454 B.R. 745
Bankr. W.D. Mo.2011Background
- Debtors Graff filed a Ch. 7 bankruptcy on May 5, 2009; Columbia Glass, JPPCS, and Star Heating provided labor/materials prepetition with invoices and draw requests.
- Payments to creditors were made during the 90 days before filing, funded by funds from project draws and commingled with debtor funds.
- Debtors reimbursed these Defendants from their general checking account, using funds largely unrelated to the specific projects.
- Trustee alleges preferential transfers under §547(b); Defendants assert the ordinary course defense under §547(c)(2).
- Defendants presented evidence that payments and tender forms were customary for their business relationships with the Debtors.
- Court finds that the source of funds is not relevant to the ordinary course analysis and will apply the ordinary course defense.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether transfers were preferential under §547(b). | Graff prima facie case established that transfers were preferences. | Transfers were ordinary-course payments under §547(c)(2). | Not dispositive here; issue resolved by ordinary-course defense analysis. |
| Whether the ordinary course of business defense applies under §547(c)(2). | Transfers deviate from ordinary course due to funding source. | Transfers were in the ordinary course per four-factor test and ordinary business terms. | Yes; ordinary-course defense applicable; transfers not avoided. |
| Whether the source of funds used to pay creditors affects §547(c)(2) analysis. | Source matters; funds tied to other project draws suggest improper transfers. | Source is irrelevant under statute and precedent; focus is on debtor–creditor relationship. | Source of funds is not relevant; defense remains viable. |
Key Cases Cited
- In re Interior Wood Products Co., 986 F.2d 228 (8th Cir.1993) (elements of preference, burden on trustee)
- In re Libby Int'l, Inc., 247 B.R. 463 (8th Cir. BAP 2000) (trustee burden for preferences)
- In re Gateway Pac. Corp., 153 F.3d 915 (8th Cir.1998) (four-part ordinary-course test; subjective ordinary course)
- In re Spirit Holding Co., Inc., 153 F.3d 902 (8th Cir.1998) (four-factor framework; ordinary-course consistency)
- In re Yurika Foods Corp., 888 F.2d 42 (6th Cir.1989) (consistency between debtor and creditor transfers)
- In re Hedged-Investments Assocs., 48 F.3d 470 (10th Cir.1995) (Ponzi contexts and ordinary-course defense limitations)
- In re M & L Business Machine Co., 84 F.3d 1330 (10th Cir.1996) (limits of ordinary-course defense in unorthodox contexts)
- In re Nation-Wide Exchange Services, Inc., 291 B.R. 131 (Bankr.D.Minn.2003) (ponzi-like concerns and ordinary-course scope)
- First Federal v. Barrow, 878 F.2d 912 (6th Cir.1989) (unorthodox/illegal practices not ordinary course)