IN RE: DELCO OIL, INC., Debtor. MARATHON PETROLEUM CO., LLC., Defendant-Appellant, versus AARON R. COHEN, Plaintiff-Appellee.
No. 09-11759
D. C. Docket No. 08-00432-CV-ORL-31; BKCY No. 06-3241-3P7
United States Court of Appeals, Eleventh Circuit
March 16, 2010
Before EDMONDSON, BIRCH and BALDOCK, Circuit Judges.
Appeal from the United States District Court for the Middle District of Florida
(March 16, 2010)
* Honorable Bobby R. Baldock, United States Circuit Judge for the Tenth Circuit, sitting by designation.
Defendant-Appellant Marathon Petroleum Company, LLC (Marathon) appeals the district court’s order affirming the bankruptcy court’s grant of summary judgment in favor of Plaintiff-Appellee Aaron R. Cohen (Cohen). The issue presented to this Court is whether a bankruptcy trustee may avoid post-petition payments by a dеbtor under
I.
Delco Oil, Inc. (Debtor) is a distributor of motor fuel and associated products. Debtor began purchasing petroleum products from Marathon in 2003 pursuant to a sales agreement. Debtor also entered into a financing agreement with CapitalSource Finance in April 2006, in which CapitalSource agreed to provide financing to Debtor in exchange for Debtor’s pledge of all rights to Debtor’s personal property, including collections, cash payments, and inventory.
On October 17, 2006, Debtor filed for Chapter 11 bankruptcy protection and filed an emergency motion with the bankruptcy court requesting authorization to use cash collateral to continue its operations. CapitalSоurce objected. The following day, the bankruptcy court authorized Debtor to continue its business as a debtor-in-possession. On November 6, 2006 the bankruptcy court denied Debtor’s request to use its cash collateral (later reduced to a written order). Between October 18 and November 6, however, Debtor distributed over $1.9 million in cash to Marathon in exchange for petroleum products pursuant to its sales agreement.
In December 2006, Debtor voluntarily converted its bankruptcy to a Chapter 7 proceeding and the bankruptcy court appointed Cohen as trustee. Cohen filed an adversary proceeding against Marathon to avoid the post-petition cash transfers and ultimately filed the motion for summary judgment that is the subject of this appeal. The bankruptcy court granted summary judgment in favor of Cohen and entered a judgment for $1,960,088.91 against Marathon, concluding Debtor used CapitalSource’s cash collateral to pay Marathon without authorization. On appeal, the district court affirmed the bankruptcy court’s entry of summary judgment in favor of Cohen.
II.
We review a bankruptcy court’s grant of summary judgment de novo, applying the same legal standard used by the bankruptcy court. See In re Kingsley, 518 F.3d 874, 876 (11th Cir. 2008) (applying the same standard for summary judgment as the bankruptcy court); In re Optical Tech. Inc., 246 F.3d 1332, 1334 (11th Cir. 2001) (explaining “that an appellate court reviews a bankruptcy court’s grant of summary judgment de novo“);
III.
The Bankruptcy Code defines cash collateral as:
[C]ash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents whenever acquired in which the estate and an entity other than the estate have an interest and includes the proceeds, products, offspring, rents, or profits of property . . . whether existing beforе or after the commencement of a case under this title.
Section 549(a) of the Bankruptcy Code authorizes a trustee to recover unauthorized post-petition transfers of estate property. See
IV.
Marathon asserts the bankruptcy and district courts erred because a material issue of fact remains regarding whether the funds it received from Debtor actually constituted CapitalSource’s cash collateral. Principally, Marathon argues that the funds did not constitute CаpitalSource’s cash collateral under
Despite Marathon’s contеntions otherwise, Florida’s Section 679.332(2) does not alter the fact that CapitalSource had a security interest in Debtor’s deposit account funds as proceeds of CapitalSource’s properly secured collateral while they were in Debtor’s hands. See
Lest any confusion exist, Cohen may avoid and recover from Marathon the funds Debtor transferred to it not because CapitalSource continued to have a security interest in the funds once they were in the hands of Marathon, but because Debtor was not authorized to transfer the funds to anyone post-petition without the permission of CapitalSource or the bankruptcy court. We agree with Marathon that under Florida law, CapitalSource did not have a security interest in the funds after Debtor transferred them to Marathon. But that is beside the point. To ascertain whether Debtor could lawfully transfer the funds in its deposit accounts to a third party without permission from CapitalSource or the bankruptcy court, we first determine whether those funds were cash collateral. To determine whether the funds constitute cash collateral, we examine the status of the funds while they were in Debtor’s hands before the disputed transfer, not at the moment the bankruptcy petition was filed and certainly not at the moment after the funds left Debtor’s control. See 1 Collier on Bankruptcy § 363.04[1] (3d ed. 1991) (“[T]he definition of “cash collateral” is not restricted to property of the estate that fits within the [Section 363(a)] terminology on the date of the filing of the petition.“); In re S. Ill. Railcar Co., 301 B.R. 305, 314 (Bankr. S.D. Ill. 2002) (explaining that “[a] pre-petition security interest in proceeds and profits generated by pre-petition property of a bankruptcy estate extends to post-petition proceeds and profits generated by that property” and such post-petition proceeds may comprise cash collateral); George Ruggiere, 727 F.2d at 1019 (defining the proceeds of a creditor’s security interest in debtor’s property as cash collateral while the proceeds were still in debtor’s hands; the court did not consider the status of the proceeds once transferred and in the possession of the debtor’s proposed recipients). Otherwise, a debtor could circumvent Section 363(c)(2)’s prohibition on the
Marathon also argues that the deposit account funds that Debtor transferred to it did not constitute cash collateral because CapitalSource did not perfect an interest in Debtor’s deposit account by filing a deposit control agreement. But this argument is equally unpersuasive. Florida law provides “a security interest attaches to any identifiable proceeds of collateral” and “a security interest in proceeds is a perfected security interest if the security interest in the original collateral was perfected.”
Marathon, however, maintains a genuine issue of fact exists as to whether the funds it received from Debtor’s accounts were identifiable proceeds of CapitalSource’s secured collateral. In support of its motion for summary judgment, Cohen submitted the affidavit of Todd Gehrs, an officer of CapitalSource. In his affidavit, Gehrs stated that CapitalSource had duly perfected, first-priority security interests in all of Debtor’s personal property, including all of Debtor’s сash, accounts receivable, inventory, all cash collections, all rights to payment, and all proceeds thereof as of the bankruptcy petition date. Gehrs further stated all cash and all bank deposits maintained by Debtor as of the bankruptcy petition date constituted CapitalSource’s cash collateral. Additionally, he noted that the bankruptcy court in the underlying bankruptcy proceeding had already concluded that “CapitalSource [had] established that the post-pеtition funds in Debtor’s bank accounts, constitute direct proceeds of its pre-petition collateral without the addition of other estate resources.” In re Delco, 365 B.R. 246, 248 (Bankr. M.D. Fla. 2007).
Marathon claims two problems exist with reliance on this affidavit. First, Marathon claims the affidavit introduces “through the backdoor” findings that cannot be used directly against Marathon because it was not a party to the underlying bankruptcy proceedings cited by Gehrs and, therefore, cannot be bound by findings made in those proceedings. And, second, Marathоn contends the sole basis cited by Gehrs’s assertion that the cash in Debtor’s deposit accounts were identifiable proceeds of CapitalSource’s secured collateral is the bankruptcy court’s inadmissible determination that Debtor’s deposit accounts consisted solely of the identifiable proceeds of CapitalSource’s pre-petition secured collateral.
The district court in its order explained that even though the bankruptcy court expressly based its summary judgment ruling on its priоr decisions in the
V.
In addition, Marathon also argues assuming that the funds constituted cash collateral Cohen may not avoid the payments because any violation of Section 363(c)(2) caused no harm to CapitalSource or the estate. Marathon asserts it gave equivalent value in inventory for the funds transferred to it by Debtor through a series of ordinary course transactions. Because CapitalSource admittedly had a perfected security interest in all of Debtor’s personal property, Marathon claims CapitalSource’s interests were not diminished when Debtor received equivаlent value in petroleum products from Marathon in exchange for the funds.
But a “harmless” exception to a trustee’s Section 549(a) avoiding powers does not exist.3 All Cohen needs to demonstrate to avoid the transfers under Section 549(a) is: (1) an unauthorized transfer occurred; (2) the property transferred was property of the estate; and (3) the transfer occurred post-petition. Section 549 does not require any analysis of the adequacy of protection of secured creditors’ interеsts nor does it provide a harmless error exception. No genuine doubt exists that Debtor’s transfers
to Marathon were unauthorized because Debtor completed them without the permission of CapitalSource or the bankruptcy court in express violation Section 363(c)(2).
Finally, Marathon argues that as a matter of policy an implicit defense exists under Section 549 for ordinary course transfers and for innocent vendors who deal
As to Marathon’s status as an “innocent vendor,” Sections 549(a) and 550(a) by their terms contain no reference to, let alone an actual defense based on, the transferee’s status (vendor, purchaser, etc.) or upon its state of mind (innocent, culpable, etc.). See e.g., In re Countryside Manor, Inc., 239 B.R. 443, 447 (Bankr. D. Conn. 1999) (explaining that the circumstances that the defendant received the cash collateral for value, in good faith and without knowledge of the voidability of the transfers, do not provide a defense to the trustee’s power to avoid the transfer under Sections 549(a) and 550(a) because the defendant as the initial transferee of the cash collatеral received it without the court’s or secured creditor’s permission). Congress knew how to create exceptions based on transferee’s status and culpability. But it chose not to do so when it came to initial transferees of post-petition transfers of cash collateral. We will not create such exceptions in Congress’s absence.
VI.
Having admitted CapitalSource had a perfected security interest in all of Debtor’s inventory, collections, and cash payments, Marathon has provided nothing more than mere speculation to support its claim that the over $1.9 million it received from Debtor did not constitute CapitalSource’s cash collateral as defined in Section 363(a). We, therefore, agree with the bankruptcy and district courts that no genuine issue of fact exists as to whether the disputed payments to Marathon constituted unauthorized transfers of cash collateral, which are avoidable under Section 549(a). Furthermore, we conclude no exception exists to prevent Cohen from avoiding these transfers pursuant to Section 549(a) and recovering the funds from Marathon pursuant to Section 550(a). Consequently, the judgment of the district court is AFFIRMED.