In re Global Distribution Network, Inc.

• Decision Date: 04 August 1989
• Docket Number: Adv. No. 88 A 0665.,Bankruptcy No. 87 B 03274
• Citation: 103 BR 949
• Court: U.S. Bankruptcy Court — Northern District of Illinois
• Parties: In re GLOBAL DISTRIBUTION NETWORK, INC., Debtor. GLOBAL DISTRIBUTION NETWORK, INC., Plaintiff, v. STAR EXPANSION CO., et al., Defendants.

103 B.R. 949 (1989)

In re GLOBAL DISTRIBUTION NETWORK, INC., Debtor GLOBAL DISTRIBUTION NETWORK, INC., Plaintiff, v. STAR EXPANSION CO., et al., Defendants.

Bankruptcy No. 87 B 03274, Adv. No. 88 A 0665.

United States Bankruptcy Court, N.D. Illinois, E.D.

August 4, 1989.

Janet S. Baer, Ross & Hardies, Chicago, Ill., for debtor.

Marvin, Freeman, Freeman & Freeman, Chicago, Ill., for Full Line Fasteners.

John C. Sciaccotta, Chicago, Ill., for Hardware Services.

John T. Barber, Barlery, Snyder, Cooper & Barber, Lancaster, Pa., for Lancaster Threaded.

Lloyd S. Hellman, Sandler, Balkin, Hellman & Weinstein, Kansas City, Mo., for Missouri Plating.

Stuart L. Pachman, Clapp and Eisenberg, Newark, N.J., for Star Stainless Screw.

John V. Del Gaudio, Jr., Chicago, Ill., for Creditors in Adversary.

MEMORANDUM OPINION

RONALD S. BARLIANT, Bankruptcy Judge.

This is an adversary proceeding to avoid and recover numerous preferences.¹ This opinion disposes of motions for summary judgment filed by the Debtor/Plaintiff, Global Distribution Network, Inc., against five Defendants, (Full Line Fasteners, Inc., Hardware Services International, Lancaster Threaded Products, Missouri Plating Company, and Star Stainless Screw Company) and by three defendants (Lancaster Threaded Products, Missouri Plating Co. and Star Stainless Screw Co.) against the Debtor/Plaintiff. Four of the five defendants against whom relief is now sought assert section 547(c)(2) of the Bankruptcy Code as an affirmative defense and contend that the transfers are not avoidable because the transactions were in the ordinary course of business. One defendant contends only that the transfer was made before the 90 day pre-petition preference period. For the reasons set forth below, the Debtor's motions for summary judgment against all five defendants will be granted. In addition, the defendants' cross-motions for summary judgment against the Debtor will be denied.

FACTS

The Debtor filed its Chapter 11 petition on March 3, 1987. In 1986 the defendants provided goods related to the Debtor's industrial fastener business and submitted corresponding invoices to the Debtor that carried the price terms "net 30 days", "net 10 days" or "net 10th prox." The Debtor paid for the goods with checks dated from 30 to 115 days after the dates of the corresponding invoices. The checks were paid by the Debtor's bank, from 75 to 127 days after the invoice dates. All the checks involved here were honored within the ninety days before the Debtor filed its bankruptcy petition.

Pursuant to Local Rule 12(l), the Debtor submitted statements of material facts as to which there is no genuine issue. None of the defendants submitted a statement of genuine issues pursuant to Local Rule 12(m). The Debtor's statements of material facts are therefore deemed admitted as required by Local Rule 12(m).

The facts derived from the Debtor's 12(l) statements, as well as the defendants' affidavits and interrogatories, are as follows:

                FULL LINE FASTENERS
                  — Date and amount of invoices corresponding to alleged
                      preferential transfer: 1) 8/7/86 for
                      $481.75, 2) 8/13/86 for $3,620.70, 3) 8/13/86 for
                      $85.82
                  — Amount of Payment:             $2,188.27
                  — Date of Check:                 December 1, 1986
                  — Date Check Paid:               December 8, 1986
                  — Days between Payment
                      and Invoice Date:            Not applicable (not
                                                   alleging affirmative defense)
                  — Payment History:               "
                  — Invoice Credit Terms:          "
                HARDWARE SERVICES
                  — Dates and amounts of invoices corresponding to
                      alleged preferential transfer: 1) 8/8/86 for
                      $54.06, 2) 8/8/86 for $423.28, 3) 8/8/86 for
                      $141.68, 4) 8/8/86 for $2,187.00, 5) 8/11/86 for
                      $25.85, 6) 8/11/86 for $599.38, 7) 8/22/86 for
                      $335.28, 8) 8/29/86 for $41.80, 9) 8/29/86 for
                      $70.84
                  — Amount of Payment:             $3,737.49
                  — Date of Check:                 October 27, 1986
                  — Date Check Paid:               December 11, 1986
                  — Days between Payment
                      and Invoice Date:            104 to 125 days
                  — Average time between
                      Payment and Invoice
                      Date:                        118.11 days
                  — Payment History:               63 to 93 days from invoice
                                                   date
                  — Average time for payment
                      in prior course
                      of dealings:                 75.59 days
                  — Invoice Credit Terms:          "Net 30 days" or "Net
                                                   10 days"
                LANCASTER THREADED
                  — Date and amount of invoice corresponding to alleged
                      preferential transfer: 1) 8/15/86 for
                      $1,212.15.
                  — Amount of Payment:             $1,212.15
                  — Date of Check:                 October 27, 1986
                  — Date Check Paid:               December 17, 1986
                  — Days between Payment
                      and Invoice Date:            124
                  — Payment History:               72 to 84 days from invoice
                                                   date
                  — Average time for payment
                      in prior course
                      of dealings:                 74.25 days
                  — Invoice Credit Terms:          "Net 30 days"
                MISSOURI PLATING:
                  — Dates and amounts of invoices corresponding to
                      alleged preferential transfer: 1) 9/2/86 for
                      $215.09, 2) 9/3/86 for $55.50, 3) 9/4/86 for
                

                      $1,095.15, 4) 9/8/86 for $198.58, 5) 9/9/86 for
                      $77.80, 6) 9/10/86 for $183.60, 7) 9/12/86 for
                      $520.50, 8) 9/12/86 for $85.14, 9) 9/15/86 for
                      $76.70.
                  — Amount of Payment:             $2,508.06
                  — Date of Check:                 December 19, 1986
                  — Date Check Cashed:             December 26, 1986
                  — Days between Payment
                      and Invoice Date:            102 to 115 days
                  — Average time between
                      Payment and invoice
                      date:                        108.67 days
                  — Payment History:               25 to 80 days from invoice
                                                   date
                  — Average time for payment
                      in prior course
                      of dealings:                 55 days
                  — Invoice Credit Terms:          "Net 10th Prox."
                STAR STAINLESS:
                  — Dates and amount of invoices corresponding to
                      alleged preferential transfer: 1) 8/5/86 for
                      $303.18, 2) 8/8/86 for $245.69, 3) 8/25/86 for
                      $420.18, 4) 8/27/86 for $762.42, 5) 8/28/86 for
                      $339.23, 6) 8/28/86 for $16.42, 7) 8/29/86 for
                      $616.18, 8) 8/29/86 for $163.33, 9) 9/9/86 for
                      $300.23, 10) 9/23/86 for $22.55.
                  — Amount of Payment:             $3,824.54
                  — Date of Check:                 October 27, 1986
                  — Date Check Paid:               December 11, 1986
                  — Days between Payment
                      and Invoice Date:            79 to 127 days
                  — Average time between
                      Payment and invoice
                      date:                        104.9 days
                  — Payment History:               97 days. (Only one
                                                         payment.)
                  — Average time for payment
                      in prior course
                      of dealings:                 Not applicable
                  — Invoice Credit Terms:          "Net 30 days"
                

DISCUSSION

There is no dispute that the Debtor has shown, with respect to each of the defendants, that all but one of the section 547(b) requirements have been satisfied.² Specifically, the Debtor has shown that 1) transfers of the Debtor's property were made, 2) to or for the benefit of creditors, 3) for or on account of antecedent debts, 4) while the Debtor was insolvent, and that 5) the defendants received more than they would have in a Chapter 7 liquidation. There is a dispute about one of the elements of a preference, whether the transfers were made within 90 days before the bankruptcy petition was filed. And the parties also dispute the applicability of the ordinary business expense exception to the Debtor's power to avoid a preference, 11 U.S.C. § 547(c)(2).

The motions for summary judgment are made pursuant to Federal Rule of Civil Procedure 56 and Bankruptcy Rule 7056. Summary judgment is only appropriate if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Once the moving party has overcome its burden of showing that there is no basis in the record for findings of fact that might determine a result in favor of the non-movant, its opponent must introduce more than a scintilla of evidence that there is some doubt as to the material facts. All evidence and any reasonable inferences drawn therefrom must be viewed most favorably to the non-movant. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); In re Calisoff, 92 B.R. 346, 350-51 (Bankr.N.D.Ill.1988).

I. DATE OF THE TRANSFERS

Only Full Line Fasteners contends that the Debtor's transfer was made more than ninety days before the Chapter 11 petition was filed.

The Debtor's check to Full Line Fasteners for $2,188.27 was dated ninety-three days before the petition was filed, but it was paid by the Debtor's bank only eighty-six days before the petition was filed. If the transfer was made when the check was dated, as Full Line Fasteners argues, then the transfer may not be avoided. If the transfer was made when the check was honored, as the Debtor contends, then all elements of section 547(b) would be satisfied and, since Full Line Fasteners has asserted no affirmative defenses, summary judgment would be appropriate.

As a matter of state law, the issuance of a check does not operate as an assignment of funds held by the drawee bank, and the funds in the maker's checking account are not transferred until the check is honored. Ill.Rev.Stat. ch. 26 ¶ 3-409. See Tri-State Bank v. Blue Ribbon Saddle Shop, Inc., 76 Ill.App.3d 445, 32 Ill.Dec. 230, 233, 395 N.E.2d 177, 180 (1st Dist.1979); Leavitt v. Charles R. Hearn, Inc., 19 Ill.App.3d 980, 312 N.E.2d 806, 809 (1st Dist.1974). A third party may acquire rights superior to those of the payee until a check is honored by the drawee bank, and the maker can stop payment on a check until it is honored. In re Foreman, 59 B.R. 145, 148 (S.D. Ohio 1986)....