Appellate Court Decisions Related
To Bankruptcy Cases

64. 547(c)(2) Preference -- Ordinary Course of Business

Sigma Micro Corp. v. Healthcentral.com (In re Healthcentral.com), 504 F.3d 775 (9th Cir. Sept. 21, 2007) ((1) In preference action, bankruptcy court erred when it granted summary judgment in favor of Chapter 11 trustee. When defendant transferee filed declaration showing that payments made during preference period conformed to the payment cycle established before the preference period, an issue of fact arose as to the ordinary course of business defense under S 547(c)(2)(B). Even though debtor changed its cash flow management system pre-petition to only pay critical vendors, this was but one non-exclusive factor for the court to consider. Defendant's declaration also created an issue of fact as to ordinary business terms under S 547(c)(2)(C). The declaration included testimony concerning typical business terms in the industry and evidence that the payments between debtor and defendant were within those terms. (2) Bankruptcy court's local rule allowing bankruptcy court to withdraw the jurisdictional reference from the district court when a party demands a jury trial is invalid because it is inconsistent with 28 U.S.C. S 157(d) and Fed. R. Bankr. P. 5011(a), which state that only a district court may withdraw the reference. Additionally, when a party requests a jury trial, the bankruptcy court may still handle discovery matters, pre-trial conference and motions, including dispositive motions.)

In re Hechinger Investment Company of Delaware, Inc., 489 F.3d 568 (3d Cir. June 7, 2007) (In regard to the ordinary course defense of S 547(c)(2), the bankruptcy court correctly ruled that preference-period payments were not made in the ordinary course of business between the debtor and the creditor, where just prior to the preference period, the creditor had imposed stricter credit terms, a lower credit limit, and required wire payments, and the debtor made payments made according to these new terms. The Third Circuit remanded the issue of prejudgment interest pursuant to S 550(a), because prejudgment interest must be awarded unless there is a sound reason not to do so, and no reason was given for the denial of prejudgment interest.)

Wood v. Stratos Prod. Dev., LLC (In re Ahaza Sys., Inc.), 482 F.3d 1118 (9th Cir. Apr. 3, 2007) (A debt may be incurred within the "ordinary course of business" under S 547(c)(2) even if the debt is the first such agreement