68 F.3d 26, 29 (2d Cir.1995); United States Lines (S.A.), Inc. v. United States (In re McLean Indus., Inc.), 30 F.3d 385, 387 (2d Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 934, 130 L.Ed.2d 880 (1995); Gulf States Exploration Co. v. Manville Forest Prods. Corp. (In re Manville Forest Prods. Corp.), 896 F.2d 1384, 1388 (2d Cir.1990). We affirm.

I.

Roblin, a manufacturer of specialized steel, relied upon Ford for raw scrap metal. By September 1984, Roblin had accumulated a trade debt to Ford for purchases of scrap metal of about $745,000 and had fallen behind on its payments. Although Ford had made no effort to collect the overdue account, Roblin, out of concern for ensuring a steady source of supply, approached Ford to arrange a repayment plan for the outstanding balance and to negotiate terms for new purchases. After discussion, Ford and Roblin entered into an agreement whereby Roblin would pay off its debt to Ford at $50,000 per month plus interest at an annual rate of ten percent. Ford also agreed to continue selling scrap metal to Roblin with payment due on shipment. Over the following months, Roblin made its monthly payments to Ford pursuant to the agreement.

On July 1, 1985, Roblin filed its voluntary Chapter 11 petition. The payment that is the subject of this action was made by check dated March 29, 1985 and honored on April 2, 1985 in the amount of $53,320.78. ¹ In the action brought before the Bankruptcy Court, the Trustee recovered this payment as a voidable preferential transfer. ²

II.

To be recoverable as a preferential transfer, a payment must satisfy all of the requirements of 11 U.S.C. § 547(b); it must have been:

1. to or for the benefit of a creditor;

2. for or on account of an antecedent debt owed by the debtor before such transfer was made;

3. made while the debtor was insolvent;

4. on or within 90 days before the date of filing of the petition (providing that the payee is not an insider); and

5. enable the benefited creditor to receive more than such creditor would have received had the case been a chapter 7 liquidation and the creditor not received the transfer.

See 11 U.S.C. § 547(b). The Trustee bears the burden of proving each of these elements by a preponderance of the evidence. See 11 U.S.C. § 547(g); ABB Vecto Gray, Inc. v. First Nat'l Bank of Bethany, Oklahoma, 9 F.3d 871, 874 (10th Cir.1993) (citing 4 Collier on Bankruptcy p 547.21, at 547-107 (15th ed. 1995)); Ralar Distribs., Inc. v. Rubbermaid, Inc. (In re Ralar Distribs., Inc.), 4 F.3d 62, 67 (1st Cir.1993).

Ford contests only the third element--whether the Trustee proved that the debtor was insolvent when the alleged preferential transfer was made. None of the other elements are disputed. For the purposes of the third element, the debtor is presumed insolvent during the ninety days preceding the filing of the petition. See 11 U.S.C. § 547(f); Riddervold v. Saratoga Hosp. (In re Riddervold), 647 F.2d 342, 344 (2d Cir.1981). This presumption is a rebuttable one. A creditor may rebut the presumption by introducing some evidence that the debtor was not in fact insolvent at the time of the transfer. If the creditor introduces such evidence, then the trustee must satisfy its burden of proof of insolvency by a preponderance of the evidence. See Clay v. Traders Bank of Kansas City, 708 F.2d 1347, 1351 (8th Cir.1983) (presumption affords initial benefit but ultimate burden remains on trustee to prove insolvency); Nugent v. First American Bank, No. 91-CV-1410, 1992 WL 200635, at * 3 (N.D.N.Y. Aug. 12, 1992).

Ford argued to the Bankruptcy Court that it successfully rebutted the presumption by introducing the schedules of assets and liabilities prepared by Roblin in support of its Chapter 11 bankruptcy petition. The "Summary of Debts and Property" in the schedules listed total debts of $66,039,334.90 and total property of $69,757,243.30, resulting in an excess of assets over liabilities of a little more than $3.7 million. Ford also introduced the amendments to the schedules that reflected additional liabilities of $626,730.38, of which $540,000 was disputed. The amendments also added real property omitted from the original schedules at the $775,000 price for which the property was sold six months after the filing. Based on these amendments, Roblin's assets exceeded liabilities by nearly $3.9 million. The schedules were prepared by Roblin's counsel and verified by its president.

Ford also pointed to the fact that Marine Midland Bank and Chemical Bank, Roblin's primary lenders, had committed to provide $12 million in post-petition financing on the basis of the appraisals used to compile the schedules. Although this financing was withdrawn in December 1986, Ford maintains that the willingness of the banks to lend on the basis of the appraisals bolsters the accuracy of the appraisals and lends further support to the conclusion that Roblin was solvent at the time the payment to Ford was made in April 1985.

The Bankruptcy Court found that the presumption of insolvency was rebutted. The Trustee, however, offered evidence to establish that, indeed, the debtor was insolvent at the time of the transfer. Primarily, the Trustee relied on a February 1984 SEC Registration Statement amending the company's S-1 Registration Statement with respect to stock warrants. The Registration Statement included financial statements as well as descriptive text recounting Roblin's operations, financial performance, and industry conditions. The balance sheet, which valued most property at cost less depreciation, showed assets as of October 8, 1983, of $42,130,495 and liabilities of $51,528,323, resulting in a negative net worth of $9,397,828. The Registration Statement indicated continuing losses from operations for each year from 1979 through nearly all of 1983, including losses of $7,763,976 in 1982 and $3,763,305 for the first forty weeks of 1983.

The Registration Statement included assessments of Roblin's financial health in particular, and the condition of the steel industry generally. The picture painted was grim. The industry was described as operating during 1982 at severely depressed levels, and the survival of the company was described as depending on a substantial rebound in steel demand. The description from the Registration Statement of the adverse market conditions facing Roblin during the mid-1980s appears as an appendix to the Bankruptcy Court's opinion. See Roblin, 127 B.R. at 725-27.

Based principally on the information contained in the Registration Statement, combined with misgivings about the reliability of the schedules, the Bankruptcy Court found that Roblin was, in fact, insolvent at the time the payment was made to Ford. Id., 127 B.R. at 724. The Bankruptcy Court found that Roblin was a "failing business in a failing industry." Id. The Court indicated that it had considered the asset values from the schedules but determined that those values "could not be sustained in the crucible of reality." Id. The District Court affirmed, concluding that this result was not clearly erroneous. In re Roblin Indus., Inc., 91 CV 523A (W.D.N.Y. Mar. 29, 1995) (Roblin II ).

Ford argues that the Bankruptcy Court's finding that Roblin was insolvent at the time the payment in question was made was clearly erroneous, particularly because the use of the balance sheet values from the Registration Statement was insufficient to sustain the Trustee's...