Healthco Intern., Inc., In re

• Decision Date: 05 November 1997
• Docket Number: No. 97-9005,97-9005
• Citation: 132 F.3d 104
• Parties: , Bankr. L. Rep. P 77,589 In re HEALTHCO INTERNATIONAL, INC., Debtor. William A. BRANDT, Jr., Trustee, Plaintiff, Appellee, v. REPCO PRINTERS & LITHOGRAPHICS, INC., Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 104

132 F.3d 104

31 Bankr.Ct.Dec. 1156, Bankr. L. Rep. P 77,589

In re HEALTHCO INTERNATIONAL, INC., Debtor.

William A. BRANDT, Jr., Trustee, Plaintiff, Appellee, v. REPCO PRINTERS & LITHOGRAPHICS, INC., Defendant, Appellant.

No. 97-9005.

United States Court of Appeals, First Circuit.

Heard Nov. 5, 1997.

Decided Dec. 22, 1997.

Duane L. Coleman, with whom Larry E. Parres, St. Louis, MO, and Lewis, Rice & Fingersh, L.C. were on brief, for appellant.

Daniel C. Cohn, with whom David B. Madoff and Cohn & Kelakos, LLP, Boston, MA, were on brief, for appellee.

Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and STAHL, Circuit Judge.

SELYA, Circuit Judge.

Repco Printers & Lithographics, Inc. (Repco) asserts a right to retain a payment made to it by Healthco International, Inc. (Healthco) shortly before Healthco commenced insolvency proceedings. The bankruptcy court agreed with Repco but the Bankruptcy Appellate Panel of the First Circuit (BAP) did not. Repco appeals. After ironing out a procedural wrinkle, we uphold the BAP's core determination that the disputed payment was not a transfer "in the ordinary course of business" within the meaning of 11 U.S.C. § 547(c)(2)(1994). Nevertheless, because the BAP misgauged the posture of the case, we vacate its judgment and remand for further proceedings.

I. BACKGROUND

We draw our account from the stipulated record, which is comprised of twenty-five uncontested statements of fact and thirteen exhibits (including various depositions and affidavits).

In better days, Healthco functioned as a major distributor of dental equipment and supplies. In August 1992, James Mills, chief executive officer of Healthco's parent company, contacted Fred Zaegel, Repco's owner, to explore a business relationship. Mills, who knew Zaegel both professionally and socially, proposed that Repco (headquartered in St. Louis) print Healthco's product catalog. Zaegel agreed. From that time forward, Repco handled virtually all of the diverse printing needs of Boston-based Healthco.

During this interlude, Repco extended credit to Healthco in accordance with standard printing industry practice: Repco would bill contemporaneously for each service, and would anticipate receiving payment in sixty days, on average, notwithstanding contrary credit terms expressed in its invoices. ¹ For its part, Healthco customarily would accumulate invoices and then pay some (but not all) of the accumulation by mailing Repco a lump-sum company check. Over the period from the fall of 1992 until early April of the following year, Healthco paid one hundred fourteen Repco invoices with sixteen different checks, totalling around $400,000.

Whenever Repco's cash flow ebbed, it was Zaegel's practice to contact customers and solicit payment of outstanding invoices that were at least sixty days old. To this end, Zaegel called Healthco's treasurer, Arthur Souza, on four occasions. Each time, Souza arranged for a check to be cut shortly thereafter.

Despite these periodic payments, some of Repco's unrequited invoices were almost two hundred days old by late March. Zaegel tried to prompt Souza once again, but experienced difficulty in reaching him. Zaegel then called Healthco's chief financial officer, James Moyle. Zaegel, who never before had made a dunning call to Moyle, politely informed him that Healthco was holding numerous Repco invoices that were substantially overdue. ² At the conclusion of this five-minute conversation, Moyle stated that he would investigate the matter.

Moyle vouchsafed in his affidavit that he considered Repco to be "Healthco's most pivotal vendor in the company's effort to overcome its financial problems," presumably because Repco was about to undertake the printing and distribution of Healthco's quarterly catalog. He asked Souza how much Healthco owed Repco and what was "the fastest way" to pay the debt. Souza replied that Healthco had in hand $235,558.64 in outstanding Repco invoices and that wire transfer would be the quickest payment method. Moyle directed Souza to wire the full amount. Repco received the funds on April 13, 1993. That payment satisfied in one fell swoop sixty-eight invoices ranging from brand new to two hundred days old.

Healthco sought the protection of the bankruptcy court on June 9, 1993. The firm's ledgers disclosed that it had made only two other wire transfers in satisfaction of antecedent debts during the previous ninety days. The record confirms that Healthco's trustee in bankruptcy, William A. Brandt, Jr., successfully challenged both of the other payments as voidable preferences.

II. PROCEDURAL HISTORY

In due season, the trustee brought this adversary proceeding seeking to recover the $235,558.64 payment. Repco defended on three grounds: (1) that Healthco was solvent at the time of the transfer, (2) that the transfer was "made in the ordinary course of business" within the meaning of 11 U.S.C. § 547(c)(2), and (3) that in all events Repco's services provided "subsequent new value" within the meaning of 11 U.S.C. § 547(c)(4). The parties stipulated that Repco had conferred new value in the amount of $31,977.38, reducing the trustee's claim against Repco to $203,581.26 and removing the "new value" issue from the case. The bankruptcy court then bifurcated the two remaining issues, reserving the solvency question for later adjudication and proceeding to tackle the applicability vel non of Repco's "ordinary course of business" defense.

The parties cross-moved for summary judgment on this issue. After the bankruptcy court denied both motions, the parties submitted the issue on the stipulated record described above. On July 17, 1996, the bankruptcy court dismissed the trustee's complaint. The court's two-paragraph rescript reads in its entirety:

A trial was scheduled in this matter for May 1, 1996. However, the parties filed a motion to submit the matter on stipulated facts and exhibits, which was granted on April 20, 1996.

In consideration of said facts and exhibits, the complaint is dismissed by virtue of the ordinary course of business defense. A separate order will issue.

The trustee filed a timely notice of appeal and the parties opted to have the appeal heard by the BAP (in lieu of the district court). ³ For reasons that are not readily apparent, the parties mutually invited de novo review of the bankruptcy court's decision. The BAP accepted the invitation, determined that the wire transfer had not been made in the ordinary course of business, and ruled that the payment was "preferential, and subject to recovery by the Trustee under Section 547." Brandt v. Repco Printers & Lithographics, Inc. (In re Healthco ), No. MW 96-026, slip op. at 12 (1st Cir. BAP 1997). This appeal ensued.

III. STANDARD OF REVIEW

Bankruptcy cases differ from most other federal cases in that the court of appeals does not afford first-instance appellate review. Rather, Congress has provided for intermediate review, conferring on district courts and federal bankruptcy appellate panels the authority to hear appeals from bankruptcy court decisions, but preserving to the parties a right of further review in the courts of appeals. See 28 U.S.C. § 158. Whether such an appeal comes to us by way of the district court or the BAP, our regimen is the same: we focus on the bankruptcy court's decision, scrutinize that court's findings of fact for clear error, and afford de novo review to its conclusions of law. See Martin v. Bajgar (In re Bajgar ), 104 F.3d 495, 497 (1st Cir.1997); Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 30 (1st Cir.1994). Since this is exactly the same regimen that the intermediate appellate tribunal must use, we exhibit no particular deference to the conclusions of that tribunal (be it the district court or the BAP). See Palmacci v. Umpierrez, 121 F.3d 781, 785 (1st Cir.1997).

We now move from the general to the specific. The crucial issue in this adversary proceeding revolves around Repco's access to the "ordinary course of business" defense under 11 U.S.C. § 547(c)(2). A bankruptcy court's construction of this statute presents a question of law and thus engenders plenary review. See Fidelity Sav. & Inv. Co. v. New Hope Baptist, 880 F.2d 1172, 1174 (10th Cir.1989). A bankruptcy court's assessment in connection with whether the statutory defense appertains in a given case is a horse of different hue; the findings which collectively comprise such an assessment are factbound and thus engender clear-error review. See Yurika Foods Corp. v. United Parcel Serv. (In re Yurika Foods Corp.), 888 F.2d 42, 45 (6th Cir.1989). Here, the court's rendition of the statute is unexceptional and the only justiciable issue relates to whether the challenged transfer, as a factual matter, comes within the statutory sweep. Hence, the bankruptcy court's decision normally would be reviewable for clear error. This means, of course, that a reviewing court "ought not to upset findings of fact or conclusions drawn therefrom unless, on the whole of the record, [the appellate judges] form a strong, unyielding belief that a mistake has been made." Cumpiano v. Banco Santander P.R., 902 F.2d 148, 152 (1st Cir.1990).

This familiar standard is not diluted merely because parties proceed on a stipulated record. We long have held that a bankruptcy court's factual findings are entitled to the deference inherent in clear-error review even when they do not implicate live testimony, but, rather, evolve entirely from a paper record that is equally available to the reviewing court. See Boroff v. Tully (In re Tully ), 818 F.2d 106, 109 (1st Cir.1987) (citing Anderson v. City of Bessemer City, 470 U.S. 564, 574-75, 105 S.Ct. 1504, 1511-12, 84 L.Ed.2d 518 (1985)); see also RCI Northeast Servs. Div. v. Boston Edison Co., 822 F.2d 199, 202 (1st Cir.1987) (explaining that "findings of fact do not forfeit 'clearly erroneous' deference merely because they stem from a paper record"). ⁴ The soundness of this...