JAMES S. STARZYNSKI, Bankruptcy Judge.
Plaintiff/Trustee Dill ("Trustee") filed the complaint seeking recovery of $217,975.86 as preferential transfers and preserving those transfers or their value for the estate. 11 U.S.C. §§ 547(b), 550 and 551. Doc 1. Defendant Brewer Oil Co. ("Brewer") responded by, among other things, denying the allegations of liability and asserting affirmative defenses of contemporaneous exchange for new value, § 547(c)(1), ordinary course of business between itself and Indian Capitol Distributing, Inc. ("Indian Capitol" or "Debtor"), § 547(c)(2)(A), ordinary business terms within the industry, § 547(c)(2)(B), and subsequent new value § 547(c)(4). Amended Answer to Complaint (doc 19). For the reasons set out below, the Court rules that the transfers specified by the Trustee meet the requirements of § 547(b) but that all but two of those transfers also fit within the requirements of one of the affirmative defenses pled by Brewer. The Court therefore will enter judgment for the Trustee in the principal amount of $20,000.
Debtor filed its voluntary chapter 11 petition on April 14, 2009. Prior to filing and for a short time after, the business of Debtor and its owner/manager Michael Mataya was operating several gas station/convenience stores and a bulk plant in the Gallup, New Mexico area.
The relationship between Debtor and Brewer started shortly before the filing, in February 2009, when Brewer began selling bulk gasoline and diesel to Indian Capitol. Previously Brewer and Indian Capitol had no relationship, but Brewer agreed to begin selling to Indian Capitol at the request of a Shell Oil representative. Brewer purchases from Shell about 50% of the product (gasoline and diesel) that it sells to its own customers. The Shell representative made the request to Brewer because Indian Capitol's direct purchases from Shell had fallen below the minimum required by Shell for direct purchases from it, and the Shell representative hoped to in effect keep the Indian Capitol business by selling to Brewer as a jobber to Indian Capitol.
Jay Lamberth, whose myriad duties at Brewer included those of the Chief Financial Officer, was responsible for approving the arrangement with Indian Capitol — both the agreement to sell to Indian Capitol and the financial terms. He testified that he never met Michael Mataya, owner and manager of Indian Capitol, but that he reviewed Indian Capitol's credit application. The application lacked a balance sheet and profit and loss statement, and overall the application did not justify "normal" terms; that is, terms that Brewer would ordinarily extend to good credit risks. And a credit report from Experian apparently showed that Indian Capitol was a slow pay.
In consequence, Indian Capitol was put on a "short fuse" for payment, "as close to COD [cash on delivery] as can be". The invoice terms required payment "due on receipt". See Trustee exhibit 9 ("T-9") and Brewer exhibit 2 ("B-2")
The payments were to be made by automated clearing house ("ACH") drafts. ACH is a commonly used payment system in the retail fuel distribution industry whereby the seller (Brewer in this instance), with the authorization of the purchaser (Indian Capitol), drafts payment directly from the demand deposit account designated by the purchaser. Upon receiving a bill of lading or document serving a similar purpose, the seller enters the ACH draft into its account at its own bank. Seller's bank's computer system then
Id. at 764. Of course, if there are insufficient funds in the designated purchaser's account, the demand for payment will be refused.
There were approximately 41 purchases of fuel from Brewer by Indian Capitol during a four-week period. Many of those purchases were paid for immediately by ACH. The remainder were not and most of those purchases and payments are the basis for the Trustee's complaint. Attached to this memorandum opinion is a chart showing the challenged payments.
A description of the entire four weeks of transactions provides a picture of the relationship between the parties.
The first delivery of fuel, about $15,000 worth
Another load of fuel was picked up on Wednesday, February 25, drafted on Thursday, February 26, and paid the next day. Three other loads of fuel were picked up on Thursday, February 26, and on Tuesday, March 3. Brewer drafted Indian Capitol's account on Wednesday, March 4, for all three loads totaling approximately $45,000, and the funds were received on Friday, March 6.
Two loads of fuel were picked up each day for four days, Wednesday through Saturday, March 4-7, for a total of slightly over $124,000. The draft was sent Monday, March 9 (B-1 Revised), rejected for insufficient funds on Wednesday, March 11 (T-4 at 8), and returned on Friday, March 12 (T-4 at 9).
In the meantime, two loads of fuel totaling $28,000 were loaded on Monday, March 9, and another for $13,000 the next day, March 10, all three of which were billed by two ACH drafts on Tuesday, March 10. Those drafts were rejected on Wednesday, March 11, and then, along with the draft for $124,000, all paid on Thursday, March 12, in a total amount of approximately $166,000. However, the payment was made by wire transfer, T-1 (wire transfer documentation), from Indian Capitol's payroll account
That same day (March 12), the draft for over $15,000 of fuel loaded on Tuesday, March 10 and drafted on Wednesday, March 11, cleared. Similarly, two loads of fuel totaling over $31,000 picked up on Wednesday, March 11 and drafted on Thursday, March 12 were paid on Monday, March 16. Two more loads totaling about $31,000 were picked up on Thursday, March 12, drafted on Friday, March 13, and paid on Monday, March 16.
However, on Friday, March 13, Brewer's luck started to worsen. On that day Indian Capitol loaded $13,000 of fuel, and the next day, Saturday, picked up two more loads totaling over $31,500. A payment draft for over $44,500 was issued on Monday, March 16, and dishonored the next day. It was reissued on Friday, March 20, rejected on Monday, March 23, and returned on Tuesday, March 24. It was never paid. In the meantime, on Monday, March 16, Indian Capitol picked up two more loads of fuel, totaling about $32,500, which were billed the next day. On Wednesday, March 18, that draft was dishonored and the draft returned on Friday, March 20. Indian Capitol's account was redrafted the same day but that redraft was returned on Tuesday, March 24. It too was never paid.
In the meantime, on Tuesday, March 17, Indian Capitol pulled two more loads totaling almost $22,000, on Wednesday, March 18, two more loads totaling almost $33,000 and on Thursday, March 19, one more load
Mr. Lamberth testified that Indian Capitol pulled the March 17-19 loads before Brewer became aware of the returned drafts totaling $77,000 (the $44,500 and the $32,500). Starting Friday, March 27, and then on Tuesday, March 31, and again on Wednesday, April 1, 2009, Brewer began issuing drafts in the amount of $10,000 each (and one for slightly over $7,000), in an effort to trap and collect as much payment as it could.
To prevail, the Trustee must first prove all five elements of 11 U.S.C. § 547(b), which provides:
Brewer was a creditor. Section 101(10)(A) defines a creditor as an entity that holds a claim against the debtor. Section 101(5)(A) defines claim as including a right to payment, whether or not matured. Brewer had a right to payment for the fuel delivered to Indian Capitol, and thus was a creditor.
The payments to Brewer were for antecedent debts. An "antecedent debt" is a debt "incurred before the allegedly preferential transfer." Peltz v. Edward C. Vancil, Inc. (In re Bridge Info. Sys.), 474 F.3d 1063, 1066-67 (8th Cir. 2007). A debt is "incurred" on "the date upon which the debtor first becomes legally bound to pay." Id. Accord, Velde v. Reinhardt, 366 B.R. 894, 898 n. 6 (D.Minn. 2007) (quoting In re Bridge Info. Sys.). See also Skehen v. Bare Bones Graphics (In re Sweet), 2009 WL 485136 (Bankr. D.N.M.) *3 ("[A]n antecedent debt owed by the debtor occurs when a right to payment arises-even if the claim is not fixed, liquidated, or matured." (Citation and additional punctuation omitted.)).
Bernstein v. RJL Leasing (In re White River Corp.), 799 F.2d 631, 632 (10th Cir. 1986).
Each fuel delivery created a debt because at that point the fuel had not been paid for. Even if Brewer received payment as soon as it electronically debited Indian Capitol's operating account, the fuel had already been delivered and the obligation incurred, so that the payment was still for an antecedent debt.
The presumption of insolvency for the ninety-day period preceding the filing of the petition, § 547(f), went entirely unrebutted (a practical decision by Brewer's experienced counsel not to contest the issue). While the burden is on the Trustee to establish all elements of his case, 11 U.S.C. § 547(g), the burden is on the preference defendant to rebut the § 547(f) presumption of insolvency. Lawson v. Ford Motor Co, (In re Roblin Indus., Inc.), 78 F.3d 30, 34 (2nd Cir.1996); Sapir v. Eli Haddad Corp. (In re Coco), 67 B.R. 365, 371 (Bankr.S.D.N.Y.1986) ("Even though the ultimate burden of persuasion remains on the party seeking to avoid the transfer, it is incumbent upon the transferee to come forward with some evidence to rebut the presumption." (Citations omitted.)) See also Sanyo Electric, Inc. v. Taxel (In re World Financial Services Center, Inc.), 78 B.R. 239, 241 (9th Cir. BAP 1987), aff'd, 860 F.2d 1090 (9th Cir.1988) (a creditor's speculation on debtor's solvency does not overcome the presumption of insolvency).
In addition, the Trustee affirmatively proved that the debtor was insolvent during that period. For example, the Trustee testified that Mr. Mataya had simply retained and not passed on to the State of New Mexico approximately $7 million of fuel taxes. Given the short amount of time that the Debtor operating as a debtor in possession, a very large amount of that was incurred and owed prepetition. The Trustee testified that there would be no payment on non-priority unsecured claims, a claim easily backed up by his statements that upon further investigation, he had added over $1 million in liabilities to what the Debtor had already listed.
The payment records are clear of course that all the deliveries and payments were made within the preference period.
The Trustee testified extensively about what assets he had been able to liquidate for the estate, and summarized their value as far less than the debt owed by the estate as of the date of the filing of the petition.
Velde v. Reinhardt, 366 B.R. at 898. The Court finds that there would have been no dividend to unsecured creditors, much less full payment, including to Brewer, if this case were filed as a Chapter 7 initially, Brewer had not received the challenged payments, and the assets of the estate were liquidated and distributed as provided by the Code.
Having met all requirements of Section 547(b), the Court finds the Trustee has made a prima facie case. The burden now shifts to Defendant to prove an exception to the Trustee's case. See 11 U.S.C. § 547(g).
Defendant argues that the transfer is not avoidable under sections 547(c)(1), (c)(2) and (c)(4). These sections provide:
Brewer needs to prove, with respect to each of the preferential transfers, that the transfer in question is protected by at least one of the exceptions. But once it makes a showing that a particular transaction is covered by one exception, it need not invoke any other exception for that transaction.
H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 373-74 (1977); S.Rep. No. 95-989, 95th Cong., 2d Sess. 88 (1978) reprinted in 1978 U.S.C.C.A.N. 5787, 5874, 6329; see also Kupetz v. Elaine Monroe Assoc., Inc. (In re Wolf & Vine), 825 F.2d 197, 201 (9th Cir.1987) ("Subsection [547](c) contains exceptions to the trustee's avoiding power. If a creditor can qualify under any one of the exceptions, then he is protected to that extent.") Thus, for example, a wire transfer that is substantially contemporaneous according to § 547(c)(1) need not also qualify as delivered in the ordinary course of
In Gonzales v. DPI Food Products Co. (In re Furrs Supermarkets, Inc.), 296 B.R. 33, 39 (Bankr.D.N.M.2003), this Court stated the following:
Similarly, in Official Unsecured Creditors Committee v. Airport Aviation Services, Inc. (In re Arrow Air, Inc.), 940 F.2d 1463, 1465-66 (11th Cir.1991) the Eleventh Circuit discussed the application of § 547(c)(1):
Nor is there any real question of the parties' shared intent concerning when payment was due and to be made. The evidence of what the "agreement" or "intent" of the parties was is derived from Mr. Lamberth's testimony and the history of the transactions. Mr. Mataya did not testify, and the Trustee candidly testified that he did not know what the agreement between the parties was. Nevertheless, the Court is comfortable in presuming what the parties' joint "intent" was. There would never have been any sales to Indian Capitol had close-to-COD terms not been in place, and Indian Capitol's "agreement" to those terms can be presumed from its purchases of fuel from Brewer and its attempt to meet (and occasional success in meeting) the payment terms, particularly when it was failing to pay other suppliers during the same time period on whom it also relied to obtain product. See exhibits T-4 and T-7.
And this is true even though in fact a number of payments were not made exactly as required by Brewer. A variety of cases allow the defense when the transfer took place days and weeks after the initial advance of value. See, e.g., Peters v. Wray State Bank (In re Kerst), 347 B.R. 418, 424-27 (Bankr.D.Colo.2006) (47 days from date of loan to perfection of lender's interest in the collateral, a motor vehicle; parties did not cause the delay in attempting to implement the intent of the parties to immediately secure the loan with a lien on the vehicle) and In re Gaildeen Indus., Inc., 71 B.R. at 765-66 (sight drafts presented three days after sale; parties not responsible for the bank's delay in processing them for payment). As Collier puts it, "[t]he question is one of intent and although a delay between the incurrence of the debt and its payment can evidence that the exchange was not intended to be contemporaneous, the passage of time does not necessarily negate that intent". 5 Collier on Bankruptcy ¶ 547.04[1][a] (Alan J. Resnick & Henry J. Sommers, eds., 16th ed. 2012) ("Collier"), citing Hechinger Investment Company of Delaware, Inc. v. Universal Forest Products, Inc. (In re Hechinger Investment Company of Delaware, Inc.), 489 F.3d 568 (3d Cir.2007) and Silverman Consulting, Inc. v. Canfor Wood Products Marketing (In re Payless Cashways, Inc.), 306 B.R. 243 (8th Cir. BAP 2004), aff'd 394 F.3d 1082 (8th Cir.2005).
There is a question, however, about whether the delayed payments were "in fact substantially contemporaneous". Arrow Air, Inc., 940 F.2d at 1466. "Intention that an exchange be contemporaneous is not relevant to a court's determination whether the exchange is in fact contemporaneous". 5 Collier ¶ 547.04[1][b]. See Kerst, 347 B.R. at 426 n. 14 (analyzing § 547(c)(1)(A) separately from § 547(c)(1)(B) to avoid the circular reasoning of some courts that the fact that the transaction was intended to be contemporaneous
There are a number of cases that hold that a dishonored check (or, in this case, ACH transaction) converts the transaction from a contemporaneous exchange of value to a credit transaction, thereby depriving the creditor of the affirmative defense. See Endo Steel, Inc. v. Janas (In re JWJ Contracting Co.), 371 F.3d 1079, 1082 (9th Cir.2004):
(citing Morrison v. Champion Credit Corp. (In re Barefoot), 952 F.2d 795 (4th Cir. 1991)); Stewart v. Barry County Livestock Auction, Inc. (In re Stewart), 274 B.R. 503, 512 (Bankr.W.D.Ark.2002), aff'd, 282 B.R. 871 (8th Cir. BAP 2002) (holding that bounced personal checks replaced by cashier's checks precluded resort to substantially contemporaneous defense); In re Barefoot, 952 F.2d 795, 800 (4th Cir.1991) (purpose of the transfer was to make good a check of the debtor that had bounced prior to the ninety-day period); In re Gaildeen Indus., Inc., 71 B.R. at 764:
Goger v. Cudahy Foods Co. (In re Standard Food Servs., Inc.), 723 F.2d 820, 821 (11th Cir.1984):
Newton v. Andrews Distributing Company (In re White), 64 B.R. 843, 847 (Bankr. E.D.Tenn.1986) ("This court held that, for purposes of the contemporaneous exchange exception, a check is payment when it is received, unless it is dishonored. In re Johnson, 25 B.R. 889 (Bankr. E.D.Tenn.1982)."). As elaborated in Barefoot:
Barefoot, 952 F.2d at 800.
Not all courts agree that a dishonored check automatically deprives the transaction of its contemporaneity. For example, in Velde v. Reinhardt, 366 B.R. at 900-01, the court sustained "contemporaneous exchange" defenses when the debtor's checks to farmers to pay for grain bounced and then were reissued during the preference period. The respective farmers endorsed the subsequently issued valid checks over to the banks that had liens on the grain being paid for, and the banks then released their liens on the grain being paid for. In the Velde court's view, the release of the liens constituted the new value for the debtor.
Id. at 901.
In a similar vein, In re Philip Services Corp., 359 B.R. 616 (Bankr.S.D.Tex.2006), concerned a prepetition debtor tendering a check to the subcontractor/creditor holding a lien on the project and project payments. The creditor accepted the check and released its lien rights conditioned on the check being honored. The next day the check was not honored, due to insufficient funds. So that same day debtor wire transferred the funds to the creditor, which then released its lien. The court ruled that the transaction, including for the debtor the receipt of the value occasioned by the release of the lien, were substantially contemporaneous. Id. at 633-34. As with Velde, Philip Services differs from the instant case in that Indian Capitol received no new value once it loaded the fuel.
On the other hand, Philip Services is not helpful to the Trustee. The debtor in Philip Services had a complex financing
The Barefoot analysis and result seem to assume that in effect the transaction has been a simultaneous (rather than substantially contemporaneous) exchange of value (product paid for by check at the time of delivery of the product). Otherwise how could the transaction suddenly became a "credit" transaction when the check bounced? If a court is dealing with § 547(c)(1), then the transaction by definition will be a credit transaction, since § 547(c)(1) arises only in response to the trustee having proved that the debtor made a payment on an antecedent debt. § 547(b)(2). "The defendant transferee need not prove that it falls within one of these statutory exceptions [§ 547(c) ], however, if the trustee fails to prove all of the elements of a preference set out in section 547(b)." 5 Collier ¶ 547.04, citing In re Fulghum Constr. Corp., 14 B.R. 293, 306 (M.D.Tenn.1981), aff'd in part and vacated and remanded in part on other grounds, 706 F.2d 171 (6th Cir.1983), cert. denied, 464 U.S. 935, 104 S.Ct. 342, 78 L.Ed.2d 310 (1983). So to declare that a bounced check creates a "credit" transaction diverts from the real issue at hand, which literally is whether the payment was made substantially contemporaneously with the delivery of the product (and if the parties so intended).
Second, focusing on whether a check bounces as the standard by which contemporaneity is measured confuses the timeliness of the payment (which, after all, is the heart of the defense, along with intention) with the mechanism or mode of payment. How the payment is made is only relevant to the extent it impacts contemporaneity.
Finally, Barefoot and other cases cite the legislative history to suggest that Congress intended a contemporaneous transaction to conclude with an honored check but that a dishonored check deprives the creditor of the § 547(c)(1) defense.
Pine Top Insurance Co. v. Bank of America National Trust and Savings Assoc., 969 F.2d 321, 328 (7th Cir.1992) (footnote omitted).
The Supreme Court on numerous occasions has ruled that words in a statute are to be given their common everyday meaning. See Microsoft Corp. v. i4i Ltd. Partnership, ___ U.S. ___, 131 S.Ct. 2238, 2245, 180 L.Ed.2d 131 (2011):
Hamilton v. Lanning, ___ U.S. ___, 130 S.Ct. 2464, 2471, 177 L.Ed.2d 23 (2010) ("When terms used in a statute are undefined, we give them their ordinary meaning.") (quoting Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187, 115 S.Ct. 788, 130 L.Ed.2d 682 (1995)); Estep v. United States, 327 U.S. 114, 136, 66 S.Ct. 423, 90 L.Ed. 567 (1946) ("These words [in the Selective Service Act] can only mean what they appear to mean if they are read as ordinary words should be read. Ordinary words should be read with their common, everyday meaning when they serve as directions for ordinary people.") It has also ruled that if the meaning of the statute is clear, that is the end of the inquiry, e.g., Zuni Public School Dist. No. 89 v. Dept. of Education, 550 U.S. 81, 93, 127 S.Ct. 1534, 167 L.Ed.2d 449 (2007) ("Under this Court's precedents, if the intent of Congress is clear and unambiguously expressed by the statutory language at issue, that would be the end of our analysis.") (Citation omitted.); Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000) (Citations omitted.), and no further search for meaning is needed, including resort to legislative history, see Toibb v. Radloff, 501 U.S. 157, 162, 111 S.Ct. 2197, 115 L.Ed.2d 145 (1991):
This Court is hesitant to adopt a rather inflexible and uncalled-for test that requires that any dishonored check or ACH transaction automatically takes the transaction out of the "contemporaneous exchange" category, even when, for example, the missed payment is made up the same day that it was due (albeit by another
Applying the foregoing analysis to the transactions between these two parties, the Court finds that the majority of the transactions survive the Trustee's challenge. Virtually all of them fit within the "substantially contemporaneous" defense.
To reiterate, the clear intent of the parties was that payment would be made right away upon drafting the Indian Capitol (operating) account; that is, a draft electronically sent one day would result in payment on the next business day. It is clear that Indian Capitol certainly needed the fuel, and it is even more apparent that Brewer, taking on this customer, a poor credit risk, at the behest of an important refiner/vendor, was initiating a significant new credit relationship that had, as the parties clearly could foresee, a considerable downside.
As the chart shows, transactions 1 through 12 resulted in payments within, respectively, 3, 3, 2, 2, 2, 4 (includes a weekend), 4 (weekend), unpaid, unpaid, 2, 4 (weekend), and 4 (weekend) days. Acknowledging that each "substantially contemporaneous" dispute requires a case-by-case examination of the details, Kerst, 347 B.R. at 426, it is nevertheless hard to argue that payment times of two to four days following billing are not substantially contemporaneous, at least in this context. See id. at 427 ("Nine days is considered substantially contemporaneous under even the most rigid bright-line test.").
That leaves two other payments, each for $10,000, drafted from Indian Capitol's account on March 30 and April 1 respectively. These payments came about because the two larger drafts (transactions 8 and 9 on the chart) were never honored, despite being submitted twice for payment (and returned each time). At the same time Indian Capitol was no longer returning phone calls from Brewer, so Brewer broke the drafts down into eight smaller drafts, seven for $10,000 each and one for $7,059.77, for a total of $77,059.77. Brewer then began sending these drafts repeatedly in the hopes of trapping smaller amounts of cash to collect as much as possible. Aside from the fact that the original drafts were submitted on March 16 and 17 respectively, so that the collection took place about two weeks later (and thus might no longer be considered "substantially contemporaneous"), it appears that the parties no longer shared the intention to ensure payment substantially contemporaneously.
National City Bank of New York v. Hotchkiss, 231 U.S. 50, 56, 34 S.Ct. 20, 58 L.Ed. 115 (1913) (commonly cited as the judicial precedent for § 547(c)(1)(B)). That is, Indian Capitol's refusing to return phone calls, and also apparently refusing to make deposits timely enough to cover Brewer's drafts
Given this conclusion, the Court must therefore consider whether the $20,000 is protected from avoidance and recovery pursuant to any of the other affirmative defenses asserted by Brewer. Each of the remaining affirmative defenses is easily disposed of.
The facts of this case are a bit atypical. Ordinarily there is a history of dealings between the debtor and the creditor that extends backward beyond the preference period, allowing a comparison of the behavior of the parties during the preference period both with their behavior beforehand (and with industry standards). 5 Collier ¶ 547.04[2][a][ii] ("The defendant must establish a `baseline of dealing' so that the court may compare the transfers made during the preference period with the parties' prior course of dealings." Footnote omitted.). In the instant case, the only relationship between Indian Capitol and Brewer took place for a brief period during the 90 days immediately preceding the filing of the bankruptcy petition. However, that lack of history does not preclude the application of § 547(c)(2) to the facts of this case. See Sender v. Nancy Elizabeth R. Heggland Family Trust (In re Hedged-Investments Associates, Inc.), 48 F.3d 470 (10th Cir.1995) (only payment made to creditor was a single payment during the preference period; court nevertheless considered and overruled § 547(c)(2) defense).
In the instant case, as noted above, the dominant relationship between the two parties was that Indian Capitol would obtain fuel and then promptly pay for it by ACH draft and occasionally by wire transfer. At the very end of the relationship, however, Brewer resorted to breaking its billing down into smaller, $10,000 increments in order to capture what funds Debtor did have. It is obvious that the collection pattern for the $20,000 did not fit what had preceded it. In consequence, the Court easily finds that Brewer has not met the standards of § 547(c)(2)(A) to protect the $20,000 it received on March 30 and April 1.
In Clark v. Balcor Real Estate Finance, Inc. (In re Meridith Hoffman Partners), 12 F.3d 1549 (10th Cir.1993), the Tenth Circuit enunciated the test for a transaction to conform to the "ordinary business terms" standard of § 547(c)(2)(B):
Id. at 1553. It is beyond cavil that breaking a billing down into smaller increments in order to repeatedly draft the debtor's operating account in an attempt to trap at least some payment is not what parties do when the debtor is financially healthy. Brewer's assertion of the ordinary business terms defense under § 547(c)(2)(B) fails.
The "subsequent new value" defense requires in part that the creditor provide to the debtor "new value", defined in section 547(a)(2) as follows:
In this instance the new value delivered was the product, worth ($77,059.77 - $20,000 =) $57,059.77, which Indian Capitol loaded on Monday and Tuesday, March 16 and 17. That was real value unquestionably delivered on those days.
The purpose of the section 547(c)(4) defense is generally thought to advance two bankruptcy policies.
Mosier v. Ever-Fresh Food Co. (In re IRFM, Inc.), 52 F.3d 228, 232 (9th Cir. 1995) (citation omitted). Section 547(c)(4) is finely tuned to protect those creditors who, after receiving a preference, in effect return the preference to the estate by providing new value to the debtor. The relevant inquiry is whether that new value replenishes the estate. If the debtor pays for that new value the estate is not replenished and the preference unfairly benefits the creditor. Kroh Bros. Development Co. v. Continental Construction Engineers, Inc. (In re Kroh Bros. Development Co.), 930 F.2d 648, 652 (8th Cir.1991).
The policy reasons described in the indented paragraph above are largely inapplicable to these two parties. In allowing Indian Capitol to pick up all that product on March 16 and 17, Brewer had no idea it was not going to get paid. Indeed, it is unlikely that anyone was motivated by, or even aware of, the policies behind the statute.
More to the point, as to the two transactions that went unpaid (transactions
The Trustee has not asked for prejudgment interest in his complaint. Doc 1. In consequence the Court will not award it. The Court will of course award post-judgment interest at the federal rate.
The Trustee has shown that the estate is entitled to avoid and recover for the estate $20,000 in preferential transfers for which no defense is available. The Court will therefore enter judgment for the Trustee in that amount, together with post-judgment interest at the federal rate.
Fuel Amount Oper acct Initial Initial Draft Wire Days from
loaded invoiced/ initial draft draft cleared transfer billing to
drafted draft rejected returned (paid) payment
or unpaid
Day Date Day Date Day Date Day Date Day Date Day Date
1 Mon 2/23 $57,123.06 Tue 2/24 Wed 2/25 Thu 2/26 Fri 2/27 3
4 loads
2 Wed 3/4 $124,201.97 Mon 3/09 Wed 3/11 Thu 3/12 Thu 3/12 3
Thu 3/5 8 loads
Fri 3/6
Sat 3/7
3 Mon 3/9 $28,443.52 Tue 3/10 Wed 3/11 Thu 3/12 2
3 loads
4 Tue 3/10 $13,352.34 Tue 3/10 Wed 3/11 Thu 3/12 2
1 load
5 Tue 3/10 $15,492.95 Wed 3/11 Thu 3/12 Thu 3/13 2
1 load
6 Wed 3/11 $31,569.20 Thu 3/12 Fri 3/13 Mon 3/16 4
2 loads
7 Thu 3/12 $31,061.76 Fri 3/13 Mon 3/16 Tue 3/17 4
2 loads
8 Fri 3/13 $44,518.77 Mon 3/16 Tue 3/17 Wed 3/18 unpaid*
Sat 3/14 3 loads
9 Mon 3/16 $32,541.00 Tue 3/17 Wed 3/18 Thu 3/19 unpaid * 2 loads 10 Tue 3/17 $21,855.92 Wed 3/18 Thu 3/19 Fri 3/20 2 2 loads 11 Wed 3/18 $32,875.74 Thu 3/19 Fri 3/20 Mon 3/23 4 3 loads 12 Thu 3/19 $15,826.80 Fri 3/20 Mon 3/23 Tue 3/24 4 1 load* These two drafts, after being initially submitted and then returned on March 18 and 19 respectively (as shown on the chart), were resubmitted in their original full amounts. Both were then again rejected and returned on March 23 and 24 respectively. The two drafts were ultimately paid in part, by two partial drafts of $10,000 each, one on March 30 (T-4 at 42) and the other on April 1 (T-6 at 1), more than two weeks after they were first billed, resulting in a net loss of ( [$44,518.77 + $32,541.00 =] $77,059.77 - $20,000 =) $57,059.77 to Brewer from the entire relationship.
(Bolding and underlining in original.)
(Footnote omitted.)
(Footnote omitted.) See also Note, "Timing of Payments by Check under Section 547 of the Bankruptcy Code," 7 Cardozo Law Review No. 3, pp. 893-94 (Spring 1986):
H.R.Rep. No. 595, 95th Cong., 1st Sess. 373 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6329.
The Standard Food Services case disagrees with the statement that the issuance of a check creates a "credit" transaction rather than a "cash" transaction. Id., 723 F.2d at 821. Under this Court's analysis, the wording makes no difference.
Id. at 442, 37 S.Ct. 130 (emphasis added). Nevertheless, the court ruled that the transaction was not subject to avoidance:
Id. at 443, 37 S.Ct. 130.
