Memorandum of Decision Re: Insider Preference
The complaint in this matter alleges that while the debtor was insolvent and within one year before it filed its Chapter 7 petition its principals caused the debtor to pay defendant Union National Bank $240,000.00 in preference over other creditors because the Bank had the personal guaranties of the principals. The Trustee does not allege that the payments were made within ninety days of the filing, but nonetheless seeks recovery from the Bank as well as the principals. He argues that the payments are avoidable pursuant to section 547(b)(4)(B) of the Bankruptcy Code as insider preferences, and that the Bank is jointly liable with the principals pursuant to section 550(a). The Bank now seeks dismissal of the complaint as to it, arguing first that it is not liable as a matter of law and second, if it is liable, that the Court should use its equitable powers to dismiss the complaint anyway.
Liability of Bank
While several bankruptcy courts have published opinions, no appellate court has rendered a published decision to which the Court can look for guidance in this matter. Since the lower court decisions are split, the Court must use its own judgment in reaching a decision. Without reinventing the wheel, the Court is convinced by the reasoning in In re Big Three Transp., Inc. (Bkrtcy.W.D.Ark.1983) 41 B.R. 16, and Pitts, "Insider Guaranties and the Law of Preferences," 55 Am.Bankr.L.J. 343 (1981). The Court agrees that the literal language of section 550(a) makes the Bank liable, and the legislative history affords no grounds for deviating from the literal wording of the Code. Indeed, the Court is not free to rely on legislative history to deviate from clear statutory language. Central Trust Co. v. Creditor's Committee (1982) 454 U.S. 354, 359-60.
The Court feels strongly that notwithstanding the cited passage from Collier the Court has no equitable power to except the Bank from liability once it has found that the Code imposes liability. Bankruptcy courts must follow express statutory command to the same extent as court of law; in the absence of a drafting error, courts are powerless to avoid the effects of the plain language of a statute. In re Shoreline Concrete Co., Inc. (9th Cir.1987) 831 F.2d 903, 905. Moreover, the Court does not see the reason for giving the Bank equitable relief even if it had the legitimate power to do so. If payments to banks are avoidable for a longer period of time when they have taken personal guaranties, then the banks must merely weigh the advantages of such guaranties against the increased possibility of avoidability. Just because in some cases the guaranty may work to the disadvantage of the bank does not mean that application of the law to the bank is inequitable, especially when the end result is a more even distribution of estate assets to all creditors.
For the foregoing reasons, the Bank's motion to dismiss will be denied. Counsel for the Trustee shall submit an appropriate form of order.
Dated: April 28, 1988 _______________________ Alan Jaroslovsky U.S. Bankruptcy