In re Brook Mays Music Co.
| Decision Date | 15 October 2009 |
| Docket Number | Adversary No. 08-3238.,Bankruptcy No. 06-32816-SGJ-7. |
| Citation | 418 B.R. 623 |
| Parties | In re BROOK MAYS MUSIC COMPANY, Debtor. Robert Yaquinto, as Chapter 7 Trustee for Brook Mays Music Company, Plaintiff, v. Arrow Financial Services, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
Melissa S. Hayward, Franklin Skierski Lovall Hayward LLP, Dallas, TX, for Plaintiff.
Mark Stromberg, Stromberg & Associates, Dallas, TX, for Defendant.
STACEY G.C. JERNIGAN, Bankruptcy Judge.
CAME ON FOR CONSIDERATION before this court the Defendant's Motion for Summary Judgment, the Trustee's/Plaintiff's Response thereto, Defendant's Reply thereto, and related affidavits and other items submitted in connection therewith.
This is a suit against a former service-provider to (and creditor of) the Debtor to avoid certain payments made to it during the 90-day period before the Debtor's bankruptcy filing, on the grounds that such payments were either preferential or fraudulent transfers. 11 U.S.C. § 547(b); 11 U.S.C. § 548(a)(1)(A) and (B).
The bankruptcy case of Brook Mays Music Company ("Brook Mays" or the "Debtor") was filed on July 11, 2006 (the "Petition Date") as a voluntary Chapter 11 case. The case was converted to a Chapter 7 bankruptcy case on March 29, 2007, after a court-approved Section 363 sale of substantially all of the assets of the Debtor. Robert Yaquinto was thereafter appointed as the Chapter 7 Trustee. The Trustee subsequently filed this adversary proceeding against Arrow Financial Services ("Arrow") on July 8, 2008, asserting that three (3) separate payments made by Brook Mays to Arrow within 90 days of the Petition Date (two of which were by check and one of which was by wire transfer), and each of which was in the amount of $55,200, thus aggregating $165,600, constituted avoidable, preferential transfers, and possibly (alternatively) avoidable fraudulent transfers. The Transfers (hereinafter so called) are described more fully as follows:
1. Transfer No. 1 (Check # 0222225, in the amount of $55,200, sent by regular mail)
Invoice Date Payment Sent Payment Rec'd Clear Date
4/4/06 5/12/06 5/22/06 5/23/06
2. Transfer No. 2 (sent by wire transfer, in the amount of $55,200)
Invoice Date Payment Sent Payment Rec'd Clear Date
2/3/06 6/8/06 6/8/06 6/8/06
3. Transfer No. 3 (Check #0223692, in the amount of $55,200, sent by Federal Express
Overnight Mail)
Invoice Date Payment Sent Payment Rec'd Clear Date
5/2/06 6/27/06 6/29/06 6/30/06
There are no disputed facts in this adversary proceeding. Specifically, the parties agreed at oral argument that the summary judgment evidence was not disputed by either party and that no further evidence would be submitted if there were to be a trial. The parties agreed that there was no need for any witness testimony. In other words, the parties agree completely as to what payments were made to Arrow and when, and for what, during the course of dealings between the Debtor and Arrow and the parties also agree that the elements of Section 547(b) of the Bankruptcy Code are met with regard to the Transfers. Accordingly, the interpretation of the undisputed facts is all that remains at issue. Specifically, do the undisputed facts give rise to a valid "ordinary course of business" defense on the part of Arrow, or a subsequent "new value" defense, or not?
The court has determined that the Defendant is entitled to summary judgment: (a) as to Transfer No. 1 on the "ordinary course of business" defense; (b) as to Transfer No. 2 on the "subsequent new value" defense; (c) partially as to Transfer No. 3 on the "subsequent new value" defense—specifically, $49,680 of Transfer No. 3 is avoidable, there being $5,520 of subsequent new value to use as a credit against it; and (d) as to all three Transfers on the fraudulent transfer count.
The undisputed facts are as follows:
1. Brook Mays was in the retail music business with multiple stores and specialized in renting and selling band and orchestra instruments and related items.
2. Arrow provided collection services for Brook Mays. Arrow is not an "insider" of the Debtor. 11 U.S.C. § 101(31).
3. Arrow and Brook Mays commenced a business relationship together approximately one year before the Petition Date (i.e., in June 2005).
4. No formal, written agreement between Arrow and Brook Mays was submitted as part of the summary judgment evidence. However, the parties agree that Arrow billed Brook Mays for Arrow's collection services on a monthly basis, at a contractual rate multiplied by the number of Arrow employees assigned on a full time basis to the task. Arrow always generated an invoice to Brook Mays during the first 1-5 days of the month, reflecting the amount due for the previous calendar month (the one and only exception being the first month that the parties did business together— i.e., Arrow invoiced Brook Mays on July 12, 2005, for the June 2005 time period). Arrow always billed Brook Mays at the same rate (i.e., all monthly invoices were for $55,200, except for the first two months' invoices—for June 2005 and July 2006—which were each for $50,400). All of Arrow's invoices simply stated that "prompt payment" was expected to be mailed to Arrow at a physical address in Illinois. In other words, there was no specific payment due date.
5. During their course of dealing, Brook Mays made eleven (11) monthly payments to Arrow, three (3) of which fell during the 90-day period prior to the Petition Date (i.e., the "Preference Period"), and eight (8) of which fell during the Pre-Preference Period (hereinafter so called).
6. All of the payments to Arrow during the Pre-Preference Period were made by check.
7. Seven (7) out of the eight (8) payments were sent by regular mail and one (in September 2005) was sent by Federal Express Overnight Mail.
8. Further, with regard to the eight (8) payments made during the Pre-Preference Period, it is undisputed that the following statistics apply:1
(a) The average number of days between the invoice date and the mailing date by Brook Mays was 25.25 days. However, the range of days was fairly broad: with checks being mailed anywhere from nine (9) days to 55 days after the invoice date. Six (6) out of eight (8) payments were mailed in 30 days or less after the invoice date; one (1) payment was mailed 39 days after the invoice date; and one payment was mailed 55 days after the invoice date.
(b) The average number of days between the invoice date and the receipt of payment by Arrow was 35.75 days. However, once again, the range of days was fairly broad: with checks being received anywhere from 21 days to 59 days after the invoice date. Four (4) out of eight (8) payments were received by Arrow in 30 days or less after the invoice date; two (2) out of eight (8) payments were received 41 days after the invoice date; and two (2) out of eight (8) payments were received 51-59 days after the invoice date.
(c) The average number of days between the invoice date and the clear date of the checks was 37.125 days. However, the range of days was once again fairly broad: with checks clearing anywhere from 22 days to 62 days after the invoice date. Four (4) out of eight (8) checks cleared between 22 and 27 days after the invoice date; two (2) out of eight (8) checks cleared 42 days after the invoice date; and two (2) out of eight (8) checks cleared between 53 and 62 days after the invoice date.
9. One of the payments made to Arrow during the Preference Period was by wire transfer (Transfer No. 2). The other two transfers were made by check, which was consistent with historical practice.
10. Transfer No. 3 was sent by Federal Express Overnight Mail. This mode of delivery had only been used one (1) out of eight (8) times during the Pre-Preference time period. Transfer No. 1 was sent regular mail, consistent with the usual historical practice. Transfer No. 2 (as earlier mentioned) was an atypical wire so there was no mail or Federal Express delivery.
Further, with regard to the three (3) payments made during the Preference Period, it is undisputed that the following statistics apply:2
(a) The average number of days between the invoice date and the mailing date by Brook Mays was 73 days. However, the range of days was fairly broad: with checks being mailed anywhere from 38 days to 125 days after the invoice date. Transfer No. 1 was mailed 38 days after the invoice date; Transfer No. 2 was mailed 125 days after the invoice date; and Transfer No. 3 was mailed 56 days after the invoice date.
(b) The average number of days between the invoice date and the receipt of payment by Arrow was 77 days. However, once again, the range of days was fairly broad: with checks being received anywhere from 48 days to 125 days after the invoice date. Transfer No. 1 was received by Arrow 48 days after the invoice date; Transfer No. 2 was received by Arrow 125 days after the invoice date; and Transfer No. 3 was received by Arrow 58 days after the invoice date.
(a) The average number of days between the invoice date and the clear date of the checks was 77.66 days. However, the range of days was once again fairly broad: with checks clearing anywhere from 49 days to 125 days after the invoice date. Transfer No. 1 cleared 49 days after the invoice date; Transfer No. 2 cleared 125 days after the invoice date; and Transfer No. 3 cleared 59 days after the invoice date.
12. In analyzing the "ordinary course of business" defense, 11 U.S.C. § 547(c)(2)(A),3 courts in this district have...
To continue reading
Request your trial
-
FBI Wind Down Inc. v. All Am. Poly Corp. (In re FBI Wind Down, Inc.)
...In re AE Liquidation, Inc. , 10–55543 at *7.173 D.I. 68, A000535 (Graham Tr. , 81:13–17); see Yaquinto v. Arrow Fin. Servs. (In re Brook Mays Music Co.) , 418 B.R. 623, 629 (Bankr. N.D. Tex. 2009) (holding use of overnight Federal Express as a factor against the ordinary course).174 See D.I......
-
Ciesla v. Harney Mgmt. Partners (In re KLN Steel Prods. Co.)
...No. 10–9029, 2012 WL 481582, at *1–*2 (Bankr.E.D.Tex. Feb. 14, 2012) (applying this standard); Yaquinto v. Arrow Fin. Serv. (In re Brook Mays Music Co.), 418 B.R. 623, 627–29 (Bankr.N.D.Tex.2009) (ruling on preference action at summary judgment). At summary judgment, the Court must “view[ ]......
-
Stanziale v. Indus. Specialists Inc. (In re Conex Holdings, LLC)
...representative of the ordinary course of business between the defendant and debtor.”); Yaquinto v. Arrow Financial Services (In re Brook Mays Music Co.), 418 B.R. 623, 629 n. 7 (Bankr.N.D.Tex.2009), as amended (Oct. 20, 2009) (excluding one transfer that was clearly an outlier or aberration......
-
Faulkner v. Broadway Festivals, Inc. (In re Reagor-Dykes Motors, LP)
... ... 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 ... ...