UTC of Sparrer Sausage Co., Inc. v. Jason's Foods, Inc.

Summarized by Daniel Waxman , KEWA Financial Inc.
9 years 8 months ago

Citation:

UTC of Sparrer Sausage Co., Inc. v. Jason's Foods, Inc., Case No. 15-2356 (7th Cir. Jun. 10, 2016)

Tag(s):

Ruling:

The Bankruptcy Court and District Court applied too narrow of a baseline range in determining whether preference-period payments made by a debtor were subject to the subjective ordinary course of business defense, 11 U.S.C. 547(c)(2)(A). In making this ruling, the Seventh Circuit held that: (i) the Bankruptcy Court was within its discretion when it truncated the historical payment period to eliminate payments made when the debtor was purportedly in financial distress; (ii) use of either the "average lateness" or "total range" method to calculate a baseline is within the Bankruptcy Court's discretion; (iii) invoices paid 6 days on either side of a 22 day average are within the ordinary course of business; and (iv) the "bucketing" analysis utilized by the Bankruptcy Court utilized too narrow of a range as it only incorporated 64% of the historical period payments; and (v) any remaining liability was fully offset by uncontested "new value.". In dicta, the Court also noted that the 5 day difference between the historical and preference period averages would likely be sufficient to fit all payments within the ordinary course defense (although the Court did not overrule the Bankruptcy Court on this basis).

Procedural context:

The Seventh Circuit Court of Appeals reversed the decision of the Bankruptcy Court for the Northern District of Illinois (affirmed by the District Court for the Northern District of Illinois), granting a judgment to the UTC, pursuant to 11 USC 547(b), in the amount of $242,595.32

Facts:

In the 90 days prior to its bankruptcy filing, Sparrer Sausage made payments of approximately $587,000 to Jason's Foods, Inc. The Unsecured Creditors Committee for Sparrer Sausage filed an action to avoid these payments as preferential transfers. According to the Court, during the relevant historical period, Sparrer paid invoices within 8 to 38 days with an average invoice age of 22 days. According to the Court, during the preference period, Sparrer made 23 payments, of which 12 were made during the historical range. The remaining 11 payments were made 14, 29, 31, 37 and 38 days after invoice and the average invoice age for all preference period payments was 27 days.

Judge(s):

Flaum, Williams, and Sykes

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