Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-06-00113/USCOURTS-ca10-06-00113-0/pdf.json

Nature of Suit Code: 0
Nature of Suit: other
Cause of Action: 

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* This order and judgment is not binding precedent, except under the

doctrines of law of the case, res judicata, and collateral estoppel. 10th Cir. BAP

L.R. 8018-6(a).

FILED

U.S. Bankruptcy Appellate Panel

of the Tenth Circuit

September 26, 2007

Barbara A. Schermerhorn

Clerk NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

IN RE FURR’S SUPERMARKETS,

INC., a Delaware Corporation,

Debtor.

BAP No. NM-06-109

 

YVETTE J. GONZALES, Trustee,

Plaintiff – Appellee,

Bankr. No. 7-01-10779-SA

Adv. No. 03-01065-S

 Chapter 7

v. ORDER AND JUDGMENT*

AMPLEX CORPORATION,

Defendant – Appellant,

and

UNITED STATES POSTAL SERVICE,

Defendant – Appellee,

and

STAMPS ON CONSIGNMENT,

Defendant.

YVETTE J. GONZALES, Trustee,

Plaintiff – Appellee,

 BAP No. NM-06-110

 BAP No. NM-06-112

 BAP No. NM-06-113

v.

AMPLEX CORPORATION,

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 1 of 21
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Defendant – Appellant,

and

UNITED STATES POSTAL SERVICE

Defendant – Appellee.

IN RE FURR’S SUPERMARKETS,

INC., a Delaware Corporation,

Debtor.

BAP Nos. NM-06-114

 NM-06-115

 NM-06-116

YVETTE J. GONZALES, Trustee,

Plaintiff – Appellee,

Bankr. No. 7-01-10779-SA

Adv. No. 03-01065-S

 Chapter 7

v.

UNITED STATES POSTAL SERVICE, 

Defendant – Appellant,

and

AMPLEX CORPORATION,

Defendant – Appellee.

Appeal from the United States Bankruptcy Court

for the District of New Mexico

Before CLARK, CORNISH, and MICHAEL, Bankruptcy Judges.

CLARK, Bankruptcy Judge.

The parties did not request oral argument, and after examining the briefs

and appellate record, the Court has determined unanimously that oral argument

would not materially assist in the determination of this appeal. Fed. R. Bankr. P.

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 2 of 21
1 Amplex’s appeals, consisting of NM-06-109, -110, -112, and -113, and

USPS’s appeals, consisting of 06-114, -115, and -116, respectively, have been

companioned for appeal.

2 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002.

3 Tillman ex rel. Estate of Tillman v. Camelot Music, Inc., 408 F.3d 1300,

1303 (10th Cir. 2005).

4 Salve Regina Coll. v. Russell, 499 U.S. 225, 238 (1991).

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8012. The case is therefore ordered submitted without oral argument.

Appellants Amplex Corporation (“Amplex”) and United States Postal

Service (“USPS”) appeal the bankruptcy court’s rulings granting Trustee’s

motions for summary judgment and denying the defendants-appellants’ joint and

separate motions for summary judgment in this avoidance action.1

I. APPELLATE JURISDICTION

This Court has jurisdiction to hear timely-filed appeals from final

judgments and orders of bankruptcy courts within the Tenth Circuit, unless one of

the parties elects to have the district court hear the appeal.2

 The Amplex notices

of appeal were all timely filed on October 13, 2006, within ten days of the final

orders sought to be appealed, and USPS’s notices of appeal were all timely filed

on October 30, 2006, within the extension of time for appeal granted by the

bankruptcy court on October 19, 2006. No party to any of these appeals has

elected to have an appeal heard by the district court. Therefore, this Court has

appellate jurisdiction over these appeals.

II. STANDARD OF REVIEW

The applicable standard of review of orders granting summary judgment is

de novo, and this Court is to apply the same legal standard as was used by the

bankruptcy court to determine whether either party is entitled to judgment as a

matter of law.3

 De novo review requires an independent determination of the

issues, giving no special weight to the bankruptcy court’s decision.4

 We review

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 3 of 21
5 In re Woodcock, 45 F.3d 363, 368 (10th Cir. 1995); Espinoza v. United

States, 52 F.3d 838, 840-41 (10th Cir. 1995).

6 Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir. 1994) (quoting McEwen v.

City of Norman, 926 F.2d 1539, 1553-54 (10th Cir. 1991)). 

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orders granting motions to amend a complaint or to extend the time for service of

a complaint for abuse of discretion.5

 “Under the abuse of discretion standard[,] ‘a

trial court’s decision will not be disturbed unless the appellate court has a definite

and firm conviction that the lower court made a clear error of judgment or

exceeded the bounds of permissible choice in the circumstances.’”6

III. FACTUAL BACKGROUND

From 1993 to early 2001, appellant Amplex acted as an agent of USPS with

respect to sales of postage stamps by banks and grocery stores. Under its contract

with the USPS (“USPS Contract”), Amplex earned a fee for managing all postage

stamp sales at locations other than U.S. post offices. Amplex’s duties included

such things as contracting with merchants, executing documentation, arranging

stamp deliveries, and monitoring payments. The USPS Contract required that

Amplex reimburse USPS for any failures to pay by the companies it contracted

with.

In 1996, Amplex entered into a Stamp Consignment Agreement (“SCA”)

with Furr’s Supermarkets, Inc. (“Furrs”), pursuant to which, Amplex agreed to

supply postage stamps to Furrs for sale in its supermarkets to its customers. The

SCA was a form document created by USPS, and its use was required by the

USPS contract. Pursuant to the SCA, Furrs agreed to both pay and charge face

value for the stamps, resulting in no profit on its stamp sales. Furrs also agreed to

pay for stamps within thirty days of delivery, whether or not the stamps had been

sold. Alternately, Furrs had the option to return unsold stamps. The SCA did not

specifically require Furrs to segregate or to otherwise identify proceeds of stamp

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 4 of 21
7 Both USPS and Amplex contend that the language of the SCA compels the

conclusion that segregation of proceeds was required. That argument will be

more fully discussed later.

8 When Furrs filed its petition, one of the invoices was only three days

overdue and the other was not due for another eleven days.

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sales.7 The SCA required that payments for stamps be payable to “USPS - Stamps

on Consignment” and sent to a lockbox controlled by USPS in Illinois. However,

as a matter of practice, all of the payments Furrs sent to the lockbox were made

payable simply to “Stamps on Consignment.” 

For several years prior to initiation of the bankruptcy case, Furrs and

Amplex engaged in a fairly set pattern of commercial dealing. Amplex delivered

stamps to Furrs on a roughly bi-weekly basis. Furrs sold those stamps to

customers in its stores, and made payments approximately thirty days postdelivery to the USPS lockbox. In January 2001, Furrs received two stamp

deliveries, each consisting of stamps having a total face value of $61,200. Since

Furrs was not required to pay for stamps until thirty days after they were

delivered, payment for both January deliveries was due in February 2001. Both

invoices were unpaid when Furrs filed its bankruptcy petition.8

 None of the

parties was able to accurately establish how many stamps Furrs had in its

possession when the petition was filed. In fact, both Amplex and Trustee

apparently conceded at the trial on Amplex’s priority claim that such evidence

could not be produced. Trustee offered evidence, based on Furrs’ 2000 stamp

sales history averaging $3,252.89 per day, that Furrs most likely had between

$9,000 and $23,000 worth of stamps in its possession at the time of filing,

depending on when the two January stamp shipments were actually received. 

However, no stamps were ever produced by Furrs, and the parties agreed that

Furrs had no stamps in its possession by the time of trial. In addition, Furrs

routinely commingled proceeds from its stamp sales with all other sales proceeds

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 5 of 21
9 See In re Furr’s Supermarkets, Inc., BAP No. NM-06-99, 2007 WL 559766

(10th Cir. BAP February 22, 2007).

10 Trustee initially sought to avoid $415,800 in payments made by Furrs, less

any new value provided by defendants. Ultimately, Trustee conceded that

defendants had supplied new value during the preference period that reduced the

preference amount to $174,600. That amount, plus interest, was determined to be

preferential by the bankruptcy court.

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and, during the ninety days preceding filing, all cash proceeds from Furrs’ stores

were “swept” into a Wells Fargo bank account in Albuquerque, to which Furrs

had no access, leaving a daily balance at or near $0 in local Furrs accounts.

IV. PROCEDURAL BACKGROUND

Furrs filed for Chapter 11 relief on February 8, 2001. Its bankruptcy case

was converted to a Chapter 7 proceeding in December 2001, and Trustee was

appointed. Amplex filed a proof of claim seeking recovery of $122,400, based on

the two unpaid January invoices. Amplex subsequently requested treatment of its

claim as an administrative expense, alleging that Furrs had “converted consigned

collateral.” Trustee objected, and trial was held on that claim, resulting in a

memorandum opinion and order denying Amplex’s request for priority treatment. 

Amplex’s appeal of that ruling resulted in a decision by this Court affirming the

bankruptcy court judgment.9

In January 2003, Trustee initiated an adversary proceeding against USPS

and “Stamps on Consignment,” pursuant to 11 U.S.C. § 547(b), seeking to avoid

all stamp payments made by Furrs in the ninety-day preference period preceding

filing. Trustee filed an amended complaint, which was served by mail on USPS

on February 7, 2003.10 The amended complaint was also served on “Stamps on

Consignment” by mail addressed to the USPS lockbox. Amplex was not named in

the amended complaint and did not receive the copy of it that was mailed to the

lockbox. On March 26, 2003, USPS filed its Answer to the amended complaint,

in which it denied conducting business with Furrs and stated, “USPS did business

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 6 of 21
11 Pursuant to 11 U.S.C. § 546(a)(1), the limitations period for the filing of

such actions expired on February 8, 2003, two years after entry of the order for

relief.

12 Amplex’s attempt to appeal this order at that time was denied as

prematurely taken from a non-final order.

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with Amplex Corporation and the Stamps on Consignment program.” On June 30,

2003, Trustee obtained an alias summons that again listed the defendants as USPS

and “Stamps on Consignment,” which was served, along with the amended

complaint, on July 1, 2003 by mail directed to “Amplex Corporation dba Stamps

on Consignment” at Amplex’s address. This service was 144 days after the filing

of Trustee’s original complaint. On July 30, 2003, Amplex moved to quash

service and to dismiss Trustee’s claims against it on the grounds that: 1) service

had not been effected within 120 days of the initial complaint; 2) Amplex was not

properly named as a defendant; and 3) the statute of limitations for preference

actions had run.11

On September 2, 2003, Trustee moved to again amend her complaint,

seeking to change the name “Stamps on Consignment” to Amplex, and to extend

the time period allowed for service of process by twenty-five days in order to

encompass the July 1 service. On June 3, 2005, the bankruptcy court entered an

order denying Amplex’s motion to dismiss and granting Trustee’s motion to

amend.12 On November 22, 2005, USPS and Amplex jointly moved for summary

judgment on the single ground that they were “fully secured” and, therefore, there

could be no preference. On January 10, 2006, Amplex separately moved for

summary judgment on the sole ground that there was no preference because

Amplex was not a “creditor” of Furrs. Trustee moved for summary judgment on

February 24, 2006, on the ground that the uncontested facts proved a prima facie

case of preference. Shortly thereafter, on March 2, 2006, USPS filed a separate

motion for summary judgment on the dual grounds that 1) the Furrs payments

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 7 of 21
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were not made from “property of its estate” because stamp proceeds were held in

trust for USPS; and 2) that the allegedly preferential payments were made in the

ordinary course of business. 

Orders were entered on October 5, 2006: 1) denying defendants’ joint

motion; 2) denying Amplex’s separate summary judgment motion; 3) denying

USPS’s separate summary judgment motion; and 4) granting Trustee’s summary

judgment motion. In the interim, Trustee had moved to amend her complaint to

add a prayer for pre- and post-judgment interest. Defendants both objected to this

motion but, after a hearing on the matter, the bankruptcy court granted Trustee’s

request. Thus, Amplex appeals the orders 1) granting Trustee’s amendment of her

complaint to name it as a party and denying Amplex’s motion to dismiss; 2)

denying defendants’ joint motion; 3) denying Amplex’s separate summary

judgment motion; and 4) granting Trustee’s summary judgment motion. USPS

appeals the orders 1) denying defendants’ joint motion; 2) denying USPS’s 

separate summary judgment motion; and 3) granting Trustee’s summary judgment

motion.

V. DISCUSSION

A. Procedural Issues

1. Service of Process

Amplex moved to dismiss the Trustee’s avoidance claims against it on the

ground that Trustee failed to timely serve it with process under FRCP 4(m),

which provides:

If service of the summons and complaint is not made upon a

defendant within 120 days after the filing of the complaint, the court,

upon motion or on its own initiative after notice to the plaintiff, shall

dismiss the action without prejudice as to that defendant or direct

that service be effected with a specified time; provided that if the

plaintiff shows good cause for the failure, the court shall extend the

time for service for an appropriate period.

Rule 4(m) is made applicable to bankruptcy proceedings by Federal Rule of

Bankruptcy Procedure 7004(a). The Tenth Circuit has interpreted this rule, as

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 8 of 21
13 Answer of the United States Postal Service to the Amended Complaint to

Avoid Preferential Transfers at 1, ¶ 3, in Appendix of Appellant Amplex Corp.

(“App.”) Book 1 at 40.

14 Although neither the Amended Complaint nor the alias summons

specifically named Amplex as a party defendant, both documents name “Stamps

on Consignment” as a defendant and were served by mail sent to Amplex’s

address and directed to “Amplex Corporation dba Stamps on Consignment.” 

Though not optimal, this service was sufficient to put Amplex on notice that

(continued...)

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follows:

If good cause is shown, the plaintiff is entitled to a mandatory

extension of time. If the plaintiff fails to show good cause, the [trial]

court must still consider whether a permissive extension of time may

be warranted. At that point the [trial] court may in its discretion

either dismiss the case without prejudice or extend the time for

service.

Espinoza v. United States, 52 F.3d at 841. In this case, the bankruptcy court

allowed Trustee a twenty-four day extension of time for service of process in

order to encompass the July 1 service by alias summons. Amplex argues both

that the July service was ineffective, because the complaint did not list Amplex as

a defendant, and that the Trustee failed to show good cause for her failure to

serve Amplex within the Rule 4(m) time period. 

Trustee explained that Amplex was not initially named or served because

her only information about the preference payments consisted of the named

payee, “Stamps on Consignment,” and the post office box to which payments

were mailed. Amplex countered that Trustee should have known its identity, at

the very latest, when USPS filed its answer to the preference complaint, in which

USPS denied doing business with Furrs and stated that it “did business with

Amplex Corporation and the Stamps on Consignment program.”13 Trustee

asserted that this statement actually reinforced her belief that “Stamps on

Consignment” was the proper defendant, and that she did not actually discover

her error until she received the USPS contract on June 26, 2003. She then had

Amplex served by alias summons within five days.14

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 9 of 21
14 (...continued)

claims were asserted against it in its capacity as an agent of USPS, as evidenced

by its own filing, shortly thereafter, of motions to quash service and dismiss.

15 In Despain v. Salt Lake Area Metro Gang Unit, 13 F.3d 1436, 1438-39

(10th Cir. 1994) the Court of Appeals for the Tenth Circuit, while first noting that

(continued...)

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Trustee’s explanation provides a somewhat questionable basis for a good

cause extension of the time to serve Amplex. Nonetheless, whether or not Trustee

established good cause for her failure to timely serve Amplex, the bankruptcy

court still had discretion to allow her an extension. Espinoza states that “several

factors” should be considered by courts deciding whether to grant an extension in

the absence of good cause, but specifically lists only two: 1) whether refiling of

the action would be barred by the statute of limitations, and 2) the complexity of

the Rule 4 service requirements. Espinoza v. United States, 52 F.3d at 842. In

this case, absent an extension, Trustee’s claims would be barred by the limitations

statute. Other jurisdictions have also recognized the statute of limitations bar as a

significant factor to consider in connection with discretionary extensions, and

have considered both whether the defendant would be prejudiced by an extension

and whether the delay of service was substantial, as well. See, e.g., Goodstein v.

Bombadier Capital, Inc., 167 F.R.D. 662, 666 (D. Vt. 1996); and Mejia v. Castle

Hotel, Inc., 164 F.R.D. 343, 345-46 (S.D.N.Y. 1996). In the present case, the

statute of limitations had run, the defendant was not prejudiced by the delay of

service, and service was only delayed by twenty-four days. Under these

circumstances, we hold that the bankruptcy court’s allowance of an extension of

the time for service does not constitute an abuse of discretion that gives rise to “a

definite and firm conviction” by this Court that the decision involved “a clear

error of judgment or exceeded the bounds of permissible choice in the

circumstances.” Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir. 1994) (internal

quotation marks omitted).15

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 10 of 21
15 (...continued)

the “good cause” provision should be read narrowly, held that defendant’s actual

notice, lack of prejudice, and the running of the statute of limitations were not

sufficient to establish “good cause” for late service. However, in that case, the

court was reviewing a denial of additional time for service for lack of good cause. 

Therefore, whether the same factors would be sufficient to uphold a trial court’s

discretionary allowance of extended service, in the absence of good cause, was

not addressed.

16 6A Charles Alan Wright, Arthur R. Miller, & Mark Kay Kane, Federal

Practice and Procedure: Civil § 1498 (2d ed. 2007) states that the notice

requirement of Rule 15(c)(3) is linked to the 120 day service period “or any

(continued...)

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2. Relation Back

Amplex also contends that Trustee’s amendment of her complaint to

specifically name it as a defendant should have been barred by the statute of

limitations set forth in 11 U.S.C. § 546(a)(1). Pursuant to that statute, the

limitations period for the filing of avoidance actions expired on February 8, 2003. 

Trustee did not move to amend her complaint until September 2, 2003, nearly

seven months later, and the order granting her motion was entered on June 3,

2005. Federal Rule of Civil Procedure 15(c)(3) (made applicable by Federal Rule

of Bankruptcy Procedure 7015) governs relation back of an amendment that

“changes the party or the naming of the party against whom a claim is asserted.” 

Under this Rule, the amendment of Trustee’s complaint relates back to the date of

the filing of the original complaint if the claim asserted by amendment arises out

of the same conduct or occurrence that was alleged in the original pleading and,

within the period provided by Rule 4(m) for service, Amplex received such notice

of the action that amendment would not prejudice its defense, and Amplex knew

or should have known that the failure to name it was a mistake. 

Since the bankruptcy court extended the Rule 4(m) service time to

encompass Trustee’s service by alias summons, the notice, prejudice, and mistake

factors must be considered within the context of Amplex’s receipt of the

complaint at that time.16 That complaint put Amplex on notice of the exact claims

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 11 of 21
16 (...continued)

additional time resulting from a court-ordered extension.”

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against “Stamps on Consignment,” and that Trustee had mistakenly used that

name for Amplex. Moreover, Amplex did not even attempt to show prejudice,

beyond the fact that the complaint against it would be time barred, absent an

extension. However, such a result is precisely what Rule 15(c) is intended to

avoid. See AIG Managed Market Neutral Fund v. Askin Capital Mgmt., L.P., 197

F.R.D. 104, 111 (S.D.N.Y. 2000) (defendant’s contention that not allowing it to

take advantage of the statutory time-bar is itself prejudice is erroneous).

B. Preference

The basis for a trustee’s avoidance of “preference” payments made by the

debtor to its creditors is as follows:

(b) Except as provided in subsections (c) and (i) of this section,

the trustee may avoid any transfer of an interest of the debtor

in property–

(1) to or for the benefit of a creditor;

(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 this

title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the

extent provided by the provisions of this title.

11 U.S.C. § 547(b). Thus, the Trustee’s burden in a preference action consists of:

A prima facie case for an avoidable preference under 11 U.S.C.

§ 547(b) is made by showing the following: (1) a transfer, (2) of an

interest of the debtor in property, (3) to or for the benefit of a

creditor, (4) for or on account of an antecedent debt owed by the

debtor before such transfer was made, (5) made while the debtor was

insolvent, (6) if the creditor was not an insider, made on or within 90

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 12 of 21
17 A trustee’s recovery of preferential payments must be “for the benefit of

the estate.” 11 U.S.C. § 550. USPS asserts that any monies recovered by the

Trustee in this case will not benefit the estate because they will never reach the

unsecured creditors. We reject the premise that recovered payments must benefit

unsecured creditors in order to benefit “the estate,” for the reasons set forth in

this Court’s decision in another Furrs bankruptcy appeal. See Gonzales v.

ConAgra Grocery Prods. Co. (In re Furr’s Supermarkets, Inc.), NM-06-117, 2007

WL 2317546, at *3 (10th Cir. BAP August 15, 2007).

18 In a previous appeal, Amplex similarly argued that the relationship

between itself and Furrs was a consignment. Amplex asserted in that proceeding

that its claim against the estate should receive priority treatment because Furrs

had held consigned stamps, and their proceeds, in trust. Therefore, Amplex

argued, stamp sales followed by dissipation of the proceeds were conversions of

Amplex’s property. The BAP affirmed the bankruptcy court’s denial of priority

treatment to Amplex’s claim, but did so without reaching the consignment issue

because Amplex failed to establish that Furrs either sold stamps or used stamp

proceeds post-petition. Without such proof, there could be no “benefit to the

estate,” which is necessary for administrative priority. In re Furr’s Supermarkets,

Inc., NM-06-99, 2007 WL 559766, at *3 (10th Cir. BAP February 22, 2007).

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days before the date of the filing of the petition, (7) which enabled

such creditor to receive more than he would have received if the

transfer had not been made while the debtor continued into

bankruptcy. 

Kirtley v. Consol. Nutrition, L.C. (In re Freeny), 187 B.R. 711, 715 (Bankr. N.D.

Okla. 1995).17 Appellants admit that the payments at issue were transfers made

while Furrs was insolvent, within ninety days of filing of the petition. However,

appellants deny that: 1) Furrs had any interest in the transferred funds; 2) either

appellant was a Furrs “creditor”; 3) the transfers were in payment of an

antecedent debt, and 4) the payments exceeded what appellants would receive in a

Chapter 7 liquidation. Appellants’ principal reason for these denials is their

characterization of the SCA as a “consignment.” Thus, appellants argue, a

consignee does not own consigned property but, rather, holds it in trust for the

consignor.18 In appellants’ view, such a trust also extends to monetary proceeds

from sales of consigned property and, therefore, Furrs never had an ownership

interest in stamp sale proceeds. 

The bankruptcy court rejected appellants’ underlying premise, finding that

the SCA “was a consignment only in name,” principally because Furrs was

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 13 of 21
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required to pay for stamps received regardless of whether or not they were sold. 

However, under New Mexico law and the facts of this case, such characterizations

of the parties’ agreement are not necessary. Whether the SCA gives rise to a

consignment, a secured sale, or a “sale or return,” appellants’ inability to trace

identifiable proceeds renders their arguments without merit, and their challenges

to Trustee’s prima facie case were therefore ineffective.

Article 9 (Secured Transactions) of the New Mexico Uniform Commercial

Code (“UCC”) is specifically applicable to consignments. N.M. Stat. Ann. § 55-

9-109(a)(4). As such, Article 9 both includes consignors within its definition of

secured parties, and provides that a “security interest of a consignor in goods that

are the subject of a consignment is a purchase-money security interest in

inventory.” N.M. Stat. Ann. §§ 55-9-102(a)(71)(C) and 55-9-103(d). A security

interest is defined as “an interest in personal property or fixtures that secures

payment or performance of an obligation[,]” and a seller’s interest in goods

delivered to a buyer with an attempt to retain title is limited to reservation of a

security interest. N.M. Stat. Ann. § 55-1-201(b)(35). New Mexico UCC Article 2

(Sales) similarly provides that “retention or reservation by the seller of the title

(property) in goods shipped or delivered to the buyer is limited in effect to a

reservation of a security interest.” N.M. Stat. Ann. § 55-2-401(1). 

Thus, under New Mexico law, consignments are treated as secured

transactions. The significance of such treatment in this case is that a security

interest in goods continues only into “identifiable proceeds” of collateral sales. 

N.M. Stat. Ann. § 55-9-315(a)(2). Commingled proceeds, such as the ones in this

case, are considered identifiable “to the extent that the secured party identifies the

proceeds by a method of tracing, including application of equitable principles,

that is permitted under law other than [Article 9] with respect to commingled

property of the type involved.” N.M. Stat. Ann. § 55-9-315(b)(2). The

“intermediate balance rule,” use of which has been approved in a number of

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 14 of 21
19 Other tracing methods tend to be more burdensome to the tracing party,

rather than less. See, e.g., Morrison Steel Co. v. Gurtman, 274 A.2d 306, 311

(N.J. Super. Ct. App. Div. 1971) (holding that once proceeds are commingled

they may no longer be traced).

20 Although the bankruptcy court’s decision was on summary judgment,

defendants conceded that the proceeds of stamp sales could not be traced. Indeed,

since proceeds of all sales were “swept” into the Wells Fargo account on a daily

basis, any proceed tracing would have been impossible.

21 USPS contends that the SCA required Furrs to segregate stamp proceeds

and to deposit those proceeds into the USPS lockbox account. USPS Br. in Chief

at 14. However, the SCA does not support this contention. Under the SCA, Furrs

was required to “remit payments for full face value of consigned stock within 30

calendar days from the date of the consignment’s receipt[,]” and to make such

payments to the USPS lockbox. SCA at ¶¶ 1.3 and 1.4, in App. Book 3 at 832. 

(continued...)

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published opinions on proceeds tracing and by the bankruptcy court in this case,

is just such a tracing method. Under that rule, it is presumed that “proceeds of

the disposition of collateral remain in a commingled account as long as the

account balance is equal to or exceeds the amounts of the proceeds.” In re

Oriental Rug Warehouse Club, Inc., 205 B.R. 407, 411-12 (Bankr. D. Minn.

1997).19 Under this standard, the bankruptcy court determined that defendants

had not, and could not, trace identifiable proceeds from stamp sales.20 We agree.

As discussed above, appellants held a security interest in any stamps and

identifiable proceeds of stamps in Furrs’ possession. Had the payments at issue

been made in the form of returned stamp inventory, this dispute likely never

would have arisen. However, Furrs did not return stamps. Instead, it issued

checks payable to “Stamps on Consignment.” Likewise, had the checks either

been issued from an account into which only stamp proceeds were deposited, or

paid from an account in which the balance of funds never fell below $174,000,

again there likely would be no serious disagreement. But the uncontroverted facts

established that stamp proceeds were not segregated, and were commingled with

all other Furrs sales proceeds that were nightly swept into an account to which

Furrs had no access.21 The funding for the payments came from advances on a

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 15 of 21
21 (...continued)

Conspicuously absent from the agreement is any provision requiring special

handling of stamp proceeds. The provision requiring payments to be made within

a specified time to a specified address cannot reasonably be construed as a

requirement that stamp proceeds either be segregated or deposited directly into

the lockbox account. That is particularly the case when, as here, payments were

required to be made even if the stamps had not sold, which would make payment

directly from proceeds impossible.

22 Memorandum Opinion on Defendants’ Joint Motion for Summary Judgment

(doc 88) at 8, in App. Book 3 at 746 (citing In re Castletons, Inc., 990 F.2d 551,

554 (10th Cir. 1993)).

23 Id. at 8-9, in App. Book 3 at 746-47 (citing In re El Paso Refinery, L P, 171 F.3d 249, 253-53 (5th Cir. 1999)).

24 Appellants’ denial that the transfers were in excess of what would have

been received in a Chapter 7 liquidation is also based on their contention that

their interest in stamp proceeds was “fully secured.” That argument is likewise

without merit.

25 Memorandum Opinion on Plaintiff’s Motion for Summary Judgment (doc

106) at 17, ¶ 52, in App. Book 3 at 779.

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line of credit Furrs had with Wells Fargo. Therefore, contrary to appellants’

assertions, the transfers consisted neither of property “owned” by USPS nor of

property on which appellants were fully secured. Appellants’ contentions to that

effect are without merit.

Appellants argue that their interest in both stamps and proceeds was “fully

secured” and, therefore, the transfers were not preferential. The bankruptcy court

acknowledged that “[i]t is generally true that a payment to a fully secured creditor

is not preferential”22 and also that, pursuant to the “greater percentage test,” there

is no preference “if an undersecured creditor was paid from its own collateral.”23

Again, appellants’ inability to trace stamp proceeds precludes any assertion that

their claims were “fully secured.” 24 Alternately, Amplex contends that its claim

was secured at least in the amount of $23,000, based on the bankruptcy court’s

finding that Furrs could have had as much as that amount in stamp inventory

when it filed its bankruptcy petition.25 However, even if appellants were thereby

“undersecured,” since the transfers did not consist of either stamp inventory or

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 16 of 21
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identifiable proceeds of stamp inventory, they were not paid from appellants’

collateral.

Finally, appellants contend that neither of them was a “creditor” of Furrs

based on the consignment theory. In fact, USPS goes so far as to suggest that,

because there was no privity of contract between it and Furrs, it not only was not

a creditor of Furrs, but the bankruptcy court had no jurisdiction over it. Privity of

contract is not required in order to be a creditor under § 547, however. A

“creditor” is defined as anyone having a “claim” against the debtor, and a “claim”

consists of a “right to payment.” 11 U.S.C. § 101(10). Clearly, USPS had a right

to be paid under the terms of the SCA, and Amplex had a right to demand that

payment be made in accordance with its terms. In fact, Amplex filed a proof of

claim in the Furrs bankruptcy case. In addition, under its contract with USPS,

Amplex guaranteed payments that were required by the terms of the SCA. 

Therefore, payments Furrs made to USPS as the SCA obligee directly benefitted

Amplex, the guarantor of those payments, and the payments were avoidable as to

both. 5 Collier on Bankruptcy § 547.03[3] (Alan N. Resnick ed., 15th ed. rev.

2007).

Bankruptcy courts have subject matter jurisdiction over preference

avoidance actions, which are “core proceedings.” 28 U.S.C. §§1334 and

157(b)(2)(F). Although subject matter jurisdiction is a requirement of Article III

of the United States Constitution, personal jurisdiction is not. Ins. Corp. of

Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982). 

Thus, although subject matter jurisdiction cannot be waived by the parties,

personal jurisdiction can be waived either intentionally or inadvertently. Id. at

703. See also Williams v. Texaco, Inc., 165 B.R. 662, 669-70 (D. N.M. 1994). 

USPS did not pursue its personal jurisdiction defense in the bankruptcy court and,

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 17 of 21
26 Although we need not reach the merits of the personal jurisdiction claim, it

seems unlikely that USPS would prevail on that issue. It conducted business in

New Mexico and was duly served with process in this case.

27 Amplex Reply Br. at 16.

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accordingly, it has been waived.26

C. Interest Award

Defendants contend that pre-judgment interest was improperly awarded to

Trustee because they had no real opportunity to oppose the award. Trustee did

not include a prayer for interest in her original or amended complaints, but

ultimately did move to amend her complaint to add a claim for interest. That

motion to amend was filed after defendants had responded to Trustee’s motion for

summary judgment. Although defendants filed objections to the motion to amend,

they contend that their objections addressed only whether amendment of the

complaint was appropriate, and did not address the propriety of an interest award. 

Defendants asserted that amendment was inappropriate because the same

bankruptcy judge (in a different bankruptcy case that involved the same Trustee

and counsel) had ruled more than two years earlier that Trustee “must request

prejudgment interest in her prayer for relief if she intends to seek it.”27 Based on

that ruling, defendants claimed that Trustee’s failure to seek interest in her

complaint should have precluded her subsequent claim for interest.

A bankruptcy court’s decision on a motion to amend is reviewed for abuse

of discretion. In that respect, defendants essentially argue that the Judge’s ruling

in a different, previous case should have precluded the amendment. However,

allowing Trustee to amend her complaint to add a prayer for interest is not

inconsistent with a prior ruling stating that if interest is sought it must be

requested in the complaint. Apparently, defendants interpreted the prior ruling as

a requirement that interest be sought in the original complaint or not at all. This

argument simply does not establish that the bankruptcy court abused its discretion

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 18 of 21
28 Defendants contend that they were not given an opportunity to address the

propriety of interest in this case before it was awarded. However, defendants

could and should have argued this issue in their objection to the motion to amend,

but chose not to do so. That choice operates as a waiver of other interest issues

and precludes their current arguments that interest was inappropriate.

29 All references herein to § 547(c)(2) are to the statute as it existed prior to

amendment of the Bankruptcy Code by the Bankruptcy Abuse Prevention and

Consumer Protection Act (“BAPCPA”) of 2005 since the petition in this case predated those amendments.

30 Prior to its amendment in 2005, § 547(c)(2) used the conjunctive “and” in

reference to the subjective and objective elements, thereby requiring proof of both

in order to establish the defense. In 2005, the elements were made disjunctive by

substitution of “or” for “and” in this section. However, because the present case

was commenced prior to the amendment it is governed by the prior law. 

Accordingly, an ordinary course of business defense in this case requires proof of

both subjective and objective ordinariness. Therefore, since we agree with the

(continued...)

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by allowing amendment.28

D. “Ordinary Course of Business” Defense

USPS contends that the bankruptcy court erred in ruling against its ordinary

course of business defense. Once a trustee makes a prima facie case of

preference, the burden to prove defenses shifts to the party asserting them. Clark

v. Balcor Real Estate Fin., Inc. (In re Meridith Hoffman Partners), 12 F.3d 1549,

1553 (10th Cir. 1993). USPS essentially argues that its only contact with Furrs

consisted of its receipt of lockbox payments, and that the allegedly preferential

payments were not inconsistent with prior ones. Therefore, the payments were

made in the ordinary course of the parties’ dealings.

The ordinary course of business defense is set forth in 11 U.S.C.

§ 547(c)(2),29 and is narrowly construed in the Tenth Circuit. Jagow v. Grunwald

(In re Allied Carriers’ Exch.), 2007 WL 2473461, at *4 (10th Cir. BAP

September 4, 2007); Payne v. Clarendon Nat’l Ins. Co. (In re Sunset Sales, Inc.),

220 B.R. 1005, 1020 (10th Cir. BAP 1998), aff’d, 195 F.3d 568 (10th Cir. 1999). 

The defense has both a subjective (ordinary as between the parties) and an

objective (ordinary in the industry) element.30 Moreover, as noted by the

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 19 of 21
30 (...continued)

bankruptcy court’s conclusion that the subjective element of the ordinary course

of business defense was not established, we need not decide whether or not the

objective element of the defense was satisfied. 

31 Memorandum Opinion on Plaintiff’s Motion for Summary Judgment (doc

106) at 21, in App. Book 3 at 783 (citing In re Milwaukee Cheese Wis., Inc., 112

F.3d 845, 848 (7th Cir. 1997)). See also Meeks v. Harrah’s Tunica Corp. (In re

Armstrong), 231 B.R. 723, 730-31 (Bankr. E.D. Ark. 1999), aff’d, 291 F.3d 517

(8th Cir. 2002); Hutson v. Branch Banking & Trust Co. (In re National Gas

Distribs., LLC), 346 B.R. 394, 405 (Bankr. E.D.N.C. 2006); Moran v. Hong Kong

& Shanghai Banking Corp. (In re Deltacorp, Inc.), 179 B.R. 773, 781 (Bankr.

S.D.N.Y. 1995).

32 Although this ruling appears to involve findings of fact, which would be

inappropriate on summary judgment, USPS asserted that this issue could be

resolved as a matter of law when it filed its separate motion for summary

judgment. Memorandum in Support of the Postal Service’s Second Motion for

Summary Judgment at § B, in Appendix of Appellant United States Postal Service

Book 1 at 268-272. In so doing, USPS conceded that the issue could be resolved

on the basis of the uncontested facts.

33 Memorandum Opinion on Plaintiff’s Motion for Summary Judgment (doc

106) at 29-30, in App. Book 3 at 791-92.

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bankruptcy court, “[t]o be protected, a transfer must be ordinary both from the

transferee’s perspective and the debtor’s perspective.”31 The bankruptcy court

found that the evidence failed to satisfy either element in this case, and that USPS

therefore had not established an ordinary course of business defense.32

The bankruptcy court found that, even though the payments at issue may

not have been significantly later than previous ones, it was clear both that “Furr’s

was in total chaos during the period leading up to the bankruptcy,” and that

Amplex’s actions (including the sending of three dunning letters in December

2000 and January 2001) indicated that it “was no longer willing to deal with

Furr’s if payments were not immediately brought current.”33 Uncontested

statements of Furrs’ employees established that in the time period leading up to

the filing of its petition Furrs formed an ad hoc group of senior management

personnel to decide which vendors were to be paid and when, and that virtually

all checks payable to vendors were held until the ad hoc group made a decision to

BAP Appeal No. 06-113 Docket No. 23 Filed: 09/26/2007 Page: 20 of 21
34 Affidavit of Sandra Dunlap, in App. Book 3 at 604-08 and Affidavit of Ken

Fine, in App. Book 3 at 609-11.

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pay. At the time of payment, checks that had been held for a long period were

voided and reissued with the current date. In fact, each of the checks at issue in

this case was held and reissued by Furrs, and at least one of them was sent to

USPS via Federal Express. Moreover, calls from vendors demanding payment

increased dramatically during the time period leading up to the bankruptcy filing,

and most vendors had restricted shipments to Furrs pending receipt of payment of

a specified amount. In fact, Amplex sent three separate letters to Furrs in

December 2000 and January 2001 threatening to suspend shipments until all

outstanding amounts had been paid. 

The situation Furrs found itself in during this period represented a

significant departure from the manner in which it had done business in the past.34 

On the basis of these facts, we cannot conclude that the bankruptcy court’s

determination that an ordinary course of business defense could not be asserted

was in error. Indeed, it appears that virtually nothing Furrs did in the latter half

of 2000, up to the filing of its petition in February 2001, could be considered

“ordinary” from its perspective. Because the ordinary course of business defense

requires a showing of subjective ordinariness from both parties’ perspectives, we

agree that USPS could not establish the defense in this case.

VI. CONCLUSION

The bankruptcy court’s orders determining that the disputed payments in

this case were preferential under 11 U.S.C. § 547(b), and awarding pre- and postjudgment interest are affirmed. Likewise, the orders denying Amplex’s motion to

dismiss and granting Trustee’s motions to amend and for additional time for

service of the complaint are affirmed.

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