UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
RUSSELL CAVE COMPANY, INC. f/k/a
The J. Peterman Company
DEBTOR CASE NO. 99-50142
This matter has come before the Court on the Motion for Order Directing Payment of Claims from Escrow, filed herein by Expeditors International of Washington, Inc. (AExpeditors@) on March 22, 1999. Expeditors acted as freight carrier for the debtor. Objections to Expeditors= Motion have been filed by the Official Committe of Unsecured Creditors (Athe Committee@) and by the debtor. Expeditors has replied. This matter was taken under submission by an Order of Submission entered herein on June 18, 1999.
The facts as alleged by Expeditors are that in late 1998 the debtor hired Expeditors to transport goods from Hong Kong to the United States. The debtor paid Expeditors $90,000.00 on account for its services and fees in connection with transporting, storing and preserving these goods. When the debtor filed its Chapter 11 case on January 25, 1999, the goods had made it as far as California. Disputes over title to the goods prevented further shipment, and they remain with Expeditors in California.
As of the petition date, Expeditors= claims totaled $29,621.37, $24,479.30 for freight and related charges with respect to the goods, as well as $4,829.07 relative to other goods Expeditors had transported through its AJFK branch,@ plus late charges and collection costs, including reasonable counsel fees. Expeditors filed a motion for relief from stay in February 1999, and on March 17, 1999, the Court entered an Order allowing Expeditors to deduct from the $90,000.00 payment in its possession the amount of $29,621.37 for freight and related charges. The remaining $60,378.63 was ordered placed in an escrow account. Expeditors has submitted the affidavits of Jenifer Sullivan, an employee of Expeditors, and of Phillip L. Hanrahan, and Thomas S. Hemmendinger, its counsel, in support of its claim that it is still owed $32,103.03, plus charges and costs accruing after March 15, 1999.
Expeditors contends that it holds first priority liens on the goods in question, and that it has rights of recoupment and setoff against the $90,000.00 payment. The setoff argument seems only to apply to theAJFK invoices.@ As set out above, that part of Expeditors= claim has already been paid. As concerns Expeditors= assertions that it holds first priority liens on the goods in question, the Court would tend to agree with the debtor=s position on this matter, i.e., that the various lien or security interest arguments are irrelevant here. A lien on the goods does not translate to a lien on the funds in escrow. It therefore appears that the sole question that remains is whether post-petition costs and charges may be recouped from these funds.
Recoupment is an equitable doctrine which allows one party to set up a demand from the same transaction as an opposing party=s claim, for the purpose of abatement or reduction of that claim. Expeditors apparently takes the position that the debtor has a claim for a refund of the balance of the $90,000.00 and that recoupment will Adetermine the net amount of the Debtor=s claim for a refund.@ Recoupment is not subject to the same limitations as setoff; there is no requirement, for instance, that the mutual obligations both be pre- or post-petition claims.
TheAsame transaction@ requirement is essential to the recoupment doctrine. Matter of U.S. Abatement Corp., 79 F.3d 393, 398 (5th Cir. 1996); In re B & L Oil Co., 782 F.2d 155, 157 (10th Cir. 1986); Lee v. Schweiker, 739 F.2d 870, 875 (3rd Cir. 1984). Expeditors contends that the debtor=s claim to the remainder of the funds in escrow and its claim for attorney fees, storage and other charges arises from the same transaction, i.e., its shipment of goods for the debtor from Hong Kong in late 1998. The debtor, however, has raised the question of the disparity between the $90,000.00 and the amount Expeditors has recovered for freight and related charges, $29,621.37. There has been no explanation of the debtor=s payment of the specific sum of $90,000.00 Aon account.@ Possibly the debtor was paying in advance for the Hong Kong shipment as well as others anticipated to occur in the future.
Interestingly enough, in all the cases in which there was an overpayment, the overpayment was made by the creditor, and not the debtor as here. In B & L Oil, supra, the creditor, Ashland Petroleum Company, overpaid the debtor for oil it purchased by over $90,000.00. After the debtor filed its Chapter 11 bankruptcy petition, Ashland withheld more than $80,000.00 from payments owed to the debtor for subsequent oil deliveries in order to recover the amount of its prepetition overpayment. In holding that recoupment should be allowed in this case, the court stated:
Further, bankruptcy courts apply recoupment as an equitable doctrine. Here we face a question of unjust enrichment. The situation before us is not one in which the creditor seeking relief consciously made a loan, extended credit, or made payments required by a contract, as did the bankrupt
At 159. As set out above, the positions of debtor and creditor are reversed here. Nevertheless, it seems obvious that Expeditors would be unjustly enriched if recoupment were allowed.
In fact, Expeditors benefitted from a fortuitous circumstance: that the debtor paid much more than was owed for the shipment in question, and then filed its Chapter 11 case. Expeditors shipped no further goods for the debtor. It had the $90,000.00 in hand, however, from which its claim for freight and related charges in regard to the Hong Kong shipment could be, and has been, paid. To allow it to satisfy its claims for attorney fees and other charges out of the escrowed funds would truly be a windfall to Expeditors. It would not be recouping funds that it had overpaid to the debtor for goods or services provided, but would be satisfying further claims from funds of the debtor which should be available to all creditors.
For the reasons set out above, it is the opinion of this Court that Expeditors= Motion for Order Directing Payment of Claims from Escrow should be overruled and that the escrowed funds should be returned to the debtor. An order in conformity with this opinion will be entered separately.
By the Court -
Philip L. Hanrahan, Esq.
Thomas S. Hemmendinger, Esq.
Stephen D. Lerner, Esq.
Gregory D. Pavey, Esq.