- Case Type:
- Case Status:
- 18-8014 (6th Circuit, Apr 19,2019) Not Published
- The Sixth Circuit BAP affirmed the bankruptcy court’s ruling (N.D. Ohio) that payments made to county port authority by debtor were authorized by agreed cash collateral orders and thus binding on liquidation trustee in action to avoid and recover post-petition transfers.
- Procedural context:
- Liquidation trustee sought to avoid and recover allegedly unauthorized post-petition transfers by debtor to port authority lessor of debtor’s premises. The authority and trustee filed cross-motions for summary judgment as to whether the payments were authorized by the bankruptcy court in cash collateral orders and whether the payments were on account of a prepetition or post-petition obligation. The bankruptcy court granted the authority’s motion for summary judgment. The liquidation trustee appealed to the BAP for the Sixth Circuit.
- The debtor, a logistics provider, entered into prepetition agreements with a county port authority for the use of its principal place of business. After its bankruptcy filing, the debtor filed a motion for use of cash collateral which did not propose any payments to the authority. Nevertheless, the agreed first interim order entered by the bankruptcy court included a budgeted payment to the authority, although it did not specify that the obligation arose prepetition. Prior to the second cash collateral hearing, the debtor provided notice of and opportunity to object to a proposed second interim cash collateral order which again included the same budgeted payment to the authority. The second interim order was also approved by the bankruptcy court. The debtor made several payments to the authority post-petition which satisfied its obligations under the prepetition agreements. Eventually finding itself unable to reorganize, the debtor moved to reject the agreement with the authority. The bankruptcy court granted the motion and entered an agreed rejection order which provided the authority with an administrative expense for the debtor’s occupancy, rejected the contracts, and preserved the estate’s ability to challenge any allegedly improper post-petition payments. After confirmation of a liquidating plan, the liquidation trustee commenced an adversary proceeding challenging the post-petition payments made by the debtor as unauthorized post-petition transfers under 11 U.S.C. § 549. On cross-motions for summary judgment, the authority and trustee disputed whether the payments were authorized by the agreed cash collateral orders and whether the payments were ordinary course post-petition payments rather than payments on account of a prepetition debt. The bankruptcy court granted the authority’s motion for summary judgment, finding that the payments to the authority were authorized by the second interim cash collateral order and thus unavoidable under 11 U.S.C. § 549. Although the court explained that the orders could have been more clear that the payments were on account of a prepetition obligation, there was sufficient notice to creditors and an opportunity to object prior to the payments being made. On appeal, the BAP considered whether the agreed cash collateral orders authorized the payments to the authority. As agreed orders, the cash collateral orders were to be considered under contractual interpretation principles to determine the intent of the parties. The BAP found that the orders and attached budgets clearly reflected the debtor’s intent to pay the authority. The more challenging question was whether sufficient notice was provided to interested parties such that the agreement would be binding on the liquidation trustee as successor to the debtor. The BAP recognized that in the debtor’s case, as in many cases, the cash collateral motion was heard on an emergency basis. Although the initial motion and budget did not include the payment to the authority which was ultimately included in the first interim order, the proposed second interim order including the same payment and notice of the second hearing went out to creditors prior to the second hearing. Moreover, the debtor’s initial filings included reference to the agreement with the authority and were provided to parties in interest. The payments made to the authority were made well after the deadlines to object, seek reconsideration, or appeal the cash collateral orders had expired. Whether the payments were on account of a prepetition or post-petition obligation was irrelevant, as the payments were authorized by the bankruptcy court with sufficient notice to parties in interest. Therefore, the liquidation trustee was precluded from collaterally attacking the cash collateral orders in the avoidance proceeding under 11 U.S.C. § 549.
- Harrison (author), Opperman, Wise
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