Liebersohn v. WTAE-TV (In re Pure Weight Loss, Inc.), No. 08-195 (SR), 2009 WL 3769671 (Bankr. E. D. Pa. Nov. 10, 2009)

 In Liebersohn, the chapter 7 trustee brought an avoidance action to recover two payments the Defendant, a television station, received for advertising sales. Neither party disputed that the payments were made during the preference period that began 90 days before the Debtor filed for bankruptcy and that the other basic criteria for a preference set forth in section 547(b) of the Bankruptcy Code were fulfilled.

 The Defendant, however, filed a motion for summary judgment asserting that there was “no genuine issue of material fact” as to whether the payments it received were protected by the “ordinary course of business defense” set forth in section 547(c)(2) of the Bankruptcy Code. Section 547(c)(2) provides that the trustee may not avoid a transfer:

 to the extent that such transfer was in payment of a debt incurred by the debtor in the “ordinary course” of business or financial affairs of the debtor and the transferee, and such transfer was—(A) made in the “ordinary course” of business or financial affairs of the debtor and the transferee; or (B) made according to ordinary business terms.

 The primary support offered by the Defendant for its motion for summary judgment was a comparison of the range of days from invoice to payment in the pre-preference period and the preference period. Specifically, it noted that the payments at issue in the case were made between 94 and 120 days after the invoice date, which falls within the 61 to 120 “days to payment” range of the prepreference period.

 The trustee focused on a different statistic in its opposition: the average number of days between invoice and payment in the pre-preference and preference periods. The trustee noted that during the pre-preference period the Debtor paid on average 72 days after the invoice date whereas during the preference period the average days to payment was 107 days. The trustee also argued that the Defendant’s deviation from its standard accounting procedures by not applying the two payments in question to the earliest outstanding invoices negates its ordinary course defense.

 In denying the Defendant’s motion for summary judgment, the Bankruptcy Court took a nuanced view of the ordinary course defense and stated that it must look “beyond the average payment time.” The Bankruptcy Court stated that “[p]ersuasive authority in this circuit suggests that courts should look beyond the average payment time during the parties’ relationship to determine if the timing of preference period payments were in the ordinary course of business.” It wrote that in connection with analyzing the ordinary course defense, the following factors are relevant:

(1)  the length of time the parties have engaged in the type of dealing at issue;

 (2)  whether the subject transfer was in an amount more than usually paid;

 (3)  whether the payments were tendered in a manner different from previous payments;

 (4)  whether there appears any unusual action by either the debtor or creditor to collect or pay on the debt;

 (5) whether the creditor did anything to gain an advantage (such as gain additional security) in light of the debtor’s deteriorating financial condition.

 In this case, the Bankruptcy Court found that an examination of these factors raised genuine issues of material fact that precluded granting summary judgment. Specifically, the Bankruptcy Court stated that the days to payment range relied on by the Defendant was faulty, because the payments in the prepreference period that were on the longest end of the days to payment spectrum were exceptional in some significant way. The Bankruptcy Court noted that one such payment was made in a considerably smaller dollar amount than all other payments and another was made immediately before the preference period and was the first in a series of payments that took unusually long. The Bankruptcy Court found that these payments might not be indicative of the overall prepreference course of dealing, which would invalidate the Defendant’s ordinary course defense based on the days to payment range.

 The Bankruptcy Court also noted differences between the manner that payments were made in the pre-preference and preference periods. For example, one of the payments at issue was for multiple invoices, whereas in the pre-preference period the Debtor traditionally paid one invoice at a time. These issues  of fact prevented the Bankruptcy Court from granting the Defendant’s motion for summary judgment based on the ordinary course of business defense.

 Commentary:

 Liebersohn demonstrates the wide range of factors relevant to a preference analysis. While the timing of payments is a very significant factor, there are many other ways in which payments by a debtor may deviate from the historical norm. It is therefore essential for any party in a preference action to be  cognizant of the totality of the facts before deciding to incur expenses in connection with filing a motion for summary judgment.