William S. Kaye, of BFW Liquidation, LLC v. Blue Bell Creameries, Inc. (In re BFW Liquidation, LLC)
| Decision Date | 20 December 2016 |
| Docket Number | Adv. Proc. No. 11-00063,Case No. 09-00634-TOM-11 |
| Parties | In re: BFW LIQUIDATION, LLC f/k/a BRUNO'S SUPERMARKETS, LLC, Debtor. WILLIAM S. KAYE, as Liquidating Trustee of BFW Liquidation, LLC, Plaintiff, v. BLUE BELL CREAMERIES, INC., Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
This adversary proceeding came before the Court on March 14, 2016, for trial1 on the Amended Complaint filed by Plaintiff William S. Kaye, as Liquidating Trustee (the "Plaintiff" or the "Trustee") for Bruno's Supermarkets, LLC n/k/a BFW Liquidation, LLC (the "Debtor" or "Bruno's") against Defendant Blue Bell Creameries, Inc. (the "Defendant" or "Blue Bell"). Appearing before the Court were John D. Elrod and David B. Kurzweil, attorneys for the Trustee; Bill D. Bensinger, attorney for Blue Bell; William S. Kaye, Trustee; and David Rogas, Joel Rogers, and Michael Atkinson, witnesses. This Court has jurisdiction pursuant to 28 U.S.C. §§1334(b), 151, and 157(a) and the District Court's General Order of Reference Dated July 16, 1984, As Amended July 17, 1984.2 This is a core proceeding arising under Title 11 of the United States Code as defined in 28 U.S.C. § 157(b)(2)(F).3 This Court has considered the pleadings, arguments of counsel, the testimony of witnesses, the exhibits, and the law, and finds and concludes as follows:4
FINDINGS OF FACTS5
The Debtor filed its bankruptcy case under Chapter 11 of the Bankruptcy Code on February 5, 2009 (the "Petition Date"). The Debtor was a Birmingham, Alabama-based grocery store chain with stores in Alabama and the Florida panhandle. Bruno's operated stores under the Bruno's Supermarkets, FoodMax, and Food World banners.
The Trustee was appointed pursuant to the Debtor's Fourth Amended Chapter 11 Plan of Liquidation, which became effective on October 5, 2009. Thereafter, on January 27, 2011,6 the Plaintiff filed this adversary proceeding seeking the avoidance and recovery of $563,869.37 in transfers pursuant to 11 U.S.C. §§ 547 and 550. Further, pursuant to 11 U.S.C. § 502(d), thePlaintiff sought the disallowance of the Defendant's general unsecured claim of $125,372.90 (the "Claim").
The Plaintiff and the Defendant have stipulated that the prima facie elements of the preference claim contained in § 547(b) have been met with respect to the transfers at issue in this litigation, which are set forth in the following chart (collectively, the "Transfers"):
Payment Number Bank Clear Date Amount 324523 11/12/2008
$43,924.47 325041 11/25/2008
$67,821.23 325528 12/2/2008
$55,149.91 326033 12/5/2008
$27,485.38 326504 12/9/2008
$33,320.61 326987 12/15/2008
$26,327.00 327482 1/5/2009
$59,980.15 327984 1/6/2009
$55,508.85 328421 1/13/2009
$47,162.09 328928 1/20/2009
$28,483.07 329845 1/30/2009
$48,213.42 329374 1/30/2009
$33,186.46 330264 2/3/2009
$37,306.73
Total:
$563,869.37
At trial, Blue Bell asserted two defenses under section 547(c) of the Bankruptcy Code. First, Blue Bell asserts that it has a "subjective" ordinary course of business defense under section 547(c)(2) of the Bankruptcy Code. The Trustee disputes this defense in its entirety.
Second, Blue Bell asserts that it has a subsequent new value defense under section 547(c)(4) of the Bankruptcy Code. While the Trustee acknowledges that the subsequent new value defense applies, he disputes the extent to which this defense applies.
Blue Bell manufactured and sold ice cream and related products to Bruno's on credit.According to the testimony of Blue Bell branch manager David Rogas, Blue Bell's salesmen brought products directly to the Debtor's stores, merchandized those products, removed any out-of-date product, and restocked Bruno's ice cream coolers within the grocery stores. Mr. Rogas testified that the payment terms between Bruno's and Blue Bell were weekly - or 7 day - terms. He further testified that historically, Blue Bell received checks from their customers, including Bruno's, at a lockbox at JPMorganChase and from there the checks would be deposited into Blue Bell's account. Blue Bell introduced into evidence copies of several checks from Bruno's with check dates from December 6, 2007 through January 23, 2009. To the right of each copy of a check is a box containing certain information labeled "business date," "reference no.," "seq w/i refno," and "check amount." Mr. Rogas testified that neither Blue Bell nor Bruno's could control the "business date" reflected in each box, and admitted that no one present at trial could testify when a particular check was received by the bank, the date of deposit, or what the notation "business date" referred to.
Joel Rogers, Senior Director at the advisory firm Alvarez and Marsal ("A&M"), testified that Bruno's engaged A&M in August 2008 to provide financial advisory and turnaround management services. According to Mr. Rogers, one reason for A&M's engagement by Bruno's was to assist with cash flow management, as Bruno's was experiencing liquidity issues and was expected to run out of cash. Mr. Rogers testified that beginning in August 2008 A&M began assisting Bruno's with this facet of its finances; to do this, A&M and Rogers developed cash forecasting models which were intended to project Bruno's cash needs over future periods of time. Mr. Rogers explained that prior to A&M's engagement, Bruno's had generally paid certain of its vendors, including Blue Bell, twice weekly. To conserve cash, and upon A&M's recommendationin August 2008, Bruno's began paying its vendors, including Blue Bell, once a week. According to Mr. Rogers, Bruno's began "stretching," or delaying, payments during the ninety days prior to the Petition Date (the "Preference Period"), a practice that sometimes included actually cutting checks but then holding them for a period of time. Mr. Rogers opined that Bruno's had not previously stretched payments because the employees seemed unfamiliar with the concept when he explained it.
Bruno's introduced into evidence the expert witness report (the "Expert Report") of Michael L. Atkinson, who, according to his testimony, is a CPA specializing in financial restructuring and who has been qualified as an expert witness about four times.7 According to Mr. Atkinson's testimony and his Expert Report, over 50% of invoices from Blue Bell to Bruno's were paid (the date of payment being the date the check cleared the bank) within 39 days of the invoice date during the pre-Preference Period,8 and 92% had been paid within 44 days of the invoice date. During the Preference Period, the time by which over 50% of the invoices were paid had increased to 47 days, and only 29% had been paid at 44 days or sooner. See Exh. D to Plaintiff's Exh. 42. In addition, Mr. Atkinson's testimony and the Expert Report reflect that there was an average of 7 days between the date of a check and the date the check cleared the bank in the pre-Preference period (excluding the Restructuring Period), which increased to an average of 16 days between the check date and the check clear date during the Preference period. See Plaintiff's Exh. 42, section IV.
Bruno's presented evidence that shortly before the beginning of the Preference Period Blue Bell began to increase its efforts to collect money owed by Bruno's. The Trustee testified that he has possession of Bruno's computer and email servers, which date from approximately 2003 through the post-petition period. He further testified that, upon his review of Bruno's emails, he found no emails between Bruno's and Blue Bell dealing with collection matters that were dated prior to October, 2008. Blue Bell introduced no evidence to contradict the Trustee's testimony.
The first email introduced into evidence regarding a collection attempt by Blue Bell was dated October 27, 2008. Defendant's Exh. 1. Mr. Rogas testified that initially the emails concerned "skipped" or "mispaid" invoices totaling $14,853.49 but by January 12, 2009, the emails addressed missed weekly payments.9 On January 26, 2009, Mr. Rogas emailed Tim Cano, Bruno's Director of Private Label and Non-Perishable Operations, and Kris Smith, Bruno's Operational Accounting Manager, about payment, indicating that he was getting pressure to have an answer on a payment issue that day. See Defendant's Exh. 9. A January 28, 2009 email sent by Mr. Rogas to certain Blue Bell employees directed that service to Bruno's should be immediately stopped. See Defendant's Exh. 11. Also on that date Mr. Rogas went in person to Bruno's headquarters and picked up checks of $33,186.46 and $48,213.42, a collection technique that Mr. Rogas testified he had not previously employed. See Defendant's Exh. 12. On January 29, 2009, Mr. Rogas instructed via email that service could resume at all Bruno's locations, although the service should be limited to "fronting product," meaning, as he explained at trial, organizing the products in the freezer but not replenishing products. See Defendant's Exh. 13. Also on January 29, Mr. Rogas sent an email to Mr. Cano and Mr. Smith regarding whether Blue Bell should planto pick up additional checks on February 2 and February 9, 2009, or whether the checks would be sent by mail or FedEx. See Defendant's Exh. 14. A February 2, 2009 email from Mr. Rogas indicates that he ultimately picked up a $37,000 check from Bruno's on that date. See Defendant's Exh. 16. On February 3, 2009, Mr. Rogas emailed instructions that while Blue Bell salesmen should continue to front product at Bruno's locations they should not deliver additional products. See Defendant's Exh. 17.
The parties have stipulated that Brunos paid to Blue Bell a total of $563,869.37 during the Preference Period. Mr. Atkinson testified that his expert report...
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