de'Medici v. Top Line Record Distributors, Inc. (In re Lifschultz Fast Freight Corp.)

175 B.R. 655, 1994 U.S. Dist. LEXIS 16681
CourtDistrict Court, N.D. Illinois
DecidedNovember 18, 1994
DocketNos. 90 B 21673, 94 C 5171; Adv. No. 93 A 160
StatusPublished

This text of 175 B.R. 655 (de'Medici v. Top Line Record Distributors, Inc. (In re Lifschultz Fast Freight Corp.)) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
de'Medici v. Top Line Record Distributors, Inc. (In re Lifschultz Fast Freight Corp.), 175 B.R. 655, 1994 U.S. Dist. LEXIS 16681 (N.D. Ill. 1994).

Opinion

MEMORANDUM OPINION AND ORDER

LEINENWEBER, District Judge.

BACKGROUND

This adversary proceeding arises out of an ongoing Chapter 7 Bankruptcy action in the Bankruptcy Court for the Northern District of Illinois. The debtor in the Chapter 7 action is Lifschultz Fast Freight Corporation, a trucking company that operated under the Interstate Commerce Act, 49 U.S.C. § 1, et seq. In the present suit, the trustee is attempting to collect “undercharges” from defendant Top Line Record Distributors, Inc. (“Top Line”), a customer of the debtor. Undercharges are the difference between the applicable tariff rate that the debtor was legally obligated to charge and the rate that the debtor actually assessed to Top Line.

Top Line moved for summary judgment and because this action is related to the bankruptcy case, the bankruptcy court had jurisdiction to decide the motion. 28 U.S.C. §§ 157, 1384. However, the parties did not consent to the entry of a final order or judgment by the bankruptcy judge. Therefore, pursuant to 28 U.S.C. § 157(c)(1), any final order or judgment must be entered by this court. After considering Top Line’s motion for summary judgment, the bankruptcy judge submitted his “Proposed Findings of Fact and Conclusions of Law” (“Proposed Findings”), to which the trustee objected. See Id. In deciding Top Line’s motion for summary judgment, this court will consider the bankruptcy judge’s Proposed Findings and will also review de novo those matters to which the trustee timely and specifically objected. Id.

The bankruptcy court found that, based on 49 U.S.C. § 10701(f)(9), Top Line was entitled to summary judgment. Section 2(a) of the Negotiated Rates Act of 1993 (the “NRA”), Pub.L. No. 103-180, 107 Stat. 2044 (1993), amended 49 U.S.C. § 10701 by adding subsection (f). Paragraph (9) of that new subsection contains the “small business concern defense,” which provides:

Notwithstanding paragraphs (2), (3), and (4), a person from whom the additional legally applicable and effective tariff rate or charges are sought shall not be liable for the difference between the carrier’s applicable and effective tariff rate and the rate originally billed and paid ... if such person qualifies as a small-business concern under the Small Business Act (15 U.S.C. 631 et seq.)....

49 U.S.C. § 10701(f)(9).

The bankruptcy court first found that Top Line was a “small business concern” under the Small Business Act, 15 U.S.C. § 631 et seq. The bankruptcy court then found that Top Line could invoke the “small business concern defense” of 49 U.S.C. § 10701(f)(9), which it held “unconditionally extinguishes a small business concern’s liability to pay undercharges.”

In its Proposed Findings, the bankruptcy court explicitly rejected the trustee’s argument that the small business concern defense conflicts with the “anti-forfeiture provisions” of the Bankruptcy Code (or “Code”), 11 U.S.C. §§ 541(c)(1) and 363®. The bankruptcy court also disagreed with the trustee’s theory that the funds sought from Top Line in this action represent “late payment rates” instead of undercharges. The trustee timely objected to both of these'findings, and this court will review them de novo.

[657]*657DISCUSSION

I. Anti-Forfeiture Provisions of the Bankruptcy Code

When an entity files a bankruptcy petition, a bankruptcy estate is created, and all of the entity’s pre-petition property becomes property of the estate. See 11 U.S.C. § 541(a)(1). The Bankruptcy Code has two anti-forfeiture provisions designed to protect the assets of the estate and preserve the power of the trustee. The first deals with restrictions on the transfer of the debtor’s property to the bankruptcy estate, and provides:

[A]n interest of the debtor in property becomes property of the estate ... notwithstanding any provision in ... applicable nonbankruptey law — (A) that restricts or conditions transfer of such interest' by the debtor; or (B) that is conditioned on the insolvency or financial condition of the debtor ... and that effects or gives an option to effect a forfeiture, modification,, or termination of the debtor’s interest in property.

11 U.S.C. § 541(c)(1). The second anti-forfeiture provision protects the trustee’s right to manage the property of the bankruptcy estate. That provision states:

[T]he trustee may use, sell, or lease property [of the bankruptcy estate] ... notwithstanding any provision in ... applicable law that is conditioned on the insolvency or financial condition of the debtor ... that effects, or gives an option to effect, a forfeiture, modification, or termination of the debtor’s interest in such property.

11 U.S.C. § 363(Z).

The trustee argues that these provisions of the Code render the small business concern defense inapplicable in this case because it is, in effect, “conditioned on the financial condition of the carrier.” The trustee’s conclusion is based on the following two premises. First, before a party can invoke the small business concern defense, it must meet the general requirements enumerated in 49 U.S.C. § 10701(f)(1). One of those requirements is that a carrier must show that it is “no longer transporting property or is transporting property for the purpose of avoiding the application of this subsection.” Id. Second, because a non-operating carrier generates no revenue, and the lack of revenue directly affects a carrier’s financial condition, the trustee argued that conditioning the application of the small business concern defense on the operating status of a carrier is the same as conditioning its application on a carrier’s financial condition. Thus, the trustee concludes that the Bankruptcy Code’s anti-forfeiture provisions apply to the funds owed by Top Line, and the small business concern defense of 49 U.S.C. § 10701(f)(9) is inapplicable.

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Cite This Page — Counsel Stack

Bluebook (online)
175 B.R. 655, 1994 U.S. Dist. LEXIS 16681, Counsel Stack Legal Research, https://law.counselstack.com/opinion/demedici-v-top-line-record-distributors-inc-in-re-lifschultz-fast-ilnd-1994.