Kaye v. Blue Bell Creameries, Inc.

Eleventh Circuit abandons the notion that new value must remain unpaid to offset a preference.

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Case Type:
Case Status:
Reversed and Remanded
17-13588 (11th Circuit, Aug 14,2018) Published
In reversing the decision of the bankruptcy court and concluding that new value need not remain unpaid, the Eleventh Circuit held that the statement in Jet Florida System indicating that new value must remain unpaid is dictum, and section 547 does not include any such requirement. The Eleventh Circuit opined that requiring new value to remain unpaid would hinder the policy objective of encouraging vendors to continue to extend credit to entities facing financial challenges and avoiding transfers because new value did not remain unpaid does not promote equality of treatment among creditors.
Procedural context:
Appeal from the United States Bankruptcy Court for the Northern District of Alabama.
Blue Bell sold ice cream and related merchandise to grocery store-chain debtor on credit. Generally, the debtor paid Blue Bell twice a week, but in August 2008, the debtor instituted "slow-pay" protocols, whereby the debtor began paying Blue Bell weekly instead and would occasionally cut checks and then hold them for a period of time. During the 90 days before the petition date, the debtor paid Blue Bell a total of $563,869.37 in 13 separate payments, but delivered $435,705.65 worth of products to the debtor, through approximately 1,700 separate deliveries. The debtor's confirmed plan appointed a liquidating trustee, who sought to recover the payments made to Blue Bell during the preference period. Blue Bell stipulated that it received the payments during the preference period on account of antecedent debt. Blue Bell raised the ordinary-course-of-business defense under section 547(c)(2) and the subsequent-new-value defense under section 547(c)(4). The bankruptcy court rejected both of Blue Bell's defenses. In concluding that the trustee could avoid $438,496.47 of the total amount paid to Blue Bell during the preference period, the bankruptcy court relied on Jet Florida System to exclude any invoice that the debtor paid from the amount of new value that Blue Bell could use to offset its preference liability. Blue Bell only appealed the bankruptcy court's ruling with respect to the subsequent-new-value defense. Blue Bell filed a petition for permission to appeal the bankruptcy court's order directly to the Eleventh Circuit.
Martin, Circuit Judge, Julie Carnes, Circuit Judge, and Gilman, Circuit Judge

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