Guinn v. Oakwood Properties ( 2000 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0050P (6th Cir.)
File Name: 00a0050p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
;

In Re: OAKWOOD MARKETS,
Debtor. 
INC.,


Nos. 99-5378/5397
_______________________

>
MAURICE K. GUINN, Trustee, 
Appellant/Cross-Appellee, 



v.

OAKWOOD PROPERTIES, INC., 
Appellee/Cross-Appellant. 
1
Appeal from the United States District Court
for the Eastern District of Tennessee at Greeneville.
No. 98-00375—Thomas G. Hull, District Judge.
Submitted: January 25, 2000
Decided and Filed: February 10, 2000
Before: GUY, RYAN, and BOGGS, Circuit Judges.
1
2 In re Oakwood Markets, Inc. Nos. 99-5378/5397 Nos. 99-5378/5397 In re Oakwood Markets, Inc. 7
_________________ Further, the bankruptcy court correctly concluded that the
extent of value given must be determined from the “giver’s”
COUNSEL perspective, here Oakwood Properties. See 11 U.S.C.
§ 549(b) (“to the extent any value . . . is given after the
ON BRIEF: Maurice K. Guinn, GENTRY, TIPTON, commencement of the case in exchange for such transfer”)
KIZER, McLEMORE & JENDREK, Knoxville, Tennessee, (emphasis added). Even if viewed from the debtor’s
for Appellant. Scott T. Powers, HUNTER, SMITH & perspective, the result is the same in this case. It is
DAVIS, Kingsport, Tennessee, D. Michael Tranum, undisputed that in exchange for payment of the March rent,
HUNTER, SMITH & DAVIS, Johnson City, Tennessee, for the debtor had the right to possess the Weber City premises
Appellee. and equipment for that month. It is also undisputed that the
monthly rental value of the premises and equipment totaled
_________________ $12,825. Therefore, Oakwood Properties gave and the debtor
received $12,825 in value in exchange for the $12,825
OPINION transfer. As such, the transfer was properly excepted from
_________________ avoidance under 11 U.S.C. § 549(b).
RALPH B. GUY, JR., Circuit Judge. Maurice K. Guinn, The fact that the debtor subsequently lost its right to occupy
trustee in bankruptcy for Oakwood Markets, Inc. (debtor), the premises and use the equipment after the foreclosure does
appeals from the judgment affirming the bankruptcy court’s not alter the result. It is undisputed that Oakwood Properties
decision to grant summary judgment to Oakwood Properties, did not seek to reoccupy the premises or take back the leased
Inc. Asserting error by the bankruptcy court, the trustee equipment after the sale on March 7. Instead, Oakwood
claims that (1) the debtor’s post-petition transfers pursuant to Properties honored the possessory right of the party that had
a pre-petition real estate lease were not excepted from obtained the leasehold interests in the course of the sale.
avoidance under 11 U.S.C. § 549(b); (2) the “value” given in Oakwood Properties should not be penalized based upon the
exchange for a transfer should be determined from the debtor’s delinquencies with other unrelated creditors. As a
perspective of the debtor for purposes of § 549(b); and (3) any result, the amount of value that the debtor received was not
value that was given post-petition in exchange for the limited to two days’ occupancy.
transfers did not exceed the value of two days’ occupancy.
Oakwood Properties raises the additional issue on cross- AFFIRMED.
appeal of whether the district court correctly extended the
“date of honor” rule set forth in Barnhill v. Johnson, 503 U.S.
393 (1992), to transfers arising under 11 U.S.C. § 549. After
a review of the record and arguments presented on appeal, we
find no error and affirm.
I.
The facts are undisputed. On April 1, 1985, Oakwood
Properties entered into lease agreements with the debtor to
rent property and equipment in Weber City, Virginia, at a rate
6 In re Oakwood Markets, Inc. Nos. 99-5378/5397 Nos. 99-5378/5397 In re Oakwood Markets, Inc. 3
Canada Ltd. (In re Tennessee Chem. Co.), 112 F.3d 234 (6th of $11,625 and $1,200 per month, respectively. The rent was
Cir. 1997), which adopted the date of receipt rule with payable on the first of each month and subject to a late fee
respect to 11 U.S.C. § 547(c)(4), are controlling. As a result, penalty if not paid by the tenth of the month.
the two disputed transfers that were honored by the debtor’s
bank on March 7, 1996, the day after the commencement of In December 1995, Fleming Companies, Inc., the debtor’s
the debtor’s bankruptcy case, were subject to avoidance under principal creditor and primary supplier of inventory and
§ 549(a). equipment, declared the debtor in default under the terms of
their loan agreements and filed suit in state court seeking the
Next, the trustee challenges the bankruptcy court’s finding appointment of a receiver. With the agreement of Fleming
that the $12,825 transfer was excepted from avoidance under and the debtor, a state court receiver was appointed and a bulk
11 U.S.C. § 549(b) based upon Oakwood Properties’ sale of the debtor’s assets was noticed for March 7, 1996.
provision of rental space to the debtor in exchange for the
transfer. Subsection 549(b) provides: On March 6, 1996, three unsecured creditors filed an
involuntary Chapter 11 bankruptcy petition against the debtor.
In an involuntary case, the trustee may not avoid under The next day, Fleming sought immediate relief from the
subsection (a) of this section a transfer made after the automatic stay provision so it could proceed with the
commencement of such case but before the order for foreclosure sale. The court ordered the sale to proceed with
relief to the extent any value, including services, but not the agreement of Fleming and the petitioning creditors. The
including satisfaction or securing of a debt that arose court also authorized the assignment of leases covering the
before the commencement of the case, is given after the real property upon which the debtor's stores were located.
commencement of the case in exchange for such transfer, The debtor’s leasehold interest in the Weber City premises
notwithstanding any notice or knowledge of the case that was sold at the sale. Oakwood Properties permitted the
the transferee has. assignment and assumption of the lease by the purchaser of
the debtor’s assets. As a result, the debtor occupied the
Id. There is no law in this circuit addressing this subsection Weber City premises on only two days during the period after
in this context. the petition was filed and before the order for relief was
entered.
On March 7, 1996, one day after commencement of the
debtor’s bankruptcy case, but before April 2, 1996, the day On March 5, prior to the filing of the bankruptcy petition,
the order for relief was entered, the debtor transferred Oakwood Properties received two checks from the debtor
payment to Oakwood Properties in exchange for the provision dated March 1: check No. 061184 for $12,825 and check No.
of rental space for the month of March 1996. While the 061199 for $802.63. Both checks were honored by the
underlying lease was executed in 1985, we find that the right debtor’s bank on March 7, the day after the bankruptcy
to use the leased premises and equipment in March 1996 petition was filed.
constituted value given after the commencement of the case
under § 549(b). Pursuant to the lease terms, the debtor was to On April 2, 1996, an order for relief under Chapter 11 was
pay each month’s rent in advance on the first of that month. entered. Upon motion of the petitioning creditors, the
Accordingly, the trustee’s argument that the debtor’s March debtor’s case was subsequently converted to a Chapter 7
1996 rental payment was in satisfaction of a preexisting debt proceeding. The trustee commenced an adversary proceeding
is rejected. against Oakwood Properties in the bankruptcy court to avoid
the debtor’s two March payments as post-petition transfers
4 In re Oakwood Markets, Inc. Nos. 99-5378/5397 Nos. 99-5378/5397 In re Oakwood Markets, Inc. 5
under 11 U.S.C. § 549, and to recover those payments for the II.
benefit of the estate under 11 U.S.C. § 550.
We review de novo the district court’s decision affirming a
Oakwood Properties moved for either dismissal of the grant of summary judgment by a bankruptcy court. See
complaint or entry of summary judgment. The bankruptcy Kentucky Cent. Ins. Co. v. Brown (In re Larbar Corp.), 177
court ruled that the transfers met the requirements for F.3d 439, 443 (6th Cir. 1999). We review the bankruptcy
avoidability under 11 U.S.C. § 549(a), but were excepted court’s conclusions of law de novo and its factual findings for
from avoidance under § 549(b) to the extent of value given by clear error. See Corzin v. Fordu (In re Fordu), ___ F.3d ___,
Oakwood Properties to the debtor in exchange for the No. 97-3936, 1999 WL 1222643, at *13 n.1 (6th Cir. Dec. 22,
transfers. The court also made the following pertinent 1999).
findings: (1) the date of honor rule applied to transfers under
11 U.S.C. § 549; (2) the value provided by Oakwood First, Oakwood Properties argues that the bankruptcy court
Properties in exchange for the March payments was the erred in ruling that the date of honor rule applies to transfers
provision of rental space for the operation of the debtor’s made under 11 U.S.C. § 549. “11 U.S.C. § 549(a) permits a
business in March 1996, rather than the satisfaction of a pre- trustee to avoid a post-petition transfer of property of the
petition debt; (3) the value of the transfers should be estate that occurs after commencement of the case and is not
measured from the perspective of Oakwood Properties; and authorized by the Bankruptcy Code or by the Court.” Still v.
(4) the value given to the debtor was the right to occupy the Rossville Bank (In re Chattanooga Wholesale Antiques, Inc.),
premises during the month of March. Finding that Oakwood 930 F.2d 458, 461 n.2 (6th Cir. 1991) (emphasis added).
Properties did not meet its burden of proving the extent of the Oakwood Properties claims that the disputed transfers
value, the bankruptcy court initially denied Oakwood's motion occurred when it received the checks on March 5, 1996, the
and scheduled trial on the sole issue of value. After the day before commencement of the debtor’s bankruptcy case,
parties stipulated that the March 1996 rental value of the and thus are not avoidable under 11 U.S.C. § 549(a). The
Weber City premises and equipment was $11,625 and $1,200, bankruptcy and district courts disagreed, adopting the date of
respectively, Oakwood Properties again moved for summary honor rule outlined in Barnhill v. Johnson, 503 U.S. 393
judgment. The bankruptcy court granted summary judgment (1992). Under that rule, ordinary checks are deemed
to Oakwood Properties for check No. 061184 ($12,825) transferred on the date they are honored by a bank.
because value was given for that transfer, and to the trustee
for check1 No. 061199 because value was not provided for that We conclude that adoption of the date of honor rule in the
transfer. Both parties appealed the bankruptcy court’s context of 11 U.S.C. § 549(a) is appropriate because this rule
decision to the district court. The district court affirmed the encourages the prompt submission of checks to the bank, and
decision and this appeal followed. provides a date certain upon which parties to the transfer can
rely and upon which courts can base a ruling in the event of
litigation. In contrast, the date of receipt rule leaves too2much
room for manipulation by the parties to the transaction. In so
concluding we find that neither Barnhill, which involved
interpretation of 11 U.S.C. § 547(b), nor Brown v. Shell
1
The payment of $802.63 by check No. 061199 was for an arrearage
owed to Oakwood Properties and thus could not be excepted from 2
avoidance under 11 U.S.C. § 549(b). Oakwood Properties does not argue There is no suggestion or evidence of any date manipulation
otherwise. surrounding the disputed transfers in this case.