AURIGA POLYMERS INC v PMCM2 LLC

Case Type:
Business
Case Status:
Affirmed in part and Reversed in part
Citation:
20-14647 (11th Circuit, Jul 18,2022) Published
Tag(s):
Ruling:
In a case of first impression, the Eleventh Circuit held that a creditor's new value defense available under section 547(c)(4)(B) of the Bankruptcy Code is not offset by "otherwise unavoidable transfers" made to a creditor after the petition date, as only prepetition transfers affect a creditor's new value defense, and that the liquidating trustee's post-petition reservation of funds to pay the creditor's section 503(b)(9) claim did not preclude the creditor from using such value as part of its new value defense.
Procedural context:
In granting in part and denying in part the creditor's summary judgment motion, the bankruptcy court determined that Auriga could not offset its preference liability through the new value defense using the same value for which the creditor sought payment as an administrative expense claim under section 503(b)(9). The bankruptcy court also held that Auriga's 503(b)(9) claim was not contingent on Auriga's disgorgement of avoided preferences. Auriga timely appealed. Because the case involved issues of first impression, the district court stayed the case for direct appeal to the Eleventh Circuit.
Facts:
Creditor Auriga delivered a substantial amount of goods valued at more than $4.2 million prior to the debtor, Bealieu, filing a voluntary petition seeking relief under chapter 11 of the Bankruptcy Code. During the ninety days prior to the petition date, the debtor paid Auriga more than $2.2 million, and Auriga delivered at least $3.523 million of goods, with $694,502 of that amount being delivered within twenty days of the petition date. The goods were sold on credit and were secured by an otherwise unavoidable security interest. Auriga asserted a general unsecured claim in the amount of $3.596 million and a 503(b)(9) claim in the amount of $694,502. Pursuant to the terms of the debtor's confirmed plan, all of its assets, including avoidance actions, were transferred to a liquidating trust. The trustee of the liquidating trust initiated an action against Auriga seeking to avoid and recover the $2.2 million in prepetition transfers made by the debtor to Auriga, to reclassify as a general unsecured claim any portion of Auriga's 503(b)(9) claim included in its new value defense, and to disallow any claims of Auriga until it disgorged any amounts avoided by the trustee. Auriga filed an answer and counterclaim, seeking declaratory relief determining that Auriga was still entitled to recover on account of its 503(b)(9) claim, notwithstanding its assertion of the new value defense and that the trustee could not disallow Auriga's 503(b)(9) claim unless it disgorged any amounts successfully avoided by the trustee pursuant to section 502(d) of the Bankruptcy Code. Auriga filed a summary judgment motion. Thereafter, the parties stipulated that the $2.2 million Auriga received during the ninety days prior to the petition date were avoidable as preferences, but that the new value defense protected all but the last of the transfers, in the amount of $421,119. The trustee made an interim distribution to Auriga in the undisputed amount of its claim and reserved funds sufficient to pay the disputed portion of the 503(b)(9) claim. Auriga contended that the $421, 119 could still constitute new value, while also being allowed as a 503(b)(9) claim.
Judge(s):
Wilson and Lagoa, Circuit Judges and Martinez, District Judge

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