Matter of Unimet Corp.
| Decision Date | 18 March 1988 |
| Docket Number | Bankruptcy No. 685-00240,Adv. No. 687-0093,687-0106 and 687-0166. |
| Parties | In the Matter of UNIMET CORPORATION, Debtor. (Three Cases) UNIMET ASSETS DISPOSITION TRUST, Plaintiff, v. CRAMERS, INC., Defendant UNIMET ASSETS DISPOSITION TRUST, Plaintiff, v. KENMORE DEVELOPMENT & MACHINE CO., INC., Defendant. UNIMET ASSETS DISPOSITION TRUST, Plaintiff, v. MICHAEL SAND CO., L.P.A., Defendant. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
David Hunter, and Timothy Barry of Brouse & McDowell, Akron, Ohio, for trustee.
Richard Princic of Day, Ketterer, Raley, Wright & Rybolt, Canton, Ohio, for Michael Sands Co., L.P.A.
Wayne Kaschak of Kramer, Helling & Kramer, Canton, Ohio, for Cramers, Inc.
John Nehrer of Nehrer & Nehrer Co., L.P.A., Cuyahoga Falls, Ohio, for East End Welding Co.
David Friedman, of Hershey & Browne, Akron, Ohio, for Kenmore Development & Machine Co., Inc.
Presented to the court are various motions for summary judgment in these three adversary proceedings. Pursuant to 11 U.S.C. § 547, the Unimet Assets Disposition Trust, through its Trustee, seeks to recover several payments made to the defendants by Unimet Corporation (Unimet) or its subsidiary Esmet, Inc. (Esmet). The defendants do not deny the applicability of Subsection 547(b) to these payments, but each of the defendants asserts that the ordinary course of business exception provided in 11 U.S.C. § 547(c)(2) thwarts the Trustee's avoidance effort:
The Trustee admits that the transfers in question satisfy Section 547(c)(2)(A) and (B). The issue before the court is whether the debtors' payments were "made according to ordinary business terms." Section 547(c)(2)(C). Each defendant urges an affirmative answer in that they did nothing unusual or extraordinary to secure the payments. The Trustee counters that the timing of the payments was not consistent with ordinary business terms in the parties' industry.
Unimet and Esmet filed for relief under Chapter 11 of Title 11 of the United States Code on March 8, 1985. A joint plan of reorganization was confirmed by this court on November 24, 1986. Pursuant to this joint plan of reorganization, the Unimet Assets Disposition Trust was created with Lee J. DiCola, a former officer of Unimet and Esmet, appointed Trustee.
The Trustee and Michael Sand Co., L.P.A. (Sand) have each filed motions for summary judgment based upon the following facts:
Sand, starting in late 1982, had begun providing legal services in the area of patent and trademark law for Unimet and Esmet. Sand regularly submitted monthly bills to Unimet for services rendered.
On October 1, 1984, Sand submitted an invoice in the amount of $956.00 to Unimet which was paid on January 4, 1985. On December 4, 1984, Sand submitted a second invoice in the amount of $744.25 to Unimet which was paid on January 28, 1985. A third invoice in the amount of $3,230.00 was submitted by Sand on December 28, 1984, and was paid by Unimet on February 13, 1985. Thus these payments were made 96, 55 and 46 days after Unimet received the respective invoices.
After offsets and credits, the Trustee seeks to recover $3,903.08 as a result of the above three payments.
Additionally, the Trustee seeks to recover two transfers totaling $5,262.77 made by Unimet to Sand for services rendered to Esmet. The Trustee alleges that these transfers are recoverable as fraudulent transfers pursuant to 11 U.S.C. § 548(a). Both Sand and the Trustee have also moved for summary judgment on this issue. In order to confine this Memorandum of Decision to a determination of the applicability of Section 547(c)(2) which is an issue in all three of these adversary proceedings, the issue of the alleged fraudulent transfers to Sand will be addressed in a separate memorandum of decision.
Both the Trustee and Kenmore Development & Machine Co., Inc. (Kenmore), seek summary judgment on the following relevant facts:
Kenmore performed work for Esmet in the late summer and fall of 1984. Kenmore sent an invoice in the amount of $7,668.48 to Esmet on September 27, 1984, for the completed work. Esmet received the invoice on September 28, 1984. Esmet issued a check to Kenmore in the amount of $7,668.48 on January 7, 1985, which Kenmore received on January 8, 1985. The check was honored by Esmet's bank on January 9, 1985. Thus the payment was made between 101 and 103 days after Esmet received the invoice.
The Trustee has filed a motion for summary judgment based upon the following facts:
Cramers, Inc. (Cramers) performed work for Esmet pursuant to a September 12, 1984, purchase order. Cramers performed its obligations pursuant to said purchase order and invoiced Esmet on two separate occasions, on November 1, 1984, and on November 14, 1984. The work performed by Cramers was subsequently rejected by Esmet, whereupon Cramers picked up the goods and reworked them according to Esmet's revised specifications. There was no charge by Cramers for this additional work. The reworked goods were delivered to Esmet on December 5, 1984, and December 26, 1984. Cramers received a partial payment on December 20, 1984, for $2,150.00, an amount equal to the November 1, 1984 invoice. Cramers received a final payment for $4,888.00 on January 18, 1985, which was honored by Esmet's bank on January 21, 1985. This amount is equal to the November 14, 1984 invoices.
In addition to a dispute over the applicability of Section 547(c)(2), the parties are in disagreement as to when the debt to Cramers was incurred. In view of the court's decision as to Section 547(c)(2), the court need not make a determination at this time as to the date the debt was incurred.
In applying the ordinary course of business exception, prior decisions may be divided into two separate categories. One approach, which seems to be the majority, is for the court to confine its inquiry to whether the manner and timing of the payments at issue were consistent with the manner and timing of previous payments by the debtor in its course of dealing with the creditor. Thus the court closely examines the conduct of the parties before it in coming to its conclusion. See, In re Sunup/Sundown, Inc., 66 B.R. 1021 (Bankr.S. D.Fla.1986); In re Craig Oil Company, 785 F.2d 1563 (11th Cir.1986); In re Ewald Brothers, Inc., 45 B.R. 52 (Bankr.D.Minn. 1984).
The minority approach is to expand the inquiry to determine whether the manner and timing of the payments at issue were also consistent with the ordinary course of business in the parties' industry. See, In re Production Steel, Inc., 54 B.R. 417 (Bankr.M.D.Tenn.1985); In re Magic Circle Energy Corporation, 64 B.R. 269 (Bankr. W.D.Okl.1986); In re Van Huffel Tube Corporation, 74 B.R. 579 (Bankr.N.D.Ohio 1987); In re Steel Improvement Company, 79 B.R. 681 (Bankr.E.D.Mich.1987).
As one of these courts points out:
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