Far East National Bank v. United States Trustee (In Re Premier Golf Properties, LP) , 68 Collier Bankr. Cas. 2d 595 ( 2012 )

FILED
1 AUG 13 2012
2 SUSAN M SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5
6 In re: ) BAP No. SC-11-1508-HPaJu
)
7 PREMIER GOLF PROPERTIES, LP, ) Bk. No. 11-07388
)
8 Debtor. )
______________________________)
9 )
)
10 FAR EAST NATIONAL BANK, )
)
11 Appellant, )
)
12 v. ) OPINION
)
13 UNITED STATES TRUSTEE, SAN )
DIEGO; PREMIER GOLF )
14 PROPERTIES, LP, )
)
15 Appellees. )
______________________________)
16
17 Argued and Submitted on July 19, 2012
at Pasadena, California
18
Filed - August 13, 2012
19
Appeal from the United States Bankruptcy Court
20 for the Southern District of California
21 Honorable Peter W. Bowie, Bankruptcy Judge, Presiding
22
23 Appearances: Richard J. Frick of Frick Pickett & McDonald
LLP, argued for the Appellant. Darvy Mack Cohan of the Law
24 Offices of Darvy Mack Cohan argued for Appellee, Premier
Golf Properties, LP.
25
_________________________________
26
27 Before: HOLLOWELL, PAPPAS, and JURY, Bankruptcy Judges.
28
1 HOLLOWELL, Bankruptcy Judge:
2
Far East National Bank (the Bank) filed a motion to prohibit
3
the debtor from using cash collateral. The bankruptcy court
4
denied the motion because it determined that revenue from the
5
debtor’s postpetition green fees and driving range fees did not
6
constitute the Bank’s cash collateral. The Bank appealed. For
7
the reasons given below, we AFFIRM.
8
I. FACTS
9
Premier Golf Properties, L.P. (the Golf Club) owns and
10
operates the Cottonwood Golf Club in El Cajon, California. The
11
Golf Club has two 18-hole golf courses, a driving range, pro
12
shop, and club house restaurant. The Golf Club maintains the
13
golf courses and operates a golf course business on the real
14
property (Land). Its income comes from green fees, range fees,
15
annual membership sales, golf lessons, golf cart rentals, pro
16
shop clothing and equipment sales, and food and beverage
17
services.
18
The Bank financed the Golf Club’s business. In December
19
2007, the Bank loaned the Golf Club $11,500,000. The loan is
20
secured by a Deed of Trust, Security Agreement, Assignment of
21
Leases and Rents and Fixture Filing (Security Documents).
22
According to the Security Documents, the Bank was granted a
23
blanket security interest in all of the Golf Club’s real and
24
personal property. The Security Documents state, in part, that
25
the Bank holds a security interest in all of the following
26
described property “and all proceeds thereof”:
27
All accounts, contract rights, general intangibles,
28 chattel paper, documents, instruments, inventory,
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1 goods, equipment . . ., including without limitation
. . . all revenues, receipts, income, accounts,
2 customer obligations, installment payment obligations
. . . accounts receivable and other receivables,
3 including without limitation license fees, golf club
and membership initiation fees, green fees, driving
4 range fees, golf cart fees, membership fees and dues,
revenues, receipts, . . . and profits . . . arising
5 from (i) rentals, . . license, concession, or other
grant of right of possession, use or occupancy of all
6 or any portion of the Land, and . . . (ii) the
provision or sale of any goods and services . . . .
7
8 Additionally, the Security Documents included an Assignment
9 of Rents and Leases assigning the Bank an interest in:
10 all agreements affecting the use, enjoyment or
occupancy of the Land now or hereafter entered into
11 (the “Leases”) and all rents, prepayments, security
deposits, termination payments, royalties, profits,
12 issues and revenues from the Land . . . accruing under
the Leases . . . .
13
14 The Bank filed UCC-1 Financing Statements listing the same
15 collateral as that in the Security Documents.
16 On May 2, 2011, the Golf Club filed a chapter 11 bankruptcy
17 petition. It continued to operate its business as debtor in
18 possession. The Golf Club opened a new bank account designated
19 for cash collateral and segregated in that account its
20 prepetition cash and receivables from goods and inventory sold,
21 but did not segregate the revenue received from green fees and
22 driving range fees.
23 On May 13, 2011, the Bank filed an emergency motion to
24 prohibit the Golf Club from using cash collateral. The Bank
25 asserted that the Golf Club was using the Bank’s cash collateral
26 in its ordinary course of business without the Bank’s consent and
27 without providing adequate protection.
28 On May 22, 2011, the Golf Club filed an opposition,
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1 asserting that it was not using the Bank’s cash collateral but
2 was operating the estate from its own postpetition income. The
3 Golf Club argued that the postpetition income from the sale of
4 golf memberships, green fees, cart rentals, the sale of buckets
5 of balls for the driving range, and food and beverage service was
6 not the proceeds, profits, or products of the Bank’s collateral.
7 In its reply, the Bank focused its argument on the revenue
8 from the green fees and driving range fees. It argued the fees
9 were cash collateral because they were rents derived from the use
10 of the Land.1 Alternatively, the Bank argued that if the green
11 fees and driving range fees were not rents, they were still cash
12 collateral because they were proceeds or profits of its personal
13 property collateral.
14 A hearing was held June 2, 2011. The bankruptcy court took
15 the matter under advisement. On September 1, 2011, the
16 bankruptcy court entered a written decision and order denying the
17 Bank’s Motion to Prohibit Use of Cash Collateral. In re Premier
18 Golf Props., L.P., 2011 WL 4352003 (Bankr. S.D. Cal. Sept. 1,
19 2011). The bankruptcy court held that the revenue received by
20 the Golf Club for green fees and driving range fees was not the
21 rents or proceeds of the Bank’s security and therefore, was not
22 cash collateral. The Bank timely appealed.
23 II. JURISDICTION
24
25
1
Although the Bank focused on green fees and driving range
26 fees, it stated that it did not waive its right to other
27 postpetition income. However, the only issue for our review in
this appeal is whether the Golf Club’s green fees and driving
28 range fees are cash collateral.
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1 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
2 § 1334 and 28 U.S.C. § 157(b)(2)(M). We have jurisdiction under
3 28 U.S.C. § 158.
4 III. ISSUE
5 Did the bankruptcy court err in determining that
6 postpetition revenue from the Golf Club’s green fees and driving
7 range fees was not rents, proceeds, or profits of the Bank’s
8 prepetition security, and therefore, did not constitute cash
9 collateral?
10 IV. STANDARDS OF REVIEW
11 We review de novo whether the funds in question are cash
12 collateral. Zeeway Corp. v. Rio Salado Bank (In re Zeeway
13 Corp.), 71 B.R. 210, 211 (9th Cir. BAP 1987).
14 V. DISCUSSION
15 A. Cash Collateral
16 A debtor in possession is prohibited from using cash
17 collateral absent authorization by the court or consent from the
18 entity that has an interest in the collateral. 11 U.S.C.
19 § 363(c)(2). Cash collateral consists of “cash, negotiable
20 instruments . . . deposit accounts, or other cash equivalents
21 whenever acquired in which the estate and an entity other than
22 the estate have an interest.”2 11 U.S.C. § 363(a).
23
24 2
Section 363(a) provides that:
25 cash collateral means cash, negotiable instruments . . .
deposit accounts, or other cash equivalents whenever
26 acquired in which the estate and an entity other than the
27 estate have an interest and includes the proceeds,
products, offspring, rents, or profits of property and the
28 (continued...)
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1 As a general rule, postpetition revenue is not cash
2 collateral. Under § 552(a), a creditor’s prepetition security
3 interest does not extend to property acquired by the debtor
4 postpetition even if there is an “after acquired” clause in the
5 security agreement.3 11 U.S.C. § 552(a). The purpose of § 552(a)
6 is “to allow a debtor to gather into the estate as much money as
7 possible to satisfy the claims of all creditors.” Philip Morris
8 Capital Corp. v. Bering Trader, Inc. (In re Bering Trader, Inc.),
9 944 F.2d 500, 502 (9th Cir. 1991); Arkison v. Frontier Asset
10 Mgmt., LLC (In re Skagit Pac. Corp.), 316 B.R. 330, 335 (9th Cir.
11 BAP 2004).
12 Section 552(b) provides an exception to this rule. Section
13 552(b)(1) allows a prepetition security interest to extend to the
14 postpetition “proceeds, products, offspring, or profits” of
15 collateral to be covered by a security interest if the security
16 agreement expressly provides for an interest in such property and
17 the interest has been perfected under applicable nonbankruptcy
18
19
20 2
(...continued)
fees, . . . or other payments for the use or occupancy
21
. . . lodging properties subject to a security interest as
22 provided in section 552(b) of this title, whether existing
before or after the commencement of a case under this
23 title.
24 3
Section 552:
25 (a) Except as provided in subsection (b) of this
section, property acquired by the estate or by the
26 debtor after the commencement of the case is not subject
27 to any lien resulting from any security agreement
entered into by the debtor before the commencement of
28 the case.
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1 law.4 Additionally, § 552(b)(2) provides similar treatment for
2 “amounts paid as rents of such property or the fees, charges,
3 accounts, or other payments for the use or occupancy of rooms and
4 other public facilities in hotels, motels, or other lodging
5 properties.”5 Read together, the provisions of § 363(c)(2) and
6
7
8 4
Section 552(b)(1):
9 Except as provided in sections 363, 506(c), 522, 544, 547,
and 548 of this title, if the debtor and an entity entered
10 into a security agreement before the commencement of the
11 case and if the security interest created by such security
agreement extends to property of the debtor acquired
12 before the commencement of the case and to proceeds,
products, offspring, or profits of such property, then
13
such security interest extends to such proceeds, products,
14 offspring, or profits acquired by the estate after the
commencement of the case to the extent provided by such
15 security agreement and by applicable nonbankruptcy law,
16 except to any extent that the court, after notice and a
hearing and based on the equities of the case, orders
17 otherwise.
18 5
Section 552(b)(2):
19 Except as provided in sections 363, 506(c), 522, 544, 545,
547, and 548 of this title, and notwithstanding section
20 546(b) of this title, if the debtor and an entity entered
into a security agreement before the commencement of the
21 case and if the security interest created by such security
22 agreement extends to property of the debtor acquired
before the commencement of the case and to amounts paid as
23 rents of such property or the fees, charges, accounts, or
other payments for the use or occupancy of rooms and other
24
public facilities in hotels, motels, or other lodging
25 properties, then such security interest extends to such
rents and such fees, charges, accounts, or other payments
26 acquired by the estate after the commencement of the case
27 to the extent provided in such security agreement, except
to any extent that the court, after notice and a hearing
28 and based on the equities of the case, orders otherwise.
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1 § 552(b) protect a creditor’s collateral from being used by a
2 debtor postpetition if the creditor’s security interest extends
3 to one of the categories set out in § 552(b). Put another way, a
4 creditor is not entitled to the protections of § 363(c)(2) unless
5 its security interest satisfies § 552(b). Section 552(b)
6 “balances the Code’s interest in freeing the debtor of
7 prepetition obligations with a secured creditor’s rights to
8 maintain a bargained-for interest in certain items of
9 collateral.” In re Bering Trader, Inc., 944 F.2d at 502. It
10 provides “a narrow exception to the general rule of 552(a).” Id.
11 (emphasis in original).
12 The Bank has the burden of establishing the existence and
13 the extent of its interest in the property it claims as cash
14 collateral. 11 U.S.C. § 363(p)(2); In re Las Vegas Monorail Co.,
15 429 B.R. 317, 328 (Bankr. D. Nev. 2010). Thus, the Bank was
16 required to show that (1) its security agreement extended to the
17 Golf Club’s postpetition revenue from green fees and driving
18 range fees and (2) the green fees and driving range fees were
19 proceeds, products, rents or profits of its prepetition
20 collateral. In re Bering Trader, Inc., 944 F.2d at 501; In re
21 Cafeteria Operators, L.P., 299 B.R. 400, 405 (Bankr. N.D. Tex.
22 2003).
23 B. Rents
24 In 1987, the Ninth Circuit Bankruptcy Appellate Panel (BAP)
25 articulated a general test for determining whether income from
26 real property constitutes rents: If the income is produced by the
27 real property, it is considered rents; but if the income is the
28 result of services rendered or the result of the specific
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1 business conducted on the property, then it does not constitute
2 rents. In re Zeeway Corp., 71 B.R. at 211-12. In applying its
3 test, the BAP concluded that gate receipts generated by
4 postpetition races at the debtor’s racetrack were not within the
5 scope of rents subject to the creditor’s deed of trust because
6 the income was not produced by the occupancy or use of the real
7 property, but by the services that the raceway provided.6 Id.8 Courts have applied the Zeeway test in deciding if a
9 debtor’s income from its business operations is rents within
10 § 552(b). Prior to 1994, “rents” was included in the
11 § 552(b)(1) exception and there was a long-running dispute in the
12 courts about whether hotel revenues were rents. See, e.g., In re
13 S.F. Drake Hotel Assocs., 131 B.R. 156, 159-60 (Bankr. N.D. Cal.
14 1991) aff’d, 147 B.R. 538 (N.D. Cal. 1992); Greyhound Real Estate
15 Fin. Co. v. Official Unsecured Creditors’ Comm. (In re Northview
16 Corp.), 130 B.R. 543, 548 (9th Cir. BAP 1991). However, the
17 addition of § 552(b)(2) resolved the dispute by treating hotel
18 room revenue the same as rents. Nevertheless, courts continue to
19
6
20 In dicta, the BAP considered that based on its test,
income from the sale of crops, was not rents but the issues or
21 profits derived from the utilization of the land. Zeeway, 71
22 B.R. at 211. It also observed that income generated by a
restaurant or retail store, although produced in part by the use
23 of the real property upon which business is conducted, was the
result of the services provided by the business, and therefore,
24
not rents. Id. Other applications of the Zeeway test include
25 the BAP’s holding that revenue received by a nursing home for
care of patients was not rents because “[t]hat the patients live
26 there is incidental to the fact that the nursing home is
27 providing [the patients] with care.” U.S. Dep’t of Housing &
Urban Dev. v. Hillside Assocs. (In re Hillside Assocs. Ltd.
28 P’ship), 121 B.R. 23, 24 (9th Cir. BAP 1990).
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1 confront the question of what constitutes rents in non-hotel
2 cases and refer to pre-1994 case law analysis regarding whether a
3 debtor’s income was produced by the real property or by the
4 services on the property.
5 Courts have used the Zeeway test to determine whether
6 revenue from green fees and similar use fees is rents
7 constituting cash collateral. The first of those decisions, In
8 re GGVXX, Ltd., 130 B.R. 322, 326 (Bankr. D. Colo. 1991), held
9 that revenue from green fees and use fees was not directly tied
10 to or wholly dependent on the use of the real property, but was
11 the result of the operation of the golf course business, and
12 therefore, was not rents. The court determined that “a temporary
13 right to enter upon real property and partake of the services
14 offered thereon is not the same as an interest in real property.”
15 Id. Thus, it concluded that the relationship to the real
16 property was “too attenuated from the actual real estate to
17 reasonably be considered as directly derived from the use of the
18 land.” Id.19 Similarly, the court in In re Everett Home Town Ltd. P’ship,
20 146 B.R. 453, 456 (Bankr. D. Ariz. 1992) held that although
21 revenue from green fees was produced in part by the use of the
22 real property, the income was the result of the services provided
23 by the golf club business. However, it further held that revenue
24 from suite fees was rents because, like a hotel room, the main
25 charge was for the occupancy of the suite. Id. at 457.
26 The Bank asserts that the Ninth Circuit’s opinion in Fin.
27 Sec. Assurance, Inc. v. Days Cal. Riverside Ltd. P’ship (In re
28 Days Cal. Riverside Ltd. P’ship), 27 F.3d 374 (9th Cir. 1994)
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1 altered the Zeeway test. The Bank argues that Days created a new
2 approach to determining whether income was rents by focusing on
3 the economics of the case from the perspective of the source of
4 the revenue and the bargain of the parties. Thus, the Bank
5 argues that determining if revenue is rents must take into
6 account the perspective of the lender, the contractual and
7 economic intent of the parties at the time the loan was made, and
8 the economic consequences on the financing market if § 552(b) is
9 read too narrowly.
10 The Bank contends that revenue from the green fees and
11 driving range fees is a primary component of the value of the
12 Land. It argues that “[l]ike hotels, the value of golf courses,
13 both for financing and investment purposes, is principally based
14 on the net operating income of the golf course, a principal
15 component of which is green fees and driving range fees.” To
16 give meaning to the benefit of the parties’ agreement, the Bank
17 asserts that the Golf Club’s income from green fees and driving
18 range fees must be considered rents generated from the Land.
19 The Bank’s argument is unpersuasive. The Ninth Circuit in
20 Days concluded that hotel room charges were rents based on its
21 determination that under California law, room rent is “produced
22 by the property.” 27 F.3d at 377. Its conclusion was
23 “buttressed by, although . . . not dependent upon, the
24 distinction made in In re Bering Trader, Inc., 944 F.2d at 502,
25 between income that is derivative from the secured property and
26 income that is derived from services.” Id. Thus, the Days court
27 did not erode the Zeeway test in favor of a different approach.
28 The Days court was mindful that hotel financing depended on
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1 access to the stream of revenue produced by the hotels and that
2 excluding hotel receipts from the scope of rents would cut
3 against the bargain made by the parties. However, it based its
4 decision on the premise that room rent was generated from the
5 occupancy of real property and differentiated between revenue
6 from occupancy of rooms and revenue that was generated by other
7 services provided by the hotel. Id. Consequently, the Zeeway
8 test remains a viable guideline for determining if revenue
9 constitutes rents.
10 Moreover, to interpret Days as requiring the court to
11 consider the parties’ expectations regarding their bargained-for
12 financing arrangement would erode § 552(a). Adopting the Bank’s
13 approach would mean that because the parties executed the
14 Security Documents with the understanding that the Bank’s
15 security interest extended to green fees and driving range fees,
16 such fees would also be covered postpetition. But as the
17 bankruptcy court noted, the Bank’s “approach would write the
18 general rule of § 552(a) out of existence.” In re Premier Golf
19 Props., LP, 2011 WL 4352003 at *3 (“Congress was looking to
20 protect the secured creditor’s interest in its prepetition
21 collateral, . . .[only] to the extent it was consumed,
22 dissipated, transformed or transmuted.”).
23 The bankruptcy court noted that the key to a golf club’s
24 generation of income is due to the regular planting, seeding,
25 mowing, repositioning holes, watering, fertilizing, and
26 maintaining the golf course. Based on Zeeway and Days, we agree
27 with the bankruptcy court and conclude that the Golf Club’s
28 revenue from green fees and driving range fees is not produced
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1 from the Land as much as generated by other services that are
2 performed on the Land, and therefore, is not rents.
3 Unlike hotel cases where the revenue from room rental
4 derives primarily from the usage of real property as shelter or
5 occupancy, a golf course derives its revenue primarily from the
6 usage of real property as entertainment. See, e.g., In re
7 Everett Home Town Ltd. P’ship, 146 B.R. at 457 (hotel client
8 mainly pays for the occupancy of the property); In re S.F. Drake
9 Hotel Assocs., 131 B.R. at 161 (rent is “compensation for use of
10 property . . . taken with the knowledge that a lodger primarily
11 seeks shelter not service.”). As a result, the bankruptcy court
12 did not err in determining that the Golf Club’s green fees and
13 driving range fees were not rents subject to the Bank’s real
14 property security interest.
15 C. Proceeds
16 The Bank alternatively argues that if the Golf Club’s
17 postpetition green fees and driving range fees are not rents,
18 they are proceeds of the Bank’s security interest in the Golf
19 Club’s intangible property.
20 As discussed above, distinguishing between after-acquired
21 property and what may fall within § 552(b)’s exceptions is key to
22 determining what is cash collateral. A creditor’s interest in
23 proceeds, products, offspring, or profits are secured “to the
24 extent provided by . . . applicable nonbankruptcy law.” Thus,
25 Congress intended to defer to state law, namely, the Uniform
26 Commercial Code (UCC), in making the determination of what
27
28
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1 constitutes proceeds.7 In re Skagit Pac. Corp., 316 B.R. at 337
2 (stating that whether particular property constitutes proceeds is
3 determined by state law and applying the UCC); In re Las Vegas
4 Monorail Co., 429 B.R. at 343 (same).
5 UCC § 9-102(a)(64) defines proceeds as:
6 (A) whatever is acquired upon the sale, lease, license,
exchange, or other disposition of collateral;
7 (B) whatever is collected on, or distributed on account
of, collateral;
8 (C) rights arising out of collateral . . .
9 Accordingly, postpetition proceeds, products, offspring, or
10 profits are subject to an after-acquired property clause only if
11 they derive from prepetition collateral. See In re Bering
12 Trader, Inc., 944 F.2d at 502.
13 Here, the Bank holds a perfected security interest in
14 general intangibles, including the Golf Club’s personal property,
15 licenses, payment obligations and receipts. A “general
16 intangible” means:
17 any personal property, including things in action,
other than accounts, chattel paper, commercial tort
18 claims, deposit accounts, documents, goods,
instruments, investment property, letter-of-credit
19 rights, letters of credit, money, and oil, gas, or
other minerals before extraction. The term includes
20 payment intangibles and software.
21
22
23 7
However, there is legislative history associated with
24 § 552(b) that states “[t]he term ‘proceeds’ is not limited to the
technical definition of that term in the UCC, but covers any
25 property into which property subject to the security interest is
26 converted.” H.R. Rep. No. 95-595, 95 th Cong., 1 st Sess. 377
(1977). Notwithstanding the recognition that a broader
27 definition of proceeds may be available, courts generally look to
the UCC’s definition of proceeds. See In re Cafeteria Operators,
28 LP, 299 B.R. at 406 n. 2 (citations omitted).
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1 UCC § 9-1-102(a)(42). “General intangibles” is a “residual”
2 category of personal property, and includes rights that arise
3 under a license and payment intangibles. See Official Comment
4 5(d). The question we must answer is whether the revenue from
5 the Golf Club’s green fees and driving range fees was acquired on
6 the disposition of, or collected on, the Golf Club’s general
7 intangible property making them proceeds of the Bank’s
8 collateral.
9 a) Licenses
10 A license is a contract that authorizes the use of an asset
11 without an accompanying transfer of ownership. See Everex Sys.
12 Inc., v. Cadtrak Corp. (In re CFLC, Inc.), 89 F.3d 673, 677 n.2
13 (9th Cir. 1996). There is no real dispute that the Golf Club
14 licenses the use of the Land to golfers who pay for “a temporary
15 right to enter upon real property and partake of the services
16 offered thereon.” In re GGVXX, Ltd., 130 B.R. at 326; In re The
17 Wright Group, Inc., 443 B.R. 795, 800 (Bankr. N.D. Indiana 2011)
18 (transaction between miniature golf operation and its customers
19 consists of a license for access to real property). Thus,
20 “[g]olfers, by paying a greens fee, become mere licensees,
21 entitled to the non-exclusive use of the golf course for a short
22 period of time.” In re GGVXX, Ltd., 130 B.R. at 326.
23 The bankruptcy court addressed the Bank’s argument that
24 green fees and driving range fees were revenue from licenses to
25 use the Land. However, the bankruptcy court concluded the UCC
26 was inapplicable. We disagree. A license or access to golf
27 premises is not an interest in real estate. Id.; In re The
28 Wright Group, Inc., 443 B.R. at 800. Therefore, proceeds
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1 received from a license are not subject to a security interest
2 perfected under real property law. Instead, proceeds from a
3 license are considered personal property. UCC § 9-1-102(a)(64);
4 Sacramento Mansion, Ltd. v. Sacramento Sav. & Loan Ass’n (In re
5 Sacramento Mansion, Ltd.), 117 B.R. 592, 607 (Bankr. D. Colo.
6 1990); In re GGVXX, Ltd., 130 B.R. at 326.
7 The Golf Club asserts that because the licenses belonged to
8 the golfers, not the Golf Club, they were not part of the Bank’s
9 security interest. That argument is unpersuasive. The Golf
10 Club, as licensor, collects payment in exchange for providing a
11 license to golfers to use its facilities. It is akin to a
12 software license, where a security interest covers the proceeds
13 generated by the owner’s grant of a license to the users of the
14 software. A bank’s security interest in the software company’s
15 licenses would extend to the payments generated by the sale of
16 the licenses to customers.
17 However, the BAP has noted that “revenue generated by the
18 operation of a debtor’s business, post-petition, is not
19 considered proceeds if such revenue represents compensation for
20 goods and services rendered by the debtor in its everyday
21 business performance . . . . Revenue generated post-petition
22 solely as a result of a debtor’s labor is not subject to a
23 creditor’s pre-petition interest.” In re Skagit Pac. Corp., 316
24 B.R. at 336. Section 552(b) is “intended to cover after-acquired
25 property that is directly attributable to prepetition collateral,
26 without addition of estate resources.” Alan N. Resnick & Henry
27 J. Sommer eds., COLLIER ON BANKRUPTCY, ¶ 552.02[2] (16th ed. 2012)
28 (emphasis added); see also, In re Northview Corp., 130 B.R. at
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1 548 (proceeds, profits and rents are the result of collateral’s
2 conversion into new forms without the aid of new services or
3 assets).
4 The Golf Club must maintain the Land regularly as part of
5 its business operation by mowing, planting, watering,
6 fertilizing, and repairing the grass, raking sand traps, re-
7 positioning the holes, and retrieving golf balls from the range.
8 Thus, the revenue that the Golf Club generates postpetition on
9 the licenses is not merely from issuing a license to its
10 customers but is largely the result of the Golf Club’s labor and
11 own operational resources, which make the license valuable to
12 golfers. See, e.g., In re S & J Holding Corp., 42 B.R. 249, 250
13 (Bankr. S.D. Fla. 1984) (cash revenue from debtor’s video and
14 vending machines was not proceeds of security interest in
15 intangible assets because the cash was received from the use of
16 the collateral rather than its sale). Consequently, although the
17 green fees and driving range fees may be “collected on” the Golf
18 Club’s licenses, they are not proceeds generated from the Bank’s
19 collateral.
20 b) Payment Intangibles
21 We next determine whether the revenue from the Golf Club’s
22 green fees and driving range fees constitute proceeds of the
23 Bank’s security interests in other general intangible property.
24 Although case law on this issue is sparse, we do have the benefit
25 of an Indiana bankruptcy court’s analysis of whether income
26 derived from a debtor’s operation of a miniature golf course
27 facility constituted proceeds of the creditor’s security interest
28 in intangible property. In re The Wright Group, Inc., 443 B.R.
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1 at 802-03. There, the court determined that the transaction
2 between the debtor and its customers was a simultaneous
3 transaction by which the debtor granted a license for use of the
4 course at the same time that the customer paid the fee for the
5 license. Because there was no debt or monetary obligation
6 created, there was no account8 or payment intangible,9 and
7 consequently, no proceeds of the collateral was generated. Id.8 at 801-02.
9 Instead, the court determined that the postpetition revenue
10 from the miniature golf customers constituted “money,” which did
11 not fall under the definition of a general intangible and could
12 only be perfected by possession. Id. at 805-06; See also In re
13 S & J Holding Corp., 42 B.R. at 250 (cash from video game
14 machines). The court determined that since “implicit in the
15 concept of ‘cash collateral’ is that a creditor has an
16 enforceable security interest,” the receipts did not constitute
17 cash collateral because the creditor did not have possession of
18 the cash receipts paid by the customers. Id. at 805.
19 The reasoning of the court in In re The Wright Group, Inc.,
20 is sound: the payment of green fees and driving range fees by
21 golfers to use the golf course is a simultaneous transaction that
22 does not produce a monetary obligation. As a result, the revenue
23
8
24 An “account” is a “right to payment of a monetary
obligation, whether or not earned by performance, (i) for
25 property that has been or is to be sold, leased, licensed,
26 assigned or otherwise disposed of, . . . .” UCC § 9-102(a)(2).
9
27 A “payment intangible” means “a general intangible under
which the account debtor’s principal obligation is a monetary
28 obligation.” UCC § 9-102(a)(61).
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1 is not derived from a creditor’s security interest in general
2 intangibles. Therefore, we conclude that the green fees and
3 driving range fees are not proceeds of the Bank’s security
4 interest and do not constitute the Bank’s cash collateral.
5 D. Profits
6 In In re Northview Corp., 130 B.R. at 548, the BAP noted
7 that the term “profits” in § 552(b) refers to the sale of real
8 property to which a perfected security interest attached. Thus,
9 profits arise out of the ownership of real property and derive
10 from conversion of the property into some other property. Id.
11 We already concluded that the green fees and driving range fees
12 are not derivative of the Bank’s security interest in the Land
13 when we determined that the fees were not in the nature of rents.
14 As a result, the green fees and driving range fees are not
15 profits of the Bank’s security interest in the Land.
16 VI. CONCLUSION
17 The postpetition revenue from the Golf Club’s green fees and
18 driving range fees is not the rents, proceeds or profits of the
19 Bank’s security interest within the exceptions of § 552(b).
20 Accordingly, we conclude that the green fees and driving range
21 fees are not the Bank’s cash collateral. Therefore, we AFFIRM.
22
23
24
25
26
27
28
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