R. KIMBALL MOSIER, Bankruptcy Judge.
The question before the Court is whether the Estate or Standard Industries, Inc. is entitled to $2,797,246.79 that UtahAmerican Energy, Inc. (UEI) deposited with the Court (UEI Receivable). Aquila, Inc. filed a Motion for Partial Summary Judgment, in which Kenneth A. Rushton, the Chapter 7 Trustee, joined, seeking a declaration that the Trustee is entitled to the UEI Receivable for the benefit of the Estate's creditors. Standard opposes Aquila's Motion, arguing that summary judgment is premature because there is a genuine factual dispute regarding ownership of the UEI account. UEI makes no claim to the UEI Receivable.
The Court conducted two hearings on Aquila's Motion on September 3, 2013 and October 15, 2013, at which hearings Brent D. Wride of Ray, Quinney & Nebeker, P.C., appeared on behalf of Aquila, Inc.; Michael N. Zundel and Daniel C. Dansie of Prince, Yeates & Geldzahler appeared on behalf of the Trustee; and P. Matthew Cox and Kim R. Wilson of Snow, Christensen & Martineau appeared on behalf of Standard Industries, Inc.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b) and 157(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(F), (H), and (O), and the Court may enter a final order. Venue is appropriate in this District under 28 U.S.C. § 1409.
In 1997, C.W. Mining dba Co-Op Mining Company (Debtor) entered into a Coal Operating Agreement with C.O.P. Coal Development Company. Under the Coal Operating Agreement, the Debtor was granted "the exclusive authority to operate and control [tracts of land including the Bear Canyon Mine] ... for the term of 25 years, beginning March 1, 1997 and extending to February 28, 2022."
Paragraph 13 of the Advance Payment Agreement provides that the Debtor grants to Standard a security interest in all of the Debtor's personal property, profits and proceeds now owned or hereinafter acquired.
Six years later on March 5, 2007, the Debtor and Standard entered into the Coal Sales Agency Agreement. The Agency Agreement appoints Standard as the Debtor's exclusive sales agent for coal mined during the term of the Agency Agreement.
Paragraphs 8 and 9 provide:
Paragraph 10 of the Agency Agreement reads as follows:
On November 28, 2007, the Debtor entered into two contracts related to the sale of coal to UEI. One was designated as the Spot Coal Supply Agreement (UEI Agreement), under which the Debtor contracted to sell coal to UEI.
On October 30, 2007, just a month before the execution of the UEI Agreement and the Assignment Agreement, Aquila, Inc., a purchaser of coal mined at the Debtor's facility, obtained a $24,841.988 judgment against the Debtor in the United States District Court for the District of Utah (District Court Action). Before the involuntary petition was filed against the Debtor, Aquila obtained from the District Court and served a continuing writ of garnishment on UEI in an attempt to collect its judgment. Standard moved the District Court to quash the garnishment, which motion was opposed by Aquila. Standard also filed a complaint against UEI to collect the UEI Receivable in state court. The state court action was stayed pending resolution of the District Court Action and this bankruptcy proceeding.
On January 8, 2008, Aquila, and other petitioning creditors, filed an involuntary Chapter 11 bankruptcy petition against the Debtor. The Court entered an order for relief against the Debtor on September 26, 2008. On November 13, 2008, the Court converted the Debtor's Chapter 11 bankruptcy case to one under Chapter 7 and Kenneth A. Rushton was appointed Trustee.
The Trustee initiated the present adversary proceeding on February 9, 2009 and thereafter filed a motion for partial summary judgment seeking a determination of the parties' rights to the proceeds of the UEI Receivable. Aquila joined in the
In the Amended Memorandum Decision, Judge Boulden found for the Trustee on the majority of his claims in the underlying adversary proceeding. In particular, the Court found that the Debtor retained its ownership interest in the coal and Standard possessed only a security interest in the UEI Receivable and that any interest in the UEI Receivable had not been properly perfected.
On April 20, 2010, the above-captioned bankruptcy case and all associated adversary proceedings were reassigned to Judge R. Kimball Mosier. On July 2, 2010, this Court entered a final order instructing the court clerk to pay the UEI Receivable proceeds to the Trustee.
Standard and other parties appealed that order and the Amended Memorandum Decision to the United States District Court for the District of Utah. The District Court addressed three general claims on appeal: "that the bankruptcy court (1) erred in interpreting the Advance Payment Agreement and Agency Agreement as loan and security agreements rather than purchase agreements, (2) erred in finding that the Appellants' UCC financing statements were ineffective to perfect the Appellants' underlying security interests, and (3) granted relief in its final order that was overly broad and impermissibly at odds with its Amended Memorandum Decision."
The District Court issued its ruling on March 8, 2013, affirming the bankruptcy court's decisions in part and reversing them in part. In particular, the District Court found error in the conclusion that the Advanced Payment Agreement and Agency Agreement were unambiguous. The District Court affirmed, however, the determination that Standard failed to properly perfect any security interest in any account or the UEI Receivable. In addition, the District Court held that the final order was not impermissibly broad or contrary to the Amended Memorandum Decision. The District Court then remanded the case to this Court.
Under Fed.R.Civ.P. 56(a), made applicable to adversary proceedings by Fed. R. Bankr.P. 7056, the Court is required to grant a motion for 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 moving party bears the burden to show that it is entitled to summary judgment,
When considering a motion for summary judgment, the Court views the record in the light most favorable to the nonmoving party.
Because the District Court found the Advanced Payment Agreement and Agency Agreement were ambiguous, Standard maintains that there is a possible scenario under which the UEI Receivable belongs to Standard instead of the Estate and the UCC does not apply. Specifically, Standard argues that the parties varied the effect of the UCC by agreement because the Advance Payment Agreement and the Agency Agreement provided that Standard took title to the coal as it was severed from the real property. Standard's position is that it sold its own coal directly to UEI on its own behalf. Standard admits that there is no contract between it and UEI but argues that the invoices generated for UEI's purchases of coal constitute prima facie evidence of an account. Standard notes that the invoices are made in its name, not the Debtor's, and that nowhere on the invoices is there an indication that Standard sold coal to UEI on the Debtor's behalf or under the Debtor's account.
The problem for Standard is that the invoices do not create a genuine dispute of a material fact regarding the ownership of the UEI Receivable. It is undisputed that the Debtor and UEI entered into the UEI Agreement. It is also undisputed that the coal UEI purchased was purchased pursuant to the UEI Agreement and not pursuant to an agreement or contract with Standard. In the Assignment Agreement, the Debtor clearly
It is also undisputed that the Debtor and UEI later amended the UEI Agreement "to correct scrivener's errors in the [UEI Agreement] so as to reflect the original intent of the parties[.]"
The cases cited by Standard for the proposition that an invoice is prima facie evidence of an account are not on point. In Peace Mark (Holdings),
These cases do not state that invoices constitute prima facie evidence of an account
It is undisputed that Standard did not have a separate coal sales contract with UEI. Whether Standard owned the coal is not material to this motion. The undisputed facts clearly establish that the UEI Receivable resulted from the purchase of coal sold pursuant to the UEI Agreement, and was not dependant on the source of the coal sold. Even if Standard owned the coal that was sold to UEI, it did not own the UEI Receivable, except through the Assignment Agreement. Standard only held an assignment of the proceeds of the UEI Agreement and the resolution of other facts that may be in genuine dispute in this case will not alter this fact, and are therefore not material to this motion.
The assignment of the UEI Agreement proceeds is subject to perfection under Article 9 of the UCC. This Court previously ruled, neither the assignment for collection exception nor the assumed obligation exception found in Article 9 § 109(4) apply to the Debtor's assignment of the UEI Agreement proceeds to Standard, and it repeats that conclusion here. The purpose of Article 9 § 109(4) is to except from the UCC transfers that are not really financing transactions. Article 9 § 109(4)(e) provides that the UCC does not apply to "an assignment of accounts... which is for the purpose of collection only." This section of the UCC "deals with a case in which a creditor sells its accounts or other intangibles to a collection agency not for the purpose of financing but for the purpose of collection."
Next, Article 9 § 109(4)(f) indicates that it does not apply to "an assignment of a right to payment under a contract to an
The District Court affirmed this Court's conclusion in the Amended Memorandum Decision, that Standard failed to properly perfect its security interest in the UEI Receivable. Therefore, the Trustee's interest in the UEI Receivable is superior to that of Standard's and summary judgment is appropriate.
The Debtor executed a contract with UEI for the sale of coal and later assigned its right to payment under that contract to Standard but did not assign the contract. There is no genuine dispute that Standard did not have a separate account with UEI, and the invoices that Standard sent to UEI do not establish a separate account. The assignment of the UEI Agreement proceeds to Standard is subject to perfection under Article 9 of the UCC. Because Standard did not properly perfect its interest in the UEI Receivable, the Trustee is entitled to it for the benefit of the Estate's creditors. Therefore, the Court will grant Aquila's Motion for Summary Judgment. A separate order will accompany this Memorandum Decision.