Jubber v. SMC Electrical Products, Inc.
798 F.3d 983
10th Cir.2015Background
- C.W. Mining contracted in mid‑2007 with SMC Electrical to buy longwall mining equipment to expand production; the parties had no prior dealings.
- SMC invoiced $805,539.75 on September 18, 2007 with written progress‑payment terms (net 30 from invoice; staged progress payments).
- C.W. Mining wired $200,000 to SMC on October 16, 2007 (within 90 days of an involuntary bankruptcy petition filed Jan. 8, 2008).
- The bankruptcy trustee sought to avoid the $200,000 as a preference under 11 U.S.C. § 547(b) and invoked the ordinary‑course exception in § 547(c)(2).
- The bankruptcy court granted summary judgment for SMC, finding the debt and the $200,000 payment were in the ordinary course; the BAP and Tenth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the $805,539.75 debt was incurred in the debtor’s ordinary course of business | Trustee: large, one‑time longwall purchase was not ordinary for C.W. Mining and suggested impermissible "gambling." | SMC: purchase was arm’s‑length, within SMC’s normal product line, and undertaken to support mining operations—thus ordinary. | Court: Debt was incurred in the ordinary course; plaintiff failed to preserve or present adequate evidence to overcome summary judgment. |
| Whether the $200,000 payment was made in the ordinary course of the debtor’s business under § 547(c)(2)(A) | Trustee: payment within 90 days could be avoidable; timing and first‑time deal weigh against ordinary course. | SMC: payment complied with written progress‑payment terms (net 30); came from debtor’s account; no unusual collection efforts. | Court: Payment was ordinary (timing, source, lack of collection activity) and thus not avoidable. |
| Whether a first‑time transaction can qualify for the ordinary‑course exception | Trustee: first‑time dealings should disqualify the defense. | SMC: statute looks to ordinary course of each party (or comparable industry practices), not solely prior dealings between the parties. | Court: Agrees with circuits permitting first‑time transactions to qualify if ordinary for the debtor and transferee or comparable parties. |
| Standard of appellate review of bankruptcy summary judgment | Trustee argued issues of fact required different review. | SMC: summary judgment subject to de novo appellate review. | Court: Bankruptcy‑court summary judgments are reviewed de novo on appeal. |
Key Cases Cited
- Union Bank v. Wolas, 502 U.S. 151 (1991) (explains purpose of § 547 preference and ordinary‑course exception)
- In re Ahaza Sys., Inc., 482 F.3d 1118 (9th Cir. 2007) (first‑time transactions can qualify; compare debtor/creditor practices to similarly situated parties)
- Kleven v. Household Bank F.S.B., 334 F.3d 638 (7th Cir. 2003) (supports allowing ordinary‑course defense for new customers)
- Jobin v. McKay (In re M & L Bus. Mach. Co., Inc.), 84 F.3d 1330 (10th Cir. 1996) (cited re: prior circuit treatment of review standard; court clarifies it should not be followed regarding clear‑error review)
- Fid. Sav. & Inv. Co. v. New Hope Baptist, 880 F.2d 1172 (10th Cir. 1989) (bankruptcy‑court construction of Code reviewed de novo; cited on review standards)