Faulkner v. Broadway Festivals, Inc. (In re Reagor-Dykes Motors, LP)
| Docket Number | 18-50214-RLJ-11,Adversary 20-05031 |
| Decision Date | 11 January 2022 |
| Parties | In re: REAGOR-DYKES MOTORS, LP, [1] Debtors. v. Broadway Festivals, Inc., Defendant. DENNIS FAULKNER, as Trustee of the Creditors Trust, Plaintiff, |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
Plaintiff Dennis Faulkner, Trustee of the Reagor-Dykes Auto Group Creditors Liquidating Trust ("Trustee"), moves for summary judgment on his cause against Broadway Festivals Inc. ("Broadway") for avoidance and recovery of a preferential transfer under §§ 547 and 550 of the Bankruptcy Code.[2] Defendant Broadway Festivals, Inc. opposes the motion, asserting the defenses that the "transfer" was made as part of a contemporaneous exchange under § 547(c)(1) or made in the ordinary course under § 547(c)(2).
The Court has jurisdiction of this matter under 28 U.S.C. § 1334(b); this dispute is a core proceeding under 28 U.S.C § 157(b)(2)(F).
After careful consideration of the pleadings, the summary judgment evidence, and arguments of the parties, the Court finds that the transaction here satisfies the ordinary-course exception to a preference under § 547(c)(2)(A) and denies the motion.
Broadway a 501(c)(3) charitable organization, annually hosts the "Fourth on Broadway" Independence Day fireworks show and celebration in Lubbock, Texas. Each year, Broadway solicits financial support from local businesses and community organizations to cover the costs of the celebration and offers promotional benefits in exchange. Reagor-Dykes Imports, LP d/b/a Reagor-Dykes Mitsubishi ("Reagor-Dykes"), one of the debtors in these jointly administered bankruptcy cases, agreed to sponsor the fireworks "extravaganza" for the 2018 Fourth on Broadway celebration. For its sponsorship, Broadway placed the Reagor-Dykes logo on its print, online, and television advertisements; it provided Reagor-Dykes with VIP tickets to the event; and it allowed personnel of Reagor-Dykes an opportunity to address attendees and advertise at the celebration.
Reagor-Dykes also sponsored the fireworks in 2017. Broadway invoiced Reagor-Dykes for its sponsorship of the 2017 fireworks on February 16, 2017, in the amount of $20, 000 ("2017 Transfer"). Reagor-Dykes paid the invoice on May 24 2017, well in advance of the celebration. Broadway invoiced Reagor-Dykes for its sponsorship of the 2018 fireworks on May 14, 2018, in the amount of $25, 000 ("2018 Transfer"). Unlike in 2017, Reagor-Dykes paid the 2018 invoice on July 13, 2018, after the July 4 celebration.
On August 1, 2018, Reagor-Dykes filed its chapter 11 bankruptcy petition. On July 31, 2020, the Trustee filed his complaint against Broadway. ECF No. 1.[3] The complaint seeks to avoid the $25, 000 payment made to Broadway for the 2018 Fourth on Broadway fireworks sponsorship, asserting that the payment is a preferential transfer.[4] On August 31, 2021, the Trustee filed this motion seeking summary judgment on his preferential transfer claim and the affirmative defenses asserted by Broadway.
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a).[5] "A fact issue is material if its resolution could affect the outcome of the action." Peel & Co. v. Rug Mkt., 238 F.3d 391, 394 (5th Cir. 2001). The movant bears the initial burden of identifying portions of the pleadings and discovery that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). "If the movant does meet its burden, the nonmovant must go beyond the pleadings and designate specific facts showing that a genuine issue of material fact exists for trial." Roberson v. Game Stop, Inc., 395 F.Supp.2d 463, 468 (N. D. Tex. 2005), aff'd, 152 Fed.Appx. 356 (5th Cir. 2005). On a preferential transfer action, when "the parties agree completely as to what payments were made[, ]… when [they were made], and for what," the material facts are not in dispute. Yaquinto v. Arrow Fin. Servs. (In re Brook Mays Music Co.), 418 B.R. 623, 625 (Bankr. N.D. Tex. 2009).
"[T]he court must review all of the evidence in the record, but make no credibility determinations or weigh any evidence." Peel & Co., 238 F.3d at 394. The facts and inferences to be drawn from the evidence must be viewed in the light most favorable to the nonmoving party. Id.
The Trustee argues he is entitled to summary judgment on his preference claim under § 547(b) to avoid the 2018 Transfer. Under § 547(b), a trustee may avoid a transfer of a debtor's interest in property if the transfer was:
Reagor-Dykes's 2018 Transfer was made for the benefit of a creditor because it was made to Broadway in exchange for the benefits provided to Reagor-Dykes for its sponsorship. Reagor-Dykes made the transfer within the 90 days before it filed bankruptcy. Under § 547(f), Reagor-Dykes is presumed to have been insolvent at the time of transfer. And the $25, 000 payment is more than Broadway would recover under chapter 7 had it not been paid. ECF No. 18 at 6. Broadway does not dispute these conclusions.
Broadway's sole objection to the Trustee's substantive preference claim is that the 2018 Transfer was not made on account of an antecedent debt. "A debt is antecedent for purposes of § 547(b) if it was incurred before the alleged preferential transfer." Baker Hughes Oilfield Operations, Inc. v. Cage (In re Ramba, Inc.), 416 F.3d 394, 399 (5th Cir. 2005) (emphasis added). "[A] debt is incurred when the debtor becomes obligated to pay it, not when the creditor chooses to invoice the debtor for his work or goods." Sandoz v. Fred Wilson Drilling Co. (In re Emerald Oil Co.), 695 F.2d 833, 837 (5th Cir. 1983) (emphasis added) (creating definition for § 547(c)(2) defense); see also Southmark Corp. v. Marley (In re Southmark Corp.), 62 F.3d 104, 106 (5th Cir. 1995) (); Bass v. Sw. Bell Tel. Co. (In re Ray W. Dickey & Sons, Inc.), 11 B.R. 146, 147-48 (Bankr. N.D. Tex. 1980) (). And a debtor is obligated to pay a debt when the debtor has received its consideration or when the creditor has performed services for the debtor. In re Emerald Oil Co., 695 F.2d at 837; In re Ray W. Dickey & Sons, 11 B.R. at 147-48.
Broadway argues that there is a genuine dispute on the material facts of whether the 2018 Transfer was made on account of an antecedent debt. Broadway and the Trustee do not dispute when Reagor-Dykes was invoiced or when payment was made to Broadway. The only fact in dispute is when Reagor-Dykes received consideration for its payment, a fact essential to determining when the debt was incurred. Broadway points to the 2018 Fourth on Broadway flyer as well as the affidavit of Don Caldwell, Broadway's CEO, to support its contention that Reagor-Dykes received consideration in the form of ongoing promotional benefits beyond July 4, 2018.[6] These items of evidence taken together show that some advertisements for Reagor-Dykes remained in public view for some time after July 4.
But whether Reagor-Dykes received some additional benefit beyond July 4 is not a material fact on the question of when the debt was incurred. Both the celebration flyer and Don Caldwell's affidavit make clear that the vast majority of benefits received on account of Reagor-Dykes's sponsorship occurred before or on July 4, that those benefits were what Reagor-Dykes bargained for, and that additional benefits lasting beyond July 4 were at most incidental.[7] The facts presented by both parties support the conclusion that Reagor-Dykes received its consideration on or before July 4, 2018, and that is the date when its debt was incurred, regardless of whether some incidental consideration was received after July 4. Importantly, despite its attempt to raise a factual issue, Broadway concurrently concedes this point, saying, "[a] debt is incurred when a party becomes legally bound to pay, … which was, in this case, when Reagor-Dykes received the services of Broadway on July 4, 2018." Broadway's Resp. at 5 [ECF No. 20].
Broadway also contends that the debt was not incurred on July 4 and thus is not antecedent because the 2018 Transfer and the services provided to Reagor-Dykes were "substantially contemporaneous," allowing Broadway a defense to avoidance under § 547(c)(1).
But finding that a transfer is substantially contemporaneous does not necessarily mean that the transfer was not on account of an antecedent debt. Ramba, 416 F.3d at 399.
A genuine issue of material fact does not exist on whether the 2018 Transfer was on account of an antecedent debt. The...
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