In re Roberds, Inc., Bankruptcy No. 03-30194.

• Decision Date: 13 August 2004
• Docket Number: Adversary No. 01-3408.,Bankruptcy No. 03-30194.
• Citation: 313 B.R. 732
• Parties: In re ROBERDS, INC., Debtor. Roberds, Inc., Plaintiff, v. Broyhill Furniture, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

313 B.R. 732

In re ROBERDS, INC., Debtor Roberds, Inc., Plaintiff, v. Broyhill Furniture, Defendant.

Bankruptcy No. 03-30194.

Adversary No. 01-3408.

United States Bankruptcy Court, S.D. Ohio, Western Division.

August 13, 2004.

Nick V. Cavalieri, Bailey Cavalieri, Columbus, OH, Robert B. Berner, Dayton, OH, for Debtor.

Walter Reynolds, Dayton, OH, Jerome J. Metz, Jr., Cincinnati, OH, for Broyhill Furniture.

Robert G. Hanseman, Sebaly Shillito & Dyer, Dayton, OH, for the Unsecured Creditors Committee.

DECISION ON ORDER GRANTING BROYHILL FURNITURE SUMMARY JUDGMENT ON COUNT II OF THE COMPLAINT OF ROBERDS, INC.

THOMAS F. WALDRON, Chief Judge.

Introduction

Roberds, Inc. (Roberds), the Debtor and Debtor in Possession, in this chapter 11 case has filed over 250 adversary proceedings attempting to recover transfers which are allegedly preferential under provisions of either the Bankruptcy Code, a separate Ohio statute, or both. This decision focuses on Roberds' pursuit of preferences under Ohio law and is, accordingly, restricted to applicable Ohio law. See generally Thomas D. Buckley, The Use of Ohio's Preference Law in Bankruptcy: An Alternative to Section 547 With a Longer "Reach-Back" Period, 20 CAP. U.L. REV. 863, 863, fn. 1 (1991) (The author noting that only Kentucky, New Mexico and Maryland have separate state preference statutes of general application.) An extended analysis of Ohio preference law has not been the subject of any previously reported bankruptcy court decision.

Procedural History

Roberds' complaint (Doc. 1) seeks to avoid and recover thirty-two payments totaling $2,797,806.71 made during the ninety days prior to the bankruptcy filing date from the Defendant, Broyhill Furniture (Broyhill). Roberds asserts causes of action under 11 U.S.C. § 547(b) and, more specifically for this decision, Count II seeks avoidance of transfers pursuant to Ohio Revised Code §§ 1313.56 and 1313.57 "or other applicable law." Broyhill answered with a frequently seen combination of denials and affirmative defenses. (Doc. 7) Following the completion of extensive discovery, trial of this adversary proceeding is scheduled to commence on August 30, 2004.

In a July 14, 2004 required filing, captioned Broyhill Furniture's List of Defenses Remaining For Determination In This Adversary Proceeding (Doc. 46), and in a pre-trial conference held on July 16, 2004, Broyhill raised the issue of whether Roberds could, as a matter of Ohio law, recover payments as preferential transfers if Roberds made those payments to Broyhill in money, asserting that, under applicable Ohio law, a payment in money could not, as a matter of law, constitute a preference. After a clarification of the legal issue at a pretrial on July 22, 2004, the parties filed legal memoranda based on their agreements as to both the legal issue and an appropriate briefing schedule. (See Doc. 53 — Paragraph 7)

Arguments Of The Parties

The parties' positions are set forth in their filed memoranda. On July 23, 2004, Broyhill filed Broyhill Furniture's Motion for Partial Summary Judgment (Doc. 55) and Roberds filed Plaintiff's Memorandum of Law Concerning The State Law Issue. (Doc. 56) On July 30, 2004, the parties filed Reply Memorandum of Law Concerning The State Law Issue By Plaintiff Roberds, Inc. (Doc. 62) and Broyhill Furniture's Reply In Support of Motion For Partial Summary Judgment. (Doc. 63) The court acknowledges the extensive presentations by counsel in their memoranda.

Broyhill argues that a Supreme Court of Ohio decision — ruling an intentional preference cannot be recovered if the payment was in money — was a binding syllabus holding, which interpreted a prior Ohio Preference Statute and still controls any interpretation of the current Ohio Preference Statute, since the current statute remains unchanged in its relevant text; and, as a federal court, this bankruptcy court is bound by that holding and must conclude that, in the circumstances of this adversary proceeding, any intentional preference payments by Roberds to Broyhill cannot be recovered under applicable Ohio law, since they were payments in money. Further, although there may appear to be Ohio appellate and Sixth Circuit decisions which are inconsistent with, or contradict, the Supreme Court of Ohio's holding, a careful examination of these decisions demonstrates they are factually inapposite or fail to support the propositions for which they are asserted.

Roberds argues that a Supreme Court of Ohio decision — ruling an intentional preference cannot be recovered if the payment was in money — was expressed as dicta, and even if this court is restricted in reviewing state law, this court is not bound to follow a one hundred year old decision, which obviously did not consider the current Ohio Preference Statute and subsequent developments in Ohio preference law; and, in the circumstances of this adversary proceeding, any intentional preference payments by Roberds to Broyhill can be recovered under applicable Ohio law, even though they were in money. Further, subsequent applicable decisions by Ohio appellate courts and the Sixth Circuit have demonstrated that the Supreme Court of Ohio's decision would not prevent recovery, under current Ohio law, of preference payments in money.

Issue

As agreed to at the most recent pretrial conference (See Doc. 53 — Paragraph 7), the issue to be determined is whether Ohio law would, upon presentation of sufficient evidence, authorize Roberds, Inc., an operating company, to recover as a preference its payment in money of a lawful debt to Broyhill Furniture. For purposes of this decision, Roberds is acknowledged to have been an operating company at the time of the payments and the debt paid to Broyhill was lawful. The only issue addressed in this decision is, since Roberds' payments to Broyhill were in money, can they be recovered as a preference under current Ohio law.

Determination of Issue

The court determines that an intentional payment by an operating company in money of a lawful debt to a creditor cannot be recovered as a preferential transfer under current Ohio law and, accordingly, Broyhill's Motion for Partial Summary Judgment (Doc. 55) is granted, dismissing Count II of Roberds' Complaint, which seeks avoidance of transfers pursuant to Ohio Revised Code §§ 1313.56 and 1313.57 "or other applicable law."

Discussion

Summary Judgment Standard

The familiar standard to address the parties' filings is contained in Federal Rule of Civil Procedure 56(c) and is applicable to bankruptcy adversary proceedings by incorporation in Bankruptcy Rule 7056. Federal Rule of Civil Procedure 56(c) states, in part, that a court must grant summary judgment to the moving party if:

the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

In order to prevail, the moving party, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331, 106 S.Ct. 2548, 2556, 91 L.Ed.2d 265 (1986). If the burden is on the non-moving party at trial, the movant must: 1) submit affirmative evidence that negates an essential element of the nonmoving party's claim; or 2) demonstrate to the court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim. Id. at 331-332, 106 S.Ct. at 2557. Thereafter, the opposing party "must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (citations omitted); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-251, 106 S.Ct. 2505, 2510-12, 91 L.Ed.2d 202 (1986). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita, 475 U.S. at 586-588, 106 S.Ct. at 1356-57. The parties agree, and the court determines, the issue presented is appropriate for resolution as a matter of law based on the parties' filings.

Federal Courts and The Interpretation of State Law

As a predicate to the court's analysis, it is important to note the restricted relationship a federal court has in applying a state statute when that statute has been the subject of interpretation and application by the state's highest court. This issue is not a new one for the federal courts and predates the landmark decision of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), which required federal courts to apply the state substantive law of the forum in which the federal court sits. See Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure, § 4507 (2d ed. 2004) ("It was a problem in the era of Swift v. Tyson[, 41 U.S. 1, 10 L.Ed. 865 (1842)] as well, when federal courts, although free to disregard state court decisions on many subjects, nonetheless were required to follow state constitutions, statutes and decisions construing them....")

Cases decided subsequent to Erie emphasize a federal court's obligation to follow an interpretation of a state statute by the highest court of a state. See, e.g., Fleischman Constr. Co. v. Burns, 284 F. 358, 360 (6th Cir.1922) ("The federal courts will not review or reverse the judgment of a state court of last resort construing a state statute, but will accept such construction, whether right or wrong, if no federal question is involved, and the decision of the state court is without purpose to evade a federal issue."); Burns Mortgage v. Fried, 292 U.S. 487, 493-94, 54 S.Ct. 813, 814, 78 L.Ed. 1380 (1934) ("The applicable state statute furnishes the rule of decision for a federal court sitting in the state or outside its borders. And in that court the law must...