T.B. Westex Foods, Inc., Matter of
Decision Date | 24 January 1992 |
Docket Number | No. 90-8356,90-8356 |
Citation | 950 F.2d 1187 |
Parties | , 26 Collier Bankr.Cas.2d 682, Bankr. L. Rep. P 74,448 In the Matter of T.B. WESTEX FOODS, INC., Debtor. T.B. WESTEX FOODS, INC., Appellant, v. FEDERAL DEPOSIT INSURANCE CORP., in its Corporate Capacity as Liquidator of the Alaska Continental Bank, Appellee. |
Court | U.S. Court of Appeals — Fifth Circuit |
R. Mike Borland, Borland & Borland, Midland, Tex., for appellant and debtor.
Jaclyn Tanner, Washington, D.C., for appellee.
Appeal from the United States District Court for the Western District of Texas.
Before HENLEY *, KING, and GARWOOD, Circuit Judges.
T.B. Westex Foods, Inc. (Westex), a Chapter 11 debtor in possession, filed a complaint to compel turnover of avoidable preferential transfers under section 547(b) of the Bankruptcy Code made to Alaska Continental Bank (Alaska). The bankruptcy court found that the transfers were not avoidable under section 547(b) because they were not made within the applicable preference period and they did not benefit an insider. 96 B.R. 77. The bankruptcy court also found that even if the transfers were avoidable, Westex could not obtain recovery from Alaska under section 550(a) of the Bankruptcy Code. The district court affirmed solely on the latter ground. We find that the transfers were avoidable and that Westex can obtain recovery from Alaska. We accordingly reverse and remand for a determination of the proper amount of recovery.
Wayne Bond (Bond), president, and a director and shareholder, of Westex, was indebted to Alaska. Westex was indebted to Bond. Alaska obtained a judgment against Bond and sought to enforce that judgment through a Texas court garnishment action against Westex.
Alaska served Westex with a writ of garnishment on January 6, 1987. The writ indicated that it applied to all sums which Westex owed to Bond. Westex did not respond to service of the writ and Alaska obtained a default judgment against Westex on April 14, 1987. The amount of the default judgment was $139,864.48--the amount of Bond's debt to Alaska as alleged in the garnishment. 1
On November 13, 1987, Alaska attempted to enforce its judgment against Westex by serving a writ of garnishment on two banks in which Westex had funds on deposit. The banks interpleaded Westex's deposits, which amounted to a total of $37,734.60, the amount at issue in this appeal.
On March 11, 1988, Westex filed for protection under Chapter 11 of the Bankruptcy Code. During the pendency of the Westex Chapter 11 proceeding, Alaska was declared insolvent and the Federal Deposit Insurance Corporation (FDIC) was appointed receiver for the failed bank. The FDIC acquired Alaska's interest in the garnished funds. 2
Westex filed a motion in the bankruptcy court, as debtor in possession, to compel turnover of the funds garnished by Alaska. 3 Westex claimed that the garnishment of the funds constituted an avoidable transfer under 11 U.S.C. § 547(b). Section 547(b) provides as follows:
Avoidable transfers are recoverable by the trustee under 11 U.S.C. § 550(a). Section 550(a) provides as follows:
Westex sought recovery from Alaska as the initial transferee of the garnished funds (the $37,734.60).
The bankruptcy court denied Westex's motion to compel turnover of the garnished funds because Westex failed to prove all of the elements of section 547(b). The court found that Westex was insolvent at all relevant times and that Bond was an insider with respect to Westex. 4 The court therefore concluded that the applicable preference period was ninety days to one year before the bankruptcy filing pursuant to section 547(b)(4)(B).
The court found, however, that the other elements of section 547(b) had not been proved. First, the court appeared to find that Bond had not benefited from the transfer within the meaning of sections 547(b)(1) and 547(b)(5). The court reasoned that Westex would have an equitable right of indemnity against Bond, or would become the subrogee of Alaska's judgment against Bond, for the amount of Westex's payment to Alaska. The court therefore concluded that Bond did not benefit from Alaska's satisfaction of its judgment against Westex.
Second, the court found that the relevant transfer had occurred more than one year before the filing of bankruptcy. The court concluded that the service of the writ on Westex on January 6, 1987 perfected Alaska's lien on Westex's assets and that the relevant transfer occurred on that date. The court therefore held that the transfer could not constitute an avoidable preference because it occurred more than one year before Westex filed for bankruptcy.
Finally, the court held that even if all of the requirements of section 547(b) had been satisfied, it would have denied Westex recovery against the noninsider Alaska. The court reasoned that it would have been inequitable to allow recovery to Westex under section 550(a)(1) where the initial transferee was a noninsider such as Alaska.
Westex appealed to the district court, which affirmed the bankruptcy court's judgment on the sole ground that to allow Westex to recover from Alaska would be inequitable. The district court based its holding on the reasoning of courts which had denied recovery from a noninsider where the transfer to the noninsider had qualified as an avoidable preference only because the insider was a guarantor of the debt collected from the bankrupt debtor.
Westex bears the burden of proving by a preponderance of the evidence every essential element of section 547(b) in order to avoid a preferential transfer. 5 11 U.S.C. § 547(g); see 4 Collier on Bankruptcy p 547.21 (15th ed. 1991). Westex therefore must prove that (1) there was a transfer to Alaska for the benefit of a Westex insider creditor (Bond), (2) on account of an antecedent debt (Westex's debt to Bond), (3) made while Westex was insolvent and (4) within one year of the date of the filing of the Westex bankruptcy petition (5) that enabled Bond to receive more than he would have under a Chapter 7 liquidation.
That Westex has proved some of the elements of section 547(b) is undisputed. Alaska does not contest the bankruptcy court's findings that a transfer of property from Westex to Alaska occurred, that Westex was insolvent at the time of the transfer, and that Bond was then an insider. It is also undisputed that Bond was a creditor of Westex at the time of the transfer 6 and that Westex's obligation to Bond was an antecedent debt on account of which the transfer was made.
The disputed elements are the following. Westex challenges the bankruptcy court's findings that Bond did not benefit from the transfer and that a transfer did not occur within one year of the date of the filing of the Westex bankruptcy petition. Westex further claims that section 550(a)(1) provides for recovery from the initial transferee of the avoidable transfer regardless of that transferee's status as a noninsider.
We have previously stated that New Orleans Pub. Serv., Inc. v. First Federal Sav. & Loan Ass'n of Warner Robins, Ga., 924 F.2d 74, 76 (5th Cir.1991) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 68 S.Ct. 525, 541, 92 L.Ed. 746 (1948)). "Conclusions of law, conversely, are subject to plenary review on appeal." Id.
Section 547(b) empowers Westex to avoid the transfer from Westex to Alaska if it occurred during the insider preference period, between ninety days and one year before the date on which Westex filed for bankruptcy. If the relevant transfer occurred on January 6, 1987, as Alaska claims, the transfer is not avoidable, for Westex filed for bankruptcy on March 11, 1988, more than one year later.
The Bankruptcy Code provides that "a transfer is made--(A) at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 10 days after, such time; (B) at the time such transfer is perfected, if such transfer is perfected after such 10 days...." 11 U.S.C. § 547(e)(2). The Code also states that "a transfer of a fixture or property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the...
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