In Re Powerine Oil Company, Debtor. Committee of Creditors Holding Unsecured Claims v. Koch Oil Company

Opinion by Judge KOZINSKI; Dissent by Judge FARRIS.

Can an unsecured creditor be better off when the debtor defaults rather than paying off the debt? Yes: Law can be stranger than fiction in the Preference Zone.

I

Powerine Oil Company (the debtor here) obtained a $250.6 million line of credit from a syndicate consisting of several banks and insurance companies; the loan was secured by most of Powerine’s personal property. The security agreement provided that the collateral would serve as security for all letters of credit that “have been, or are in the future, issued on the account of Debtor.” ER 101-02.

Koch Oil Company thereafter agreed to sell crude oil to Powerine. To secure Powe-rine’s obligation, it designated Koch as beneficiary of two irrevocable standby letters of credit issued by First National Bank of Chicago, one of the lenders covered by the security agreement. The letters, which were to expire in April 1984, totaled approximately $8.7 million, an amount at all times sufficient to cover the cost of the oil Koch sold to Powerine.

In January and February 1984, Koch billed Powerine $3.2 million for oil it had delivered in December and January. Powe-rine eventually…

dissenting:

Bankruptcy courts sit as courts of equity, but they may not avoid the plain language of a statute. In re Shoreline Concrete Co., 831 F.2d 903, 905 (9th Cir.1987). We must decide whether the Bankruptcy Appellate Panel’s interpretation of 11 U.S.C. § 547 (b)(5) is plausible.

Section 547(b)(5) states:

The plain language of the statute does not limit consideration to funds from Powerine’s estate. Under a hypothetical chapter 7 liquidation, it could have collected from First National as “provided by the provisions of this title.” In its opinion, the BAP ruled that “[n]othing in title 11 would prevent a draw down on the credits here at issue had Powe-rine filed bankruptcy without paying Koch.”

In my opinion, the BAP’s decision does not avoid the plain language of section 547(b)(5). I respectfully dissent.

59 F.3d 969 64 USLW 2099 , 33 Collier Bankr.Cas.2d 1778 , 27 Bankr.Ct.Dec. 623 , Bankr. L. Rep. P 76,554 , 95 Daily Journal D.A.R. 9202 In re POWERINE OIL COMPANY, Debtor. COMMITTEE OF CREDITORS HOLDING UNSECURED CLAIMS, Appellant, v. KOCH OIL COMPANY, Appellee. No. 92-56077. United States Court of Appeals, Ninth Circuit. Argued and Submitted Dec. 7, 1994. Decided July 12, 1995. Thomas A. Ryan, David Gould (argued), McDermott, Will & Emery, Los Angeles, CA, for appellant. Michael R. Hassan, Lord, Bissell & Brook, Chicago, IL, for appellee. Appeal from the Ninth Circuit Bankruptcy Appellate Panel Ollason, Jones, and Perris, Bankruptcy Judges, Presiding. Before: FARRIS, POOLE and KOZINSKI, Circuit Judges. Opinion by Judge KOZINSKI; Dissent by Judge FARRIS. KOZINSKI, Circuit Judge. 1 Can an unsecured creditor be better off when the debtor defaults rather than paying off the debt? Yes: Law can be stranger than fiction in the Preference Zone. 2 * Powerine Oil Company (the debtor here) obtained a $250.6 million line of credit from a syndicate consisting of several banks and insurance companies; the loan was secured by most of Powerine's personal property. The security agreement…