In re: AE LIQUIDATION, INC., f/k/a Eclipse Aviation Corporation v. Prudential Real Estate & Relocation Services, Inc.; Prudential Relocation, Inc

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 17-1794
_____________
In re: AE LIQUIDATION, INC., f/k/a Eclipse Aviation Corporation, et al.,
Debtors
JEOFFREY L. BURTCH, Chapter 7 Trustee
v.
PRUDENTIAL REAL ESTATE & RELOCATION SERVICES, INC.;
PRUDENTIAL RELOCATION, INC.,
Appellants.
_______________
On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 1-16-cv-00252)
District Judge: Hon. Leonard P. Stark
_______________
Submitted Under Third Circuit LAR 34.1(a)
January 12, 2018
Before: JORDAN, ROTH, Circuit Judges and MARIANI*, District Judge.
(Filed May 4, 2018)
* Honorable Robert D. Mariani, United States District Court Judge for the Middle
District of Pennsylvania, sitting by designation.

-- 1 of 12 --

2
_______________
OPINION
_______________
MARIANI, District Judge.
Creditors Prudential Real Estate and Relocation Services, Inc. and Prudential
Relocation, Inc. (collectively “Prudential”) appeal from a decision arising from the
bankruptcy proceeding of AE Liquidation, Inc., f/k/a Eclipse Aviation Corporation
(“Eclipse”). Prudential appeals two orders of the District Court of Delaware, which
affirmed the Bankruptcy Court’s decision to (1) deem payments made to Prudential
during the Preference Period as outside the ordinary course of business under 11 U.S.C. §
547(c)(2)(A), and (2) reduce the amount of Prudential’s new value defense under 11
U.S.C. § 547(c)(4). We will affirm.
I. Background
Prudential is a company that provides relocation benefits to its clients’ employees.
On May 1, 2006, Prudential and Eclipse entered into a contract called the Relocation
Services Agreement (the “Agreement”), in which Prudential agreed to provide various
relocation services for Eclipse’s employees. Under the Agreement, Eclipse was to pay
for Prudential’s services within 30 days of each invoice issued by Prudential.
From 2006 to the summer of 2007, Prudential did not encounter any problems in
its relationship with Eclipse. However, from the summer of 2007 onwards, Eclipse began
 This disposition is not an opinion of the full court and, pursuant to I.O.P. 5.7,
does not constitute binding precedent.

-- 2 of 12 --

3
to fall behind on its payment of invoices from Prudential. By November 2007, Eclipse
owed $1.7 million to Prudential in accounts receivable that were over 60 days old. In
response, Prudential imposed special measures to reduce the accounts receivable, such as
requiring a payment plan of approximately $200,000 per week and requiring Eclipse to
pay off a lump sum of approximately $900,000 by December 2007. The Bankruptcy
Court referred to these measures as the “First Payment Plan.” (App. at 2.) In addition to
these measures, Prudential put Eclipse on billing review, which was described by a
Prudential witness as a procedure in which Prudential does not “accept[] any new
business [from the client], and everything is monitored before we move forward.” (App.
at 276.) From November 26, 2007 to January 2008, Eclipse made weekly payments of
approximately $200,000 under the new payment plan, as well as a lump sum payment of
approximately $900,000 on January 4, 2008. As a result of Eclipse reducing its accounts
receivable, Prudential took Eclipse off of billing review around mid to late January.
However, Eclipse began “to fall back again in March of 2008.” (App. at 286.)
On August 28, 2008, Eclipse’s accounts receivable balance had grown to
$800,000, approximately $600,000 of which was overdue. Around the same time,
Prudential learned that Eclipse had discharged approximately 650 employees and
instructed those employees to submit certain pending relocation expenses to Prudential
for reimbursement. Prudential also learned directly from Eclipse that Eclipse would be
conserving its cash for the next 8 to 12 weeks. Prudential employees discussed the
situation in numerous internal emails in the weeks following August 28, 2008. Prudential
decided to put Eclipse back on billing review. In addition, Prudential put Eclipse on a

-- 3 of 12 --

4
new payment plan that required a weekly payment of $50,000 and requested a lump sum
payment in full from Eclipse. The Bankruptcy Court referred to the new weekly payment
plan and lump sum request as the “Second Payment Plan.”
Eclipse filed its bankruptcy petition on November 25, 2008. Within the 90 days
preceding the petition date (the “Preference Period”), Eclipse made twelve payments to
Prudential totaling $781,702.61. These payments included five payments made in
September 2008 of approximately $50,000 each, pursuant to the Second Payment Plan.
On September 24, 2008, Prudential requested an increase of the weekly payments to
$75,000. When Prudential did not hear back from Eclipse, it emailed Eclipse again on
September 30, 2008 stating: “[i]t is critical that we receive a response to our request to
increase the weekly payments or to bring the account current. If we do not receive a
response by close of business tomorrow, 10/1/08, Prudential will need to re-evaluate our
options, up to and including termination.” (App. at 1648.) That same day, Eclipse
agreed to pay $75,000 a week. The Bankruptcy Court defined this increased payment
plan as the “Amended Payment Plan.” In addition to the Amended Payment Plan,
Prudential also began sending a weekly billing summary to Eclipse and required payment
in full based on the summary; Prudential only issued the complete invoice to Eclipse after
Eclipse paid in full the charges on the summary. This procedure had never been imposed
by Prudential before the Preference Period. In October and November of 2008, Eclipse
made seven more payments of approximately $75,000 each to Prudential. In its appeal,
Prudential argues that these twelve payments made during the Preference Period were in

-- 4 of 12 --

5
the ordinary course of business and therefore were not preferential transfers under 11
U.S.C. § 547(c)(2).
Separately, Prudential appeals the Bankruptcy Court’s order on remand reducing
its new value defense. In the original proceeding before the Bankruptcy Court,
Prudential asserted two defenses: “(i) that the Transfers were made in the ordinary course
of business under section 547(c)(2), and (ii) that Prudential gave new value after the
Transfers to or for the benefit of Eclipse under section 547(c)(4).” (App. at 9.) With
respect to the second defense, the parties agreed at the outset “that new value exist[ed]
and only dispute the amount.” (App. at 26.) In its initial opinion, the Bankruptcy Court
agreed with Prudential’s argument that it is entitled to a new value defense of
$128,379.40, based on evidence that Prudential provided new services rendered during
and after the Preference Period totaling that amount. On September 10, 2015, the District
Court of Delaware affirmed the Bankruptcy Court’s ruling on the ordinary course of
business issue, but remanded on the new value issue. Citing this Court’s reasoning in In
re Friedman’s Inc., 738 F.3d 547 (3d Cir. 2013), the District Court noted that “only
services provided prior to the petition date [should be] included in the § 547(c)(4) new
value defense.” (App. at 86.) Because the Bankruptcy Court’s original opinion “[did]
not distinguish between pre-petition and post-petition payments for the purpose of
calculating Prudential’s new value defense,” the District Court directed the Bankruptcy
Court to recalculate the new value defense. (App. at 86.) On remand, the Bankruptcy
Court reduced the value of Prudential’s new value defense to $56,571.37, consistent with
the District Court’s ruling that services rendered after the petition date should not be

-- 5 of 12 --

6
taken into account in calculating the new value defense (the “Remand Order”). On
March 30, 2017, the District Court affirmed the Bankruptcy Court’s Remand Order.
Prudential argues that the Bankruptcy Court erred in its decision on remand, because the
Court denied Prudential’s request to reopen the record before proceeding with the
recalculation of the new value defense. Upon review of this appeal, we will affirm on
both issues.
II. Discussion1
A. The Ordinary Course of Business Defense
We agree with the Bankruptcy Court’s analysis and conclusion that Prudential
failed to prove that the twelve payments made in the Preference Period fell within the
ordinary course business affirmative defense under 11 U.S.C. § 547(c)(2). That provision
states:
(c) The trustee may not avoid under this section a transfer—
…
(2) to the extent that such 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 transferee, and such transfer was—
(A) made in the ordinary course of business or financial affairs of the
debtor and the transferee; or
(B) made according to ordinary business terms.
1 The District Court had jurisdiction over the appeal of the Bankruptcy Court’s
orders pursuant to 28 U.S.C. § 158(a)(1). We have jurisdiction to review the District
Court’s decision pursuant to 28 U.S.C. § 158(d)(1). “Our review of the District Court’s
decision effectively amounts to review of the bankruptcy court’s opinion in the first
instance,” In re Hechinger Inv. Co. of Del., 298 F.3d 219, 224 (3d Cir. 2002), because
our standard of review is “the same as that exercised by the District Court over the
decision of the Bankruptcy Court,” In re Schick, 418 F.3d 321, 323 (3d Cir. 2005).
We review the Bankruptcy Court’s findings of fact for clear error and exercise
plenary review over questions of law. In re Fruehauf Trailer Corp., 444 F.3d 203, 209-
10 (3d Cir. 2006).

-- 6 of 12 --

7
“Neither ‘ordinary course of business’ nor ‘ordinary business terms’ is defined in the
Bankruptcy Code.” In re Hechinger Inv. Co. of Del., Inc., 489 F.3d 568, 576 (3d Cir.
2007) (citing In re J.P. Fyfe, Inc., 891 F.2d 66, 70 (3d Cir. 1989)). “[O]rdinary terms are
those which prevail in healthy, not moribund, creditor-debtor relationships.” In re
Molded Acoustical Prods., Inc., 18 F.3d 217, 227 (3d Cir. 1994). In determining whether
payments are made in the “ordinary” course of the parties’ business, “each fact pattern
must be examined to assess ‘ordinariness’ in the context of the relationship of the parties
over time.” Id. at 576-77.
In its original opinion, the Bankruptcy Court concluded that Prudential had not
established an ordinary course of business defense, because its collection efforts during
the Preference Period, namely the Second Payment Plan and the Amended Payment Plan,
were not reflective of the parties’ dealings in the ordinary course of business. Prudential
takes issue with the Bankruptcy Court’s conclusion, arguing that the twelve transfers
were only paid “nineteen days faster during the Preference Period,” which was within the
normal range of the historical relationship between Prudential and Eclipse, and that there
is no need to require “absolute uniformity” in payment frequency between the Preference
Period and the pre-Preference Period. (Opening Br. at 15.)
However, while Prudential is correct that no absolute consistency is required, the
fact that payments to Prudential were made nineteen days faster during the Preference
Period was only one of several salient facts considered by the Bankruptcy Court. In this
case, the parties had an original agreement in which Eclipse was to pay Prudential for its

-- 7 of 12 --

8
services within 30 days of each invoice. That term was changed by Prudential when it
requested a faster payment term, i.e. weekly payments instead of monthly payments, and
a lump sum payment in full during the Preference Period. The Bankruptcy Court
properly found the faster payment rate to be “significant,” in light of the fact that
Prudential only “insisted on a quicker payment schedule as it became aware of Eclipse’s
financial troubles.” (App. at 16.)
The relationship between Prudential and Eclipse became more financially stable
after the First Payment Plan. However, as of the start of the Preference Period, the
relationship took a turn for the worse. On August 28, 2008, Prudential learned that
Eclipse had discharged approximately 650 employees and instructed them to submit
pending relocation expenses to Prudential, and separately learned that Eclipse would be
conserving its cash for the following 8 to 12 weeks. After learning of these changes,
Prudential implemented the Second Payment Plan which required a $50,000 payment
every week and requested a lump sum payment in full from Eclipse. Additionally, a
month after initiating the Second Payment Plan, Prudential issued an ultimatum to
Eclipse via email: acquiesce to Prudential’s request to either increase the weekly payment
plan to $75,000 per week or “bring the account current,” and, if Prudential did not receive
a response by the next day, it would consider terminating the parties’ relationship. (App.
at 1648.)
The Bankruptcy Court properly found that “Prudential’s threatening Eclipse into
making increased payments to bring the [accounts receivable] current during the
Preference Period was not in the ordinary course of business,” since “[t]his type of

-- 8 of 12 --

9
ultimatum never occurred in the pre-Preference Period (even in connection with the First
Payment Plan).” (App. at 19-20.) The Bankruptcy Court also found that a $75,000
required weekly payment, which was imposed during the Preference Period, was
“significantly different from the original credit terms” of the parties’ relationship, which
only required payment within 30 days of invoice. (App. at 24.) Furthermore,
Prudential’s own internal emails revealed a concern about Eclipse’s liquidity, with a
Prudential employee commenting that “[Eclipse is] in financial instability and [we are]
very concerned about our exposure. … [L]ast year they also hit hard times with us but
eventually got caught up after we cut them off, though that nearly ended our relationship
with them.” (App. at 1178.)
In other words, the Bankruptcy Court did not consider the faster payment rate in
isolation. Rather, it considered the nineteen day difference in the context of the parties’
relationship, similarity of transactions, the manner in which payment was tendered,
Prudential’s new and unusual collection efforts during the Preference Period, and
Prudential’s actions after learning of Eclipse’s financial hardship. We agree with the
Bankruptcy Court’s analysis that, taken as a whole, Prudential’s conduct in the
Preference Period deviated from the parties’ ordinary course of business practices. Cf. In
re Hechinger Inv., 489 F.3d at 578 (noting that the Bankruptcy Court “properly
considered” factors such as “the length of time the parties had engaged in the type of
dealing at issue, the way the payments were made, whether there appeared to be any
unusual action by either the debtor or creditor to collect or pay on the debt, and whether
the creditor did anything to gain an advantage in light of the debtor’s deteriorating

-- 9 of 12 --

10
financial condition”) (citing In re Logan Square E., 254 B.R. 850, 855 (Bankr. E.D. Pa.
2000)).
Prudential also argues that the Second Payment Plan did not constitute unusual
business practice because it bore similarities to the First Payment Plan. However, that
argument is unpersuasive. As discussed above, the Bankruptcy Court based its ruling in
part on the email ultimatum Prudential issued to Eclipse in September 2008, which
“never occurred in the pre-Preference Period (even in connection with the First Payment
Plan).” (App. at 19-20.) Furthermore, we agree with the Bankruptcy Court’s reasoning
that “the fact that Eclipse was placed on a similar accelerated payment plan for three
months at sometime in the past does not make the payment plans ordinary. … The First
Payment Plan and the Second Payment Plan were not simply a renegotiation of the
contract, they were unilateral pressure [tactics] by Prudential on Eclipse to assure future
payment.” (App. at 24-25.) Thus, the Bankruptcy Court did not err in finding that
payments made pursuant to Prudential’s collection efforts during the Preference Period
were outside the parties’ ordinary course of business practices.
B. New Value Defense
Prudential also argues that the Bankruptcy Court erred in denying a request to
reopen the record before the Court ruled on the new value issue on remand. A new value
defense “allows a creditor to retain an otherwise voidable preference if the creditor gave
the debtor new value after the preferential transfer.” In re New York City Shoes, Inc., 880
F.2d 679, 679 (3d Cir. 1989) (citing 11 U.S.C. § 547(c)(4)). In its original opinion, the
Bankruptcy Court relied on the testimony of Rene Williams-Varner, Prudential’s Director

-- 10 of 12 --

11
of Accounting, and a new value analysis chart she created that detailed all “new services
rendered during and after the Preference Period and the corresponding invoices…totaling
$128,379.40.” (App. at 26.) Crediting the Williams-Varner testimony and the new value
analysis chart, the Bankruptcy Court “[found] that Prudential ha[d] a new value defense
in the amount of $128,379.40.” (App. at 28.) On September 10, 2015, the District Court
remanded for a recalculation of the new value defense because “only services provided
prior to the petition date [should be] included in the § 547(c)(4) new value defense.”
(App. at 86.) Because the Bankruptcy Court’s original opinion “[did] not distinguish
between pre-petition and post-petition payments,” the District Court instructed the
Bankruptcy Court to “reexamine those invoices to determine the appropriate amount of
Prudential’s new value defense.” (App. at 86.)
Prudential argues that on remand, the Bankruptcy Court erred by denying its
request to reopen the factual record, which was necessary to clarify the record because
Prudential was not given a chance to present more thorough testimony in the original
proceeding. Prudential contends that in the original trial, the Bankruptcy Court
“expressed its preference to not go through each individual invoice in detail” during
Williams-Varner’s testimony, and thus, Prudential had “to summarize the new value
analysis without going through each individual invoice.” (Opening Br. at 25.) However,
there is no reason to believe that any additional evidence was necessary for the
Bankruptcy Court to recalculate the new value defense on remand. In the original
proceeding, there had been extensive testimony from Rene Williams-Varner regarding
the services Prudential provided to Eclipse, which the Bankruptcy Court credited as

-- 11 of 12 --

12
“persuasive and uncontested.” (App. at 27.) Prudential also introduced into evidence a
new value analysis chart created by Williams-Varner, which included all invoices
reflecting the value of new services it provided to Eclipse. The chart includes not only a
summary of the invoices, but also detailed information from each invoice. Thus, there
was no reason for the Bankruptcy Court to reopen the factual record when it had the
Williams-Varner testimony and the new analysis chart at its disposal. The District
Court’s direction to the Bankruptcy Court on remand was simple and straightforward: the
new calculation of Prudential’s new value defense should not include the value of any
services rendered by Prudential after the petition date. The sole issue on remand entailed
applying the District Court’s guidance to the dates and value of the invoices reflected in
the new analysis chart. Thus, the Bankruptcy Court did not err in declining to reopen the
factual record after remand from the District Court.
III. Conclusion
For the foregoing reasons, we will affirm the District Court’s Orders affirming the
Bankruptcy Court’s ruling on the ordinary course of business defense and the District
Court’s order affirming the Bankruptcy Court’s Remand Order reducing the new value
defense to services rendered pre-petition.

-- 12 of 12 --