Opinion
Case No. 01 B 24742, Adv. No. 03 A 01116.
October 26, 2006
MEMORANDUM OPINION
This matter comes before the court on the motion filed by Andrew J. Maxwell, as Trustee of the estates of marchFirst, et. al. ("Trustee") for summary judgment on his complaint against defendant, Gartner Group ("Gartner"). The complaint alleges that marchFirst, Inc. and its subsidiaries and affiliates (collectively, "Debtor") made a preferential transfer to Gartner, as such a transfer is defined under § 547(b) of the Bankruptcy Code, 11 U.S.C. §§ 101, et seq. For the reasons hereinafter detailed, the motion will be granted.
The court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334 and Fed.R.Bank.P. 7001 et seq. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2), (A)(F) and (O) in which this court is empowered to enter final judgment. Venue is proper in this District pursuant to 28 U.S.C. § 1409(a).
Background
On April 12, 2001 ("Petition Date"), the Debtor commenced its bankruptcy cases in the United States Bankruptcy Court for the District of Delaware ("Delaware Court") by voluntarily filing petitions for relief under Chapter 11 of the Bankruptcy Code. The Debtor moved to convert its cases to cases under Chapter 7 of the Bankruptcy Code and on April 26, 2001, the cases were converted. By order dated July 10, 2001, the Delaware Court transferred the cases to the United States Bankruptcy Court for the Northern District of Illinois. On July 16, 2001, the Trustee was appointed to serve as successor Chapter 7 trustee.
The following facts are uncontested. Gartner is a Connecticut corporation engaged in the information technology research and advisory services industry. During the 90 days preceding the Petition Date, the Debtor made a transfer to Gartner in the form of a check and in the amount of $227,801.69 ("Transfer"). The Transfer was made for the benefit of Gartner.
The date on the check is February 20, 2001 and the check cleared on February 23, 2001. The Transfer was made in payment of two invoices. The first invoice was dated June 5, 2000 and billed the amount of $85,734.39. The second invoice was dated November 6, 2000 and billed the amount of $142,067.30. The Transfer was made to pay antecedent debts, 109 days and 263 days after the dates of the invoices. The Debtor is presumed to have been insolvent during the 90 days preceding the Petition Date and holders of non-priority unsecured claims against the Debtor at the time of the Transfer would not have received full payment on their claims had the Debtor been in chapter 7 at that time and had the Transfer not been made. Had the Transfer not been made, Gartner would have held only a non-priority unsecured claim.
Prior to receiving the Transfer, the following electronic correspondence was sent by an employee of Gartner to the Debtor:
In the spirit of our relationship, I have asked A/R to refrain from issuing a legal demand letter to your CFO, which is the normal course of action when invoices reach this aging point. I also understand that Jim had to regretfully inform you of an immediate service discontinuance as of today, February 19 [2001]. As you can appreciate, we can no longer operate with both an open A/R exposure as well as no active agreement in place.
The court notes that the date on the check is one day after the date of the e-mail.
Discussion
Summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c), applicable to adversary proceedings by Fed.R.Bankr.P. 7056; Celotex v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552 (1986); Wade v. Lerner New York, Inc., 243 F.3d 319, 321 (7th Cir. 2001). A court must view the record in the light most favorable to non-movant, drawing all reasonable inferences in its favor.Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2510 (1986); Wade v. Lerner New York, Inc., 243 F.3d at 321.
Fed.R.Civ.P. 56(e), also provides that "[w]hen a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere . . . denials of the adverse party's pleading, but the adverse party's response . . . must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party."
Section 547(b) of the Bankruptcy Code, which governs avoidable preferential transfers, requires that the Trustee demonstrate five elements to avoid a transfer: (1) the transfer was to a creditor; (2) for or on account of an antecedent debt owed by the debtor prior to the transfer; (3) made while the debtor was insolvent; (4) on or within 90 days before the Petition Date, and (5) that enables the creditor to receive more than it would receive if the case had already been a case under Chapter 7, the transfer had not been made and the creditor received what it would have received under the Bankruptcy Code. Pursuant to § 547(g) of the Bankruptcy Code, the Trustee has the burden of proving the avoidability of a transfer by a preponderance of the evidence. See Field v. Lebanon Citizens National Bank (In re Knee), 254 B.R. 710, 712 (Bankr. S.D. Ohio 2000).
The Trustee has fulfilled each element of this cause of action in his Statement of Uncontested Facts and Gartner does not dispute that this is so. In response to the Trustee's proven cause of action, Gartner raises two affirmative defenses.
A Statement of Uncontested Facts is submitted to support a motion for summary judgment pursuant to Local Bankruptcy Rule 7056-1. All facts set forth are deemed admitted unless controverted by the opposing party.
Ordinary Course of Business
First, Gartner raises the ordinary course of business defense. 11 U.S.C. § 547(c)(2). "In order for a creditor to prevail using the ordinary course of business exception to 547(b), the creditor must show that the debt had been incurred in the ordinary course of business of both the debtor and the creditor; that the payment too, had been made and received in the ordinary course of their businesses; that the payment was made according to ordinary business terms. Matter of Tolona Pizza Products Corp., 3 F.3d 1029, 1031 (7th Cir. 1993). Ordinary business terms refers to a range of payment terms encompassing the practices of firms similar to that creditor. Id. at 1033. It is therefore necessary for a creditor to present some evidence establishing the range of acceptable practices within the industry. In re Midway Airlines, 1995 WL 331053 (N.D.Ill. 1995) (unpublished opinion)." Superior Toy Mfg. Co., Inc., 183 B.R. 826, 836 (N.D. Ill. 1995). The creditor against whom recovery is sought has the burden of proving the nonavoidability of a transfer under § 547(c). 11 U.S.C. § 547(g).
The court notes that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect after this case was filed and is therefore inapplicable.
In In re Gulf City Seafoods, Inc., 296 F.3d 363 (5th Cir. 2002), the court laid out a standard for the sufficiency of evidence on this issue. "In our view, for an industry standard to be useful as a rough benchmark, the creditor should provide evidence of credit arrangements of other debtors and creditors in a similar market, preferably both geographic and product." Id. at 369. In Tolona Pizza, the testimony of an insider of the creditor was the evidence that was found to be sufficient to show what was ordinary course of business in the relevant industry. 3 F.3d at 1033. In In re Apex Automotive Warehouse, 245 B.R. 543 (Bankr. N.D. Ill. 2000), the court opined that a creditor "must present evidence of the actual practices of its competitors."Id. at 550. In Apex, the court accepted as sufficient one affidavit of the credit manager of the creditor's competitor containing her general perceptions of industry practices and a general overview of her own company.
The creditor here has failed to prove the nonavoidability of the Transfer under § 547(c)(2). Gartner's evidence consists of an affidavit made by Paul Kindred, a vice-president of Gartner, Inc., that states that the payments made to Gartner by the Debtor were typical of the transactions of the parties over prior years. This is not substantiated by any payment history or other evidence. To the contrary, the e-mail sent by the Gartner employee supports the Trustee's position that the invoices went unpaid in an atypical manner. The e-mail states that Gartner will be ceasing its services unless payment is made and that a legal demand letter would be the usual course of action when invoices "reach this aging point." The Debtor issued the check constituting the Transfer on the very next day. This e-mail and the subsequent check confirm the Trustee's assertion that the Transfer was not made in the ordinary course of business between these parties.
The Kindred affidavit also states that "companies doing business in the information technology research and advisory services accept payment on invoices in excess of the terms stated on their invoices." Kindred provides no basis for this statement, not even how he might know this. Gartner does not provide the court with even one affidavit from a competitor. The Transfer paid invoices that were 109 days and 263 days old. Without specific facts that this is ordinary course in the industry, the court cannot find that there is a genuine issue for the trial of this affirmative defense. Gartner has not met its burden of proving that the payment was made in the ordinary course of business.
Even if Gartner had met its burden, the Trustee has furnished adequate proof rebutting the ordinary course of business defense. The Trustee submitted an industry study of payment practices in Gartner's industry prepared by the Risk Management Association, which shows that the longest usual and customary payment delay for companies in Gartner's industry was 84 days after the date of the vendor's invoice.
New Value
Second, Gartner asserts that the Transfer was made to be a contemporaneous exchange for new value provided to the debtor. 11 U.S.C. § 547(c)(1).
This "rule provides that a transfer of assets from a debtor to creditor within the statutory preference period cannot be voided if (1) the parties intended that the transfer be part of a contemporaneous exchange for new value given to the debtor, and (2) the transfer was, in fact, substantially contemporancous. The justification for this exception is that transferring collateral in exchange for an infusion of new capital does not harm existing creditors because it does not diminish the debtor's net assets."In re Pine Top Insur. Co., 969 F.2d 321, 324 (7th Cir. 1992). Furthermore, the "contemporaneous exchange for new value exception is an affirmative defense, and the transferee has the burden of establishing [the elements] by a preponderance of the evidence . . ." In re Nolan, 1997 WL 33479209 (Bankr. C.D. Ill.).
The Trustee argues that this defense was waived by Gartner and the court agrees. The Trustee served a Request for Admissions to Defendant Gartner Group, Inc. Gartner responded, in pertinent part, as follows:
1. Preference Payment 2022721 was not intended by Debtor and Defendant to be a contemporaneous exchange for new value given to Debtor. RESPONSE: Admitted.
2. Preference Payment 2022721 was not a substantially contemporaneous exchange for new value given to Debtor. RESPONSE: Admitted.
7. Defendant did not give subsequent new value, which remained unpaid as to the Petition Date, to or for the benefit of Debtor after the receipt of Preference Payment 2022721. RESPONSE: Admitted.
Rule 7036 of the Bankruptcy Rules of Civil Procedure provides that "[A]ny matter admitted under this rule is conclusively established unless the court on motion permits withdrawal or amendment of the admission." No such motion was made by Gartner. Furthermore, Gartner furnishes no facts to support its defense. It does not state what the new value consisted of, nor when the exchange took place. Therefore, Gartner's current assertion that the Transfer was a contemporaneous exchange for new value is unavailing. Gartner provided no specific facts showing that there is a genuine issue for trial on this affirmative defense and therefore summary judgment shall be entered against Gartner.
Conclusion
For the foregoing reasons, the Trustee's motion will be granted.