Siegel v. Sony Elecs., Inc. (In re Circuit City Stores, Inc.)

• Decision Date: 08 September 2014
• Docket Number: APN 10-03600-KRH,Case No. 08-35653-KRH
• Citation: 515 B.R. 302
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re: Circuit City Stores, Inc., Debtor. Alfred H. Siegel, Plaintiff, v. Sony Electronics, Inc., a/k/a Sony, et al., Defendants.

515 B.R. 302

In re: Circuit City Stores, Inc., Debtor.

Alfred H. Siegel, Plaintiff,

v.Sony Electronics, Inc., a/k/a Sony, et al., Defendants.

Case No. 08-35653-KRH

APN 10-03600-KRH

United States Bankruptcy Court,

Richmond Division.

Richmond Division

Signed September 8, 2014

Paula S. Beran, Lynn L. Tavenner, Tavenner & Beran, PLC, Richmond, VA, for Plaintiff.

Peter Barrett, Kutak Rock L.L.P., Richmond, VA, Jeremy Brian Root, Blankingship & Keith, P.C., Fairfax, VA, for Defendants.

Chapter 11

MEMORANDUM OPINION

Kevin R. Huennekens, UNITED STATES BANKRUPTCY JUDGE

Before the Court in this Adversary Proceeding are cross-motions for summary judgment filed by Plaintiff, Alfred H. Siegel, the Trustee of the Circuit City Stores, Inc. Liquidating Trust (the “Trustee”) and by Defendant Sony Electronics, Inc. (“Sony”). A hearing was conducted on August 21, 2014 (the “Hearing”), to consider the parties' arguments. The parties presented four primary issues upon which the Court was asked to rule. Those were: (i) whether the Trustee is barred from recovering approximately $58.6 million in chargebacks and billbacks that Circuit City earned under the Dealer Agreement governing the parties' transactions on account of the applicable eighteen-month statute of limitations; (ii) whether the Trustee is barred from recovering an $8 million preferential transfer claim on account of the applicable two-year statute of limitations; (iii) whether Sony can use the value of goods it delivered to Circuit City during the twenty days immediately preceding the commencement of its bankruptcy case both to recover full payment under 11 U.S.C. § 503(b)(9) and to assert a new value defense under 11 U.S.C. § 547(c)(4); and (iv) whether the Trustee may invoke the doctrine of equitable recoupment to circumvent Sony's affirmative statute of limitations defense in order to apply the credits Circuit City earned under the Dealer Agreement as a defense against Sony's claims.

At the conclusion of the hearing the Court ruled that it could not grant Sony summary judgment on the Trustee's claim to recover credits earned under the Dealer Agreement because the statute of limitations defense presents mixed questions of fact and law. Those issues must be reserved for trial. The Court ruled that the statute of limitations does not bar the Trustee's $8 million preference claim because the amendment that added the claim relates back to the filing of the original complaint. The Court ruled that, based on its prior decision in Circuit City Stores, Inc. v. Mitsubishi Digital Electronics America, Inc. (In re Circuit City Stores, Inc.), No. 10–03068–KRH, 2010 WL 4956022 (Bankr.E.D.Va., Dec. 1, 2010), Sony cannot use the delivery of the same goods both to recover a 11 U.S.C. § 503(b)(9) claim and to assert a new value defense under 11 U.S.C. § 547(c)(4). Lastly, the Court granted the Trustee's motion for summary judgment, permitting the Trustee to use Circuit City's earned credits as a defensive offset against Sony's pending claims against the estate. This memorandum opinion sets forth the Court's analysis and conclusions that support its prior rulings.

Jurisdiction and Venue

The Court has subject matter jurisdiction over this Adversary Proceeding pursuant to 28 U.S.C. §§ 157 and 1334, and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b). Venue is appropriate in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

Factual and Procedural Background

This Adversary Proceeding was filed in connection with and developed out of the bankruptcy case commenced by Circuit City under Chapter 11 of the Bankruptcy Code ¹ on November 10, 2008 (the “Petition Date”). Circuit City was a national, specialty retailer of consumer electronics. As of the Petition Date, Circuit City employed approximately 39,600 employees and was operating approximately 712 retail stores and 9 outlet stores throughout the United States and Puerto Rico.

Circuit City continued to operate its retail business in the ordinary course as debtors-in-possession following the Petition Date. On January 16, 2009, the Court authorized the Debtors to conduct going out of business sales at all of the Debtors' retail locations. The going out of business sales were completed by March 8, 2009. On September 29, 2009, the Debtors and the Creditors' Committee filed their First Amended Joint Plan of Liquidation. The disclosure statement was approved by order entered September 24, 2009. A Second Amended Joint Plan of Liquidation was filed on August 9, 2010, and an order confirming the Debtors' Modified Amended Second Joint Plan of Liquidation was entered on September 14, 2010 (the “Plan”). The confirmed Plan substantively consolidated the Debtors' bankruptcy estates and established a liquidating trust to collect, administer, distribute, and liquidate all of the Debtors' assets under Chapter 11 of the Bankruptcy Code.² The Plan became effective on November 1, 2010. Plaintiff, Alfred H. Siegel was appointed as Trustee for the liquidating trust.

On January 1, 2003, Circuit City and Sony entered into a Consumer Audio/Video Group Dealer Agreement (the “Dealer Agreement”) under which Sony sold goods to Circuit City. Over the course of the parties' relationship, Circuit City and Sony completed many transactions pursuant to this Dealer Agreement, including a number of transactions that were completed after the Petition Date. In its Second Amended Complaint, the Trustee claims that Sony is indebted to Circuit City in the amount of approximately $72.8 million for unpaid chargebacks, billbacks, warranty claims, and other unpaid credits to which Circuit City became entitled both pre- and post-petition. Approximately $63.8 million of this $72.8 million arises from disputed chargeback and billback claims made by the Trustee. Additionally, approximately $58.6 million of the $63.8 million in disputed chargebacks and billbacks are based on claims to which Circuit City became entitled after the Petition Date while it was operating its business as debtor-in-possession.

Sony afforded a variety of different types of vendor funding to Circuit City through its participation in various programs under the parties' Dealer Agreement. The programs allowed Circuit City to earn credits that the company could apply toward Sony's outstanding invoices at the time that the credit reached maturity. Some of the various chargeback and billback programs in which Circuit City participated and accumulated credits included: a buy down program whereby Circuit City could earn credits for selling specific Sony products at a discount during an identified time period; a bundling program whereunder Circuit City could acquire credits for selling certain Sony products together; and a price protection program whereby Circuit City could obtain credits for selling specified Sony products at a discount. Other offered incentives featured advertising, rebate, and marketing programs. There were nearly twenty different programs identified by the parties under which Circuit City accumulated high-value post-petition chargeback and billback claims. ³

The Trustee initiated this Adversary Proceeding on November 9, 2010 (the “Adversary Proceeding”). Nearly four years later, on July 9, 2014, the Trustee filed his motion for partial summary judgment, asking the Court to determine the amount and validity of the chargebacks, billbacks, and other credits to which Circuit City is entitled. Sony filed its own motion for partial summary judgment on July 25, 2014. Sony asked the Court to rule that the Trustee's claims arising out of the $58.6 million in post-petition chargebacks and billbacks were barred by the eighteen-month statute of limitations for which the Dealer Agreement provided. Sony requested the Court to dismiss the Trustee's preference claim in the amount of approximately $8 million on the grounds that it was barred by the two-year statute of limitations for which § 546 of the Bankruptcy Code provides. Sony asked the Court to rule as a matter of law that it was entitled to assert a claim for goods delivered to Circuit City during the twenty-day period prior to the Petition Date both for recovery under § 503(b)(9) of the Bankruptcy Code and as new value under § 547(c)(4) of the Bankruptcy Code. The Trustee filed a cross-motion for summary judgment on August 8, 2014, under which the Court was asked to rule that the Trust could use the equitable doctrine of recoupment as a defensive offset against Sony's claims against the estate in the amount of $58.6 million.

Summary Judgment Standard

Part VII of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) applies to adversary proceedings. Bankruptcy Rule 7056 makes Federal Rule of Civil Procedure 56 (the “Civil Rules”) applicable to adversary proceedings. SeeFed. R. Bankr.P. 7056. Under Civil Rule 56(a), the court may only 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). This standard is well established, and summary judgment “is favored as a mechanism to secure the ‘just, speedy and inexpensive determination’ of a case.” Thompson Everett, Inc. v. Nat'l Cable Adver., L.P., 57 F.3d 1317, 1322–23 (4th Cir.1995) (quoting Fed. R. Civ. Pro. 1).

The party moving for summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The court will consider all evidence in the light most favorable to the party opposing the motion for summary judgment. See, e.g., U.S. v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962); Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir.1979). Furthermore, “[o]nly disputes over facts that...