Pickrel v. Professional Housewares Distributors (In re Dixie Enterprises, Inc.)

31 B.R. 530
CourtUnited States Bankruptcy Court, S.D. Ohio
DecidedJuly 15, 1983
DocketBankruptcy No. 3-81-02812; Adv. No. 3-83-0018
StatusPublished

This text of 31 B.R. 530 (Pickrel v. Professional Housewares Distributors (In re Dixie Enterprises, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Ohio primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Pickrel v. Professional Housewares Distributors (In re Dixie Enterprises, Inc.), 31 B.R. 530 (Ohio 1983).

Opinion

CHARLES A. ANDERSON, Bankruptcy Judge.

PRELIMINARY PROCEDURE

This matter is before the Court upon Complaint filed on 12 January 1983 by Jack W. Pickrel, Chapter 7 Trustee. The Court heard the Complaint on 7 February 1983, at which time the parties agreed to submit the matter for decision based upon the record, inclusive of stipulated facts and legal briefs which were subsequently filed. The following decision is, therefore, based upon the instant record, inclusive of the parties’ briefs and stipulations of fact, and also the record in Debtor’s estate file, numbered 3-81-02812, which is judicially noticed herein.

FINDINGS OF FACT

Debtor, a retailer of consumer goods, filed a Petition under 11 U.S.C. Chapter 11 on 6 October 1981. Subsequent to Debtor’s Petition filing, Defendant “consigned” merchandise worth $120,000.00 to Debtor in Possession based upon Orders by this Court dated 19 October 1981 and 3 December 1981 authorizing Debtor in Possession to enter into consignment arrangements with Defendant for up to $500,000.00 worth of merchandise. The Orders specifically further ordered that Defendant’s extension of credit by consignment would be “adequately protected” by a first lien in all the consigned merchandise, as permitted in 11 U.S.C. § 364(d), and also by a grant of priority over all administrative expenses, as permitted by 11 U.S.C. § 364(c). Pursuant to the order, Defendant delivered merchandise to Debtor in the total amount of $121,-470.31.

Debtor sold part of the consigned merchandise by continued sales in the ordinary course of business. The balance of the consigned merchandise was then sold in a bulk sale of all of Debtor’s remaining inventory upon order dated 18 March 1982 to a separate affiliated Debtor in a “companion” case also before this Court. The Order directed that the proceeds from sale of said merchandise be paid to priority creditors, including Defendant. Debtor was not, however, fully paid for its inventory in the bulk sale. See discussion in this Court’s opinion in Matter of R & R Distributing, Inc., 3-81-02813 (unreported, 6 October 1982). In consequence, Debtor was unable to reimburse Defendant fully from the sale of the consigned merchandise. The present outstanding balance owing Defendant based upon the consignment arrangement is approximately $51,000.00.

On 2 August 1982, Debtor converted to a request for relief under 11 U.S.C. Chapter 7. Plaintiff-Trustee was then appointed by Order dated 8 September 1982.

[532]*532On 20 September 1982 and 1 October 1982, two checks, written by Debtor’s controller on the Debtor in Possession’s checking account for $3,000.00 and $2,000.00, respectively, were sent to Defendant as payment on the consigned goods. The Trustee had no knowledge of the checks, and their issuance was directly contrary to his instructions to Debtor’s management in regard to the issuance of checks.

The Trustee then demanded return of the $5,000.00, but Defendant refused. The instant Complaint requests that this Court order that the $5,000.00 be returned to the Trustee.

The Trustee essentially argues that the transfer of the $5,000.00 was ultra vires because it was accomplished without either the Trustee’s or the Court’s approval. The Trustee further emphasizes that the moneys were paid from a general account, and it appears undisputed that Defendant’s lien is not directly traceable to either the fund from which the moneys were paid or any existing funds.

Defendant’s responses are threefold. First, Defendant argues that, since it is entitled to super priority over even administrative claims, any payment made, even if arguendo erroneous, does not deplete the estate or prejudice creditors. Second, Defendant argues that Debtor’s failure to pay Defendant for the consigned goods constitutes misconduct, justifying the creation of a trust by operation of law. Defendant contends that the questioned payment is, therefore, in essence, simply payment by Debtor upon a trust obligation which the Trustee would himself have had to perform on behalf of Debtor, derivatively. Third, Defendant argues that the Trustee’s “claim” against Defendant is postpetition and, therefore, may be setoff against Defendant’s mutual postpetition claim based upon the subject consignment.

DECISION AND ORDER

I.

Although the circumstances instanter may warrant “creation” of a constructive trust (specifically a trust ex maleficio), the record is incomplete regarding the alleged misconduct, i.e. the alleged “wrongful” disposition of Defendant’s merchandise and the proceeds from sale thereof. If Debtor failed to reimburse Defendant from the proceeds from sale of the subject consigned goods “merely” because a third party buyer of the consigned goods failed to pay for the goods after receipt from Debt- or, then Debtor’s conduct would not appear to warrant a determination of misconduct. On the other hand, if knowledge that the third party buyer was unable to pay was recklessly disregarded or could have easily been obtained or could be imputed to Debt- or because of the parties’ close financial relationship, or if Debtor acted irresponsibly with those proceeds actually received, then Debtor’s conduct could arguably justify creation of a constructive trust. See generally, 76 Am.Jur.2d Trusts §§ 221, et seq.; and 4 Collier on Bankruptcy (15th Ed.) ¶ 541.13. The Court, however, is unable to make any final determination in this regard based upon the instant record. Furthermore, even if the Court were to determine that the circumstances warrant imposition of a fiduciary trust over the subject proceeds, no evidence of record traces the subject proceeds to any account or specific property. Furthermore, there is no evidence of record tracing any proceeds to the general account from which the subject moneys were paid. In addition, even if the subject proceeds were traceable to the subject checking account, there is no evidence of record for the Court to determine the “lowest intermediate balance” of the subject account. See generally, 4 Collier on Bankruptcy (15th Ed.) ¶ 541.13.

II.

By virtue of this Court’s orders of 19 October 1981 and 3 December 1981, Defendant’s claim has priority ahead of all administrative claims. 11 U.S.C. §§ 364(c) and 507. It would appear from the instant record that liquidation of Debtor’s estate will result in payment to Defendant of more than the amount in question, and that such payment should not be reversed merely to be administratively repaid. The instant record, however, does not indicate the [533]*533aggregate amount of moneys available for distribution, nor the aggregate amount of other claims granted priority ahead of administrative claims and thus entitled to distribution pro rata with Defendant. The Court is therefore unable to determine as a matter of fact that Defendant has not “merely” received an inadvertant advance payment on its claim.

III.

Regardless of the ultimate conclusions as to distribution, it appears to the Court that the Trustee’s interest, as representative of Debtor’s estate, is, at this point, nominal only.

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Related

Automatic stay
11 U.S.C. § 362(a)(7)
Obtaining credit
11 U.S.C. § 364(d)

Cite This Page — Counsel Stack

Bluebook (online)
31 B.R. 530, Counsel Stack Legal Research, https://law.counselstack.com/opinion/pickrel-v-professional-housewares-distributors-in-re-dixie-enterprises-ohsb-1983.