In re Tennessee Valley Steel Corp.
| Decision Date | 29 October 1996 |
| Docket Number | Adv. No. 96-3025.,Bankruptcy No. 94-32813 |
| Parties | In re TENNESSEE VALLEY STEEL CORP., Debtor. Michael H. FITZPATRICK, Trustee, Plaintiff, v. ROCKWOOD WATER, WASTEWATER AND NATURAL GAS SYSTEMS, Defendant. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Eastern District of Tennessee |
COPYRIGHT MATERIAL OMITTED
Jenkins & Jenkins Attorneys, PLLC, James C. Cone, Knoxville, TN, for Plaintiff.
Lewis, King, Krieg, Waldrop & Catron, P.C., Rodney A. Fields, Knoxville, TN, for Defendant.
The Chapter 11 Trustee, Michael H. Fitzpatrick, commenced this adversary proceeding on February 12, 1996, seeking to avoid and recover five allegedly preferential utility payments made by the Debtor to the Defendant, Rockwood Water, Wastewater, and Natural Gas Systems, totaling $439,436.23. The Trustee's action is grounded on 11 U.S.C.A. §§ 547(b) and 550(a)(1) (West 1993). The parties stipulate that the payments, all made by check within the ninety days preceding the filing of the Debtor's voluntary petition under Chapter 11 on November 11, 1994, were made on the following dates:1
August 18, 1994 $ 24.58
August 18, 1994 90,565.03
September 2, 1994 139,963.40
September 29, 1994 103,779.53
October 28, 1994 105,103.69
Additionally, the Trustee seeks to recover prejudgment interest from July 19, 1995, the date the Debtor, while serving as debtor-in-possession, demanded repayment of the disputed transfers. The Defendant stipulates that the Trustee has met his burden of proof on all elements under § 547(b) but relies on the ordinary course of business defense under 11 U.S.C.A. § 547(c)(2) (West 1993) to defeat the Trustee's claim. Alternatively, if the court determines the Defendant is unable to avail itself of the ordinary course of business defense, the Defendant contends it is entitled to an offset against the preferential transfers pursuant to the "new value" exception of 11 U.S.C.A. § 547(c)(4) (West 1993). All issues were tried before the court on September 9, 1996.
This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(F) (West 1993).
The Debtor, Tennessee Valley Steel Corporation, was engaged in the business of processing scrap steel into fabricated steel products prior to the commencement of its Chapter 11 case on November 11, 1994. The Debtor operated what is known as a mini-mill and used natural gas to heat its furnaces and office buildings. The Defendant, a municipal utility, provided natural gas and water to the Debtor under two types of accounts: a house account for typical residential-type gas and water service supplied to the Debtor's offices and a chart account which charted the Debtor's consumption of natural gas utilized by its furnaces in the steel manufacturing process. The Debtor's house account consisted of three numbered accounts, XX-XXXX-XX (water), XX-XXXX-XX (gas), and XX-XXXX-XX (water and gas). The chart account was not identified by an account number but was serviced by a meter that charted the Debtor's gas consumption on a daily basis.
The Debtor paid the Defendant monthly for its utility services upon receipt of invoices which contained the date of the invoice, the nature of service, the consumption for the relevant billing period, a computation of the amount owed, a due date, and a statement that an additional amount of ten percent would be added to the gross billing if payment was received after the due date. The invoices were generated by the Defendant's computer system and were then mailed to the Debtor. The form of the invoices for the numbered house accounts and the chart account was similar, the major difference being that the former were printed on postcard-type forms and the latter were printed on eight and a half by eleven inch paper. In addition, the invoices for the chart account included or followed with a chart prepared by the Defendant from the data produced by the chart gas meter which showed the Debtor's daily consumption of natural gas delivered from the Defendant.
The dates of issuance of the monthly invoices for gas billed on the chart account and the due dates stated on each invoice by which the account could be paid without imposition of the late penalty varied monthly. The following table summarizes all transactions between the Debtor and Defendant on the chart account2 for which the Debtor made payment prior to commencement of the preference period:3
CHART ACCOUNT TRANSACTIONS
PRIOR TO PREFERENCE PERIOD
Invoice Amount Date Check Amount
Date Due Due Delivered4 Paid
11/2/93 $ 94,788.61 11/25/93 11/23/93 $ 87,765.71
12/14/93 $122,049.47 12/25/93 12/27/93 $108,815.57
1/17/94 $112,927.80 2/1/94 1/31/94 $101,366.10
2/17/94 $112,927.80 2/28/94 $ 74,119.05
4/5/94 $104,185.31 4/20/94 4/15/94 $104,002.47
4/18/94 $137,450.05 5/1/94 4/25/94 $137,450.05
5/20/94 $108,820.72 5/31/94 6/1/94 $108,820.72
6/21/94 $ 99,125.36 7/15/94 7/12/94 $ 99,125.36
Those payments made within the preference period on the chart account are summarized in the table below.5
CHART ACCOUNT TRANSACTIONS
DURING PREFERENCE PERIOD
Invoice Amount Date Check Amount
Date Due Due Delivered6 Paid
7/22/94 $ 90,565.03 8/10/94 8/16/947 $ 90,565.03
8/12/94 $130,906.90 8/30/94 8/31/94 $139,963.408
9/14/94 $112,836.03 9/25/949 9/27/94 $103,779.5310
10/14/94 $105,103.69 10/25/94 10/26/94 $105,103.69
In sum, of the eight invoices dated November 2, 1993, through June 21, 1994, prior to the preference period, five were paid within the due dates stated on each invoice and two, those invoices dated December 14, 1993, and May 20, 1994, were paid after the stated due dates. The February 17, 1994 invoice had no stated due date. With regard to the December 14, 1993 invoice, paid December 27, 1993, its stated due date was December 25, 1993, Christmas Day. The court takes judicial notice that Christmas Day, a national holiday, fell on Saturday in 1993 which means that the next business day was Monday, December 27, 1993, the date the check was delivered. Therefore, payment of the December 14, 1993 invoice could not have been delivered either on the stated Saturday due date or on the following day, Sunday, both of which were non-business days.11
Regarding the February 17, 1994 invoice, the proof establishes that the computer which normally produced the Defendant's invoices was not working and that this invoice was therefore typed. The computer generated due date routinely stated on each invoice was inadvertently omitted by the typist. Neither the Defendant nor the Debtor deemed this invoice to have been untimely paid. The May 20, 1994 invoice was paid on June 1, 1994, the day after the due date stated on the invoice.
Payment of each of the four invoices within the preference period was made after the respective due dates set forth on each invoice. Specifically, payment of the July 22, 1994 invoice due August 10, 1994, was made on August 16, 1994, six days after the stated due date; payment of the August 12, 1994 invoice, due August 30, 1994, was made on August 31, 1994, one day after the stated due date; payment of the September 14, 1994 invoice, due September 25, 1994, was made on September 27, 1994, two days after the stated due date;12 and payment of the October 14, 1994 invoice, due October 25, 1994, was made on October 26, 1994, one day after the stated due date. Additionally, a ten percent (10%) penalty, or $9,056.50, was assessed the Debtor as a result of its late payment of the July 22, 1994 invoice. The penalty was paid on August 31, 1994, at the time the Debtor paid the August 12, 1994 invoice. The Defendant refunded the penalty by crediting it against the amount due on the September 14, 1994 invoice. No penalty was assessed the Debtor regarding any other invoice paid beyond the stated due date within the year preceding the filing of the Chapter 11 petition.
The record establishes that, notwithstanding the due dates specifically set forth on each monthly invoice related to the Debtor's chart account, the Defendant's policy was to allow the Debtor a five-day grace period within which to pay each invoice before assessing the ten percent (10%) late penalty.13 The grace period was designed to accommodate payments made by mail. Marie Fox, an employee of the Knoxville Utilities Board (KUB), a public utility providing electric, water, and natural gas service to residential and commercial customers throughout the greater Knoxville area, testified that KUB also has a standard procedure allowing a five-day grace period within which its commercial gas customers may pay their accounts without assessment of a penalty but that KUB does not refund penalties charged accounts paid after the grace period.14 Paula Schmidt, the Debtor's controller, testified that it was her understanding that if payments to the Defendant were mailed by the due date they would be deemed timely even though received after the due date and that this grace period was designed to accommodate payments delivered to the Defendant by mail. Ms. Schmidt also testified that she had this same understanding with all utility companies serving the Debtor and with utility companies serving a former employer, Cascade Steel Company.
Robert Ingram, the Defendant's general manager, testified that the Debtor's account was never a problem...
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