UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT …

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

In re:

)

)

Chicago Truck Center, Inc.,

)

)

Debtor.

)

___________________________________ )

)

David Leibowitz, as Chapter 7

)

Trustee for the Estate of Chicago Truck )

Center, Inc., and not individually,

)

)

Plaintiff,

)

)

v.

)

)

General Motors Acceptance Corporation, )

)

Defendant.

)

Case No. 02 B 10050 Chapter 7

Adv. No. 04 A 1575 Judge Pamela S. Hollis

MEMORANDUM OPINION

This matter comes before the court on the Second Amended Complaint of David

Leibowitz, as Trustee of the Chapter 7 Estate of Chicago Truck Center (the "Trustee")

seeking to avoid as fraudulent certain transfers made by Chicago Truck Center, Inc.

("CTC") to General Motors Acceptance Corporation ("GMAC") under Sections

548(a)(1)(A) and (a)(1)(B) of Title 11 of the United States Code (the "Bankruptcy Code")1, 740 ILCS 160/5(a)(1) and (2) and 740 ILCS 160/6(a) (as adopted in Illinois, the

"UFTA") (the "Complaint"). After two days of trial and additional review of admitted

deposition testimony, documents, and post trial briefs, the court enters judgment on all

1 Because the underlying bankruptcy case was filed in 2002, the court will apply the Bankruptcy Code in effect prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. See London-Marable v. Sterling, Adv. No. 06-00274-RTB, 2008 WL 2705374, *3 (D. Ariz. July 9, 2008).

counts in favor of the defendant GMAC and against the plaintiff, David Leibowitz, as Chapter 7 Trustee for the Estate of Chicago Truck Center, Inc.

THEORY OF CASE The Trustee essentially alleges that GMAC conspired with its affiliate company General Motors Corporation ("GM") and GM's long time customer, Penske Truck Leasing ("Penske"), to strip the debtor CTC of its assets. Damages sought include money CTC still owes to other creditors (approximately $9 million) and/or GM/GMAC profits from keeping CTC alive to do business with Penske (about $74 million). GMAC's position is that it financed CTC's purchase of vehicles from GM in order to permit CTC to resell the vehicles to Penske. The only payments or transfers GMAC received from CTC were for repayment of CTC's debts owed to GMAC as a result of the floor plan financing arrangement, which was secured by the vehicles financed. Other than CTC's repayment of this debt to GMAC, the Trustee appears to acknowledge that no transfers were made by CTC to GMAC. However, the Trustee points out that a fraudulent conveyance can include the undertaking of an obligation by a debtor in addition to transfers from the debtor. He asserts that an agreement between GM, CTC and Penske was such an "obligation", the effect of which permitted Penske to be paid in full on a $3.6 million dollar debt owed to it by CTC (the "Repayment Agreement"). Remarkably, the Trustee does not seek recovery against the actual parties to the Repayment Agreement -- GM or Penske -- but sues only GMAC, presumably hoping to argue that GM and GMAC are the same. Even assuming GM and GMAC are alter egos of each other, the Trustee is simply complaining that Penske and possibly GM/GMAC improved their position by receiving full payment on an

2

antecedent debt. Although such an improvement may constitute a preference over some creditors if close to the bankruptcy filing, it is not a fraudulent conveyance if the debtor simply repays a legitimate debt.2 The evidence establishes that this is really all that happened here.

JURISDICTION Under 28 U.S.C. ? 1334(a), the district courts have exclusive jurisdiction over bankruptcy cases. The District Court for the Northern District of Illinois referred its bankruptcy cases to the bankruptcy court of this district pursuant to 28 U.S.C. ? 157(a) and its own Internal Operating Procedure 15(a). When presiding over a referred case, the bankruptcy court has jurisdiction under 28 U.S.C. ? 157(b)(1) to enter orders and judgments in core proceedings within the case. This adversary is a core proceeding under 28 U.S.C. ? 157(b)(2)(H) (proceedings to determine, avoid, or recover fraudulent conveyances). This court may therefore enter final judgments in these proceedings.

FINDINGS OF FACT In accordance with Federal Rule of Bankruptcy Procedure 7052(a), the court finds: 1. Starting as early as the 1960's, GM sold new trucks to Penske, which is involved in the truck rental and leasing business. As part of this arrangement, GM bought back used trucks from Penske and resold them. These transactions were conducted through CTC, which was a truck dealer owned by GM. Accordingly, the Penske business initially started when GM was in control of CTC. (Kloepper Dep. 58, 231, Dec. 12, 2004.)

2 Any improvement in position by Penske or GM/GMAC as a result of CTC entering into the Repayment Agreement could not be avoided as a preference under 11 U.S.C. ? 547, since the Repayment Agreement or "obligation" arose outside the 90 day and one-year preference periods.

3

2. In the early 1990's GM established Motors Holding Company ("MH") to increase minority ownership of automotive dealerships. Subsequently, GM transferred its ownership interest of CTC to MH. Also around that time Robert Hatcher ("Hatcher"), a minority individual, acquired a portion of CTC but not a controlling interest.3

3. Beginning in 1993, CTC and GMAC entered into a financing relationship whereby GMAC provided floor plan financing to CTC. This relationship began on December 2, 1993, when CTC and GMAC entered into a Wholesale Security Agreement and Floorplan Inventory Loan and Security Agreement (together with all related amendments, the "Financing Agreements"). (GMAC Ex. A, B.) On January 10, 1994, GMAC perfected its security interest by filing a financing statement with the Illinois Secretary of State. (GMAC Ex. K.)

4. On November 16, 1994, CTC and GMAC executed additional amendments to the Financing Agreements, which gave CTC a delayed payment privilege ("DPP"). Under the DPP, when CTC sold a truck, GMAC would retain its security interest in the vehicle until the purchaser made payment directly to GMAC -- or to CTC and GMAC jointly. (GMAC Ex. D.)

5. On July 1, 1995, CTC and GMAC amended the Financing Agreements again, reflecting that under the DPP, CTC authorized the end purchaser (Penske in this case) to pay GMAC directly. (GMAC Ex. D.) CTC assigned its right, title and interest in the sale proceeds from the purchaser to GMAC, and authorized GMAC to direct the purchaser to deliver the DPP payment directly to GMAC. Id.

3 A GMAC credit report dated August 31, 1999 stated in part: "...previously Mr. Hatcher held a 41% minority ownership interest while GMC Truck Motors Development Corporation (GTMDC) held a 59% majority interest. GTMDC is a holding company jointly owned by the GMC and Motors Holding Divisions." (Ex. 4 to Kloepper Dep.)

4

6. In April of 1998, Hatcher bought out GM/MH, and became the sole shareholder and president of CTC.

7. On several occasions, GMAC amended its security agreements, filed continuation statements to ensure perfection of the floor plan arrangement and caused CTC to enter into new security agreements both before and after Hatcher gained full control of CTC.

8. On March 29, 1999 GMAC wrote Penske a letter informing Penske that GMAC was financing CTC and that Penske should pay GMAC directly for the new trucks purchased from CTC, pursuant to CTC's assignment to GMAC.

9. Even prior to the year 2000, CTC had pledged virtually all its assets to GMAC in exchange for the floor plan financing. (Trial Tr., vol. 2, 101, Oct. 19, 2007.)

10. In a letter dated July 28, 1999, CTC President Hatcher thanked GM for helping CTC to retain the Penske business by securing Penske's commitment to buy 2000 and 2001 model year trucks from CTC. The letter stated in part:

As you are aware, last week Penske committed to approximately 8,500 orders, over the next two model years, consisting of 3000 medium duty units and 5500 vans...The General Motors Team ...was a vital part of this success....As you know, retaining an account the size of Penske Truck Leasing is extremely difficult, given the complexity of these deals and current competitive climate..." (Kl. Ex. 3.)4 11. On August 31, 1999, a GMAC credit report noted that CTC was experiencing negative cash flow but indicated: "The overall profitable operating results and the protection afforded by DPP procedures provide a basis to recommend approval of the proposed credit lines until September 30, 2000..." (Kl. Ex. 4.)

4 The majority of the Trustee's exhibits are sub-exhibits to its Exhibit 33, the Deposition of Norm Kloepper. Mr. Kloepper monitored the CTC account for GMAC. All references to these sub-exhibits will be cited as Kl. Ex. __.

5

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download