Kaye v. Blue Bell Creameries, Inc. (In re BFW Liquidation, LLC)

Decision Date14 August 2018
Docket NumberNo. 17-13588,17-13588
Parties IN RE: BFW LIQUIDATION, LLC, Debtor. William S. Kaye, Trustee of the BFW Liquidating Trust, Plaintiff-Appellee, v. Blue Bell Creameries, Inc., Defendant-Appellant.
CourtU.S. Court of Appeals — Eleventh Circuit

John Douglas Elrod, Greenberg Traurig, LLP, ATLANTA, GA, for Plaintiff-Appellee.

Bill D. Bensinger, Christian & Small, LLP, BIRMINGHAM, AL, for Defendant-Appellant.

Before MARTIN, JULIE CARNES, and GILMAN,* Circuit Judges.

JULIE CARNES, Circuit Judge:

Bruno's Supermarkets, LLC ("the Debtor") filed for bankruptcy under Chapter 11. In administering and ultimately liquidating the bankruptcy estate, the Trustee filed an adversary proceeding against Blue Bell Creameries, Inc. ("Blue Bell") to recover monies the Trustee contended were owed by Blue Bell to the estate. Specifically, the Trustee sought to recover from Blue Bell more than $500,000 in a series of payments that Blue Bell had received from the Debtor during the 90-day period preceding the Debtor's bankruptcy filing. Each payment by the Debtor was made for recent shipments of ice cream and other merchandise that Blue Bell had delivered to the Debtor for the latter to sell to the public.

Blue Bell acknowledged that the payments it received from the Debtor constituted preferences under 11 U.S.C. § 547(b),1 which meant that absent a valid defense by Blue Bell, the Trustee would be empowered to "avoid" those payments: that is, require Blue Bell to repay the money it had earlier been paid by the Debtor for goods it had actually delivered. Blue Bell argued below that it had just such a defense. Specifically, 11 U.S.C. § 547(c)(4) prohibits "avoidance" by the trustee to the extent the recipient of payments during the preference period provided "new value" to the debtor during that same period.

Despite Blue Bell having provided new value to the Debtor here—lots of ice cream products that the latter was able to sell to its customers in its efforts to remain financially afloat—the bankruptcy court concluded that it was bound by our precedent to reject, in large part, Blue Bell's new-value defense. Specifically, relying on Charisma Investment Company, N.V. v. Airport Systems, Inc. (In re Jet Florida System, Inc.) , 841 F.2d 1082 (11th Cir. 1988), the bankruptcy court held that Blue Bell was entitled to an offset against its preference liability only to the extent that any new value it extended to the Debtor "remained unpaid" as of the date the bankruptcy petition was filed. Because Blue Bell was paid for many of the products that it had delivered, the bankruptcy court concluded that Jet Florida System prevented Blue Bell from using the new-value defense to defeat the Trustee's efforts to "avoid" such payments. As a result, the court ruled that Blue Bell had to return much of the money it had been paid for the goods it provided the Debtor.

Blue Bell appeals the bankruptcy court's decision. After careful review, and with the benefit of oral argument, we conclude that the language in Jet Florida System relied on by the bankruptcy court was dictum and, as such, it does not bind us. Construing § 547(c)(4) anew, we conclude that it does not require new value to remain unpaid. We therefore vacate the bankruptcy court's judgment and remand for a new calculation of Blue Bell's preference liability.

BACKGROUND

I. Factual Background

The Debtor, Bruno's Supermarkets, LLC,2 was a grocery-store chain with more than 60 stores in Alabama and Florida. Blue Bell sold ice cream and related products to the Debtor on credit. The Debtor traditionally paid Blue Bell twice weekly, meaning that, under that payment scheme, the Debtor remained current as to the money it owed Blue Bell.

The Debtor began suffering from liquidity problems, however, and in August 2008, it hired an advisory firm to provide guidance on cash-flow management. Absent immediate action, the Debtor expected to run out of cash. On the advisory firm's recommendation, the Debtor began writing checks to its vendors, including Blue Bell, only once a week, not twice. It also began "stretching," or delaying, payments, which occasionally included cutting checks and then holding those checks for a period of time. Under this new "slow-pay" protocol, the Debtor would ultimately pay Blue Bell for the products it had delivered, but it would take longer to do so. This practice also resulted in Blue Bell receiving payments at irregular intervals, particularly during the 90 days immediately preceding the bankruptcy filing.

Between November 7, 2008, and February 5, 2009,3 the Debtor paid Blue Bell a total of $563,869.37 in 13 separate payments. At least $250,000 of that total was for products that Blue Bell had delivered to the Debtor before November 7, 2008. During the same time period—between November 7, 2008, and February 5, 2009—Blue Bell delivered $435,705.65 worth of ice cream and other merchandise to the Debtor's grocery stores. Blue Bell delivered these products in relatively small batches on an almost daily basis, making about 1,700 separate deliveries. These transactions are summarized in the following chart4 :

                Date/Time Period Invoices/Deliveries from Payments the Debtor
                Blue Bell to the Debtor Made to Blue Bell
                Nov. 7, 2008 - Nov. 11, 2008              $24,271.70
                        Nov. 12, 2008                                               $43,924.47
                Nov. 12, 2008 - Nov. 24, 2008             $108,872.64
                        Nov. 25, 2008                                               $67,821.23
                Nov. 25, 2008 - Dec. 1, 2008              $42,858.51
                        Dec. 2, 2008                                                $55,149.91
                Dec. 2, 2008 - Dec. 4, 2008               $11,523.17
                        Dec. 5, 2008                                                $27,485.38
                Dec. 5, 2008 - Dec. 8, 2008               $13,783.29
                        Dec. 9, 2008                                                $33,320.61
                Dec. 9, 2008 - Dec. 14, 2008              $41,029.32
                        Dec. 15, 2008                                               $26,327.00
                Dec. 15, 2008 - Jan. 4, 2009              $101,670.75
                        Jan. 5, 2009                                                $59,980.15
                        Jan. 5, 2009                      $10,337.94
                        Jan. 6, 2009                                                $55,508.85
                Jan. 6, 2009 - Jan. 12, 2009              $39,041.37
                        Jan. 13, 2009                                               $47,162.09
                Jan. 13, 2009 - Jan. 19, 2009             $23,737.88
                        Jan. 20, 2009                                               $28,483.07
                Jan. 20, 2009 - Jan. 29, 2009             $10,297.79
                        Jan. 30, 2009                                               $33,186.46
                        Jan. 30, 2009                                               $48,213.42
                Jan. 30, 2009 - Feb. 2, 2009              $7,246.81
                        Feb. 3, 2009                                                $37,306.73
                        Feb. 3, 2009                      $1,034.48
                

II. Procedural History

The Debtor filed a voluntary Chapter 11 bankruptcy petition on February 5, 2009. On September 25, 2009, the bankruptcy court confirmed the Debtor's Fourth Amended Plan of Liquidation. Pursuant to the plan and confirmation order, William Kaye ("the Trustee") was appointed the liquidating trustee for the Debtor's bankruptcy estate. Acting for the benefit of the bankruptcy estate, the Trustee was responsible for enforcing any avoidance actions that might lie against creditors of the Debtor.

In January 2011, the Trustee brought this adversary proceeding against Blue Bell seeking to avoid, as a preference, the $563,869.37 that the Debtor had paid to Blue Bell during the 90-day period prior to the filing of the bankruptcy petition: that is, any payments made between November 7, 2008, and February 5, 2009. Blue Bell and the Trustee eventually stipulated that all of the elements of a preference claim under 11 U.S.C. § 547(b) had been satisfied with respect to each of the transfers making up the $563,869.37. That is, Blue Bell had received these monies during the preference period and they were in payment of a prior debt.

Blue Bell asserted two defenses to the Trustee's preference claims: § 547(c)(2)'s ordinary-course-of-business defense and § 547(c)(4)'s subsequent-new-value defense. The bankruptcy court rejected Blue Bell's invocation of the ordinary-course-of-business defense. Blue Bell does not challenge that ruling on appeal.

With respect to the subsequent-new-value defense, the bankruptcy court concluded that Blue Bell was entitled to an offset against its preference liability only to the extent that any new value it extended to the Debtor during the preference period "remained unpaid" as of the petition date. The court relied on Jet Florida System , in which our Court stated that § 547(c)(4) had "generally been read to require ... that the new value must remain unpaid." See In re Jet Fla. Sys., Inc. , 841 F.2d at 1083.

Excluding all new value for which the Debtor had paid, the bankruptcy court concluded that the Trustee could avoid—that is, claw back—$438,496.47 of the $563,869.37 transferred to Blue Bell during the preference period. It reached this figure by relying on the calculations of the Trustee's expert witness, who had analyzed the Debtor's books and records and traced each of the 13 payments made during the preference period to the particular invoices those payments were designated to cover. Any invoice the Debtor had paid was excluded from the amount of new value that Blue Bell could use to offset its preference liability. The bankruptcy court entered judgment in favor of the Trustee and against Blue Bell on December 20, 2016.

Blue Bell filed a notice of appeal to the district court. Shortly thereafter, Blue Bell and the Trustee jointly certified that an immediate appeal of the bankruptcy court's order directly to this Court would materially advance the progress of the case.5 Blue Bell then filed a petition for permission to appeal the bankruptcy court's order...

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