Davis v. R.A. Brooks Trucking, Co. (In re Quebecor World (USA), Inc.)

• Decision Date: 23 April 2013
• Docket Number: Adversary No. 10–02212 (SHL).,Bankruptcy No. 08–10152 (SHL).
• Parties: In re QUEBECOR WORLD (USA), INC., et al., Debtors. Eugene I. Davis, as Litigation Trustee for the Quebecor World Litigation Trust, Plaintiff, v. R.A. Brooks Trucking, Co., Inc., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

491 B.R. 379

In re QUEBECOR WORLD (USA), INC., et al., Debtors.Eugene I. Davis, as Litigation Trustee for the Quebecor World Litigation Trust, Plaintiff,

v.R.A. Brooks Trucking, Co., Inc., Defendant.

Bankruptcy No. 08–10152 (SHL).

Adversary No. 10–02212 (SHL).

United States Bankruptcy Court, S.D. New York.

April 23, 2013.

ASK Financial LLP, By: Joseph L. Steinfeld, Jr., Esq., John T. Siegler, Esq., Kara E. Casteel, Esq., St. Paul, MN, Edward E. Neiger, Esq., New York, NY, for Eugene I. Davis, as Litigation Trustee for the Quebecor World Litigation Trust.

Jones & Associates, By: Roland G. Jones, Esq., New York, NY, for R.A. Brooks Trucking, Inc.

MEMORANDUM OF DECISION

SEAN H. LANE, Bankruptcy Judge.

Before the Court is a motion for summary judgment filed by plaintiff Eugene I. Davis as Litigation Trustee for the Quebecor World Litigation Trust (the “Plaintiff” or “Trustee”) in the above captioned adversary proceeding. Plaintiff seeks to avoid and recover ten alleged preferential transfers totaling $117,370.05 made by Quebecor World (USA), Inc. (the “Debtor”)in the above-captioned Chapter 11 cases to R.A. Brooks Trucking Co., Inc. (“R.A. Brooks” or “Defendant”) during the 90 day period before the Debtor filed its Chapter 11 case plus prejudgment interest of $15,191.09. Defendant opposed the motion and filed a cross motion for summary judgment. For the reasons set forth below, the Court grants Plaintiff's motion for summary judgment in large part and denying Defendant's motion for summary judgment.

BACKGROUND

On January 21, 2008, the Debtor filed the underlying bankruptcy case under Chapter 11 of Title 11 of the United States Bankruptcy Code (the “Petition Date”). On May 18, 2009, the Debtor filed its Third Amended Joint Plan of Reorganization of Quebecor World (USA), Inc. and Certain Affiliated Debtors and Debtors–In–Possession (the “Plan”). On July 2, 2009, this Court entered the Findings of Fact, Conclusions of Law, and Order Confirming the Plan (the “Plan”).

Pursuant to the Plan, a litigation trust administered by Plaintiff was created to pursue certain claims as defined under the terms of Plan. On January 14, 2010, the Plaintiff filed an adversary proceeding to avoid ten preferential transfers totaling $117,370.05 made by the Debtor to R.A. Brooks within 90 days of the commencement of the Debtor's Chapter 11 case. Specifically, the Plaintiff's complaint seeks to avoid the transfers pursuant to 11 U.S.C. Sections 547, 548, 549, and 502, and to recover the property transferred pursuant to 11 U.S.C. Section 550. In a subsequently filed stipulated order, the Plaintiff agreed to drop its claims under Sections 548 or 549 of the Bankruptcy Code. See So Ordered Stipulation Dismissing Certain Claims (ECF. No. 53). As a result, the Plaintiff only seeks remedies pursuant to Sections 502, 547, and 550 of the Bankruptcy Code to avoid certain transfers made during the Preference Period.

There are no material facts in dispute. The Debtor is a corporation engaged in industrial and commercial printing with its principal place of business located at 150 E. 42nd Street, New York, N.Y. 10017. Affidavit of Charles Brooks ¶ 3.¹ The Defendant is a company engaged in the business of supplying transportation services to its customers with its principal place of business located at 5500 Highway 161, North Little Rock, AR 72117. Affidavit of Charles Brooks ¶ 4. The relevant facts regarding the parties' relationship are undisputed. The Debtor and Defendant began their business relationship in 2002 and it continued until the date of petition. Affidavit of Charles Brooks ¶ 5. There was no written contract between Defendant and the Debtor but the Defendant's invoices stated that payment was due within ten days of receipt. Affidavit of Charles Brooks ¶ 6. The Debtor made payments by check that always matched the amounts on the invoices. The Debtor sent Defendant a remittance stub with its checks that indicated to which invoices the check payments applied. Affidavit of Charles Brooks ¶ 8. The parties agree that during the 90 days on or before the Petition Date (the “Preference Period”) the Debtor made ten transfers to Defendant totaling $156,130.05, on account of an antecedent debt, from Debtor's corporate banking account. Davis Decl. ¶¶ 7–11. The parties also agree that the Defendant is an unsecured creditor that did not hold a perfected security interest in the assets of the Debtor with respect to the transfers, and that unsecured creditors will receive less than a 100% distribution under the Plan. See Davis Decl. ¶¶ 13–14. Prior to the bankruptcy filing, the Debtor owed $38,760 to the Defendant for services rendered to the Debtor in the 90 days prior to the filing. See Exhibit “F” to the Affidavit of Charles Brooks.

DISCUSSION

Summary judgment is appropriate “if 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 a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Fed.R.Civ.P. 56(a) (made applicable to the adversary proceeding by Fed. R. Bankr.P. 7056). The moving party bears the burden of demonstrating the absence of any genuine issue of material fact, and all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Ames Dep't Stores, Inc. v. Wertheim Schroder & Co., Inc., 161 B.R. 87, 89 (Bankr.S.D.N.Y.1993). Once the moving party meets this initial burden, the non-moving party must go beyond the pleadings and by its own evidence to demonstrate that there is a genuine issue of fact for trial. See Celotex, 477 U.S. at 323, 106 S.Ct. 2548. If the non-moving party fails to make such a showing, then the moving party is “entitled to a judgment as a matter of law.” Celotex, 477 U.S. at 322, 106 S.Ct. 2548;Fed.R.Civ.P. 56(e).

A. Stern v. Marshall

Because this Court is adjudicating a motion for summary judgment, it must consider whether it has the constitutional authority to issue a final decision consistent with Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 2609, 180 L.Ed.2d 475 (2011). In Stern, the Supreme Court held that a bankruptcy court “lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim.” Id. at 2620. The decision in Stern is understood in this district to mean that a bankruptcy court lacks final adjudicative authority over a core claim where all of the following three conditions are met: “1) the claim at issue did not fall within the public rights exception; 2) the claim would not necessarily be resolved in ruling on a creditor's proof of claim; and 3) the parties did not unanimously consent to final adjudication by a non-Article III tribunal. Weisfelner v. Blavatnik (In re Lyondell Chem. Co.), 467 B.R. 712, 719–720 (S.D.N.Y.2012) (internal citations and quotations omitted).

In this case, the Defendant has filed a proof of claim. See Davis Decl., Ex. F. The Plaintiff's claims would necessarily be resolved in ruling on the Defendant's proof of claim as a result of Section 502(d) of the Bankruptcy Code, which provides that “the court shall disallow any claim of any entity ... that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of this title, unless such entity or transferee has paid the amount, or turned over any such property, for which such entity or transferee is liable under section 522(i), 542, 543, 550, or 553 of this title.” 11 U.S.C. § 502(d). Accordingly, the Court has the constitutional authority to issue a final judgment in this action. See Katchen v. Landy, 382 U.S. 323, 330–31, 335, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966) (holding that bankruptcy courts have authority to decide preference actions where the defendant has filed a proof of claim); Langenkamp v. Culp, 498 U.S. 42, 45, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) (holding that a defendant in a preference action that has filed a proof of claim is not entitled to a jury trial).

B. Preferential Transfers and the Ordinary Course of Business Defense

To be recoverable as a preferential transfer, a payment must satisfy all of the requirements of 11 U.S.C. Section 547(b). The Trustee bears the burden of proving the transfers were:

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such Transfers were made;

(3) made while the debtor was insolvent;

(4) on or within ninety (90) days before the date of filing of the petition; and

(5) enable the benefited creditor to receive more than such creditor would have received had the case been a chapter 7 liquidation and the creditor not received the transfer.

11 U.S.C. § 547(b).

Here, it is undisputed that the Debtor's payments to Defendant meet the criteria of Section 547(b), and therefore are preferences as defined by the Code. Defendant argues that, although it received preferential payments, those payments fall under the so called “ordinary course of business” exception in 11 U.S.C. Section 547(c)(2) that makes them unrecoverable by the Trustee. Section 547(c)(2) of the Bankruptcy Code, as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), provides that:

(c) The trustee may not avoid under this section a transfer—

(2) to the extent that such transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee, and such transfer was—

(A) made in the ordinary course of business or financial affairs of the debtor and the transferee; or

(B) made according to ordinary business terms.

11...