In re Miniscribe Corp.
| Decision Date | 11 January 1991 |
| Docket Number | Adv. No. 90 1190 PAC,Bankruptcy No. 90 B 00001 E. |
| Citation | 123 BR 86 |
| Parties | In re MINISCRIBE CORPORATION, a Delaware Corporation, Debtor. MINISCRIBE CORPORATION, Plaintiff, v. KEYMARC, INC., d.b.a. Tokyo Circuits, Ltd., Defendant. |
| Court | U.S. Bankruptcy Court — District of Colorado |
William A. Bianco, Madison E. Bond, Denver, Colo., for plaintiff.
John Mason, Jr., Santa Monica, Cal., Albert T. Funada, Torrance, Cal., Richard Romero, Los Angeles, Cal., for defendant.
This matter is before the Court upon the debtor-in-possession's, Miniscribe Corporation's (Miniscribe), complaint to recover alleged preferential transfers to Keymarc, Inc., (Keymarc).
The relevant facts are as follows. Miniscribe was a corporation whose primary business involved the design, manufacture and sale of computer disk drives, to provide mass data storage for computer use. One of Miniscribe's most promising products for the future involved the development of a one-inch hard disk drive. In order to produce the one-inch hard disk drive, expensive and specialized tooling equipment needed to be built to manufacture three key parts — aluminum base plates, actuators and top covers. Miniscribe contracted with Keymarc to manufacture the equipment and provided the financing for it. Keymarc in turn gave the specifications for the tooling equipment to Kenseisha, a Japanese company with ties to Keymarc. Kenseisha manufactured the tooling equipment which produced the three integral parts for Miniscribe's one-inch disk drives. Kenseisha then sold the parts to Tokyo Circuits, a Japanese export company of Keymarc, which then transferred the components to Keymarc. The caption of this adversary proceeding is phrased "Keymarc, Inc., d.b.a. Tokyo Circuits, Ltd." which reflects the close interrelationship of the two entities. After Keymarc paid Kenseisha for the goods and delivered them to Miniscribe, Keymarc would send invoices to Miniscribe with payment terms of "net 30," which meant payment for the goods was due within 30 days of the invoice being sent.
This business arrangement lasted from late 1988 up until January 1, 1990, when Miniscribe filed its Chapter 11 voluntary petition. Between October 3, 1989 and the petition date, Miniscribe made several payments to Keymarc for the components purchased as reflected in the outstanding invoices sent to Miniscribe. Each payment was received by Keymarc within 90 days of the petition date. Since the filing of the Chapter 11, most of Miniscribe's assets have been purchased by a company called "Maxtor," and Keymarc still does business with that entity, supplying the parts for the one-inch disk drive products. Miniscribe still exists as a debtor-in-possession.
This action has been brought under 11 U.S.C. § 547 by Miniscribe, alleging that the payments made to Keymarc within 90 days of the filing of the petition represent preferential payments which should be recovered for the benefit of the estate. Where a debtor acts as a debtor-in-possession in a Chapter 11 case, the debtor-in-possession has the power of a Chapter 11 trustee to pursue a cause of action under 11 U.S.C. § 547. In re Electronic Metal Products, 916 F.2d 1502 (10th Cir.1990); In re Brent Explorations, 31 B.R. 745 (Bankr.D.Colo.1983); See 11 U.S.C. § 1107(a). The following comprises a list of the relevant transactions:
Invoice and
Keymarc Shipment Payment Due Date of Amount Preference
Invoice No. Date Date Receipt Paid Payment Total
8218910 08 18 89 09 17 89 10 04 89 $ 3,816.00 Payment 1
8218909 08 21 89 09 20 89 10 04 89 1,820.00 Payment 1 $ 5,636.00
8218905 08 21 89 02 20 89 10 10 89 1,870.00 Payment 2 1,870.00
20986 09 04 89 10 04 89 10 23 89 57,000.00 Payment 3 57,000.00
21110 10 23 89 11 22 89 12 01 89 2,160.00 Payment 4
21111 10 23 89 11 22 89 12 01 89 611.60 Payment 4
21116 10 26 89 11 25 89 12 01 89 2,160.00 Payment 4
21115 10 26 89 11 25 89 12 01 89 1,584.00 Payment 4
21117 10 26 89 11 25 89 12 01 89 1,465.20 Payment 4
21122 10 30 89 11 29 89 12 01 89 4,304.00 Payment 4
21121 10 30 89 11 29 89 12 01 89 958.00 Payment 4
21123 10 30 89 11 29 89 12 01 89 730.40 Payment 4 13,973.20
21142 11 08 89 12 08 89 12 18 89 2,600.00 Payment 5
21154 11 13 89 12 13 89 12 18 89 4,000.00 Payment 5
21169 11 15 89 12 15 89 12 18 89 1,920.00 Payment 5
21179 11 20 89 12 20 89 12 18 89 4,704.00 Payment 5
21180 11 21 89 12 21 89 12 18 89 4,000.00 Payment 5 17,224.00
Although there are 17 different invoices, there are only five preference payments, because certain of the invoices were combined and payments were made on five dates with five checks.
There are numerous issues which confront the Court. First, are the payments referenced above avoidable as preferential transfers as defined by 11 U.S.C. § 547(b). Secondly, if the first question is answered affirmatively, are there defenses available to Keymarc under 11 U.S.C. § 547(c) which would act to deny Miniscribe the right to avoid the preferential payments. Keymarc asserts that even if the elements of a preferential transfer are proven under 11 U.S.C. § 547(b), the payments cannot be avoided because they were contemporaneous exchanges as defined by 11 U.S.C. § 547(c)(1), and were incurred in the ordinary course of business pursuant to 11 U.S.C. § 547(c)(2).
As grounds for Miniscribe's position that the payments were preferential, Miniscribe presented evidence at the hearing concerning the way business was conducted during the preference period. Miniscribe asserts that during that time, payments were made to various creditors based upon each creditor's "threshold of pain," because Miniscribe could not meet the regular payment terms imposed by their creditors as a result of financial problems and restricted cash flow. The testimony of Mr. Michael Kepler, the Miniscribe manager responsible for vendor relations with Keymarc and other creditors, revealed that the amount of money available each week to pay creditors was always less than what was needed. As a result, he was forced to stretch payments on invoices up to Keymarc's (and other creditors') "threshold of pain," a term which describes when a creditor would complain of late payment and threaten to either ship the goods C.O.D. or terminate its relationship with Miniscribe.1
Although Mr. Kepler testified that he did not receive direct threats from Keymarc regarding cessation of shipments, he did acknowledge Keymarc applied indirect pressure on Miniscribe to receive prompt payment within the 90 days prior to the filing of the petition. This fact was evidenced by plaintiff's Exhibit J, which is a faxed letter from a Mr. Michio Shiba, a Miniscribe employee located in Tokyo. Exhibit J states in part "Keymarc suggested Kenseisha to stop next shipping because they could not receive payments schedule from Miniscribe re 8 invoices attached which due dates are Nov 22." Mr. Kepler stated that the one-inch disk drive was a very important product of Miniscribe, and the future of the company was hinged upon its success.
Miniscribe further asserts that its slide into bankruptcy was well publicized, as shown by plaintiff's Exhibit N, which is a September 11, 1989 copy of a front page article published in The Wall Street Journal, entitled "Cooking the Books, How Pressure To Raise Sales Led Miniscribe To Falsify Numbers." Miniscribe contends that Keymarc executives read the article, became concerned over Miniscribe's financial abilities, and engaged in unusual debt collection practices as a result. Miniscribe believes Keymarc used its leverage as the sole supplier of critical parts to extract payments from Miniscribe that otherwise might not have been made. Testimony was elicited from Mr. Yoshi Terajima, President of Keymarc, and overseer of the payments from Miniscribe, who stated he read The Wall Street Journal article and became more cautious with the status of the Miniscribe account afterwards. He also testified that he knew Miniscribe was a troubled company, was aware of the importance of the goods Keymarc shipped to Miniscribe, and that if Keymarc halted its shipments, there would be a disruption in Miniscribe's business because the specialized tooling equipment in Kenseisha's possession would have to be transferred to a new supplier.
Mr. Terajima candidly admitted that it was his desire to have Miniscribe speed up payments to Keymarc, so as to reduce Keymarc's exposure. Although he did not directly speak to Miniscribe about this, he testified that the message was communicated to them in some way. Mr. Terajima stated that he did not recall making any threats to Miniscribe regarding the stopping of shipments. On cross-examination, Mr. Terajima testified that Miniscribe was an important customer. He further stated that although most customers were on a "net 30" basis, very few paid within the 30-day period. However, the payment terms with Miniscribe on the "net 30" basis were never changed.
Miniscribe also had Ms. Heather Godette testify, who was a Miniscribe employee responsible for the payment of invoices tendered by Keymarc. Ms. Godette stated that from June of 1989 through December of 1989, she was contacted four times by Keymarc representatives, who inquired about the status of payments. Prior to that time period, she never had any contact with Keymarc personnel. Ms. Godette stated that the conversations with Keymarc representatives were polite, and not hostile or demanding. Although she was aware that there was a pecking order as to which creditors got paid first, she did not believe Keymarc was...
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