Opinion
Case No. 01 B 24742, Adv. No. 03 A 00273.
November 15, 2007
MEMORANDUM OPINION
This matter comes before the court on the motion filed by plaintiff Andrew J. Maxwell, as Trustee of the estates of marchFirst, et. al. ("Trustee") for summary judgment on his complaint against defendant Amtex Systems, Inc. ("Amtex"). The complaint alleges that marchFirst, Inc. and its subsidiaries and affiliates (collectively, "Debtor") made preferential transfers to Amtex in the amount of $30,560 as such transfers are defined under § 547(b) of the Bankruptcy Code, 11 U.S.C. §§ 101, et seq.
The court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334 and Fed.R.Bank.P. 7001 et seq. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2), (A) (F) and (O) in which this court is empowered to enter final judgment. Venue is proper in this District pursuant to 28 U.S.C. § 1409(a).
Background
The following facts arc uncontested. On April 12, 2001 ("Petition Date"), the Debtor commenced its bankruptcy cases in the United States Bankruptcy Court for the District of Delaware ("Delaware Court") by voluntarily filing petitions for relief under Chapter 11 of the Bankruptcy Code. The Debtor moved to convert its cases to cases under Chapter 7 of the Bankruptcy Code and on April 26, 2001, the cases were converted. By order dated July 10, 2001, the Delaware Court transferred the cases to the United States Bankruptcy Court for the Northern District of Illinois. On July 16, 2001, the Trustee was appointed to serve as successor Chapter 7 trustee.
Amtex is a New Jersey corporation engaged in the business of providing end-to-end software solutions for businesses with its principal place of business located at 50 Broad Street, New York, New York. During the 90 days preceding the Petition Date, the Debtor made four transfers to Amtex, totaling $30,560 ("Transfers"). The Transfers were made via Debtor check nos. 163300, 163763, 164447 and 164748. Amtex admits receiving all four Transfers. The Transfers were made to or for the benefit of Amtex. The Transfers were made to pay eight invoices issued by Amtex to the Debtor between October 2000 and November 2000. The Transfers were made for or on account of antecedent debts.
This is where the parties part ways. The Trustee alleges that the Transfers were made between 99 and 113 days after being invoiced and that payments were due 30 days after the Debtor's receipt of each invoice pursuant to an agreement between the parties dated October 5, 2000. Amtex contends that payments were made at least 94 days after invoice but that the October 5, 2000 agreement provides that payments are to be made after 30 days after the date of invoice and that the payments were therefore timely.
Amtex also disagrees with the Trustee's assertion that because the Debtor is presumed to have been insolvent at the time of the Transfers, holders of non-priority general unsecured claims against the Debtor at the time of the Transfers would not have received full payment on account of their claims had the Debtor been a debtor in Chapter 7 at the time. Amtex objects to the Trustee's affidavit on this issue as being "self-serving" and deficient because it does not provide specific financial information about the estate.
Finally, Amtex contends that it is not necessary for it to come forward at this time with its proof with respect to its ordinary course of business defense.
Discussion
Summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c), applicable to adversary proceedings by Fed.R.Bankr.P. 7056; Celotex v. Catrctt, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552 (1986); Wade v. Lerner New York, Inc., 243 F.3d 319, 321 (7th Cir. 2001). A court must view the record in the light most favorable to non-movant, drawing all reasonable inferences in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2510 (1986);Wade v. Lerner New York, Inc., 243 F.3d at 321.
Fed.R.Civ.P. 56(e), also provides that "[w]hen a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere . . . denials of the adverse party's pleading, but the adverse party's response . . . must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party."
Section 547(b) of the Bankruptcy Code, which governs avoidable preferential transfers, requires that the Trustee demonstrate five elements to avoid a transfer: (1) the transfer was to a creditor; (2) for or on account of an antecedent debt owed by the debtor prior to the transfer; (3) made while the debtor was insolvent; (4) on or within 90 days before the Petition Date, and (5) that enables the creditor to receive more than it would receive if the case had already been a case under Chapter 7, the transfer had not been made and the creditor received what it would have received under the Bankruptcy Code. Pursuant to § 547(g) of the Bankruptcy Code, the Trustee has the burden of proving the avoidability of a transfer by a preponderance of the evidence. See Field v. Lebanon Citizens National Bank (In re Knee), 254 B.R. 710, 712 (Bankr. S.D. Ohio 2000).
Amtex Received More Than It Would Have Under the Bankruptcy Code
The Trustee's proof that Amtex received more from the transfer than it would have received pursuant to Chapter 7 of the Bankruptcy Code consists of an affidavit of the Trustee, which states in part as follows:
Based on my personal knowledge of the administrative, priority and unsecured claims on file in the Debtor's bankruptcy case as of the date of this affidavit, and based on my knowledge of the dollar value of the assets of the estate that have been administered to date and that remain to be administered, I do not anticipate or reasonably expect to be able to make a 100% distribution to creditors having filed pre-petition general unsecured claims in this case.
Trustee's affidavit, para. 6.
"The plaintiff in a preference action need not actually reconstruct a hypothetical Chapter 7 liquidation, with the precision of a forensic accountant, but may rely on an affidavit of one of the debtor's financial officers, the debtor's schedules or prior findings that the estate was administratively insolvent to establish that the distribution to non-priority unsecured creditors would have received less than 100% of their claims in a Chapter 7 liquidation. [Citations omitted.]" In re Flooring America, Inc., 302 B.R. 394 (Bankr. N.D. Ga. 2003). See In re Knee, 254 B.R. 710, 713 (Bankr. S.D. Ohio 2000) (where the court was convinced that the creditor received more than it would have in a Chapter 7 liquidation based on the Trustee's most recent interim report).
In this particular case, the affidavit of the Trustee is sufficient. When Mr. Maxwell was appointed in this case, no officers or directors remained to participate in its administration. Each had left the Debtor and its creditors high and dry and the books and records were in abominably poor shape. The Trustee spent months working with an accounting firm reconstructing the books and records in order to file schedules. Because of the size and complexity of the estate, the Trustee has appeared in this court, in person, or by counsel, on a weekly basis for more than six years. The Trustee has repeatedly demonstrated to this Court that he has a depth and breadth of knowledge of the financial situation of this Debtor more than adequate to provide an educated judgment about the final distribution.
Amtex argues that it is not privy to the assets being held by the Trustee for distribution to creditors and is not privy to the remaining assets to be administered by the Trustee. This is simply not true. Counsel further argues that the affidavit is deficient because it does not disclose total dollars being held by the Trustee and the total dollars of claims to be paid. The Trustee files monthly operating reports in the bankruptcy cases, which disclose the total amount of funds being held by the estate, the United States Trustee files the Trustee's annual report showing assets by category as well as receipts and disbursements and all proofs of claim against the estate are of public record. Amtex was free to examine the Debtors' public records and dispute the Trustee's affidavit if it so chose.
Accordingly, the Trustee has demonstrated, by a preponderance of the evidence the five elements of a preferential transfer: (1) the transfers were made to Amtex, a creditor; (2) on account of invoiced debts owed by the Debtor; (3) made while the debtor was presumptively insolvent; (4) within 90 days before the Petition Date, and (5) that enabled Amtex to receive more than it would have received under the Bankruptcy Code.
Ordinary Course of Business
Amtex raises the ordinary course of business defense. 11 U.S.C. § 547(c)(2). The defendant bears the burden of proving this defense by a preponderance of the evidence. Cassirer v. Herskowitz (In re Schick), 234 B.R. 337 (S.D.N.Y. 1999). "In order for a creditor to prevail using the ordinary course of business exception to 547(b), the creditor must show that the debt had been incurred in the ordinary course of business of both the debtor and the creditor; that the payment too, had been made and received in the ordinary course of their businesses; that the payment was made according to ordinary business terms. Matter of Tolona Pizza Products Corp., 3 F.3d 1029, 1031 (7th Cir. 1993).
The court notes that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect after this case was filed and is therefore inapplicable.
In order to determine whether the payments were made and received in the ordinary course of these parties' business, "the court must make a factual inquiry into the prior dealings between the parties." Cassirer, 234 B.R. at 348. See also Lovett v. St. Johnsbury Trucking, 931 F.2d 494, 497 (8th Cir. 1991) and In re Fulghum Construction Corp., 872 F.2d 739, 743 (6th Cir. 1989) ("the court must engage in a peculiarly factual analysis"). "[T]he cornerstone of this element of a preference defense is that the creditor need demonstrate some consistency with other business transactions between the debtor and the creditor." Lovett, 931 F.2d at 497, (citing In re Magic Circle Energy Corp., 64 B.R. 269, 273 (Bankr.W.D.Okla. 1986)). "The creditor must establish a `baseline of dealings' to enable the court to compare the payment practices during the preference period with the prior course of dealing."Cassirer, 234 B.R. at 348.
Ordinary business terms refers to a range of payment terms encompassing the practices of firms similar to that creditor.Tolona Pizza, 3 F.3d at 1033. It is therefore necessary for a creditor to present some evidence establishing the range of acceptable practices within the industry. In re Midway Airlines, 1995 WL 331053 (N.D.Ill. 1995) (unpublished opinion)." Superior Toy Mfg. Co., Inc., 183 B.R. 826, 836 (N.D. Ill. 1995). The creditor against whom recovery is sought has the burden of proving the nonavoidability of a transfer under § 547(c). 11 U.S.C. § 547(g).
In In re Gulf City Seafoods, Inc., 296 F.3d 363 (5th Cir, 2002), the court laid out a standard for the sufficiency of evidence on this issue. "In our view, for an industry standard to be useful as a rough benchmark, the creditor should provide evidence of credit arrangements of other debtors and creditors in a similar market, preferably both geographic and product." Id. at 369. In Tolona Pizza, the testimony of an insider of the creditor was the evidence that was found to be sufficient to show what was ordinary course of business in the relevant industry. 3 F.3d at 1033. In In re Apex Automotive Warehouse, 245 B.R. 543 (Bankr. N.D. Ill. 2000), the court opined that a creditor "must present evidence of the actual practices of its competitors." Id. at 550. In Apex, the court accepted as sufficient one affidavit of the credit manager of the creditor's competitor containing her general perceptions of industry practices and a general overview of her own company.
The creditor here has failed to prove the nonavoidability of the Transfer under § 547(c)(2). Amtex' evidence that its payments were made in the ordinary course of its business with the Debtor consists of an agreement made between the parties. The only copy of the agreement provided to the court is an illegible exhibit to the Trustee's motion. This is not sufficient to prove anything and does not sustain Amtex' burden of proof on this issue.
Amtex does not offer any proof at all of the course of business in the industry, contending that it will make its showing at trial. Amtex states in its memorandum of law that "[i]t is not appropriate for the Trustee to simply say that because we have not given them any documentation or evidentiary support for our defense prior to the trial, then we are somehow forbidden from producing such evidence at a trial and the Trustee should prevail as a matter of law." In fact, the Trustee is correct and Amtex misstates the law.
A party resisting summary judgment cannot expect to rely on the bare assertions or mere cataloguing of affirmative defenses. Celotex, 477 U.S. at 323-24, 106 S.Ct. at 2552-53; Gans v. Mundy, 762 F.2d 338, 340 (3d Cir.), cert. denied, 474 U.S. 1010, 106 S.Ct. 537, 88 L.Ed.2d 467 (1985). The requirement of pointing to specific facts to defeat a summary judgment motion is especially strong when the nonmoving party would bear the burden of proof at trial, as these defendants would on the affirmative defenses they plead. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553; Security Pacific Mortgage Real Estate Services, Inc. v. Canadian Land. 690 F.Supp. 1214, 1219 (S.D.N.Y. 1988), aff'd, 891 F.2d 447 (2d Cir. 1989). Summary judgment will be entered "against a party who failed to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322, 106 S.Ct. at 2552.
Harper v. Delaware Valley Broadcasters, Inc., 743 F. Supp. 1076, 1090 (D. Del. 1990) (Emphasis supplied). See also, Conoco. Inc. v. J.M. Huber Corp., 148 F. Supp.2d 1157 (D. Kan. 2001), aff'd, 289 F.3d 819 (Fed. Cir. 2002) ("A party opposing summary judgment `cannot rely on ignorance of facts, on speculation, or on suspicion, and may not escape summary judgment in the mere hope that something will turn up at trial.' Conaway v. Smith, 853 F.2d 789, 793 (10th Cir. 1988).").
Amtex failed to set forth specific facts to support its affirmative defense that the Transfers were made in the ordinary course of business. The law requires that it do so in order to defeat the Trustee's motion for summary judgment, where, as here, the Trustee has met its burden of proof on its cause of action. Therefore, Amtex failed to demonstrate that there is a genuine issue for trial and the court must grant the Trustee's motion for summary judgment.
Conclusion
For the foregoing reasons, the Trustee's motion will be granted by separate order.