KHI Liquidation Trust v. Wisenbaker Builder Services, Inc. et al (In Re Kimball Hill, Inc.), AP No. 10-00824 Bankruptcy Court for the Northern District of Illinois (Chicago Division): On June 3, 2011, Judge Susan Pierson Sonderby rejected the Defendants’ claim that the litigation trust lack standing but dismissed the preference count for failure to state a claim. To see a copy of Judge Sonderby’s opinion, click here.
Recent, Significant Bankruptcy Preference Decisions
Recent decisions of federal courts on significant issues of bankruptcy preference, avoidable transfer law
Circuit City Stores Bankruptcy Court – Transfer to Satisfy 503(b)(9) Claim Negates New Value
Eastern District of Virginia Bankruptcy Judge Kevin R. Huennekens, in a December 1, 2010 opinion in Circuit City Stores, Inc. v. Mitsubishi Digital Electronics America, Inc. (AP No. 10-03068), held that the preference claim defendant could not utilize a new value defense (Section 547(c)(4) defense) if the defendant receives a transfer for its § 503(b)(9) administrative claim predicated upon the same instance of new value. In reaching the conclusion, the Court methodically and with remarkable precision parses through the complexities of Section 547(c)(4). Given the Court’s reasoning, the next question is “What about payments post petition under critical vendor, warehouseman, carrier and wage motions.”
Sixth Circuit: Enabling Loan Collateralization Remains at Risk as Preferential Transfer Until Lien is “Actually Noted on Kentucky Certificate of Title” Leaves Purchase Money Lenders Subject to the Vagaries of Motor Vehicle Title Administration.
On July 2, 2010, the United States Court of Appeals for the Sixth Circuit ruled that, under Kentucky law, the “immunizing” effect of a purchase money security interest under Section 547(c)(3)[FN 1] was held in abeyance as a preference claim defense until the enabling loan security interest was “actually noted on the certificate of title.” Brock v. Branch Banking and Trust Company (In re Johnson), — F.3d —-, 2010 WL 2629704 (6th Cir. 2010). The holding had the practical effect of exposing the secured lender in that proceeding to the trustee’s claims for lien avoidance and recovery as a preferential transfer.
Ninth and Tenth Circuits Reach Opposite Conclusions in First Half of 2010 – Can Depreciation Provide Basis for Monetary Relief under Section 550(a) for Non-Possessory Lien Holders Who have their Liens Avoided as Bankruptcy Preferences under Section 547?
During the first half of 2010, the United States Court of Appeals for the Ninth Circuit and the United States Court of Appeals for the Tenth Circuit issued decisions addressing the remedies available to a trustee following the avoidance as a Section 547FN1 preferential transfer of a non-possessory security interest. The decisions substantially overlap in their respective holdings, but the area of disagreement is practically significant, and the difference bodes ill for non-possessory secured creditors in the Ninth Circuit.
Delaware Bankruptcy Court Confirms Applicability of Section 1409(b) Venue Dollar Threshold to Claims for Recovery of Avoidable Preferential Transfers under Section 547
The Bankruptcy Court for the District of Delaware, Judge Kevin Gross, has confirmed the applicability to preference actions of the venue dollar threshold of 28 USC Section 1409(b). Dynamerica Mfg. LLC v. Johnson Oil Co., LLC, 2010 WL 1930269 (Bkrtcy.D.Del., May 10, 2010).
“Subsequent Advance” Approach to Subsequent New Value May Still Live in the Eleventh Circuit… and Payment of 503(b)(9) Administrative Expense Claim Held to Reduce Subsequent New Value Defense to Bankruptcy Preference
A simple statement of the April 28, 2010 holding in TI Acquisition, LLC, v. Southern Polymer, Inc. 2010 WL 1993848 (Bankr.N.D.Ga.), may paint the decision as adverse to creditor interests. Certainly, Judge Mary Grace Diehl held that “new value” paid as a 503(b)(9) administrative expense is unavailable in a “subsequent new value” defense to a bankruptcy preference claim. However, this holding is overshadowed
Can Pre-Petition Deliveries Provide a Bankruptcy Preference “New Value” Defense and Section 503(b)(9) Administrative Expense?
Does a supplier have to choose between asserting a subsequent new value bankruptcy preference defense and making a Section 503(b)(9) administrative expense request? Judge Marian F. Harrison of the Bankruptcy Court for the Middle District of Tennessee held on January 7, 2010 that a supplier does not have to choose. In the memorandum decision In re Commissary Operations, Inc. — B.R. —-, 2010 WL 99036 (Bkrtcy.M.D.Tenn.), Judge Harrison ruled that deliveries entitled to Section 503(b)(9) claim status are not disqualified from constituting new value for purposes of the subsequent new value defense to a bankruptcy preference claim.