Opinion ID: 727230
Heading Depth: 2
Heading Rank: 3

Heading: The Kelton Loan Security Interests

Text: 40 Finally, the trustee contends that the Kelton Loan constitutes a voidable preference because it was secured by the collateral of Kelton Motors. We agree with the trustee that, to the extent that the debtor offered its own property as collateral for the Kelton Loan, the debtor transferred an interest in its property and therefore the earmarking defense is not available. See Mandross v. Peoples Banking Co. (In re Hartley), 825 F.2d 1067, 1071 (6th Cir.1987); Virginia Nat'l Bank v. Woodson (In re Decker), 329 F.2d 836, 840 (4th Cir.1964). 41 In its renewed summary judgment motion decision, the bankruptcy court held that because the amount of any security interest transferred by the Kelton corporations to LSB was disputed, the issue was inappropriate for summary judgment. Kelton Motors I, 153 B.R. at 428. In addition, the court held that the allegation that [the] Debtor was an alter ego of the other Kelton corporations raises issues of fact and law concerning the value of [LSB's] security interest and its detriment to the estate. Id. at 429. 42 On March 16, 1994, the bankruptcy court held an evidentiary hearing to determine the value of the collateral given by the Kelton corporations. In a decision filed May 27, 1994, the bankruptcy court concluded that Kelton Motors had given security in the amount of $18,645 and that the other Kelton entities had given collateral in the amount of $1,979,524.27. In re Kelton Motors, Inc., No. 89-00255, slip op. at 11 & app. (Bankr.D.Vt. May 27, 1994) (Kelton Motors III ). The total collateral available to satisfy the Kelton Loan was therefore $1,998,169.27, resulting in the Kelton Loan being oversecured in the amount of $239,766.66. Id. at 11. The court did not resolve the alter ego issue and at the trial stated only that for purposes of my holding today, I'm going to find that all of the entities are to be treated as one, although alternatively I'm going to explain why I don't think they should have been. The bankruptcy court, however, never explained why the entities should not be treated as one. 43 Because the bankruptcy court never made a factual finding as to whether the various Kelton entities constitute one entity, we cannot determine the extent to which the Kelton Loan constitutes a voidable preferential transfer. If the Kelton entities are to be treated as a single entity, then the bankruptcy court would necessarily have to find the entire loan to be a preferential transfer because the court had previously found the loan to be fully secured. If, however, the alter ego doctrine does not apply, then the Kelton Loan might be a preferential transfer only to the extent of the $18,645 collateral given by Kelton Motors. We therefore remand this issue to that court for further findings.