Yenkin-Majestic Paint Corp. v. Wheeling-Pittsburgh Steel Corp. (In Re Pittsburgh-Canfield Corp.)

309 B.R. 277, 51 Collier Bankr. Cas. 2d 1873, 2004 Bankr. LEXIS 556, 42 Bankr. Ct. Dec. (CRR) 277, 2004 WL 943998
CourtBankruptcy Appellate Panel of the Sixth Circuit
DecidedMay 3, 2004
Docket03-8030
StatusPublished
Cited by11 cases

This text of 309 B.R. 277 (Yenkin-Majestic Paint Corp. v. Wheeling-Pittsburgh Steel Corp. (In Re Pittsburgh-Canfield Corp.)) is published on Counsel Stack Legal Research, covering Bankruptcy Appellate Panel of the Sixth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Yenkin-Majestic Paint Corp. v. Wheeling-Pittsburgh Steel Corp. (In Re Pittsburgh-Canfield Corp.), 309 B.R. 277, 51 Collier Bankr. Cas. 2d 1873, 2004 Bankr. LEXIS 556, 42 Bankr. Ct. Dec. (CRR) 277, 2004 WL 943998 (bap6 2004).

Opinions

OPINION

AUG, Chief Judge.

Appellants, Yenkin-Majestic Paint Corporation, Valspar Corporation and Mississippi Lime Company (collectively, the “Appellants”), are vendors who filed timely reclamation claims against the Debtor, Wheeling-Pittsburgh Steel Corporation (the “Debtor”). Appellants now appeal the bankruptcy court’s decision finding that their reclamation claims are not entitled to [281]*281administrative expense priority pursuant to 11 U.S.C. § 546(c)(2) and relegating their claims to the status of general unsecured.

I.ISSUES ON APPEAL

(1) Whether the bankruptcy court erred in denying administrative expense priority or a lien to reclaiming sellers whose goods were proposed to be consumed by the Debtor in its manufacturing activities.

(2) Whether the bankruptcy court erred in determining the validity and priority of reclamation claims pursuant to motion rather than adversary complaint.

(3) Whether the bankruptcy court erred in determining that the Appellants were not entitled to require a marshaling of the assets to protect their reclamation claims.

II.JURISDICTION AND STANDARD OF REVIEW

The United States District Court for the Northern District of Ohio has authorized appeals to the Bankruptcy Appellate Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). Accordingly, the Panel has jurisdiction to decide this appeal.

The order and judgment on appeal are “final” and may, therefore, be appealed as of right. 28 U.S.C. § 158(a)(1); United States v. Hillsborough Holdings Corp. (In re Hillsborough Holdings Corp.), 116 F.3d 1391, 1393-94 (11th Cir.1997) (order finding that IRS’ claim was not entitled to administrative expense priority was final, appealable order); Beneke Co., Inc. v. Economy Lodging Sys., Inc. (In re Economy Lodging Sys., Inc.), 234 B.R. 691 (6th Cir. BAP 1999) (order disallowing portion of attorney fees and denying administrative expense priority to fees is final, appealable order).

The bankruptcy court’s findings of fact are reviewed for clear error. Thus, a bankruptcy court’s findings of fact may not be set aside unless clearly erroneous. Fed. R. Bankr.P. 8013; Laguna Assoc. Ltd. P’ship v. Aetna Cas. & Surety Co. (In re Laguna Assoc. Ltd. P’ship), 30 F.3d 734 (6th Cir.1994). A finding of fact is clearly erroneous when, although there is evidence to support it, the reviewing court is left with a definite and firm conviction that a mistake was made. Stevens v. McGinnis, Inc., 82 F.3d 1353, 1356 (6th Cir.1996). The bankruptcy court’s conclusions of law are subject to de novo review. Canadian Pac. Forest Prods. Ltd. v. J.D. Irving Ltd. (In re Gibson Group, Inc.), 66 F.3d 1436 (6th Cir.1995). “De novo means ‘deciding the issue as if it had not been heard before. No deference is given to the trial court’s conclusions of law.’ ” Tedeschi v. Falvo (In re Falvo), 227 B.R. 662, 664 (6th Cir. BAP 1998) (citations omitted).

The Panel reviews the bankruptcy court’s denial of administrative expense priority status for an abuse of discretion. Economy Lodging Sys., Inc., 234 B.R. 691; Gull Indus., Inc. v. John Mitchell, Inc. (In re Hanna), 168 B.R. 386 (9th Cir. BAP 1994).

III.FACTS

The Debtor and other affiliate corporations filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on November 16, 2000. Prior to the filing of the petitions, the Appellants sold goods to the Debtor on open account, in the ordinary course of business for both the Debtor and the Appellants. Each of the Appellants made timely demand for reclamation pursuant to Uniform Commercial Code § 2-702 of certain goods delivered to the Debtor’s plants in West Virginia and Ohio. Yenkin-Majestic Paint Corporation [282]*282made demand on November 7, 2000, before the filing of the bankruptcy petitions. The Valspar Corporation and Mississippi Lime Company made demand on November 17, 2000, after the filing of the petitions.

Prior to the Petition Date, all of the Debtor’s inventory served as collateral to secure a credit agreement entered into by the Debtor and its affiliates and certain prepetition lenders (the “Prepetition Lenders”) and Citibank, N.A., as agent. Relying on the Debtor’s and its affiliates’ schedules, the Appellants contend that on the Petition Date, the Debtor was indebted to the Prepetition Lenders in the maximum amount of $115 million and the indebtedness was secured by inventory in the amount of $245 million. Therefore, Appellants argue that the Prepetition Lenders were oversecured in the amount of $130 million. The Debtor received reclamation claims in the approximate amount of $5.4 million from 37 vendors. In the liquidation process provided for in the Reclamation Procedures Order described below, reclamation claims of approximately $2.9 million were verified by the Debtor.

Of significant importance in this case is the fact that on the Petition Date, the Debtor and its affiliates moved for approval of a debtor-in-possession credit facility (the “DIP Facility”). Pursuant to the final order approving the DIP Facility (the “PosL-Petition Financing Order”) entered December 13, 2000, (1) all of the Prepetition Lenders were paid in full, (2) the liens or security interests of the Prepetition Lenders were assigned and transferred, to the extent permitted by applicable law, to the lenders under the DIP Facility (the “DIP Lenders”), (3) the DIP Lenders were found to be entitled to a “superpriority” status pursuant to § 364(c) of the Bankruptcy Code and (4) the DIP Lenders’ claims were secured by, among other things, a floating first priority, perfected lien upon all of the Debtor’s and its affiliates’ inventory and proceeds thereof. Under the DIP Facility, the Debtor and its affiliates were authorized to borrow up to $290 million. Paragraph 14 of the Post-Petition Financing Order provides:

The Obligation under the DIP Credit Facility shall be an allowed administrative expense claim ... with priority ... under Bankruptcy Code section 364(c)(1) over all administrative expense claims and unsecured claims against the Debt- or[], now existing or hereafter arising, of any kind or nature whatsoever including, without limitation, administrative expenses of the kinds specified in or ordered pursuant to Bankruptcy Code sections ... 5Jp6(c).

(emphasis added.) None of the Appellants appealed the PosL-Petition Financing Order that in effect greatly increased the exposure of their inventory to this larger, floating lien.

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309 B.R. 277, 51 Collier Bankr. Cas. 2d 1873, 2004 Bankr. LEXIS 556, 42 Bankr. Ct. Dec. (CRR) 277, 2004 WL 943998, Counsel Stack Legal Research, https://law.counselstack.com/opinion/yenkin-majestic-paint-corp-v-wheeling-pittsburgh-steel-corp-in-re-bap6-2004.