Dill v. Brad Hall & Associates, Inc.

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
INDIAN CAPITOL DISTRIBUTING, INC.
Debtor. 	No. 7-09-11558 SA
CRAIG H. DILL,
Plaintiff,
v. 	Adv. No. 11-1060 S
BRAD HALL & ASSOCIATES, INC.
Defendant.
MEMORANDUM OPINION IN SUPPORT OF
JUDGMENT DISMISSING COMPLAINT
Plaintiff/Trustee Dill filed the complaint seeking recovery
of two $25,000 payments as preferential transfers. 	11 U.S.C.
§547(b). 	Defendant Brad Hall & Associates, Inc. (“BHA”)
responded by, among other things, asserting affirmative defenses
of a “contemporaneous exchange” and ordinary course of business
within the industry. 	For the reasons set out below, the Court
rules that the transfers were contemporaneous exchanges and were
also transactions conducted according to ordinary business terms
within the industry. 	The Court therefore will enter an order
dismissing the complaint. 1
1 The Court has subject matter and personal jurisdiction
pursuant to 28 U.S.C. §§1334 and 157(b); this is a core
proceeding pursuant to 28 U.S.C. §157(b)(2)(F); and these are
findings of fact and conclusions of law as may be required by
Rule 7052 F.R.B.P. 	In addition, as required by the Court, BHA
filed a statement addressing this Court’s subject matter
jurisdiction to hear and determine the matter at issue. 	BHA’s
statement recited as follows:
The undersigned party or parties consent to the
bankruptcy court hearing and determining all claims and
issues in this adversary proceeding and entering final
(continued...)
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BACKGROUND
Debtor filed its voluntary chapter 11 petition on April 14,
2009. 	The relationship between Debtor and BHA started in
December 2006 when BHA opened an account for Indian Capitol
Distributing, Inc. (“Indian Capitol” or “Debtor”). 	Starting in
mid-2008 Indian Capitol ran up a large credit balance with BHA,
which in the opening weeks of January 2009 exceeded $1,000,000.
Suddenly learning what a disaster had unfolded for BHA, Brad Hall
directly contacted Michael Mataya, president of Indian Capitol,
and worked out an arrangement which provided for a continuing
supply of fuel to Indian Capitol only in return for immediate
payment of any further fuel purchases. 	Concerning the unpaid
balance at that time – $907,334.08 – Mr. Hall authorized a
collection action against Indian Capitol which resulted in a
judgment against both Indian Capitol and Mr. Mataya which was
entered on April 23, 2009 in Bonneville County, Idaho. 	Mr.
Mataya also granted liens on various of his personal assets, and
purported to provide a personal guarantee, to help assure payment
of the past due debt. 2 	Mr. Mataya provided an explanation to Mr.
1(...continued)
orders and judgments on all claims including money
judgments as appropriate, subject to review under 28
U.S.C. § 158.
(Bolding in original.)
2 The style of the case on the judgment listed Mr. Mataya as
guarantor of Indian Capitol’s debt. 	In fact, read carefully, the
(continued...)
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Hall about why the unpaid debt had ballooned. 	He stated that
without his consent or knowledge, the State of New Mexico had
suddenly garnished his checking accounts for allegedly past due
obligations to the State, and that he was scrambling to recover
the funds so he could pay creditors. 	Mr. Hall testified that he
found this explanation convincing since BHA had experienced a
somewhat similar experience earlier when it took BHA months and
massive documentation to demonstrate to the Taxation and Revenue
Department of the State of New Mexico that BHA had delivered
certain quantities of fuel to the Navajo Nation and thus were not
liable to the state for taxes on those deliveries. 3
In effect Messrs Hall and Mataya drew a line underneath the
$907,000 and instituted a new relationship which allowed Indian
Capitol to continue to obtain fuel through BHA but only on
condition that it pay immediately for any new purchases. 	During
the period when the new agreement was in place, leading up to the
petition date, Indian Capitol stayed largely current (taking into
2(...continued)
guaranty agreement has Indian Capitol guaranteeing its own debt,
with Mr. Mataya signing merely as president of Indian Capitol.
BHA apparently first realized this during the trial.
3 Of course the explanation did not constitute collateral,
nor did it contribute to a paydown of the debt in any way.
However, the explanation and Mr. Hall’s acceptance of the
explanation is further evidence that the parties had isolated the
past due debt of $907,000 and were going forward on a new basis
for additional supplies of fuel.
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account the delivery of many truckloads of fuel each week)
according to the agreement. 4
On April 10 and again on April 13, 2012, shortly before the
petition date of April 14, Indian Capitol made two payments by
wire transfer, each in an amount of $25,000. 	According to BHA,
the payments were applied to invoices dated April 2 and April 4.
It is these two $25,000 payments that Trustee seeks to recover.
Specifically at issue are the following invoices and
payments:
Exhibits 	Del. date Inv. date Inv. No. 	Inv. Amt. Pmt. date
1, 68 	April 2 	April 2 	110304715 	15,971.84 April 10
1, 69 	April 2 	April 2 	11030472 	16,045.99 April 10/13 6
1, 70 	April 2 	April 2 	11030473 	15,994.38 April 13
1, 71 	April 4 	April 4 	11030474 	1,842.67 April 13
1, 72 	April 4 	April 4 	11030475 	16,444.21 April 13 7
1, 73 	April 4 	April 4 	11030970 	15,054.91 not paid
4 The safeguards were not perfect; when Debtor filed its
chapter 11 petition on April 14, 2009, BHA was owed over
$983,000. 	This represented unpaid invoices issued on April 4 and
April 6 (most of invoice no. 11030475 and all of nos. 11030970,
11030971, 11030972, and 11030973), totaling about $76,000. 	In
describing what happened this way, the Court is not in any way
downplaying the very considerable loss that BHA has incurred and
which will certainly not be repaid.
5 Bolding added by Court for ease of reference.
6 Of the April 10 $25,000 payment, the first invoice (471)
was paid in full and (25,000.00 - 15,971.84 =) $9,028.16 was
applied to the second invoice (472). 	The remainder of the second
invoice was paid by the April 13 $25,000 payment, which also paid
in full the third and fourth invoices (473 and 474) and part –
$145.12 – of the fifth (475).
7 See footnote 6 above.
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1, 74 	April 4 8 	April 6 	11030971 	14,403.24 not paid
1, 75 	April 6 	April 6 	11030972 	15,226.43 not paid
1, 76 	April 6 	April 6 	11030973 	15,226.43 9 not paid
Plaintiff’s adroitly argued but ultimately unsuccessful
position is two-fold: that the parties intended that payment for
ongoing fuel deliveries be immediate but it was not, so that the
“substantially contemporaneous” test was not met, and that the
underlying data about the “ordinary business terms” was
insufficient to support a conclusion that the payment terms were
ordinary.
ANALYSIS
To prevail on his case in chief, Plaintiff must prove
all five elements of 11 U.S.C. § 547(b), which provides:
Except as provided in subsection (c) of this section,
the trustee may avoid any transfer of an interest of
the debtor in property--
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the
debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made--
(A) on or within 90 days before the date of the
filing of the petition; or
(B) between ninety days and one year before the
date of the filing of the petition, if such
creditor at the time of such transfer was an
insider; and
(5) that enables such creditor to receive more than
such creditor would receive if--
8 The single digit that constitutes the date on the
photocopy of the attached bill of lading is garbled/jumbled so as
to be unreadable. 	It could be April 4, 5 or 6. 	But because this
invoice went unpaid, it does not make a difference.
9 Sic. 	The bills of lading for the two invoices (972 and
973) show the exact same amount charged for each sale.
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(A) the case were a case under chapter 7 of this
title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to
the extent provided by the provisions of this
title.
The Court finds that Trustee easily proved his prima facie
case. 	The two payments were made directly to BHA, for loads of
fuel that Indian Capitol drivers had already picked up 10 , within
days (or a day) of the filing of the petition. 	Debtor was then
(and remains) hopelessly insolvent, and of course if the payments
had not been made, BHA would in the end be out $50,000 more than
it already is (or very close thereto).
Defendant argues that the transfer is not avoidable under
sections 547(c)(1) and 547(c)(2)(B) 11 which provide:
10 A hand-written notation on one of the bills of lading
says “Plaza”. 	Hall exhibit 68 (H-68). 	The evidence suggests
strongly that the notation was put on the bill of lading by the
Indian Capitol driver. 	In any event, Trustee has argued that
this means that the fuel was likely delivered to Mr. Mataya’s
Travel Plaza and not to one of Debtor’s locations. 	Assuming that
is true (and it probably is), it makes no difference. 	At the
time BHA had only one account with a Mataya entity, and that was
Indian Capitol. 	Once the fuel had been picked up by an Indian
Capitol driver, it was in Indian Capitol’s possession, and Indian
Capitol was liable for payment, regardless of what Indian Capitol
did with the fuel. 	Of the other four bills of lading attached to
the invoices sent to Indian Capitol, another says “Plaza” (H-71);
one says “B-Plant” (presumably Debtor’s bulk plant) (H-69); H-70
says “[illegible]_East”; and H-72 says “Texaco North”. 	In
addition to the bulk plant, Indian Capitol operated several
locations from which it retailed fuel.
11 BHA withdrew its defenses of ordinary course of business
or financial affairs between Debtor and BHA, §547(c)(2)(A), and,
conditioned on Trustee not seeking any recovery other than the
(continued...)
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The trustee may not avoid under this section a
transfer--
(1) to the extent that such transfer was--
(A) intended by the debtor and the creditor to or for whose
benefit such transfer was made to be a contemporaneous exchange
for new value given to the debtor; and
(B) in fact a substantially contemporaneous
exchange;
(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;
Section 547(c)(1) defense:
In Gonzales v. DPI Food Products Co. (In re Furrs
Supermarkets, Inc.), 296 B.R. 33, 39 (Bankr. D. N.M. 2003), this
Court stated the following:
Section 547(c)(1) protects transfers from attack if (1)
the preference defendant extended new value to the debtor,
(2) both the defendant and the debtor intended the new value
and reciprocal transfer by the debtor to be contemporaneous
and (3) the exchange was in fact contemporaneous.
The purpose of the contemporaneous exchange
exception ... is to encourage creditors to
continue to deal with troubled debtors without
fear that they will have to disgorge payments
received for value given. 	If creditors continue
to deal with a troubled debtor, it is possible
that bankruptcy will be avoided altogether.
5 Alan N. Resnick & Henry J. Sommer, Collier on
Bankruptcy ¶ 547.04[1], at 547- 47-48 (15th ed. rev.
2003)(Footnotes omitted.) 	The parties' intent to make
a contemporaneous transfer is an essential element of a
section 547(c)(1) defense. 	Lowrey v. U.P.G. Inc. (In
re Robinson Bros. Drilling, Inc.), 877 F.2d 32, 33 n.1
11 (...continued)
two $25,000 payments, its defense of “new value”. 	§547(c)(4).
Trustee stipulated that it was seeking no other recovery from
BHA.
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(10th Cir. 1989). 	See also Harrah’s Tunica Corp. v.
Meeks (In re Armstrong), 291 F.3d 517, 525 (8 th Cir.
2002) (the parties' intent is the critical inquiry)
(quoting Official Plan Comm. v. Expeditors Int'l of
Washington, Inc. (In re Gateway Pacific Corp.), 153
F.3d 915, 918 (8th Cir. 1998)). 	The section protects
transfers that do not result in diminution of the
estate because unsecured creditors are not harmed by
the transfer if the estate was replenished by an
infusion of assets that are of roughly equal value to
those transferred. 	Manchester v. First Bank & Trust
Co. (In re Moses), 256 B.R. 641, 652 (10th Cir. B.A.P.
2000).
In this case, the Court finds that both the April 10 and April 13
payments fit this defense.
That in early 2009 the parties intended to change their
relationship – effectively begin again – is apparent from the
testimony and from the course of payments thereafter. Like toxic
assets on a threatened bank’s balance sheet (or asbestos on pipes
in the basement), the past due debt would be in effect packaged
up and insulated from repayment and from the ongoing transactions
between the parties; all further payments would be applied only
to then current purchases, with the past due debt to be paid not
from assets of Indian Capitol but rather from the security and
the guaranty of Mr. Mataya. 12
12 That the security, except for an $18,000 payment in late
2008, and the guaranty turned out in retrospect to be worthless,
is of no moment. 	The parties intended to isolate the past due
debt and effectively did so.
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The intent of the parties 13 is clear and supported by the
documents and the testimony. 14 	The Court heard testimony of what
constituted cash on delivery or its equivalent in the context of
wholesale fuel sales late in the first decade of the twenty-first
century. 	That process then involved the purchaser’s driver
(Indian Capitol) using the personal identification number (PIN)
or code issued by the seller (BHA) to obtain a load of fuel from
a distributor (such as Chevron, Western Refining, Holly Energy
Products, et al.). 	Immediately upon completion of uploading the
fuel from a third-party refinery or dispensing station, the truck
driver received a bill of lading or delivery receipt detailing
the amounts and prices of the various fuels delivered to the
driver. 	The bill of lading would be delivered by the driver that
day or the following day to the office of the purchaser (in this
case, Indian Capitol), which would then send the bill of lading
to BHA. 15 	The seller received a copy of the bill of lading or
other papers evidencing the transaction and its details by fax
13 Neither party called Mr. Mataya as a witness, by
deposition or otherwise. 	So the Court’s finding about the
intention of the parties is based largely on the testimony of Mr.
Hall and the documentation.
14 The Court found all the witnesses credible, although
Messrs Dill and Hall had more information, and more useful
information, at their fingertips in response to questioning.
15 BHA also received documentation of the sale from the
third party. 	Whichever documentation arrived first would be used
by BHA to collect from Indian Capitol.
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either from the purchaser or the distributor 16 . 	The seller
created the invoice and delivered of the invoice to the buyer
immediately. 	The buyer would then, pursuant to any agreement
with the seller, pay immediately, or within ten days, or some
other period of time, by ACH, wire transfer or cashier’s check.
That was the process followed here, albeit with the checks at
issue being received eight and eleven days respectively following
the issuance of the invoices.
It appears from Hall exhibits 68 - 72 that Indian Capitol
faxed the five bills of lading to BHA the same day they were
issued. 	When BHA received the bills of lading, it issued
invoices that same day. 	In turn, when Indian Capitol received
the BHA invoices, it wire transferred funds shortly thereafter to
pay the invoices. 	See Hall exhibit 1 (showing wire transfers on
April 2, April 3, April 6, April 10 and April 13). 	The two
payments at issue covered fuel deliveries and invoices issued
eight and eleven days earlier. 	(The tenth calendar day was a
Sunday, so the April 13 wire transfer took place on the next
business day, a Monday.)
Hall exhibit 2 shows the larger picture of all the transfers
that took place following the agreement reached by Messrs Hall
16 The direct and virtually instantaneous delivery to the
seller from the distributor that the PIN or code is being used
and fuel delivered to a buyer, and what amounts of what types of
fuel has then been uploaded, is a much more recent development.
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and Mataya. 	What it shows is that, other than two payments made
on January 16 and January 23, 2009, which were 11 and 10 days
respectively after the applicable invoices, the payments on
invoices dated February 1 and afterward, and paid on February 3
and afterward, were made 2, 1, 2, 0 (same day), 6, 1, 1, 1, 3, 3,
2, 2, 3, 4, 1, 1, 1, 3, 3, 4, 2, 2, 5, 8 and 11 (the latter two
the payments in issue). 	So it appears from Hall exhibit 2 that
the agreement rather quickly devolved into one in which several
invoices would be paid at once, shortly after the deliveries had
been made. 17
Mr. Hall made clear that Indian Capitol was not on a pre-pay
basis, but rather on a “COD” basis 18 , which he defined as Indian
Capitol being required to pay as soon as it received an invoice,
or that payments were to be applied to “current” invoices. 	He
considered the $25,000 payments to have been applied to “current”
invoices, although it is clear to the Court that the unpaid
invoices of April 6 could be characterized as “more current”.
Mr. Hall’s definition of COD also comprehended that the time
between the uploading of the fuel and the receipt of payment
could be several days. 	And Mr. Hall made clear that as an
17 In any event, none of the payments starting in February
2009 were intended to be applied to the $907,000 debt, and none
were.
18 As explained below, Mr. Thompson did not consider the
payment terms to be COD.
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outside limit, Indian Capitol was not supposed to routinely have
ten days to pay. 	As it turned out, of the two $25,000 payments,
one is ten days (actually eleven, given that the tenth day is a
Sunday) and the other rather close to that.
The testimony of BHA’s Chief Financial Officer Jerrad
Thompson was somewhat unclear and incomplete (although the Court
is not disputing his veracity); there were several questions he
could not answer. 	Among the things he did testify about,
however, was whatever the arrangement between Indian Capitol and
BHA was, it was not COD. 	He characterized it simply as payment
required when the invoice was sent out, which matched Mr. Hall’s
description. 	Mr. Thompson testified that sometimes, depending on
how long it took the bills of lading or the distributor’s invoice
to reach BHA, it might be eight to ten days to generate an
invoice. 	Once the bill of lading or other paperwork reached BHA,
however, the invoice would be created and sent as soon as
possible. 	Clearly BHA wanted payment very soon after the invoice
was issued. 	The Court is comfortable that, whatever the labels
or characterization the two witnesses – Messrs Hall and Thompson
– attached to the understanding about the payment terms, the
agreement was in effect that Indian Capitol would have very few
days to make the payments from when it obtained the fuel and was
invoiced.
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“[T]here is a trend away from a ‘bright line’ or rigid
approach to a case-by-case determination of whether the exchange
was, in fact, substantially contemporaneous.” 	Robert Ginsberg,
Robert Martin and Susan Kelly, Ginsberg & Martin on Bankruptcy,
section 8.03 (2012) (“GMBKR”) (citing, inter alia, Peters v. Wray
State Bank (In re Kerst), 347 B.R. 418 (Bankr. D. Colo. 2006)).
In Kerst, the Court ruled that a motor vehicle lien perfected by
the bank 47 days after the money was initially loaned was a
substantially contemporaneous transfer. 	The perfection required
the release of the lien by the prior lienholder, and it took a
month and a half for the prior lienholder to release its lien and
deliver the title to the vehicle. 	The bank and the debtor had
intended the transaction, including both the advance (used to pay
the prior lienholder) and the receipt of title and perfection of
the new lien, to take place substantially contemporaneously. 	Id.
at 420. 	Under these circumstances, the Kerst court, noting the
use of the term “substantially contemporaneous” as opposed to a
specific deadline that Congress could have opted for, such as in
§547(e)(2) (ten-day [now 30-day] time limit for transfer to have
been accomplished), adopted the analysis of the Seventh Circuit
in Pine Top Insurance Company v. Bank of America National Trust
and Savings Association, 969 F.2d 321 (7 th Cir. 1992). 19
19 Neither the Tenth Circuit nor the Tenth Circuit BAP have
directly ruled on the specific issue.
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The focus of the “in fact” prong of the [Dean v. Davis,
242 U.S. 438 (1917)] test is obviously on the temporal
proximity between the issuance of credit and transfer
of assets to secure that credit. However, the modifier
“substantial” makes clear that contemporaneity is a
flexible concept which requires a case-by-case inquiry
into all relevant circumstances ( e.g., length of
delay, reason for delay, nature of the transaction,
intentions of the parties, possible risk of fraud)
surrounding an allegedly preferential transfer. We
conclude that the two- to three-week delay here did not
defeat the substantially contemporaneous nature of this
exchange.
Id. at 328. 	(Citations and footnote omitted.) 	In this instance,
the transfers at issue occurred eight and eleven days after the
dates the invoices were issued. 	By almost any standard 20 , those
time periods qualify as “substantially contemporaneous”.
Compare, for example, DPI Food Products, 296 B.R. at 46 (payments
applied to invoices 43 to 95 days old were not substantially
contemporaneous).
It is true that the payment terms on the invoices
consistently referred to “Net 10 days” and due dates for payment
20 As GMBKR points out, there is contrary authority, perhaps
most prominently Ray v. Security Mutual Finance Corp. (In re
Arnett), 731 F.2d 358 (6 th Cir. 1984), which conformed the
outside time limit of §547(c) with the ten-day limit of
§547(e)(2) (as the latter section then provided) since the
contemporaneous exchange was supposed to be treated similarly to
the cash transactions envisioned by §547(e)(2). 	Id. at 361-62.
The Court agrees with the reasoning of the Kerst court, 347 B.R.
at 424-26, and the several other decisions cited in Kerst, that
Arnett incorrectly limited the time limit for a substantially
contemporaneous transaction to ten days. 	Of course, if the
Arnett analysis were applied using the thirty-day time limit
currently permitted by §547(e)(2), these two payments would
clearly be timely anyway.
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were ten calendar days from the date of the invoice. 	But the
testimony was clear that Messrs Hall and Mataya had agreed on
immediate payment. 	That BHA’s paperwork was not in absolute
conformity with the reality of the exact payment arrangements is
less important than the clarity of the parties’ explicit
agreement.
Trustee also argued out that as of April 10 and April 13,
there were more recent invoices – the ones from April 6 – that
were also outstanding, and that the agreement to pay the invoices
immediately mandated that they be paid rather than the ones that
were paid. 	As is apparent from the authority cited, the payments
made were appropriately applied to the invoices that were in fact
paid so that the payments were substantially contemporaneous.
The fact that there were other invoices that could have been paid
and would also have qualified as substantially contemporaneous
does not detract from the status of these payments as having been
made substantially contemporaneously. 	And in any event, the
authority cited also makes it clear that a little (or even a lot
of) “play in the joints” is acceptable.
Finally, there remains the somewhat discordant fact that
agreement was for immediate payment of invoices when received,
but that by early April the payments were in fact made closer to
ten days after invoice. 	But the statute only calls for a
substantially contemporaneous exchange of payment for new value,
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and for the parties to have intended a substantially
contemporaneous exchange. 	These transactions, including the two
at issue, literally met those standards, even if there was some
discrepancy between specifically what was agreed on and what
actually happened.
Section 547(c)(2)(B) defense:
BHA insists that the two $25,000 payments were made
according to “ordinary business terms.” 	The Court agrees.
[Former] §547(b)(2)(C) [now § 547(c)(2)(B)] requires
that DPI successfully raise and prove that the payments
it defends were or are consistent with the (presumably
broad) range of arrangements that take place between
creditors and healthy debtors in the applicable segment
of the industry.
Gonzales v. DPI Food Products Co., 296 B.R. at 45. 	DPI relied
heavily on Clark v. Balcor Real Estate Finance, Inc. (In re
Meredith Hoffman Partners), 12 F.3d 1549 (10 th Cir. 1993), cert.
denied, 512 U.S. 1206 (1994):
Ordinary business terms therefore are those used in
“normal financing relations”: the kinds of terms that
creditors and debtors use in ordinary circumstances,
when debtors are healthy. 	Such terms do not raise the
dangers that the preference section seeks to avoid.
Even arrangements that creditors commonly try to use
when a debtor is struggling may give a creditor an
advantage over others and precipitate bankruptcy.
Id. at 1553. 	Meredith Hoffman Partners is still the governing
precedent for this circuit. 	See Jobin v. McKay (In re M & L
Business Machine Company, Inc.), 84 F.3d 1330, 1339 (10 th Cir.),
cert. denied, 519 U.S. 1040 (1996).
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The § 547(c)(2) defense is narrowly construed. 	In re M&L
Business Machine Co., 84 F.3d at 1339; Payne v. Clarendon
Nat'l Ins. Co. (In re Sunset Sales, Inc.), 220 B.R. 1005, 1020
(10th Cir. B.A.P. 1998). 	BHA has the burden of proof (both
coming forward with evidence and persuading the Court) for its
§547(c) defenses. 	§547(g). 	The standard of proof is a
preponderance of the evidence. M & L Business Machine Company,
Inc., 84 F.3d at 1339 (citing Meredith Hoffman Partners, 12 F.3d
at 1553).
BHA’s expert witness Mr. Rod Honstein testified that the
terms agreed upon for the new purchases – payment by wire
transfer on or about ten days after invoicing for truckloads of
fuel sold to a fuel retailer – were ordinary in the industry for
these sorts of purchases. 	See Hall exhibits 4 and 80 (affidavit
of Mr. Honstein summarizing his testimony). 	Mr. Honstein
emphasized in his live testimony that these were ordinary
business terms between healthy buyers and sellers.
To establish what the overall industry practices are, the
creditor (ordinarily) cannot rely solely on its own experience
with other customers, In the Matter of Midway Airlines, Inc., 69
F.3d 792, 798 (7th Cir. 1995); Logan v. Basic Distribution Corp.
(In re Fred Hawes Org., Inc.), 957 F.2d 239, 246 (6th Cir. 1991),
or the debtor’s arrangements with other creditors, Gulf City
Seafoods, Inc. v. Ludwig Shrimp Co., Inc. (In the Matter of Gulf
City Seafoods, Inc.), 296 F.3d 363, 368 n. 5 and 369 (5 th Cir.
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2002), or even both. Id., at 368 n. 5. 	Evidence about the
practices of other creditors and (in the Tenth Circuit, healthy)
debtors in the industry is required. Id. 	A defendant “may not
derive the standards and practices of the industry from its own
practices and must present evidence of the actual practices of
its competitors.” 	Grigsby v. Purolator Products Air Filtration
Co., Inc. (In re Apex Automotive Warehouse, L.P.), 245 B.R. 543,
550 (Bankr. N.D. Ill. 2000).
Mr. Honstein’s testimony was not limited to the
relationships between BHA and its customers. 	He was qualified as
an expert in the area of business terms between buyers and seller
in the fuel distribution business in New Mexico. 	He testified
about a variety of other sellers and distributors around the
state and what their terms of sale were with their buyers.
Trustee cited Rocin Liquidation Estate v. Alta AH & L (In re
Rocor International, Inc.), 352 B.R. 319, 335-36 (Bankr. W.D.
Okla. 2006) in support of his argument that Mr. Honstein had not
“drilled down deep enough” (the Court’s phrase) in establishing
what are the normal business terms among the sellers and buyers
in New Mexico. 	The Court has no disagreement with the Rocor
decision. 	But the Court finds the decision inapposite because
the Court finds that Mr. Honstein clearly had the requisite
experience to know what the ordinary business terms in the
industry were, even if his specific research for this testimony
was somewhat limited. 	It is true that Mr. Honstein’s empirical
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research was on the skimpy side, but it provided enough of a
factual basis for the opinion rendered. 	Overall, the Court found
Mr. Honstein’s testimony credible and helpful to the Court in
making its findings about the broad range of ordinary business
terms in the fuel distribution industry in the state of New
Mexico.
Among other things, Mr. Honstein testified that ordinary
business terms can include payment by ACH, wire transfer or
cashier check. 	And he testified that the broad range of ordinary
business terms in 2009 could include payment dates ranging from
ten days to twenty days (for retailers, for example) to thirty
days (state agencies, school districts) to forty-five days (such
as national companies operating coal mines).
The Court concludes that ten days for payment from invoice
date clearly qualifies as ordinary business terms.
Trustee argued that Mr. Honstein’s testimony could not be
relied on because he had to be biased: his company was also the
target of a §547(b) action by the Trustee, and the settlement of
that action, tegether with prepetition unpaid deliveries to
Indian Capitol, resulted in a total loss of almost $800,000. 	Of
course it would be odd if Mr. Honstein were not frustrated and
angry about this result, especially given the size of his loss.
But there was not much in the simple and straightforward
testimony that was susceptible of shading in favor of the BHA.
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Ten-day (and longer) payment terms are simple and commonplace in
many industries, and Mr. Honstein’s testimony that wire
transfers, ACH transfers and even cashier’s checks are all common
in the industry fits within the rubric that in making this
decision, the Court must take into account the “broad range” of
industry practices that are “ordinary”. 	See DPI, 296 B.R. at 44.
And in any event, the Court does not find anything in Mr.
Honstein’s testimony or demeanor that would suggest he would have
otherwise rendered the opposite opinion.
Trustee also argued that but for the arrangements that
Messrs Hall and Mataya reached securing the repayment of the
$907,000 with Mr. Mataya’s real estate, BHA would not have
applied the payments at issue only to the later deliveries of
fuel. 21 	Alternatively put, Trustee argues that securing the
repayment of the $907,000, including obtaining a guaranty of
Indian Capitol’s debt from Mr. Mataya (equally useless) and a
judgment against Indian Capitol has to be taken into account in
deciding whether this was within “ordinary business terms” (for a
healthy debtor). 	It is true that the entire relationship between
Indian Capitol and BHA needs to be taken into account. 	But with
21 The securing of the $907,000 debt of course turned out to
be entirely ephemeral. 	As the CM file of the main case makes
clear, and as Mr. Hall learned to his considerable dismay, the
real estate Mr. Mataya pledged to BHA, and to others as well, was
already so heavily encumbered as to have almost no value for any
of the later pledgees, including BHA.
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respect to these specific payments, none of them went to repay
any part of the $907,000, and instead went only to pay for
recently purchased fuel shipments. 	Indeed, almost always, a
payment that meets the requirements of §547(c)(2) will have been
made in the context of a larger antecedent debt. 	And the
“healthy debtor” standard does not require that the debtor in
question be healthy – again, almost by definition, such a debtor
will not be healthy. 	Rather it must be the transaction itself
that would be typical for a healthy debtor to engage in. 	These
payments meet these standards. 	To rule otherwise – that is, to
rule that taking into account the insulation of the $907,000 past
due debt must necessarily taint any part of the relationship
between the two parties – would in effect eliminate the
§547(c)(2) defense in any case.
CONCLUSION
The Court of course is not free to merely decide on some
vague policy, business or “equitable” basis what qualifies as an
exception or an affirmative defense to §547(b). 	See, e.g.
Gonzales v. Food Marketing Group (In re Furr’s Supermarkets,
Inc.), 320 B.R. 1, 6 (Bankr. D. N.M. 2004) (“[Section] 547(c) is
the exclusive list of [affirmative] defenses available to
preferential transfers.”). 	At the same time the specific terms
of the defenses provided by §547(c) are not so precisely defined
(compare 30-day time limits of §547(e)(2)) that they do not admit
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of some need for interpretation, as is evidenced by the myriad
cases on the subject. 	Thus the Court is entitled to look at the
purposes of §§547(b) and (c) in interpreting the reach or breadth
of §547(c) defenses, and that includes determining whether there
has been a loss to the estate that ought to be recovered for the
creditors or on the other hand a payment by the debtor that
should not be recovered because the payment furthers one of the
goals of the Code. 22 	Under the facts of this case, the parties
intentions and behavior were in close enough conformity with the
statutory language to qualify for the protection of §§547(c)(1)
and 547(c)(2)(B).
The strategy of recognizing the loss of approximately
$907,000 and moving beyond that to begin a new relationship with
Indian Capitol allowed BHA to be paid, and subsequently keep,
payments for (most of) the fuel purchased in the final months
22 	On the one hand the preference rule aims to
ensure that creditors are treated equitably,
both by deterring the failing debtor from
treating preferentially its most obstreperous
or demanding creditors in an effort to stave
off a hard ride into bankruptcy, and by
discouraging the creditors from racing to
dismember the debtor. On the other hand, the
ordinary course exception to the preference
rule is formulated to induce creditors to
continue dealing with a distressed debtor so
as to kindle its chances of survival without
a costly detour through, or a humbling ending
in, the sticky web of bankruptcy.
Fiber Lite Corp. v. Molded Acoustical Products, Inc. (In re
Molded Acoustical Products, Inc.), 18 F.3d 217, 219 (3rd Cir.
1994).
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before Indian Capitol filed its chapter 11 petition without
giving BHA an undue advantage over other similarly situated
creditors. 	At the same time, the arrangement kept Indian Capitol
supplied with fuel for its operations, and perhaps delayed the
filing of the petition. 	These are results that are entirely
consistent with the goals of the Bankruptcy Code, and
specifically of the affirmative defenses allowed by §547(c).
Since BHA met its burden of proving the affirmative defenses of
“contemporaneous exchange” and “ordinary business terms” as
required by §§547(c)(1) and (c)(2)(B) respectively, the complaint
must be dismissed.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	August 10, 2012
Copies to:
James A Askew
Arland & Associates, LLC
201 3rd ST NW, STE 505
Albuquerque, NM 87102-3331
Victor E Carlin
Moses Law Firm
PO Box 27047
612 First Street, NW
Albuquerque, NM 87125-7047
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