Dill v. Brad Hall & Associates, Inc.

1 The Motion actually is captioned as a Motion to Dismiss
for Failure to State a Claim, but was accompanied by an
affidavit. 	At the initial pretrial conference, the parties
discussed converting the Motion to one for summary judgment, and
the Order Resulting from Initial Pretrial Conference ordered that
the Motion would be treated as one for summary judgment under
Rule 56. 	Doc 9.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
INDIAN CAPITOL DISTRIBUTING, INC.
Debtor. 	No. 09-11558-s7
CRAIG H. DILL, Chapter 11 Trustee,
Plaintiff,
v. 	Adv. No. 10-1180 S
BRAD HALL & ASSOCIATES, INC.,
Defendant.
MEMORANDUM OPINION GRANTING DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Defendant Brad Hall &
Associates, Inc.’s (“Brad Hall”) Motion for Summary Judgment 1
(doc 4) with Accompanying Brief in Support (doc 5) and the
Affidavit of Logan B. Hall. 	Doc 6. 	Craig H. Dill, chapter 7
Trustee (“Dill” or “Plaintiff”) filed a Response (doc 7), and
Brad Hill filed a Reply. 	Doc 10. 	This adversary proceeding
seeks to avoid a postpetition transfer under 11 U.S.C. § 549 and
to recover it for the benefit of the estate under 11 U.S.C. §
550. 	For the reasons set forth below, the Defendant’s Motion
will be granted, albeit on grounds not argued by the parties, and
this adversary case will be dismissed without prejudice to
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2 The Court has subject matter and personal jurisdiction
pursuant to 28 U.S.C. §§ 1334 and 157(b); this is a core
proceeding pursuant to 28 U.S.C. §157(b)(2)(A)and (E); and these
are findings of fact and conclusions of law as may be required by
Rule 7052 F.R.B.P.
3 The Court is not finding facts in this section of the
memorandum, only taking notice of the file and providing context.
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refiling in the event that the Trustee can show that the estate
has suffered a loss. 2
BACKGROUND 3
Indian Capitol Distributing, Inc. (“Indian Capitol” or
“Debtor”) began its very short life as a debtor-in-possession
chapter 11 case when it filed a voluntary Chapter 11 petition on
April 14, 2009. 	On April 15, 2009, Debtor filed an Emergency
Motion to Use Cash Collateral for an interim period (doc 5) in
which it alleged, in part:
Debtor operates a oil sales and distributing
business, generally consisting of a bulk sales
operation and a number of retail gas stations and
“convenience stores.” 	Additionally, Debtor’s principal
is the part-owner and chief executive officer of
another New Mexico corporation, Mataya’s Travel Plaza,
Inc., which operates a separate “travel plaza” selling,
among other things, gasoline products it purchases from
the Debtor. The travel plaza is in the process of
paying back a substantial account receivable to the
Debtor, and its ability to do so will likely depend on
the Debtor’s continued operations. In the course of
such business operations, Debtor will incur various
expenses in the ordinary course of business and
expenses of this proceeding which must be paid in order
to continue operations and in order to maintain and
protect assets of the estate. If Debtor is unable to
pay various operating expenses, even for a short period
of time, it will not be able to continue its
operations. Upon any cessation of operations, the
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“going concern” value of the business will be lost.
Further, if such “going concern” value is lost or
impaired, the marketability of the business, components
of the business, and assets will also be impaired. 	In
this regard, the Debtor has reason to believe that
third parties may be interested in acquiring Debtor’s
assets and operations, and any possibility of selling
such assets and operations will depend, at least in
part, on the going concern value of the assets and
continuation of operations.
On April 16, 2009, the various parties submitted a
stipulated order authorizing use of cash collateral and granting
adequate protection for an interim budget period, pending a final
hearing on the Emergency Cash Collateral Motion. 	Doc 10. 	The
final hearing was set for May 5, 2009. 	Doc 19. 	Debtor then
filed its First [sic] Motion for Use of Cash Collateral (doc 25),
seeking to use cash collateral through November 7, 2009. 	It
contained virtually the same representations regarding the need
for cash collateral as the Emergency Motion. 	Debtor then filed a
Second Emergency Motion to use cash collateral on April 30, 2009.
Doc 32.
At the May 5, 2009 hearing, the Court took under advisement
the Emergency Motion to Use Cash Collateral and set a final
hearing on the First Motion to Use Cash Collateral for May 18,
2009. 	(Minutes, doc 45). 	On May 12, 2009, the Court conducted a
further hearing on cash collateral issues and orally granted
interim use pending further order of the Court. 	(Amended
Minutes, doc 54). 	The oral ruling was memorialized by an Order
entered May 18, 2009. 	Doc 61. 	Also on May 18, 2009, the Court
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conducted the final hearing on the First Motion to use cash
collateral and took the First Motion under advisement. 	(Minutes,
doc 63). 	On May 22, 2009, the Court conducted a hearing and
orally denied further use of cash collateral. 	(Minutes, doc 66).
On May 28, 2009 the Court conducted yet another hearing on cash
collateral and denied use of cash collateral pending further
order of the Court. 	(Minutes, doc 67). 	The Court entered an
Order Prohibiting Use of Any Cash Collateral on May 29, 2009.
Doc 68. 	The Court entered an order appointing Dill as Chapter 11
trustee on June 17 (doc 98), and he continued as the Chapter 7
trustee when the case converted to Chapter 7 on March 31, 2010.
Doc 318.
In summary, Debtor filed bankruptcy on April 14, 2009 and
promptly filed for permission to use cash collateral. 	The Court
authorized the use of cash collateral, as conditioned in various
orders, through May 22, 2009. 	Permission ended on May 22, 2009
and was never reinstituted.
This adversary proceeding alleges that Debtor purchased
petroleum products from Brad Hall from May 24, 2009 to May 28,
2009, in the amount of $97,860.01 and that Brad Hall received
payment of that amount from Debtor (as Debtor-in-Possession) in
three payments made on May 26, 2009, June 1, 2009, and June 11,
2009. 	Dill seeks the return of these funds as unauthorized
postpetition transfers prohibited by 11 U.S.C. § 549.
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4 Bankruptcy Rule 7056 incorporates Fed.R.Civ.P. 56. 	That
Rule provides, in part:
(a) Motion for Summary Judgment or Partial Summary
Judgment. 	A party may move for summary judgment,
identifying each claim or defense--or the part of each
claim or defense--on which summary judgment is sought.
The court shall grant summary judgment if the movant
shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as
a matter of law. 	The court should state on the record
the reasons for granting or denying the motion.
...
(c) Procedures.
(1) Supporting Factual Positions. 	A party asserting
that a fact cannot be or is genuinely disputed must
support the assertion by:
(A) citing to particular parts of materials in the
record, including depositions, documents,
electronically stored information, affidavits or
declarations, stipulations (including those made
for purposes of the motion only), admissions,
interrogatory answers, or other materials; or
(B) showing that the materials cited do not
establish the absence or presence of a genuine
dispute, or that an adverse party cannot produce
admissible evidence to support the fact.
(2) Objection That a Fact Is Not Supported by
Admissible evidence. 	A party may object that the
material cited to support or dispute a fact cannot be
presented in a form that would be admissible in
evidence.
(3) Materials Not Cited. 	The court need consider only
the cited materials, but it may consider other
materials in the record.
(4) Affidavits or Declarations. 	An affidavit or
declaration used to support or oppose a motion must be
made on personal knowledge, set out facts that would be
admissible in evidence, and show that the affiant or
(continued...)
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SUMMARY JUDGMENT
Summary judgment is proper when there is no genuine issue as
to any material fact and the moving party is entitled to a
judgment as a matter of law. 	Bankruptcy Rule 7056(a) 4. 	In
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4(...continued)
declarant is competent to testify on the matters
stated.
...
(e) Failing to Properly Support or Address a Fact. 	If
a party fails to properly support an assertion of fact
or fails to properly address another party's assertion
of fact as required by Rule 56(c), the court may:
(1) give an opportunity to properly support or address
the fact;
(2) consider the fact undisputed for purposes of the
motion;
(3) grant summary judgment if the motion and supporting
materials--including the facts considered
undisputed--show that the movant is entitled to it; or
(4) issue any other appropriate order.
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determining the facts for summary judgment purposes, the Court
may rely on affidavits made with personal knowledge that set
forth specific facts otherwise admissible in evidence and sworn
or certified copies of papers attached to the affidavits.
Fed.R.Civ.P. 56(c)(1). 	When a motion for summary judgment is
made and supported by affidavits or other evidence, an adverse
party may not rest upon mere allegations or denials. 	Id.
Rather, 	“Rule 56(e) ... requires the nonmoving party to go
beyond the pleadings and by her own affidavits, or by the
‘depositions, answers to interrogatories, and admissions on
file,’ designate ‘specific facts showing that there is a genuine
issue for trial.’” 	Celotex Corp. v. Catrett, 477 U.S. 317, 324
(1986). 	“Rule 56(e) permits a proper summary judgment motion to
be opposed by any of the kinds of evidentiary materials listed in
Rule 56(c), except the mere pleadings themselves.” 	Id. 	The
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court does not try the case on competing affidavits or
depositions; the court's function is only to determine if there
is a genuine issue for trial. 	Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 249 (1986).
In ruling on a motion for summary judgment, the trial court
views the evidence and draws reasonable inferences therefrom in
the light most favorable to the nonmoving party. 	Mountain
Highlands, LLC v. Hendricks, 616 F.3d 1167, 1169-70 (10 th Cir.
2010)(citing Garrison v. Gambro, Inc., 428 F.3d 933, 935 (10th
Cir. 2005)). 	On those issues for which it bears the burden of
proof at trial, the nonmovant “must go beyond the pleadings and
designate specific facts so as to make a showing sufficient to
establish the existence of an element essential to [its] case in
order to survive summary judgment.” 	Id. at 1170 (quoting Cardoso
v. Calbone, 490 F.3d 1194, 1197 (10th Cir. 2007)) (internal
quotation marks omitted). 	“If a party that would bear the burden
of persuasion at trial does not come forward with sufficient
evidence on an essential element of its prima facie case, all
issues concerning all other elements of the claim and any
defenses become immaterial.” 	Adler v. Wal-Mart Stores, Inc., 144
F.3d 664, 670 (10 th Cir. 1998)(citing Celotex, 477 U.S. at 322-
23). 	“[F]ailure of proof of an essential element renders all
other facts immaterial.” 	Mountain Highlands, 616 F.3d at 1170
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(quoting Koch v. Koch Indus., Inc., 203 F.3d 1202, 1212 (10th
Cir.), cert. denied, 531 U.S. 926 (2000)).
New Mexico LBR 7056-1 governs summary judgment motions. It
provides, in part:
The memorandum in support of the motion shall set
out as its opening a concise statement of all of the
material facts as to which movant contends no genuine
issue exists. 	The facts shall be numbered and shall
refer with particularity to those portions of the
record upon which movant relies.
A memorandum in opposition to the motion shall
contain a concise statement of the material facts as to
which the party contends a genuine issue does exist.
Each fact in dispute shall be numbered, shall refer
with particularity to those portions of the record upon
which the opposing party relies, and shall state the
number of the movant's fact that is disputed. 	All
material facts set forth in movant’s statement that are
properly supported shall be deemed admitted unless
specifically controverted.
FACTS
Defendant’s Brief (doc 5) contains a statement of 34
undisputed material facts. 	Plaintiff’s response, doc 7, p. 6,
disputes only Defendant’s fact 8. 	That fact states: “From April
14, 2009 until a Trustee was appointed in its Chapter 11 case,
Indian Capitol continued to purchase some petroleum products from
Hall on a COD basis.” 	Plaintiff argues that this fact is
inconsistent with Defendant’s fact 26 which suggests the last
fuel was purchased from Brad Hall on May 28, 2009. 	Defendant
concedes that the last purchase was May 28, 2009. 	(Reply, doc
10, p. 13.) 	Otherwise, Plaintiff claims that all of Defendants
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other facts are not relevant or material to the case or its legal
theory. 	(Response, doc 7, p. 6). 	However, NM LBR 7056-1 is
clear: “All material facts set forth in movant’s statement that
are properly supported shall be deemed admitted unless
specifically controverted.” 	Therefore, the Court will adopt
Defendant’s statement of facts, with modified fact 8, as follows:
1. 	On or about December 5, 2006 Indian Capitol Distributing,
Inc. began purchasing petroleum products from Brad Hall &
Associates, Inc.
2. 	In order to implement the agreement between the parties,
Hall provided Indian Capitol with its account number and PIN
number at terminals in Gallup, and elsewhere, operated by Giant
Western Refining, and others, and Indian Capitol used those
account numbers and PIN numbers to load its trucks with petroleum
products at terminals in Gallup and elsewhere (the “Terminals”).
3. 	On April 14, 2009 Indian Capitol filed a Chapter 11 Petition
in bankruptcy.
4. 	On April 16, 2009 this Court entered its Stipulated
Emergency Order Authorizing Use of Cash Collateral And Granting
Adequate Protection (Doc. 10) (the "Emergency Order").
5. 	Paragraph 7 of the Emergency Order indicates that as and for
adequate protection for the Debtor's use of the cash collateral
of the Bank of Albuquerque, the Bank was provided with a
continuing security interest in all assets of the Debtor in which
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it had a lien as of the Petition Date, and in addition said Order
granted the Bank a replacement lien against the property of the
Debtor of the same type as the Bank's prepetition collateral
acquired by the Debtor Post-Petition.
6. 	The Proof Of Claim filed by the Bank of Albuquerque
indicates that the loan from said Bank to the Debtor is secured
by all inventory, accounts, equipment, and trade fixtures of the
Debtor, and proceeds thereof (Claim 19-1 filed September 16,
2009).
7. 	The Court Docket does not indicate that Hall or any other
trade creditor was mailed copies of the Emergency Order, or
otherwise specifically given notice of the entry of said Order.
8. 	From April 14, 2009 until May 28, 2009, Indian Capitol
continued to purchase some petroleum products from Hall on a COD
basis.
9. 	According to the Trustee's Complaint filed in Adversary
Number 10-01181, Indian Capitol also continued to purchase
petroleum products from Conoco Phillips Company.
10. 	Sometime after April 23, 2009 Hall was provided by regular
mail with notice of the Debtor's First Motion For Use Of Cash
Collateral (Doc. 25)(the “Cash Collateral Motion”), including
notice of a hearing on the Cash Collateral Motion to be held on
May 5, 2009.
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11. 	Hall had no reason to object to the Cash Collateral Motion,
and Hall had no reason to have its attorneys attend the May 5,
2009 hearing or any other hearing involving cash collateral.
12. 	The Court Docket reflects that cash collateral hearings were
held on May 5, 18, 22, and 28, 2009. Hall did not have its
attorneys attend any cash collateral hearings.
13. 	Hall had no specific notice of the hearings held on May 18,
22, and 28, 2009, and Hall had no reason to have its attorneys
attend said hearings.
14. 	On May 18, 2009 this Court entered its Order Authorizing
Debtor To Use Cash Collateral On Interim Basis (Doc. 61)(the
"Interim Order").
15. 	The Interim Order authorized the Debtor to use up to
$300,000 of cash collateral for the purchase of inventory,
$12,000 to pay utility charges and insurance premiums, and
$38,000 for payroll and applicable taxes.
16. 	The Interim Order did not specify how much of the $300,000
for the purchase of inventory was for petroleum products as
opposed to other types of inventory (such as food and dry goods)
sold at the gasoline stations operated by Indian Capitol.
17. 	The Interim Order did not enjoin Hall or any other trade
creditor. Further, copies of the Interim Order were not
specifically sent to Hall or any other trade creditor.
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18. 	From May 24, 2009 through May 28, 2009 Indian Capitol used
Hall’s account numbers and PIN numbers in Gallup and elsewhere to
load its trucks with petroleum products at various Terminals, and
thereby purchase petroleum products, as detailed below.
19. 	On May 24, 2009 Indian Capitol loaded one or more trucks
with petroleum products at a Terminal and purchased $11,585.85
worth of premium and unleaded fuel from Hall. 	Attached as
Exhibit A to the Affidavit is a copy of Hall's Invoice # 11040349
for said fuel, the related bill of Lading, and Hall's supplier
invoices.
20. 	On May 24, 2009 Indian Capitol loaded one or more trucks
with petroleum products at a Terminal and purchased $9,208 worth
of clear and unleaded fuel from Hall. 	Attached as Exhibit B to
the Affidavit is a copy of Hall's Invoice # 11040350 for said
fuel, the related bill of Lading, and Hall's supplier invoice.
21. 	Hall received payment in the amount of $20,793.85 on
Invoices # 11040349 and 11040350 on May 26, 2009.
22. 	On May 26, 2009 Indian Capitol loaded one or more trucks
with petroleum products at a Terminal and purchased $19,470.33
worth of clear and unleaded fuel from Hall. 	Attached as Exhibit
C to the Affidavit is a copy of Hall's Invoice # 11041006 for
said fuel, the related bill of Lading, and Hall's supplier
invoices.
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Page -13-
23. 	On May 26, 2009 Indian Capitol loaded one or more trucks
with petroleum products at a Terminal and purchased $21,212.11
worth of premium and unleaded fuel from Hall. 	Attached as
Exhibit D to the Affidavit is a copy of Hall's Invoice # 11041007
for said fuel, the related bill of Lading, and Hall's supplier
invoices.
24. 	On May 27, 2009 Indian Capitol loaded one or more trucks
with petroleum products at a Terminal and purchased $20,583.04
worth of premium, clear-ULSD, and unleaded fuel from Hall.
Attached as Exhibit E to the Affidavit is a copy of Hall's
Invoice # 11041276 for said fuel, the related bill of Lading, and
Hall's supplier invoices.
25. 	On May 28, 2009 Indian Capitol loaded one or more trucks
with petroleum products at a Terminal and purchased $5,237.83
worth of DYED-ULSD from Hall. 	Attached as Exhibit F to the
Affidavit is a copy of Hall's Invoice # 11041554 for said
petroleum products, the related bill of Lading, and Hall's
supplier invoice.
26. 	On May 28, 2009 Indian Capitol loaded one or more trucks
with petroleum products at a Terminal and purchased $10,562.85
worth of clear-ULSD fuel from Hall. 	Attached as Exhibit G to the
Affidavit is a copy of Hall's Invoice # 11041553 for said fuel,
the related bill of Lading, and Hall's supplier invoices.
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27. 	Hall received payment in the amount of $41,795.15 on
Invoices # 11041007 and 11041276 on June 1, 2009.
28. 	Hall received payment in the amount of $35,271.01 on
Invoices # 11041006, 11041554, and 11041553 on June 11, 2009.
29. 	As summarized above, in exchange for the above described
post-petition purchases of petroleum products from Hall, Indian
Capitol paid Hall the sum of $97,860.01.
30. 	$97,860.01 was the reasonably equivalent value of the
petroleum products supplied Post-Petition to Indian Capitol by
Hall between May 24 and May 28, 2009.
31. 	All of the above described petroleum products purchased by
Indian Capitol from Hall were loaded onto Indian Capitol trucks
by Indian Capitol truck drivers, and received by Indian Capitol
between May 24 and May 28, 2009, inclusive.
32. 	At the time the above-described petroleum products were
purchased from Hall by Indian Capitol, Hall had no reasonable way
of knowing whether the Debtor had exceeded or was about to exceed
the cash collateral authority provided to the Debtor in the
Interim Order.
33. 	The Order Prohibiting Use Of Cash Collateral (Doc 68) (the
"Prohibition Order") was entered on the docket May 29, 2009,
subsequent to the time the above described petroleum products
were loaded onto Indian Capitol trucks by Indian Capitol truck
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Page -15-
drivers, received by Indian Capitol, and sold to Indian Capitol
between May 24 and May 28, 2009.
34. 	The Prohibition Order did not enjoin Hall or any other trade
creditor. Further, copies of the Prohibition Order were not
specifically sent to Hall or any other trade creditor.
DISCUSSION
Federal courts’ jurisdiction is strictly limited by Article
III, § 2, of the Constitution to “Cases” and “Controversies.”
Steel Company v. Citizens for a Better Environment, 523 U.S. 83,
102 (1998). 	The Supreme Court describes cases and controversies
as those matters amenable to and resolvable by the judicial
process. 	Id. (citing Muskrat v. United States, 219 U.S. 346,
356-57 (1911)). 	“Standing to sue is part of the common
understanding of what it takes to make a justiciable case.” 	Id.
(citing Whitmore v. Arkansas, 495 U.S. 149, 155 (1990)).
Over the years, our cases have established that
the irreducible constitutional minimum of standing
contains three elements. 	First, the plaintiff must
have suffered an “injury in fact”-an invasion of a
legally protected interest which is (a) concrete and
particularized, see [Allen v. Wright, 468 U.S. 737
(1984)], at 756, 104 S.Ct., at 3327; Warth v. Seldin,
422 U.S. 490, 508, 95 S.Ct. 2197, 2210, 45 L.Ed.2d 343
(1975); Sierra Club v. Morton, 405 U.S. 727, 740-741,
n. 16, 92 S.Ct. 1361, 1368-1369, n. 16, 31 L.Ed.2d 636
(1972); n1 and (b) “actual or imminent, not
‘conjectural’ or ‘hypothetical,’ ” Whitmore [v.
Arkansas, 495 U.S. 149 (1990)], at 155, 110 S.Ct., at
1723 (quoting Los Angeles v. Lyons, 461 U.S. 95, 102,
103 S.Ct. 1660, 1665, 75 L.Ed.2d 675 (1983)). 	Second,
there must be a causal connection between the injury
and the conduct complained of-the injury has to be
“fairly ... trace[able] to the challenged action of the
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Page -16-
defendant, and not ... th[e] result [of] the
independent action of some third party not before the
court.” 	Simon v. Eastern Ky. Welfare Rights
Organization, 426 U.S. 26, 41-42, 96 S.Ct. 1917, 1926,
48 L.Ed.2d 450 (1976). 	Third, it must be “likely,” as
opposed to merely “speculative,” that the injury will
be “redressed by a favorable decision.” 	Id., at 38,
43, 96 S.Ct., at 1924, 1926.
n1 	By particularized, we mean that the injury must
affect the plaintiff in a personal and individual way.
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).
“This triad of injury in fact, causation, and redressability—
constitutes the core of Article III’s case or controversy
requirement, and the party invoking federal jurisdiction bears
the burden of establishing its existence.” 	Steel Company, 523
U.S. at 103-04 (citing FW/PBS, Inc. v. Dallas, 493 U.S. 215, 231
(1990)(Footnote omitted.) 	See also Valley Forge Christian
College v. Americans United for Separation of Church and State,
Inc., 454 U.S. 464, 472 (1982):
[A]t an irreducible minimum, Art. III requires the
party who invokes the court's authority to “show that
he personally has suffered some actual or threatened
injury as a result of the putatively illegal conduct of
the defendant,” Gladstone, Realtors v. Village of
Bellwood, 441 U.S. 91, 99, 99 S.Ct. 1601, 1608, 60
L.Ed.2d 66 (1979), and that the injury “fairly can be
traced to the challenged action” and “is likely to be
redressed by a favorable decision,” Simon v. Eastern
Kentucky Welfare Rights Org., 426 U.S. 26, 38, 41, 96
S.Ct. 1917, 1924, 1925, 48 L.Ed.2d 450 (1976). N9 	In
this manner does Art. III limit the federal judicial
power “to those disputes which confine federal courts
to a role consistent with a system of separated powers
and which are traditionally thought to be capable of
resolution through the judicial process.” 	Flast v.
Cohen, 392 U.S. [83 (1968)], at 97, 88 S.Ct., at 1951.
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N9 See Watt v. Energy Action Educational Foundation,
454 U.S. 151, 161, 102 S.Ct. 205, 212, 70 L.Ed.2d 309
(1981); Duke Power Co. v. Carolina Environmental Study
Group, Inc., 438 U.S. 59, 72, 98 S.Ct. 2620, 2629, 57
L.Ed.2d 595 (1978); Arlington Heights v. Metropolitan
Housing Dev. Corp., 429 U.S. 252, 261, 262, 97 S.Ct.
555, 561, 50 L.Ed.2d 450 (1977); Warth v. Seldin, 422
U.S. 490, 499, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343
(1975); Schlesinger v. Reservists Committee to Stop the
War, 418 U.S. 208, 218, 220–221, 94 S.Ct. 2925, 2930,
2931–2932, 41 L.Ed.2d 706 (1974); United States v.
Richardson, 418 U.S. 166, 179–180, 94 S.Ct. 2940,
2947–2948, 41 L.Ed.2d 678 (1974); O'Shea v. Littleton,
414 U.S. 488, 493, 94 S.Ct. 669, 674, 38 L.Ed.2d 674
(1974); Linda R.S. v. Richard D., 410 U.S. 614,
617–618, 93 S.Ct. 1146, 1148–1149, 35 L.Ed.2d 536
(1973).
The Valley Forge case emphasizes that the plaintiff must
have an “actual injury redressable by the court.” 	Id.
It tends to assure that the legal questions presented
to the court will be resolved, not in the rarified
atmosphere of a debating society, but in a concrete
factual context conducive to a realistic appreciation
of the consequences of judicial action. 	The “standing”
requirement serves other purposes. 	Because it assures
an actual factual setting in which the litigant asserts
a claim of injury in fact, a court may decide the case
with some confidence that its decision will not pave
the way for lawsuits which have some, but not all, of
the facts of the case actually decided by the court.
The Art. III aspect of standing also reflects a
due regard for the autonomy of those persons likely to
be most directly affected by a judicial order. 	The
federal courts have abjured appeals to their authority
which would convert the judicial process into “no more
than a vehicle for the vindication of the value
interests of concerned bystanders.” 	United States v.
SCRAP, 412 U.S. 669, 687, 93 S.Ct. 2405, 2416, 37
L.Ed.2d 254 (1973). 	Were the federal courts merely
publicly funded forums for the ventilation of public
grievances or the refinement of jurisprudential
understanding, the concept of “standing” would be quite
unnecessary. 	But the “cases and controversies”
language of Art. III forecloses the conversion of
courts of the United States into judicial versions of
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Page -18-
college debating forums. 	As we said in Sierra Club v.
Morton, 405 U.S. 727, 740, 92 S.Ct. 1361, 1368, 31
L.Ed.2d 636 (1972):
The requirement that a party seeking review must
allege facts showing that he is himself adversely
affected ... does serve as at least a rough
attempt to put the decision as to whether review
will be sought in the hands of those who have a
direct stake in the outcome.
The exercise of judicial power, which can so
profoundly affect the lives, liberty, and property of
those to whom it extends, is therefore restricted to
litigants who can show “injury in fact” resulting from
the action which they seek to have the court
adjudicate.
Id. at 472-73.
Congress can pass statutes that grant certain rights to
persons, e.g., 11 U.S.C. § 549 (empowering a bankruptcy trustee
to recover unauthorized postpetition transfers). 	But Congress
may not “abrogate the Art. III minima.” 	Gladstone Realtors v.
Village of Bellwood, 441 U.S. 91, 100 (1979). 	Even a plaintiff
that relies on a statute must always have suffered a distinct and
palpable injury to himself that is likely to be redressed if the
requested relief is granted. 	Id. (citations omitted.) 	See also
Raines v. Byrd, 521 U.S. 811, 820 n.3 (1997)(“It is settled that
Congress cannot erase Article III's standing requirements by
statutorily granting the right to sue to a plaintiff who would
not otherwise have standing.”)(Citation omitted.); Warth v.
Seldin, 422 U.S. at 501 (“Moreover, Congress may grant an express
right of action to persons who otherwise would be barred by
prudential standing rules. Of course, Art. III' s requirement
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Page -19-
remains: the plaintiff still must allege a distinct and palpable
injury to himself[.]”); 	O’Shea v. Littleton, 414 U.S. 488, 493
n.2 (1974):
We have previously noted that ‘Congress may enact
statutes creating legal rights, the invasion of which
creates standing, even though no injury would exist
without the statute. See, e.g., Trafficante v.
Metropolitan Life Ins. Co., 409 U.S. 205, 212, 93 S.Ct.
364, 34 L.Ed.2d 415 (1972) (White, J., concurring);
Hardin v. Kentucky Utilities Co., 390 U.S. 1, 6, 88
S.Ct. 651, 19 L.Ed.2d 787 (1968).’ 	Linda R.S. v.
Richard D., 410 U.S. 614, 617 n. 3, 93 S.Ct. 1146,
1148, 35 L.Ed.2d 536 (1973). ... Perforce, the
constitutional requirement of an actual case or
controversy remains. Respondents still must show actual
or threatened injury of some kind to establish standing
in the constitutional sense.
There is no question that the limits imposed by Article III
on federal jurisdiction apply equally in bankruptcy. 	Illinois
Investment Trust No. 92-7163 v. Allied Waste Industries, Inc. (In
re Resource Technology Corp.), 624 F.3d 376, 382 (7 th Cir. 2010);
In re Saffold, 373 B.R. 39, 44 (Bankr. N.D. Ohio 2007).
And, finally, the Bankruptcy Court has a duty to raise
jurisdiction sua sponte before reaching the merits of a case.
GAF Holdings, LLC v. Rinaldi (In re Farmland Industries, Inc.),
639 F.3d 402, 405 (8 th Cir. 2011); Day v. Klinger (In re
Klinger), 301 B.R. 519, 523 n.5 (Bankr. N.D. Ill. 2003); see
F.R.B.P. 7012, incorporating F.R.Civ.P. 12(h)(3).
In this adversary proceeding, Dill seeks the return of
$97,860.01 solely because the payment was not authorized. 	The
undisputed material facts show, however, that the $97,860.01
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5 Not that it matters, but it is almost certainly the case
that the gasoline was sold and thereby converted back into cash
subject to the Bank’s lien.
Page -20-
transferred to Brad Hall was for payment of gasoline Brad Hall
delivered to the Debtor postpetition, and that the $97,860.01 was
the reasonably equivalent value of the gasoline delivered to the
estate. 	Undisputed Material Fact No. 30.
The secured creditor had a lien on both cash and inventory,
including the proceeds of the sale of the inventory. 	Undisputed
Material Facts Nos. 5, 6. 	From the secured creditor’s
perspective, the value of its collateral was unchanged by the
payments, so it was not damaged. 	To be sure, the composition of
its collateral was changed, converting some of its cash to a
commodity which, regardless of its liquidity (no pun intended),
is still not the equivalent of cash as such. 5 	But the Bank has
filed no request for payment of an administrative claim which it
would be entitled to had it suffered a loss not covered by its
postpetition collateral.
From the estate’s perspective, instead of $97,860.01 in
cash, it had that amount of gasoline to sell. 	Of course, had the
Trustee taken over the case on May 29, he would probably would
not have paid for the gasoline immediately. 	Instead he would
have retained the cash in the DIP account. 	But he would have
been faced with a request for payment of an administrative
expense from Brad Hall, much as the Trustee is currently faced
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Page -21-
with such a request from Navajo Nation Oil & Gas Company. 	Main
Case, doc 241, attached as exhibit 1 (doc 7-1) to Plaintiff’s
Response to Motion to Dismiss for Failure to State a Claim. 	Doc
7. 	He would have had to pay that claim (perhaps even with unused
cash collateral). 	There would have been a delay in making that
payment, but the loss of any benefit the Trustee gets from
delaying payment of an administrative claim cannot be counted as
a legitimate harm to the estate. 	An administrative claim is not
paid immediately only because it needs to be verified as owed in
the amount requested and because the Trustee needs to assure
himself that there will be adequate funds to pay all the
administrative claims in full. 	Thus, the fact that the Trustee
took the case over after the bill had been paid rather than
before does not constitute a harm or loss to the estate; to hold
otherwise would provide an incentive to the Trustee not to
promptly pay the estate’s bills.
To be clear as well, it might be that even if the Bank
suffered a loss on the transaction (that is, the Debtor or the
Trustee did not convert the gasoline back into the full amount of
the cash), it would cover that loss with other postpetition
collateral it was granted. 	This could result in fewer assets for
the estate once the secured creditor was paid in full. 	And that
probably would constitute an injury to the estate. 	But the
Trustee has not alleged any such loss.
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6 The Davis court also found that debtors/plaintiffs in that
case could not prove that they had been damaged by the credit
union’s attaching to its proof of claim documents showing at
least one plaintiff’s full Social Security number, driver’s
license number, and date of birth, and denied standing on that
basis. 	This Court is not citing the Davis case for that
proposition. 	This Court does not necessarily agree that such an
unwarranted disclosure of a debtor’s personal identifying
information is not redressable by a court at the request of a
debtor.
7But compare Steel Co., 523 U.S. at 107:
By the mere bringing of his suit, every plaintiff
demonstrates his belief that a favorable judgment will
make him happier. 	But although a suitor may derive
great comfort and joy from the fact that the United
States Treasury is not cheated, that a wrongdoer gets
his just deserts, or that the Nation's laws are
faithfully enforced, that psychic satisfaction is not
an acceptable Article III remedy because it does not
(continued...)
Page -22-
One injury did result from the Debtor’s disobedience of the
orders that prohibited using cash collateral. 	That injury was to
the integrity of the judicial process, courts and bankruptcy law
system. 	Compare Davis v. Eagle Legacy Credit Union (In re
Davis), 430 B.R. 902, 907 (Bankr. D. Colo. 2010)(Court dismissed
debtor’s adversary proceeding against creditor based on
creditor’s violation of bankruptcy rule requiring redaction of
sensitive personal information. 	The Court found that to the
extent that Defendant’s “blatant disrespect” for the Court and
its rules caused any harm, the harm was to the Court, not the
plaintiff. 	Therefore, the plaintiff lacked standing. 6) 	The
Court assumes without deciding that would be a cognizable
injury 7
, and would justify a request by the Bank or the Trustee
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7(...continued)
redress a cognizable Article III injury. 	See, e.g.,
Allen v. Wright, 468 U.S. 737, 754-755, 104 S.Ct. 3315,
3326-3327, 82 L.Ed.2d 556 (1984); Valley Forge
Christian College v. Americans United for Separation of
Church and State, Inc., 454 U.S. 464, 482-483, 102
S.Ct. 752, 763-765, 70 L.Ed.2d 700 (1982). 	Relief that
does not remedy the injury suffered cannot bootstrap a
plaintiff into federal court; that is the very essence
of the redressability requirement.
(Emphasis in original.)
8 In fact, granting the relief requested would encourage
future debtors to disobey cash collateral orders as an easy way
to defraud future chapter 11 vendors and end up with money in the
estate.
9 This Court cited Delco in Gonzales v. Beery (In re Beery),
452 B.R. 825, 833 (Bankr. D. N.M. 2011) as an “appropriate use of
§ 549 by the trustee”. 	Beery was an adversary proceeding in
which a chapter 7 debtor (thus a debtor out of possession)
purported to transfer estate property. 	The chapter 7 trustee
filed an action to declare that the attempted transfer was void
pursuant to §362(a)(3), and the recipient defendants argued that
(continued...)
Page -23-
for sanctions against the Debtor. 	However, suing Brad Hall does
not address the Bank’s or Trustee’s potential injury. 	Brad Hall
did not violate the cash collateral order. 	Brad Hall did not
damage the secured creditor or the estate. 	There are no
allegations of collusion or bad faith or inequity. 	Punishing
Brad Hall would not resolve the injury caused by the Debtor’s
contemptuous behavior, nor would it have an impact of preventing
future debtors from misusing cash collateral. 8
Plaintiff relies heavily on Marathon Petroleum Co. v. Cohen
(In re Delco Oil, Inc.), 599 F.3d 1255 (11 th Cir. 2010), the
facts of which are almost identical to those in this case. 9 	But
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9(...continued)
the Trustee’s cause of action instead was merely voidable under
§549 (and that the deadline for filing a §549 action had passed).
The Court ruled that the transaction was void pursuant to
§362(a)(3) and that §549 was not applicable. 	The Court then
cited Delco merely as an example of the proper invocation of
§549. 	By citing Delco in Beery, the Court did not intend to
endorse the ultimate holding in Delco.
Page -24-
with respect to the Eleventh Circuit (and particularly to the
learned author of the opinion), this Court finds that Delco is
not persuasive.
In Delco, the debtor in possession improperly spent almost
$2,000,000 of cash collateral purchasing product from Marathon
Oil. 	Shortly thereafter the case converted to chapter 7 and the
trustee brought a §549 action against Marathon to recover the
postpetition payments. 	There was no question that Marathon had
supplied the product, and the opinion contains no suggestion that
the product was not worth what the debtor in possession paid for
it. 	The court began by holding that “[t]o avoid a transfer under
Section 549(a) a trustee need only demonstrate: (1) a
post-petition transfer (2) of estate property (3) which was not
authorized by the Bankruptcy Code or the court.” 	Id. at 1258.
It then went on to explain that “[l]est any confusion exist,
Cohen may avoid and recover from Marathon the funds Debtor
transferred to it . . . because Debtor was not authorized to
transfer the funds to anyone post-petition without the permission
of CapitalSource or the bankruptcy court.” 	Id. at 1260.
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Page -25-
Finally, in response to Marathon’s argument that it had provided
product to the estate in exchange for the funds, the court ruled
that “a ‘harmless’ exception to a trustee's Section 549(a)
avoiding powers does not exist.” 	Id. at 1262 (footnote omitted).
Finally the court overruled Marathon’s argument that it was an
innocent vendor dealing with the debtor in possession in good
faith and in the ordinary course of business:
Congress evidently did not intend to allow the use of
cash collateral without the permission of the
interested secured creditor or the bankruptcy court,
even if used in the ordinary course of business.
As to Marathon's status as an “innocent vendor,”
Sections 549(a) and 550(a) by their terms contain no
reference to, let alone an actual defense based on, the
transferee's status (vendor, purchaser, etc.) or upon
its state of mind (innocent, culpable, etc.). . . .
Congress knew how to create exceptions based on
transferee's status and culpability. But it chose not
to do so when it came to initial transferees of
post-petition transfers of cash collateral. 	We will
not create such exceptions in Congress's absence.
Id. at 1263 (citation omitted).
The primary dispute in Delco was whether, in a summary
judgment context, the trustee had shown that the funds paid to
Marathon were cash collateral. 	The bulk of the parties’
arguments, and of the court’s decision, focused on this issue.
Id. at 1259-62. 	The court held that the trustee had made the
requisite showing, but perhaps because of the focus on that
factual issue, the court and the parties seemed to have missed a
major legal issue: was there any harm to the estate that gave the
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10 Or better, “no harm, no standing, no case.”
11 Delco demonstrates an almost autonomic application of the
statutes, without regard to the consequences. 	For example, there
is no discussion about whether the estate, having received almost
$2,000,000 of product from Marathon, and then getting the
$2,000,000 back, was not unjustly enriched. 	Perhaps the court
would have found that result also was not a reason to disregard
what it regarded as the command of the statute, but one would
have expected the parties to have argued the issue and the court
to at least have addressed it.
12 In ruling that the dismissal is without prejudice, the
Court is not intending thereby to grant an extension to the
(continued...)
Page -26-
trustee standing to bring the §549 action to begin with? 	There
is no mention whatever of that point in the opinion. 	The Delco
court specifically noted that Marathon argued that it had caused
no harm, and seemingly accepted that argument. 	Id. at 1262.
Thus the issue of lack of harm to the estate and the question of
standing arose. 	But instead of making the leap to no harm, no
foul 10 , the panel ruled that there is no “harmless” exception to
a trustee’s section 549 avoiding power. 	Id. 11
In summary, the Court finds that Plaintiff Dill has not
established (or even alleged) that the estate suffered an injury,
and certainly not one from Brad Hall. 	Nor can the Court fashion
any remedy among the named parties that would redress any
injuries that Plaintiff may have had. 	In other words, the Court
lacks jurisdiction and will dismiss the case, subject of course
to the Trustee refiling in the event that he can assert that the
estate suffered an actual economic loss. 12
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12 (...continued)
Trustee with respect to any limitations statute that the Trustee
might be subject to. 	See §549(d):
An action or proceeding under this section may not be
commenced after the earlier of
(1) two years after the date of the transfer sought to
be avoided; or
(2) the time the case is closed or dismissed.
13 That section provides:
If the business of the debtor is authorized to be operated
under section 721, 1108, 1203, 1204, or 1304 of this title
and unless the court orders otherwise, the trustee may enter
into transactions, including the sale or lease of property
of the estate, in the ordinary course of business, without
notice or a hearing, and may use property of the estate in
the ordinary course of business without notice or a hearing.
14 See Armstrong World Industries, Inc. v. James A.
Phillips, Inc. (In re James A. Phillips, Inc.), 29 B.R. 391, 394
(S.D. N.Y. 1983):
The touchstone of “ordinariness” is thus the interested
parties' reasonable expectations of what transactions
the debtor in possession is likely to enter in the
course of its business. So long as the transactions
(continued...)
Page -27-
AFTERWORD
The Court will not make alternative (and basically advisory)
rulings on the present facts but will suggest at least some of
the issues that may need to be addressed by the parties should
the Trustee refile. 	The Court might need to consider that
neither the Tenth Circuit nor the Tenth Circuit BAP have adopted
a test of what constitutes an ordinary course of business
transaction for purposes of section 363(c)(1) 13 . 	Many other
circuits and courts have adopted two tests derived from three
early Bankruptcy Code cases 14 that
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14 (...continued)
conducted are consistent with these expectations,
creditors have no right to notice and hearing, because
their objections to such transactions are likely to
relate to the bankrupt's chapter 11 status, not the
particular transactions themselves.
; Johnston v. First Street Companies (In re Waterfront Companies,
Inc.), 56 B.R. 31, 34-35 (Bankr. D. Minn. 1985):
[T]here are at least two dimensions to the concept of
ordinary course of business. The defendants focus on
one dimension which might be called the horizontal
dimension. That is, we compare this debtor's business
to other businesses and based on the kind of business
it is in, we decide whether a type of transaction is in
the course of that debtor's business or in the course
of some other business. Thus raising a crop would not
be in the ordinary course of business for a widget
manufacturer because that is not a widget
manufacturer's ordinary business.
However there is another dimension which we could
perhaps call the vertical dimension. Even though
something is the type of transaction in which this
debtor could be expected to take part, is it the type
of transaction that is in the ordinary course of
business? Some transactions either by their size,
nature or both are not within the day-to-day operations
of a business and are therefore extraordinary.
; and Committee of Asbestos-Related Litigants and/or Creditors v.
Johns-Manville Corp. (In re Johns-Manville Corp.), 60 B.R. 612,
616 (Bankr. S.D. N.Y. 1986):
[A] synthesis of existing caselaw reveals a developing
yet workable analysis to be used in deciding whether an
activity is within the debtor's “ordinary course of
business.” The analysis, using “vertical” and
“horizontal” components, embodies the elastic
rehabilitation policies of the Code yet respects its
boundaries.
(Describing the vertical dimension test as examining the debtor’s
transaction from the vantage point of a hypothetical creditor to
determine whether the transaction subjects that creditor to
economic risks of a nature different from those accepted when it
became a creditor. 	And, describing the horizontal dimension test
as comparing this debtor’s business to other like businesses to
determine if the transaction would be entered by the other like
businesses.)
Page -28-
attempted to determine when something was ordinary course. 	See,
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Page -29-
e.g., Braunstein v. McCabe (In re TMG Holdings, LLC), 571 F.3d
108, 124 (1 st Cir. 2009); In re Straightline Investments, Inc.,
525 F.3d 870, 879 (9 th Cir. 2008); Medical Malpractice Ins.
Assoc. v. Hirsch (In re Lavigne), 114 F.3d 379, 384 (2 nd Cir.
1997); In re Roth American, Inc., 975 F.2d 949, 953 (3 rd Cir.
1992); In re Git-N-Go, Inc., 322 B.R. 164, 172 (Bankr. N.D. Okla.
2004); In re Podzemny, 2011 WL 576591 at *5 (Bankr. D. N.M.
2011). 	If both tests are passed, the subject transaction is
deemed to be in the ordinary course of business. 	Id.
This Court imagines that no matter what test or tests the
Tenth Circuit ultimately embraces, the purchase of gasoline for
resale by a gas station/convenience store would be the
archetypical ordinary course of business transaction. 	Plaintiff
argues, however, that the misuse of cash collateral causes the
ordinary course transaction to be, at the same time, not ordinary
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15 This brings to mind the situation of Schrödinger's cat:
One can even set up quite ridiculous cases. 	A cat is
penned up in a steel chamber, along with the following
device (which must be secured against direct
interference by the cat): in a Geiger counter, there is
a tiny bit of radioactive substance, so small that
perhaps in the course of the hour, one of the atoms
decays, but also, with equal probability, perhaps none;
if it happens, the counter tube discharges, and through
a relay releases a hammer that shatters a small flask
of hydrocyanic acid. 	If one has left this entire
system to itself for an hour, one would say that the
cat still lives if meanwhile no atom has decayed. 	The
psi-function of the entire system would express this by
having in it the living and dead cat (pardon the
expression) mixed or smeared out in equal parts.
Schrödinger, Erwin. "Die gegenwärtige Situation in der
Quantenmechanik (The present situation in quantum mechanics)".
Naturwissenschaften. (November 1935) (Emphasis added.)
Page -30-
course. 15 	The answer to this paradox awaits another day, when
the Court has jurisdiction.
The Court might also need to discuss an apparent conflict
between Sections 502(h) and 503. 	Trustee’s recovery avoided
postpetition transfers through section 550. 	Section 502(h)
provides:
A claim arising from the recovery of property
under section 522, 550, or 553 of this title shall be
determined, and shall be allowed under subsection (a),
(b), or (c) of this section, or disallowed under
subsection (d) or (e) of this section, the same as if
such claim had arisen before the date of the filing of
the petition.
On the other hand, §503(b) provides that any actual, necessary
costs and expenses of preserving the estate are administrative
expenses entitled to priority treatment. 	Can payment of an
administrative expense be transformed into an unsecured
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Page -31-
prepetition claim if paid with an unauthorized use of cash
collateral which payment is recovered for the estate?
Next, the Court might consider what would become of any
funds recovered through section 550. 	Would the cash collateral
creditor seek to claim them as proceeds of its collateral? 	Would
it be fair for that the creditor to keep the proceeds of the sold
gasoline and then receive the money used to pay for the gasoline?
Alternatively, would the trustee claim that the funds were free
of liens? 	Would it be fair for the estate to receive a windfall
of $97,860.01 created by the Debtor’s violation of a court order?
And, finally, the Court might note that a key policy of
Chapter 11 is to encourage vendors to do business with the debtor
to enable a successful reorganization. 	Awarding a judgment
against a good-faith vendor (certainly one without notice of the
end of cash collateral authority) of a Chapter 11 debtor might
seriously discourage future vendors from doing business with
debtors in possession. 	On the other hand, the Delco court makes
a strong textual argument that there is no exception in §549 for
such policy considerations.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	October 5, 2011
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Page -32-
Copies to:
James A Askew
Arland & Associates, LLC
201 3rd ST NW, STE 505
Albuquerque, NM 87102-3331
Victor E Carlin
Moses Law Firm
PO Box 27047
612 First Street, NW
Albuquerque, NM 87125-7047
Office of the United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
Case 10-01180-s Doc 13 Filed 10/05/11 Entered 10/05/11 09:59:39 Page 32 of 32