In re Jsl Chemical Corp.

• Decision Date: 10 February 2010
• Docket Number: Bankruptcy No. 07-16145-BKC-PGH.,Adversary No. 09-1615-PGH.
• Citation: 424 B.R. 573
• Parties: In re JSL CHEMICAL CORP., Debtor. Deborah C. Menotte, Trustee Plaintiff, v. Oxyde Chemicals, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

424 B.R. 573

In re JSL CHEMICAL CORP., Debtor Deborah C. Menotte, Trustee Plaintiff, v. Oxyde Chemicals, Inc., Defendant.

Bankruptcy No. 07-16145-BKC-PGH.

Adversary No. 09-1615-PGH.

United States Bankruptcy Court, S.D. Florida, West Palm Beach Division.

February 10, 2010.

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Robert C. Furr, Esq., Boca Raton, FL, for Debtor.

Frank P. Delia, G. Steven Fender, Michael R. Bakst, Esq., West Palm Beach, FL, for Trustee.

MEMORANDUM ORDER: 1) GRANTING IN PART TRUSTEE'S MOTION FOR SUMMARY JUDGMENT; AND 2) DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

PAUL G. HYMAN, Chief Judge.

This matter came before the Court upon Deborah C. Menotte, the Chapter 7 Trustee's, ("Trustee") Dispositive Motion for Summary Judgment ("Trustee's Motion"), and Oxyde Chemicals, Inc.'s ("Defendant") Motion for Summary Judgment ("Defendant's Motion"). The parties filed a Joint Stipulation of Facts, as well as responses and replies to each other's motions.

STATEMENT OF FACTS

JSL Chemical, Corp., ("JSL" or "Debtor"), who was in the chemical supply business, filed for relief under Chapter 7 of the Bankruptcy Code on August 2, 2007 ("Petition Date"). The Defendant supplied chemicals to the Debtor. The Debtor and the Defendant's business relationship began in January, 2004. During the course of their relationship, the Defendant issued thirty invoices to the Debtor. Of these invoices, twenty-seven were paid during the pre-preference period, one was paid during the preference period, and two remained unpaid as of the Petition Date. Although the Defendant extended credit to the Debtor on payment terms of net 30 days, the Debtor rarely paid the Defendant within 30 days of invoice.

On June 9, 2009, the Trustee initiated this adversary proceeding by filing a Complaint to Avoid and Recover Preferential Transfers Pursuant to 11 U.S.C. § 547 and 11 U.S.C. § 550 ("Complaint"). The Trustee's Complaint seeks to avoid and recover an alleged preferential payment of $79,343.35 made by the Debtor to the Defendant ("Payment"). The Payment was made by check dated May 10, 2007 for full payment on account of an invoice dated March 13, 2007. The Defendant received the $79,343.35 Payment while $112,907.15 was outstanding from the Debtor. The $112,907.15 payable owed to the Defendant was comprised of three invoices: 1) the March 13, 2007 invoice for $79,343.35, 2) another March 13, 2007 invoice for $16,185.40, and 3) a March 16, 2007 invoice for $17,378.40. By virtue of the alleged preferential Payment, the Defendant received approximately 70% of what it was owed by the Debtor. It is undisputed that the Defendant's receipt of this Payment enabled the Defendant to receive more than it would have in this Chapter 7 case had it not received these funds.

There is also no dispute that the Defendant was a diligent creditor who would often inquire as to the status of payments and request prompt remittance when payments were late. On October 11, 2006, Steve Stone, the Defendant's Chief Financial Officer, sent an email to John Lagae, the Debtor's President, stating that in order to maintain a credit line with the Defendant and not be placed on prepaid credit status, checks for outstanding invoices would have to arrive the following morning. On April 29, 2007, Mr. Stone sent an email to Mr. Lagae which stated that the Defendant was placing the Debtor on "credit hold" until it received a response to its inquiry concerning outstanding invoices totaling approximately $112,000.00.

CONCLUSIONS OF LAW

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(F).

I. The Summary Judgment Standard

Federal Rule of Civil Procedure 56(c), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7056(c), provides that "[t]he judgment sought should be rendered 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); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Rice v. Branigar Org., Inc., 922 F.2d 788 (11th Cir.1991); Rollins v. TechSouth, Inc., 833 F.2d 1525 (11th Cir.1987); In re Pierre, 198 B.R. 389 (Bankr.S.D.Fla.1996). Rule 56 is based upon the principle that if the court is made aware of the absence of genuine issues of material fact, the court should, upon motion, promptly adjudicate the legal questions which remain and terminate the case, thus avoiding the delay and expense associated with a trial. See United States v. Feinstein, 717 F.Supp. 1552 (S.D.Fla.1989).

In considering a motion for summary judgment, "the court's responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987) (citing Anderson, 477 U.S. at 248, 106 S.Ct. 2505). "Summary judgment is appropriate when, after drawing all reasonable inference in favor of the party against whom summary judgment is sought, no reasonable trier of fact could find in favor of the non-moving party." Murray v. National Broad. Co., 844 F.2d 988, 992 (2d Cir.1988).

The Trustee's Motion seeks to avoid and recover the alleged preference Payment. The Defendant asserts that the Trustee may not avoid the Payment because it was made in the parties' ordinary course of business. Alternatively, if the Court finds that the Payment was not made in the ordinary course of business, the Defendant seeks set off for two unpaid invoices in the amount of $33,563.80. "The `ordinary course' determination requires, of course, a `peculiarly factual analysis.'" In re CCG 1355, Inc., 276 B.R. 377, 383 (Bankr.D.N.J. 2002). Nevertheless, the parties' Joint Stipulation provides the necessary material facts to adjudicate this matter. The parties' dispute centers not on the facts themselves, but rather on the interpretation of the facts under the law, such that summary disposition of this matter is appropriate. As discussed below, the Court finds the Trustee is entitled to summary judgment as a matter of law.

II. § 547 Preferences

A. § 547(b)

The Trustee's power to avoid preferences is designed to "discourage creditors from `racing to the courthouse to dismember the debtor during his slide into bankruptcy,' and to `facilitate the prime bankruptcy policy of equality of distribution among creditors of the debtor.'" In re Issac Leaseco, Inc., 389 F.3d 1205, 1209 (11th Cir.2004)(quoting Union Bank v. Wolas, 502 U.S. 151, 161, 112 S.Ct. 527, 116 L.Ed.2d 514 (1991)). A creditor who receives "a greater payment than others of his class must disgorge so that all creditors may share equally." Id.

To effect this policy, § 547(b) permits the Trustee to "`avoid any transfer of the interest of the Debtor in property' if five conditions are met." In re Globe Mfg. Corp., 567 F.3d 1291, 1296 (11th Cir.2009). The Trustee must show that the payment was 1) to the creditor, 2) on account of a previous debt, 3) made while the debtor was insolvent, 4) made ninety days before the bankruptcy petition was filed, and 5) was effective in enabling the creditor to receive more than it would have received in a Chapter 7 distribution. Id. (citing 11 U.S.C. § 547(b)); Kaplla v. Media Buying Inc. (In re Ameri P.O.S., Inc.), 355 B.R. 876, 881-882 (Bankr.S.D.Fla.2006).

The parties do not dispute that the Defendant was a creditor of the Debtor, that the Payment was made on account of a previous debt within 90 days of the Petition Date, and that it enabled the Defendant to receive more than it would otherwise have received through a Chapter 7 distribution in this case. The Defendant also made no attempt to rebut the § 547(f) presumption that the Debtor was insolvent during the 90 day pre-petition period. Thus, the Court concludes that § 547(b)'s elements are satisfied and the Payment was indeed a preference. Consequently, the Trustee can avoid the Payment unless the Defendant shows, by a preponderance of evidence, that the Payment falls under one of the exceptions stated in § 547(c). Ellenberg v. Tulip Prod. Polymerics, Inc. (In re T.B. Home Sewing Ent., Inc.), 173 B.R. 782, 787 (Bankr.N.D.Ga.1993). The Defendant argues that the Payment may not be avoided because it was made in the ordinary course of business pursuant to § 547(c)(2)(A). The Trustee maintains that the Payment is outside the ordinary course of business because it was paid later than payments made during the pre-preference period, and because the Debtor made the Payment in response to unusual collection activity.

B. § 547(c) Ordinary Course of Business

The purpose of the ordinary course of business defense "is to leave undisturbed normal financial relations, because [such an exception] does not detract from the general policy of the preference section to discourage unusual action by either the debtor or his creditor during the debtor's slide into bankruptcy." Marathon Oil Co. v. Flatau (In re Craig Oil Co.), 785 F.2d 1563, 1566 (11th Cir.1986)(alterations in original) (quoting H.R.Rep. No. 595, 95th Cong., 1st Sess. 373-74 (1977), reprinted in 1978 U.S.Code Cong. & Ad. News 5787, 6329). Stated another way, the ordinary course of business exception aims to protect the normal, ordinary relationship between debtors and creditors in recurring credit transactions. In re Moltech Power Sys., Inc., 327 B.R. 675, 679 (Bankr.N.D.Fla.2005) (citations omitted). The ordinary course inquiry is subjective "insofar as it requires courts to consider whether the transfer was ordinary in...