1

Debtors include Noble International, Ltd, Noble Advanced Technologies, Inc.,

Noble Land Holdings, Inc., Noble Manufacturing Group, Inc., Noble Metal ProcessingKentucky, G.P., Noble Metal Processing, Inc., Noble Metal Processing-Indiana, Inc.,

Noble Metal Processing-New York, Inc., Noble Metal Processing-Ohio, LLC, Noble

Metal Processing-West Michigan, Inc., Noble Swiss Holdings, LLC, Noble TSA LLC,

Noble Tube Technologies, LLC, Prototech Laser Welding, Inc. (d/b/a LWI Laser

Welding International); and Tailor Steel America, LLC. `

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

In re:

NOBLE INTERNATIONAL, LTD, et al.,

Debtor,

 /

COMERICA BANK,

Appellant,

v. 

NOBLE INTERNATIONAL, LTD, et al., 

Appellees.

_____________________________________/

CIVIL CASE NO. 09-11744

HON. MARIANNE O. BATTANI

OPINION AND ORDER REVERSING IN PART

THE BANKRUPTCY COURT’S ORDERS AND 

REMANDING FOR FURTHER PROCEEDINGS

Before the Court is Comerica Bank’s (Comerica or Lender) appeal of the

bankruptcy court’s orders authorizing Debtors1 to use Lender’s cash collateral. See

April 27, 2009, Final Order Regarding Adequate Protection as to Comerica Bank Claim

to Certain Bank Account and Second Interim Order Authorizing Post Petition Financing

and Use of Cash Collateral and Final Order Authorizing Postpetitioner Financing and

Use of Cash Collateral Granting Plaintiff’s Motion for Summary Judgment (Doc. No. 1). 
2

The Court has reviewed the pleadings, and finds oral argument would not aid in

the resolution of this motion. See E.D. Mich. LR 7.1(e)(2). For the reasons the follow,

the orders are REVERSED in part and REMANDED for further proceedings. 

I. PROCEDURAL HISTORY 

The facts underlying the dispute are uncontested. On April 15, 2009, Debtors

filed a voluntary petition in the Bankruptcy Court for relief under chapter 11 of the

Bankruptcy Code. Their chapter 11 cases are jointly administered, and they remain

debtors-in-possession pursuant to §§ 1107, 1108 of the Bankruptcy Code. 

Debtors manufacture automotive component parts for sale to General Motors

Corporation, Ford Motor Company, and Chrysler LLC as well as their affiliates

(hereinafter “Customers”). Certain Debtors, including Noble International Ltd (NIL), are

indebted to Comerica under various loan and security documents. These prepetition

loan documents, which have been amended, modified or supplemented, provided

working capital financing for the benefit of Debtors. As part of these documents, these

Debtors granted Comerica a security interest in all or substantially all of their accounts,

inventory, the stock or equity interests of certain debtor’s subsidiaries, general

intangibles, equipment, and other collateral described in the prepetition loan documents. 

The indebtedness owing under the prepetition loan documents includes reimbursement

obligations for outstanding letters of credit Comerica issued, plus accrued but unpaid

interest and certain costs and expenses (hereinafter the “Credit Agreement
2

The bankruptcy court referred to this obligation as the “Primary Obligation”. 

3

The bankruptcy court referred to this obligation as the “Secondary Obligation”.

3

Obligations”).2

 On the date Debtors filed their petition, NIL owed $2,000,000 plus fees

and expenses under the Credit Agreement Obligation. Aff. of Vladimir R. Slapak at ¶ 3.

In addition to the Credit Agreement Obligation, Comerica has a “security interest

in and the right of setoff to any and all property of [NIL] in the possession of [Comerica]”,

pursuant to a Limited Guaranty under which NIL guaranteed certain liabilities of Pullman

de Queretaro, S.A. de C.V. (Pullman), a nondebtor affiliate under a related term loan

and a revolving credit loan (hereinafter the “Mexican loan”).3

 The Limited Guaranty is

not secured by any other collateral.

On March 2, 2009, the Mexican loan matured. Comerica agreed to forbear from

exercising remedies until March 23, 2009. Comerica continued to forbear with respect

to defaults on the Mexican Loan through the Petition Date. On the date of the petition,

NIL owed $4,856,014.35 plus fees and expenses. Slapak Aff. at ¶ 5.

When the bankruptcy petition was filed, NIL had an account balance at Comerica

in the amount of $1,260,476.24. Slapak Aff. at ¶ 6. Comerica notified NIL the day after

the petition was filed that Comerica intended to enforce its security interest and apply

the prepetition deposit to pay down the Mexican loan. 

On the Petition Date, Debtors filed a motion seeking entry of an interim order

authorizing postpetition financing, authorizing the use of cash collateral, granting

adequate protection, and scheduling a final hearing (hereinafter the “DIP Financing

Motion”). NIL mistakenly stated that its entire debt to Comerica had been sold to the
4

Customers and requested permission to use the cash collateral for payment of

operating expenses and working capital. Consequently, in the DIP Financing Motion,

Debtors sought the use of cash collateral based on their assumption that only the

Customers have an interest because the Customers intended to purchase all of

Comerica’s existing loans to the debtors and all of Comerica’s rights under the

prepetition loan documents. Under this course of action, the Customers would obtain all

rights of Comerica in the bank accounts at Comerica and Debtors did not need

Comerica’s approval to use the Account Deposit. Accordingly, Debtors did not propose

adequate protection. Because this purchase did not occur as anticipated, Comerica

remained a prepetition lender. 

The bankruptcy court heard oral argument on the DIP Financing motion on April

17, 2009. Comerica objected to the use of its cash collateral. The hearing was

adjourned to April 24, 2009, to allow Debtors time to amend the cash collateral motion.

On April 21, 2009, Comerica filed a motion requesting relief from the automatic

stay to allow it to apply NIL’s account balance against the Mexican Loan pursuant to the

Limited Guaranty. In addition, Comerica filed an objection to Debtors’ DIP Financing

Motion. According to Comerica, the relief request in the DIP Financing Motion failed to

provide Comerica with adequate protection for use of the account balance. 

On April 22, 2004, Debtors filed a Supplement to the Cash Collateral Motion,

requesting an interim order authorizing the use of cash collateral to pay down the Credit

Agreement Obligation. The following day, Comerica filed its Supplemental Objection,

maintaining that use of the cash collateral to pay the Credit Agreement Obligation did

not adequately protect its security interest in the Limited Guaranty.
5

The bankruptcy court disagreed, finding the use of the Account Balance to pay

down the Credit Agreement Obligation was voluntary, and that Comerica’s security

interest was adequately protected. The bankruptcy court’s Final Order Regarding

Adequate Protection as to Comerica Bank Claim to Certain Bank Account and Second

Interim Order Authorizing Postpetition Financing and Use of Cash Collateral, noted that

Debtors were party to various loan and security documents with Comerica Bank under

which working capital financing was provided to or for the benefit of Debtors. 

Paragraph F of the Order provides:

As part of the Prepetition Loan Documents, certain of the Debtors granted

Comerica a security interest in all or substantially all of such Debtors’

respective accounts, inventory, the stock or equity interest of certain

Debtors’ subsidiaries, general intangibles, equipment and other collateral

described in the Prepetition Loan Documents (collectively, the Prepetition

Working Capital Collateral”). The indebtedness owing under the

Prepetition Loan Documents (including reimbursement obligations for

outstanding letters of credit issued by Comerica (the “letters of Credit”)),

plus accrued but unpaid interest and certain costs and expenses provided

for in the Prepetition Loan Documents is referred to collectively as the

“Primary Comerica Obligation” [referred to by this Court as the Credit

Agreement Obligation].

NIL is a guarantor of the obligations to Comerica of Pullman de Queretaro,

S.A. de C.V., a nondebtor affiliated under a Limited Guaranty dated

September 19, 2008 (“the Guaranty” and the obligation, the “Secondary

Comerica Obligation”) [referred to by this Court as the Limited Guaranty]

and Comerica asserts a security interest in and the right of setoff as

against a deposit account owned by NIL (the NIL Bank Account”) and

maintained by Comerica (collectively, the “Secondary Setoff and Secured

Claim”). 

Debtors had insufficient funds to make payroll, purchase raw materials

and other supplies and the cash collateral alone is not sufficient to fund

ongoing operations. Para. N, O. They require use of cash collateral

under § 363(c) of the Code and financing under § 364 of the Code to fund

day-to-day operations to maintain production for their customers.
4

Pursuant to § 363(a), which governs among other things, the use of property, 

“cash collateral” means cash, negotiable instruments, documents of title, securities,

deposit accounts, or other cash equivalents whenever acquired in which the estate and

an entity other than the estate have an interest. . . .”

5

 Section 553 governs setoff, and provides that except as provided in section 363

“this title does not affect any right of a creditor to offset a mutual debt owing by such

creditor to the debtor that arose before the commencement of the case under this title

against a claim of such creditor against the debtor that arose before the commencement

of the case. . . .”

6

Id.

The bankruptcy court further found 

pursuant to §§ 3634

 and 5535 of the Code and applicable State law, and in

the exercise of the Court’s equitable powers, that in adequately protecting

Comerica’s interest in the Prepetition Working Capital Collateral that

secures the Primary Comerica Obligations, the Debtor has the right to

direct the application of the Bank Account Balance toward payment of the

Primary Comerica Obligations. The application of the Bank Account

Balance toward payment of the Primary Comerica Obligations, and the

other provisions of this Order, constitute adequate protection of

Comerica’s interest in the NIL Bank Account. 

Aril 27, 2009 Order, Para. X. 

II. STANDARD OF REVIEW

In bankruptcy cases, the district court is required to review the bankruptcy court’s

legal conclusions de novo and review factual questions under a clearly erroneous

standard. In re Burns, 322 F.3d 421, 425 (6th Cir. 2003).

III. ANALYSIS

Comerica brings three issues on appeal: first, whether the bankruptcy court erred

when it held that Debtors could decide which obligation to pay; second, whether the

bankruptcy court erred when it held Debtors could use cash collateral without providing

adequate protection of Comerica’s interest in the collateral; and third, whether the
7

bankruptcy court’s ruling violated the Fifth Amendment. The Court discusses the merits

below. 

A. Direction of Payment

The parties contest whether Debtors could determine to which Comerica debt the

Account Balance would be applied. Debtors argued that under Michigan law, they were

free to specify that the Credit Agreement Obligation be paid first. Comerica contends

that the payment was involuntary; therefore, it could apply the funds to the Mexican

Loan through the Limited Guaranty. 

In reliance upon Michigan law, the bankruptcy court deemed the payment

voluntary. In People ex rel. Michigan Electric Supply Co. v. Vandenburg Electric Co., 72

N.W.2d 216, 218 (Mich. 1955), the state supreme court articulated the circumstances

governing when and how creditors and debtors may direct application of payments:

[A] debtor may direct application of a payment before or at the time it is

made, but, if he does not do so, the creditor may apply it as he pleases

either at the time of payment or afterwards, if before controversy arises

concerning it; and in the absence of such action by either debtor or

creditor, if the credit merely appears in the general account and there is no

evidence of any understanding to the contrary, the credit will be

considered as applied to debits in the order of time in which the debits

occurred. . . .

Accord In re Corradini, 276 B.R. 571, 576 (W.D. Mich. 2002) (addressing the 

designation of payments made before the debtor filed bankruptcy and stating that,

under Michigan law, if debtor does not direct how allocation should be made, " 'the

creditor may apply [the payment] as he pleases either at the time of payment or

afterwards, if before the controversy arises concerning it’ ").
8

On the surface, these cases support Debtors’ argument that it was entitled to

determine which obligation to pay first. Nevertheless, they are distinguishable in that

they address situations in which payment is made by the debtor without direction as to

which debt to pay before the dispute arose, thus giving the creditor an opportunity to

apply the payment as it wished. Neither case addresses post bankruptcy direction of a

payment by a debtor. In contrast to the creditors in Vandenberg Electric, and In re

Corradini, Comerica had no such opportunity because Debtors filed bankruptcy before

the dispute over how to apply the funds arose.

Under the facts of this case, the Court finds the payment cannot be characterized

as voluntary. First and foremost, in DuCharmes & Co. v. United States, (In re

DuCharmes & Co.), 852 F.2d 194, 196 (6th Cir. 1988), the Sixth Circuit held that

“payments made to the IRS on pre-petition tax liabilities by a Chapter 11 debtor ought to

be considered “involuntary payments.” Accordingly, it held that the IRS, not the debtor,

was entitled to allocate the payment. Although DuCharmes addressed tax liabilities in

the context of reorganization, in reaching its decision, the Sixth Circuit explicitly rejected

the notion that a payment by a debtor in bankruptcy should be deemed voluntary absent

a distraint or levy. Moreover, Debtors have provided no basis to conclude that the

nature of the debt distinguishes this case from In re DuCharmes. Therefore, the Court

declines to find the payment of an antecedent debt is voluntary. 

Debtors’ reliance on case law from other circuits, nonbankruptcy cases, and

district court opinions rendered before In re DuCharmes is misplaced. This Court

concludes that under the Sixth Circuit decision, Debtors had no right to direct how the

Account Balance was applied. 
9

Finally, the Court is not persuaded to the contrary by United States v. Energy

Res. Co., 495 U.S. 545 (1990). In that case, the Supreme Court determined that for

purposes of a reorganization, “a bankruptcy court has the authority to apply the

payments to trust fund liabilities” when the “designation is necessary to the success” of

the reorganization plan regardless of whether the payments are considered involuntary.” 

Id. at 549. Debtors assert that the Customers were the only lenders willing to finance

their chapter 11 proceedings given the dire conditions in the lending market at the time. 

The Customers also were on the brink of filing for bankruptcy protection. Debtors assert

that had the bankruptcy court denied their ability to designate that the Credit Agreement

Obligation be paid first, the shortfall in funding would have resulted in the Customers

unwillingness to finance the continued operations. 

Because this is a liquidation, not a reorganization plan, the Court rejects Debtors’

contention that the Supreme Court decision is dispositve. Debtors fail to cite any

authority that has expanded the holding of Energy Res. Co., beyond the confines of a

reorganization. Accordingly, the Court directs its attention to whether Comerica was

adequately protected.

B. Adequate Protection

The parties do not dispute the finding that Debtors “urgently require[d] use of

cash collateral under § 363(c) of the Code and financing under § 364 of the Code to

fund day-to-day operations to maintain production, for their Customers.” April 27, 2009

Order at ¶ P. The bankruptcy court found that continuing production was necessary to

preserve Debtors’ operations. “Debtors believe that their inability to fund continuing

production would result in a material, negative impact on their businesses, all to the
10

prejudice and detriment of Debtors’ creditors, customers, and employees.” Id.

Because Comerica objected to the use of the cash collateral, the bankruptcy court

addressed the requirement that arises when a debtor is allowed to use an unwilling

creditor’s cash collateral. Specifically, under the bankruptcy code, the debtor must

provide the creditor with adequate protection of the creditor’s interest in the collateral. 

According to Debtors, the requirement was met because payment on the Credit

Agreement Obligation depleted the prepetition deposit and rendered the Limited

Guaranty unsecured. Debtors contend that because the bankruptcy code only affords

Comerica with adequate protection up to the value of its interest, it had no right to

adequate protection in the Account Balance after payment of the Credit Agreement

Obligation was made. In effect, there no longer was an interest once the Limited

Guaranty of the Mexican loan became unsecured. In contrast, Comerica wanted the

funds applied to the obligation for which no other adequate repayment source

existed–the Limited Guaranty–rather than the Credit Agreement Obligation, which was

secured by collateral beyond the Account Balance. 

The bankruptcy court found, “The application of the Bank Account Balance

toward payment of the Primary Comerica Obligations, and the other provisions of this

Order, constitute adequate protection of Comerica’s interest in the NIL Bank Account.” 

Aril 27, 2009 Order, ¶ X. The bankruptcy court ordered:

If the excess Cash Collateral plus any cash collateral received by the

Debtors or Comerica exceeds the interim Cash Collateral Limit, such

excess shall be segregated held in a deposit account at Comerica pending

further order of this Court; provided, however, that such excess shall not

subject to any claims, liens, or setoff rights in respect of the Secondary

Comerica Obligations.” 
11

April 27, 2009 Order at ¶ 2 E. 

The bankruptcy court additionally held that Comerica was entitled to a “first

priority lien on all postpetition accounts, inventory and general intangibles acquired by

the Debtors on or after the Petition Date” as well as an administrative expense claim as

adequate protection of Comerica’s interest, if any, from post petition use of the

Prepetition Working Capital Collateral that secures the Primary Comerica Obligations

(but not as adequate protection of any liens or setoff rights in respect of the Secondary

Comerica Obligations). April 27, 2009 Order at ¶ 6 (a) and (b). 

Once the bankruptcy court found Debtors could direct the payment, it made no

provision for adequate protection relative to the Limited Guaranty of the Mexican Loan. 

However, Section 4 of the Limited Guaranty grants Comerica a security interest in the

Comerica prepetition deposit. Guaranty at § 4. Comerica asserts that because the

prepetition deposit was Comerica’s cash collateral for the Mexican loan, it was entitled

to provide adequate protection of the interest prior to Debtors using the funds. 11

U.S.C. § 363. This Court agrees.

The transcript of the hearing reveals that the bankruptcy court found the security

interest in the Limited Guaranty attenuated because NIL’s role was as guarantor. See

hearing transcript at 12, 18, 19, 27. Characterizing the Limited Guaranty as a

“Secondary Obligation” ignores language contained in Section 8, entitled “Waivers”. It

reads as follows, “NIL waive[s] any right to require the Bank to . . . proceed against any

person or property” or “pursue any other remedy in [Comerica’s] power.” See Ex. 45.

Moreover, during the hearing, Debtors admitted that Comerica had the right to proceed

against the Account Balance. Here, there is one common source of secured collateral,
12

the Account Balance. There are two separate claims on the Account Balance, both

asserted by Comerica. Without question, one of the secured debts must be paid before

the other. Because payment was not voluntary, Comerica, not Debtors, had the right to

designate which debt would be paid first. Because Comerica chose the Limited

Guaranty of the Mexican Loan, it as left with inadequate protection. 

In light of the Court’s decision, there is no need to address Comerica’s contention

that the orders violated the Constitution.

IV. CONCLUSION

Accordingly, IT IS HEREBY ORDERED that the bankruptcy court’s orders are

REVERSED in part and this matter is REMANDED for further proceedings. 

IT IS SO ORDERED.

s/Marianne O. Battani 

MARIANNE O. BATTANI

UNITED STATES DISTRICT JUDGE

DATED: March 3, 2010
13

CERTIFICATE OF SERVICE

Copies of this Order were served upon counsel of record on this date by ordinary

mail and/or electronic filing.

 s/Bernadette M. Thebolt

 Case Manager