Kaye v. Blue Bell Creameries, Inc. (In Re BFW Liquidation, LLC)

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 17-13588
________________________
B.K. Docket No. 2:09-bk-00634-TOM11
In re: BFW LIQUIDATION, LLC,
Debtor.
__________________________________________________________________
WILLIAM S. KAYE,
Trustee of the BFW Liquidating Trust,
Plaintiff-Appellee,
versus
BLUE BELL CREAMERIES, INC.,
Defendant-Appellant.
________________________
Appeal from the United States Bankruptcy Court
for the Northern District of Alabama
________________________
(August 14, 2018)
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Before MARTIN, JULIE CARNES, and GILMAN,∗ Circuit Judges.
JULIE CARNES, Circuit Judge:
Bruno’s Supermarkets, LLC (“the Debtor”) filed for bankruptcy under
Chapter 11. In administering and ultimately liquidating the bankruptcy estate, the
Trustee filed an adversary proceeding against Blue Bell Creameries, Inc. (“Blue
Bell”) to recover monies the Trustee contended were owed by Blue Bell to the
estate. Specifically, the Trustee sought to recover from Blue Bell more than
$500,000 in a series of payments that Blue Bell had received from the Debtor
during the 90-day period preceding the Debtor’s bankruptcy filing. Each payment
by the Debtor was made for recent shipments of ice cream and other merchandise
that Blue Bell had delivered to the Debtor for the latter to sell to the public.
Blue Bell acknowledged that the payments it received from the Debtor
constituted preferences under 11 U.S.C. § 547(b),1 which meant that absent a valid
defense by Blue Bell, the Trustee would be empowered to “avoid” those payments:
that is, require Blue Bell to repay the money it had earlier been paid by the Debtor
for goods it had actually delivered. Blue Bell argued below that it had just such a
defense. Specifically, 11 U.S.C. § 547(c)(4) prohibits “avoidance” by the trustee to
∗
Honorable Ronald Lee Gilman, United States Circuit Judge for the Sixth Circuit, sitting by
designation.
1
In pertinent part, as defined by § 547(b), a preference occurs when an insolvent debtor
transfers money to pay a creditor for a prior debt within 90 days before filing a bankruptcy
petition.
2
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the extent the recipient of payments during the preference period provided “new
value” to the debtor during that same period.
Despite Blue Bell having provided new value to the Debtor here—lots of ice
cream products that the latter was able to sell to its customers in its efforts to
remain financially afloat—the bankruptcy court concluded that it was bound by our
precedent to reject, in large part, Blue Bell’s new-value defense. Specifically,
relying on Charisma Investment Company, N.V. v. Airport Systems, Inc. (In re Jet
Florida System, Inc.), 841 F.2d 1082 (11th Cir. 1988), the bankruptcy court held
that Blue Bell was entitled to an offset against its preference liability only to the
extent that any new value it extended to the Debtor “remained unpaid” as of the
date the bankruptcy petition was filed. Because Blue Bell was paid for many of
the products that it had delivered, the bankruptcy court concluded that Jet Florida
System prevented Blue Bell from using the new-value defense to defeat the
Trustee’s efforts to “avoid” such payments. As a result, the court ruled that Blue
Bell had to return much of the money it had been paid for the goods it provided the
Debtor.
Blue Bell appeals the bankruptcy court’s decision. After careful review, and
with the benefit of oral argument, we conclude that the language in Jet Florida
System relied on by the bankruptcy court was dictum and, as such, it does not bind
us. Construing § 547(c)(4) anew, we conclude that it does not require new value to
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remain unpaid. We therefore vacate the bankruptcy court’s judgment and remand
for a new calculation of Blue Bell’s preference liability.
BACKGROUND
I. Factual Background
The Debtor, Bruno’s Supermarkets, LLC, 2 was a grocery-store chain with
more than 60 stores in Alabama and Florida. Blue Bell sold ice cream and related
products to the Debtor on credit. The Debtor traditionally paid Blue Bell twice
weekly, meaning that, under that payment scheme, the Debtor remained current as
to the money it owed Blue Bell.
The Debtor began suffering from liquidity problems, however, and in August
2008, it hired an advisory firm to provide guidance on cash-flow management.
Absent immediate action, the Debtor expected to run out of cash. On the advisory
firm’s recommendation, the Debtor began writing checks to its vendors, including
Blue Bell, only once a week, not twice. It also began “stretching,” or delaying,
payments, which occasionally included cutting checks and then holding those
checks for a period of time. Under this new “slow-pay” protocol, the Debtor
would ultimately pay Blue Bell for the products it had delivered, but it would take
longer to do so. This practice also resulted in Blue Bell receiving payments at
2
During the underlying bankruptcy proceedings, the Debtor sold all of its intellectual
property—including its name—and changed its name to BFW Liquidation, LLC.
4
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irregular intervals, particularly during the 90 days immediately preceding the
bankruptcy filing.
Between November 7, 2008, and February 5, 2009,3 the Debtor paid Blue
Bell a total of $563,869.37 in 13 separate payments. At least $250,000 of that total
was for products that Blue Bell had delivered to the Debtor before November 7,
2008. During the same time period—between November 7, 2008, and February 5,
2009—Blue Bell delivered $435,705.65 worth of ice cream and other merchandise
to the Debtor’s grocery stores. Blue Bell delivered these products in relatively
small batches on an almost daily basis, making about 1,700 separate deliveries.
These transactions are summarized in the following chart 4:
Invoices / Deliveries from Payments the Debtor
Date / Time Period
Blue Bell to the Debtor Made to Blue Bell
Nov. 7, 2008 – Nov. 11, 2008 $24,271.70
Nov. 12, 2008 $43,924.47
Nov. 12, 2008 – Nov. 24, 2008 $108,872.64
Nov. 25, 2008 $67,821.23
Nov. 25, 2008 – Dec. 1, 2008 $42,858.51
Dec. 2, 2008 $55,149.91
Dec. 2, 2008 – Dec. 4, 2008 $11,523.17
Dec. 5, 2008 $27,485.38
Dec. 5, 2008 – Dec. 8, 2008 $13,783.29
Dec. 9, 2008 $33,320.61
3
February 5, 2009, is the date on which the debtor filed its bankruptcy petition. November 7,
2008, began the 90-day period prior to the filing.
4
The information in this chart is derived from an exhibit that the Trustee introduced at trial. In
its initial brief on appeal, Blue Bell concedes that the Trustee’s exhibit is accurate.
5
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Dec. 9, 2008 – Dec. 14, 2008 $41,029.32
Dec. 15, 2008 $26,327.00
Dec. 15, 2008 – Jan. 4, 2009 $101,670.75
Jan. 5, 2009 $59,980.15
Jan. 5, 2009 $10,337.94
Jan. 6, 2009 $55,508.85
Jan. 6, 2009 – Jan. 12, 2009 $39,041.37
Jan. 13, 2009 $47,162.09
Jan. 13, 2009 – Jan. 19, 2009 $23,737.88
Jan. 20, 2009 $28,483.07
Jan. 20, 2009 – Jan. 29, 2009 $10,297.79
Jan. 30, 2009 $33,186.46
Jan. 30, 2009 $48,213.42
Jan. 30, 2009 – Feb. 2, 2009 $7,246.81
Feb. 3, 2009 $37,306.73
Feb. 3, 2009 $1,034.48
II. Procedural History
The Debtor filed a voluntary Chapter 11 bankruptcy petition on February 5,
2009. On September 25, 2009, the bankruptcy court confirmed the Debtor’s
Fourth Amended Plan of Liquidation. Pursuant to the plan and confirmation order,
William Kaye (“the Trustee”) was appointed the liquidating trustee for the Debtor’s
bankruptcy estate. Acting for the benefit of the bankruptcy estate, the Trustee was
responsible for enforcing any avoidance actions that might lie against creditors of
the Debtor.
In January 2011, the Trustee brought this adversary proceeding against Blue
Bell seeking to avoid, as a preference, the $563,869.37 that the Debtor had paid to
Blue Bell during the 90-day period prior to the filing of the bankruptcy petition:
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that is, any payments made between November 7, 2008, and February 5, 2009.
Blue Bell and the Trustee eventually stipulated that all of the elements of a
preference claim under 11 U.S.C. § 547(b) had been satisfied with respect to each
of the transfers making up the $563,869.37. That is, Blue Bell had received these
monies during the preference period and they were in payment of a prior debt.
Blue Bell asserted two defenses to the Trustee’s preference claims:
§ 547(c)(2)’s ordinary-course-of-business defense and § 547(c)(4)’s subsequent-
new-value defense. The bankruptcy court rejected Blue Bell’s invocation of the
ordinary-course-of-business defense. Blue Bell does not challenge that ruling on
appeal.
With respect to the subsequent-new-value defense, the bankruptcy court
concluded that Blue Bell was entitled to an offset against its preference liability
only to the extent that any new value it extended to the Debtor during the
preference period “remained unpaid” as of the petition date. The court relied on
Jet Florida System, in which our Court stated that § 547(c)(4) had “generally been
read to require . . . that the new value must remain unpaid.” See In re Jet Fla. Sys.,
Inc., 841 F.2d at 1083.
Excluding all new value for which the Debtor had paid, the bankruptcy court
concluded that the Trustee could avoid—that is, claw back—$438,496.47 of the
$563,869.37 transferred to Blue Bell during the preference period. It reached this
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figure by relying on the calculations of the Trustee’s expert witness, who had
analyzed the Debtor’s books and records and traced each of the 13 payments made
during the preference period to the particular invoices those payments were
designated to cover. Any invoice the Debtor had paid was excluded from the
amount of new value that Blue Bell could use to offset its preference liability. The
bankruptcy court entered judgment in favor of the Trustee and against Blue Bell on
December 20, 2016.
Blue Bell filed a notice of appeal to the district court. Shortly thereafter,
Blue Bell and the Trustee jointly certified that an immediate appeal of the
bankruptcy court’s order directly to this Court would materially advance the
progress of the case. 5 Blue Bell then filed a petition for permission to appeal the
bankruptcy court’s order directly to this Court. A panel of this Court granted the
petition, and we now turn to the merits of Blue Bell’s appeal.
5
Under 28 U.S.C. § 158(d)(2), the district court, the bankruptcy court, or the parties acting
jointly, may certify an order of the bankruptcy court for direct appeal to this Court if (1) the order
involves a question of law as to which there is no controlling decision of this Court or of the
Supreme Court; (2) the order involves a matter of public importance; (3) the order involves a
question of law requiring resolution of conflicting decisions; or (4) an immediate appeal may
materially advance the progress of the case or proceeding in which the appeal is taken.
28 U.S.C. § 158(d)(2)(A). Here, the parties jointly certified that an immediate appeal of the
bankruptcy court’s order directly to this Court would materially advance the progress of the
adversary proceeding.
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DISCUSSION
Blue Bell argues that the statement in Jet Florida System indicating that new
value must remain unpaid is dictum, and that the statute does not set out any such
requirement. The Trustee argues that the statement at issue in Jet Florida System
constitutes precedent that we are bound to follow. Even if that statement is dictum,
however, the Trustee contends that policy considerations nonetheless weigh in
favor of requiring new value to remain unpaid in order for that new value to offset
a defendant’s preference liability. The Trustee further argues, in the alternative,
that transfers avoidable as a preference under § 547(b), and on no other ground, are
“otherwise unavoidable” under § 547(c)(4)(B) and, therefore, any new value paid
for with such transfers cannot offset a creditor’s preference liability.
I. Whether the Statement in Jet Florida System Indicating that § 547(c)(4)
Requires New Value to “Remain Unpaid” Is Dictum
A. Definition of “Dictum”
“Dictum is a term that has been variously defined as a statement that neither
constitutes the holding of a case, nor arises from a part of the opinion that is
necessary to the holding of the case.” Black v. United States, 373 F.3d 1140, 1144
(11th Cir. 2004) (citing Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 66–67
(1996), and United States v. Hunter, 172 F.3d 1307, 1310 (11th Cir. 1999) (Ed
Carnes, J., concurring)). Whether a particular statement constitutes a holding or
dictum depends on the facts of the case. See Edwards v. Prime, Inc., 602 F.3d
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1276, 1298 (11th Cir. 2010) (“[R]egardless of what a court says in its opinion, the
decision can hold nothing beyond the facts of that case.”). If a statement is “not
necessary to the result the Court reached in the case,” then that statement is dictum.
See Hunter, 172 F.3d at 1310 (Ed Carnes, J., concurring); see also United States v.
Caraballo-Martinez, 866 F.3d 1233, 1244 (11th Cir. 2017) (“[D]icta is defined as
those portions of an opinion that are not necessary to deciding the case then before
us.” (quoting United States v. Kaley, 579 F.3d 1246, 1253 n.10 (11th Cir. 2009))),
cert. denied, 138 S. Ct. 566 (2017).
“[D]icta is not binding on anyone for any purpose.” Edwards, 602 F.3d at
1298. Accordingly, if the statement in Jet Florida System indicating that new value
must remain unpaid is dictum, then we are “free to give . . . fresh consideration” to
this question. Great Lakes Dredge & Dock Co. v. Tanker Robert Watt Miller, 957
F.2d 1575, 1578 (11th Cir. 1992).
B. The Statement at Issue in Jet Florida System Is Dictum
Section 547(c)(4), in pertinent part, prohibits the Trustee from avoiding a
transfer to a creditor (that is, requiring reimbursement from the creditor) if, after
the transfer, the creditor gave new value to the debtor that was “not secured by an
otherwise unavoidable security interest” and “on account of which new value the
debtor did not make an otherwise unavoidable transfer” to the creditor. The statute
makes no mention of any requirement that any new value provided by a creditor
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remain unpaid. Nevertheless, in Jet Florida System, we opined that § 547(c)(4)
“ha[d] generally been read to require: (1) that the creditor must have extended the
new value after receiving the challenged payments, (2) that the new value must
have been unsecured, and (3) that the new value must remain unpaid.” In re Jet
Fla. Sys., Inc., 841 F.2d at 1083. We relied on three bankruptcy court opinions as
the basis for this observation. Id. (citing Waldschmidt v. Ranier (In re Fulghum
Const. Corp.), 45 B.R. 112, 119 (Bankr. M.D. Tenn. 1984), aff’d, 78 B.R. 146
(M.D. Tenn. 1987), rev’d, 872 F.2d 739 (6th Cir. 1989); Keydata Corp. v. Bos.
Edison Co. (In re Keydata Corp.), 37 B.R. 324, 328 (Bankr. D. Mass. 1983);
Pettigrew v. Tr. Co. Bank (In re Bishop), 17 B.R. 180, 183 (Bankr. N.D. Ga. 1982)).
The trustee6 in Jet Florida System had sought to avoid, as a preference,
almost $12,000 in rent for a warehouse that the debtor had paid to the appellant
during the preference period, arguing that because the debtor had vacated the
premises before the beginning of the preference period, the latter received no value
from the rental premises. See id. at 1082–83. The appellant argued that it was
6
The district court’s opinion in Jet Florida System indicates that the adversary proceeding in
that case was brought by Air Florida, Inc. (the debtor) and Air Florida System, Inc. See
Charisma Inv. Co., N.V. v. Air Fla. Sys., Inc., 68 B.R. 596, 598 (S.D. Fla. 1986). Therefore, it
appears that Air Florida, Inc. was acting as a debtor in possession with all the rights of a trustee.
See 11 U.S.C. § 1107(a). For ease of discussion, and because Air Florida, Inc. was standing “in
the shoes of a trustee,” Fanelli v. Hensley (In re Triangle Chemicals, Inc.), 697 F.2d 1280, 1284
(5th Cir. 1983), we refer to the plaintiff in Jet Florida System as “the trustee,” which is consistent
with West’s synopsis at the beginning of this Court’s opinion in Jet Florida System. See In re Jet
Fla. Sys., Inc., 841 F.2d at 1082.
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nonetheless entitled to an offset against its preference liability under § 547(c)(4)
because, notwithstanding the debtor’s choice not to make use of the offer, the
appellant had continued to make the leased premises available to the debtor, which
in itself constituted the providing of new value. The bankruptcy court found that
the debtor had indeed vacated the premises before the beginning of the preference
period. Id. at 1082, 1084. The district court found no error in that finding and, as a
result, concluded that the appellant had not provided any new value to the debtor.
That being so, the court held that the new-value defense was not applicable, and
the appellant had to give the money back to the bankruptcy estate. Id. at 1083.
On appeal, we agreed with the district court and held that, absent any use of
the leased premises by the debtor, simply making the premises available to the
debtor did not confer a “material benefit” on the debtor sufficient to constitute
“new value.” Id. at 1084. In other words, the extent of our ruling was to hold that
the appellant had not provided any new value to the debtor subsequent to his
payment of almost $12,000.
In our earlier recitation of the elements of § 547(c)(4)’s new-value defense,
however, we had noted that, in addition to requiring the providing of new value
subsequent to a payment—the prong on which the appellant floundered—there
were two other elements: “that the new value must have been unsecured” and
“that the new value must remain unpaid.” Id. at 1083. Although we cited those
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additional two elements, neither played any role in our decision. Indeed, we noted
that both elements had “concededly been satisfied.” Id.
For this reason, our statement in Jet Florida System indicating that new
value must remain unpaid was dictum. This purported requirement was never at
issue in the case and it played no role in our decision or reasoning. See Black, 373
F.3d at 1144; Hunter, 172 F.3d at 1310 (Ed Carnes, J., concurring). Because our
statement in Jet Florida System indicating that § 547(c)(4) requires new value to
remain unpaid is dictum, we are “free to give . . . fresh consideration” to the
question of whether § 547(c)(4) requires new value to remain unpaid. See Great
Lakes Dredge & Dock Co., 957 F.2d at 1578. We do so now.
II. Whether § 547(c)(4) Requires New Value to Remain Unpaid
Having analyzed the plain language of the statute, as well as the history of
its development, we hold that § 547(c)(4) does not require new value to remain
unpaid. As to the Trustee’s argument that policy considerations support its
interpretation, we disagree and conclude that policy considerations strongly
disfavor the Trustee’s position. We explain why.
A. Standard of Review and Analytical Framework
Questions of statutory interpretation are reviewed de novo. Bankston v.
Then, 615 F.3d 1364, 1367 (11th Cir. 2010); see also Pollitzer v. Gebhardt, 860
F.3d 1334, 1338 (11th Cir. 2017) (“Interpretations of the [Bankruptcy] Code are
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questions of law that we review de novo.”). “The starting point in statutory
interpretation is the language of the statute itself.” Bankston, 615 F.3d at 1367
(quoting Warshauer v. Solis, 577 F.3d 1330, 1335 (11th Cir. 2009)). “If the
‘language at issue has a plain and unambiguous meaning with regard to the
particular dispute in the case,’ and ‘the statutory scheme is coherent and
consistent,’ the inquiry is over.” Id. (quoting Warshauer, 577 F.3d at 1335). “In
determining whether a statute is plain or ambiguous, we consider ‘the language
itself, the specific context in which that language is used, and the broader context
of the statute as a whole.’” Id. (quoting Warshauer, 577 F.3d at 1335); see also
Robinson v. Shell Oil Co., 519 U.S. 337, 340–41 (1997). Statutory language is
ambiguous if it is susceptible to more than one reasonable interpretation. Med.
Transp. Mgmt. Corp. v. Comm’r of I.R.S., 506 F.3d 1364, 1368 (11th Cir. 2007).
B. The plain, unambiguous, language of § 547(c)(4) does not require
new value to remain unpaid
Under § 547(b) of the Bankruptcy Code, a bankruptcy trustee may avoid
certain transfers that the debtor made to a creditor within 90 days of the petition
date. 7 A transfer that meets the requirements for avoidance under § 547(b) is
7
Specifically, § 547(b) provides:
(b) Except as provided in subsections (c) and (i) of [§ 547], the trustee may avoid
any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
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called a preference, and the trustee has the burden of proof on whether any
particular transfer meets those requirements. See 11 U.S.C. § 547(g).
If a transfer is avoided under § 547(b), then the trustee may recover the
amount of the transfer from the creditor to whom the transfer was made. 8 See id.
§ 547(b) (providing for avoidance of a preferential transfer); id. § 550(a)
(providing for recovery of the amount of an avoided preferential transfer). The
creditor will then have only an unsecured claim against the bankruptcy estate for
the amount recovered by the trustee. See id. § 502(h).
(2) for or on account of an antecedent debt owed by the debtor before such
transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the
petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive
if—
(A) the case were a case under chapter 7 of [the Bankruptcy Code];
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by
the provisions of [the Bankruptcy Code].
8
In addition, any claim that the creditor has against the estate will be disallowed until the
creditor repays the amount of the avoided transfer. 11 U.S.C. § 502(d).
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Section 547(c) excepts from avoidance certain transfers that would
otherwise be avoidable under § 547(b). One of those exceptions—the subsequent-
new-value defense—is defined in § 547(c)(4), which states:
(c) The trustee may not avoid under this section a transfer—
....
(4) to or for the benefit of a creditor, to the extent that, after such
transfer, such creditor gave new value to or for the benefit of the
debtor—
(A) not secured by an otherwise unavoidable security interest;
and
(B) on account of which new value the debtor did not make an
otherwise unavoidable transfer to or for the benefit of such
creditor . . . .
Id. § 547(c)(4). The creditor against whom avoidance is sought under § 547(b) has
the burden of proving nonavoidability under § 547(c). Id. § 547(g).
Nothing in the language of § 547(c)(4) indicates that an offset to a creditor’s
§ 547(b) preference liability is available only for new value that remains unpaid.
Instead, the plain language of the statute requires only that (1) any new value given
by the creditor must not be secured by an otherwise unavoidable security interest
and (2) the debtor must not have made an otherwise unavoidable transfer to or for
the benefit of the creditor on account of the new value given. See id.
By its plain terms, then, the statute only excludes “paid” new value that is
paid for with “an otherwise unavoidable transfer.” See id. § 547(c)(4)(B).
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Therefore, so long as the transfer that pays for the new value is itself avoidable,
that transfer is not a barrier to assertion of § 547(c)(4)’s subsequent-new-value
defense. See id.
In reaching this conclusion, we find common ground with the Fourth, Fifth,
Eighth, and Ninth Circuits. See Hall v. Chrysler Credit Corp. (In re JKJ Chevrolet,
Inc.), 412 F.3d 545, 551–52 (4th Cir. 2005) (rejecting the idea that § 547(c)(4)
requires new value to remain unpaid and holding that, “under the plain terms of the
statute,” whether payments for new value deprive a creditor of the statute’s
new-value defense “depends on whether the payments were otherwise
unavoidable” (emphasis in original)); Jones Truck Lines, Inc. v. Cent. States, Se. &
Sw. Areas Pension Fund (In re Jones Truck Lines, Inc.), 130 F.3d 323, 329 (8th Cir.
1997) (concluding that, “under the plain language of § 547(c)(4)(B),” payments
that the creditor received from the debtor after providing new value did not prevent
the creditor from using that new value as a defense to avoidance because the
payments at issue were themselves “otherwise avoidable”); Mosier v. Ever–Fresh
Food Co. (In re IRFM, Inc.), 52 F.3d 228, 231–33 (9th Cir. 1995) (holding that “a
new value defense is permitted unless the debtor repays the new value by a transfer
which is otherwise unavoidable”); Laker v. Vallette (In re Toyota of Jefferson, Inc.),
14 F.3d 1088, 1090–93, 1093 n.2 (5th Cir. 1994) (holding that a creditor was
entitled to § 547(c)(4)’s subsequent-new-value defense because, although the
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debtor had paid for the new value provided, it did so “with preferences that were
not ‘otherwise unavoidable’”). 9
C. The statutory history of § 547(c)(4) supports our conclusion that
new value need not remain unpaid
When the plain language of a statute is unambiguous, we need not—indeed,
should not—look beyond that plain language to determine its meaning. Iberiabank
v. Beneva 41-I, LLC, 701 F.3d 916, 924 (11th Cir. 2012) (“We look first to the text
of the statute. If the text of the statute is unambiguous, we need look no further.”
(citation omitted)); see also Villarreal v. R.J. Reynolds Tobacco Co., 839 F.3d 958,
969–70 (11th Cir. 2016) (en banc), cert. denied, 137 S. Ct. 2292 (2017). Here, the
plain language of § 547(c)(4) unambiguously excludes paid new value as a defense
to a creditor’s preference liability only when that new value is paid for with an
“otherwise unavoidable transfer.” 11 U.S.C. § 547(c)(4)(B). We therefore have no
need to examine other interpretive resources, such as predecessor statutes, to
determine whether we should divine a broader preclusion of paid new value under
9
By contrast, in 1986, the Seventh Circuit held, without much discussion, that § 547(c)(4) does
require new value to remain unpaid. In re Prescott, 805 F.2d 719, 727–28 (7th Cir. 1986). Since
then, the Seventh Circuit has continued to follow that approach. See, e.g., P.A. Bergner & Co. v.
Bank One, Milwaukee, N.A. (In re P.A. Bergner & Co.), 140 F.3d 1111, 1121 (7th Cir. 1998). A
few years later, the Third Circuit also stated in a conclusory fashion that § 547(c)(4) requires new
value to remain unpaid. N.Y.C. Shoes, Inc. v. Bentley Int’l, Inc. (In re N.Y.C. Shoes, Inc.), 880
F.2d 679, 680 (3d Cir. 1989). However, whether § 547(c)(4) requires new value to remain
unpaid was not at issue in that case. See id. at 681–82; cf. Friedman’s Liquidating Tr. v. Roth
Staffing Cos. (In re Friedman’s Inc.), 738 F.3d 547, 551–52 (3d Cir. 2013) (concluding that the
statement in New York City Shoes indicating that new value must remain unpaid as of the petition
date was not a holding with respect to whether post-petition petition payments could affect a
creditor’s subsequent-new-value defense).
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§ 547(c)(4). See, e.g., Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004) (“The
starting point in discerning congressional intent is the existing statutory text, and
not the predecessor statutes.” (citation omitted)); see also Koons Buick Pontiac
GMC, Inc. v. Nigh, 543 U.S. 50, 62–63 (2004) (utilizing statutory history to resolve
ambiguity in the plain language of a statute); id. at 66–67 (Kennedy, J., concurring)
(endorsing the use of statutory history to resolve ambiguity in the text of a statute);
id. at 67–68 (Thomas, J., concurring in judgment) (same).
Nevertheless, we are cognizant of the statutory history of § 547(c)(4), and
our review of § 547(c)(4)’s predecessor statute bolsters our conclusion that new
value need not remain unpaid. Cf. Koch Foods, Inc. v. Sec’y, U.S. Dep’t of Labor,
712 F.3d 476, 480–86 (11th Cir. 2013) (reasoning that statutory history bolstered
an interpretation of unambiguous statutory text). Section 547(c)(4) was enacted as
part of the Bankruptcy Reform Act of 1978. See Bankruptcy Reform Act of 1978,
Pub. L. No. 95-598, § 101, 92 Stat. 2549, 2598–99.10 The predecessor to
§ 547(c)(4) was § 60(c) of the Bankruptcy Act of 1898. See, e.g., S. Rep.
No. 95-989, at 88 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5874; H.R.
Rep. No. 95-595, at 374 (1978), as reprinted in 1978 U.S.C.C.A.N. 5963, 6330;
10
Section 547(c)(4) has not been amended since it was enacted in 1978. See 11 U.S.C. § 547
note (2012) (Amendments). Compare Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,
§ 101, 92 Stat. 2549, 2598–99, with 11 U.S.C. § 547(c)(4) (2012).
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see also 11 U.S.C. tbl.II (Supp. III 1979) (identifying 11 U.S.C. § 96(c) (1976) as
the predecessor to § 547(c)).11
Prior to the enactment of § 547(c)(4), § 60(c) provided as follows:
If a creditor has been preferred, and afterward in good faith gives the
debtor further credit without security of any kind for property which
becomes a part of the debtor’s estate, the amount of such new credit
remaining unpaid at the time of the adjudication in bankruptcy may be
set off against the amount which would otherwise be recoverable from
him.
11 U.S.C. § 96(c) (1976) (emphasis added). 12
When Congress repealed this provision in 1978 and replaced it with
§ 547(c)(4), the “remaining unpaid” language was replaced with § 547(c)(4)(B)’s
requirement that the debtor “not make an otherwise unavoidable transfer to or for
the benefit of” the creditor who gave new value. See Bankruptcy Reform Act of
1978 §§ 101, 401, 92 Stat. at 2598–99, 2682. Compare 11 U.S.C. § 96(c) (1976),
with 11 U.S.C. § 547(c)(4)(B) (Supp. III 1979). “As we have explained, ‘changes
in statutory language generally indicate an intent to change the meaning of the
11
Section 60(c) of the Bankruptcy Act of 1898 was codified at 11 U.S.C. § 96(c) in the pre-1978
version of title 11. See 11 U.S.C. § 547 note (2012) (Senate Report No. 95-989) (“The fourth
exception codifies the net result rule in section 60c of current law [section 96(c) of former title
11].” (brackets in original)). Compare Bankruptcy Act of 1898, ch. 541, § 60(c), 30 Stat. 544,
562, with 11 U.S.C. § 96(c) (1976).
12
With the exception of two spelling changes in 1938, § 60(c) remained unchanged from its
enactment in 1898 until its repeal in 1978. See 11 U.S.C. § 96 note (1976) (Amendments)
(declaring that, in 1938, § 96(c) was “reenacted without change”); Chandler Act, ch. 575, sec. 1,
§ 60(c), 52 Stat. 840, 870 (1938) (changing “afterwards” to “afterward” and “estates” to “estate”
in the statutory text). Compare 11 U.S.C. § 96(c) (1934), and Bankruptcy Act of 1898 § 60(c),
30 Stat. at 562, with 11 U.S.C. § 96(c) (Supp. IV 1938), and 11 U.S.C. § 96(c) (1976).
20
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statute.’” Edwards, 602 F.3d at 1299 (quoting DIRECTV, Inc. v. Brown, 371 F.3d
814, 817 (11th Cir. 2004)); see also Antonin Scalia & Bryan A. Garner, Reading
Law: The Interpretation of Legal Texts 256 (2012) (“[A] change in the language of
a prior statute presumably connotes a change in meaning.”). Accordingly, in the
absence of any evidence to the contrary, one can plausibly infer that, by replacing
§ 60(c)’s “remaining unpaid” language with new language that omits any such
requirement, Congress intended to eliminate § 60(c)’s requirement that new value
remain unpaid, and to replace that requirement with something substantively
different.
Of course, when a change in statutory language results from a mere
recodification of the statute, making an assumption about the absence of earlier
language becomes a trickier proposition. See, e.g., Fla. Agency for Health Care
Admin. v. Bayou Shores SNF, LLC (In re Bayou Shores SNF, LLC), 828 F.3d 1297,
1300 (11th Cir. 2016); Koch Foods, Inc., 712 F.3d at 486. When statutory
language is changed in a recodification, it is ordinarily presumed that the change in
language does not connote a change in meaning “unless Congress’s intention to
make a substantive change is ‘clearly expressed.’” In re Bayou Shores SNF, LLC,
828 F.3d at 1300 (quoting United States v. Ryder, 110 U.S. 729, 740 (1884)).
Section 547(c)(4), however, is not a mere recodification of § 60(c). Rather,
§ 547(c)(4) constitutes a substantive departure from the way exchanges of value
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between creditors and debtors during the preference period were handled under the
Bankruptcy Act of 1898. That § 547(c)(4) worked a substantive change in the way
new value may be used to offset preference liability is not only evidenced by the
clear change in statutory language, but also suggested by the history leading to its
enactment.
In 1970, Congress established the Commission on the Bankruptcy Laws of
the United States (“the Commission”) to “study, analyze, evaluate, and recommend
changes to the [Bankruptcy Act of 1898].” Act of July 24, 1970, Pub. L.
No. 91-354, § 1, 84 Stat. 468, 468. The Commission ultimately recommended “a
substantial revision of the preference section.” Comm’n on the Bankr. Laws of the
U.S., Report of the Commission on the Bankruptcy Laws of the United States,
H.R. Doc. No. 93-137, pt.I, at 201 (1973). With respect to § 60(c), the
Commission specifically recommended eliminating the requirement that new value
remain unpaid on the petition date, stating:
The provision in the present Act (section 60c) provides that if a
creditor has been preferred and afterwards in good faith gives further
credit to the debtor without security, the amount of the new credit
unpaid at the date of bankruptcy may be set off against the amount
recoverable from him on account of the preference.
The Commission recommends changes eliminating (a) the
“remaining unpaid” provision; (b) the good faith requirement of any
new credit extension; and (c) the requirement that no security be taken
for the new credit.
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Id. at 210.13 That the Commission specifically recommended eliminating § 60(c)’s
“remaining unpaid” requirement cuts against an inference that Congress might
have intended to preserve that requirement when it replaced the “remaining
unpaid” language in § 60(c) with § 547(c)(4)(B)’s requirement that the debtor “not
make an otherwise unavoidable transfer” to the creditor who received the
preference.
Given that all other signs point toward a conclusion that § 547(c)(4)
represents a departure from, rather than a recodification of, the “remaining unpaid”
requirement in § 60(c), we conclude that removal of the “remaining unpaid”
language effected a substantive change in the meaning of the statute. Thus, a
13
The Commission produced a proposed bankruptcy act that was introduced in both houses of
Congress. See S. 236, 94th Cong. (1975); H.R. 31, 94th Cong. (1975); H.R. 10792, 93d Cong.
(1973); S. Rep. No. 95-989, at 2 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5788; H.R.
Rep. No. 95-595, at 2 (1978), as reprinted in 1978 U.S.C.C.A.N. 5963, 5964; Comm’n on the
Bankr. Laws of the U.S., Report of the Commission on the Bankruptcy Laws of the United
States, H.R. Doc. No. 93-137, pt.II (1973). With respect to the subsequent-new-value defense,
the Commission’s proposed legislation stated:
A transfer is not voidable to the extent of new value given at the time of the
transfer or at any time thereafter. In determining the amount of new value given,
the value of any security taken for it shall be deducted.
Comm’n on the Bankr. Laws of the U.S., Report of the Commission on the Bankruptcy Laws of
the United States, H.R. Doc. No. 93-137, pt.II, at 167 (1973). Although a competing bill drafted
by the National Conference of Bankruptcy Judges (“NCBJ”) was also introduced in both houses
of Congress, that bill’s subsequent-new-value provision was identical to the Commission’s
proposal. Compare S. 236, 94th Cong. § 4-607(c)(2) (1975) (the Commission’s proposal as
introduced in the Senate), and H.R. 31, 94th Cong. § 4-607(c)(2) (1975) (the Commission’s
proposal as introduced in the House), with S. 235, 94th Cong. § 4-607(c)(2) (1975) (the NCBJ’s
proposal as introduced in the Senate), and H.R. 32, 94th Cong. § 4-607(c)(2) (1975) (the NCBJ’s
proposal as introduced in the House).
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review of the statutory development of § 547(c)(4) bolsters our conclusion that
§ 547(c)(4) does not require new value to remain unpaid.
Nonetheless, in light of the unambiguous statutory language, we would
reach the same conclusion even if it could be shown that Congress did not intend a
substantive change in the meaning of the statute when it replaced § 60(c)’s
“remaining unpaid” language with § 547(c)(4)(B)’s requirement that the debtor
“not make an otherwise unavoidable transfer to or for the benefit of” the creditor
who gave new value. Cf. United States v. Wells, 519 U.S. 482, 496–97 (1997)
(concluding that a change in statutory language effected a substantive change in
meaning even though the Reviser’s Note to the amended statute explained that the
amendment “was without change of substance”); Antonin Scalia & Bryan A.
Garner, Reading Law: The Interpretation of Legal Texts 257 (2012) (“The new
text is the law, and where it clearly makes a change, that governs. This is so even
when the legislative history consisting of the codifiers’ report expresses the intent
to make no change.”).
D. Policy considerations also weigh in favor of a conclusion that new
value need not remain unpaid
The Trustee argues that, notwithstanding the statutory language, we should
nonetheless rule for him because policy considerations favor his argument that new
value must remain unpaid in order for a creditor to rely on the new-value defense.
Our interpretation of the language of the statute obviously trumps any opposing
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policy argument. But even if it didn’t, we would disagree with the Trustee that
policy considerations support his interpretation. To the contrary, we think that
policy considerations strongly disfavor his position.
As we noted in Jet Florida System, one of the “principal policy objectives
underlying the preference provisions of the Bankruptcy Code” is “to encourage
creditors to continue extending credit to financially troubled entities while
discouraging a panic-stricken race to the courthouse.” 841 F.2d at 1083; accord
Union Bank v. Wolas, 502 U.S. 151, 161 (1991). “Another related objective of this
section is to promote equality of treatment among creditors.” In re Jet Fla. Sys.,
Inc., 841 F.2d at 1083; see also Wolas, 502 U.S. at 161 (“Second, and more
important, the preference provisions facilitate the prime bankruptcy policy of
equality of distribution among creditors of the debtor.”).
1. Encouraging creditors to continue extending credit to
financially troubled entities
Requiring new value to “remain unpaid” would hinder the policy objective
of encouraging vendors to continue extending credit to financially troubled
debtors, especially in situations like this one in which the vendor and the debtor
regularly engaged in relatively short-term credit transactions. If new value must
remain unpaid, then vendors who sense that a debtor is in financial difficulty will
have an incentive to stop delivering any goods because any payments they receive,
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after extension of a short-term period of credit on these deliveries, might be
avoided, and thereby clawed back by the trustee in bankruptcy.
By contrast, if new value need not remain unpaid, then a vendor can
continue extending short-term credit to the debtor without fear of having all of the
payments it receives for its newly delivered goods clawed back by the trustee in
bankruptcy. So long as the vendor continues to extend additional credit to the
debtor, it is at risk of losing only a portion of the payments it receives from the
debtor, as explained below. Thus, a conclusion that new value need not remain
unpaid promotes one of the “principal policy objectives underlying the preference
provisions of the Bankruptcy Code”—encouraging creditors to continue extending
credit to financially troubled debtors. See In re Jet Fla. Sys., Inc., 841 F.2d at
1083.
A chart can perhaps best illustrate the above concepts. The following chart
illustrates a scenario where the vendor-creditor ships $1,000 worth of goods to the
debtor every other week, and the debtor pays for those goods one week after
delivery.
Transfer from creditor Transfer from debtor
to debtor to creditor
Transfer 1 $1,000 in goods
Transfer 2 $1,000 in cash
Transfer 3 $1,000 in goods
Transfer 4 $1,000 in cash
Transfer 5 $1,000 in goods
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Transfer 6 $1,000 in cash
Transfer 7 $1,000 in goods
Transfer 8 $1,000 in cash
Transfer 9 $1,000 in goods
Transfer 10 $1,000 in cash
DEBTOR’S BANKRUPTCY FILING
Even-numbered transfers—Numbers 2, 4, 6, 8, and 10—show five
payments, in the amount of $1,000 each, by the debtor to the vendor-creditor
within the 90-day preference period, meaning that each such payment is potentially
avoidable by a trustee. Transfers 3, 5, 7, and 9, which show the shipment of goods
by the vendor, constitute equivalent new value in the total amount of $4,000
provided by the vendor subsequent to payments 2, 4, 6, and 8, respectively. 14 That
being so, and under Blue Bell’s position, this $4,000 in new goods shipped would
wash $4,000 of the previous payments made by the debtor, for purposes of
avoidability. Yet, under the Trustee’s position, the vendor loses this new-value
defense because, after conferring new value via the shipment of goods equivalent
to the previous payment made by the debtor, the debtor later paid off the value of
the shipped goods that constituted the new value. Specifically, Transfer 4 paid off
Transfer 3; Transfer 6 paid off Transfer 5; Transfer 8 paid off Transfer 7; and
Transfer 10 paid off Transfer 9. According to the position of the Trustee in this
14
Transfer 1 is not a candidate for a “new-value” set-off because there is no prior cash payment
from the debtor for it to set off.
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case, the vendor in the above scenario would be required to repay the entirety of
the $5,000 paid to him by the debtor, even though new value was conferred on the
debtor as to $4,000 of these payments.
Blue Bell argues that a subsequent payment by the debtor to the vendor-
creditor for new value that was previously provided to the former does not negate
the defense as to the particular new value in question. Adopting that position, the
vendor in this scenario would be protected by the new-value defense as to debtor
payments 2, 4, 6, and 8 because, subsequent to each of these payments by the
debtor, the vendor provided new value to the debtor in the form of new goods
shipped. It is only the last $1,000 payment by the debtor—Transfer 10—that Blue
Bell concedes would be avoidable by the trustee because the vendor delivered no
goods after this last payment by the debtor, meaning the vendor provided no
subsequent new value. Because it would lack a new-value defense to the
preference represented by this last payment, the vendor would have to repay the
estate the $1,000; it would then have a corresponding unsecured claim against the
estate for that same $1,000. But the vendor would be entitled to retain the
remaining $4,000. See 11 U.S.C. §§ 547(b), 550(a), 502(h).
Notably, this is the same situation the vendor would have found itself in had
it simply stopped doing business with the debtor after Transfer 2: it would have
had to return that $1,000, and it would have had a $1,000 unsecured claim against
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the estate based on Transfer 2. It would have owed the estate no additional moneys
as a clawback by the trustee for any preferences. Yet, the debtor (and the estate it
leaves behind) would be in a worse position had the vendor decided to abandon the
debtor after Transfer 2. Had that been the case, the debtor would not have received
the $4,000 worth of future shipments of goods. With those additional shipments,
however, the debtor had additional goods that it could sell to its customers, and
thereby potentially increase the size of the estate available at the time of the later
bankruptcy filing.
Consider, moreover, the strong disincentives for a vendor to continue
supplying an ailing customer with goods if the Trustee’s position wins out. Under
the interpretation the Trustee gives the new-value defense, the vendor would have
to return all of the payments it subsequently received for the new value it provided
the debtor. Were this the rule, a prudent vendor, sensing financial problems by the
debtor, would be foolish to continue delivering goods to the debtor following
Transfer 2. Cf. Laker v. Vallette (In re Toyota of Jefferson, Inc.), 14 F.3d 1088,
1091 (5th Cir. 1994) (noting that, without the protection of § 547(c)(4), “a creditor
who continues to extend credit to the debtor, perhaps in implicit reliance on prior
payments, would merely be increasing his bankruptcy loss”). Indeed, focusing on
post-Transfer 2 events set out in the chart, not only would the vendor have to return
the entirety of the payments it had received for goods it had delivered under the
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Trustee’s interpretation, but it would also be out $4,000 in the value of the goods it
had provided the debtor: $4,000 worth of goods that it could have to sold to
another grocery store.
In short, were the Trustee’s approach applicable, a sensible vendor should
immediately cut off the debtor, which would likely hasten the latter’s financial
demise and his ensuing bankruptcy. Yet, the bankruptcy estate would almost
always be better off if a vendor continues to supply the debtor with goods to sell,
and the new-value defense, as interpreted by Blue Bell, would encourage it to do
so.
2. Promoting equality of treatment among creditors
The Trustee argues that requiring new value to remain unpaid is necessary to
ensure that short-term creditors like Blue Bell are treated the same as longer-term
creditors whom the debtor did not repay during the preference period. We disagree
with the Trustee’s suggestion that longer-term creditors will necessarily be worse
off in the absence of a requirement that new value remain unpaid.
As explained above, if new value must remain unpaid, then short-term
creditors will have an incentive to stop extending credit to the debtor as soon as
they sense that the debtor might be experiencing financial difficulty. As a result,
such creditors might refuse to provide the debtor with the goods and services it
needs to continue in business unless they receive payment in advance or on a COD
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(cash on delivery) basis. See, e.g., 11 U.S.C. § 547(b)(2) (providing that, in order
to constitute an avoidable preference, a transfer from the debtor to a creditor must
be made on account of an antecedent debt); see also id. § 547(c)(1) (providing that
a trustee may not avoid a contemporaneous exchange for new value). The debtor
would then be deprived of the valuable opportunity to receive credit in the form of
money, goods, and services at a time when it may need such credit more than ever.
And, all else being equal, with the vendor ceasing any new deliveries, the estate is
ultimately left in the same position it would have been in had this short-term
creditor instead been permitted to rely on a subsequent-new-value defense without
any requirement that new value remain unpaid.
Moreover, by encouraging creditors to continue extending credit to
financially troubled debtors, § 547(c)(4) has the potential to help such debtors
avoid bankruptcy altogether, an outcome that longer-term creditors would almost
certainly choose. We therefore find unpersuasive the Trustee’s argument that it is
necessary to require new value to remain unpaid in order to ensure that longer-term
creditors are treated fairly in comparison with short-term creditors who extend new
value to the debtor during the preference period.
III. Whether Transfers Avoidable as Preferences Under § 547(b), and on No
Other Ground, Are “Otherwise Unavoidable” Under § 547(c)(4)(B)
In the alternative, the Trustee argues that even if subsequent payment by the
debtor does not defeat the new-value defense, Blue Bell is still not entitled to assert
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that defense because of another preclusion in § 547: specifically, § 547(c)(4)(B).
Reading subsection (B) together with the other language of subsection (4), the
provision prohibits the trustee from undoing a transfer to the creditor where the
creditor has subsequently provided new value if, “on account” of this new value,
the debtor did not make “an otherwise unavoidable” transfer for the benefit of the
creditor. 15
Admittedly, the double-negatives in the statutory language make for some
difficult parsing. But to translate: § 547(c)(4)(B) prevents the trustee from
undoing (avoiding) a transfer of money from the debtor to a creditor to the extent
that, after the transfer, the creditor gave new value to the debtor, unless the debtor
made an “otherwise unavoidable transfer” to the creditor “on account of” that new
value. So, if the debtor paid for the new value with an “otherwise unavoidable
transfer,” then the creditor cannot use that new value as a defense against the
trustee’s attempt to avoid an earlier preference. Conversely, if the debtor makes a
payment for the new value that is itself avoidable, then the creditor can avail itself
of the new-value defense.
Before attempting to articulate the Trustee’s argument, it is helpful to step
back and examine the broader context of avoidance provisions within the
15
To repeat, § 547(c)(4)(B) provides in pertinent part: “The trustee may not avoid under this
section a transfer . . . to or for the benefit of a creditor, to the extent that, after such transfer, such
creditor gave new value to or for the benefit of the debtor . . . on account of which new value the
debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor.”
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Bankruptcy Code. When a debtor files for bankruptcy, any transfer that the debtor
made shortly before the filing naturally becomes the subject of skepticism,
particularly for creditors who would receive more money from a pro rata
distribution of the debtor’s estate if those transfers had not been made. For
example, if a debtor with $100,000 in assets transferred all of those assets to a
single creditor only days before filing for bankruptcy, leaving nothing available for
his other creditors, those other creditors would naturally view that transfer
suspiciously and seek a way to bring the money back into the estate so that they
might receive a portion of it when the estate is distributed.
To prevent the inequity that could result if the debtor improperly favored
some creditors over others shortly before filing for bankruptcy, and to promote “the
prime bankruptcy policy of equality of distribution among creditors,” Wolas, 502
U.S. at 161, the Bankruptcy Code allows a trustee to “avoid”—that is, undo 16—
certain pre-bankruptcy transfers. See, e.g., 11 U.S.C. §§ 544(b), 547(b), 548(a).
For example, § 548(a) allows a trustee to avoid a fraudulent transfer. A
fraudulent transfer is one that was made within two years of the petition date in
16
Because we are dealing here with transfers of money in payment for goods received by the
Debtor, and because the Trustee sought both avoidance of the transfers and recovery from Blue
Bell in the same complaint, we need not concern ourselves with the distinction between
avoidance and recovery for purposes of our analysis. See 11 U.S.C. § 551 (providing that any
transfer avoided by the trustee under certain sections of the Bankruptcy Code, including §§ 547
and 548, is “preserved for the benefit of the estate”); id. § 550(a) (providing that, after a transfer
is avoided, the trustee may recover the property transferred or the value of that property from the
initial transferee or a subsequent transferee).
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which either (1) the debtor received less than a reasonably equivalent value in
exchange for the transfer and was insolvent on the date that the transfer was made,
id. § 548(a)(1)(B); or (2) the debtor made the transfer with the intent to hinder,
delay, or defraud its creditors, id. § 548(a)(1)(A). See Merit Mgmt. Grp., LP v. FTI
Consulting, Inc., 138 S. Ct. 883, 888–89 (2018). No fraudulent transfers were
alleged to have occurred in this case.
Under § 547(b), a trustee may avoid a transfer that constitutes a
“preference.”17 See, e.g., Fid. Fin. Servs., Inc. v. Fink, 522 U.S. 211, 214–17
(1998). As defined by § 547, a preference is any transfer made by the debtor
within 90 days of the petition date if that transfer was made “for or on account of”
an antecedent debt, was made while the debtor was insolvent, and enabled the
creditor who received it to receive more than it would have otherwise received in a
Chapter 7 liquidation. 11 U.S.C. § 547(b). The payments to Blue Bell by the
Debtor are conceded to be preferences.
Yet, not all preferences will ultimately be avoidable by the trustee because
the Bankruptcy Code creates defenses that a creditor may use to prevent the trustee
from avoiding a preference payment made by the debtor. For example, if the
“creditor” has provided “new value” to a debtor by selling the latter an item and
17
And a trustee has other avoidance powers besides those described in §§ 547 and 548. For
example, a trustee may also avoid certain post-petition transfers and set-offs, under §§ 549 and
553(b)(1), respectively.
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receiving payment from the debtor in what constitutes a substantially
contemporaneous exchange, then that transfer by the debtor to the creditor is not
avoidable. See id. § 547(c)(1). A contemporaneous cash payment or COD
delivery would be examples of this type of unavoidable preference. There were no
contemporaneous cash payments or COD deliveries in this case.
In addition, a payment by the debtor of debt incurred in the ordinary course
of business, with the payment to the creditor being made according to ordinary
business terms, is a type of preference that the trustee is not permitted to avoid.
See id. § 547(c)(2). Further, with certain qualifications, the trustee cannot avoid a
transfer that creates a perfected purchase money security interest. See id.
§ 547(c)(3). Neither type of transfer is at issue in this case. Finally, 18 we have
debtor transfers followed by the providing of new value by the creditor, which is at
issue in this case. See id. § 547(c)(4).
With this context in mind, we now circle back to the Trustee’s argument. To
repeat our earlier dissection of the pertinent statutory language, if the debtor paid
for the new value with an “otherwise unavoidable transfer,” then the creditor
cannot use that new value as a defense against the trustee’s attempt to avoid an
earlier preference. Conversely, if the debtor makes a payment for the new value
that is itself avoidable, then the creditor can avail itself of the new-value defense.
18
There are other exceptions, not pertinent to this case, included in § 547(c).
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In this case, the Debtor clearly made post-new value payments that were avoidable.
After Blue Bell delivered ice cream (which constituted the new value for previous
payments by the Debtor), the Debtor made payments that all agree satisfied the
elements of a preference under § 547(b).
Thus, because such payments by the debtor constituted preferences, they
were avoidable, meaning Blue Bell seemingly has the winning argument when it
asserts that § 547(c)(4) prevents the Trustee from avoiding any payments to the
extent they were followed by the delivery of goods of equivalent value. The
Trustee, however contends that because the statute uses the word “otherwise” in
qualifying the unavoidable transfer that the debtor’s payment cannot represent—
“on account of which new value the debtor did not make an otherwise unavoidable
transfer”—Blue Bell loses. Why? Well, the Trustee acknowledges that all of these
payments by the Debtor were preferences under § 547, and hence avoidable. But,
says the Trustee, the “otherwise” qualifier means that the avoidability of a debtor’s
payment cannot be derived from § 547, but instead it must come from somewhere
else. The somewhere else would presumably be § 548, which prohibits fraudulent
transfers, and which the Trustee uses as his example of an “otherwise avoidable”
transfer that would be sufficient to allow a creditor to avail itself of the new-value
defense under § 547(c)(4).
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Of course, if correct, the Trustee’s argument effectively eviscerates the new-
value defense. Under his example, the creditor could take advantage of the defense
only if the subsequent transfer by the debtor constituted a fraudulent transfer. But
success in that endeavor would be a Pyrrhic victory because obviously the transfer
would then be avoided as being fraudulent. In essence, the Trustee’s argument
largely renders § 547(c)(4) an empty set: not a result one would reasonably think
Congress to have intended when it drafted this language.
Leaving aside the illogical end result of the Trustee’s argument, we disagree
with his interpretation of the statute. We read the phrase “otherwise unavoidable
transfer” in § 547(c)(4)(B) as referring to transfers that are unavoidable for reasons
other than § 547(c)(4)’s subsequent-new-value defense. Section 547(c)(4) excepts
from avoidance transfers that otherwise meet all of the requirements for avoidance
under § 547(b). In other words, § 547(c)(4) renders otherwise avoidable transfers
unavoidable. The phrase “otherwise unavoidable transfer” in a provision that
renders transfers unavoidable naturally means a transfer that is unavoidable for
reasons other than that provision. Our interpretation is bolstered by the fact that
§ 547(c)(4) is only one exception to avoidability contained within a list of such
exceptions. See 11 U.S.C. § 547(c)(1)–(9). Thus, a transfer that is rendered
unavoidable by one of those other exceptions, such as § 547(c)(2)’s ordinary-
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course-of-business defense, can naturally be said to be “otherwise unavoidable” for
purposes of § 547(c)(4)(B).
We are not the first court to conclude that “otherwise unavoidable transfer”
in § 547(c)(4)(B) means a transfer that is unavoidable for reasons other than
§ 547(c)(4). Accord Phx. Rest. Grp., Inc. v. Ajilon Prof’l Staffing LLC (In re Phx.
Rest. Grp., Inc.), 317 B.R. 491, 499–500 (Bankr. M.D. Tenn. 2004); Boyd v. Water
Doctor (In re Check Reporting Servs., Inc.), 140 B.R. 425, 431–32, 435–36 (Bankr.
W.D. Mich. 1992); see also Roberds, Inc. v. Boyhill Furniture (In re Roberds, Inc.),
315 B.R. 443, 470–74 (Bankr. S.D. Ohio 2004). With respect to the Trustee’s
particular interpretation of the statute, the Trustee acknowledges that no other court
has adopted his reading of “otherwise unavoidable” in § 547(c)(4)(B). In fact,
courts have rejected the Trustee’s interpretation. See, e.g., In re Check Reporting
Servs., Inc., 140 B.R. at 431–32, 435–36; cf. In re IRFM, Inc., 52 F.3d at 233
(concluding that transfers avoidable as preferences under § 547(b) were not
“otherwise unavoidable”). We likewise reject the Trustee’s argument that transfers
that are avoidable under § 547(b), and on no other ground, are “otherwise
unavoidable” for purposes of § 547(c)(4)(B).
CONCLUSION
The statement in Jet Florida System indicating that § 547(c)(4) requires new
value to “remain unpaid” is dictum. We are therefore free to give fresh
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consideration to the question of whether § 547(c)(4) requires new value to remain
unpaid. Having analyzed that statute, we hold that § 547(c)(4) does not require
new value to remain unpaid. Nor do we find the Trustee’s argument based on
§ 547(c)(4)(B) to be meritorious. We therefore REVERSE and VACATE the
bankruptcy court’s judgment and REMAND for a new calculation of Blue Bell’s
preference liability.
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