Siegel ex rel. Circuit City Stores, Inc. v. Russellville Steel Co. (In re Circuit City Stores, Inc.)
479 B.R. 703
Bankr. E.D. Va.2012Background
- Alfred H. Siegel, as Trustee of Circuit City Stores, Inc. Liquidating Trust, sues Russellville Steel for avoidable transfers within 90 days before the petition date.
- Debtor filed Chapter 11 on Nov 10, 2008 and operated as debtor-in-possession; plan confirmed Sep 14, 2010 creating the Liquidating Trust.
- Defendant provided steel products to Debtor under a Net 30 payment agreement; Debtor paid 86 invoices over the entire relationship.
- Liquidity Event in Nov 2007 caused Debtor to delay vendor payments; pre-Liquidity payments averaged 33.49 days after invoice, post-Liquidity payments averaged 46.74 days.
- During the Preference Period (through Oct 27, 2008), Debtor paid four invoices totaling $124,261; three were paid 12–18 days later than prior practice, one was paid 189 days after invoice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Preference Payments are protected by ordinary course defense under 547(c)(2). | Siegel argues payments deviated from ordinary course after Liquidity Event. | Russellville asserts payments followed ordinary industry terms. | Not ordinary course; defense fails. |
| What benchmark defines ordinary course in this case. | Trustee uses onset of financial distress (Nov 2007) as baseline. | Lookback of 12 months should determine ordinary course. | Precedent favors Trustee's onset-of-distress baseline. |
| Should a twelve-month lookback be mandatory for ordinary course analysis? | N/A | Twelve-month lookback is appropriate (cites Lovett, Branch). | Not mandatory; sliding-scale approach preferred per Advo-System. |
| Applicable standard governing ordinary course terms post-BAPCPA. | Preinsolvency course governs ordinary course. | Look to ordinary business terms; industry conformity. | Sliding-scale, preinsolvency benchmark applicable; ordinary course not shown. |
Key Cases Cited
- Advo-System, Inc. v. Maxway Corp., 37 F.3d 1044 (4th Cir. 1994) (establishes sliding-scale test for ordinary business terms under § 547(c)(2))
- Fiber Lite Corp. v. Molded Acoustical Prods., Inc., 18 F.3d 217 (3d Cir. 1994) (pre-BAPCPA framework influencing Advo-System)
- Lovett v. St. Johnsbury Trucking, 931 F.2d 494 (8th Cir. 1991) (twelve-month lookback considered permissible in some contexts)
- Branch v. Ropes & Gray (In re Bank of New England Corp.), 161 B.R. 557 (Bankr. D. Mass. 1993) (recognized twelve-month lookback in certain fact patterns)
- Richardson v. Pana Limestone Quarry Co. (In re Leprechaun Trucking, Inc.), 356 B.R. 190 (Bankr. C.D. Ill. 2007) (not applied as a hard rule; noted radical change could preclude § 547(c)(2))