Mid Ohio Petroleum Company et al v. Alliance Inventory Service of Kentucky, Inc.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re
MID OHIO PETROLEUM
COMPANY
Debtor
LEONARD Z. EPPEL OF
FINANCIAL RESOURCE
ASSOCIATES, INC., AS
ESTATE REPRESENTATIVE
OF MID OHIO PETROLEUM
COMPANY
Plaintiff
vs.
ALLIANCE INVENTORY
SERVICE OF KENTUCKY,
INC.
Defendant
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Case No. 02-16768
Chapter 11
Judge Hopkins
Adversary Case No. 04-1204
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: June 03, 2005
____________________________________________________________
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Case No. 02-16768
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1 The Debtor filed its chapter 11 petition on September 10, 2002. Because the case has not been dismissed
or closed and because no trustee has been appointed, preference actions could be filed up to two years after the filing
of the chapter 11 petition. See 11 U.S.C. § 546(a)(1)(A).
2
MEMORANDUM OF DECISION
DENYING SUMMARY JUDGMENT MOTION
The Plaintiff (“Eppel”) initiated this action with a complaint to avoid and
recover: (1) two allegedly preferential transfers totaling $2,100.00; and (2) two
alleged postpetition transfers totaling $2,100.00. Presently before the Court is a
summary judgment motion (“Motion”) (Doc. 21) filed by the Defendant
(“Alliance”). By its Motion, Alliance raises eight defenses to the complaint.
1. Statute of Limitations
Alliance contends that the complaint was not timely filed.
Pursuant to 11 U.S.C. § 546(a), Eppel had until September 10, 2004, to file
the complaint.1 Because he filed the complaint on September 9, 2004, the statute of
limitations defense is without merit and will be denied.
2. Standing
Alliance argues that Eppel does not possess standing to bring the action
because the Bankruptcy Code only references the “trustee” as the moving party.
The confirmed plan provides that the Estate Representative may prosecute any
“Recovery Actions.” Doc. 275 at ¶ 8.5(b)(vi). Moreover, this Court’s confirmation
order provides that “[a]ll Recovery Actions are retained and may be prosecuted by
the Estate Representative.” See Doc. 290 at 12. The law is well settled that an
estate representative appointed under a confirmed chapter 11 plan possesses standing
to pursue avoidance actions. See Winston & Strawn v. Kelly (In re Churchfield
Management & Investment Corp.), 122 B.R. 76, 81-83 (Bankr. N.D. Ill. 1990).
Thus, Eppel possesses standing to prosecute this action. Alliance's challenge to
Eppel's standing to bring these avoidance actions will be overruled.
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3. Solvency–11 U.S.C. § 547(b)(3)
Alliance next contends that Eppel cannot sustain his burden of proof under §
547(b) because the Debtor was solvent at the time of the transfers at issue.
Pursuant to 11 U.S.C. § 547(f), debtors are presumed to be insolvent during
the non-insider preference period. Alliance has presented no evidence to rebut this
presumption. See Fed. R. Evid. 301.
4. Affirmative Defenses–11 U.S.C. § 547(c)
Alliance next moves to the affirmative defenses under § 547(c). Alliance bears
the burden of proving all elements of any § 547(c) defense that it asserts. See §
547(g).
4a. Contemporaneous Exchange
The three elements of the contemporaneous exchange defense under
§ 547(c)(1) are: (1) both the debtor and creditor must intend the transfer to be a
contemporaneous exchange; (2) the exchange must, in fact, be contemporaneous; and
(3) the exchange must be for new value. Stevenson v. Leisure Guide of America (In
re Shelton Harrison Chevrolet, Inc.), 202 F.3d 834, 837 (6th Cir. 2000). Because
Alliance has presented no proof of the foregoing elements, its contemporaneous
exchange defense fails.
4b. Ordinary Course of Business
“Subsections (B) and (C) of section 547(c)(2) ‘comprise a subjective and
objective component respectively. The subjective prong (subsection (B)) requires
proof that the debt and its payment are ordinary in relation to other business dealings
between that creditor and that debtor. The objective prong (subsection (C)) requires
proof that the payment is ordinary in relation to the standards prevailing in the
relevant industry.’” Luper v. Columbia Gas of Ohio (In re Carled, Inc.), 91 F.3d
811, 813 (6th Cir. 1996) (quoting Logan v. Basic Distribution Corp. (In re Fred
Hawes Org., Inc.), 957 F.2d 239, 244 (6th Cir. 1992)). Again, because Alliance has
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presented no proof of the foregoing elements, its ordinary course of business defense
fails.
5. Defenses Not Contained in § 547(c)
Within § 547(c), Congress explicitly identified a set of defenses to a preference
action. Notwithstanding, Alliance raises additional “defenses” that are not contained
in § 547(c).
5a. Administrative Claimant Defense
Alliance contends that it is an administrative claimant and therefore it should
not have to return any transfers that Eppel may be entitled to recover under the
complaint.
Notwithstanding a September 2004 bar date for filing administrative claims,
Alliance has yet to make any request for payment of a claim under 11 U.S.C. §
503(a). Even if Alliance is not barred from pursuing an administrative claim, it still
must prove its claim under § 503(b). Even then, an allowed administrative claim
would not serve as a defense to the complaint.
In a recent case, Roberds, Inc. v. Broyhill Furniture (In re Roberds), 315 B.R.
443, 476 (Bankr. S.D. Ohio 2004), Judge Waldron concluded that 11 U.S.C. §
502(d) does not bar an administrative claimant from receiving payment on its claim.
At the same time, however, the existence of an administrative claim does not bar
recovery under § 547(b). Id. Instead, the administrative claimant is indebted to the
estate under § 547(b) and may nonetheless receive payment on its administrative
claim so long as the same is approved by court order. Id. Thus, § 547(b) and §
503(b) represent two separate proceedings, with neither serving as a defense to the
other.
5b. Failure to Schedule Interest in Property to be Recovered
Alliance next argues that Eppel is barred from prosecuting the complaint
because the Debtor failed to schedule the property that Eppel seeks to recover from
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Alliance. The Court disagrees.
A chapter 11 debtor’s failure to schedule its interest in a potential preferential
transfer does not estop the debtor from pursuing recovery of the same. See Ice
Cream Liquidation, Inc. v. Calip Dairies, Inc. (In re Ice Cream Liquidation, Inc.),
319 B.R. 324, 338-39 (Bankr. D. Conn. 2005); Direct Air, Inc. v. Fairchild
Aircraft, Inc. (In re Direct Air, Inc.), 189 B.R. 444, 453-54 (Bankr. N.D. Ill. 1995).
5c. Unclean Hands–NSF Check
The final defense raised by Alliance is the doctrine of unclean hands. Alliance
argues that the Debtor has unclean hands because it provided Alliance with NSF
checks for prepetition services.
The doctrine of unclean hands is immaterial to a preference action. See Kmart
Corp. v. Uniden America Corp. (In re Kmart Corp.), 318 B.R. 409, 418 (Bankr.
N.D. Ill. 2004). If delivery of a prepetition, NSF check constituted a valid defense
to a preference action, few debtors would ever prevail under § 547.
CONCLUSION
For the foregoing reasons, the Motion will be DENIED. An order to this
effect will be entered.
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Copies to:
Jay T. Bosken
jtbosken@fuse.net
James C. Frooman
jfrooman@lindhorstlaw.com
U.S. Trustee
ustpregion09.ci.ecf@usdoj.gov
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