August 14, 2018, Alabama – Debtor Bruno’s Supermarkets, LLC filed for bankruptcy under Chapter 11. The Trustee filed an adversary proceeding against Defendant Blue Bell Creameries, Inc. 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.
Blue Bell acknowledged that the payments it received from the Debtor constituted preferences under 11 U.S.C. § 547(b), 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 that § 547(c)(4) prohibits “avoidance” by the trustee to the extent the recipient of payments during the preference period provided “new value” to the debtor during that same period. 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 “remained unpaid” as of the date the bankruptcy petition was filed.
Since Blue Bell was paid for many of the products that it had delivered, the bankruptcy court ruled that Blue Bell had to return the excess of money it had been paid for the goods it provided the Debtor.
Blue Bell appealed the bankruptcy court’s decision. On appeal, the Eleventh Circuit reversed the lower court decision and concluded that by its plain terms, 11 U.S.C.S. § 547(c)(4)(B) only excludes “paid” new value that was paid for with an otherwise unavoidable transfer. The Court added that, so long as the transfer that paid for the new value was itself avoidable, that transfer was not a barrier to an assertion of § 547(c)(4)’s subsequent-new-value defense.
The Court stated that the bankruptcy court erred in rejecting Blue Bell’s new-value defense because the debtor made post-new value payments that were avoidable and after Blue Bell delivered products to the debtor, which constituted the new value for previous payments. Thus, the debtor made payments that satisfied the elements of a preference under § 547(b). The Court also held that because such payments constituted preferences, they were avoidable, meaning that § 547(c)(4) prevented the trustee from avoiding any payments to the extent they were followed by the delivery of goods of equivalent value. The Court reversed and vacated the bankruptcy court’s judgment and remanded for a new calculation of Blue Bell’s preference liability.