PMCM 2, LLC v. Fabric Sources, Inc. (In re Beaulieu Grp., LLC)

• Decision Date: 20 March 2020
• Docket Number: Adversary Proceeding No. 19-4036-BEM,Case No. 17-41677-BEM
• Citation: 616 B.R. 857
• Parties: IN RE: BEAULIEU GROUP, LLC and Beaulieu Trucking, LLC, Debtors. PMCM 2, LLC, as the Liquidating Trustee for the Beaulieu Liquidating Trust, Plaintiff, v. Fabric Sources, Inc. and Fabric Sources International LLC, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

616 B.R. 857

IN RE: BEAULIEU GROUP, LLC and Beaulieu Trucking, LLC, Debtors.PMCM 2, LLC, as the Liquidating Trustee for the Beaulieu Liquidating Trust, Plaintiff,

v.Fabric Sources, Inc. and Fabric Sources International LLC, Defendants.

Case No. 17-41677-BEM

Adversary Proceeding No. 19-4036-BEM

United States Bankruptcy Court, N.D. Georgia, Rome Division.

Signed March 20, 2020

Michael D. Fielding, Kansas City, MO, Caleb T. Holzaepfel, Husch Blackwell LLP, Chattanooga, TN, for Defendants.

J. Hayden Kepner, Jr., J. Robert Williamson, Scroggins & Williamson, P.C., Atlanta, GA, for Plaintiff.

ORDER

Barbara Ellis-Monro, U.S. Bankruptcy Court Judge

On June 25, 2019, Plaintiff filed a Complaint (I) Objecting to Claims and (II) Seeking to Avoid and Recover Transfers. [Doc. 1]. The Complaint consisted of eight counts, as follows: (I) Objection to Reclamation Demand; (II) Objection to Proof of Claim No. 1062 ; (III) Objection to Proof of Claim No. 1413 ; (IV) Objection to § 503(b)(9) Claim¹ ; (V) Avoidance of Preferential Transfers; (VI) Recovery of Avoided Transfers Pursuant to 11 U.S.C. § 550 ; (VII) Turnover of Property of the Estate; and (VIII) Disallowance of Claims. Defendant filed an Answer and Counterclaims on July 26, 2019. [Doc. 4]. The two counterclaims seek: (I) Declaratory Judgment that Defendant's use of the new value defense under 11 U.S.C. § 547(c)(4) does not preclude it from a distribution for its administrative expense or its general unsecured claim on account of the same new value; and (II) Declaratory Judgment that Plaintiff cannot use 11 U.S.C. § 502(d) to disallow an administrative expense claim. The first two counts of the Complaint were dismissed by stipulation. [Doc. 21]. Defendant thereafter filed a Motion for Partial Summary Judgment as to Counts III, IV, and VIII of the Complaint to the extent it applies to Defendant's § 503(b)(9) Claim, and the two counterclaims (the "Motion"). [Doc. 22]. Plaintiff filed a response to the Motion. [Doc. 31]. In its Response, Plaintiff withdrew Count VIII of the Complaint as to the § 503(b)(9) Claim, but continues to assert Count VIII as to Defendant's Claim No. 1413. [Id. at 22]. Defendant filed a Reply [Doc. 34], and the Motion is now ripe for determination. The Court has jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(B), (F).

I. Summary Judgment Standard

Summary judgment is appropriate when "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." Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L.Ed.2d 265 (1986) ; Fed. R. Civ. P. 56(a) ; Fed. R. Bankr. P. 7056. The Court will only grant summary judgment when the evidence, viewed in the light most favorable to the nonmoving party shows no genuine dispute of material fact. Tippens v. Celotex Corp. , 805 F.2d 949, 953 (11th Cir. 1986). A fact is material if it "might affect the outcome of the suit under the governing law ...." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A dispute of material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

The moving party has the burden of establishing its entitlement to summary judgment. Clark v. Coats & Clark, Inc. , 929 F.2d 604, 608 (11th Cir. 1991). The moving party must identify the pleadings, discovery materials, or affidavits that show the absence of a genuine issue of material fact. Celotex , 477 U.S. at 323, 106 S. Ct. at 2553. Once this burden is met, the nonmoving party cannot merely rely on allegations or denials in its own pleadings. Hairston v. Gainesville Sun Publ'g. Co. , 9 F.3d 913, 918 (11th Cir. 1993). Rather, the nonmoving party must present specific facts supported by evidence that demonstrate there is a genuine material dispute. Id. When the material facts are not in dispute, the role of the Court is to determine whether the law supports a judgment in favor of the moving party. Anderson , 477 U.S. at 250-51, 106 S. Ct. at 2511.

When the moving party has the burden of proof at trial, that party must affirmatively show the absence of a genuine issue of material fact: it must support its motion "with credible evidence ... that would entitle it to a directed verdict if not controverted at trial." Celotex , 477 U.S. at 331, 106 S. Ct. at 2557 (Brennan, J., dissenting). Upon making this showing, the burden shifts to the nonmoving party, who must produce "significant probative evidence demonstrating the existence of a triable issue of fact" to avoid summary judgment. American Viking Contractors, Inc. v. Scribner Equip. Co., Inc. , 745 F.2d 1365, 1369 (11th Cir. 1984). When considering summary judgment, the Court " ‘must not resolve factual disputes by weighing conflicting evidence[.]’ " Tippens , 805 F.2d at 953 (quoting Lane v. Celotex Corp. , 782 F.2d 1526, 1528 (11th Cir. 1986) ).

II. Undisputed Material Facts

On March 12, 2020, the parties filed a Joint Stipulation of Facts (the "Stipulation" or "Stip.") [Doc 38] that stated: "This Joint Stipulation of Facts (including any and all exhibits thereto) shall be deemed admitted into evidence for trial or any other pleading which may be filed in this matter (including, but not limited to, any motion for summary judgment)." [Stip. ¶ 39]. Accordingly, the Court will adopt the Stipulation as the undisputed material facts for purposes of Defendant's Motion.

Defendant is a Georgia limited liability company with its principal place of business in Dalton, Georgia. [Stip. ¶ 1]. It is a full-service provider of nonwoven, composite, specialty, and woven products. [Id. ¶ 6]. Plaintiff is the Liquidating Trustee for the Beaulieu Liquidating Trust (the "Trust"). [Id. ¶ 2]. The Trust is the transferee of certain assets and claims formerly held by the debtor, Beaulieu Group, LLC (the "Debtor"). [Id.].

Debtor and its affiliated entities filed voluntary Chapter 11 petitions on July 16, 2017. [Id.]. For quite some time before Debtor's bankruptcy filing, Defendant sold primary and secondary backing to Debtor. [Id. ¶ 7]. A true and accurate Payment History between Defendant and Debtor covering the period from May 2014 to the petition date is attached to the Stipulation as Exhibit A (the "Payment History") and is incorporated herein. [Id. ¶ 8]. The Payment History provides the number for each invoice, the date of each invoice, the amount of each invoice, the date on which each invoice was paid, and the number or days between the invoice date and the date the invoice was paid. [Id. ¶ 9] The Payment History identifies those invoices that were not paid and identifies the value of goods that were sold by Defendant to Debtor. [Id.]. All of the goods were sold on open credit terms in the normal course of business between the parties. [Id. ¶ 10]. Debtor purchased the goods for use in its normal business operations. [Id.].

The 90th day before Debtor's bankruptcy filing was April 17, 2017. [Id. ¶ 11]. April 17, 2017 through July 15, 2017 is defined as the "Preference Period." [Id.]. The period of time from May 2014 (the beginning of Payment History) to April 17, 2017 is defined as the "Pre-preference Period." [Id.].

Debtor's payments for the goods during both the Pre-preference Period and the Preference Period were for debts that Debtor incurred with Defendant in the ordinary course of business or financial affairs of the parties. [Id. ¶ 12]. Plaintiff has not asserted, and agrees not to assert, that Defendant made any undue or unusual demands during either the Pre-preference Period or the Preference Period to obtain payment from Debtor for any outstanding monies owed for the goods it had delivered to Debtor. [Id. ¶ 13]. Similarly, Plaintiff has not asserted, and agrees not to assert, that Debtor made any payments to Defendant during either the Pre-preference Period or the Preference Period with the intention of deliberately preferring Defendant over other creditors of Debtor. [Id. ¶ 14].

During both the Pre-preference and Preference periods, there were goods sold by Defendant to Debtor for which Defendant has never received payment. [Id. ¶ 15]. More specifically, beginning on March 21, 2017 and continuing through July 14, 2017, Defendant sold and delivered to Debtor $1,333,253.07 of goods for which Defendant never received payment (the "Goods"). [Id.] The Goods are set forth on the Payment History. [Id.]

During the Preference Period Defendant sold and delivered to Debtor $1,088,942.67 worth of Goods. [Id. ¶ 16]. Of that amount, $160,088.92 of those Goods were delivered within 20 days of Debtor's bankruptcy petition date. [Id.]. All the Goods that were sold by Defendant to Debtor were goods that were typically purchased by Debtor in its ordinary course of business. [Id. ¶ 17]. Those Goods sold during the 20-day period prior to Debtor's bankruptcy filing would constitute "goods" under 11 U.S.C. § 503(b)(9) if it were determined that § 503(b)(9) applies in this proceeding. [Id. ¶ 18]. The Goods that Defendant delivered to Debtor in the Preference Period were sold on open payment terms and were not secured by an otherwise unavoidable security interest. [Id. ¶ 19]. Defendant never had a security interest in any of the Goods. [Id.]

Following its bankruptcy filing, Debtor operated for a period of time as a debtor-in-possession. [Id. ¶ 20]. While operating as a debtor-in-possession, Debtor did not make any distributions to Defendant on account of the Goods that Defendant had delivered to Debtor prior to Debtor's bankruptcy petition. [Id. ¶ 21]. Debtor remains an entity in legal compliance with its filing obligations with the Georgia Secretary of State's Office. [Id. ¶ 22].

To date, the Trust has not made any distributions on either Defendant's timely filed proof of claim in the amount of $1,173,152.49 or Defendant's timely...