USBC - SD - Decisions - 2002 Decisions - 21 Hagen Transportation

2002 #21 Hagen Transportation 10-7-02

Swaney Trucking and Tiesler Trucking

RE: Trustee John S. Lovald v. A.J. Transportation, Inc., et al. (In re Hagen Transportation Services, Inc.), Bankr. No. 00-40682, Adv.No. 02-4013; Chapter 7

The matter before the Court is the Motion for Summary Judgment filed by Plaintiff-Trustee John S. Lovald and the response filed by Defendant Swaney Trucking Company.⁽¹⁾

Trustee Lovald moved for summary judgment regarding several defendants. He filed an affidavit that stated each of these defendants, including Swaney, had rendered services and billed Debtor on an unspecified date before Debtor wrote a check to each creditor for payment. He further stated that each check was not cashed until sometime later. In particular, Trustee Lovald stated that Debtor wrote a check to Swaney on April 11, 2000, but that Swaney did not cash the check until May 22, 2000. Swaney responded to the summary judgment motion stating it had been paid in the ordinary course of business.

Applicable law-summary judgment. Summary judgment is appropriate when "there is no genuine issue [of] material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Bankr.P. 7056 and Fed.R.Civ.P. 56(c). An issue of material fact is genuine if it has a real basis in the record. Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir. 1992)(quotes therein). A genuine issue of fact is material if it might affect the outcome of the case. Id. (quotes therein).

The matter must be viewed in the light most favorable to the party opposing the motion. F.D.I.C. v. Bell, 106 F.3d 258, 263 (8th Cir. 1997);Amerinet, Inc. v. Xerox Corp., 972 F.2d 1483, 1490 (8th Cir. 1992)(quoting therein Matsushita Elec. Industrial Co. v. Zenith Radio, 475 U.S. 574, 587-88 (1986)(cites therein)). The non moving party is entitled to all reasonable inferences that can be drawn from the evidence without resorting to speculation. P.H. v. School District of Kansas City, Missouri, 265 F.3d 653, 658 (8th Cir. 2001)(quoting therein Sprenger v. Fed. Home Loan Bank of Des Moines, 253 F.3d 1106, 1110 (8th Cir. 2001)(internal quotation omitted)). Only disputes over facts that might affect the outcome of the suit under the applicable law properly preclude the entry of summary judgment. P.H. v. School District, 265 F.3d at 658.

The movant meets his burden if he shows that the record does not contain a genuine issue of material fact and he identifies that part of the record that bears out his assertion. Handeen v. LeMaire, 112 F.3d 1339, 1346 (8th Cir. 1997)(quoting therein City of Mt. Pleasant v. Associated Electric Coop, 838 F.2d 268, 273 (8th Cir. 1988)). No defense to an insufficient showing is required. Adickes v. S.H. Kress & Co., 398 U.S. 144, 156 (1970)(cite therein); Handeen, 112 F.3d at 1346. If the movant meets his burden, however, the non movant, to defeat the motion, "must advance specific factsto create a genuine issue of material fact for trial." Bell, 106 F.3d at 263 (emphasis added)(quoting Rolscreen Co. v. Pella Products of St. Louis, Inc., 64 F.3d 1202, 1211 (8th Cir. 1995)). The non movant must do more than show there is some metaphysical doubt; he must show he will be able to put on admissible evidence at trial proving his allegations. Bell, 106 F.3d at 263 (citing Kiemele v. Soo Line R.R. Co., 93 F.3d 472, 474 (8th Cir. 1996), andJRT, Inc. v. TCBY System, Inc., 52 F.3d 734, 737 (8th Cir. 1995)).

Applicable law - preferential transfers. Under 11 U.S.C. з 547(b), a trustee may avoid a transfer to a creditor that occurred within ninety days before the petition date if the transfer was for a debt that preceded the transfer, the debtor was insolvent at the time of the transfer, and the transfer enabled the creditor to receive more than it would have under a Chapter 7 liquidation. Buckley v. Jeld-Wen, Inc. (In re Interior Wood Products Co.), 986 F.2d 228, 230 (8th Cir. 1993). The trustee bears the burden of proof on each element of a preference under за547(b). 11 U.S.C. з 547(g). The purpose of за547(b) is to restore the bankruptcy estate to its pre-preferential transfer condition, Halverson v. Le Sueur State Bank (In re Willaert), 944аF.2d 463, 464 (8th Cir. 1991), and to prevent the debtor from favoring one creditor over others by transferring property shortly before filing bankruptcy. Begier v. IRS, 496 U.S. 53, 58 (1990).

Applicable law - ordinary course of business defense. If a case trustee establishes under з 547(b) that a preferential transfer occurred, the creditor who received the transfer can raise several defenses under з 547(c). The two-fold purpose of these exceptions is to encourage creditors to continue dealing with troubled debtors and to promote equality in the distribution of assets. Harrah's Tunica Corp. v. Meeks (In re Armstrong), 291 F.3d 517, 527(8th Cir. 2002)(cites therein). The creditor who received the preferential transfer bears the burden of establishing an exception by a preponderance of the evidence. 11 U.S.C. за547(g); Jones v. United Savings and Loan Association (In re U.S.A. Inns of Eureka Springs, Arkansas, Inc.), 9 F.3d 680, 682 (8th Cir. 1993); Concast Canada, Inc. v. Laclede Steel Co. (In re Laclede Steel Co.), 271 B.R. 127, 130 (B.A.P. 8th Cir. 2002).

Those preferential transfers that may not be avoided by the trustee include those in which the transfer was
in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the [creditor]; ... made in the ordinary course of business or financial affairs of the debtor and the [creditor]; and ... made according to ordinary business terms.

11 U.S.C. з 547(c)(2). The specific purpose of this "ordinary course of business" exception at за547(c)(2) is to leave undisturbed the normal financial relations, because it does not detract from the general policy of the preference section to discourage unusual action by either the debtor or his creditors during the debtor's slide into bankruptcy.

S.Rep. No. 95-989 at 88 (1978), reprinted in 1978 u.s.c.c.a.n. 5787, 5874; H.R. Rep. 95-595 at 373 (1977), reprinted in 1978 u.s.c.c.a.n. 5963, 6329 (quoted in Central Hardware Co. v. Sherwin-Williams Co. (In re Spirit Holding Co., Inc.), 153 F.3d 902, 904 (8th Cir. 1998)). The ordinary course of business exception has three elements that must each be established.

Under subsection (c)(2)(A), the creditor must first show that the underlying debt was incurred in the ordinary course of business or financial affairs between that debtor and that creditor. U.S.A. Inns, 9аF.3d at 682. The focus is on the purpose or nature of the original transaction creating the debt. Armstrong, 291 F.3d at 527; Grove Peacock Plaza, Ltd. v. Resolution Trust Corp. (In re Grove Peacock Plaza, Ltd.), 142 B.R. 506, 518 (Bankr. S.D. Fla. 1992). The creditor needs to show that the underlying debt agreement was made between unrelated parties and for general business purposes. Ferrer v. Prusa Distributing Corp. (In re Kiddy Toys, Inc.), 178 B.R. 928, 933 (Bankr. D. P.R. 1994); compare Friedman v. Ginsburg (In re David Jones Builder, Inc.), 129 B.R. 682, 696-97 (Bankr. S.D. Fla. 1991)(new loan made to debtor by bank chairman to avoid problem with examiners regarding a large overdraft by the debtor was not a debt incurred in the ordinary course of business or financial affairs of the bank and debtor). Even first time or only time transactions may qualify. Grove Peacock Plaza, 142 B.R. at 519.

Under subsection(c)(2)(B), the creditor must next show that the subject payment was made in the ordinary course of business between the debtor and transferee. Id. There is no precise legal test for determining whether the payment was made in the ordinary course of business. Spirit Holding Co. Inc., 153 F.3d. at 904. Instead, the Court "'must engage in a "peculiarly factual" analysis.'" Id. (quoting Lovett v. St. Johnsbury Trucking, 931 F.2d 494, 497 (8th Cir. 1991)(itself quoting In re Fulghum Construction Corp., 872 F.2d 739, 743 (6th Cir. 1989)(itself quoting In re First Software Corp., 81 B.R. 211, 213 (Bankr. D. Mass. 1988)))).

"'[T]he cornerstone of this element of a preference defense is that the creditor needs [to] demonstrate some consistency with other business transactions between the debtor and the creditor.'"

Spirit Holding Co. Inc., 153 F.3d at 904(quoting Lovett, 931 F.2d at 497 (itself quoting In re Magic Circle Energy Corp., 64 B.R. 269, 272 (W.D. Okla. 1986))). The focus is "not narrowly on the collection effort by the creditor but broadly on the consistency between the [payment] at issue and other business transactions between the debtor and the creditor." Spirit Holding Co. Inc., 153 F.3d at 905 (citing Lovett, 931 F.2d at 497-99). Factors to consider include: (1) the length of time the parties were engaged in the transaction at issue; (2) whether the amount or form of tender differed from past practices; (3) whether the debtor or the creditor engaged in any unusual collection or payment activity; and (4) whether the creditor took advantage of the debtor's deteriorating financial condition. Central Hardware Co. v. Sherwin-Williams Co. (In re Spirit Holding Co. Inc.), 214 B.R. 891, 897 (E.D. Mo. 1997) (cites therein).

Under the third element found at subsection (c)(2)(C) of за547, the Court must make an objective determination that the payment was ordinary in relationship to the standards prevailing in the relevant industry. U.S.A. Inns, 9 F.3d at 683. What constitutes these ordinary business terms will vary widely from industry to industry. Id. at 685. However, this element of за547(c)(2) does not require a creditor to establish the existence of some uniform set of business terms within the industry in order to satisfy its burden. ...[T]he focus of subsection (c)(2)(C) should be on whether the terms between the parties were particularly unusual in the relevant industry, and that evidence of a prevailing practice among similarly situated members of the industry facing the same or similar problems is sufficient to satisfy subsection (c)(2)(C)'s burden. We agree with the Seventh Circuit's formulation that "'ordinary business terms' refers to the range of terms that encompasses the practices in which firms similar in some general way to the creditor in question engage, and that only dealings so idiosyncratic as to fall outside that broad range should be deemed extraordinary and therefore outside the scope of subsection (C)."

Id. (quoting in part In re Tolona Pizza Products Corp., 3 F.3d 1029, 1033 (7th Cir. 1993)).

Discussion. The record before the Court establishes Debtor incurred a debt to Swaney sometime before April 11, 2000, that Swaney did not cash the check it received from Debtor until May 22, 2000, and that Debtor was insolvent at the time Swaney cashed its check. Thus, Trustee Lovald has established the elements for a voidable preferential transfer under з 547(b), and he has established that he is entitled to summary judgment on his Complaint. As the applicable law discussed above provides, Swaney then had to go forward and identify the admissible evidence it has that will refute the Trustee's showing of a voidable preference. Alternatively, Swaney had to go forward and identify the admissible evidence it has that will establish that the debt was incurred in the ordinary course of business between Debtor and Swaney, that the payment was made in the ordinary course of business between Debtor and Swaney, and that the transfer was within the accepted standards for the trucking industry. Swaney fulfilled neither alternative in its response to Trustee Lovald's summary judgment motion. Accordingly, under Fed.R.Bankr.P. 7056 and the supporting case law, Trustee Lovald's summary judgment motion must be granted.

As noted above, a preferential transfer is one in which one creditor, by getting an existing debt paid just before a debtor files bankruptcy, receives more than he would have if he were paid through the bankruptcy case. That is what has happened here. Debtor paid Swaney on an earlier debt shortly before Debtor filed bankruptcy. The date that Debtor issued the check did not control; it was the date the check was cashed. Barnhill v. Johnson, 503 U.S. 393, 112 S.Ct. 1386 (1992). Therefore, this payment must now be recovered by the case trustee under з 547(b) of the Bankruptcy Code so that the Trustee can make a more equal distribution of Debtor's assets among all unsecured creditors, including Swaney.

Counsel for Plaintiff may submit an appropriate order.

RE: Trustee John S. Lovald v. A.J. Transportation, Inc., et al. (In re Hagen Transportation Services, Inc.), Bankr. No. 00-40682, Adv.No. 02-4013; Chapter 7,

The matter before the Court is the Motion for Summary Judgment filed by Plaintiff-Trustee John S. Lovald and Defendant Tiesler Trucking, Inc.,'s response.⁽²⁾

This is a core proceeding under 28 U.S.C. з 157(b)(2). This letter decision and subsequent order shall constitute the Court's findings and conclusions under Fed.R.Bankr.P. 7052. As set forth below, the Court concludes that the Motion shall be granted.

Summary. Hagen Transportation Service, Inc., ("Debtor") filed a Chapter 7 petition on August 14, 2000. John S. Lovald was appointed to serve as the case trustee. On February 6, 2002, Trustee Lovald commenced an adversary proceeding against several of Debtor's previous creditors, including Tiesler Trucking, Inc ("Tiesler"). Trustee Lovald alleged that each of the creditors, within 90 days prior to Debtor's bankruptcy petition, had received preferential payments on claims that could be avoided by the Court under з 547(b) of the Bankruptcy Code. Regarding Tiesler in particular, Trustee Lovald alleged that Debtor wrote a check to Tiesler for $275 on March 14, 2000, and that the check was cashed by Tiesler on July 5, 2000.

Tiesler answered the Complaint on March 1, 2002. It acknowledged that Debtor's payment was late, but it contested that the date Debtor put on the check should not control whether the payment was a preferential transfer.

Trustee Lovald moved for summary judgment regarding several defendants. He filed an affidavit that stated each of these defendants, including Tiesler, had rendered services and billed Debtor on an unspecified date before Debtor wrote a check to each creditor for payment. He further stated that each creditor did not cash the check until sometime later. In particular, Trustee Lovald stated that Debtor wrote a check to Tiesler on Marchа14, 2000, but that Tiesler did not cash the check until Julyа5, 2000. Tiesler responded to the summary judgment motion with the same information it had provided in its Answer.

Applicable law-summary judgment. Summary judgment is appropriate when "there is no genuine issue [of] material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Bankr.P. 7056 and Fed.R.Civ.P. 56(c). An issue of material fact is genuine if it has a real basis in the record. Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir. 1992)(quotes therein). A genuine issue of fact is material if it might affect the outcome of the case. Id. (quotes therein).

The matter must be viewed in the light most favorable to the party opposing the motion. F.D.I.C. v. Bell, 106 F.3d 258, 263 (8th Cir. 1997);Amerinet, Inc. v. Xerox Corp., 972 F.2d 1483, 1490 (8th Cir. 1992)(quoting therein Matsushita Elec. Industrial Co. v. Zenith Radio, 475 U.S. 574, 587-88 (1986)(cites therein)). The non moving party is entitled to all reasonable inferences that can be drawn from the evidence without resorting to speculation. P.H. v. School District of Kansas City, Missouri, 265 F.3d 653, 658 (8th Cir. 2001)(quoting therein Sprenger v. Fed. Home Loan Bank of Des Moines, 253 F.3d 1106, 1110 (8th Cir. 2001)(internal quotation omitted)). Only disputes over facts that might affect the outcome of the suit under the applicable law properly preclude the entry of summary judgment. P.H. v. School District, 265 F.3d at 658.

The movant meets his burden if he shows that the record does not contain a genuine issue of material fact and he identifies that part of the record that bears out his assertion. Handeen v. LeMaire, 112 F.3d 1339, 1346 (8th Cir. 1997)(quoting therein City of Mt. Pleasant v. Associated Electric Coop, 838 F.2d 268, 273 (8th Cir. 1988)). No defense to an insufficient showing is required. Adickes v. S.H. Kress & Co., 398 U.S. 144, 156 (1970)(cite therein); Handeen, 112 F.3d at 1346. If the movant meets his burden, however, the non movant, to defeat the motion, "must advance specific factsto create a genuine issue of material fact for trial." Bell, 106 F.3d at 263 (emphasis added)(quoting Rolscreen Co. v. Pella Products of St. Louis, Inc., 64 F.3d 1202, 1211 (8th Cir. 1995)). The non movant must do more than show there is some metaphysical doubt; he must show he will be able to put on admissible evidence at trial proving his allegations. Bell, 106 F.3d at 263 (citing Kiemele v. Soo Line R.R. Co., 93 F.3d 472, 474 (8th Cir. 1996), andJRT, Inc. v. TCBY System, Inc., 52 F.3d 734, 737 (8th Cir. 1995)).

Applicable law - preferential transfers. Under 11 U.S.C. з 547(b), a trustee may avoid a transfer to a creditor that occurred within ninety days before the petition date if the transfer was for a debt that preceded the transfer, the debtor was insolvent at the time of the transfer, and the transfer enabled the creditor to receive more than it would have under a Chapter 7 liquidation. Buckley v. Jeld-Wen, Inc. (In re Interior Wood Products Co.), 986 F.2d 228, 230 (8th Cir. 1993). The trustee bears the burden of proof on each element of a preference under за547(b). 11 U.S.C. з 547(g). The purpose of за547(b) is to restore the bankruptcy estate to its pre-preferential transfer condition, Halverson v. Le Sueur State Bank (In re Willaert), 944аF.2d 463, 464 (8th Cir. 1991), and to prevent the debtor from favoring one creditor over others by transferring property shortly before filing bankruptcy. Begier v. IRS, 496 U.S. 53, 58 (1990).

Discussion. The record before the Court establishes that Debtor incurred a debt to Tiesler, that Debtor failed to timely pay that debt, that Tiesler had to re-bill Debtor before eventually receiving payment, that Tiesler cashed the check from Debtor within 90 days before Debtor filed bankruptcy, and that Debtor was insolvent at the time the check was cashed. Therefore, Trustee Lovald has established the elements for a voidable preferential transfer, and he has shown that he is entitled to entry of a summary judgment on his Complaint. As the applicable law discussed above provides, Tiesler then had to go forward and identify the admissible evidence it has that will refute the Trustee's showing. That Tiesler has not done. In its response to Trustee Lovald's summary judgment motion, Tiesler did not identify any specific facts that are disputed and what evidence it has to support its contentions. Tiesler also did not specifically identify any question of law that is disputed. Accordingly, under Fed.R.Bankr.P. 7056 and the supporting case law, Trustee Lovald's summary judgment motion must be granted.

As noted above, a preferential transfer is one in which one creditor, by getting an older debt paid just before a debtor files bankruptcy, receives more than he would have if he were paid through the bankruptcy case. That is what has happened here. Debtor untimely paid Tiesler right before Debtor filed bankruptcy. The date that Debtor issued the check did not control; it was the date the check was cashed by Tiesler. Barnhill v. Johnson, 503 U.S. 393, 112 S.Ct. 1386 (1992). Therefore, this payment must now be recovered by the case trustee under з 547(b) of the Bankruptcy Code so that the Trustee can make a more equal distribution of Debtor's assets among all unsecured creditors, including Tiesler.

Counsel for Plaintiff may submit an appropriate order.

1. Defendant Swaney Trucking Company has not appeared through counsel. See 28 U.S.C. з 1654; Fed.R.Bankr.P. 9010(a); and Ackra Direct Marketing Corp. v. Fingerhut Corp., 86 F.3d 852, 857 (8th Cir. 1996).

2. Defendant Tiesler Trucking, Inc., has not appeared through counsel as required in this Circuit. See 28 U.S.C. з 1654; Fed.R.Bankr.P. 9010(a); and Ackra Direct Marketing Corp. v. Fingerhut Corp., 86 F.3d 852, 857 (8th Cir. 1996).