Richard Lauter v. Wells Fargo Bank

Case Type:
Business
Case Status:
Affirmed
Citation:
19-6013 (8th Circuit, Mar 19,2020) Published
Tag(s):
Ruling:
BAP for 8th Cir. affirmed judgment of bankruptcy court (WD Missouri - KC) applying 11 USC 547(c)(1) new value defense to preference suit claim. Senior creditor's release of liens for less than full payment of its debt permitted junior lienor to provide new value through its lien release. IRS’s lien releases also enabled junior lienor's lien releases to provide new value to the debtor. Transactions were part of one deal and parties intended advance payment to be contemporaneous exchange for new value.
Procedural context:
Bankruptcy court (WD Missouri - KC) entered judgment for trustee on preference suit, but applied 11 USC 547(c)(1) new value defense to deny avoidance of $1.4M in transfers. Trustee appealed to BAP for 8th Cir.
Facts:
Debtor Gas-Mart USA, Inc. owned and operated gas stations and convenience stores in multiple states. In July 2015, Debtor and affiliated entities filed chapter 11. In confirmation order, Trustee was appointed and vested with power to prosecute avoidance actions. Before its bankruptcy filing, the Debtor had deposits on account at Wells Fargo. The Debtor issued checks in excess of its deposit balances in breach of the terms of the parties’ account agreements. To resolve the Debtor’s breach, the parties entered into a letter agreement setting forth repayment terms for the amount by which the Debtor’s checks exceeded its account balances. The Debtor also granted Wells Fargo security interests in substantially all its assets. In March 2015, the Debtor entered into an agreement to sell all its real and personal property assets at 19 Gas-Mart locations for $27 million (Sale). The parties also agreed to assign a value of approximately $600,000 to the inventory being sold. The Sale contract required the Sale of the assets to be free and clear of liens. The Sale closed on April 30, 2015. Secured party Sun Life received over $14 million of the Sale proceeds in partial payment on its debt. Although it was not paid in full, Sun Life voluntarily released its liens on all assets of the 19 stores and consented to the Sale. Wells Fargo received $1.3 million of the Sale proceeds in partial payment on its debt. On April 29, 2015, the Debtor paid Wells Fargo the amount of $100,000. Separately, the Debtor made payments to Wells Fargo in the amount of $73,490.67 during the preference period. In order to comply with the buyer’s requirement that the Sale be free and clear of liens, Wells Fargo released its liens. Prior to the Debtor’s bankruptcy filing, certain stores managed by the Debtor were owned by KCRC. KCRC’s affiliate, Phillips 66, supplied fuel to the Debtor. When the Debtor became delinquent in its obligations to KCRC, it agreed to return locations and inventory to KCRC in exchange for a credit toward the amount that it owed KCRC. Wells Fargo claimed that because the inventory was subject to its liens, the inventory should not have been transferred to KCRC without Wells Fargo’s consent. In order to close the Sale, Phillips 66 agreed to provide credit to the Debtor up to approximately $2 million to cover fuel purchases, provided Wells Fargo released Phillips 66 from any liability relating to the inventory transfer. Wells Fargo released its claims against KCRC and Phillips 66 as part of an agreement between Phillips 66, KCRC, and Wells Fargo. The Trustee filed an adversary proceeding seeking avoidance and recovery of the $1.3 million, $100,000, and $73,490.67 payments to Wells Fargo as preferences. After trial, the bankruptcy court held that the Trustee could avoid and recover the $73,490.67 paid to Wells Fargo but ruled in favor of Wells Fargo in that $1.3 million and $100,000 payments qualified for the §547(c)(1) defense. the Trustee appeals the bankruptcy court’s decision that the $1.3 million and $100,000 payments to Wells Fargo were excepted from avoidance based on Bankruptcy Code §547(c)(1).
Judge(s):
Saladino, Schermer, Shodeen

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