IN RE TRUCKING, INC. (Bankr.N.D.N.Y. 1999)

ROBERT E. LITTLEFIELD, JR., Bankruptcy Judge.

At issue in this case is whether a secured creditor's demand for adequate protection should begin on the date stipulated by the parties or the date that the debtor filed the bankruptcy petition.

The parties stipulated that adequate protection payments should begin on August 1, 1999, however, the Creditor explicitly reserved the right to request additional payments commencing from June 18, 1999, the date of filing.

JURISDICTION

This court has jurisdiction for this matter and over the parties pursuant to 28 U.S.C. § 1334 (b) and 157(a).

FACTS

The facts are undisputed and subject to a stipulation executed by both parties. The agreed upon facts follow:

The stipulated facts, articulated in this opinion are taken verbatim from the stipulation of the parties. The court has not made any grammatical or stylistic changes.

• Sentinel Trucking Inc., (Hereinafter "Debtor") filed its Voluntary

Chapter 11 Petition on June 18, 1999.

• The Debtor has been in possession and use of Secured Creditor Associates Commercial Corporation's (Hereinafter "Creditor") collateral trucks from and after the date of the filing of the Petition. The Debtor is using all of the collateral in its full capacity. The loss of use of any vehicle would prejudice the reorganization attempts of the Debtor.

• The Creditor in this matter holds the security agreements and secured claims on eight truck semi-tractors and is the largest secured creditor in this case.

• The collateral held by the Creditor consists of eight over the road semi-tractors. This collateral includes:

Three 1998 Volvo Tractors, identification numbers 4VG7DA6H734917; 4VG7DAGH8WM759390; and 4VG7DAGH9WM754070. Two 1998 Volvo Tractors, identification numbers 4V6WDAJHWM748937; and 4VGWDAJH2WM748938 One 1998 International Tractor, identification number 2HSFMAXR7WC041243. One 1998 International Tractor, identification number 2HSFMAXRSWC041242. One 1998 International Tractor, identification number 2HSFMAXXR8WC041235.

• The collateral is necessary for the Debtor's effective reorganization.

• The Debtor and Creditor have stipulated to adequate protection payments and provisions, commencing from and continuing after, August 1, 1999.

• The Creditor filed its Motion for Relief from the Automatic Stay or in the alternate, Adequate Protection on August 6, 1999.

• The Creditor's Motion for Adequate Protection requested, among other things, Adequate Protection for protection against depreciation and damage resulting from the continued use of the collateral.

ARGUMENTS

The Creditor argues that because it promptly initiated this motion demanding adequate protection prior to confirmation of the Debtor's reorganization plan it is entitled to receive these payments from the date the Debtor filed its petition.

The Debtor argues that the Bankruptcy Code does not delineate the moment when adequate protection payments should commence and because the case law on the matter is inconclusive, equity dictates that the payments should commence on the date stipulated by the parties.

DISCUSSION

The plain language of the Bankruptcy Code establishes that an oversecured creditor is entitled to adequate protection for its collateral while the collateral is in the possession and use of a debtor during a bankruptcy proceeding. See 11 U.S.C. § 361, 362(d), and 363. In certain circumstances the Code establishes that adequate protection is due, however, it does not delineate exactly when such protection should begin. The Creditor points to In re Ritz-Carlton, 98 B.R. 170 (S.D.N.Y. 1989), as authority for the proposition that adequate protection payments should commence from the date the debtor filed its petition. While true that the Ritz-Carlton court afforded adequate protection payments from the date of filing the petition, the rationale of that case did not in any manner establish a general rule. Id. at 172.

In In re Best Prod., 138 B.R. 155 (Bankr.S.D.N.Y. 1992), decided post Ritz-Carlton, the bankruptcy court undertook an analysis of the law and determined that the proper date for the commencement of adequate protection payments is the date of the motion requesting such relief. The Best court stated,

Next, as Ritz-Carlton notes, the caselaw on this issue is divided. However, the only reported circuit opinion to specifically address the point unequivocally holds that the motion date is the relevant date. In Ahlers v. Norwest Bank, the Eighth Circuit found that: the starting date should not be when the petition is filed, but rather when the secured creditor seeks either possession of the collateral or adequate protection . . . Id. at 157.

The Best court continued, Thus it is unclear how the Ritz-Carlton court determined that the `general rule' is that a secured creditor's position as of the petition date rather than the motion date controls for adequate protection purposes with so much authority supporting a contrary finding. In any event, the holding of Ritz-Carlton was not intended to be a blanket recognition of an entitlement to adequate protection from the petition date in all circumstances. Id. at 158.

This court's research has uncovered only one case with facts similar to the present. In the case In re Sculley Trucking, Inc., 1985 WL 11528 (Bankr.N.D.Ind. 1985), the debtor filed a Chapter 11 petition on June 10, 1995. The creditor promptly moved for relief from the automatic stay or for adequate protection. Several contested hearings ensued with the court ultimately determining that the appropriate date for the commencement of adequate protection payments was September 1, 1985. The court stated, [Second] if this Court allowed depreciation from the date of filing the petition, the Debtor would immediately be burdened with a large arrearage because large amounts of adequate protection payments had accrued . . . Lastly, the automatic stay, 11 U.S.C. § 362 was created by Congress to give the debtor a "breathing spell", or a time to regroup without pressure from creditors. An award of adequate protection retroactively to the date of commencement would act to "take away with the left hand what the right had given." Awarding depreciation from the date of the petition seems unduly harsh, burdensome and detrimental to the goal of a Chapter 11 bankruptcy, that being, a successful reorganization. Id. at 8.

In Scully, the bankruptcy court found an independent date for the commencement of adequate protection payments. This court finds the rationale in Scully applicable and persuasive.

The equitable nature of adequate protection dictates a case by case analysis; general rules must be avoided. Here equity dictates that the adequate protection payments should commence on August 1, 1999.

The stipulation date is used rather than the adequate protection motion date simply because the stipulation date is five days earlier.

The factors that lead to this determination include:

• The Debtor is in no manner becoming unjustly enriched nor is the Creditor being unjustly deprived by virtue of the absence of adequate protection payments for the two months between the filing of the petition and the date stipulated for payments to begin;

• The Debtor has represented that it has maintained complete insurance on all the collateral, thus the risk of economic loss from damage or destruction to these vehicles is greatly reduced; and

• The Debtor has represented that initial cash flow recoveries in the months immediately following the filing have been precarious; to add theadditional adequate protection payments may be fatal to this reorganization.

The issues raised in this case reflect the legitimate concerns enunciated by the Scully court. This court finds that equity supports the Debtor; there appears to be no compelling reason to commence the adequate protection payments from the date of filing the petition. The proper date for the commencement of the adequate protection payments is, as per the stipulation of the parties, August 1, 1999.

It is so ORDERED.