MEMORANDUM OPINION
THIS MATTER comes before the Court on the Trustee’s Motion for Summary Judgment filed by Richard Eckles, Chapter 7 Trustee for the Debtor, Balducci Oil Company, Inc. (hereinafter “Balducci”). Bal-ducci filed for protection under the Bankruptcy Code, 11 U.S.C. § 101 et seq. on March 31, 1982. The Trustee for Balducci has initiated a myriad of avoidance аctions in which he seeks to recover substantial sums for equitable distribution to allowed unsecured claimants. This adversary proceeding arises out of the commercial relationship between Balducci, Petco Inc., Interstate (hereinafter “Petco”) and Pinon Gas Company (hereinafter “Pinon”). The Trustеe filed a Complaint to avoid as a preferential transfer to Petco, a setoff by Petco of $16,464.02, on March 24, 1982. Petco answered and alleged that it legally set off a substantial portion of the amount sought, under § 553 of the Code. Subsequently, Petco and the Trustee entered into a “Joint Stipulation of Fаcts” and Eckles interposed a Motion for Summary Judgment thereupon.
I.FACTS
The parties have entered into a “Stipulation of Facts” which, they contend, disposes of all material issues of fact in this proceeding. The pertinent parts are reproduced herein:
1. Plaintiff is the duly appointed, qualified, and аcting Trustee in the bankruptcy of Balducci Oil Company, Inc. (“Balducci”), the Debtor in a bankruptcy proceeding commenced March 31, 1982.
2. Petco was a creditor of Balducci.
3. On or about November 12, 1981 Petco provided services to Balducci for which Balducci owed Petco $751.33. As of January 1, 1981 (sic), 90 days before Balducci’s bankruptcy petitiоn on March 31,1982, Balducci owed Petco the $751.33.
4. On or about January 19,1982 Petco provided transportation services to Bal-ducci for which Balducci owed Petco $520.98.
5. On or about January 20, 1982 Pet-co’s wholly owned subsidiary Pinon Gas Company (“Pinon”) sold Balducci $13,-873.86 worth of low lead aviation gasoline.
6. Pinon’s relationship to Petco is as follows:
(a) Its stock is owned 100% by Petco;
(b) Both have identical officers and directors;
(c) Pinon has no employees, all are employed by Petco;
(d) All Pinon’s expenses of operation are paid by Petco;
(e) Pinon has no separate capitalization from Petco;
(f) Pinon maintains no substantial corporate existence separate from that of Petco.
7. On or about March 10,1982 Balduc-ci sold to Petco $8,233.38 worth of No. 2 diesel fuel.
8. On or about March 11,1982 Balduc-ci sold to Petco $8,230.64 worth of diesel fuel.
9. The March 10 and 11 sales by Bal-ducci were in the ordinary course of business of both Petcо and Balducci, were made for new value, were not made for *850 the purpose of creating a setoff between the parties, nor were they on account of an antecedent debt.
10. On March 24, 1982, Balducci’s comptroller demanded immediate payment from Petco for the March 10 and 11, 1982 sаles of diesel fuel. Petco told Bal-ducci that Petco would setoff the cost of the March 10 and 11 sales, totaling $16,-464.02, against the amounts owed Petco and Pinon, totaling $15,146.17.
11. Interest in the amount of $574.56, at the rate of 21 percent (21%) per year, accrued against Balducci on account of Balducci’s unpaid account with Petco.
13. Petco paid First National Bank of Denver $743.59 on or about July 13, 1982, pursuant to the bank’s demand based upon the Bankruptcy Court’s May 19, 1982 order modifying stay in adversary proceeding 82J0953, permitting the bank ‘to enforce its security interest against any interest of [Balducci] in the property set forth in the Complaint.’ This amount was arrived at after the March 24, 1982 setoff by also deducting the interest referred to in paragraph eleven (11) above.
14. The claims of Petco and Pinon against Balducci were not transferred by an entity other than Balducci to Petco and Pinon.
II. SUMMARY JUDGMENT
Fed.R.Civ.P. 56 applies herein through newly enаcted Fed.R.Bankr.P. 7056. Pursuant to Fed.R.Civ.P. 56(c) stipulations are considered to be admissions and are a proper evidentiary basis upon which to interpose a motion for summary judgment.
F & D Property v. Alkire,
Summary Judgment is a drastic remedy
(Jones v. Nelson,
III. SETOFF UNDER THE BANKRUPTCY CODE: § 553
A general discussion of the doctrine of setoff is a logical starting point in light of its complexity and the absence of precedent in this district. The Bankruptcy Code, like the Bankruptcy Act, does not itself create a right of setoff. Rather, it preserves the pre-existing common law right of setoff, subject to some limitations.
In re Donato,
Three important bankruptcy limitations have been placed upon the right of setoff by § 553. First and foremost is the requirement that only “mutual debts” may be setoff. That is, the debts must be duе between the same parties acting in the same capacity. § 553(a);
In re Dartmouth Nursing Home,
The second group of limitations on thе right of setoff under § 553(a) is that a creditor may not procure a claim against the debtor within 90 days of the date on which the petition is filed if the debtor was insolvent. § 553(a)(2). Also, the creditor may not incur a debt against the debtor while the debtor was insolvent, within 90 days of the date of which the petition is filed, for the purpose of effecting a setoff. § 553(a)(3). Section 553(c), like § 547(f), creates a presumption of insolvency on and during the 90 days immediately preceding the date on which the petition is filed. This subsection is not relevant to a determination of the issues herein.
The third limitation is commonly referred to as the “insufficiency test.” The mаthematical application of this subsection is similar to the “improvement in position” test used to determine the voidability of pre-pe-tition transfers to creditors who have perfected security interests in inventory and accounts receivable. See § 547(c)(5). The § 553(b)(1) insufficiency (insufficiency is defined in § 553(b)(2) as the, “amount, if any, by which a claim against the debtor exceeds a mutual debt owing to the debtor by the holder of such claim”) test has been described as follows:
The limitation invalidates or precludes the setoff of any amount that is a betterment in the creditor’s ‘secured’ position during a 90 day pre-petition period. Thе amount of any such improvement is treated as an ordinary unsecured claim. The test requires determination of the creditor’s ‘insufficiency’ at two points in time: 1) the later of 90 days before petition or the first date during that 90 days on which there is an insufficiency; and 2) the date of setoff, whether on the date of pеtition or within the 90 days immediately preceding. To the extent that the insufficiency at setoff is less than it was at the earlier date, a setoff will be invalid.
Comment, Setoff in Bankruptcy; Is the Creditor Preferred or Secured?, 50 U.Colo.L.R. 511, 522 (1980). Any recovery by the estate under § 553(b) is limited to the amount setoff. 4 Collier on Bankruptcy, ¶ 553.08 at 553-45 (15th ed. 1982). The purpose of this test is to reсover, as preferences, setoffs which occur within 90 days of the date of filing the petition and which improve the creditor’s position vis-a-vis other creditors.
The final material aspect of the doctrine of setoff under the Code is the effect of creditor forebearance of the right to sеtoff before bankruptcy. Pursuant to § 506(a), “An allowed claim of a creditor .... that is subject to setoff under § 553 of this title, is a secured claim .... to the extent of the amount subject to setoff.” So, if a creditor waits until a petition in bankruptcy is filed, it will receive an allowed secured claim in the amount subject to setoff. The purpose of this provision is to protect the estate in the frantic days before a petition is filed.
IV. CAN THE SETOFF ITSELF BE RECOVERED AS A VOIDABLE PREFERENCE UNDER § 547?
The legal basis for the Trustee’s Complaint, Amended Complaint and Motion for Summary Judgment is that the setoff by Petco on March 24, 1982, was, itself, a transfer that is voidable under § 547. I *852 hold that § 547 may not be used to avoid the sеtoff itself. The general reason is that Congress defined “transfer” in § 101(40) to exclude setoffs. If the act of setoff is not a “transfer”; the preference test under § 547 cannot be satisfied because there was no transfer of property of the debtor — the initial element of § 547(b).
Under the Bankruptcy Act, setoffs were generally not voidable as preferential transfers.
Jansen v. State Bank of Allison,
The original House of Representatives draft of the Code contained in H.R. 8200 speсifically included setoff in the definition of “transfer.” House Report 8200, 95th Congress, 1st Sess., September 8,1977. The Senate version of the Code found in S. 2266, Senate Report 95-989, 95th Congress, 2nd Sess. (1978) deleted the word setoff from the definition of “transfer.” The explanation for the deletion was given in the Senate Debate on the Compromise Bill," 124 Cong.Record S17403-34 (daily ed. October 6, 1978) by Senator DeConcini. At S17407 he stated:
Section 101(40) defines ‘transfer' as in the Senate Amendment. The definition contained in H.R. 8200 as passed by the House included ‘setoff’ in the definition of transfer. Inclusion of ‘setoff’ is deleted. The effect is that a ‘setoff’ is not subject to being set aside as а preferential transfer but will be subject to special rules.
The clear legislative intent cannot be gainsaid. Section 553(b), the insufficiency test, contains the “special rules” and is, in essence, a miniature preference provision akin to § 547(c)(5). That legislative statement, which was an attempt to cure the preference dilemma under the Act, led one bankruptcy court to comment:
The effect of this Subsection [§ 553(b) ] is to allow the Trustee to recover the set-offs which advance the position of one creditor at the expense of all other creditors during the ninety day period beforе bankruptcy. It works hand-in-hand with the philosophy of Section 547.
In re Schmidt,
Hence, if the Trustee recovers any portion of the setoff, § 547 will not be the vehicle of recovery. Instead, if any amount is returned, it will be because of defects in the setoff itself, whether they be excessive amounts of setoff or absence оf entitlement to setoff. Even though I am ruling on a motion for summary judgment, if there are no genuine issues of fact, I may enter judgment although on a different legal ground.
Broderick Wool Products v. U.S.,
V. ARE THE DEBTS OWED TO PETCO AND PINON BY BALDUCCI AND THE DEBTS OWED TO BALDUCCI BY PETCO AND PINON “MUTUAL DEBTS” WHICH PETCO MAY SET-OFF UNDER § 553?
On the date of setoff, March 24, 1982, Balducci owed Petco $1,272.31 and Pinon $13,873.86. Petco owed Balducci $16,464.02 and Pinon owed Balducci nothing. Petco setoff $16,464.02, the entire аmount of its indebtedness to Balducci against $1,272.31, the amount Balducci owed Petco and $13,-873.86, the amount Balducci owed Pinon. Petco admits these facts. Thus, the issue here is whether the debts running between Balducci, Petco and Pinon were mutual debts between the same parties acting in the same capacity.
In genеral, “It is well established that one subsidiary may not setoff a „ debt
*853
owed to a bankrupt against a debt owing from the bankrupt to another subsidiary.”
Depositors Trust Co. v. Frati Enterprises,
In Colorado, “The alter-ego doctrine is a mеans by where creditors may hold stockholders personally liable for corporate obligations. It comes into play in cases where the corporate entity was used to defeat public convenience, or to justify or protect wrong, fraud or crime.”
Rosebud Corp. v. Boggio,
However, the courts’ interpreting the term “mutual debts” have carved an exception to the general rule in the “triangular tradeoff situation.” The courts have found mutuality between three parties, as a matter of contract law, where there was an express contractual agreement clearly evincing the intent of the parties to treat the parent and subsidiary as one entity.
Depositors Trusty supra; In re Berger Steel,
Under § 68a only claims to and from the same creditor and in the same capacity may be set off, [citation omitted] wherever thе corporate ‘veil’ may be ‘pierced’ for purposes of the usury statute .... In the case at bar, ... the referee specifically found that although AIF and TWF were controlled and dominated by the same person, the two corporations ‘were at all relevant times separate legal entities.’ Hence, the debts are not ‘mutual’ and may not be offset against each other.
Matter of Vehm Engineering,
In my view, this language completely bars Petco’s efforts to pierce the veil of Pinon.
VI. CONCLUSION
Based upon the foregoing authorities, the briefs of the parties and the stipulation, construing the stipulation in favor of Petco, I сonclude there is a genuine issue of material fact to be resolved. That is — Was there an express agreement between Bal-ducci, Petco and Pinon to treat Petco and Pinon as one entity? The stipulation is silent as to the existence of such an agreement. The existence of such an аgreement is critical to the application of the mutuality standard under § 553. A court should deny summary judgment until the facts have been sufficiently developed to enable it to be certain it is making a correct determination of the law.
NLRB v. Smith Industries, Inc.,
Therefore, the Trustee’s Motion for Summary Judgment is DENIED and trial will be scheduled and conducted consistent with the views expressed herein.