Kaye v. Blue Bell Creameries, Inc. (In Re BFW Liquidation, LLC)
899 F.3d 1178
11th Cir.2018Background
- Bruno’s Supermarkets (Debtor) filed Chapter 11 on February 5, 2009; William Kaye was appointed liquidating Trustee.
- During the 90 days before the petition, the Debtor paid Blue Bell $563,869.37 in 13 payments; Blue Bell also delivered $435,705.65 in goods during that period. Many deliveries and payments overlapped.
- The Trustee sued under 11 U.S.C. § 547(b) to avoid (claw back) the preference payments; parties stipulated the § 547(b) elements were met.
- Blue Bell asserted § 547(c)(4) (subsequent-new-value) and § 547(c)(2) (ordinary-course) defenses; the bankruptcy court rejected the ordinary-course defense and limited § 547(c)(4) relief to new value that "remained unpaid" as of the petition date, relying on In re Jet Fla. Sys., Inc.
- The bankruptcy court held Blue Bell liable for $438,496.47; Blue Bell appealed directly to the Eleventh Circuit.
- The Eleventh Circuit concluded Jet Florida’s statement that new value must remain unpaid was dictum, held § 547(c)(4) does not require new value to remain unpaid, rejected the Trustee’s alternative reading of § 547(c)(4)(B), reversed and remanded for recalculation.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Blue Bell) | Held |
|---|---|---|---|
| Whether the Jet Florida statement that § 547(c)(4) requires new value to "remain unpaid" is binding precedent | Jet Florida’s language is precedent and controls; new value must remain unpaid | Jet Florida’s statement was dictum and not binding; statute does not require unpaid new value | Dictum — Jet Florida’s statement was dictum; not binding |
| Whether § 547(c)(4) requires that new value remain unpaid on the petition date | Statutory reading or policy should require unpaid new value to prevent abuse and preserve equality | § 547(c)(4)’s plain text omits a ‘‘remain unpaid’’ requirement; only bars offsets where debtor made an "otherwise unavoidable" transfer for the new value | Reversed — § 547(c)(4) does not require new value to remain unpaid |
| Whether policy considerations favor a ‘‘remain unpaid’’ rule (creditor incentives vs. parity) | Policy favors restricting the defense to unpaid new value to protect estate and equality among creditors | Allowing paid new value (if paying transfer is avoidable) encourages continued short-term credit and benefits the estate | Policy supports Blue Bell’s reading; encouraging continued credit and avoiding perverse incentives |
| Whether transfers avoidable under § 547(b) (and on no other ground) qualify as "otherwise unavoidable" under § 547(c)(4)(B) | "Otherwise" requires avoidability from some other Code provision (e.g., § 548); so § 547(b)-only avoidable transfers count as "otherwise unavoidable," defeating the defense | "Otherwise unavoidable" means unavoidable for reasons other than § 547(c)(4); a payment avoidable under § 547(b) is not an "otherwise unavoidable" transfer | Rejected Trustee’s reading — § 547(b)-avoidable payments are not "otherwise unavoidable" for § 547(c)(4)(B) purposes |
Key Cases Cited
- Charisma Inv. Co. v. Air Fla. Sys., Inc., 841 F.2d 1082 (11th Cir. 1988) (discussed; Eleventh Circuit held the “remain unpaid” language was dictum in that opinion)
- Hall v. Chrysler Credit Corp. (In re JKJ Chevrolet, Inc.), 412 F.3d 545 (4th Cir. 2005) (held § 547(c)(4) does not require new value to remain unpaid)
- Jones Truck Lines, Inc. v. Cent. States Pension Fund (In re Jones Truck Lines, Inc.), 130 F.3d 323 (8th Cir. 1997) (interpreting § 547(c)(4)(B) to permit new-value offsets unless payment was otherwise unavoidable)
- Mosier v. Ever–Fresh Food Co. (In re IRFM, Inc.), 52 F.3d 228 (9th Cir. 1995) (permitted new-value defense unless repayment was an otherwise unavoidable transfer)
- Laker v. Vallette (In re Toyota of Jefferson, Inc.), 14 F.3d 1088 (5th Cir. 1994) (creditor entitled to subsequent-new-value defense though debtor later paid for that new value with avoidable transfers)
- In re Prescott, 805 F.2d 719 (7th Cir. 1986) (held § 547(c)(4) requires new value to remain unpaid; contrasted by Eleventh Circuit)
- N.Y.C. Shoes, Inc. v. Bentley Int’l, Inc. (In re N.Y.C. Shoes, Inc.), 880 F.2d 679 (3d Cir. 1989) (earlier panel statement that § 547(c)(4) requires unpaid new value was not dispositive and not treated as controlling here)