538 B.R. 237
Bankr. D. Del.2015Background
- Debtors filed for Chapter 11; the case concerns a preference action against Trade Source arising from a $24,999.99 payment in February 2012.
- AFA Foods entered a brokerage agreement with Trade Source on August 1, 2011; Trade Source would receive monthly retainers of $8,333.33.
- Post-piling bankruptcy, Debtors and Trade Source executed a letter agreement for Trade Source to receive pre-petition payment and continue post-petition services.
- On March 28, 2014, Debtors filed the preference complaint to recover the February 23, 2012 payment; Trade Source answered May 9, 2014.
- Debtors obtained an Essential Suppliers Order on April 3, 2012, and the plan was confirmed March 7, 2014; mediation occurred in January 2015 without settlement.
- Court denies summary judgment due to genuine disputes about whether the transfer was on account of an antecedent debt and about the hypothetical liquidation result.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Antecedent debt element under 11 U.S.C. §547(b)(2) | Debtors contend the $24,999.99 payment satisfied pre-existing debts. | Trade Source argues payment was a voluntary prepayment for future services. | Issues of material fact preclude summary judgment. |
| Hypothetical liquidation outcome under §547(b)(5) | Unsecured Trade Source would receive less than a 100% distribution. | Post-petition payment would be covered by the Essential Suppliers Order; Kiwi/Seidle controls. | Debtors cannot establish prima facie satisfaction; summary judgment denied. |
Key Cases Cited
- In re Kiwi Int'l Air Lines, Inc., 344 F.3d 311 (3d Cir. 2003) (unsecured creditor paid post-petition under a court-approved arrangement cannot be compelled to return payment)
- Seidle v. GATX Leasing, 778 F.2d 659 (11th Cir. 1985) (creditor paid under 365 arrangements not subject to preference action)
- Hayes Lemmerz Int’l, Inc., 313 B.R. 189 (D. Del. 2004) (distinguishable; permissive vs. mandatory critical vendor orders)
- Zenith Indus. Corp. v. Longwood Elastomers, Inc., 319 B.R. 810 (D. Del. 2005) (question of critical-vendor order impact on preference defenses; distinguishable facts)