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Yancey v. Varner

July 23, 1997

IN RE: PUCCI SHOES, INCORPORATED, DEBTOR.

RAYMOND A. YANCEY, PLAINTIFF-APPELLEE,

v.

ROBERT VARNER; VIRGINIA VARNER, DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria.

Albert V. Bryan, Jr., Senior District Judge. (CA-96-764-A, BK-93-15274-AB, AP-95-1102)

Before HALL, WILKINS, and WILLIAMS, Circuit Judges.

WILKINS, Circuit Judge

Argued: May 8, 1997

Vacated and remanded for further proceedings by published opinion. Judge Wilkins wrote the majority opinion, in which Judge Williams joined. Judge Hall wrote a dissenting opinion.

OPINION

Robert and Virginia Varner appeal a $10,000 judgment entered against them by the district court in this action brought by Raymond A. Yancey, trustee of the bankruptcy estate of debtor Pucci Shoes, Incorporated (Pucci), to set aside a transfer from Pucci to the Varners pursuant to 11 U.S.C.A. Section(s) 547(b), 549(a) (West 1993). The district court rejected the Varners' claim that they were entitled to retain the transfer as an exchange for value occurring between the filing of an involuntary bankruptcy petition and the entry by the bankruptcy court of an order of relief. See 11 U.S.C.A. Section(s) 549(b) (West Supp. 1997). The Varners argue that the district court erred in concluding that the transfer did not qualify for the Section(s) 549(b) exception because the Varners did not provide value prior to or contemporaneously with the transfer. We agree with the Varners that Section(s) 549(b) imposes no requirement that the value provided for a transfer be made prior to or simultaneously with the transfer. However, because the bankruptcy court did not render factual findings on other aspects critical to a determination of whether Section(s) 549(b) may be applied here, we remand for further proceedings consistent with this opinion.

I.

On December 23, 1993, an involuntary petition seeking relief under Chapter 7 of the Bankruptcy Code was filed against Pucci. The following day, Pucci's manager, Robert Dekar, visited his stepfather and mother Robert and Virginia Varner, the sole stockholders of Pucci. Dekar presented the Varners, who were unsecured creditors of Pucci for over $100,000, with a check for $10,000 and obtained the Varners' agreement to infuse additional capital into the corporation by obtaining a loan using their personal residence as collateral. Dekar testified before the bankruptcy court that the $10,000 transfer was intended to cover the Varners' expenses in obtaining the additional line of credit. The Varners subsequently made two loans to Pucci-- the first, in July, was for $50,000 and the second, in September, was for $60,000. Thereafter, on December 20, 1994, the bankruptcy court entered an order of relief.

Yancey subsequently brought this action seeking to set aside the $10,000 payment to the Varners. The Varners opposed the action, asserting that the transfer fit within the exception to the trustee's power to set aside a post-petition payment by a debtor set forth in Section(s) 549(b). The parties stipulated to the relevant dates, and the Varners offered the testimony of Dekar to the facts set forth above. The bankruptcy court ruled that the Varners had not proven their entitlement to the Section(s) 549(b) exception, reasoning that the transfer to the Varners was not made simultaneously with the transfer of the $110,000 to Pucci. Thus, the bankruptcy court entered a $10,000 judgment against the Varners.

On appeal, the district court affirmed, explaining:

The purpose of the [Section(s) 549(b)] exception is to allow a business to continue normal operations while an involuntary petition is pending. This purpose is not served by the Varners' July and September loans, which, though surely helping to sustain the company, were both attenuated in connection and remote in time from the $10,000 payment. Rather than given "in exchange" for "value," the payment was merely incidental to securing an infusion of additional capital in the future by means of a loan. The court aligns itself with those cases giving a narrow reading toSection(s) 549(b) and imposing a condition of substantial simultaneity in the exchange. J.A. 48-49.

The Varners appeal from this ...


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