470 B.R. 119
Bankr. D. Conn.2012Background
- JMH filed for Chapter 11 on November 4, 2008; plan confirmed August 11, 2010 with Plan Custodian authorized to pursue avoidance actions.
- This adversary proceeding seeks to avoid a September 17, 2008 payment to New England Radiator Works (NER) as a preference under 11 U.S.C. § 547(b).
- NER performed work August 6–15, 2008; NER invoiced August 18, 2008 totaling $7,262.00 and made fourteen calls seeking payment through September 17, 2008.
- JMH paid NER $7,262.00 on September 17, 2008; JMH filed bankruptcy November 4, 2008.
- NER had not yet recorded a mechanic's lien, but Connecticut law would permit a lien; recording deadline was November 13, 2008.
- Issue arises whether the lien, if perfected, would have fully secured NER, potentially defeating § 547(b)(5) under Ricotta.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Payment is a avoidable preference under § 547(b). | JMH asserts payment is a preference. | NER argues payment is not avoidable because it would be fully secured. | Not avoidable; Ricotta doctrine controls. |
| Does a yet-unrecorded but potentially perfectible mechanic's lien render the transfer immune under § 547(b)(5). | If lien not yet perfected, unsecured claim; payment not immune. | Lien could have been perfected; thus fully secured in hypothetical liquidation. | Ricotta governs; lien status at transfer determines avoidance; payment not avoidable. |
| Is Ricotta still binding law under the Bankruptcy Code. | Argues Ricotta may be distinguishable but must still apply. | Ricotta remains binding and persuasive authority. | Ricotta remains binding and persuasive authority in this circuit. |
| Whether § 547(c) defenses (contemporaneous exchange, ordinary course, or fixing of a lien) apply. | If a defense applies, avoidance would be barred. | Defenses apply; payment falls within contemporaneous exchange/ordinary-course/actually fixes lien. | Court need not reach § 547(c) defenses since § 547(b) failure established. |
Key Cases Cited
- Ricotta v. Burns Coal & Building Supply Co., 264 F.2d 749 (2d Cir. 1959) (payments to inchoate lienholders during the lookback period not avoidable when lien could be perfected)
- Official Comm. of Unsecured Creditors of 360 Networks (USA) Inc. v. AAF-McQuay, Inc. (In re 360 Networks (USA) Inc.), 327 B.R. 187 (S.D.N.Y. 2005) (supports Ricotta-based immunity for unperfected liens)
- Greenblatt v. Utley, 240 F.2d 243 (9th Cir. 1956) (similar principle regarding liens and preference immunity)