Court Opinion

ID: 2969299
Source: CourtListenerOpinion
Date Created: 2015-09-22 15:46:19.84281+00
Date Added: 2024-06-11T11:43:21.734130
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
           Pursuant to Sixth Circuit Rule 206
   ELECTRONIC CITATION: 2000 FED App. 0050P (6th Cir.)
               File Name: 00a0050p.06

UNITED STATES COURT OF APPEALS
             FOR THE SIXTH CIRCUIT
               _________________

                              ;
                               
In Re: OAKWOOD MARKETS,

                     Debtor. 
INC.,
                               
                               
                                      Nos. 99-5378/5397
_______________________
                               
                                >
MAURICE K. GUINN, Trustee,     
    Appellant/Cross-Appellee, 
                               
                               
                               
           v.
                               
OAKWOOD PROPERTIES, INC.,      
    Appellee/Cross-Appellant. 
                              1

      Appeal from the United States District Court
  for the Eastern District of Tennessee at Greeneville.
    No. 98-00375—Thomas G. Hull, District Judge.
             Submitted: January 25, 2000
        Decided and Filed: February 10, 2000
  Before: GUY, RYAN, and BOGGS, Circuit Judges.

                           1
2    In re Oakwood Markets, Inc.           Nos. 99-5378/5397       Nos. 99-5378/5397          In re Oakwood Markets, Inc.        7

                    _________________                                 Further, the bankruptcy court correctly concluded that the
                                                                   extent of value given must be determined from the “giver’s”
                         COUNSEL                                   perspective, here Oakwood Properties. See 11 U.S.C.
                                                                   § 549(b) (“to the extent any value . . . is given after the
ON BRIEF: Maurice K. Guinn, GENTRY, TIPTON,                        commencement of the case in exchange for such transfer”)
KIZER, McLEMORE & JENDREK, Knoxville, Tennessee,                   (emphasis added). Even if viewed from the debtor’s
for Appellant. Scott T. Powers, HUNTER, SMITH &                    perspective, the result is the same in this case. It is
DAVIS, Kingsport, Tennessee, D. Michael Tranum,                    undisputed that in exchange for payment of the March rent,
HUNTER, SMITH & DAVIS, Johnson City, Tennessee, for                the debtor had the right to possess the Weber City premises
Appellee.                                                          and equipment for that month. It is also undisputed that the
                                                                   monthly rental value of the premises and equipment totaled
                    _________________                              $12,825. Therefore, Oakwood Properties gave and the debtor
                                                                   received $12,825 in value in exchange for the $12,825
                        OPINION                                    transfer. As such, the transfer was properly excepted from
                    _________________                              avoidance under 11 U.S.C. § 549(b).

   RALPH B. GUY, JR., Circuit Judge. Maurice K. Guinn,               The fact that the debtor subsequently lost its right to occupy
trustee in bankruptcy for Oakwood Markets, Inc. (debtor),          the premises and use the equipment after the foreclosure does
appeals from the judgment affirming the bankruptcy court’s         not alter the result. It is undisputed that Oakwood Properties
decision to grant summary judgment to Oakwood Properties,          did not seek to reoccupy the premises or take back the leased
Inc. Asserting error by the bankruptcy court, the trustee          equipment after the sale on March 7. Instead, Oakwood
claims that (1) the debtor’s post-petition transfers pursuant to   Properties honored the possessory right of the party that had
a pre-petition real estate lease were not excepted from            obtained the leasehold interests in the course of the sale.
avoidance under 11 U.S.C. § 549(b); (2) the “value” given in       Oakwood Properties should not be penalized based upon the
exchange for a transfer should be determined from the              debtor’s delinquencies with other unrelated creditors. As a
perspective of the debtor for purposes of § 549(b); and (3) any    result, the amount of value that the debtor received was not
value that was given post-petition in exchange for the             limited to two days’ occupancy.
transfers did not exceed the value of two days’ occupancy.
Oakwood Properties raises the additional issue on cross-             AFFIRMED.
appeal of whether the district court correctly extended the
“date of honor” rule set forth in Barnhill v. Johnson, 503 U.S.
393 (1992), to transfers arising under 11 U.S.C. § 549. After
a review of the record and arguments presented on appeal, we
find no error and affirm.
                               I.
  The facts are undisputed. On April 1, 1985, Oakwood
Properties entered into lease agreements with the debtor to
rent property and equipment in Weber City, Virginia, at a rate
6      In re Oakwood Markets, Inc.          Nos. 99-5378/5397     Nos. 99-5378/5397         In re Oakwood Markets, Inc.        3

Canada Ltd. (In re Tennessee Chem. Co.), 112 F.3d 234 (6th        of $11,625 and $1,200 per month, respectively. The rent was
Cir. 1997), which adopted the date of receipt rule with           payable on the first of each month and subject to a late fee
respect to 11 U.S.C. § 547(c)(4), are controlling. As a result,   penalty if not paid by the tenth of the month.
the two disputed transfers that were honored by the debtor’s
bank on March 7, 1996, the day after the commencement of            In December 1995, Fleming Companies, Inc., the debtor’s
the debtor’s bankruptcy case, were subject to avoidance under     principal creditor and primary supplier of inventory and
§ 549(a).                                                         equipment, declared the debtor in default under the terms of
                                                                  their loan agreements and filed suit in state court seeking the
   Next, the trustee challenges the bankruptcy court’s finding    appointment of a receiver. With the agreement of Fleming
that the $12,825 transfer was excepted from avoidance under       and the debtor, a state court receiver was appointed and a bulk
11 U.S.C. § 549(b) based upon Oakwood Properties’                 sale of the debtor’s assets was noticed for March 7, 1996.
provision of rental space to the debtor in exchange for the
transfer. Subsection 549(b) provides:                               On March 6, 1996, three unsecured creditors filed an
                                                                  involuntary Chapter 11 bankruptcy petition against the debtor.
      In an involuntary case, the trustee may not avoid under     The next day, Fleming sought immediate relief from the
    subsection (a) of this section a transfer made after the      automatic stay provision so it could proceed with the
    commencement of such case but before the order for            foreclosure sale. The court ordered the sale to proceed with
    relief to the extent any value, including services, but not   the agreement of Fleming and the petitioning creditors. The
    including satisfaction or securing of a debt that arose       court also authorized the assignment of leases covering the
    before the commencement of the case, is given after the       real property upon which the debtor's stores were located.
    commencement of the case in exchange for such transfer,       The debtor’s leasehold interest in the Weber City premises
    notwithstanding any notice or knowledge of the case that      was sold at the sale. Oakwood Properties permitted the
    the transferee has.                                           assignment and assumption of the lease by the purchaser of
                                                                  the debtor’s assets. As a result, the debtor occupied the
Id. There is no law in this circuit addressing this subsection    Weber City premises on only two days during the period after
in this context.                                                  the petition was filed and before the order for relief was
                                                                  entered.
   On March 7, 1996, one day after commencement of the
debtor’s bankruptcy case, but before April 2, 1996, the day         On March 5, prior to the filing of the bankruptcy petition,
the order for relief was entered, the debtor transferred          Oakwood Properties received two checks from the debtor
payment to Oakwood Properties in exchange for the provision       dated March 1: check No. 061184 for $12,825 and check No.
of rental space for the month of March 1996. While the            061199 for $802.63. Both checks were honored by the
underlying lease was executed in 1985, we find that the right     debtor’s bank on March 7, the day after the bankruptcy
to use the leased premises and equipment in March 1996            petition was filed.
constituted value given after the commencement of the case
under § 549(b). Pursuant to the lease terms, the debtor was to      On April 2, 1996, an order for relief under Chapter 11 was
pay each month’s rent in advance on the first of that month.      entered. Upon motion of the petitioning creditors, the
Accordingly, the trustee’s argument that the debtor’s March       debtor’s case was subsequently converted to a Chapter 7
1996 rental payment was in satisfaction of a preexisting debt     proceeding. The trustee commenced an adversary proceeding
is rejected.                                                      against Oakwood Properties in the bankruptcy court to avoid
                                                                  the debtor’s two March payments as post-petition transfers
4       In re Oakwood Markets, Inc.           Nos. 99-5378/5397         Nos. 99-5378/5397          In re Oakwood Markets, Inc.         5

under 11 U.S.C. § 549, and to recover those payments for the                                           II.
benefit of the estate under 11 U.S.C. § 550.
                                                                          We review de novo the district court’s decision affirming a
   Oakwood Properties moved for either dismissal of the                 grant of summary judgment by a bankruptcy court. See
complaint or entry of summary judgment. The bankruptcy                  Kentucky Cent. Ins. Co. v. Brown (In re Larbar Corp.), 177
court ruled that the transfers met the requirements for                 F.3d 439, 443 (6th Cir. 1999). We review the bankruptcy
avoidability under 11 U.S.C. § 549(a), but were excepted                court’s conclusions of law de novo and its factual findings for
from avoidance under § 549(b) to the extent of value given by           clear error. See Corzin v. Fordu (In re Fordu), ___ F.3d ___,
Oakwood Properties to the debtor in exchange for the                    No. 97-3936, 1999 WL 1222643, at *13 n.1 (6th Cir. Dec. 22,
transfers. The court also made the following pertinent                  1999).
findings: (1) the date of honor rule applied to transfers under
11 U.S.C. § 549; (2) the value provided by Oakwood                         First, Oakwood Properties argues that the bankruptcy court
Properties in exchange for the March payments was the                   erred in ruling that the date of honor rule applies to transfers
provision of rental space for the operation of the debtor’s             made under 11 U.S.C. § 549. “11 U.S.C. § 549(a) permits a
business in March 1996, rather than the satisfaction of a pre-          trustee to avoid a post-petition transfer of property of the
petition debt; (3) the value of the transfers should be                 estate that occurs after commencement of the case and is not
measured from the perspective of Oakwood Properties; and                authorized by the Bankruptcy Code or by the Court.” Still v.
(4) the value given to the debtor was the right to occupy the           Rossville Bank (In re Chattanooga Wholesale Antiques, Inc.),
premises during the month of March. Finding that Oakwood                930 F.2d 458, 461 n.2 (6th Cir. 1991) (emphasis added).
Properties did not meet its burden of proving the extent of the         Oakwood Properties claims that the disputed transfers
value, the bankruptcy court initially denied Oakwood's motion           occurred when it received the checks on March 5, 1996, the
and scheduled trial on the sole issue of value. After the               day before commencement of the debtor’s bankruptcy case,
parties stipulated that the March 1996 rental value of the              and thus are not avoidable under 11 U.S.C. § 549(a). The
Weber City premises and equipment was $11,625 and $1,200,               bankruptcy and district courts disagreed, adopting the date of
respectively, Oakwood Properties again moved for summary                honor rule outlined in Barnhill v. Johnson, 503 U.S. 393
judgment. The bankruptcy court granted summary judgment                 (1992). Under that rule, ordinary checks are deemed
to Oakwood Properties for check No. 061184 ($12,825)                    transferred on the date they are honored by a bank.
because value was given for that transfer, and to the trustee
for check1 No. 061199 because value was not provided for that              We conclude that adoption of the date of honor rule in the
transfer. Both parties appealed the bankruptcy court’s                  context of 11 U.S.C. § 549(a) is appropriate because this rule
decision to the district court. The district court affirmed the         encourages the prompt submission of checks to the bank, and
decision and this appeal followed.                                      provides a date certain upon which parties to the transfer can
                                                                        rely and upon which courts can base a ruling in the event of
                                                                        litigation. In contrast, the date of receipt rule leaves too2much
                                                                        room for manipulation by the parties to the transaction. In so
                                                                        concluding we find that neither Barnhill, which involved
                                                                        interpretation of 11 U.S.C. § 547(b), nor Brown v. Shell
    1
     The payment of $802.63 by check No. 061199 was for an arrearage
owed to Oakwood Properties and thus could not be excepted from              2
avoidance under 11 U.S.C. § 549(b). Oakwood Properties does not argue        There is no suggestion or evidence of any date manipulation
otherwise.                                                              surrounding the disputed transfers in this case.