Wilcox v. CSX Corp.

• Decision Date: 09 May 2003
• Docket Number: No. 20010411.,20010411.
• Citation: 2003 UT 21,70 P.3d 85
• Parties: Robert E. WILCOX, Utah Insurance Commissioner, as Liquidator of Southern American Insurance Company, Plaintiff and Appellant, v. CSX CORPORATION, Defendant and Appellee.
• Court: Utah Supreme Court

70 P.3d 85

2003 UT 21

Robert E. WILCOX, Utah Insurance Commissioner, as Liquidator of Southern American Insurance Company, Plaintiff and Appellant, v. CSX CORPORATION, Defendant and Appellee.

No. 20010411.

Supreme Court of Utah.

May 9, 2003.

Douglas M. Monson, Brent D. Wride, Elaine A. Monson, Salt Lake City, for plaintiff.

E. Scott Savage, Samuel O. Gaufin, Eric K. Schnibbe, Salt Lake City, for defendant.

DURHAM, Chief Justice:

INTRODUCTION

¶ 1 This case addresses two issues of first impression for this court. The first issue is whether federal bankruptcy law should be used to interpret the voidable preference provisions of Utah Code section 31A-27-321 (2001). Appellant, Wilcox, argues that because there is no prior Utah case law addressing section 31A-27-321, 11 U.S.C. § 547(c) (1988), a "comparable" provision of the Federal Bankruptcy code, should guide this court's statutory interpretation. The second issue is whether appellee, CSX Corporation's, actions satisfy either of the affirmative defenses found in section 31A-27-321 of the Utah Code, namely, the new and contemporaneous consideration defense found in section 31A-27-321(4)(a) and the ordinary course of business defense found in section 31A-27-321(4)(b).¹ We hold that it is proper for this court to rely on 11 U.S.C. § 547(c) of the Federal Bankruptcy code for guidance in interpreting Utah Code section 31A-27-321 and that neither affirmative defense found in section 31A-27-321 has been satisfied. We therefore reverse the decision of the trial court.

BACKGROUND

¶ 2 The facts in this case are not in dispute. Southern American Insurance Company (SAIC) was incorporated and began providing insurance coverage in 1934. Between July 14, 1979 and July 31, 1982, SAIC sold three insurance policies to CSX Corporation (CSX) and its predecessors. These policies provided CSX with liability coverage for all of its asbestos-related claims. On or about October 3, 1985, CSX's predecessors filed two separate lawsuits against SAIC. On or about January 11, 1990, a predecessor of CSX filed a third lawsuit against SAIC. Each of these three claims against SAIC (the asbestos coverage litigation) involved disputes regarding the extent to which SAIC would cover CSX's asbestos liability.²

¶ 3 In March of 1991, SAIC and CSX commenced settlement negotiations for the asbestos coverage litigation. On or about October 14, 1991, the parties circulated a settlement letter setting forth the settlement terms and conditions to which SAIC and CSX had agreed. Shortly thereafter, the parties executed the Settlement Agreement (Agreement), with CSX signing on October 17, 1991 and SAIC signing on October 25, 1991. The Agreement obligated SAIC to make three payments totaling $308,000 to CSX in exchange for CSX's agreement to release SAIC from all past, present, and future claims arising from asbestos litigation.

¶ 4 In accordance with the Agreement, SAIC made the following payments to CSX: $102,667 on October 28, 1991, $102,667 on November 26, 1991, and $102,666 on January 2, 1992. Subsequently, on March 25, 1992, the liquidator successfully filed a petition for SAIC's liquidation. The next day, March 26, 1992, the liquidation court issued a liquidation order against SAIC, and on April 10, 1992, the liquidation court declared SAIC insolvent pursuant to sections 31A-1-301(39) and 31A-27-310(4) of the Utah Code.³ Approximately two years later, on March 25, 1994, the liquidator filed the present action against CSX, claiming that the payments made by SAIC to CSX pursuant to the Agreement were voidable preferences under Utah Code sections 31A-27-321(1)(b) and (c).

PROCEDURAL HISTORY

¶ 5 On February 2, 2000, CSX moved for summary judgment, arguing that the payments were (1) not voidable preferences as a matter of law because the payments were for new and contemporaneous consideration, (2) made in the ordinary course of SAIC's business and within forty-five days of the date the payments were legally obligated to be paid, and (3) made in exchange for the relinquishment of all past, present, and future asbestos-related claims. On March 30, 2000, the liquidator filed its opposition to CSX's motion and submitted its own motion for summary judgment, arguing that all the elements of a preferential transfer under Utah Code sections 31A-27-321(1)(b) and (c) were met as a matter of law. Oral argument on the cross motion was heard on March 5, 2001, and on March 12, 2001, the district court issued a memorandum decision, ruling that since "the Settlement Agreement between SAIC and CSX released CSX's existing and future claims[,] ... the payments received by CSX were for new and contemporaneous consideration." The district court entered an order on April 3, 2001 granting CSX's motion for summary judgment and denying the liquidator's motion. The liquidator appealed.

STANDARD OF REVIEW

¶ 6 "`Generally, we review a trial court's legal conclusions for correctness, according the trial court no particular deference.'" Wilson Supply, Inc. v. Fradan Mfg. Corp., 2002 UT 94, ¶ 11, 54 P.3d 1177, 1181 (quoting Orton v. Carter, 970 P.2d 1254, 1256 (Utah 1998)). A determination of whether any or all of SAIC's payments to CSX constitute a voidable preference under the meaning of section 31A-27-321 is a matter of law.

ANALYSIS

¶ 7 The applicable provisions of Utah Code section 31A-27-321 at issue in this case are as follows:

(1)(a) [A] "preference" means a transfer of any of the property of an insurer to or for the benefit of a creditor, for or on account of an antecedent debt, made or allowed by the insurer within one year before the filing of a successful petition for rehabilitation or liquidation....

(b) Any preference may be avoided by the rehabilitator or liquidator, if:

(i) the insurer was insolvent at the time of the transfer; [or]

(ii) the transfer was made within four months before the filing of the petition[.]

Section 31A-27-321 allows a liquidator to recover certain preferential payments made to an insurance company's creditors prior to liquidation. Prohibiting preferential payments to creditors prevents an insurer from paying off its favorite creditors on the eve of liquidation. Pine Top Ins. Co. v. Bank of Am. Nat'l Trust & Sav., 969 F.2d 321, 324 (7th Cir.1992) (referring to the policy behind a federal bankruptcy statute to interpret an Illinois state insurance statute). Such a practice inevitably diminishes the value of the insurer's estate and leads to an inequitable distribution to any remaining similarly situated creditors. Futoran v. Rush (In re Futoran), 76 F.3d 265, 267 (9th Cir.1996); Vieira v. Anna Nat'l Bank (In re Messamore), 250 B.R. 913, 916 (Bankr.S.D.Ill.2000). A voidable preference may nevertheless be non-preferential if one of the affirmative defenses found in section 31A-27-321 is established. CSX alleges, and has the burden of proving,⁴ the following section 31A-27-321 affirmative defenses at issue in this case:

(4) The receiver may not avoid a transfer of property under this section for or because of:

(a) a new and contemporaneous consideration; [or]

(b) the payment, within 45 days after a debt is incurred, of a debt incurred in the ordinary course of the business of the insurer and according to normal business terms[.]

No prior Utah case law has interpreted these two statutory defenses. We therefore discuss the relevance of using a similar provision of the Federal Bankruptcy code, 11 U.S.C. § 547(c), in the interpretation of the new and contemporaneous consideration defense and the ordinary course of business defense found in Utah Code section 31A-27-321(4).

I. RELEVANCE OF 11 U.S.C. § 547(c) TO UTAH CODE SECTION 31A-27-321

¶ 8 "When faced with a question of statutory construction, `we seek to give effect to the intent of the legislature in light of the purpose the act was meant to achieve.'" State v. Ostler, 2001 UT 68, ¶ 7, 31 P.3d 528 (quoting Gutierrez v. Medley, 972 P.2d 913, 915 (Utah 1998)). We first interpret the statute according to its plain language; nevertheless, "`[i]f we find the provision ambiguous... we then seek guidance from the legislative history and relevant policy considerations.'" Ostler, 2001 UT 68 at ¶ 7, 31 P.3d 528 (quoting In re Worthen, 926 P.2d 853, 866 (Utah 1996)); see also Biddle v. Washington Terrace City, 1999 UT 110, ¶ 14, 993 P.2d 875; Schurtz v. BMW of N. Am., Inc., 814 P.2d 1108, 1112 (Utah 1991). We rely upon these rules of statutory interpretation in deciding whether to use the legislative history and policy considerations behind 11 U.S.C. § 547(c) for guidance in interpreting the Utah insurance liquidation statute at issue.

¶ 9 Courts have consistently explained that "[t]he purpose of 11 U.S.C. § 547 is to `accomplish proportionate distribution of the debtor's assets among its creditors, and therefore to prevent a transfer to one creditor that would diminish the estate of the debtor that otherwise would be available for distribution to all.'" In re Futoran, 76 F.3d at 267 (quoting In re Nucorp Energy, Inc., 902 F.2d 729, 733 (9th Cir.1990)); see also In re Messamore, 250 B.R. at 916 (stating that a preferential transfer "mak[es] it impossible for similarly situated creditors to obtain as great a percentage as the favored creditor"); Hays v. DMAC Inv., Inc. (In re RDM Sports Group, Inc.), 250 B.R. 805, 811 (Bankr.N.D.Ga.2000) (citing H.R.Rep. No. 95 595 at 177-78 (1978)) (noting that "equality of distribution" is a "fundamental tenet[ ]" of bankruptcy law and that "the central purpose of § 547 is to discourage creditors `from racing to the courthouse to dismember the debtor during his slide into bankruptcy'") (citation omitted); Miniscribe Corp. v. Keymarc, Inc. (In re Miniscribe Corp.), 123 B.R. 86, 90 (Bankr.D.Colo.1991) (stating that "[t]he purpose of the preference statute is to discourage creditors from engaging in unusual collection practices which help dismember the debtor and hasten its slide into bankruptcy").

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