05/17/2011 – Defendant’s Motion to Dismiss filed in the WCI Communities, Inc. Adversary Proceedings by Landscape Forms, Inc. before Judge Carey in the District of Delaware. A rare (with reason) motion to dismiss based on the ordinary course of business defense. Rarer still, a motion to dismiss on ordinary course of business grounds where the business relationship between the Debtor and the Defendant is only a single transaction. The chances of Judge Carey granting this motion to dismiss are slim but the briefing and ultimate decision are worthy of attention.
The Defendant acknowledges that the evaluation of multiple transactions is one way to establish that a transfer has been “made in the ordinary course of business or financial affairs of the debtor and the transferee” as required by Section 547(c)(2)(A). The Defendant then takes head on the notion that multiple transactions are required to establish ordinary course of business.
Here, however, there was only a single transaction between the parties, precluding an inquiry into the parties’ historical dealings. Notwithstanding, the majority of courts have held that a transfer arising from a single, initial transaction may nevertheless satisfy the ordinary course requirement. See e.g., In re Weaver, 2007 WL 4868302, at *3 (Bankr. D.N.D. July 25, 2007) (“A first-time transaction between a debtor and a creditor in certain circumstances may qualify as an ordinary course transaction for purposes of section 547(c)(2).”); In re Metromedia Fiber Network, Inc., 2005 WL 3789133, at *4 (Bankr. S.D.N.Y. Dec. 20, 2005) (“Courts have recognized that first-time transactions can be protected by the ordinary course of business defense.”); In re US Office Prods. Co., 315 B.R. 37, 40 (Bankr. D. Del. 2004) (finding that a late payment in the context of a single transaction between parties falls within the ordinary course defense); In re Forman Enters., Inc., 293 B.R. 848, 857 (Bankr. W.D. Pa. 2003) (“Most courts . . . have held . . that a transaction may be in the ‘ordinary course’ even if it is the very first transaction between the debtor and the creditor.”); see also 5 COLLIER ON BANKRUPTCY ¶ 547.04[2][a] at 547-54 (16th ed.). To be sure, “[e]very business relationship must begin with an initial transaction between the parties, and section 547(c)(2) does not contain any exclusion for first-time transactions.” In re Weaver, 2007 WL 4868302, at *3. The leading bankruptcy treatise advises that “[i]f the conduct of the parties to the first time transaction do not vary from the terms of their written agreement, some courts have indicated that the terms of that written agreement will define ‘ordinary course of business’ for that transaction.” 5 COLLIER ON BANKRUPTCY ¶ 547.04[2][a] at 547-54; see also Kleven v. Household Bank F.S.B., 334 F.3d 638, 642 (7th Cir. 2003) (“In some instances . . . the ordinary course of business may be established by the terms of the parties’ agreement, until that agreement is somehow or other modified by actual performance.”); In re US Office Prods. Co., 315 B.R. at 39-40 (citing Kleven with approval and stating that the “parties’ Agreement controls”). But see In re Ahaza Sys., Inc., 482 F.3d 1118, 1127 (9th Cir. 2007) (“[T]o fulfill § 547(c)(2)(A), a first-time debt must be ordinary in relation to this debtor’s and this creditor’s past practices when dealing with other, similarly situated parties.”).