ORDER ON MOTION FOR SUMMARY JUDGMENT
THAD J. COLLINS, Bankruptcy Judge.
The Chapter 7 Trustee brought this adversary proceeding against Defendant, Lubicom, LLC, alleging Defendant received preferential transfers in the amount of $60,000.00. Defendant moves for partial summary judgment arguing its affirmative defenses apply as a matter of law and reduce the Trustee's recovery to the maximum amount of $6,900.00. The Court held a hearing on the matter. Robert Gainer appeared on behalf of Defendant, Lubicom, LLC. Desiree Kilburg appeared on behalf of Plaintiff, Joseph E. Sarachek, in his capacity as Chapter 7 Trustee. After hearing the parties' arguments, the Court took the matter under advisement. This is a core proceeding under 28 U.S.C. § 157(b)(2)(F).
STATEMENT OF THE CASE
Trustee seeks to avoid $60,000.00 in payments Debtor made to Defendant as preferential transfers under 11 U.S.C. § 547(b). Defendant received these payments in the ninety-day period before Debtor's bankruptcy petition. Defendant moves for partial summary judgment, arguing the affirmative defenses of 11 U.S.C. § 547(c) are established as a matter of law and limit Trustee's recovery to— at most—$6,900.00. The Court finds genuine issues of material fact on the substance of the defenses and denies the Defendant's Motion for Summary Judgment.
BACKGROUND
Debtor owned and operated one of the nation's largest kosher meatpacking and food-processing facilities in Postville, Iowa. On November 4, 2008, Debtor filed a Chapter 11 petition in the Bankruptcy Court for the Eastern District of New York. Debtor's bankruptcy petition and accompanying documents recited that its financial difficulties resulted from a raid conducted by U.S. Immigration and Customs Enforcement. A total of 389 workers at the Postville facility were arrested. The raid led to numerous federal criminal charges, including a high-profile case against Debtor's President, Sholom Rubashkin. Debtor's Petition also stated it had over 200 creditors and assets and liabilities in excess of $50,000,000.00.
The court eventually approved the appointment of Joseph E. Sarachek as the Chapter 11 Trustee. The court concluded that appointing a trustee was necessary in part "for cause, including fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management" under § 1104(a)(1). After hearings in a later proceeding, the court transferred the case to this Court on December 15, 2008. This Court eventually converted the case to a Chapter 7 bankruptcy. The U.S. Trustee for this region retained Mr. Sarachek as the Chapter 7 Trustee.
Trustee seeks to recover $60,000.00 in payments made to Defendant as preferential transfers under 11 U.S.C. § 547(b). Defendant received payment from Debtor in four checks written on August 12, September 9, September 10, and September 22, respectively—each within the ninety days prior to the bankruptcy petition. Defendant requests partial summary judgment, arguing that its affirmative defenses are supported by the undisputed record and reduce the Trustee's claims to $6,900.00 as a matter of law. Defendant relies on the affirmative defenses of 11 U.S.C. § 547(c), which protect transfers for which Defendant engaged in a contemporaneous exchange for new value § 547(c)(1), provided subsequent new value § 547(c)(4), or were made in the ordinary course of business § 547(c)(2).
CONCLUSIONS OF LAW
I. Standard for Summary Judgment
Summary judgment is governed by Rule 7056 of the Federal Rule of Bankruptcy Procedure. Rule 7056 applies Federal Rule of Civil Procedure 56 in adversary proceedings. Rule 56 states, in relevant part, that: "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The granting of "[s]ummary judgment is proper if, after viewing the evidence and drawing all reasonable inferences in the light most favorable to the nonmovant, no genuine issues of material fact exist and the movant is entitled to judgment as a matter of law."
The burden of showing there are no genuine issues of material fact belongs to the moving party.
"A `material' fact is one `that might affect the outcome of the suit under the governing law . . . .'"
II. Defendant's Motion for Summary Judgment
Defendant pleads and relies on the affirmative defenses of 11 U.S.C. § 547(c) in arguing for summary judgment. The only defenses Defendant raises with any particularity are the contemporaneous exchange for new value defense of § 547(c)(1), the ordinary course of business defense of § 547(c)(2), and the subsequent new value defense of § 547(c)(4). Subsections (c)(1), (c)(2), and (c)(4) provide:
11 U.S.C. § 547(c).
A. Contemporaneous Exchange for New Value1
Defendant argues that its receipt of payments from the Debtor was intended to be, and was in fact, a contemporaneous exchange for new value. Defendant claims that it received the payments from Debtor in exchange for advertising, public relations, and targeted market outreach services. Trustee resists Defendant's motion. Trustee argues the payments Debtor received were for periods and amounts that did not match the invoiced sums Defendant charged Debtor. Trustee contends this raises a fact issue for trial because it casts serious doubt on Defendant's argument the payments were intended to be or was a "substantially contemporaneous exchange." 11 U.S.C. § 547(c).
To establish this defense, Defendant must make two showings. First, Defendant must show the parties intended a contemporaneous exchange. Second, Defendant must show it provided new value. The issues here deal with whether there was in fact a contemporaneous exchange.
1. Contemporaneous Exchange Must Be Intended
The Eighth Circuit notes that one key question on the availability of this defense is focused on the intent of the parties.
Here, there are factual disputes that prevent summary judgment. Unlike Payless Cashways, here there were irregularities regarding Defendant's invoice dates and the amount of Debtor's payments.
2. Exchange Must be at Least "Substantially Contemporaneous"
Another requirement of showing a contemporaneous exchange is that the exchange in fact was "substantially contemporaneous." 11 U.S.C. § 547(c)(1)(B). As Trustee argues, overpayment suggests that Debtor may have been paying off old debt, which is not a "substantially contemporaneous" exchange.
B. Ordinary Course of Business
Defendant also argued that the transfers occurred in the ordinary course of business. Section 547(c)(2) prohibits the Trustee from avoiding a transfer made for a debt (1) "incurred by the debtor in the ordinary course of business,"
The first part of the test—that the debt was "incurred in the ordinary course"—looks at the course of dealings between the parties and their distinct businesses.
Defendant states that the debt arose out of advertising and marketing services that Defendant provided to Debtor. The debt may well have occurred in the ordinary course of the parties' normal business operations, though the record contains very little information about this issue. Similarly, the record lacks information about whether transfers from Debtor to Defendant were made in the ordinary course of business of the parties or according to ordinary business terms. Trustee provided invoices and information about when payments were made by Debtor for August and September of 2008. It appears that Debtor did not write checks for each invoice, but would write one check for several weeks' services. The check amounts were not equal to the invoiced amounts or combined invoiced amounts. Defendant has not shown whether this method of payment was consistent with its previous transactions with Debtor, nor has Defendant provided evidence that this payment arrangement complies with the ordinary business terms of the relevant industry. Genuine issues of material fact remain regarding whether the debt and transfers occurred in the ordinary course of business.
C. New Value Advanced Post-Transfer
Defendant also relies on the "new value" exception of § 547(c)(4). The section provides that the Trustee's recovery is limited "to the extent that, after such [preferential] transfer, such creditor gave new value to or for the benefit of the debtor." 11 U.S.C. § 547(c)(4).
There are three requirements to the new value defense:
Defendant argues that following the $20,000.00 check from Debtor to Defendant written on September 10, 2008, it provided $13,200.00 of new value through services that occurred between September 12, 2008 and October 3, 2008. Trustee argues that Defendant received an additional payment of $20,000.00 on September 22, 2008. Defendant argues that Debtor's bank returned the September 22, 2008 check, and Defendant never received any value from that check. Whether the check cleared affects whether Defendant was later compensated for its services. This dispute shows that genuine issues of material fact remain.
CONCLUSION
Trustee has shown a genuine issue of material fact exists as to whether the payments meet the criteria for the contemporaneous exchange of new value defense, the ordinary course of business defense, or the subsequent new value defense. As such, summary judgment is inappropriate.
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