In re Demetralis
| Decision Date | 28 January 1986 |
| Docket Number | 84 A 480.,Bankruptcy No. 84 B 1516 |
| Citation | 57 BR 278 |
| Parties | In re Peter J. DEMETRALIS individually, and d/b/a "Y" Food Mart and "Y" Liquor Mart, a/k/a Yorkville "Y" Liquor Mart, a/k/a Yorkville "Y" Food Mart, Debtor, Peter J. DEMETRALIS, Debtor-In-Possession, Plaintiff, v. GOLDEN GUERNSEY, INC., a/k/a Golden Guernsey Dairy Co-Op, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Richard H. Fimoff, Keith J. Shapiro, Denise A. De Laurent, Holleb & Coff, Chicago, Ill., for debtor.
Rance V. Buehler, Faber & Buehler, West Dundee, Ill., for creditor, Golden Guernsey.
The debtor-in-possession, Peter J. Demetralis, instituted this adversary proceeding against Golden Guernsey, Inc. to recover four alleged preferential transfers under 11 U.S.C. § 547.1 The debtor has filed a motion for summary judgment. In analyzing the motion, all contested facts must be viewed from the point of view most favorable to the party against whom summary judgment is sought. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); International Administrators v. Life Insurance Co. of North America, 753 F.2d 1373, 1378 (7th Cir.1985); Burman v. Trans World Airlines, Inc., 570 F.Supp. 1303, 1312 (N.D.Ill. 1983).
The facts surrounding the payments in this case are not in dispute although the parties strongly differ on the significance of those facts in preference terms. The debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code on February 7, 1984. The debtor runs a retail grocery store. He purchased dairy products from the defendant on an open account. During the 90 days preceding the petition the debtor paid for certain dairy deliveries with four separate checks:
The ultimate issue is to what extent each of the four payments constitutes a preference under 11 U.S.C. § 547(b).
Under 11 U.S.C. § 547(b), the trustee must prove six elements for a transaction to be avoidable as a preference:2 (1) a transfer of the debtor's property (2) to or for the benefit of a creditor (3) on account of antecedent debt (4) made while the debtor was insolvent (5) on or within 90 days before the filing of the petition3 (6) where such transfer allows the creditor to receive a greater percentage of the debtor's estate than it would have received had the transfer not taken place and had the debtor's assets been liquidated and distributed in a Chapter 7 case.
In opposing the motion for summary judgment, the defendant first argues the debtor has failed to present sufficient evidence to establish his insolvency at the time of the challenged transfers. Thus, Golden Guernsey contends a genuine issue of fact exists with respect to the question of whether the debtor was insolvent at the time of the transfers, and the motion for summary judgment must be denied.
Section 547(f) creates a presumption the debtor was insolvent during the 90 days prior to filing his bankruptcy petition. See also Barash v. Public Finance Corp., 658 F.2d 504, 507 (7th Cir.1981). The presumption is not conclusive. It is rebuttable. Thus, although the burden of persuasion regarding insolvency remains with the debtor, the defendant here must come forward with evidence to rebut it.4Matter of Kennesaw, 32 B.R. 799, 803 (Bankr.N.D. Ga.1983); In re National Buy-Rite, Inc., 7 B.R. 407, 410 (Bankr.N.D.Ga.1980); In re Butler, 3 B.R. 182, 180 (Bankr.E.D.Tenn. 1980). This analysis also is mandated by Federal Rule of Evidence 301, which states that "a presumption imposes on the party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption, but does not shift to such party the burden of proof in the sense of the risk of nonpersuasion. . . ."
The defendant has made only a bare allegation of the debtor's solvency at the time of the transactions. Such a statement does not constitute evidence to rebut the presumption of insolvency. The defendant has presented no evidence, by affidavit or otherwise, that the debtor's assets exceeded his liabilities at the relevant times. See In re Bennett, 35 B.R. 357, 359 (Bankr.N. D.Ill.1984). Therefore, no genuine issue of material fact exists regarding insolvency and the debtor is entitled to summary judgment on this point. See Matter of Kennesaw, 32 B.R. 799, 803 (Bankr.N.D.Ga.1983); In re National Buy-Rite, Inc., 7 B.R. 407, 410 (Bankr.N.D.Ga.1980).
The defendant also argues that the debtor has failed to present sufficient evidence to establish that the transfers enabled the defendant to fare better than it would have had the transfers not occurred and the debtor's estate been liquidated in Chapter 7. As a practical matter, this element is almost always satisfied where the debtor transfers property to an unsecured creditor, such as the defendant in this case, and such creditor would receive less than 100% in a Chapter 7 liquidation.5 This is true because this preference element assumes that the creditor receiving the transfer will keep the payment and file a proof of claim in the hypothetical Chapter 7 case for any unpaid balance and then receive a distribution on that claim.
In making this "greater percentage" analysis, a bankruptcy court may take judicial notice of the debtor's bankruptcy case as a whole, including all documents filed in the case. In re Saco Local Development Corp., 30 B.R. 862, 865 (Bankr.D. Me.1983). A review of the debtor's schedules in this case reveals that nonpriority unsecured creditors such as Golden Guernsey will receive far less than a 100% return on their claims. In fact, it appears that exemptions, secured claims, and administrative and priority claims would exhaust the debtor's estate in a hypothetical Chapter 7 liquidation, leaving no assets for distribution to unsecured creditors. Therefore, no genuine issue of fact exists on the greater percentage question. Golden Guernsey was in fact preferred by the transfers.
The defendant argues further that even if the four payments it received were preferential, only a portion of those four payments constituted a preference under 11 U.S.C. § 547. The defendant acknowledges the transfers resulting from the third and fourth checks received from the debtor on December 28, 1983 and January 5, 1984 totalling $1,500.00 satisfy all the elements of a preference. Golden Guernsey further concedes that as to those payments, it has no defenses available under § 547(c) and those payments may be recovered by the debtor.6 The defendant claims, however, the first two payments it received during the preference period are at least partially protected under the § 547(c)(2) exception to avoidable preferences.
The pre-1984 version of § 547(c)(2) prevents the trustee from avoiding a preferential transfer (1) made in the ordinary course of the debtor's business (2) in payment of a debt incurred by the debtor in the ordinary course of business (3) made according to ordinary business terms and (4) made not later than 45 days after such debt was incurred. It is clear the first three elements of the exception are present. The only question here is whether the transfer took place within 45 days of the time the debt was incurred.7
The defendant claims that the challenged payments were partial payments against the total balance due under a running account. The defendant thereby asks the Court to look back 45 days from the date of each of the first two payments to determine what debts were incurred in that period. According to the defendant, the debtor is entitled to recover preferential payments only to the extent of $3,294.45.8 In support of this conclusion defendant cites In re Ferguson (Canfield v. Greenville Feed Mill), 41 B.R. 118 (Bankr.E.D.Va.1984) as allegedly standing for the proposition that payments on an open running account apply to the most recent obligation first. This is not the rule of Canfield. Rather, Canfield stated in dicta that payments on an open account apply to the oldest obligation first.9Id. at 120. This approach is consistent with the law in Illinois, which applies the general rule that if the debtor or creditor fails to direct the application of a particular payment, the court will ordinarily apply it to the first item due. Griffin Wellpoint Corp. v. Engelhardt Inc., 92 Ill.App.3d 252, 262, 46 Ill.Dec. 888, 896, 414 N.E.2d 941, 949 (2nd Dist.1980). See also Liese v. Hentze, 326 Ill. 633, 639, 158 N.E. 428, 430 (1927).
In the case at bar, the debtor in his affidavit states that it was his practice to pay for specific deliveries by check in an amount exactly equal to a specific debt rather than make general payments on open account. In fact, each payment made by the debtor on its account (up until the last two payments) was made in odd dollars and cents precisely corresponding to a specific debt being paid as evidenced...
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