Roth

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In re McGuire, Part I

Decision: In re Richard Michael McGuire and Dolores Sue McGuire, Case No. 12-41681-JDP (Bankr. D. Idaho, 4 Oct. 2013)
Judge: Honorable Jim D. Pappas, United States Bankruptcy Judge
Counsel for Debtors: Paul Ross, Idaho Bankruptcy Law, Paul, Idaho
Chapter 7 Trustee: Gary L. Rainsdon, Twin Falls, Idaho
Trustee’s Counsel: Brett R. Cahoon and Daniel C. Green, Racine, Olson, Nye, Budge & Bailey, Chtd., Pocatello, Idaho

Background

Richard and Dolores McGuire filed a Chapter 7 petition on 12 December 2012. Their schedules listed two vehicle deficiency debts: $24,265 to Chartway Federal Credit Union and $48,363 to Utah Central Credit Union, the latter being a division of Chartway. At the time of filing, the Debtors believed the collateral — a 2005 McKenzie Medallion trailer repossessed by Utah Central on 21 September 2012 — had long since been sold. In January 2013, having liquidated non-exempt assets of the estate (principally cash value from the Debtors’ life insurance policies), the Trustee filed a Notice of Assets directing creditors to file proofs of claim by 22 April 2013. The estate held approximately $13,951.

Utah Central filed its proof of claim on 3 June 2013 — forty-two days after the claims bar date — asserting a deficiency of $34,165.32 and attaching only an account printout to the filing. It was the only proof of claim filed in the case. When the Debtors received the claim documents, they discovered for the first time that Utah Central’s auction yard had sold the trailer on 27 December 2012 — eleven days after the Bankruptcy Noticing Center had mailed Utah Central and Chartway notice of the bankruptcy filing, and fifteen days after the automatic stay had taken effect.

The Debtors’ Objection

Debtors filed an objection to Utah Central’s proof of claim on 18 June 2013, raising three grounds for disallowance. First, the claim was tardily filed in violation of Federal Rule of Bankruptcy Procedure (“FRBP”) 3002(c), which stripped it of prima facie validity under FRBP 3001(f) and the analysis in In re Parrott Broadcasting Ltd. Partnership, 492 B.R. 35 (Bankr. D. Idaho 2013). Second, the claim lacked the written loan documents, security agreement, and UCC disposition notices required by FRBP 3001(c), further defeating any presumption of validity. Third, and most significantly, Utah Central had sold the collateral in violation of the automatic stay — an act that was void under In re Schwartz, 954 F.2d 569 (9th Cir. 1992) — and had done so without providing the Debtors with the notice of disposition required under Idaho Code § 28-9-611, rendering the sale commercially unreasonable and precluding any deficiency claim under Idaho Code § 28-9-626.

On that last point, Debtors relied on the presumption codified in Idaho Code § 28-9-626(c)–(d): where a secured creditor cannot establish that its disposition of collateral was commercially reasonable, the value of the collateral is presumed to equal the outstanding debt, eliminating the deficiency. In re Walter B. Scott & Sons, Inc., 436 B.R. 582 (Bankr. D. Idaho 2010). Because Utah Central’s sale was both void as a stay violation and deficient for lack of notice to the Debtors, the deficiency claim was unenforceable under § 502(b)(1) as a matter of applicable Idaho law. Debtors amended Schedules B, C, and F to reflect the claim as disputed and unliquidated in light of the post-petition sale.

The Trustee’s Response and the Standing Dispute

Utah Central filed no response to the Debtors’ objection. The Trustee, however, filed his own response on 25 June 2013, arguing that the claim should be allowed as a tardy general unsecured claim under § 726(a)(3) and that the Debtors were judicially estopped from contesting a debt they had sworn to in their schedules.

The Trustee also moved for a Rule 2004 examination of the Debtors, seeking testimony and documents to rehabilitate the claim. Debtors objected to both the Trustee’s response and the 2004 motion, filing a detailed Supplement on 22 August 2013 raising the Trustee’s lack of standing to defend a creditor’s proof of claim. At the 27 August 2013 hearing, Judge Pappas questioned the Trustee’s counsel directly from the bench: whether the Trustee had any legal authority to step into a creditor’s shoes and defend its proof of claim over the Debtors’ objection when the creditor itself had declined to respond. Unable to identify a statute or case squarely on point, Trustee’s counsel conceded that if other creditors were in the case, the Trustee would likely not be taking the same position. The Court ordered supplemental briefing on the standing issue.

Before briefing was complete, the Trustee negotiated a stipulation with Utah Central by which Utah Central agreed to turn over the $10,100 in post-petition sale proceeds to the Trustee in exchange for allowance of an increased unsecured claim of $44,265.32 — the original deficiency plus the proceeds returned. The Trustee moved to approve the compromise under Rule 9019, arguing the standing issue was now moot. The Trustee further argued that his expectation of a § 326 commission gave him a constitutionally protected property interest sufficient to confer standing, and that his authority under § 501(c) to file claims on a creditor’s behalf provided an analogous basis to defend them.

Debtors objected to both the standing argument and the proposed compromise. On standing, Debtors invoked Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416 (1972), and its three-factor framework — lack of statutory authority, absence of a derivative estate right, and inconsistency with the creditor’s own interests — as well as Williams v. California 1st Bank, 859 F.2d 664 (9th Cir. 1988), and In re Folks, 211 B.R. 378 (B.A.P. 9th Cir. 1997), for the proposition that a trustee may not assert particularized creditor rights. On the compromise, Debtors argued that retroactive annulment of the stay was improper under In re Schwartz and In re Franck, 171 B.R. 893 (Bankr. D. Idaho 1994), that the Trustee lacked standing to seek stay relief belonging to Utah Central, and that even with annulment the claim remained independently defective on timeliness, documentation, and UCC notice grounds.

The Court’s Ruling

Judge Pappas issued an oral ruling on 4 October 2013, describing the case as “truly an extraordinary” one that “borders on the bizarre when it comes to the bankruptcy world.” The ruling resolved all pending matters against the Trustee.

On mootness. The Court rejected the Trustee’s argument that the stipulation mooted the standing dispute. Citing Powell v. McCormack, 395 U.S. 486 (1969), the Court found the Debtors retained a live, legally cognizable pecuniary interest in the outcome of their objection — specifically, the potential for a surplus return of the estate funds to them — that the contingent, unapproved stipulation did not extinguish.

On the Debtors’ standing. The Court confirmed that Debtors had standing to object. While Chapter 7 debtors ordinarily lack standing to contest creditor claims because they have no pecuniary interest in the outcome, the potential surplus here gave the Debtors a direct money interest, satisfying the requirements identified in In re Lona, 393 B.R. 1 (Bankr. N.D. Cal. 2008), and the Ninth Circuit’s analysis in Menick v. Hoffman, 205 F.2d 365 (9th Cir. 1953).

On the Trustee’s standing. The Court held the Trustee lacked both constitutional and prudential standing to defend Utah Central’s claim. The Trustee failed to establish injury in fact, as his expectation of a § 326 commission was an unvested property interest not protected by the Fifth Amendment under Board of Regents v. Roth, 408 U.S. 564 (1972). More fundamentally, the Trustee was asserting the individual rights of a creditor — not a right of the bankruptcy estate — in violation of the prudential standing requirement that a litigant assert only its own legal rights. In re Veal, 450 B.R. 897 (B.A.P. 9th Cir. 2011). The Court drew on the U.S. Trustee’s Handbook and its own decision in In re Wisdom, 478 B.R. 394 (Bankr. D. Idaho 2012), for the principle that a Chapter 7 trustee is a fiduciary for all estate beneficiaries — creditors and debtors alike — and may not advocate for a single creditor contrary to the debtors’ interests solely to generate a commission. The Court also followed In re Lyon, a 2011 Western District of North Carolina decision questioning a trustee’s standing to rehabilitate nonresponsive creditors’ claims, and In re Padget, 119 B.R. 793 (D. Colo. 1990), for the proposition that a trustee has no duty to protect creditors against the consequences of filing late or insufficient claims. Section 501(c), the Court held, was simply inapplicable: it permits a trustee to file a claim when a creditor does not, but Utah Central had filed its own claim, making the statute’s conditions inapplicable and its rationale impossible to extend by analogy. The Trustee’s response was stricken.

On the merits of the objection. With the Trustee’s response stricken and the creditor having filed none of its own, the Court turned to the merits. The claim was denied on two independent grounds. First, the post-petition sale of the collateral was void as a violation of the automatic stay. Because § 502(b)(1) disallows claims that are unenforceable under applicable law, and because a void sale cannot support a deficiency, the claim failed at the threshold. Second, Utah Central bore the burden under Idaho Code § 28-9-626 to demonstrate a commercially reasonable disposition, and it had supplied no proof — no loan documents, no security agreement, no UCC disposition notices — that its sale met that standard. The § 28-9-626 presumption therefore applied: the collateral was deemed worth the full amount of the debt, leaving nothing to support a deficiency.

On the Rule 2004 motion. Because the Trustee’s stated purpose for the examination was to gather evidence in support of Utah Central’s claim, and the claim had been disallowed, the motion lacked any valid basis. It was denied.

On the compromise. With the claim disallowed, the Court found the proposed arrangement — recovering $10,100 from Utah Central, taking a commission, and immediately distributing the proceeds back to that same creditor on an allowed claim — would generate no benefit for any party other than the Trustee. The Trustee was given seven days to either withdraw the motion or provide additional briefing showing good cause for approval; he subsequently filed additional briefing, which the Debtors opposed, and a final Order Denying the Motion to Approve Compromise was entered on 7 January 2014.

Why This Matters

  1. A Chapter 7 trustee lacks standing to defend a creditor’s proof of claim against a debtor’s objection. No statutory provision — not § 501(c), not § 704(a)(5), not FRBP 3007 — confers authority on a trustee to rehabilitate a creditor’s claim. The trustee’s duty runs to the estate as a whole, not to individual creditors. Defending a particular creditor’s claim is the mirror image of the trustee’s actual duty under § 704(a)(5): to examine claims and object to those that are improper.
  2. A trustee’s expectation of a § 326 commission is not a constitutionally protected property interest. An unvested expectation of future compensation does not satisfy the injury-in-fact requirement for constitutional standing and is not property protected by the Fifth Amendment. A trustee who accepts an appointment accepts the risk that distributions — and commissions — may be zero.
  3. A sale of collateral in violation of the automatic stay is void and cannot support a deficiency claim. Under In re Schwartz and its progeny, post-petition collection actions taken without stay relief are void ab initio. A deficiency claim premised on a void disposition is unenforceable under § 502(b)(1) and applicable state law regardless of whether the creditor received notice of the bankruptcy.
  4. Failure to provide UCC disposition notice to the debtor bars a deficiency claim. Idaho Code § 28-9-611 requires the creditor to send the debtor reasonable authenticated notification before disposing of collateral. Where the Debtors received no such notice and no post-default waiver existed, the § 28-9-626 presumption applied — the collateral was deemed worth the full outstanding debt — and the deficiency was eliminated.
  5. A tardily filed proof of claim lacking required documentation is not entitled to prima facie validity. FRBP 3001(f) affords prima facie effect only to claims filed in accordance with the applicable rules. A claim filed after the bar date and without the writings required by FRBP 3001(c) carries no presumption of validity, shifting the full burden to the claimant — a burden a nonresponsive creditor cannot meet.
  6. Debtors in a surplus estate have standing to object to creditor claims. Where disallowance of a claim would produce a surplus returned to the debtors, the debtors have a direct pecuniary interest sufficient to confer standing as parties in interest. Practitioners with asset Chapter 7 cases should evaluate whether surplus potential gives clients this otherwise-unavailable right.
  7. A Rule 9019 compromise that generates no net benefit to the estate should not be approved. A compromise that recovers funds from a creditor only to pay a trustee commission and distribute the remainder back to that same creditor on an allowed claim fails the In re A & C Properties, 784 F.2d 1377 (9th Cir. 1986), requirement that a compromise be fair and equitable and serve the paramount interest of creditors.

Full Decision: Oral ruling transcribed, Case No. 12-41681-JDP (Bankr. D. Idaho 4 Oct. 2013); Order Re Pending Matters, Doc. 57 (4 Oct. 2013); Order Denying Trustee’s Motion to Approve Compromise Under Rule 9019, Doc. 73 (7 Jan. 2014)

Transcript – DecisionDownload
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Proposition 1 unlikely to shift political balance in Idaho

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Pet Evaporated Milk

Here is a history of Pet milk published in the Northside Journal in Jerome, Idaho.  It provides some history of Pet Milk, aka Sego Milk.  They also had a plant in Richmond, Utah, which is where my Grandfather, Norwood Jonas worked until it closed about 1967.

Pet Evaporated Milk

Buhl, ID

Compiled by Earl Gilmartin

Condensed History Pet Evaporated Milk Corporation

 

1885- It started with an idea of canning as a preservative in the small town of Highland, Illinois. After a $15,000 investment the Helvetia Milk Condensing Company was born (later to be renamed PET).

1895 – After overcoming a number of growing pains, more than half the company’s sales were in the West. The “Our PET” trademark is registered and becomes the official name for the company’s leading brand.

1898 – “Our PET” helps supply Teddy Roosevelt’s Rough Riders and other.

American fighting troops with a safe and convenient  source of milk in Spanish-American War. At war’s end, the troops scattered home across the U.S. and many, remembering the high quality milk, brought it home to their families.

1914 – Once again, the U.S. government places large orders of PET to supply  U.S. troops fighting overseas in World War I.

1929 – In the midst of the Great Depression PET becomes an important staple to American families and is able to expand its service to consumers with the creation of original recipes using PET products.

1941 – Again, PET is called upon to supply GIs fighting in World War II, as well as the citizens at home. More recipes, specifically designed with rationing limitations in mind are created to help families get a wholesome diet.

1950 – the combination of post-war prosperity and a baby boom result in more cans of PET Milk being sold than any other time in company’s 65-year history. PET also establishes its own test kitchens to develop and test new products and recipes.

1966 – PET began making “better for you” products including a Skimmed Milk and a 99% Fat Free Evaporated Skim Milk.

Today – PET Evaporated Milk continues to be a staple in millions of homes and is used in many different homes and is used in many different recipes, from main dishes, to soups, desserts and more.

We invite you to try the recipes on this site to create sensational food for your family!

Early History Pet Evaporated Milk

John Baptist Meyenberg (1847-1914) was an operator at the Anglo-Swiss milk condenser at Cham, Switzerland. Anglo-Swiss made sweetened condensed milk.

From 1866 through 1883, Meyenberg experimented with preservation of milk without the use of sugar. He discovered that condensed milk would last longer if heated to 120 C (248 F) in a sealed container, and hence could be preserved without adding sugar. When Anglo-Swiss declined to implement Meyenberg’s work, he resigned from the company and emigrated to the United States. John Meyenbert first moved to St. Louis, but soon transferred to Highland, Illinois , due to its large Swiss population. On 25 November 1884, U.S. Patents 308,421 (Apparatus for Preserving Milk) and 308,422 (Process for Preserving Milk) were issued to Meyenberg.  Meyenburg associated with various local merchants, including John Wildi, Louis Latzer, Dr. Knoebel, George Roth and Fred Kaeser and, on February 14, 1885, organized the Helvetia Milk Condensing Company. In 1899, Meyenberg assisted Elbridge Amos Stuart in producing Carnation Evaporated Milk.

John Wildi was instrumental in marketing the product nationally and internationally, especially in areas where fresh milk or refrigeration were scarce. In 1895, the company registered the Pet trademark.

The Sterling company of Twin Falls leases the Buhl Creamery facility for one year.  TFTN 11-11-1911

A transaction of importance to the dairymen of Buhl county was consummated on Saturday afternoon of last week when the Sterling Creamery Co of Twin Falls, secured by lease for a period of one year, the plant, business and good will of the Buhl Creamery, Milk Condensing, Cheese Manufacturing company of this city. The consideration was highly satisfactory and most remunerative to the local company, guaranteeing, as it does, a substantial market, paying a liberal consideration for the business and being in effect for a period of only one year.

Early History Pet Evaporated Milk

Funding universe

During the Spanish-American and First World wars, the U.S. government ordered huge supplies of evaporated milk, spurring Helvetia to build a second plant in Greenville, Illinois. By 1918 the company had a total of ten production sites in the Midwest, Pennsylvania, and Colorado. As World War I ended, Helvetia closed plants due to oversupply, reluctantly pulling out of western markets. Latzer sold the excess milk to St. Louis businessmen, who turned to him in 1920 when a strike by the local milk producers association limited the brokers’ supplies. The St. Louis strikers also convinced the Highland area farmers to strike, however , and Latzer was forced to close the plant.

By early 1921, Latzer’s son John ran Helvetia from its reestablied headquarters in nearby St. Louis. In 1923, Helvetica was renamed Pet Milk Company, after its best-selling evaporated milk brand.

Health & Home TFTN 7-3-1925

Many people are wont to confuse evaporated and condensed milk, but there is no similarity between the two. Condensed milk is a combination of sugar and milk and can be used only when both of these substances are desired. Evaporated milk is with about sixty per cent of the water removed and the nutrients content left intact.

Pet evaporated milk manufactured in Buhl, & other locations in the United States at the turn of the century.

Six Tons of Milk Received each day by Buhl Dairy Plant

TFDaily News 10-29-1927

About 12,000 lb of milk per day is being received at the Sego condenser which when evaporated makes 5760 tall cans. The product is being stored for the present at the plant.

Pet Milk became traded on the NY Stock exchange 1928

Funding Universe Our Dairy Industry TFIT 6-11-1929 aka Twin Falls Idaho Times

The phenomenal increase in dairying in Idaho is vividly set forth by figures just made public by Idaho Chamber of Commerce in its organization publication for June. Evaporated milk production in 1928 was 1,585,000 lbs, a gain of more then 4,000,000 lbs over 1927.

Employment for Additional 20 Seen; Better Times Indicated

TFIT 5-23-1933 aka Twin Falls Idaho Times

J Frank Smith field director and former manager of the Buhl plant, with E G Meyer production manager, have been supervising the overhauling of the machinery preparatory to opening the condensery. Floyd Englen, local manger, stated about 20 persons will be added to the pay roll.

The opening of the Buhl plant in addition to furnishing added employment will also serve as an outlet for the West End dairy products.

Pet Milk bought Sego Milk Products out of Salt Lake city in 1925, to expand it’s market.

Pet Evaporated Milk Peaked in 1950.

Funding Universe

After World War II Pet Milk began a slight movement into other markets. The company became the first to offer nonfat dry milk, and advance over the powdered milk developed in the 1920s. Sales soared due to the post-war baby boom, making 1950 the all-time-high sales year for Pet Evaporated Milk. Soon thereafter, fresh milk became readily available, however, and sales began a steady decline.

Pet Evaporated Milk diversifies in 1960’s

Funding Universe

Through restructuring, Pet Milk corporate reduced committee numbers, initiated a profit-centered divisional structure, and recruited marketing professionals. The company also planned new product development to wean itself from the declining milk market (as late as 1960, 95 percent of Pet Milk sales were in dairy products). By the early 1960s, diversification had begun in earnest.

Another of Pet Milk’s successful products at this time was Sego Liquid Diet Food, introduced in 1961. After competitors had opened up a market, Pet Milk brought in its own version, a thicker, high-protein drink available in variety of flavors. By 1965 Sego brought in $22 million to the company’s Milk Products Division sales.

In 1966, in order to reflect its enlarged and diversified product line, Pet Milk changed its name to Pet Incorporated.

Funding for these acquisitions came largely from a special credit Pet obtained through the sale of its portion of General Milk Co., a joint venture

Buhl Evaporated Milk to Close (1995 TFTN)

The bulk of this article is based on TFTN articles.

Buhl’s evaporated milk plant – which has provided Magic Valley jobs for 68 years will close June 20. Pillsbury Co executives told 64 workers Thursday morning that they’re shutting the plant which produces evaporated milk as a cost saving measure.

That means 300,000 fewer gallons of milk will be passing through Buhl each day. And a plant that each day produced 5000 cases of canned milk will be vacant. Eventually, the plant will be sold.

Evaporated milk production will shift to a company cannery in Greeneville, TN. But chances are slim that displaced workers will get to follow their jobs back East.