514 B.R. 426
Bankr. D. Del.2014Background
- Debtors filed Chapter 11 on July 2, 2009; cases converted to Chapter 7 effective July 22, 2010 with Trustee appointed.
- Defendant JNJ Logistics LLC provided freight transportation for the Debtors prepetition.
- Trustee filed an adversary action in July 2011 seeking avoidance of $548,035.66 in preferential transfers.
- Parties agree on a subsequent new value (SNV) defense totaling $49,366.28 (Unpaid SNV); Paid SNV equals $222,045.11.
- Court adopts the subsequent advance approach, allowing both paid and unpaid SNV to reduce preference exposure, resulting in $271,411.39 reduction in exposure; motion for partial summary judgment granted for Defendant.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SNV defense can reduce preference exposure using paid and unpaid SNV | Trustee argues SNV defense should rely on unpaid SNV only | JNJ urges the subsequent advance approach including both paid and unpaid SNV | Adopted subsequent advance approach; both paid and unpaid SNV reduce exposure. |
| Whether transfers are avoidable under §547(b) in light of SNV | Trustee contends transfers are avoidable unless offset by SNV | SNV offsets apply to limit/neutralize liability | Transfers found to be otherwise avoidable; SNV offsets apply under the broader net result. |
| What is the governing interpretation of §547(c)(4)(B) in this case | Trustee argues remains unpaid approach governs offset | Court should follow subsequent advance approach | Court adopts subsequent advance interpretation in this circuit. |
| Is there a jurisdictional split or controlling authority on SNV treatment | Third Circuit hasn’t weighed in on remains unpaid vs subsequent advances | Other circuits support the subsequent advance reading | Court aligns with the line adopting subsequent advance approach. |
Key Cases Cited
- New York City Shoes, Inc. v. Bentley Int'l, Inc., 880 F.2d 679 (3d Cir. 1989) (three-part test for §547(c)(4); unpaid value not required for offset in certain contexts)
- In re Pillowtex Corp., 416 B.R. 123 (Bankr. D. Del. 2009) (adopts subsequent advance defense; net result approach)
- In re Friedman’s Inc., 738 F.3d 547 (3d Cir. 2013) (clarifies the third prong and unpaid transfer considerations; supports broader SNV offset logic)
- In re Sierra Concrete Design, Inc., 463 B.R. 301 (Bankr. D. Del. 2011) (describes subsequent advance approach and net result method)
- In re Check Reporting Servs., Inc., 140 B.R. 425 (Bankr. W.D. Mich. 1992) (analyze 547(c)(4) and legislative history; supports concurrent offset of new value)