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Home / Case News / A Kansas Bankruptcy Court Grants Summary Judgment to Defendants on Preference Transfers Made by Joint Check Under 11 U.S.C.S. § 547(c)(1)

A Kansas Bankruptcy Court Grants Summary Judgment to Defendants on Preference Transfers Made by Joint Check Under 11 U.S.C.S. § 547(c)(1)

August 16, 2018, Kansas – The six defendants moved as a group for summary judgment on the Chapter 7 Trustee’s preference claims against them under 11 U.S.C. § 547. Each defendant was a supplier of materials or equipment to a Debtor WB Servs., LLC, who was the general contractor for construction of a project on property owned by KAAPA Ethanol, LLC (KAAPA). Within 90 days before the Debtor filed for relief under Chapter 7, each defendant was paid on past due to account with a check issued by KAAPA that was payable jointly to the Debtor and that defendant. The Trustee brought complaints to recover these payments as preferential transfers.

In a joint motion for summary judgment, the Defendants asserted they were all entitled to summary judgment on some or all of the Trustee’s claims because Debtor had no interest in the funds they were paid, as required for the payments to qualify as preferences under § 547(b).

The Court concluded that the payment of the Debtor’s suppliers by the joint-payee checks issued by KAAPA did not come within the scope of the earmarking doctrine. The Court, however, added that the Defendants were entitled to summary judgment because the uncontroverted facts satisfied the 11 U.S.C.S. § 547(c)(1) new value defense. The Court ruled that KAAPA’s release on receipt of Defendants’ lien waivers of its contractual right to withhold payment to the Debtor provided new value to the Debtor.

The Court granted summary judgment to each of the defendants on the Trustee’s preference claims seeking to recover payments KAAPA made by joint checks within 90 days preceding the Debtor’s bankruptcy.