Sara A. Conti, Chapter 7 Tr. for Clean Burn Fuels, LLC v. Perdue Bioenergy, LLC (In re Clean Burn Fuels, LLC)

Decision Date29 September 2015
Docket NumberAdv. Pro. No. 13–09012,Case No. 11–80562
Citation540 B.R. 195
CourtU.S. Bankruptcy Court — Middle District of North Carolina
PartiesIn re: Clean Burn Fuels, LLC, Debtor. Sara A. Conti, Chapter 7 Trustee for Clean Burn Fuels, LLC, Plaintiff, v. Perdue Bioenergy, LLC, Defendant.

John Paul H. Cournoyer, Northen Blue, LLP, Chapel Hill, NC, Vicki L. Parrott, Chapel Hill, NC, for Plaintiff.

Gregory Byrd Crampton, Raleigh, NC, for Defendant.

OPINION AND ORDER

Catharine R. Aron, United States Bankruptcy Judge

THIS MATTER came on for hearing on April 27, 2015, in Durham, North Carolina, upon the cross-motions for summary judgment filed by Sara Conti, Chapter 7 Trustee for Clean Bum Fuels, LLC (Clean Burn) and Perdue BioEnergy, LLC (Perdue). At the hearing, Vicki Parrott and JP Cournoyer appeared on behalf of Clean Burn, and Gregory Crampton, Steven Newton, Carey Deeley, and Andrew Currie appeared on behalf of Perdue.

Clean Burn filed a preference action seeking to avoid $14,958,293.07 in payments made to Perdue. Presently, Clean Burn seeks summary judgment on the prima facie elements of a preference under 11 U.S.C. § 547(b)and on Perdue's affirmative defenses under 11 U.S.C. §§ 546(e)and (g). Concurrently, Perdue seeks summary judgment on its affirmative defenses found in 11 U.S.C. §§ 546(e), (g), and 11 U.S.C. § 547(c).1

After reviewing the record and considering the arguments from counsel, this Court finds that the Trustee is entitled to summary judgment as to the prima facie elements of her preference claim. Notwithstanding this finding, Perdue may invoke the limitation on the Trustee's avoidance power under § 546(e), and there is a factual dispute as to which transactions qualify under this defense. For those transactions that do not qualify for the § 546(e)safe harbor, Perdue may also invoke its § 547(c)defenses. However, due to this Court's previous opinion and certain factual issues, summary judgment is not appropriate as to the § 547(c)defenses.

JURISDICTION

This Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. §§ 1334and 157(a) and Local Rule 83.11 of the District Court for the Middle District of North Carolina. This is a core proceeding under 28 U.S.C. § 157(b)(2)which this Court may hear and determine. To the extent that this Court's constitutional authority to enter a final judgment in this matter is questioned under Stern v. Marshall,–––U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), both parties have consented to this Court's adjudication. SeeWellness Int'l Network, Ltd. v. Sharif, ––– U.S. ––––, 135 S.Ct. 1932, 1944, 191 L.Ed.2d 911 (2015)(allowing parties to “waive the right to Article III adjudication of Sternclaims).2

BACKGROUND

Clean Burn operated an ethanol facility in Raeford, North Carolina, to convert corn into ethanol and a by-product known as dried distillers grain with solubles. Clean Bum entered into a series of related contracts with Perdue for the purpose of procuring corn. These contracts included a Feedstock Supply Agreement, a Co–Product Purchase and Marketing Agreement, a Lease Agreement, and a Master Agreement.

The Feedstock Supply Agreement controlled the procurement and purchase of corn and other related services between Clean Bum and Perdue. Under the Feedstock Supply Agreement, Clean Burn agreed to purchase corn exclusively from Perdue. In exchange, Perdue agreed to provide a number of different services. One such service concerned the origination, or procurement, of corn. Perdue agreed to supply all of Clean Burn's requirements of corn with a special provision that Perdue source twenty percent of all corn from local farmers. In addition to supplying the corn, Perdue agreed to manage the logistics of transporting the corn to Clean Burn's facility by either rail or truck and to employ an on-site logistics coordinator.

Clean Burn's facility included two storage bins connected to a processing plant. All deliveries of corn were deposited into the storage bins, which were owned by Clean Burn but leased to Perdue for $1.00 per year. When it needed corn, Clean Burn would draw it out from the storage bins using a conveyor belt. As corn traveled on the conveyor belt it would pass over an instrument called a weighbelt. The weighbelt measured Clean Burn's daily corn usage. This data was transmitted to Perdue, and Perdue used the data from the weighbelt to determine the total price of the corn sold.

The pricing mechanism for the corn was complex. According to the Feedstock Supply Agreement, the total price of corn was comprised of a basis price—calculated based on the transportation method used, the storage capacity of the transportation, and a fixed origination fee—and a futures price—an amount tied to the price of corn trading on a particular month on the Chicago Board of Trade. Over the course of their relationship the parties entered into seven basis contracts, which governed the basis price for future transactions within a set period of time. After entering into a basis contract, the parties would enter into weekly agreements that would establish the quantity and futures price of the corn on either the Thursday or Friday before the corn was to be pulled out of the bins for the following week's usage. Once the futures price was set, the full contract price between Clean Bum and Perdue was established, allowing Clean Burn to draw corn out of the storage bins and across the weighbelt. In other words, the parties anticipated that the full price and quantity of the corn would be determined before the corn passed over the weighbelt.

Clean Burn's payment terms varied over the parties' relationship. Under the Feedstock Supply Agreement, Clean Bum was required to pay fifteen percent of the invoice price on the same day the invoice was sent, with the balance due on Friday of the same week. The parties, however, altered this schedule several times. In January 2011, the parties changed the payment schedule to require a twenty percent payment on the Friday following receipt of the invoice, with the remaining eighty percent to be paid on the following Friday. All of the payments made pursuant to this last payment schedule were within the ninety day period before Clean Bum filed for Chapter 11 (the “Preference Period”). In the Preference Period, Clean Bum made sixteen payments to Perdue for a total amount of $14,958,293.07.

Eventually, the high cost of corn coupled with the low market value of ethanol resulted in an insufficient cash flow for Clean Burn to continue its business operations. On February 28, 2011, Clean Burn stopped removing grain from the storage bins. Shortly thereafter, Perdue's onsite employee locked the weighbelt, preventing further corn withdrawals. By the time Clean Burn filed for Chapter 11 on April 3, 2011, 553,000 bushels of corn with an approximate value of $4,675,000.00 remained in the storage bins. Clean Bum filed an adversary proceeding (the “Corn Litigation”) to determine the ownership of the remaining corn, avoid a potential ownership interest retained by Perdue in the corn under 11 U.S.C. §§ 544(a)and 549, and recover the value of the corn under 11 U.S.C. § 550. Both parties moved for partial summary judgment; this Court granted Clean Burn's motion. Clean Burn Fuels, LLC v. Perdue BioEnergy, LLC et al. (In re Clean Burn Fuels, LLC),492 B.R. 445 (Bankr.M.D.N.C.2013).

In the Corn Litigation this Court determined that the corn held in the storage bins when Clean Burn filed for Chapter 11 was property of the bankruptcy estate.3Relying on N.C. Gen.Stat. § 25–2–401, this Court determined that Perdue delivered the corn, at the latest, when it arrived at Clean Burn's facility. Id.at 462. The determination of when delivery occurred was a pivotal component in this Court's ultimate holding that Perdue failed to perfect its security interest, thereby allowing the Trustee to avoid Perdue's security interest under § 544(a). Id.at 464. Perdue filed a notice of appeal, and the matter is currently under advisement before the District Court for the Middle District of North Carolina.

STANDARD OF REVIEW

Federal Rule of Civil Procedure 56, made applicable to adversary proceedings through Federal Rule of Bankruptcy Procedure 7056, states that “the court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In deciding a motion for summary judgment, “the judge's function is not [herself] to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc.,477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A genuine dispute is one in which “the evidence would allow a reasonable jury to return a verdict for the nonmoving party.” News and Observer Publ'g Co. v. Raleigh–Durham Airport Auth.,597 F.3d 570, 576 (4th Cir.2010). “In particular, the relevant inquiry is ‘whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.’ Garofolo v. Donald B. Heslep Assocs., Inc.,405 F.3d 194, 199 (4th Cir.2005)(quotingJenkins v. Anderson,447 U.S. 231, 251–52, 100 S.Ct. 2124, 65 L.Ed.2d 86 (1980)).

DISCUSSION
I. Law of the Case

Before discussing the merits of the motions before the Court, a preliminary issue must be resolved as to the impact of this Court's previous ruling in the Corn Litigation. Perdue maintains that this Court's determination of when delivery occurred should not control the Court's analysis in the present action. Clean Bum disagrees, arguing that this Court's earlier decision is binding. Under the principle of law of the case, this Court agrees with Clean Bum.

Law of the case stands for the principle “that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in...

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