521 B.R. 292
Bankr. D. Iowa2014Background
- Debtor Agriprocessors, Inc. operated kosher meatpacking; Chapter 11 filed 2008, later converted to Chapter 7.
- Trustee Sarachek seeks to recover $5,364,090.33 in transfers from Debtor to Crown Heights House of Glatt, Inc. as fraudulent or preferential.
- Defendant contends payments were loans repaid, with no fraud; asserts contemporaneous value, ordinary course, and subsequent new value defenses.
- Window-check mechanism gave Debtor control over Defendant’s funds, funding Debtor and enabling third-party loans.
- Court finds substantial portion of payments were constructively fraudulent transfers; trustee win on insider preferential transfers and defenses, with specific amounts identified.
- Key discovery issues include timing, accounting, and whether certain payments predated the loan arrangement or benefitted third parties.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether two-year transfers were constructively fraudulent under § 548(a)(1)(B). | Trustee argues lack of reasonably equivalent value invalidates transfers. | Defendant asserts loans and repayment provided value; argues totality of transfers should be considered. | Yes, as to substantial transfers; some payments lacked reasonably equivalent value. |
| Whether payments before loans began or to third parties lacked value. | Trustee contends pre-loan and third-party payments were not value. | Defendant claims some pre-loan and third-party payments had value as part of loans. | Pre-loan payments and Best Value loans not value; overpayments/findings treated as fraudulent. |
| Whether defendant is an insider for § 547 and the impact on the 90-day vs 1-year window. | Trustee asserts insider status; argues one-year period applies. | Defendant disputes insider status. | Defendant is both statutory and non-statutory insider; 1-year period applies. |
| Whether contemporaneous exchange for new value, ordinary course, or new value defenses apply to avoidance as to § 547(c). | Trustee argues defenses apply to prevent avoidance. | Defendant asserts all three defenses apply. | Contemporaneous exchange and ordinary course defenses do not apply; subsequent new value defense partially applies. |
| Whether subsequent new value replenishes the estate and offsets preferences under § 547(c)(4). | Trustee contends new value does not replenish estate; offsets should be limited. | Defendant argues new value replenishes estate and offsets preferences. | Garland rule applied; substantial portions offset; some wires excluded; overall offset approved. |
Key Cases Cited
- Kroh Bros. Dev. Co. v. Continental Constr. Eng’rs, 930 F.2d 648 (8th Cir. 1991) (defines 'subsequent new value' and replenishment concept under § 547(c)(4))
- Jones Truck Lines, Inc. v. Full Serv. Leasing Corp., 83 F.3d 253 (8th Cir. 1996) (reiterates replenishment standard and Garland rule context)
- In re LGI Energy Solutions, Inc., 746 F.3d 350 (8th Cir. 2014) (reiterates replenishment focus under § 547(c)(4))
- Balaber-Strauss v. Sixty-Five Brokers (In re Churchill Mortgage Inv. Corp.), 256 B.R. 664 (S.D.N.Y. 2000) (focuses the reasonably equivalent value inquiry on the specific transaction)
- In re Garland, 19 B.R. 920 (Bankr. E.D. Mo. 1982) (Garland rule for applying subsequent new value)