FBI Wind Down Inc. v. All Am. Poly Corp. (In re FBI Wind Down, Inc.)

• Decision Date: 16 February 2018
• Docket Number: Adv. Pro. No. 15–51095 (CSS),Case No. 13–12329 (CSS) Jointly Administered
• Citation: 581 B.R. 116
• Parties: IN RE: FBI WIND DOWN, INC. (f/k/a Furniture Brands Int'l, Inc. ), et al., Debtors. FBI Wind Down Inc. Liquidating Trust, by and through Alan D. Halperin, as Liquidating Trustee, Plaintiff, v. All American Poly Corp., Defendant.
• Court: U.S. Bankruptcy Court — District of Delaware

581 B.R. 116

IN RE: FBI WIND DOWN, INC. (f/k/a Furniture Brands Int'l, Inc. ), et al., Debtors.FBI Wind Down Inc. Liquidating Trust, by and through Alan D. Halperin, as Liquidating Trustee, Plaintiff,

v.All American Poly Corp., Defendant.

Case No. 13–12329 (CSS) Jointly Administered

Adv. Pro. No. 15–51095 (CSS)

United States Bankruptcy Court, D. Delaware.

Signed February 16, 2018

BLANK ROME LLP, Victoria A Guilfoyle, 1201 Market Street, Suite 800, Wilmington, DE 19801 and HAHN & HESSEN LLP, Edward L. Schnitzer, Jeffrey Zawadzki, 488 Madison Avenue, New York, NY 10022, Co–Counsel for Plaintiff

THE LAW OFFICES OF JAMES TOBIA, LLC, James Tobia, 1716 Wawaset Street, Wilmington, DE 19801 and JONES & ASSOCIATES, Roland Gary Jones, 1745 Broadway, 17^th Floor, New York, NY 10019, Co–Counsel for Defendant

OPINION

Sontchi, J.

INTRODUCTION ¹

Before the Court are cross-motions for summary judgment. Plaintiff's Motion² seeks, among other things, a determination whether eighteen transfers (collectively, the "Transfers") qualify as avoidable preferences outside any 11 U.S.C. § 547(c) defenses,³ and whether such Transfers can be recovered and disallowed under § 502 and the terms of the Plan. Defendant has filed a Cross–Motion for summary judgment contending that the Transfers are not preferential, otherwise qualify for § 547(c) ordinary course of business and subsequent new value defenses, and are not fraudulent transfers.

For the reasons set forth below, the Court will grant, in part, and deny, in part, both the Plaintiff's Motion and the Cross–Motion. Specifically, the Court holds the following on the Plaintiff's Motion:

1. Summary judgment is granted for all the § 547(b) preference elements, with the exception that there is a dispute of material fact regarding whether the Transfers are an interest of the Lane and Broyhill Debtors in property, and consequently preferential.

2. Summary judgment is denied as to the inapplicability of any § 547(c) defenses, given the successful counterclaims of the Cross–Motion.

3. Summary judgment is denied on the determination of disallowance, objection, or setoff, since relief is inappropriate when the preferential nature of the Transfers are still in dispute.

4. Plaintiff's fraudulent transfer claim may not be reviewed in summary judgment as the Plaintiff failed to properly brief the issue.

The Court also holds the following as to the Defendant's Cross–Motion:

1. Summary judgment is denied regarding Defendant's argument that the Transfers are not an interest of the Lane and Broyhill Debtors in property and consequently not preferential, as a dispute of material fact remains on that specific element of § 547(b).

2. Summary judgment is granted, in part, regarding the ordinary course of business defense for all Transfers, excluding the Lane Pressure Payments for which a dispute of material fact remains and summary judgment is denied.

3. Summary judgment is granted, in part, regarding subsequent new value up to $16,692.00, but is denied as to the remaining contested amount.

4. Summary judgment is denied as to the lack of fraudulent transfers since a dispute of material fact exists whether the Transfers were § 548 fraudulent transfers given for less than reasonably equivalent value.

JURISDICTION

This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 11 U.S.C. § 157(b)(2)(A) and (O). Venue is proper before the United States Bankruptcy Court for the District of Delaware under 28 U.S.C. §§ 1408 and 1409. The Court has the judicial authority to enter a final order.

STATEMENT OF FACT

A. Procedural Background

On September 9, 2013 (the "Petition Date"), FBI Wind Down, Inc. (f/k/a Furniture Brands International, Inc.) and eighteen affiliated companies, (together, the "Debtors") filed a voluntary petition for Chapter 11 relief.⁴ As part of said petition, Debtors also filed a motion authorizing use of their existing cash management system, which this Court granted.⁵ On October 21, 2013, All American Poly filed a proof of claim against Debtor-subsidiary Lane for $35,455.88 (the "Claim").⁶ On July 14, 2014, the Court confirmed the Second Amended Joint Plan of Liquidation of FBI Wind Down, Inc. and Its Subsidiaries Under Chapter 11 of the Bankruptcy Code (the "Plan"). The Plan partially consolidated the Debtors into groups based on prepetition business and operations.⁷ The substantively consolidated groups at issue in the Motions are the brand groups Broyhill Debtors and Lane Debtors, and the corporate group FBI Debtors.⁸

Under Section 7.3 of the Plan, the Liquidating Trustee has rights to pursue any existing or potential Causes of Action (as defined in the Plan) including those under 11 U.S.C. §§ 547, 548, and 550.⁹ Alan D. Halperin was appointed as Liquidating Trustee ("Liquidating Trustee" or "Plaintiff") for FBI Wind Down, Inc. Liquidating Trust and continues to serve in that capacity.¹⁰ On August 19, 2015, the Liquidating Trustee brought this present action against All American Poly Corp. ("All American Poly" or "Defendant") seeking, among other things, avoidance and recovery of certain transfers totaling $554,149.36 under §§ 547 and 548 of the Bankruptcy Code, and the disallowance of All American Poly's Claim under the Plan.¹¹ Defendant answered with nineteen affirmative defenses, including ordinary course of business, subsequent new value, and reasonably equivalent value defenses.¹² Following the Court's procedures, both parties participated in mediation but were unsuccessful in reaching an accord.¹³ Written discovery and depositions were subsequently conducted according to an amended scheduling order.¹⁴

On July 31, 2017, both the Plaintiff and Defendant filed cross-motions for summary judgment. Plaintiff's motion seeks summary judgment on the Liquidating Trustee's § 547 claims to avoid certain alleged preferential transfers (the "Plaintiff's Motion").¹⁵ Defendant's motion for summary judgment argues affirmative defenses to Plaintiff's §§ 547 and 548 claims (the "Cross–Motion", together with Plaintiff's Motion the "Motions").¹⁶ The Motions have been fully briefed and are ripe for consideration.

B. Factual Background

1. Background and History Between the Parties

All American Poly is a producer of custom plastic products such as sheeting, stretch wrap, liners, and bags. Prior to the Petition Date, All American Poly provided goods to two of the Debtors' brands, Lane and Broyhill, for use in their businesses.¹⁷

Lane Debtors conducted business as a subsidiary in Mississippi, and Broyhill conducted its business as a subsidiary in North Carolina. Both brands had separate employees and accounts payable groups.¹⁸

All American Poly began its business relationship with Lane in November 2010, and later began a business relationship with Broyhill in August 2012.¹⁹ Both brands had a historic practice of weekly or biweekly payments to All American Poly.²⁰ As a vendor, All American Poly communicated directly with the subsidiaries with which it conducted business.²¹ In this case, Lane, Broyhill, and All American Poly regularly communicated via e-mail and telephone, with All American Poly inquiring several times over the timing of future payments from Lane.²²

Lane and Broyhill further had separate payment procedures and lines of credit with All American Poly.²³ Before the ninety days preceding the Petition Date (the "Preference Period"), Lane made payments to All American Poly via automatically printed checks that were mailed through the U.S. Postal Service, except for one payment made by wire.²⁴ Lane also made several "open" payments to All American Poly before the Preference Period that were keyed off against unpaid invoices.²⁵ Broyhill, by contrast, made all its payments via ACH.²⁶

As the Debtors began facing cash flow problems in 2013, FBI Debtors' corporate group began delaying payments to vendors, including All American Poly.²⁷ When Master Account funds were insufficient to cover all payments, priority was placed on payments that would keep plants open and shipment of goods continuous.²⁸

2. Debtors' Cash Management System

In September 2012, Debtors entered into an asset-based lending facility which required implementing a new centralized cash management system to streamline the collection and distribution of proceeds.²⁹ The cash management system swept funds from brand-specific depository accounts into sub-concentration accounts and then into a master account with Wells Fargo (the "Master Account") owned by an FBI Debtor, Furniture Brands International, Inc.³⁰ Funds from the Master Account were then distributed into disbursement accounts to pay for expenditures at the brands.³¹

The record shows conflicting evidence regarding who had control over the prioritization of Master Account funds. Master Account funds paid payroll first, and then the various vendors at the brands.³² On the occasions where payments from the Master Account could not sustain payments to all the brands' vendors, FBI Debtors made a company-wide decision to delay payments.³³ In that case, "the brands would work out themselves how they wanted to try to lower the amount that they wanted paid."³⁴ Each brand, including Lane and Broyhill, would provide information prioritizing the debts their brands wished to pay from the Master Account funds.³⁵ A group of employees from corporate and the several brands, including Lane and Broyhill, would review those payments.³⁶ The finalized list of payments was approved by FBI Debtors and was at their discretion.³⁷

Actual payments were managed by FBI Debtors' Treasury group during the Preference Period.³⁸ Once payments were approved, Treasury would transfer the funds from the commingled Master Account to the various disbursement accounts.³⁹ Treasury's role in processing payments was purely transactional, nevertheless the brands had no ability to control payment once the funds were in their disbursement accounts.⁴⁰ Employees in the accounts payable groups of each...