In Re: Circuit City Stores Inc.
| Decision Date | 01 December 2010 |
| Docket Number | Case No. 08-35653-KRH,APN 10-03068-KRH |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re: CIRCUIT CITY STORES, INC., et al, Debtors. CIRCUIT CITY STORES, INC.,Plaintiff, v. MITSUBISHI DIGITAL ELECTRONICS AMERICA, INC., et al.,Defendants. |
Before the Court in this adversary proceeding is the Debtors' Motion for Partial Summary Judgment ("the Motion") filed August 2, 2010, with respect to (i) the Debtors' objection to claims numbered 132 and 12, 300 filed by Mitsubishi Digital Electronics America, Inc. ("Mitsubishi") and (ii) the Debtors' complaint against Mitsubishi and The Insurance Company of the State of Pennsylvania ("The Insurance Company of Pennsylvania"). Defendant Mitsubishi filed its opposition to the Motion on August 24, 2010, in which Defendant The Insurance Company of Pennsylvania joined. Hearing on the Motion was conducted on August 31, 2010.
Central to the Motion is whether Defendants may both (i) claim an administrative expense under § 503(b)(9) of the Bankruptcy Code for the value of goods it delivered to the Debtors during the twenty days immediately preceding the date the Debtors filed their bankruptcy petitions and also (ii) utilize the value of those same goods as a Bankruptcy Code § 547(c)(4) new value defense to a preference claim under § 547 of the Bankruptcy Code. The Court holds that because the payment of a creditor's Bankruptcy Code § 503(b)(9) administrative claim for the value of goods transferred to a debtor in the twenty-day period immediately preceding the commencement of a bankruptcy case is an "otherwise unavoidable transfer" as that term is used in § 547(c)(4)(B) of the Bankruptcy Code, the recipient of such a payment is not entitled to utilize the value of those same goods as the basis for a new value defense under § 547(c)(4) of the Bankruptcy Code.
The Debtors, Circuit City Stores, Inc., et al., 1each filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Virginia (the "Court") under Chapter 11 of the Bankruptcy Code2 on November 10, 2008 (the "Petition Date"). The Debtors jointly operated as a specialty retailer of consumer electronics. As of the Petition Date, Circuit City employed approximately 39, 600 employees and was operating approximately 712 retail stores and 9 outlet stores throughout the United States and Puerto Rico. The Debtors continued to operate after the Petition Date as debtors in possession pursuant to §§ 1107 and 1108 of the Bankruptcy Code.
Soon after the Petition Date, the Debtors filed a motion seeking entry of an order establishing a bar date for filing requests for payment of administrative expense claims under §§ 105 and 503(b)(9) of the Bankruptcy Code. 11 U.S.C. §§ 105 and 503(b)(9). On November 12, 2008, this Court entered the Order Establishing Bar Date for Filing Requests for Payment of Administrative Expense Claims Under Bankruptcy Code Sections 105 and 503(b)(9) and Approving Form, Manner and Sufficiency of Notice of the Bar Date Pursuant to Bankruptcy Rule 9007. That order established 5:00 p.m. (PT) on December 19, 2008, as the deadline for filing proofs of claim asserting a § 503(b)(9) administrative priority.
On January 16, 2009, the Court authorized the Debtors to conduct going out of business sales at all of the Debtors' remaining retail locations. As of March 8, 2009, the going out of business sales had been completed. On September 29, 2009, the Debtors and the Creditors' Committee3 filed their First Amended Joint Plan of Liquidation. The disclosure statement was approved by order entered September 24, 2009. A Second Amended Joint Plan of Liquidation was filed on August 9, 2010, and an order confirming the Debtors' Modified Amended Second Joint Plan of Liquidation was entered on September 14, 2010 (the "Plan"). The confirmed Plan substantively consolidated the Debtors' bankruptcy estates and established a liquidating trust to distribute all of the Debtors' assets under Chapter 11 of the Bankruptcy Code. The confirmed Plan vested the right to continue this adversary proceeding in the liquidating trust upon the effective date of confirmation.4
The court has subject-matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (C), (F) and (O). Venue is appropriate in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
On November 18, 2008, Mitsubishi timely filed a claim which was designated as claim number 132 on the Debtors' claim register. The claim asserted an administrative priority under § 503(b)(9) of the Bankruptcy Code in the amount of $4,965, 976.18 for the value of goods sold by Mitsubishi to the Debtors during the twenty-day period prior to the Petition Date (the "503(b)(9) Claim"). Based upon a reconciliation subsequently performed by the Debtors and Mitsubishi, the parties determined that the actual value of the goods received by the Debtors during the twenty-day period was $4,962, 320.77. The parties agreed that the 503(b)(9) Claim should be reduced to that lesser amount. Except for Count IX of the instant adversary proceeding, which relates to the possible setoff of some alleged receivables, the Debtors do not object to the payment of the agreed amount of Mitsubishi's 503(b)(9) Claim.5
On October 13, 2009, the Debtors filed their Fifty-First Objection to Certain 503(b)(9) Claims, in which the Debtors requested the Court to temporarily disallow, among other claims, Mitsubishi's 503(b)(9) Claim pursuant to § 502(d) of the Bankruptcy Code on the grounds that Mitsubishi was the recipient of certain alleged preferential transfers avoidable under § 547 of the Bankruptcy Code. On January 6, 2010, the Court entered an order temporarily disallowing Mitsubishi's 503(b)(9) Claim. (Docket No. 6228)6
On May 11, 2010, the Court entered an order approving a settlement agreement between the Debtors and Mitsubishi establishing a fully funded reserve for the exclusive benefit of Mitsubishi that is sufficient to pay the agreed amount of Mitsubishi's 503(b)(9) Claim.7 Once the issue central to the Motion before this Court has been resolved, the allowed amount of Mitsubishi's 503(b)(9) Claim can be determined, and the allowed amount of Mitsubishi's 503(b)(9) Claim will be paid in full from the funds set aside in this reserve.
On April 1, 2010, the Debtors initiated this adversary proceeding (the "Adversary Proceeding") by filing a complaint against Mitsubishi and The Insurance Company of Pennsylvania (the "Complaint"), wherein the Debtors seek the return of certain transfers made by the Debtors to Mitsubishi in the ninety-day period prior to the Petition Date.8 The Debtors alleged that those transfers made during the Preference Period totaling $6,698, 209.84 (the "Preferential Transfers") are avoidable preferential transfers under § 547 of the Bankruptcy Code and, as such, are recoverable under § 550 of the Bankruptcy Code.
In its answer filed July 6, 2010, Mitsubishi raised multiple affirmative defenses to the Complaint. Among the defenses enumerated, Mitsubishi asserts that the amounts sought by the Debtors must be reduced because, subsequent to the Preferential Transfers, Mitsubishi provided new value to the Debtors within the meaning of § 547(c)(4) of the Bankruptcy Code (the "New Value Defense"). Mitsubishi contends that the value of the goods that comprise the agreed amount of its 503(b)(9) Claim can also be used in support of its New Value Defense in order to bar the Debtors from recovering the Preferential Transfers.9
On August 2, 2010, the Debtors filed the Motion for partial summary judgment, requesting that "Mitsubishi be precluded from availing itself of the new value defense under section 547(c)(4) of the Bankruptcy Code with respect to any Product for which it receives payment on account of its 503(b)(9) Claim." Essentially, the Debtors argue that Mitsubishi may either (i) claim an administrative expense under § 503(b)(9) of the Bankruptcy Code for the value of the goods received by the Debtors during the twenty-day period immediately preceding the Petition Date, or (ii) utilize the value of those same goods as a § 547(c)(4) New Value Defense to a claim under § 547 of the Bankruptcy Code for the avoidance of the Preferential Transfers. The Debtors assert that Mitsubishi may not do both.
Part VII of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") applies in adversary proceedings. Bankruptcy Rule 7056 makes Rule 56 of the Federal Rules of Civil Procedure ("the "Civil Rules") applicable in adversary proceedings. See Fed. R. Bankr. P. 7056.
Pursuant to Civil Rule 56(a), "[a] party against whom relief is sought may move, with or without supporting affidavits, for summary judgment on all or part of the claim." Fed. R. Civ. P. 56(b).
The standard for entry of summary judgment under Bankruptcy Rule 7056 and Civil Rule 56 is well established, and summary judgment "is favored as a mechanism to secure the 'just, speedy and inexpensive determination' of a case" when the requirements of Civil Rule 56 are met. Thompson Everett, Inc. v. Nat'l Cable Adver., L.P., 57 F.3d 1317, 1322-23 (4th Cir. 1995) (quoting Fed. R. Civ. P. 1). Summary judgment should be granted "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c) (as incorporated by Fed. R. Bankr. P. 7056).
The party moving for summary judgment bears the initial burden of demonstrating that there is no genuine issue of any material fact. See Celotex Corp. v. Catrett, 477...
To continue reading
Request your trial