Toyota of Jefferson, Inc., Matter of
| Decision Date | 28 February 1994 |
| Docket Number | No. 93-3289,93-3289 |
| Parties | , Bankr. L. Rep. P 75,720 In the Matter of TOYOTA OF JEFFERSON, INC., Debtor. Leonard LAKER, Chapter 7 Trustee for Bankruptcy ESTATE OF TOYOTA OF JEFFERSON, Appellant, v. Francelle VALLETTE, Executrix for the Succession of Amelia Schexnayder Normand, Appellee. Summary Calendar. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Douglas S. Draper, Pamela A. Van Geffen, Friend, Wilson, Draper, Hubbard & Bowling, New Orleans, LA, for appellant.
Harry Jacob Geiss, Baton Rouge, LA, for appellee.
Appeal from the United States District Court for the Eastern District of Louisiana.
Before KING, HIGGINBOTHAM and BARKSDALE, Circuit Judges.
Leonard Laker, as trustee of the bankruptcy estate of Toyota of Jefferson, Inc., sought to recover for the estate three allegedly preferential payments of money from the debtor to one of its creditors, Amelia Schexnayder Normand, under 11 U.S.C. Sec. 547. The court below held that all three payments were voidable preferences, but it nevertheless permitted him to recover only the final transfer. This appeal followed.
Louis J. Normand, Sr., was the president and majority shareholder of Toyota of Jefferson, Inc. (Toyota). Amelia Schexnayder Normand, now deceased, was the mother of Louis Normand. Francelle Vallette is the testamentary executrix for the succession of Amelia Normand.
The dispute in the instant case involves a series of transactions between Toyota and Amelia Normand in 1989 and 1990. On May 30, 1989, Amelia Normand gave Toyota four checks totalling $30,830.75. Toyota repaid this amount by two checks dated October 24, 1989, and Amelia Normand deposited the checks into a joint account she shared with her son on October 25, 1989.
On January 8, 1990, Amelia Normand transferred $82,993 to Toyota by check, which was deposited in Toyota's account the next day. Toyota returned this amount to Amelia Normand in four checks dated January 12-19, 1990. She deposited these checks into her account over the period from January 17-26, 1990.
On February 22, 1990, Amelia Normand transferred $90,169 to Toyota by check. Toyota repaid this amount over time, with seven checks dated February 22, 1990, and two checks dated February 24, 1990. Amelia Normand deposited the checks from Toyota over the period from March 1-14, 1990.
Toyota filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Louisiana on September 28, 1990. Leonard Laker was appointed as trustee for Toyota's estate (the bankruptcy trustee), and he remained trustee after the case was converted into a Chapter 7 proceeding on November 13, 1990. On October 23, 1991, the bankruptcy trustee filed an adversary proceeding in the bankruptcy court against Vallette in her capacity as executrix for the succession of Amelia Normand, seeking to avoid and recover the payments made by Toyota to Amelia Normand outlined above (totalling $203,992.75) under 11 U.S.C. Sec. 547.
On May 26, 1992, the district court granted Vallette's unopposed motion to withdraw reference of the adversary proceeding from the bankruptcy court. After a telephone conference, the parties consented to a bench trial before a United States Magistrate Judge pursuant to 28 U.S.C. Sec. 636(c). See McLeod, Alexander, Powel & Apffel, P.C. v. Quarles, 925 F.2d 853, 855 (5th Cir.1991) (). Trial was held on February 25, 1993. In its order and reasons filed on March 31, 1993, the court held that the three sets of payments from Toyota to Amelia Normand from October 25, 1989, through March 14, 1990, were preferential payments within the meaning of 11 U.S.C. Sec. 547(b). The court considered and rejected Vallette's arguments that the "contemporaneous exchange" and "ordinary course of business" exceptions of Sec. 547(c)(1) and (c)(2) applied to the transactions. The court further held, however, that only the final preferential payment, for $90,169, could be avoided and recovered by the bankruptcy trustee, for the following reasons:
In sum, the Magistrate Judge finds that these payments from Debtor to Creditor may be recovered by the bankruptcy estate--they may be avoided. However, this was the same money being passed back and forth.
The same money was borrowed and repaid three times. To allow the recovery of the total--$203,992.75--would be an unjust increase of the bankruptcy estate (and an unjust decrease of the deceased Creditor's estate). Only the final and largest transfer from Debtor to Creditor, in the amount of $90,169.00, may be avoided.
The bankruptcy trustee timely filed his notice of appeal to this court, appealing the portion of the order limiting his recovery of the preferential payments to $90,169.
We review a judgment rendered by a magistrate pursuant to 28 U.S.C. Sec. 636(c) as we would a judgment rendered by a district judge. See 28 U.S.C. Sec. 636(c)(3); James v. Hyatt Corp., 981 F.2d 810, 812 (5th Cir.1993). Thus, we review issues of law de novo and findings of fact under the clearly erroneous standard. James, 981 F.2d at 812.
The sole issue for our decision is whether the court below properly limited the bankruptcy trustee's recovery to $90,169, the amount of the last preferential payment from Toyota to Amelia Normand. 1 The bankruptcy trustee argues that the court below erred in limiting the bankruptcy estate's recovery from Amelia Normand to less than the full $203,992.75 sought. In the trustee's view, once the court below decided that neither Sec. 547(c)(1) nor (c)(2) applied to the preferential payments, the court was bound to award the bankruptcy estate the full amount of the preferential payments. Vallette argues, however, that the "subsequent advance" exception found in Sec. 547(c)(4) supports the decision by the court below. That section of the Bankruptcy Code provides as follows:
(c) The trustee may not avoid under this section a transfer--
(4) to or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of the debtor--
(A) not secured by an otherwise unavoidable security interest; and
(B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor[.]
11 U.S.C. Sec. 547(c)(4). Although the court below did not expressly rely on Sec. 547(c)(4), Vallette is entitled to offer alternative bases for upholding the judgment, provided there is record support for her arguments. Cox v. Sunbelt Sav. Ass'n, 896 F.2d 957, 959 n. 2 (5th Cir.1990).
We consider first the role Sec. 547(c)(4) was intended to play by the drafters of the Code. The exception "most obviously applies to revolving credit relationships." Raymond T. Nimmer, Security Interests in Bankruptcy: An Overview of Section 547 of the Code, 17 HOUS.L.REV. 289, 299 (1980). Two policy considerations support the exception. First, without the exception, a creditor who continues to extend credit to the debtor, perhaps in implicit reliance on prior payments, would merely be increasing his bankruptcy loss. Id. at 300. Second, the limited protection provided by the subsequent advance rule encourages creditors to continue their revolving credit arrangements with financially troubled debtors, potentially helping the debtor avoid bankruptcy altogether. Id. at 300-01. Protecting the creditor who extends "revolving credit" to the debtor is not unfair to the other creditors of the bankrupt debtor because the preferential payments are replenished by the preferred creditor's extensions of new value to the debtor. Kroh Bros. Dev. Co. v. Continental Constr. Eng'rs, Inc. (In re Kroh Bros. Dev. Co.), 930 F.2d 648, 652 (8th Cir.1991).
We turn next to the elements of the Sec. 547(c)(4) exception itself. Commentators have noted that 1 DAVID G. EPSTEIN ET AL., BANKRUPTCY Sec. 6-34, at 628 (1992). Two other caveats must be observed. The new value given by the creditor must not be secured by "an otherwise unavoidable security interest," Sec. 547(c)(4)(A), and the debtor must not have made "an otherwise unavoidable transfer to or for the benefit of such creditor" on account of the new value, Sec. 547(c)(4)(B).
The transfers in this case may be summarized as follows.
Preferential
Date Payment New Value
Oct. 1989 $30,830.75
Jan. 9, 1990 $82,993.00
Jan. 1219, 1990 $82,993.00
Feb. 1990 $90,169.00
Mar. 1990 $90,169.00
----------
Under the "net result rule," which was applied by some courts under pre-Code bankruptcy law, bankruptcy courts would simply total the preferential payments and the advances of new value and offset them against each other. 1 EPSTEIN, supra, at 629. Because Sec. 547(c)(4) requires the new value to be given by the creditor after the preferential transfer to the creditor, its scope is narrower in operation than the net result rule. Id.; see also Waldschmidt v. Ranier (In re Fulghum Constr. Corp.), 706 F.2d 171, 174 (6th Cir.) ("Congressional metamorphosis has transformed the judicially created net result rule into what may be characterized as a subsequent advance rule...."), cert. denied, 464 U.S. 935, 104 S.Ct. 342, 78 L.Ed.2d 310 (1983).
The bankruptcy trustee argues that none of the preferential transfers made by Toyota qualify for the Sec. 547(c)(4) exception ...
To continue reading
Request your trial
-
Sherman v. OTA Franchise Corp. (In re Essential Fin. Educ., Inc.)
...applicability of the defenses thereunder to transfers challenged under § 547 only).315 Id. § 547(c)(4); Laker v. Vallette (In re Toyota of Jefferson) , 14 F.3d 1088, 1092 (5th Cir. 1994).316 934 F.2d 662, 667 (5th Cir. 1991).317 Because OTAF did not include the right of recoupment as an aff......
-
Marts v. Hines
...citing Morley, which, as previously noted, spoke to the "power" of the appellate court. See, e.g., Matter of Toyota of Jefferson, Inc., 14 F.3d 1088, 1091 n. 1 (5th Cir.1994) (citing Morley); Speaks v. Trikora Lloyd P.T., 838 F.2d 1436, 1439 (5th Cir.1988); Texas Commerce Bank v. Nat. Royal......
-
Zayler v. Miken Oil, Inc. (In re Slamdunk Enter., Inc.)
...payments are replenished by the preferred creditor's extensions of new value to the debtor.Laker v. Vallette (In re Toyota of Jefferson, Inc.), 14 F.3d 1088, 1091 (5th Cir.1994) (citing Kroh Bros. Dev. Co. v. Continental Constr. Eng'rs, Inc. (In re Kroh Bros. Dev. Co.), 930 F.2d 648, 652 (8......
-
Moser v. Bank of Tyler (In re Loggins)
...payments are replenished by the preferred creditor's extensions of new value to the debtor.” Laker v. Vallette (In re Toyota of Jefferson, Inc.), 14 F.3d 1088, 1091 (5th Cir.1994) (internal quotations omitted). The extension of new value “need not be directly connected to the preceding pref......