Source: http://openjurist.org/964/f2d/842
Timestamp: 2015-10-06 00:01:12
Document Index: 438364148

Matched Legal Cases: ['§ 2', '§ 546', '§ 546', '§ 158', '§ 2', '§ 2', '§ 84', '§ 84', '§ 546']

964 F2d 842 Pester Refining Company Pester Refining Company v. Ethyl Corporation Pester Refining Company Pester Refining Company | OpenJurist
964 F. 2d 842 - Pester Refining Company Pester Refining Company v. Ethyl Corporation Pester Refining Company Pester Refining Company HomeFederal Reporter, Second Series 964 F.2d.
964 F2d 842 Pester Refining Company Pester Refining Company v. Ethyl Corporation Pester Refining Company Pester Refining Company 964 F.2d 842
26 Collier Bankr.Cas.2d 1663, 23 Bankr.Ct.Dec. 12,Bankr. L. Rep. P 74,639, 17 UCC Rep.Serv.2d 1138
In re PESTER REFINING COMPANY, Debtor.PESTER REFINING COMPANY, Appellant,v.ETHYL CORPORATION, Appellee.In re PESTER REFINING COMPANY, Debtor.PESTER REFINING COMPANY, Appellant,v.ETHYL CORPORATION, Appellee,The Official Unsecured Creditors Committee, Intervenor Below.In re PESTER REFINING COMPANY, Debtor.PESTER REFINING COMPANY, Appellee,v.ETHYL CORPORATION, Appellant,The Official Unsecured Creditors Committee, Intervenor Below.
Nos. 90-1457, 91-1946, 91-1985.
Submitted Oct. 14, 1991.Decided May 22, 1992.
John G. Fletcher, argued (September Wethington-Smith, on the brief), Des Moines, Iowa, for appellant.
James M. Holcomb, argued (Robert A. Sims, on the brief), Des Moines, Iowa, for appellee.
Before WOLLMAN, Circuit Judge, BRIGHT, Senior Circuit Judge, and LOKEN, Circuit Judge.
Pester Refining Company, a reorganized Chapter 11 debtor, appeals the district court's1 post-confirmation money judgment to satisfy Ethyl Corporation's priority claim under § 2-702 of the Uniform Commercial Code and § 546(c) of the Bankruptcy Code to reclaim goods sold to Pester while insolvent. Ethyl cross appeals, arguing that the district court should have awarded post-judgment interest from the date Pester's Plan of Reorganization was confirmed. We modify the bankruptcy court's denial of interest and otherwise affirm.
On February 19 and 22, 1985, Ethyl delivered 6,000 gallons of a gasoline additive in a railroad tank car and twelve fifty-five gallon drums of an antioxidant to Pester's refinery in El Dorado, Kansas. Ethyl invoiced the insolvent Pester $126,995.44 for these credit sales. On February 25, Pester filed for protection under Chapter 11 of the Bankruptcy Code.
On February 27, Pester received Ethyl's written demand to reclaim the chemicals. Though the chemicals were still on hand and identifiable, they were also subject to perfected security interests of various secured creditors whose secured claims exceeded the value of Pester's assets. When Pester refused to return the chemicals, Ethyl filed this adversary complaint for reclamation under § 546(c) of the Bankruptcy Code.
On March 21, 1986, with Ethyl's reclamation suit still pending, the bankruptcy court confirmed a Plan of Reorganization for Pester and affiliated debtor companies. The Plan treated reclamation claimants as an impaired class of creditors and gave each the choice of settling or pursuing its reclamation claim. Ethyl was the only one that did not settle.
After trial, the bankruptcy court upheld Ethyl's right of reclamation in the amount of its invoices, $126,995.44. Rather than specify a source of funds to pay this claim, the bankruptcy court entered judgment in that amount and directed that, if Pester failed to pay, Ethyl could pursue its judgment remedies under state and federal law. The district court affirmed, and this appeal followed. We have jurisdiction under 28 U.S.C. § 158(d).
II. The Statutory Framework
This appeal concerns a seller's right to reclaim goods from a buyer in bankruptcy when the goods are subject to superior competing claims of the buyer's secured creditors. Reclamation is the right of a seller to recover possession of goods delivered to an insolvent buyer. It is a rescissional remedy, based upon the theory that the seller has been defrauded. Indeed, at common law and under the Uniform Sales Act, the seller could only reclaim goods by proving that the buyer fraudulently induced delivery by misrepresenting its solvency. See generally Robert Braucher, Reclamation of Goods from a Fraudulent Buyer, 65 Mich.L.Rev. 1281, 1283 (1967).
The Uniform Commercial Code expanded the remedy by defining a narrow class of cases in which reclamation would be allowed without proof of a misrepresentation as to solvency.
(2) Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within ten (10) days after the receipt....
UCC § 2-702(2). Confirming that the remedy was still grounded in fraud, the official commentary to § 2-7022 stated:
Subsection (2) takes as its base line the proposition that any receipt of goods on credit by an insolvent buyer amounts to a tacit business misrepresentation of solvency and therefore is fraudulent.
However, recognizing that the seller by delivering has vested the buyer with apparent authority to deal with the goods, the UCC also made the seller's reclamation right "subject to" the rights of good faith purchasers from the buyer:
(3) The seller's right to reclaim under subsection (2) is subject to the rights of a buyer in ordinary course or other good faith purchaser under this article (Section 84-2-403). Successful reclamation of goods excludes all other remedies with respect to them.
Kan.Stat.Ann. § 84-2-702(3). Since most secured creditors are good faith purchasers under the UCC, § 84-2-702 has the effect, in priority terms, of placing the reclaiming seller behind the insolvent buyer's secured creditors who have security interests in the goods, but ahead of the buyer's general unsecured creditors. See Iola State Bank v. Bolan, 235 Kan. 175, 679 P.2d 720, 726-28 (1984), following Matter of Samuels & Co., 526 F.2d 1238 (5th Cir.), cert. denied, 429 U.S. 834, 97 S.Ct. 98, 50 L.Ed.2d 99 (1976). This prioritizing is consistent with the historic roots of the reclamation remedy.
The UCC's reclamation provisions raised many questions under the pre-Code bankruptcy laws, spawning nearly two decades of litigation between trustees and reclaiming sellers.3 Congress responded with § 546(c) of the Code:
(c) ... [T]he rights and powers of a trustee under sections 544(a), 545, 547, and 549 of this title are subject to any statutory or common-law right of a seller of goods that has sold goods to the debtor, in the ordinary course of such seller's business, to reclaim such goods if the debtor has received such goods whi