Payne v. Clarendon National

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
OCT 26 1999
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
In re:
SUNSET SALES, INC., doing
business as K&R Coal Company, No. 97-6430
doing business as Sans Bois Coal (D.C. No. CIV-95-1033-T)
Company, (W.D. Okla.)
Debtor.
DAVID PAYNE, Trustee,
Plaintiff,
v.
CLARENDON NATIONAL
INSURANCE COMPANY;
U.S. CAPITAL INSURANCE,
COMPANY; VAN AMERICAN
INSURANCE CO., INC.,
Defendants-Third-Party
Plaintiffs-Appellants,
v.
DELTA CONTRACTING INC.;
ROGER DAHLGREN,
Third-Party-Defendants,
and
FIRST NATIONAL BANK OF
EDMOND,
Third-Party
Defendant-Appellee.
ORDER AND JUDGMENT *
Before BALDOCK , BARRETT , and BRORBY , Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument.
This case arises out of the efforts of the liquidating trustee in the
Chapter 11 bankruptcy proceedings of Sunset Sales, Inc. to avoid as preferential
transfers various payments made to Clarendon National Insurance Co., U.S.
Capital Insurance Co., and Van-American Insurance Co. (collectively, “the
Bonding Companies”) by Sunset Sales’ predecessor in interest, K&R Coal Co.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
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The Bonding Companies filed a third-party complaint against First National Bank
of Edmond (“FNB”) and two other parties, alleging claims for indemnity and
contribution. At the behest of one of the third-party defendants, the referral to the
bankruptcy court was withdrawn and the case was transferred back to the district
court. FNB moved for summary judgment on the Bonding Companies’ third-party
claims, and the district court entered judgment for FNB. Having obtained a
certification from the district court that the summary judgment for FNB was final
and appealable under Fed. R. Civ. P. 54(b), the Bonding Companies now appeal
the denial of their claims for contribution. 1
We exercise jurisdiction pursuant to
28 U.S.C. § 1291, and affirm.
The Bonding Companies are in the business of providing reclamation
performance bonds to coal mining operations for the benefit of state and federal
governments. Clarendon issues bonds on nonfederal leases, U.S. Capital issues
bonds on federal leases, and their servicing agent is Van-American. In April
1991, K&R Coal Co., an Oklahoma corporation engaged in coal mining, asked
the Bonding Companies to provide reclamation performance bonds for K&R’s
ongoing operations.
1
The Bonding Companies do not challenge the district court’s ruling on their
claims for indemnification, so we deem that matter waived on appeal. See State
Farm Fire & Cas. Co. v. Mhoon , 31 F.3d 979, 984 n.7 (10th Cir. 1994).
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The Bonding Companies agreed to provide the necessary bonds, for which
they would receive annual premiums, as well as collateral payments. In May
1991, K&R Coal and a subsidiary, as principals, entered into a general indemnity
contract with Clarendon, and thereafter Clarendon issued five bonds on behalf of
the principals. In October 1991, K&R Coal, its subsidiary and another affiliate,
as principals, entered into a similar indemnity agreement with U.S. Capital, and
thereafter U.S. Capital issued eleven bonds on behalf of the principals. No
payments were made on any of the bonds until January 1992. Between January
and September 1992, K&R Coal made payments totaling $146,282. On October
9, 1992, K&R Coal, its subsidiary, and two affiliates merged and Sunset Sales,
Inc. became the surviving corporation. Five days later, Sunset Sales filed a
Chapter 11 petition in bankruptcy. The liquidating trustee subsequently filed
an adversary proceeding seeking to avoid the payments to the Bonding
Companies as preferential transfers under 11 U.S.C. § 547(b).
At issue in this appeal are three of the transfers, which were made to the
Bonding Companies via letters of credit. K&R Coal requested that FNB issue
each of the letters of credit to Van-American to pay past-due premiums and/or
collateral owed on either the Clarendon or the U.S. Capital bonds. In exchange,
K&R Coal executed a promissory note to FNB for the face amount of each letter
of credit, the payment of which it secured with certificates of deposit. After
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Sunset Sales filed bankruptcy, Van-American called the three letters of credit.
With the permission of the bankruptcy court, FNB paid the letters of credit and
then foreclosed on the certificates of deposit securing them. The Bonding
Companies contend that, if the trustee can avoid as preferential the transfers
involving the letters of credit, then FNB should contribute all or part of the
money that the trustee recovers from the Bonding Companies. 2
Under Oklahoma law, “one who discharges a common debt (or pays more
than his share of it) has a claim for contribution. Co-obligors are required to
contribute, either equally or equitably, toward the discharge of a common
obligation.” Barnett v. Barnett , 917 P.2d 473, 476 (Okla. 1996). The Bonding
Companies contend that they share a common debt with FNB because both of
them may be liable to the trustee for the preferential transfers arising out of the
letters of credit. They argue that, once the trustee establishes the transfers are
preferential and avoidable, he can recover the amount of the transfers from either
FNB, the initial transferee, or the Bonding Companies, the entities for whose
benefit the transfers were made. See 11 U.S.C. § 550(a)(1). Therefore, the
Bonding Companies reason, because the trustee decided to recover the transfers
2
In a related opinion issued this date, we affirm the bankruptcy court’s
judgment in favor of the trustee in his action to avoid as preferential the transfers
to the Bonding Companies. See Payne v. Clarendon Nat’l Ins. Co. (In re Sunset
Sales, Inc.) , No. 98-6276 (10th Cir. Oct. 26, 1999).
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solely from the Bonding Companies, they have a claim for equitable contribution
from FNB.
The Bonding Companies’ theory, however, contains one essential flaw:
FNB is not liable to the trustee for the preferential transfers made in connection
with the letters of credit, because it has a defense to avoidance under 11 U.S.C.
§ 547(c)(1). Section 547(c)(1) provides that the trustee may not avoid an
otherwise avoidable preferential transfer “to the extent that such transfer was--
(A) intended by the debtor and the creditor to or for whose benefit such transfer
was made to be a contemporaneous exchange for new value given to the debtor;
and (B) in fact a substantially contemporaneous exchange.” The Bankruptcy
Code defines “new value” as, among other things, “money or money’s worth in
goods, services, or new credit.” 11 U.S.C. § 547(a)(2).
When a letter of credit is issued to pay off an antecedent debt owed a
creditor, such as the Bonding Companies, the creditor does not give new value
for the letters of credit issued for its benefit. See Kellogg v. Blue Quail Energy,
Inc. (In re Compton Corp.) , 831 F.2d 586, 590 (5th Cir. 1987). The bank,
however, does give new value for the increased security interest it receives in
the debtor’s property: it issues the letter of credit. See id. Therefore, the bank
is “protected from a preference attack by the trustee for the increased security
interest transfer . . . under 11 U.S.C. § 547(c)(1) because it gave new value.”
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Id. at 591. “The bank is also protected from any claims of reimbursement by [the
creditor] because the bank received no voidable preference.” Id.
The preferential transfers involving the letters of credit here are avoidable
only as against the Bonding Companies, not as against FNB. Therefore, the
Bonding Companies have no claim for equitable contribution from FNB, and the
district court properly entered summary judgment against them.
The judgment of the United States District Court for the Western District of
Oklahoma is AFFIRMED.
Entered for the Court
Bobby R. Baldock
Circuit Judge
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