Auriga Polymers Inc. v. PMCM2, LLC, 20-14647

CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)
Writing for the CourtLAGOA, Circuit Judge
Citation40 F.4th 1273
Parties AURIGA POLYMERS INC., Plaintiff-Appellant, v. PMCM2, LLC, AS the Liquidating TRUSTEE FOR the BEAULIEU LIQUIDATING TRUST, Defendant-Appellee.
Docket Number20-14647
Decision Date17 July 2022

40 F.4th 1273

AURIGA POLYMERS INC., Plaintiff-Appellant,
PMCM2, LLC, AS the Liquidating TRUSTEE FOR the BEAULIEU LIQUIDATING TRUST, Defendant-Appellee.

No. 20-14647

United States Court of Appeals, Eleventh Circuit.

Filed: July 17, 2022

Ronald David Paul Bruckmann, David H. Conaway, Shumaker Loop & Kendrick, LLP, Charlotte, NC, for Plaintiff-Appellant.

J. Robert Williamson, Matthew W. Levin, Scroggins & Williamson, PC, Atlanta, GA, for Defendant-Appellee.

Before Wilson and Lagoa, Circuit Judges, and Martinez,* District Judge.

LAGOA, Circuit Judge:

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The Bankruptcy Code empowers a trustee to claw back "preferences," i.e., certain transfers made by a debtor to a creditor on the eve on bankruptcy. 11 U.S.C. § 547(b). But the creditor who gives new value to the debtor after receiving a preference may use that new value to offset its preference liability. Id . § 547(c)(4). This "new value" defense, however, is itself offset to the extent that the debtor later makes an "otherwise unavoidable transfer" to the creditor on account of the value received. Id . § 547(c)(4)(b).

This case presents an issue of first impression for this Court: whether post-petition transfers made under a 11 U.S.C. § 503(b)(9) request will reduce the creditor's new value defense. See id . § 547(c)(4). We hold that, for purposes of § 547(c)(4)(B), "otherwise unavoidable transfers" made after the debtor has filed for bankruptcy do not affect a creditor's new value defense. We thus affirm in part and reverse in part the bankruptcy court's order on appeal.


Beaulieu Group, LLC ("Beaulieu"), was one of the largest carpet manufacturers in North America and "engaged in the distribution of carpet and hard surface flooring products in both residential and commercial markets in the United States and many foreign countries." Beaulieu was a pioneer in the carpet industry; it had developed vertically integrated manufacturing and distribution operations, e.g., obtaining raw materials, manufacturing carpets, and selling and distributing those carpets. Beaulieu had eight manufacturing facilities in Georgia and one in Alabama, and had three distribution facilities in Georgia, California, and Illinois. The largest manufacturing and distribution facilities—and the company headquarters—were located in Dalton, Georgia. Before filing for bankruptcy, the company had about 2,500 employees.

The carpet industry is a $10 billion market annually in the United States, but consumer preference has shifted toward hard surface flooring products while increased competition in the carpet industry has pushed carpet prices down. Over the course of ten years, Beaulieu's annual revenue declined from $1 billion in 2007 to less than $600 million in 2016, while its market share fell from 7.7 percent to 4.4 percent.

In 2016, Beaulieu added new members to its board of directors and brought in new senior management to develop a business turnaround and transformation plan. But Beaulieu had insufficient borrowing power and liquidity to complete its turnaround efforts. On July 16, 2017, Beaulieu and its affiliates each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.

The bankruptcy court subsequently approved a plan of liquidation that involved transferring all of Beaulieu's assets to a liquidating trust. PMCM 2, LLC (the "Trustee"), is the liquidating trustee for the Beaulieu Liquidating Trust. The creditor here is Auriga Polymers Inc. ("Auriga"), which sold Beaulieu polyester resins and specialty polymers used in a range of products, including textiles, before the bankruptcy. We begin our background discussion by setting forth the general statutory framework as to bankruptcy under Chapter 11 before turning to the facts here.

A. Statutory Framework

All collection activities are automatically suspended when a Chapter 11 bankruptcy petition is filed, meaning creditors may not pursue any debts or claims that arose before the filing of the petition. See 11 U.S.C. § 362(a). This is called the

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"automatic stay." Id. The automatic stay provides breathing room for the debtor to negotiate with its creditors and craft a plan of reorganization or liquidation. See id . § 1123.

These plans categorize claims against the debtor in order of priority. Id. § 507. After certain domestic support obligations, administrative expenses are afforded the highest priority of unsecured claims, meaning they are paid out before other unsecured claims. Id . § 507(a). These administrative expenses are often paid in full, while most unsecured claims receive pennies on the dollar. See, e.g. , In re Furr's Supermarkets, Inc ., 485 B.R. 672, 692 (Bankr. D.N.M. 2012) ("But even if there were anything left to pay general unsecured creditors, it would be in the nature of pennies on the dollar.").

Filing for bankruptcy under Chapter 11 also automatically creates "the estate," which is used to pay out the debtor's obligations. 11 U.S.C. § 541(a). The estate consists of essentially all the debtor's property and rights to property. See id. In order to grow the estate to benefit all creditors, trustees have "avoiding" powers, which allow them to undo certain transfers of money or property made during a certain time period before the filing of the bankruptcy petition. See id. § 544. By avoiding a particular transfer, a trustee can essentially cancel the transaction and force the return or "disgorgement" of the payments or property. See generally id . §§ 544–48. These powers include § 547(b), which states:

[Generally,] the trustee may ... avoid any transfer of an interest of the debtor in property [ ] to or for the benefit of a creditor; [ ] for or on account of an antecedent debt ... made while the debtor was insolvent; [ ] made [ ] on or within 90 days before the date of the filing of the petition; ... and that enables such creditor to receive more than such creditor would receive [in a Chapter 7 liquidation].

This provision provides the general rule that a trustee can avoid preference payments — certain payments made "on or within 90 days before the date of the filing of the petition." Id. For transfers avoided under this provision, 11 U.S.C. § 550(a) empowers the trustee to "recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property."

Section 547(c) provides nine defenses to the § 547(b) avoiding power. Pertinent to this case, § 547(c)(4) states:

The trustee may not avoid under this section a transfer ... to or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of the debtor [that was both:] (A) not secured by an otherwise unavoidable security interest; and (B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor.

This means that a creditor who provides new value to the debtor after receiving a preferential transfer can use that new value to offset its preference liability. This is often called the "new value defense." See, e.g. , In re BFW Liquidation, LLC , 899 F.3d 1178, 1188 (11th Cir. 2018). The new value defense was enacted as part of the Bankruptcy Code in the Bankruptcy Reform Act of 1978. Pub. L. No. 95–598, 92 Stat. 2549, 2598–99; In re BFW Liquidation , 899 F.3d at 1190.

Congress created another avenue for creditors to recoup some of the value they provided to a debtor on the eve of bankruptcy in the 2005 amendments to the Bankruptcy Code. See Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, § 1227, 119 Stat. 23.

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Section 503(b)(9) of the Bankruptcy Code grants certain creditors administrative expense priority for "the value of any goods received by the debtor within 20 days before the date of commencement of a case under [Title 11] in which the goods have been sold to the debtor in the ordinary course of such debtor's business." In enacting § 503(b)(9), the Bankruptcy Code elevated a group of creditors who previously held general unsecured claims ahead of priority unsecured creditors and all other general unsecured creditors.

The issue presented by this case is one of first impression for this Court and unsettled in other Circuits: whether "otherwise unavoidable transfers" affect a creditor's § 547(c)(4) new value defense when those transfers are made post-petition — made to the creditor after the debtor files for bankruptcy. The post-petition transfers at issue are § 503(b)(9) administrative claims. Thus, the specific question is "whether a creditor may reduce its [preference] liability by new value provided to a debtor within the 20 days prior to the bankruptcy filing if the creditor also files a § 503(b)(9) administrative claim seeking payment for that new value." See In re Commissary Operations, Inc ., 421 B.R. 873, 875 (Bankr. M.D. Tenn. 2010).

B. Factual and Procedural Background

The facts here are largely undisputed.

In total, Auriga delivered to Beaulieu over $4.2 million in goods before Beaulieu filed for...

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