1992-08-13_GENERAL DOCUMENTS - C1981017

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Coke is paying down the principal balance of Coal & Coke's term loans by $83,000 per month, and, as noted above, is paying down Resources' term loans by $45,000 per month. Interest on all loans is being paid current by Coal & Coke. With these adjustments, Coal & Coke's obligation on all Sanwa loans is about $29.6 million as of May 1992. Resources' obligation is about $26.8 million (because post - petition advances on Coal & Coke's revolving lines cannot be charged against Resources). Having summarized the basic relationships involving the Resources' corporate affiliates and the obligations of Sanwa, I think it is appropriate to discuss marshalling. Marshalling -5- Marshalling applies when a senior creditor has a lien on two funds in the hands of the same debtor, and a junior creditor has a lien on only one of those funds. In that situation, if the senior creditor will not be prejudiced by application of the doctrine, the senior creditor can be compelled to first seek recovery from the fund to which the junior creditor has no lien. If the senior creditor can be satisfied from that fund, the other fund becomes available for satisfaction of the junior creditor. Where, as in this case, one creditor holds a claim against two joint debtors, and a junior creditor holds a claim against only one of the debtors, the junior creditor cannot compel the senior creditor to proceed against the debtor as to whom the junior debtor has no claim. See Legge v. Peterson, 277 P. 786, 788 (Colo. 1929); Western Nat. Bank of Casper v. ABC Drill, 599 P.2d 942 (Colo. App. 1979). There are cases where the "common debtor" requirement has been disregarded when the two debtors are corporate affiliates. For example, in In re Plad. Inc., 24 Bankr. 676 (Bankr.M.D.Tenn. 1982), the court acknowledged that a corporate guarantor's assets could be marshalled upon a determination that the corporate veil between the corporation and the guarantor should be pierced, but declined to do so in the absence of clear and convincing evidence. Other courts have held that a corporate guarantor's assets could be marshalled upon a showing of fraud, overreaching, or inequitable conduct by the corporate guarantor. See In re United Medical Research, Inc., 12 Bankr. 941 (Bankr.C.D.Cal. 1981). There even is authority that a bankruptcy court can marshall the assets of a guarantor to insure that an equitable bankruptcy distribution occurs. See Berman v. Green, 597 F.2d 130 (8th Cir. 1979), a case which has been heavily criticized for disregarding the requirements for marshalling.