PATRICIA WILLIAMS, Chief Judge, Bankruptcy
This matter comes before the Court on the Motion of Debtors Metropolitan Mortgage Securities Co., Inc., ("Metropolitan") and Summit Securities, Inc. ("Summit") for an Order Approving Debtors' Use of Cash Management Systems and Services Provided by Bank of America, N.A.
The Motion is supported by the Declaration of Linda M. Bruce, Assistant Treasurer of Metropolitan.
It appearing that the relief requested is in the best interests of the Debtors, its creditors and other parties in interest; and notice thereof having been given to the United States Trustee and all other parties entitled to notice under the Standing Order Limiting Notice; and Bank of America, N.A. ("Bank" or "Bank of America") having stipulated to relief requested in the Motion; NOW THEREFORE,
The Motion is GRANTED; and
The Court makes the following FINDINGS OF FACT and CONCLUSIONS OF LAW:
1. The Debtors filed petitions for Chapter 11 relief on February 4, 2004 (the "Petition Date") and continue to operate as Debtors-in-Possession under Sections 1107(a) and 1108 of the United States Bankruptcy Code.
2. Notice of this Motion was adequate and proper under the circumstances.
3. For many years, Bank of America has provided depository and cash management services to Metropolitan Mortgage Securities, Co., Inc. and various non-debtor affiliates of Metropolitan, including, but not limited to, Summit Property Development, Inc.; Metropolitan Investment Services, Inc.; Metwest Mortgage Services Inc.; Old Standard Life Insurance Company; Old West Annuity Life Insurance Company; Western United Life Assurance Company; National Systems Inc.; Western United Holding Co.; and Broadmoor Park Factory Outlet Inc. (the aforementioned non-debtor affiliates are collectively referred to herein as the "Non-Debtor Affiliates");
4. The cash management and related services provided by Bank of America to Metropolitan include an array of depositary, clearing, processing, and money transfer functions, including Automated Clearing House ("ACH") and Depository Transfer Check ("DTC") transfers, Positive Pay Services, and on-line account access services (inclusively, the "Cash Management Services"). The Cash Management Services have been provided to the Debtor and the Non-Debtor Affiliates pursuant to various agreements with the Bank including, without limitation, depositary agreements, Treasury Services Agreements, Wire Transfer and International Electronic Funds agreements, ACH Services agreements, Wire Transfer Services agreements, Electronic Commerce Services Agreements, Positive Pay Services agreements, and BAMTRAC USA Global Money Transfer Services agreements (collectively, the "Cash Management Services Agreements"). The Cash Management Services Agreements have been amended from time to time upon notice to Metropolitan. Bank of America charges and collects from Metropolitan and various Non-Debtor Affiliates various agreed fees ("Cash Management Services Fees") for the Debtor's use of Bank of America's Cash Management Services. The Cash Management Services Fees are charged on a per-service use and/or debited from Metropolitan's account(s) on a monthly basis.
5. As part of the Cash Management Services, Bank of America has provided various cash management-related proprietary software to Metropolitan. Such software has been delivered to Metropolitan, and the Debtor's use thereof is in accordance with the terms and conditions contained in various software licensing agreements executed in favor of Bank of America ("Cash Management Systems Software Licenses"). The Cash Management Systems Software Licenses include, without limitation, the License Agreement for BAMTRAC for Windows and the License Agreement for Financenter ACH Auditor. In certain instances, Bank of America charges and collects various agreed fees from Metropolitan (the "Cash Management Systems Software License Fees") arising from Metropolitan's use of software licensed to the Debtor under the Cash Management Systems Software Licenses; and such Cash Management Systems Software License Fees are charged and collected on a per-service use and/or monthly basis.
6. Bank of America has continued to provide banking services to Metropolitan, Summit, and the Non-Debtor Affiliates on and after the Petition Date.
7. The Debtors have committed to pay the Bank all outstanding pre-petition bank and transaction fees owed in the approximate amount of $3,100.00, which amounts are in default, and, in addition, to pay post-petition fees and expenses owed the Bank under Cash Management Systems Agreements, when due, and, to the extent the Cash Management System Software Licenses are executory, Metropolitan intends to pay all fees payable under such agreements until such time as the agreements are assumed or rejected in the bankruptcy case.
8. Prior to the Petition Date, Metropolitan entered into an agreement with Metwest Mortgage Services, Inc. ("Metwest"), a Non-Debtor Affiliate of the Debtor, under which Metwest is the servicing agent for various receivables owed to Metropolitan pursuant to loans, securitization pools and structured settlement agreements, the beneficial interests of which are held by Metropolitan (collectively the "Metropolitan Loan Receivables"). Metwest services and collects approximately 150 monthly Metropolitan Loan Receivables paid by third parties to Metwest on Metropolitan's behalf, which are then passed on to Metropolitan in accordance with the servicing agreement with Metwest. A substantial amount (approximately 110, representing an average of $200,000 per month) of the Metropolitan Loan Receivables are paid to Metwest via electronic ACH incoming transfers into Metwest's accounts maintained at Bank of America. Metwest also provides loan servicing for and collects payments on behalf of Summit, in addition to various Non-Debtor Affiliates including Western United Life Assurance Company, Old Standard Life Insurance Company and Old West Annuity Life Insurance Company, which receipts Metwest deposits into its account maintained at the Bank and then forwards to the respective beneficial owner shortly after receipt. Metwest utilizes and maintains software that allows Metwest to identify and specifically account for incoming receivables and trace each payment to the appropriate beneficial owner. Pursuant to Metwest's various servicing agreements, the Debtors and each of the Non-Debtor Affiliates pay Metwest a negotiated loan servicing fee, which is payable upon receipt of a monthly invoice from Metwest (e.g. the servicing fee is generally not deducted from serviced loan receivables).
9. In connection with Metwest's servicing arrangements with the Debtors and various Non-Debtor Affiliates, Metwest maintains deposit accounts with Bank of America (the "Metwest Transferee Account"), which at any given time may contain funds of the Debtor and of Non-Debtor Affiliates, which are commingled, but traceable. Post-petition, and consistent with pre-petition procedures, Metwest continues to collect and deposit receivables for the Debtors and Non-Debtor Affiliates into the Metwest Transferee Account, which are then forwarded to the respective beneficial owners. The Debtors require the continued assistance of Metwest as a servicing agent in order to collect Metropolitan and Summit's receivables, which constitute property of the bankruptcy estates. Metwest's continued use of the Metwest Transferee Account, which may contain funds of both the Debtors and Non-Debtor Affiliates, is essential to the continued efficient operation of the Debtors, and is, therefore, in the best interests of creditors.
10. In connection with the Cash Management Services provided by the Bank to the Debtor and various of its Non-Debtor Affiliates, including Metwest, there arise from time to time instances of short term (usually, less than a single banking day) negative account balances, caused by, for example, overdrafts and revoked provisional credits, which can arise in the context of, for example, check clearing, and ACH and wire funds transfers, remote payment services, and various other cash management services (inclusively, and including all fees and charges relating thereto, "Overdrafts"). Such Overdrafts may occur from time to time in any complex cash management system, and are generally routine. Pursuant to the terms of the Cash Management Services Agreements the Bank is under no obligation to advance funds (such advances, inclusive of all related fees and charges, the "Overdraft Advances") to cover Overdrafts. However, the Bank in its discretion from time to time does make Overdraft Advances. Further, under certain circumstances, Overdraft Advances may occur from automatic operational activity, and thus could be made without the Bank's intentional decision to make such Overdraft Advances. Under the Cash Management Services Agreements, the customer responsible for the Overdraft in all such cases is immediately liable to the Bank to repay any and all Overdraft Advances.
11. The Debtor has made and delivered to the Bank, as the secured party, a Security Agreement, dated as of August 1, 2002 (as modified and inclusive of amendments dated on November 6, 2002, February 11, 2003, May 19, 2003, and September 17, 2003) (collectively, the "Metropolitan Security Agreement"), under which Metropolitan pledged collateral (as amended from time to time, the "Metropolitan Security Agreement Collateral") as security for, inter alia, Metropolitan's repayment of the "Indebtedness," therein defined as all of Metropolitan's debts, obligations, and liabilities from time to time "arising from Bank's provision of deposit services, including ACH facilities, daylight overdraft facilities, remote payment services, cash management services, and all other services and products." The term "Indebtedness" as utilized in the Metropolitan Security Agreement is inclusive of "Overdraft Advances" as defined in this Order.
12. The Security Agreement, modified pursuant to a Supplement to Treasury Services Agreement, dated as of February 25, 2003, provides, and agreed between the Bank and Debtor to provide, that any debt, obligation, or liability of Metropolitan or and any of its Non-Debtor Affiliates, arising from any use of an ACH funds transfer to or from a third party shall be secured by and under the Metropolitan Security Agreement and by the Metropolitan Security Agreement Collateral. The Metropolitan Security Agreement Collateral is held by BNY Western Trust Company, as a third party custodian, pursuant to that certain Collateral Agreement, dated as of August 1, 2002 ("Metropolitan Collateral Agreement"), among Metropolitan as Pledgor, Bank of America as Secured Party, and BNY Western Trust Company as custodian. As of the Petition Date, the Metropolitan Security Agreement Collateral was that certain Federal National Mortgage Association Security, CUSIP # 31359MMB6 in the face amount of $2,300,000.00.
13. Summit and various of Metropolitan's Non-Debtor Affiliates have granted the Debtor authorizations ("Third Party Authorizations") to instruct Bank as to any and all banking transactions, including transfers of funds, on behalf of the authorizing Non-Debtor Affiliate. Such authorizations included a grant of a power to Metropolitan to have full and complete access to certain banking records of the authorizing Non-Debtor Affiliate.
14. On the Petition Date, Metropolitan delivered instructions to the Bank to freeze all pre-petition accounts (collectively, "Pre-Petition Accounts") existing in the Debtor's name. On the Petition Date, the amount on deposit in the Debtor's Pre-Petition Accounts was approximately $484,500.00 (the "Petition Date Balance"). Further on the Petition Date, the Debtors delivered instructions to the Bank to stop payment on all checks, drafts and transfers drawn or initiated Pre-Petition. Further on the Petition Date, the Debtors delivered instructions to the Bank to open new Debtor-in-Possession accounts, which were opened that same day (collectively, the "Post-Petition Accounts").
15. Prior to the Petition Date, pursuant to arrangements between Debtor Metropolitan and Bank of America, the Bank had issued a number of credit cards ("Pre-Petition Corporate Credit Cards") to various Metropolitan officers and employees for their business use. The credit extended under the Corporate Credit Cards ("Pre-Petition Corporate Credit Cards Line of Credit") was the obligation of Metropolitan; and Metropolitan's repayment obligations were secured by a security issued Fannie Mae, N.A. CUSIP #31359MMB6, with a value of $350,000.00 (the "Corporate Credit Cards Line of Credit Collateral"). As of the Petition Date, the amount owed by Metropolitan under the Pre-Petition Corporate Credit Cards Line of Credit was approximately $45,000.00, plus fees, late fees and charges. The Pre-Petition Corporate Credit Cards Line of Credit is fully secured by the Corporate Credit Cards Line of Credit Collateral. As of the Petition Date, the Bank ceased extending credit under the Corporate Credit Cards, and cancelled those credit cards. Debtor Metropolitan requires, for the reasonable convenience of its officers and employees, and for the ordinary and efficient operation of its business, new credit cards ("Post-Petition Corporate Credit Cards"). Bank of America has agreed to issue Post-Petition Corporate Credit Cards to Debtor Metropolitan, and to extend thereunder a line of credit ("Post-Petition Corporate Credit Cards Line of Credit") in the maximum amount of $125,000.00, on ordinary terms and conditions applicable to corporate credit cards, and on the condition that the Post-Petition Corporate Credit Cards Line of Credit is secured by the Corporate Credit Cards Line of Credit Collateral. Debtor Metropolitan is unable to obtain Post-Petition corporate credit card line of credit on an unsecured basis allowable under 11 U.S.C. § 503(b)(1) as an administrative expense. The proposed Post-Petition Corporate Credit Cards Line of Credit to be extended by Bank of America is not available without granting to the Bank the rights, protections, liens, and security interests afforded in this Order and related referenced instruments. The proposed Post-Petition Corporate Credit Cards Line of Credit is in good faith.
NOW, THEREFORE, based on the foregoing Findings and Conclusions, the Court now makes the following ORDER:
1. IT IS ORDERED that the Petition Date Balance and the Metropolitan Security Agreement Collateral constitute cash collateral (the "Cash Collateral") of the Bank under 11 U.S.C. § 363(a). The Debtors' continued utilization of the Cash Management Services (including the continued availability of ACH incoming transfers) constitute ordinary course of business transactions under 11 U.S.C. § 363(c)(1).
2. IT IS ORDERED that the Debtors may continue to perform under, pay all obligations due under, the Cash Management Services Agreements and the Cash Management Systems Software Licenses.
3. IT IS ORDERED that the Debtors, in their discretion, are authorized to maintain and continue to use all banking services provided under the Cash Management Services Agreements, including the use of all Post-Petition Accounts; and are empowered to maintain and continue to utilize incoming ACH transfers into the Post-Petition Accounts (including Debtor-in-Possession Post-Petition Accounts). The Debtors are authorized, pursuant to 11 U.S.C. § 363, to transfer any and all balances in Pre-Petition Accounts to Post-Petition Accounts. The Debtors are authorized to pay all Cash Management Fees, arising in the ordinary course, with such authorization granted nunc pro tunc to the Petition Date.
4. IT IS ORDERED that Bank of America is authorized to continue to provide the Cash Management Services to Debtors pursuant to the terms and provisions of the Cash Management Services Agreements, without interruption and in the ordinary course, and such authorization shall be granted nunc pro tunc to the Petition Date. All terms and provisions of the Cash Management Services Agreements shall be in full force and effect and unimpaired; and Bank of America shall retain the right, consistent with the terms of the Cash Management Services Agreements, to limit or terminate part or all of the Cash Management Services to Debtors. The Debtors shall retain rights under the agreements as set forth therein, except to the extent modified by the terms of this Order or by operation of the Bankruptcy Code. Nothing contained herein shall prevent the Debtors from opening any additional bank accounts, or closing any existing accounts at Bank of America as it may deem necessary and appropriate, and the Bank or any other banks are authorized to honor the Debtors' requests to open or close, as the case may be, such bank accounts or additional bank accounts.
5. IT IS ORDERED that Bank of America shall be entitled to rely on representations and instructions of the Debtors as to all actions and matters relative to the provisions of the Cash Management Services Agreements, including, without limitation, all funds transfers, and on all Third Party Authorizations, and such entitlement shall be granted nunc pro tunc to the Petition Date. Bank of America shall have no liability to any party for relying in good faith on the representations and instructions of the Debtors as to all actions and matters relative to the provisions of the Cash Management Services Agreements. The Debtors, independently of one another, shall indemnify Bank of America for any demands, costs, liabilities, losses, expenses, and damages suffered by the Bank which in any way relate to or arise out of a third party action, claim, or demand alleging wrongdoing by the respective Debtor based on the fact that the MetWest Transferee Accounts may contain commingled Debtor and Non-debtor Affiliate funds.
6. IT IS ORDERED that the Debtors are authorized to continue to use their existing cash management system consistent with the Debtors' practices prior to the Petition Date (including Metwest's servicing of Metropolitan's Loan Receivables) as described in the motion; provided, however, that the Debtors are directed to maintain strict records of all transfers so that all transactions may be readily ascertained, traced, and recorded properly on applicable accounts.
7. IT IS ORDERED that the terms of the Cash Management Services Agreements may be amended by the Bank in the ordinary course of business and in accordance with notice requirements to the Debtors as specified in the existing Cash Management Services Agreements.
8. IT IS ORDERED that Bank of America, in its discretion and/or otherwise in accordance with the Cash Management Services Agreements, is authorized to make Overdraft Advances in the ordinary course of business, pursuant to 11 U.S.C. § 364(c).
9. IT IS ORDERED that Bank of America is authorized to charge and collect all Cash Management Fees, arising in the ordinary course, for the provision to the Debtors of the Cash Management Systems and Services, and such authorization shall be granted nunc pro tunc to the Petition Date.
10. IT IS ORDERED that Petition Date Balances and the Metropolitan Security Agreement Collateral shall serve as security for: (a) Debtor Metropolitan's obligations under the Metropolitan Security Agreement (as modified, and including the Supplement to Treasury Services Agreement); (b) for the Debtors' obligations to repay any and all Pre-Petition and Post-Petition Overdraft Advances; (c) for the Debtors' obligations to Bank under the Cash Management Services Agreements (including payment of Cash Management Fees) and under the Cash Management Systems Software Licenses (including payment of Cash Management Systems Software License Fees); and (d) any allowable Pre-Petition claim held by Bank of America against the Debtors. Bank of America's lien on the Metropolitan Security Agreement Collateral shall be, and shall be deemed, a senior, valid and perfected security interest, all without further order of the Court or action of the Debtors or the Bank. Bank of America's lien on the Pre-Petition Balances shall be, and shall be deemed, a valid and perfected security interest, all without further order of the Court or action of the Debtors or the Bank.
11. IT IS ORDERED that Bank of America is granted adequate protection for the Debtors' use of the Pre-Petition Account Balances. Such adequate protection shall consist of an automatic first priority Post-Petition replacement lien, in an amount equal to the amount of the Petition Account Balances, on any and all Post-Petition deposits in any of the Post-Petition Accounts.
12. IT IS ORDERED that as further adequate protection for Bank of America, the Bank shall and does hereby hold an allowed administrative claim under 11 U.S.C. § 503, which claim shall be entitled to the priority status provided under 11 U.S.C. § 507(b), in amount equal to all unsatisfied pre-Petition and post-Petition Overdraft Advances, Cash Management Service Fees and Cash Management Systems Software License Fees.
13. IT IS ORDERED that this Order shall be without prejudice to the rights of Bank of America to apply to this Court for additional or alternative adequate protection, or further without prejudice to the Debtors' right to seek a modification, amendment or termination of any adequate protection granted pursuant to this Order.
14. IT IS ORDERED that Bank and Debtor Metropolitan may agree, for their mutual convenience and without need of notice to parties in interest or order of the Court, to substitute, augment, or reduce the collateral constituting the Metropolitan Security Agreement Collateral; and/or to substitute or replace the Custodian of such collateral (and including, but not limited to, by means of the holding of the collateral directly by Bank of America in lieu of by a third party Custodian); and in every such instance, the collateral shall continue to constitute, and be deemed to continue to constitute, the Metropolitan Security Agreement Collateral, and the Bank's liens in same shall continue without interruption in accordance with the terms of this Order.
15. IT IS ORDERED that the Debtors shall pay all reasonable Post-Petition attorneys fees incurred by Bank of America to the extent that such fees are reasonably related to the Bank's provision of banking services to the Debtors and benefit the Debtors' respective estates.
16. IT IS ORDERED that Debtor Metropolitan is authorized to execute and deliver to Bank of America such instruments as are required to effectuate the granting of the Post-Petition Corporate Credit Cards Line of Credit, and the issuance by Bank of America of the Post-Petition Corporate Credit Cards, and is authorized to take credit thereunder. The Post-Petition Corporate Credit Cards Line of Credit shall be, and is hereby, secured by the Corporate Credit Cards Line of Credit Collateral, which collateral, for that purpose and to that extent, shall be subject to a senior, valid, and perfected security interest in favor of Bank of America, without further order of the Court or action of the Debtors or the Bank. Debtor Metropolitan's obligations under the Post-Petition Corporate Credit Cards Line of Credit shall be deemed, and Bank of America to that extent and in that amount does hereby hold, an allowed administrative claim under 11 U.S.C. § 503, which claim shall be entitled to the priority status provided under 11 U.S.C. § 507(b). Debtor Metropolitan is authorized to pay in full the Pre-Petition Credit Cards Line of Credit.
17. IT IS ORDERED that this Order shall be without prejudice to the rights of the Debtors or any party in interest including, without limitation, the United States Trustee, to apply to this Court to modify the terms hereof on appropriate notice and motion.
18. IT IS ORDERED that this Court shall retain jurisdiction with respect to all matters arising from or related to the implementation of this Order.
19. IT IS ORDERED that the time period for notice of this Motion is shortened to thirteen (13) days, including time for mailing.