372 F.3d 510 | 3rd Cir. | 2004
APPEALS Circuit Judges
FOR THE THIRD CIRCUIT
____________ Richard B. Honig, Esquire (Argued) John A. Adler, Esquire No.: 02-4177 Hellring, Lindeman, Goldstein & Siegal, ____________ LLP
One Gateway Center IN THE MATTER OF: Newark, NJ 07102-5386 TOPS APPLIANCE CITY, INC., Counsel for Appellant Debtor Stanley L. Lane, Jr., Esquire (Argued) Otterbourg, Steindler, Houston & Rosen DONALD V. BIASE, TRUSTEE IN 230 Park Avenue BANKRUPTCY FOR TOPS New York, NY 10169
APPLIANCE
CITY, INC. William S. Katchen, Esquire
Joseph H. Lemkin, Esquire v. Duane Morris, LLP 744 Broad Street CONGRESS FINANCIAL Newark, NJ 07102
CORPORATION,
Counsel for Appellees Donald V. Biase, Appellant
O P I N I O N
Appeal from the United States District ROTH, Circuit Judge: Court Donald Biase, trustee in bankruptcy for the District of New Jersey of Tops Appliance City, Inc., brought suit (D.C. Civil Action No.02-cv-02890) Chief District Judge: Honorable John W. Bissell ___________________ *The Hon. Cynthia H. Hall, Circuit Argued on June 16, 2003 Judge for the United States Court of
Appeals for the Ninth Circuit, sitting by designation.
against Congress Financial Corporation to limited to . . . existing and future leasehold recover $10.5 million dollars in payments interests in equipment, real estate, and from Tops to Congress. The Bankruptcy fixtures).” Additionally, § 9.7 of the LSA Court granted summary judgment in favor required Congress’s assent before Tops of Congress, dismissing the action. The made any substantial modification to its District Court affirmed. On this appeal to business plan. More specifically, § us, we are asked to decide two issues: (1) 9.7(b)(iii) of the LSA provided that, if whether the transfer between Tops and Tops sold any of its assets, “any and all net Congress was a transfer of Tops’ interest proceeds payable or delivered to [Tops] . . in leases, and thus of an interest in real . shall be paid or delivered [to Congress].” property, subject to the New Jersey Congress filled a UCC-1 Financing Recording Statute, or a transfer of the Statement in New York and New Jersey to proceeds of the sales of the leases, and perfect this security interest. thus secured by the filing of a UCC-1 In the fall of 1999, Tops decided to Financing Statement; and (2) whether the stop selling so-called “brown goods,” i.e. , transfer from Tops to Congress occurred home electronics, and to focus entirely on within 90 days of the filing of the “white goods,” i.e. , appliances such as dish bankruptcy petition, making it avoidable washers and refrigerators. Pursuant to this by the trustee. For the reasons stated by plan, Tops sought to sell to Best Buy the Bankruptcy Court, we conclude that Stores, L.P., Tops’ leases for three of its the transfer was of proceeds and not of an home electronics retail stores. Tops interest in real property. Furthermore, entered into a Sale-Purchase Agreement because the transfer of Tops’ interest in (SPA) with Best Buy. The purchase price these proceeds occurred more than ninety for the leases was $10 million, plus days before the bankruptcy petition was $500,000 which was added later when the filed, the transfer is not a voidable landlord of one of the stores agreed to preference under § 547(b) of the extend its lease for Best Buy. According Bankruptcy Code. to § 2 of the SPA, Best Buy would pay $1 million immediately to the Chicago Title I. Factual Background and Procedural
History Insurance Company, acting as escrow Congress is engaged in the business agent; Best Buy would pay the remainder of commercial finance and asset-based into escrow at closing. At the October 29 lending. On October 31, 1996, Congress closing, Tops was to convey the three and Tops, entered into a Loan Security leases to Best Buy and hand over keys for Agreement (LSA) whereby Congress each of the locations. Tops and Best Buy agreed to provide Tops with financing for also agreed to enter into a license its business. Section 5.1 of the LSA agreement, which would allow Tops to granted Congress a security interest in “all remain in the leased premises until Tops present and future contract rights [and] had liquidated its inventory, but not later general intangibles (including but not than December 31, 1999. The SPA provided for 20 percent of the purchase was converted to Chapter 7 on April 16. price to be paid to Tops at closing and the The appellant, Donald Biase, was remainder to be paid from escrow when appointed Chapter 7 Trustee. He filed a Tops delivered possession of all leased complaint on June 26, 2000, seeking to premises to Best Buy. avoid the $10.5 million that had been paid
Because the sale of the leases to Congress. Cross motions for summary would involve a material change in its judgment were filed. On May 1, 2002, the strategic business plan, Tops notified Bankruptcy Court granted summary Congress of its intent and asked for judgment in favor of Congress, finding Congress’s consent in accordance with the that the payment of the $10.5 million LSA. On October 29, 1999, Tops and proceeds to Congress was pursuant to a Congress executed both Amendment 6 to perfected assignment of proceeds of the the LSA and a contract, entitled the sale of leaseholds and that transfer of the Collateral Assignment of Acquisition proceeds dated from October 29, 1999, Agreement (CAAA), by which Congress when Congress obtained the right to gave its approval for the sale of the leases receive them. Biase appealed this decision provided that the proceeds, received from to the District Court which affirmed the Best Buy, w ould immediately be judgment of the Bankruptcy Court on transferred to Congress. $2.1 million of October 30, 2002. Biase appealed to this the escrowed amount would be paid to Court. Congress at closing to reduce Tops’ II. Jurisdiction and Standards of outstanding loan balance, subject to Review relending. The remaining $8.4 million The District Court had jurisdiction over this matter pursuant to 28 U.S.C. would be paid from escrow by December 31, 1999, when Tops had vacated the three §1334(b) and 28 U.S.C. §157(a). We have stores. Amendment 6 also contained a jurisdiction to consider Biase’s appeal of the District Court’s final order under 28 reduction by up to $2 million of the total amount of transaction proceeds available U.S.C. §1291. for relending to Tops. In addition, “Summary judgment is appropriate Amendment 6 continued all Congress’s ‘if the pleadings, depositions, answers to security interests under the LSA. These interrogatories, and admissions on file, together with the affidavits, if any, show terms were carried out as agreed, with the exception that the initial $2.1 million that there is no genuine issue as to any payment, due at closing, was actually paid material fact and that the moving party is entitled to judgment as a matter of law.’” three days later on November 3. The remainder of the escrowed proceeds were Chisolm v. McManimon, 275 F.3d 315, paid to Congress on December 7, 1999, 321 (3d Cir. 2001) (quoting Fed. R. Civ. P. 56(c)). In reviewing a summary judgment when Tops vacated the stores.
On February 2, 2000, Tops filed a decision of the Bankruptcy Court, we Chapter 11 petition in bankruptcy. This apply, as did the District Court, a plenary standard to legal issues. See In re easements, fixtures, and all land rights. Siciliano, 13 F.3d 748, 750 (3d Cir. 1994); This was an absolute assignment of Tops’ Saldana v. Kmart Corp., 260 F.3d 228, 231 property rights. The transfer was not (3d Cir. 2001). incomplete just because Tops had another
III. Discussion duty to perform under the SPA, i.e. , A. Perfection of the Proceeds from vacating the premises at each leased Tops’ Leases location by December 31. See First Fid.
This case turns upon the nature of Bank, N.A. v. Jason Realty, L.P. (In re the transactions both between Congress Jason Realty, L.P.), 59 F.3d 423, 428 (3d and Tops and between Tops and Best Buy. Cir. 1995) (“The fact that a right is Biase argues that what was transferred to conditional on the performance of a return Congress was an interest in the leases and promise or is otherwise conditional does their rents, and not the proceeds of the sale not prevent its assignment before the of the leases by Tops to Best Buy. An condition occurs.”). On the October 29 interest in a lease is an interest in real closing date, all keys, blue prints, and property and would have to be perfected financial documents were turned over to through the New Jersey Recording Statute. Best Buy. Tops remained in the stores to N.J. Stat. Ann. § 46:16-1 (West 2003). To liquidate its inventory, but it did so as a make his point that this transaction was the licensee with limited rights under §12(l) of transfer of an interest in real property, the SPA: “This Agreement is an Biase highlights the fact that Tops did not exclusive, revocable license . . . and shall vacate the stores until December 1999, not be deemed as . . . conveying any remaining in the stores under a license interest in the Licensed Area (other than as agreement with Best Buy. However, set forth herein).” Tops did not hold any despite Biase’s attempts to characterize the remaining property interest in the leases, transaction between Congress and Tops as and thus could not have granted Congress a real estate transaction, the evidence of what it did not have itself. record demonstrates that the leases were While Biase is correct in pointing completely transferred by Tops to Best out that courts will not be restricted by the Buy as of the date of the closing on exact words used by the parties in October 29, 1999, and that Congress was characterizing a transaction, see, e.g., granted an interest only in the proceeds Major’s Furniture Mart, Inc. v. Castle from that transfer. Credit Corp., 602 F.2d 538, 545 (3d Cir.
Congress never had any property 1979), a court should start with the words right in the leases themselves because, as themselves and begin with the plain of October 29, 1999, they were wholly meaning of the document. See Watt v. owned by Best Buy. The SPA between Alaska, 451 U.S. 259, 266 n.9 (1981) Tops and Best Buy clearly stated that Tops (noting that while the plain-meaning rule was to convey “all of Seller’s right, title is not absolute, “the words used, even in and interest in . . . the Leases,” including their literal sense, are the primary, and ordinarily most reliable, source of assertion of prior claims to the land based interpreting the measure of any writing: upon any recordable but unrecorded be it a statute, a contract, or anything instrument.” Cox v. RKA Corp, 164 N.J. else”) (quoting Cabell v. Markham, 148 487 (2000); see also Cooper River Plaza E, F.2d 737, 739 (2d Cir.) (L. Hand, J.), aff'd, LLC v. Briad Group, 359 N.J. Super. 518, 326 U.S. 404 (1945)). The plain words 527-28 (N.J. Super. Ct. App. Div. 2003) both in the SPA and in the CAAA are (noting that the central public policy under unambiguous. There is nothing in the the New Jersey Recording Act is so that a record to indicate that Tops conveyed to potential buyer of real property “should be Congress anything more than the proceeds able to discover and evaluate all of the . . of the transfer of the leases to Best Buy. . restrictions on the property from a review There is no doubt that, as of the date of the of the public record”) (citations omitted). closing, Best Buy had sole control of the The fact that Congress had a right to three leases in question. Thus, Tops could proceeds from the leases did nothing to tie grant Congress only what remained: a up the leased real property in any manner. simple contract right to the proceeds from Congress had no interest in the underlying the sale of those leases. real property itself and could not have
As both parties acknowledge, the made any claims on the real property acquisition of such a right to proceeds falls against a subsequent purchaser – whether under Article 9 of the Uniform or not Tops made the required payments to Commercial Code. See N.J. Stat. Ann. Congress under the CAAA. 12A:9-109 (West 2003) (explaining that B. Avoidability of the Transfer of the the scope of Article 9 extends to all Proceeds Having established that Congress’s accounts); N.J. Stat. Ann. 12A:9-102(2) (West 2003) (defining “account” in part as interest was in proceeds, which fall under “a right to payment of a monetary Article 9 and are thus perfected with the filing of the UCC-1 Financing Statement, obligation, whether or not earned by performance [] for property that has been we turn to Biase’s second argument that or is to be sold, leased, licensed, assigned, the transfer of money from Tops to or otherwise disposed of”). This secured Congress did not occur on October 29, interest in proceeds was properly perfected 1999, the date of the closing, but actually occurred on December 7, 1999, when Tops when Congress filed their UCC-1 Financing Statement. had vacated all three stores pursuant to the
Contrary to Biase’s contention, this contract with Best Buy. The bankruptcy petition was filed on February 2, 2000. If result does nothing to detract from the effectiveness of the New Jersey Recording the transfer had occurred on December 7, Statute. The purpose of the New Jersey 1999, the transfer would fall within the 90 day preference period of 11 U.S.C. § Recording Statute is to “protect subsequent judgment creditors, bona fide purchasers, and bona fide mortgagees against the 5 4 7 ( b ) , [1] a n d t h u s w o u l d b e avoidable by the trustee.
Biase urges us to adopt the reasoning used in wage assignment cases. Under the line of cases which Biase cites, [1] Section 547(b) provides: courts have held that employees do not Except as provided “receive” their money when a garnishment in subsection (c) of this order takes effect. The employees only section, the trustee may receive their money when they have avoid any transfer of an earned it by working the corresponding interest of the debtor in hours. See, e.g., Morehead v. State Farm property – Mut. Auto. Ins. Co. (In re Morehead), 249 (1) to or for the benefit of a F.3d 445, 449 (6th Cir. 2001); Freedom creditor; Group, Inc. v. Lapham-Hickey Steel Corp. (2) for or on account of an (In re Freedom Group), 50 F.3d 408, 412 antecedent debt owed by (7th Cir. 1995); Melon Produce, Inc. v. the debtor before such Karger (In re M elon Produce, Inc.), 976 transfer was made; F.2d 71, 76 (1st Cir. 1992); In re White, (3) made while the debtor 258 B.R. 129 (Bankr. D.N.J. 2001); In re was insolvent; (4) made –
(A) on or within 90 than such creditor would days before receive if – the date of (A) the case the filing of were a case the petition; under chapter or 7 of this title; (B) between (B) the ninety days transfer had and one year not been before the made; and date of the (C) such filing of the creditor petition, if received such creditor payment of at the time of such debt to such transfer the extent was an provided by insider; and the
(5) that enables such provisions of creditor to receive more this title.
Mays, 256 B.R. 555 (Bankr. D.N.J. 2000). Buy, Tops had, for all intents and Thus, Biase analogizes that Congress, like purposes, “earned its money” regardless of a wage garnisher, did not “receive” its the fact that, under the SPA, it still had the money on the closing date when its duty to vacate. security interest attached, but only when This conclusion regarding the Tops had vacated its stores and “earned it” effective date of the transfer of proceeds is under the SPA with Best Buy. supported by New Jersey law. As the U.S.
In wage garnishment cases, Supreme Court noted in Barnhill v. however, a transfer of future wages could Johnson, 503 U.S. 393 (1992), when a not take place at the time the garnishment transfer is complete and what constitutes a transfer is a matter of federal law, [2] but is ordered because the employee can transfer only that in which he has some defining the specific interest in property is right. Until the employee has performed a “creature[] of state law.” Id. at 398. the work to earn the wages and has a right Congress ‘s UCC-1 Financing Statement to the money, there is no transfer within applied to “all present and future contract the meaning of § 547(e). See Morehead, rights.” Thus, pursuant to N.J. Stat. Ann. 249 F.3d at 449 (“It is illogical to find that 12A:9-201(a) (“[A] security agreement is a debtor may acquire rights in future effective according to its terms between wages when they have not yet been the parties, against purchasers of the earned.”); Melon Produce, Inc., 976 F.2d collateral, and against creditors”); and N.J. at 76 (“[A] transfer is not made until the Stat. Ann. 12A:9-204(a) (“[A] security debtor has acquired rights in the property agreement may create or provide for a transferred.”) (citation omitted). Biase is secu rity interest in after-acquired correct that under the SPA, Tops had not completed all of its duties under the contract and was still required to vacate [2] It should be noted that there is no the three stores by the end of December. doubt that the term transfer includes the However, unlike the wage garnishment granting of a security interest. See 11 cases, vacating the three stores was only a U.S.C. §101(54) (West 2003) (defining condition attached to a much larger transfer broadly as “every mode, direct or transaction between Tops and Best Buy. indirect, absolute or conditional, Unlike a wage case, where an employee voluntary or involuntary, of disposing of will not get paid if he does not work the or parting with property or with an corresponding hours, Best Buy’s remedy, interest in property”); see also, Vogel v. if Tops had not vacated the stores by Russell Transfer, Inc., 852 F.2d 797, 798 December 31, would have been the (4th Cir. 1988) (“The grant of a security eviction of Tops from the premises and a interest is a transfer within the definition suit for damages. Once Tops had sold its of [the preference avoidance statute] and leases and turned over the keys, blue the trustee may avoid it if it is not prints, and financial documents to Best perfected in time.”) collateral.”), Congress properly perfected period. its rights to proceeds and had an interest Finally, the fact that Best Buy paid superior to that of any subsequent creditor. the proceeds into an escrow account does
not affect our conclusion above. The right The Bankruptcy Court properly to the funds paid into escrow was relied on In re Long Chevrolet, Inc., 79 determined at the time of the closing, both B.R. 759 (N.D. Ill. 1987), which through the LSA and the CAAA. There concerned the refund of an excess was no further designation of a right to the contribution to a pension plan. Even funds which was necessary to occur to though Long Chevrolet had to wait for the trigger their payment. The trigger of Pension Benefit Guaranty Corporation to payment was a matter of timing, not a approve the allocation and distribution of matter of a further determination of funds upon the termination of the plan, the interests. court found that there was a transfer at the IV. Conclusion time Long Chevrolet first granted the For the reasons stated, above we security interest in the refund. As will affirm the judgment of the District explained by the District Court in that Court, affirming the Bankruptcy Court’s case, just because Long “had to wait for granting of Congress’s motion for those funds to be distributed does not summary judgment. mean it had no right to that property prior to that time.” Long Chevrolet, 79 B.R. at 765. See also In re Computer Eng’g Assocs., 337 F.3d 38, 45-47 (1st Cir. 2003) (holding that the transfer of all rights, interests, and control in property assigned was an effective assignment occurring at the time the assignment was perfected, not later when proceeds paid). As § 547(e)(1)(B) of the Bankruptcy Code provides: “A transfer of a fixture or property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee.” 11 U.S.C. § 547(e)(1)(B) (West 2003). We therefore find that the transfer of the proceeds from the sale of the leases occurred on the date of the closing, on October 29, 1999, and therefore fell outside the preference