Opinion
Case No. 03-13110, Adv. No. 05-5228.
March 7, 2007
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Before the Court today is a motion for summary judgment filed by the above-named defendant ("Kimball") on the complaint of Steven L. Speth, Trustee of the estate of Interior Resources, Inc. ("Trustee") to recover certain preferential transfers. The Trustee appears by Tim J. King, Speth King, Wichita, Kansas. Kimball appears by Shannon Wead, Foulston Siefkin, LLP, Wichita, Kansas and James W. Rossow, Rubin Levin, P.C., Indianapolis, Indiana.
Rule 56 of the Federal Rules of Civil Procedure governs summary judgment and is made applicable to adversary proceedings by Rule 7056 of the Federal Rules of Bankruptcy Procedure. Rule 56, in articulating the standard of review for summary judgment motions, provides that judgment shall be rendered if all pleadings, depositions, answers to interrogatories, and admissions and affidavits on file show that there are no genuine issues of any material fact and the moving party is entitled to judgment as a matter of law. In determining whether any genuine issues of material fact exist, the Court must construe the record liberally in favor of the party opposing the summary judgment. An issue is "genuine" if sufficient evidence exists on each side "so that a rational trier of fact could resolve the issue either way" and "[a]n issue is `material' if under the substantive law it is essential to the proper disposition of the claim." Here, as set forth below, there are no issues of fact.
Fed.R.Civ.P. 56(c); Fed.R.Bankr.P. 7056.
McKibben v. Chubb, 840 F.2d 1525, 1528 (10th Cir. 1988) (citation omitted).
Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998).
The Trustee concedes Kimball's statement of uncontroverted facts and the following averments are deemed facts for the purpose of deciding this motion. Kimball supplied inventory to the debtor and its various affiliates, all on a running account. On the date of the petition, June 10, 2003, debtor owed Kimball $546,936.95. In the 90 days preceding that date, the debtor transferred money to Kimball from March 19, 2003 until May 27, 2003. During that same period, Kimball shipped and invoiced goods to debtor in varying amounts. The table below sets out the dates of the questioned transfers and Kimball's shipments. Date Transfers Kimball's shipments (Preference Amount) (Subsequent Advance) Chap 11 bankruptcy petition filed
3/19/03 $ 9,555.82 3/22/03-3/31/03 $30,514.98 4/1/03 $69,333.31 4/2/03-4/24/03 $34,428.27 4/25/03 $17,834.06 4/26/03-5/14/03 $27,160.90 5/20/03 $ 455.53 5/21/03 $25,501.04 5/27/03 $ 3,391.31 6/10/03 6/19/03 $12,852.51 AnalysisWith the exception of two payments, Kimball does not dispute for the purpose of this motion that the transfers it received were preferences, i.e., meeting the five elements set out in § 547(b). Kimball argues on summary judgment that these payments were followed by the transfer of subsequent new value, entitling Kimball to the refuge of § 547(c)(4). That subsection provides that the trustee may not avoid a transfer —
Kimball asserts that two payments, $455.91 and $3,391.31, were intended to be prepayments for goods to be shipped later and therefore not payments on account of antecedent debt.
(4) to or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of the debtor —
(A) not secured by an otherwise unavoidable security interest; and
(B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor. . . .
11 U.S.C. § 547(c)(4), West (2007).
In order to qualify for this defense, the creditor must show that (1) new value was given after the transfer; (2) the new value was unsecured; and (3) that it remained unpaid.
Rushton v. E S International Enterprises, Inc. (In re Eleva, Inc.), 235 B.R. 486, 488 (10th Cir. B.A.P. 1999).
As can be seen from the table above, Kimball gave new value after the transfers questioned by the Trustee. The sole legal issue here is whether giving new value only serves as a defense to the preferential transfer that immediately preceded it. In other words, the Trustee questions whether Kimball may "carry forward" a net preference and absorb it with later new value. At particular issue is the transfer of $69,332.32 on April 1, 2003 that was followed by new value of $34,428.27 on April 2 through 24, 2003. Under the Trustee's theory, the $34,905.05 is unprotected by the defense and, therefore recoverable by the estate. Kimball argues that a creditor need only demonstrate that the new value was conferred after the avoidable transfer occurred and that the value it gave debtor after April 24, 2003 was more than sufficient to set off the net preference.
The Trustee relies on Leathers v. Prime Leather Finishes, Inc. where the court held that "the proper mode of analysis is that after each preferential payment, an assessment must be made as to how much property the creditor restored to the debtor before the next preferential payment was made." The Leathers analysis is, by far, the minority view. Numerous courts have held that the new value need only be given subsequent to a transfer and not necessarily immediately after a particular transfer. Collier's refers to this as the "better reasoned rule." Another commentator has pointed out that if the policy of § 547(c)(4) is to encourage suppliers to trade with distressed businesses, that policy would be defeated by Leathers, which provides no incentive for suppliers to ship anything of value beyond the amount of the debtor's most recent payment.
40 B.R. 248, 251 (D. Maine 1984).
See Williams v. Agama Systems, Inc. (In re Micro Innovations Corp.), 185 F.3d 329, 336-37 (5th Cir. 1999); Mosier v. Ever-Fresh Food Co. (In re IRFM, Inc.), 52 F.3d 228, 232 (9th Cir. 1995); Crichton v. Wheeling Nat'l Bank (In re Meredith Manor, Inc.), 902 F.2d 257, 258 (4th Cir. 1990); Gonzales v. DPI Food Products Co. (In re Furrs Supermarkets, Inc.), 296 B.R. 33, 45 (Bankr. N.M. 2003); Pelz v. Application Engineering Group, Inc. (In re Bridge Information Systems, Inc.), 287 B.R. 258, 267 (Bankr. E.D. Mo. 2002); and Fitzpatrick v. Rockwood Water Sys. (In re Tenn. Valley Steel Corp.), 201 B.R. 927, 940 (Bankr.E.D.Tenn. 1996) (Collecting cases).
Lawrence P. King, 5 COLLIER ON BANKRUPTCY ¶ 547.04, p. 547-77 (15th rev. ed. 2005).
See Harris P. Quinn, The Subsequent New Value Exception Under Section 547(c)(4) of the Bankruptcy Code — Judicial Gloss is Creditors' Loss, 24 Mem. St. U. L.Rev. 667, 675-679 (Summer 1994).
Indeed, the plain language of § 547(c)(4) supports Kimball's position. All that it provides is that the giving of new value be subsequent to receiving the preference. Thus, even if the new value was not immediately extended after the creditor received the preference, the creditor may still employ the subsequent new value defense. Applying this method of analysis, all of Kimball's extensions of new value are sufficient to absorb the preferences it received as demonstrated by the following table. In particular, the net preference remaining on April 24, 2003 may be offset by the subsequent new value given as of May 14, May 21, and June 19, 2003, affording Kimball a complete § 547(c)(4) defense to the Trustee's complaint. Date Preferential Less Subsequent New Value Balance Payments
See In re Furr's Supermarkets, Inc., 296 B.R. at 45 citing IFRM, 52 F.3d at 232.
SO ORDERED.