Rushton v. Bank of Utah (In re C.W. Mining Co.)

477 B.R. 176
CourtBankruptcy Appellate Panel of the Tenth Circuit
DecidedSeptember 5, 2012
DocketBAP No. UT-11-098; Bankruptcy No. 08-20105; Adversary No. 10-02712
StatusPublished
Cited by30 cases

This text of 477 B.R. 176 (Rushton v. Bank of Utah (In re C.W. Mining Co.)) is published on Counsel Stack Legal Research, covering Bankruptcy Appellate Panel of the Tenth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Rushton v. Bank of Utah (In re C.W. Mining Co.), 477 B.R. 176 (bap10 2012).

Opinion

OPINION

HALL, Bankruptcy Judge.

Before the Court is the appeal of Appellant Kenneth A. Rushton, Trustee (“Trus[180]*180tee”), of the bankruptcy court’s Memorandum of Decision which granted Appellee Bank of Utah’s (“Bank”) motion for summary judgment and denied Trustee’s motion for summary judgment. For the reasons that follow, the Court AFFIRMS the bankruptcy court’s decision.

I. Jurisdiction

This Court has jurisdiction over the instant appeal under 28 U.S.C. § 158(b) because: the appeal was timely made pursuant to Rule 8002(a) of the Federal Rules of Bankruptcy Procedure; the challenged order is a final order; and no party has elected to have the appeal heard by the district court as required by 28 U.S.C. § 158(c).

II. Standard of Review

“The applicable standard of review for orders granting summary judgment is de novo, and this Court is required to apply the same legal standard as was used by the bankruptcy court to determine whether either party is entitled to judgment as a matter of law.”1

III. Background

The pertinent facts in this case are undisputed as set forth more fully in the bankruptcy court’s findings of fact.2 Although the bankruptcy case and related adversary proceedings are complex, and both parties burdened the record with many extraneous and irrelevant fact allegations, the relevant facts necessary for this Court’s analysis are relatively simple and straightforward.

Debtor C.W. Mining Company (“Debt- or”) operated a coal mine. To finance the purchase of certain equipment, Debtor entered into three loan agreements (“Debtor Loans”) with Bank. Debtor executed promissory notes for each loan agreement (the “Notes”). The interest rate was in excess of 4.31 percent. The Notes were secured by the purchased equipment, and all of the Notes contained cross-collateralization provisions.3 Thus, collateral securing one Note also secured all other Notes. An entity named P.P.M.C., Inc. (“PPMC”) guaranteed the Debtor Loans.

In August 2007, Debtor entered into a letter of credit transaction with Bank in order to obtain an irrevocable standby letter of credit in favor of the Utah Department of Natural Resources Division of Oil, Gas, Mining, and Office of Surface Mining (“DOGM”). Pursuant thereto, Debtor deposited $362,000 with Bank, and Bank in turn issued a certificate of deposit (“CD”) with a 4.31 percent interest rate. Debtor also executed a promissory note in favor of Bank in the amount of $362,000 with an interest rate of 6.75 percent (the “CD Note”). Debtor’s obligation under the CD Note was secured by an assignment of the CD, and the CD Note also contained a cross-collateralization provision.4 As a consequence, the CD Note was also secured by the collateral securing the Notes. Bank then issued the letter of credit to DOGM.

On January 8, 2008, an involuntary Chapter 11 petition was filed against Debt- or.5 The bankruptcy court entered an or[181]*181der for relief in the involuntary Chapter 11 case on September 26, 2008.6 Thereafter, on November 13, 2008, Debtor’s Chapter 11 case was converted to one under Chapter 7, and Trustee was appointed as the Chapter 7 trustee.7

Subsequently, Bank did not renew the letter of credit.8 On February 19, 2009, Bank liquidated the CD (which had a value of $383,099) and applied $79,487 and $303,612 on two of the Notes in partial satisfaction of its claims (“Transfer”).9 Bank was aware of the pending bankruptcy when it made the Transfer and reduced the outstanding balance of the Notes.10 Bank later sold the Debtor Loans, the outstanding balance of which had been previously reduced by the Transfer, to PPMC and assigned all of its interest in the Debtor Loans and related documents to PPMC.11

Trustee brought his complaint against Bank on September 14, 2010, seeking a money judgment for $383,099 on two claims: (1) avoidance of the Transfer under 11 U.S.C. § 54912 as an unauthorized post-petition transfer and recovery of $383,099 under § 550(a)(1); and (2) a declaration that the Transfer was void as a violation of the automatic stay under § 362(a) and for an order directing turnover of $383,099 under § 542.13

The parties filed cross-motions for summary judgment.14 The bankruptcy court denied Trustee’s motion for summary judgment and granted Bank’s motion for summary judgment.15 Trustee then timely brought this appeal.

IV. Analysis

A. Trustee’s Argument

Trustee’s complaint seeks relief on two claims: (1) avoidance of the Transfer under 11 U.S.C. § 549 and for recovery of $383,099 under 11 U.S.C. § 550; and (2) a declaration that the liquidation of the CD is void as a violation of the automatic stay pursuant to 11 U.S.C. § 362(a) and that Trustee is entitled to the CD as an asset of the bankruptcy estate. Both claims ask that Bank be required to pay Trustee $383,099 free and clear of Bank’s lien.

Trustee’s first prong of attack is that the Transfer, if not deemed void under § 362, is avoidable as an unauthorized post-petition transfer under § 549. Thus, Trustee contends he is entitled, under § 550, to a money judgment for the value of the CD. Trustee argues that Bank does not have a [182]*182lien against the CD since it made the ill-advised decision to liquidate the CD and apply the proceeds to the Debtor Loans without prior court approval and then sold the reduced balance Debtor Loans to PPMC. In other words, Bank “cannot escape the consequences of that act.”

Under his second prong, Trustee insists that Bank’s liquidation of the CD was void, that is without legal effect, and that the CD remained property of the bankruptcy estate. Because the CD represents an obligation of Bank to the bankruptcy estate, and it is as if the liquidation and offset never occurred due to the automatic stay, then Bank, as a matter of law, still owes a debt to the bankruptcy estate. Consequently, Bank should be required to turnover the value of the CD to Trustee under § 542. Trustee’s argument goes even further and posits that Bank no longer enjoys the position of a secured creditor, because through its own poor business decisions and no fault of anyone else, it sold the Debtor Loans to PPMC.

Trustee contends that the bankruptcy court erred when it denied his motion for summary judgment.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Wilcox v. McGann
Hawaii Intermediate Court of Appeals, 2025
J. Bird v. Lynn Wardley
Tenth Circuit, 2024
Robert Earl Dear
D. Kansas, 2020
In re Fontaine
603 B.R. 94 (D. New Mexico, 2019)
Franco v. Franco (In re Franco)
574 B.R. 730 (D. New Mexico, 2017)
Grassmann v. Brown (In re Brown)
570 B.R. 98 (W.D. Oklahoma, 2017)
In re Montoya
547 B.R. 439 (D. New Mexico, 2016)

Cite This Page — Counsel Stack

Bluebook (online)
477 B.R. 176, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rushton-v-bank-of-utah-in-re-cw-mining-co-bap10-2012.