STEPHEN RASLAVICH, Chief Judge.
Before the Court is the Trustee's Motion for Partial Summary Judgment Pursuant to Federal Rule of Bankruptcy Procedure 7056 (the "Motion"). In the Motion, PN Chapter 11 Estate Liquidating Trust, through its Liquidation Trustee ("Trustee"), seeks summary judgment against defendant, Inserts East, Incorporated ("Defendant"), with respect to the following Counts of the Trustee's Amended Complaint: Count I for the avoidance of preferential transfers pursuant to 11 U.S.C. § 547; Count IV for the recovery of avoided transfers pursuant to 11 U.S.C. § 550; and Count V for the disallowance of claims pursuant to 11 U.S.C. § 502(d) and (j).
Upon consideration and for the reasons set forth below, the Trustee shall be granted summary judgment. However, based on the Court's conclusion that the ordinary course of business exception under 11 U.S.C. § 547(c)(2)(A) protects some of the transfers which the Trustee is seeking to avoid, the amount of the judgment shall be $37,082.37 rather than the higher amount of $65,655.26 which the Trustee requested. However, the Trustee shall also be granted prejudgment interest at the federal judgment interest rate from the date upon which the Trustee filed the Amended Complaint.
On February 22, 2009, Philadelphia Newspapers, LLC and its related debtor-entities (the "Debtors")
The adversary proceeding was commenced on February 18, 2011, by the filing
Since the Debtors filed for bankruptcy on February 22, 2009, the ninety day period prior to the Debtors' bankruptcy filings began on November 24, 2008. Therefore, the preference period, which is relevant to the Trustee's claims, is November 24, 2008 to February 22, 2009 (the "Preference Period").
Philadelphia Newspapers, LLC (the "Debtor") and the Defendant have had a business relationship dating back to at least February of 2003. See Exhibit E, F and G to the Trustee's Brief and Exhibit B to the Memorandum of Law in Support of Defendant's Response to Trustee's Motion ("Defendant's Brief"). The payment history compiled by the Defendant contains payment information for 93 invoices which the Defendant issued and for which it was paid prior to the preference period (the "Historical Period"). See Exhibit G (chart compiled by Trustee using payment history from Defendant) to Trustee's Brief and Exhibit B to Defendant's Brief. During the Historical Period, the Debtor paid the Defendant from 7 to 112 days after the date of the invoice. Id. The following chart (the "Frequency Chart"), which the Court compiled based on the payments made during the Historical Period, shows the amount of times an invoice was paid within the listed amount of days after the date of the invoice:
___________________________________________________________________________Days after Frequency ofDays after FrequencyDays after Frequencyinvoice timesinvoice of timesinvoice of times ___________________________________________________________________________ 7 1 18 1 20 1 ___________________________________________________________________________ 22 1 24 2 25 1 ___________________________________________________________________________ 27 2 28 1 29 1 ___________________________________________________________________________ 31 2 32 3 33 1 ___________________________________________________________________________ 34 6 35 4 36 3 ___________________________________________________________________________ 39 2 41 2 42 4 ___________________________________________________________________________ 44 1 45 5 47 1 ___________________________________________________________________________ 48 1 49 5 50 1 ___________________________________________________________________________ 53 1 54 3 55 3 ___________________________________________________________________________ 57 1 58 1 60 2 ___________________________________________________________________________ 61 3 62 7 63 3 ___________________________________________________________________________ 64 1 67 1 69 2 ___________________________________________________________________________ 70 3 74 1 76 1 ___________________________________________________________________________ 77 1 78 1 81 1 ___________________________________________________________________________ 82 1 86 1 87 1 ___________________________________________________________________________ 96 1 112 1 ___________________________________________________________________________
Of significance to this matter, the Frequency Chart shows the following: (i) a
During the Preference Period, the Debtor made payments which covered the amounts owed on 17 invoices issued by the Defendant. See Exhibit I to the Trustee's Motion. During this period, the Debtor paid the Defendant between 8 and 78 days from the date of the invoice. Id. The following chart (the "Preference Period Chart") shows the invoice number, invoice date, payment date, number of days between the invoice date and payment date, and the amount of the invoice. In the first column, the chart lists a number for each payment transaction. The Court will use these numbers to refer to the Preference Period payments in this opinion.
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INVOICE PAYMENT DAYS AFTER AMOUNT OF
No. Invoice No. DATE DATE INVOICE INVOICE
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1 20558 10/16/08 12/05/08 50 $ 3,077.50
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2 20616 10/24/08 12/22/08 62 $ 3,320.52
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3 20615 10/25/08 01/02/08 69 $10,037.10
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4 20707 11/05/08 01/08/09 64 $ 2,655.14
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5 20753 11/05/08 01/22/09 78 $ 4,980.00
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6 20763 11/12/08 01/22/09 71 $ 2,640.50
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7 20752 11/11/08 01/12/09 62 $ 1,595.00
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8 20827 11/20/08 01/12/09 53 $ 6,120.50
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9 20753 11/20/08 01/16/09 57 $ 4,980.00
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10 20883 12/02/08 02/02/09 62 $ 2,655.14
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11 20896 12/04/08 02/02/09 60 $ 2,935.00
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12 20897 12/04/08 02/02/09 60 $ 695.00
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13 20988 12/19/08 02/09/11 52 $ 4,405.83
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14 21086 01/14/09 01/22/09 8 $58,672.00
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15 21082 01/14/09 02/18/09 35 $ 8,310.00
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16 21227 02/04/09 02/20/09 16 $ 461.70
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17 21254 02/06/09 02/20/09 14 $ 622.88
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As mentioned above, the Trustee concedes that six payments made during the Preference Period were "made within the ordinary course of business between the parties, and does not seek summary judgment with respect thereto." Trustee's Brief at 21. These six payments are Payment Nos. 1, 8, 9, 11, 12 and 13. See Exhibit I to the Trustee's Brief & Trustee's Brief at 21.
Trustee's Brief at 21.
As for the rest of the Preference Period payments (Payment Nos. 2-7, 10, 14-17), the Trustee asserts that they constitute avoidable preferences under 11 U.S.C. § 547(b) because the payments were made outside of the 40 to 60 day range. However, the Trustee concedes that the Defendant provided goods or performed services to or for the Debtor during the Preference Period for which the Defendant was not paid, thereby providing "new value" to the Debtor The Trustee agrees that the "new value" totals $30,294.08.
In response to the Trustee's motion, the Defendant submitted an affidavit by Andy Kavulich who is the Chief Financial Officer of the Defendant.
Furthermore, Kavulich explains that Payment No. 14, for $58,672.00, was for "paper" for a "job that Inserts East printed in February of 2009." Kavulich's Affidavit ¶ 4(c), Exhibit D to Defendant's Brief. The invoice which Defendant issued for this amount ($58,672.00), namely Invoice # 21086, dated 1/14/2009, states that payment was "Due on receipt." Exhibit C to Defendant's Brief. Nevertheless, Kavulich avers that "the terms of this invoice, due to the size of the job, was a prepayment[.]" Kavulich's Affidavit ¶ 4(c), Exhibit D to Defendant's Brief.
Importantly, Exhibit F to the Trustee's Brief consists of all of the invoices for the transactions between the Defendant and the Debtor for the period beginning March 12, 2008 through February 16, 2009. See Exhibit F to Defendant's Brief. Out of these 37 invoices, the "terms" of all but 5 of the invoices are listed as "Net 30." Id. The "terms" on 4 of the remaining 5 invoices are listed as " PREPAY." Id. These 4 invoices are for the following amounts: $39,736.25; $1,595.00; $2,935.00 and $695.00. Id. Only 1 of the 37 invoices, namely Invoice # 21086, for $58,672.00, which is the invoice pertaining to payment No. 14, has the term listed as "Due on receipt." Id. The date of Invoice # 21086 is the same as the "ship" date on the invoice, namely, 1/14/2009. The "description" on Invoice # 21086 is the following:
Id.
Significantly, Invoice # 20472, dated and having a "ship" date of 10/3/2008, has the following description:
Id. The descriptions on Invoice # 21086 and Invoice #20472 are nearly identical except that the quantity of pages per copy on Invoice # 20472 is substantially higher than the quantity of pages per copy on Invoice #21086 which, also, accounts for the reason that the amount of Invoice #20472 is over $20,000 more than the amount due on Invoice # 21086; yet, the "terms" of Invoice # 20472 are "Net 30." Id. In contrast, the "terms" of Invoice # 21086, which was issued during the Preference Period, are "Due on receipt." Further, Invoice # 20472, which was issued during the Historical Period, was paid 20 days after its invoice date, whereas Invoice # 21086 was paid within 8 days after its invoice date.
Indeed, only 1 invoice that was issued during the Historical Period in an amount over $30,000, was paid in less than 10 days from the date of invoice. The other invoices for over $30,000 were paid in 20, 24, 28, 32, 45, 49, 54, 55 and 78 days from the date of invoice.
Federal Rule of Civil Procedure 56(c) provides that summary judgment should be granted if, drawing all inferences in favor of the nonmoving party, "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
When a non-moving party relies upon an affidavit in opposing summary judgment, the affidavit is not sufficient to defeat summary judgment when it fails to aver "specific facts which are admissible at trial" and relies solely upon "conclusory statements, hearsay statements, or unfounded declarations." Regan v. Estate Questa Verde, 2006 WL 3613280, at *5 (D.Vi. Nov. 22, 2006). Moreover, averments in an affidavit that are contradicted by documentary evidence are insufficient to create a genuine issue of material fact. Murray v. IBEW Local Union No. 98 Pension Plan, 2011 WL 1883168, at *4 (E.D.Pa. May 17, 2011).
In addition, the entry of summary judgment is appropriate if, upon motion and after adequate time for discovery, the party against whom the motion for summary judgment is filed fails to "make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). As the Supreme Court stated in Celotex Corp.:
Id. at 322-23, 106 S.Ct. 2548. See also Nathan and Miriam Barnert Memorial Hospital Association v. Onward Healthcare, Inc. (In re Nathan and Miriam Barnert Memorial Hospital Association), 2009 WL 3230789, at *4 (Bankr.D.N.J. Oct. 5, 2009) (applying summary judgment standard to matter involving preferential transfers).
Section 547(b) of the Bankruptcy Code authorizes a trustee in bankruptcy to avoid certain payments made within ninety days before the debtor files for bankruptcy as "preferential transfers." This section states, in pertinent part:
[A] trustee may avoid any transfer of an interest of the debtor in property—
11 U.S.C. § 547(b). The purpose of this provision is "to ensure that creditors are treated equitably, both by deterring the failing debtor from treating preferentially its most obstreperous or demanding creditors in an effort to stave off a hard ride into bankruptcy, and by discouraging the creditors from racing to dismember the debtor." Fiber Lite Corporation v. Molded Acoustical Products, Inc. (In re Molded Acoustical Products, Inc.), 18 F.3d 217, 219 (3d Cir.1994).
However, there are certain transfers which a Trustee may not avoid despite the fact that they fit within the scope of § 547(b). These exceptions are set forth in § 547(c) & (i). See 11 U.S.C. § 547(b) ("Except as provided in subsections (c) and (i) of this section, the trustee may avoid any transfer of an interest of the debtor in property ...). The Defendant raises two of the exceptions here; they are the ordinary course of business defense in § 547(c)(2) and the contemporaneous exchange for new value defense in § 547(c)(1).
The trustee "has the burden of proving the avoidability of a transfer" under § 547(b). 11 U.S.C. § 547(g). However, the party against whom recovery is sought has the burden of proving that a transfer is not avoidable under § 547(b) based on one of the exceptions set forth in § 547(c). Id.
In its motion, the Trustee asserts that it is entitled to summary judgment because there is no genuine issue as to any material fact that all of the elements for preferential transfers under § 547(b) are met as to Payment Nos. 2-7, 10 and 14-17. The Defendant does not dispute this assertion except as to Payment No. 14 for $58,672.00. As to this payment, the Defendant contends that the Trustee cannot satisfy its burden of showing that this payment was made on account of an "antecedent debt." 11 U.S.C. § 547(b)(3).
The Defendant also opposes the Trustee's motion on the ground that Payment Nos. 2, 3, 4, 7, 10 and 15 are unavoidable transfers based on the ordinary course of business defense set forth in § 547(c)(2) because the history between the parties shows that most payments were made within 30 to 70 days from the date of invoice. See Defendant's Brief at 4. Eliminating those transfers from the discussion, the Defendant then argues that the ordinary course of business defense applies to the remaining payments at issue, namely Payment Nos. 5, 6, 14, 16 and 17, because the history between the parties shows that it was common practice for the Debtor to make one lump payment on account of multiple invoices which resulted in the "invoice-to-payment range on the final invoice" being "much less." See Defendant's Brief at 4-5. The Defendant further argues that Payment No. 14, for $58,672.00, which was "[d]ue on receipt," is also covered by the ordinary business defense, because "[t]he terms of the invoice, due to
The Bankruptcy Code does not define the term "antecedent debt." However, it defines "debt" as "liability on a claim." 11 U.S.C. § 101(12). In Burtch v. Huston (In re USDigital, Inc.), 443 B.R. 22, 36 (Bankr.D.Del.2011), the bankruptcy court observed that a "debt is antecedent if it was incurred prior to the allegedly preferential transfer." Similarly, the bankruptcy court in Maxwell v. Penn Media (In re marchFirst, Inc.), 2010 WL 4027723, at *7 (Bankr.N.D.III. Oct. 14, 2010), opined that "a debt is incurred when the debtor becomes legally obligated to pay."
Invoice # 21086 lists the "terms" of the invoice as "Due on receipt." According to the invoice and to Kavulich's Affidavit, the invoice was for "paper" which the Defendant used to print a job in February of 2009. See Exhibit F to Trustee's Brief & Kavulich Affidavit ¶ 4(c). Based on the terms of Invoice # 21086, the Debtor was obligated to make payment for the paper upon its receipt of the invoice. While Kavulich avers that the "terms of this invoice, due to the size of the job, was a prepayment," see Kavulich Affidavit ¶ 4(c), the terms set forth on Invoice # 21086, which is Defendant's own document, directly refute this characterization. The invoice states that payment was "Due on receipt"; it does not state that it was a "prepayment." Moreover, there are 4 invoices in Exhibit F to the Trustee's Motion, namely Invoices #20642, #20752, #20896 and #20897, which list the terms thereon, in capital letters, as "PREPAY." In other words, the Defendant did issue invoices which required prepayments and when it did so, the terms on the invoices were stated, in capital letters, as "PREPAY." These 4 invoices, with the terms "PREPAY," stand in stark contrast to the terms on Invoice # 21086 which are "Due on receipt." Moreover, the amounts due on the aforementioned four invoices were $39,736.25, $1,595.00, $2,935.00 and $695.00. Three out of four of these amounts are for less than $3,000, which is inconsistent with Kavulich's averment that the Defendant required prepayment on Invoice # 21086 due to the "size of the job." Defendant's Brief at 5. Furthermore, the terms of a job of a similar size,
As noted above, one exception to the Trustee's authority to avoid a transfer under § 547(b) is set forth in § 547(c)(2).
Whether a transfer was made in the ordinary course of business is a subjective inquiry "calling for the Court to consider whether the transfer was ordinary between the debtor and the creditor." United States Trustee v. First Jersey Securities, Inc. (In re First Jersey Securities, Inc.), 180 F.3d 504, 512 (3d Cir.1999). An important indicator to determine ordinary course of business is whether the timing of preference period payments was consistent with the timing of payments during the pre-preference period.
In the instant proceeding, the Trustee conceded that payments made within 40 to 60 days from the date of invoice were made within the ordinary course of business and, therefore, not avoidable under § 547(b). The Defendant contends that the 40 to 60 day payment range is too narrow and that payments made by the Debtor within 30 to 70 days from the date of the invoice are within the ordinary course of business of the parties. The Court agrees with the Defendant on this issue.
During the Historical Period, only 31 out of 93 payments, which is only 33% or 1/3 of the payments, were made in the 40 to 60 day range used by the Trustee. In contrast, 74 out of 93 of the payments which is equivalent to 80% of the payments, were made in the 30 to 70 day range. As the Court noted above, 21 invoices were paid between 30 to 40 days after the invoice date and 20 invoices were paid between 60 to 70 days after the invoice date. The 40 to 60 range used by the Trustee would mean that the 41 payments, made during the Historical Period, were made outside of the ordinary course of business of the parties.
Using the 30 to 70 day payment range, the Court concludes that the Defendant has satisfied its burden of showing that Payment Nos. 2, 3, 4, 7, 10 and 15 are transfers within the ordinary course of business exception contained in § 547(c)(2)(A).
The Defendant asserts that these five remaining payments, totaling $62,834.98, are
Moreover, with regard to Payment No. 14, for $58,672.00, which was made within 8 days of invoice, the Defendant's argument regarding the lump sum payments is even more untenable. The two other payments (Payment Nos. 9 and 6), which were made by the same lump sum as Payment No. 14, were: (i) for much lower amounts, namely $4,980.00 and $2,640.50, than Payment No. 15; and (ii) made within 57 and 71 days of invoice as compared to 8 days of invoice. In contrast, all of the other payments which the Defendant identified its brief as having been paid during the Preference Period by lump sums were paid within the same general time frames from the date of the invoice and on consecutively issued invoices. Payment Nos. 7 and 8 were made within 62 and 53 days of invoice; Payment Nos. 10 and 11 were made within 62 and 60 days of invoice; and Payment Nos. 16 and 17 were made within 16 and 14 days of invoice. These facts, based on the Defendant's own documents, undercut its argument that Payment No. 14 just happened to occur within 8 days of invoice because it was the Debtor's "common practice" to pay multiple invoices with a lump sum.
Defendant's last argument with regard to the ordinary course of business defense is that the terms of Invoice # 21086 and the Debtor's payment on the invoice were "consistent with the ordinary business terms between the parties." Defendant's Brief at 5. The Defendant bases this argument on Kavulich's representation that the terms of Invoice # 21086 "was a prepayment[]" and that such an arrangement was "consistent with the ordinary business terms between the parties" for a "job of this size." Id. The Court has already concluded that this representation is directly contradicted by the Defendant's own documents and the parties' transactional history. The terms stated on Invoice # 21086 are "Due on receipt" and not "PREPAY." Moreover, it is the only invoice out of thirty-seven invoices in the record with the terms "Due on receipt." The Defendant has not asserted that it ever sent another invoice to the Debtor stating that it was "due on receipt." Furthermore, the terms listed on Invoice # 20472, which is for more money ($20,000 more) and a larger quantity of paper than that of Invoice #21086, are "Net 30." Thus, no reasonable trier of fact could conclude that the terms of Invoice # 21086 and the Debtor's payment on the invoice were "consistent with the ordinary business terms between the parties."
The Defendant's final argument in opposition to the Trustee's Motion is that
In order for the contemporaneous exchange exception to be applicable,
In Creditors' Committee v. Spada (In re Spada), 903 F.2d 971 (3rd Cir.1990), the Third Circuit observed that "`[t]he critical inquiry in determining whether there has been a contemporaneous exchange for new value is whether the parties intended such an exchange.'" Id. at 975 (quoting Matter of Prescott, 805 F.2d 719, 727 (7th Cir.1986)). The Defendant has offered no evidence which supports this requirement of the test. In paragraph 4(c) of his Affidavit, Kavulich swears and affirms as follows:
Kavulich's Affidavit attached to Defendant's Brief (emphasis added). The last sentence in this paragraph is quite confusing. As written, it states: "The terms of the invoice, due to the size of the job, was a prepayment and was not a payment made on account of an antecedent debt or that it was not intended by the debtor and Defendant to be a contemporaneous exchange for new value given to the debtor under 11 U.S.C. § 547(c)(1)(A)." Id. (emphasis added). However, perhaps Kavulich meant to say that the terms of the invoice required a prepayment or that the Debtor and the Defendant intended for the Debtor's payment on the invoice to be a contemporaneous exchange for new value. Nevertheless, even if this is what Kavulich meant to say, his statement is internally inconsistent. Either the Defendant intended for Debtor's payment on the invoice to be a prepayment OR the Defendant intended the payment to be a contemporaneous exchange for new value, namely the paper for the printing job which Kavulich says the Defendant did in February of 2009. The conclusory contention that Defendant had one or, in the alternative, the other intention is absurd and disingenuous because the intentions are mutually exclusive. If the Defendant intended the Debtor's payment on the invoice to be a prepayment, then it could not have intended for the payment to be a contemporaneous exchange for new value. Throwing both possibilities into the ring in order to try to defeat the Trustee's Motion simply does not work.
Since Kavulich offers two conflicting views in the very same sentence as to the Defendant's intention with regard to Invoice # 21086 and there is no evidence in the record as to the Debtor's intent with regard to its payment, the Defendant has failed to "make a showing sufficient to establish the existence of an element essential to" its case, and on which it "will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. at 322, 106 S.Ct. 2548. See Riley v. National Lumber Company (In re Reale), 393 B.R. 821, 828 (1st Cir. BAP 2008) (emphasis in original) (rejecting creditor's argument that contemporaneous exchange for new value defense applied since there was "no evidence" that the Debtor and the Defendant "intended the purported exchange to be contemporaneous for new value, an essential element of the defense."). Therefore, the Trustee may avoid the $58,672.00 payment which the Debtor made during the Preference Period.
Pursuant to 11 U.S.C. § 550(a), the Trustee is authorized to recover from the Defendant the value of the payments avoided under § 547(b). Deducting the total value of the payments, namely Payment Nos. 2-4, 7, 10 and 15 ($28,572.90), which the Court concluded are not avoidable due to the ordinary course of business defense set forth in § 547(c)(2)(A), from the total amount sought by the Trustee ($65,655.27), the Court concludes that the Trustee is entitled to recover $37,082.37 from the Defendant under § 550(a). The Trustee also seeks an award of prejudgment interest at the applicable federal rate of interest from the date its counsel filed the Amended Complaint. See Trustee's Brief at 32. As the Defendant failed to offer any argument in opposition to this request, the Court shall grant it. Investment
Pursuant to § 502(d) & (j),
The Court has concluded that, while Payment Nos. 2-4, 7, 10 and 15 are unavoidable pursuant to the ordinary course of business exception under § 547(c)(2)(A),
On February 24, 2009, the Debtors' bankruptcy cases were consolidated for procedural purposes and thereafter jointly administered. See Bankruptcy Case No. 11204, Docket Entry No. 42 (Order Directing Joint Administration of the Debtors' Related Chapter 11 Cases).
11 U.S.C. § 547(c)(2). With regard to prong (B), the phrase "ordinary business terms" means "the range of terms that encompasses the practices in which firms similar in some general way to the creditor in question engage[.]" Fiber Lite Corporation v. Molded Acoustical Products, Inc. (In re Molded Acoustical Products, Inc.), 18 F.3d 217, 224 (3d Cir.1994) (emphasis in original) (quoting In re Tolona Pizza Prods. Corp., 3 F.3d 1029, 1033 (7th Cir.1993)). In its brief, the Defendant uses the phrase "ordinary business terms" in conjunction with its argument regarding invoices paid in lump sum payments. See Defendant's Brief at 5 (argument regarding it being the Debtor's common practice to pay multiple invoices with one lump sum). However, the Defendant failed to submit any evidence whatsoever that the payments at issue were made according to "ordinary business terms." Therefore, any argument based on § 547(c)(2)(B) obviously lacks merit. Accordingly, the Court will give the Defendant the benefit of the doubt and assume that Defendants' arguments are based upon § 547(c)(2)(A).
Official Committee of Unsecured Creditors v. Nucor-Yamato Steel Company (In re J. Allan Steel Co.), 336 B.R. 226, 229 (W.D.Pa.2005) (citing Troisio v. E.B. Eddy Forest Products, Ltd. (In re Global Tissue, L.L.C.), 302 B.R. 808, 812 (D.Del.2003), aff'd, 106 Fed.Appx. 99 (3d Cir.2004)). In the instant adversary proceeding, the parties' dispute of whether the preference payments were made within the ordinary course of business hinges on the timing of the payments.
Using the Trustee's 40 to 60 day range, none of these transfers from the Historical Period would be within the parties' ordinary course of business.
11 U.S.C. § 547(c)(1)(A).
11 U.S.C. § 502(d) & (j).
