In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 15-2356

THE UNSECURED CREDITORS COMMITTEE 

OF SPARRER SAUSAGE COMPANY, INC.,

Plaintiff-Appellee,

v.

JASON’S FOODS, INC.,

Defendant-Appellant.

____________________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 14 C 7879 — Ronald A. Guzmán, Judge.

____________________

ARGUED DECEMBER 7, 2015 — DECIDED JUNE 10, 2016

____________________

Before FLAUM, WILLIAMS, and SYKES, Circuit Judges.

SYKES, Circuit Judge. During the 90-day preference period

preceding its Chapter 11 bankruptcy filing, Sparrer Sausage 

Company paid invoices it received from Jason’s Foods, Inc., 

one of its suppliers, totaling roughly $587,000. The Unsecured Creditors Committee asked that these payments be 

returned to the bankruptcy estate as avoidable preferences 

under § 547(b) of the Bankruptcy Code. Jason’s Foods agreed
2 No. 15-2356

that the payments were avoidable preferences but claimed

an exception under 11 U.S.C. § 547(c)(2)(A) for otherwise 

preferential transfers made in the ordinary course of business. 

The bankruptcy judge allowed Jason’s Foods to keep a 

significant share of the challenged payments but held that 

the timing of certain payments departed too drastically from 

the companies’ past practice to be considered ordinary. The 

judge imposed preference liability on Jason’s Foods for

11 invoices that he determined were paid either too early or 

too late to be treated as ordinary—specifically, invoices

Sparrer Sausage paid within 14, 29, 31, 37, and 38 days of 

issuance. The district court affirmed and Jason’s Foods 

appealed.

We reverse. Nothing in the record suggests that it was 

unusual for Sparrer Sausage to pay invoices from Jason’s 

Foods within 14, 29, and 31 days of issuance given its payment history before the preference period. The only payments that can fairly be deemed out of the ordinary are those 

made 37 and 38 days after receipt of invoice. Jason’s Foods’ 

preference liability is limited to those invoices and is entirely 

offset by invoices Sparrer Sausage failed to pay. 

I. Background

Jason’s Foods, a wholesale meat supplier, provided unprocessed meat products to Chapter 11 debtor Sparrer 

Sausage, a sausage manufacturing company. Their relationship stretched back as far as February 2, 2010, and continued 

until Sparrer Sausage filed its petition for Chapter 11 bankruptcy on February 7, 2012. During the 90-day preference 
No. 15-2356 3

period preceding this filing, Sparrer Sausage paid 23 invoices from Jason’s Foods totaling $586,658.10.

In September 2013 the Unsecured Creditors Committee

filed a complaint to recover those payments from Jason’s 

Foods. The Committee argued that the payments were

avoidable preferences—payments that Jason’s Foods was 

required to return to the bankruptcy estate for the benefit of 

Sparrer Sausage’s unsecured creditors. See 11 U.S.C. § 547(b).

Jason’s Foods conceded that the payments met the statutory 

definition of an avoidable preference but asserted two 

affirmative defenses under § 547(c). First, Jason’s Foods 

argued that the otherwise preferential transfers were made 

in the ordinary course of business and thus were nonavoidable under § 547(c)(2). Alternatively, Jason’s Foods argued 

that it had provided meat products to Sparrer Sausage in

January and February of 2012 without receiving payment

and that this new value offset its preference liability under 

§ 547(c)(4).

The bankruptcy judge first considered Jason’s Foods’ ordinary-course defense and determined that before the 

preference period, Sparrer Sausage generally paid invoices 

from Jason’s Foods within 16 to 28 days. Of the 23 invoices 

that Sparrer Sausage paid during the preference period, 12 

fell within this range, so the judge concluded that these 

12 payments were ordinary and thus nonavoidable. The

remaining 11 invoices were paid within 14, 29, 31, 37, and

38 days of the invoice date. The judge concluded that these 

payments, which totaled $306,110.23, were not ordinary and 

must be returned to the bankruptcy estate for the benefit of 

Sparrer Sausage’s unsecured creditors.
4 No. 15-2356

Turning next to the new-value defense, the judge found 

that Sparrer Sausage had not paid for $63,514.91 worth of 

meat products it received from Jason’s Foods in January and 

February of 2012. The judge credited that amount to Jason’s 

Foods as an offset against its preference liability and entered 

judgment in favor of the Unsecured Creditors Committee in 

the amount of $242,595.32. The judgment was affirmed on 

appeal to the district court, and this appeal followed.

II. Discussion

We review the bankruptcy court’s conclusions of law de 

novo and its findings of fact for clear error. Kovacs v. United 

States, 614 F.3d 666, 672 (7th Cir. 2010). A factual finding is 

clearly erroneous if “although there is evidence to support it, 

the reviewing court on the entire evidence is left with the 

definite and firm conviction that a mistake has been committed.” Id. (quotation marks omitted). 

As a general rule, payments made to a creditor during 

the 90-day period before a debtor files for bankruptcy are 

avoidable preferences. See 11 U.S.C. § 547(b). The rule prevents inequitable distribution of the debtor’s assets to favored creditors and protects the struggling debtor against 

the predatory behavior of nervous creditors. In re Tolona 

Pizza Prods. Corp., 3 F.3d 1029, 1032 (7th Cir. 1993). But the

rule contains an exception, codified in § 547(c)(2), aimed at

“leav[ing] undisturbed normal commercial and financial 

relationships and protect[ing] recurring, customary credit 

transactions.” Kleven v. Household Bank F.S.B., 334 F.3d 638, 

642 (7th Cir. 2003) (quotation marks omitted). 

To that end, § 547(c)(2) provides that an otherwise preferential transfer is nonavoidable
No. 15-2356 5

to the extent that such transfer was in payment 

of a debt incurred by the debtor in the ordinary 

course of business or financial affairs of the 

debtor and the transferee, and such transfer 

was—

(A) made in the ordinary course of 

business or financial affairs of the debtor 

and transferee; or 

(B) made according to ordinary business 

terms[.]

The creditor asserting this defense to preference liability 

bears “the burden of proving the nonavoidability of a transfer under subsection (c).” 11 U.S.C. § 547(g). 

Jason’s Foods and the Unsecured Creditors Committee

stipulated that Sparrer Sausage incurred all debts owed to 

Jason’s Foods in the ordinary course of business, so we’re

concerned only with Sparrer Sausage’s payment of those 

debts. In this regard Jason’s Foods proceeds under 

§ 547(c)(2)(A), commonly referred to as the subjective ordinary-course defense.1

 

1 Prior to its amendment by the Bankruptcy Abuse Prevention and 

Consumer Protection Act of 2005, § 547(c)(2) required a creditor to prove 

both that the transfer was made in the ordinary course of business 

between the debtor and the creditor and that the transfer was made 

according to ordinary business terms. 11 U.S.C. § 547(c)(2) (2003); 

Kleven v. Household Bank F.S.B., 334 F.3d 638, 641–42 (7th Cir. 2003). These 

requirements are commonly referred to as the subjective and objective 

components of the ordinary-course defense. The 2005 amendments made 

these components disjunctive. Pub. L. No. 109-8, § 409, 119 Stat. 23, 106 

(2005).
6 No. 15-2356

The subjective ordinary-course defense asks whether the 

payments the debtor made to the creditor during the preference period are consistent with the parties’ practice before the 

preference period. Tolona Pizza, 3 F.3d at 1032. The inquiry is 

not governed by any “‘precise legal test,’” Lovett v. 

St. Johnsbury Trucking, 931 F.2d 494, 497 (8th Cir. 1991)

(quoting In re Fulghum Constr. Corp., 872 F.2d 739, 743 (6th 

Cir. 1989)), but generally entails using the debtor’s payment 

history to calculate a baseline for the companies’ dealings

and then comparing preference-period payments to that 

baseline, cf. Kleven, 334 F.3d at 642–43. While “substantial 

deviations from established practices” are not protected, the 

ordinary-course defense “allow[s] suppliers and other 

furnishers of credit to receive payment within the course 

that has developed in the commercial relationship between 

the parties.” In re Tenn. Chem. Co., 112 F.3d 234, 238 (6th Cir. 

1997).

Jason’s Foods challenges the bankruptcy judge’s determination that Sparrer Sausage typically paid invoices within 16 

to 28 days, arguing that this calculation does not accurately 

reflect the companies’ payment practices before the preference period. This is really two arguments in one. Jason’s 

Foods challenges the judge’s use of an abbreviated historical 

period rather than the companies’ entire payment history

and also argues that the baseline comprises a too-narrow

range of days surrounding the average invoice age during 

the historical period.

A. Historical Period 

Calculating the baseline payment practice between two 

companies requires identifying a historical period that 

reflects the companies’ typical payment practices. See, e.g., In 
No. 15-2356 7

re Quebecor World (USA), Inc., 491 B.R. 379, 387 (Bankr. 

S.D.N.Y. 2013) (“The Court must first determine the appropriate pre-preference time period to use in establishing a 

baseline of dealings between the parties.”). In Tolona Pizza

we directed courts to look to “the norm established by the 

debtor and the creditor in the period before, preferably well 

before, the preference period.” 3 F.3d at 1032. That directive

doesn’t require truncating the historical period “well before” 

the beginning of the preference period but simply underscores that the baseline should reflect payment practices that 

the companies established before the onset of any financial 

distress associated with the debtor’s impending bankruptcy.

See In re Affiliated Foods Sw. Inc., 750 F.3d 714, 720 (8th Cir. 

2014) (“To make a sound comparison, ‘[n]umerous decisions 

support the view that the historical baseline should be based 

on a time frame when the debtor was financially healthy.’”

(quoting Quebecor World, 491 B.R. at 387)). 

In some cases this may require truncating the historical 

period before the start of the preference period if the debtor’s financial difficulties have already substantially altered 

its dealings with the creditor. See, e.g., In re Circuit City 

Stores, Inc., 479 B.R. 703, 710 (Bankr. E.D. Va. 2012); In re H.L. 

Hansen Lumber Co. of Galesburg, Inc., 270 B.R. 273, 279 (Bankr. 

C.D. Ill. 2001). In other cases it will be necessary to consider 

the entire pre-preference period. See, e.g., Affiliated Foods, 

750 F.3d at 720; Quebecor World, 491 B.R. at 387. In all cases

the contours of the historical period should be grounded in 

the companies’ payment history rather than dictated by a 

fixed or arbitrary cutoff date. Accord Affiliated Foods, 750 F.3d 

at 720 (“Obviously, when considering this type of factintensive issue, what is appropriate in one case is not necessarily appropriate in the next case.”).
8 No. 15-2356

Here, Jason’s Foods and the Unsecured Creditors Committee stipulated to a historical period spanning February 2, 

2010, to November 7, 2011, which encompassed all 

235 invoices that Sparrer Sausage paid before the preference 

period. Sparrer Sausage paid these invoices within 8 to 

49 days, with an average invoice age of almost 25 days at the 

time of payment. The bankruptcy judge disregarded this 

stipulation. Citing the increasing lateness of payments after 

April 15, 2011, the judge considered only the 168 invoices 

that Sparrer Sausage paid prior to that date. Sparrer Sausage

paid these invoices within 8 to 38 days, with an average 

invoice age of 22 days.

Jason’s Foods argues that the bankruptcy judge’s decision to truncate the historical period approximately seven 

months before the start of the preference period was clearly 

erroneous. We disagree. The judge determined that April 15, 

2011, “mark[ed] the beginning of the debtor’s financial 

difficulties” and that invoices paid after that date did not 

accurately reflect the norm when Sparrer Sausage was 

financially healthy. That finding is not without support in 

the record. Prior to April 15, 2011, Sparrer Sausage made its 

latest payments 38 days after the invoice date; after April 15, 

2011, Sparrer Sausage paid numerous invoices 40 or more 

days after the invoice date, with some as late as 45 days. 

Moreover, the percentage of invoices that Sparrer Sausage

paid 30 or more days after issuance increased from 5.95% 

between February 2, 2010, and April 15, 2011, to 46.3% 

between April 16, 2011, and November 7, 2011.

We acknowledge that the evidence of Sparrer Sausage’s 

financial distress after April 15, 2011, is hardly overwhelming, and we question the judge’s decision to disregard the
No. 15-2356 9

parties’ stipulation. Sparrer Sausage did not experience a

marked “liquidity crisis” or other stark change in its payment practices after April 15, 2011. Circuit City, 479 B.R. at 

710; see also Hansen Lumber, 270 B.R. at 278–79. But the bankruptcy judge offered a reasoned explanation for his decision, 

and his reasons were grounded in Sparrer Sausage’s payment history and supported by the record. Accordingly, we 

cannot say that the judge’s decision to truncate the historical 

period after April 15, 2011, was clear error. 

B. Baseline of Dealings During the Historical Period

Using the truncated historical period of February 2, 2010,

to April 15, 2011, the judge determined that Sparrer Sausage

typically paid invoices from Jason’s Foods within 16 to 

28 days. He arrived at this baseline by calculating the average invoice age during the historical period (22 days) and 

adding 6 days on both sides of that average. Jason’s Foods

argues that the judge should have used the total range of 

invoice ages during the historical period—8 to 38 days—as 

the baseline. We agree that the judge erred in this step of the 

analysis, but only in part. The judge’s choice of methodology 

was sound, but the application was flawed.

Bankruptcy courts typically calculate the baseline payment practice between a creditor and debtor in one of two 

ways: the average-lateness method or the total-range method. The average-lateness method uses the average invoice 

age during the historical period to determine which payments are ordinary, while the total-range method uses the 

minimum and maximum invoice ages during the historical

period to define an acceptable range of payments. See 

Quebecor World, 491 B.R. at 387–88. 
10 No. 15-2356

Each of these methodologies has strengths and weaknesses, and the decision to apply one or the other rests

within the bankruptcy judge’s discretion. While the averagelateness method better compensates for outlier payments 

during the historical period, the total-range method often 

provides a more complete picture of the relationship between the creditor and debtor. Compare id. (rejecting the 

total-range method because “that proposed methodology 

captures outlying payments that skew the analysis of what is 

ordinary”), with In re Am. Home Mortg. Holdings, Inc., 

476 B.R. 124, 138 (Bankr. D. Del. 2012) (applying the totalrange method because the average invoice age did not 

“‘portray the complete picture’ of the payment history” 

between the creditor and debtor). 

We see no reason to disturb the bankruptcy judge’s decision to use the average-lateness method rather than the totalrange method here. Admittedly none of the invoices that 

Sparrer Sausage paid during the historical period appear to

be such extreme outliers that they would skew the baseline 

calculation. See In re Moltech Power Sys., Inc., 327 B.R. 675, 681 

(Bankr. N.D. Fla. 2005) (“[C]ommon sense would seem to 

indicate that the court should be hesitant to embrace analysis 

by range when so doing would incorporate aberrations that 

artificially widen the range, thus presenting an inaccurate 

portrait of the actual ordinary course of business between 

the parties.”). But that’s not enough, standing alone, to upset 

the judge’s determination that the average-lateness method 

would better capture Jason’s Foods and Sparrer Sausage’s 

payment relationship.

The judge’s application of the average-lateness method is 

more problematic. He began by observing that the average 
No. 15-2356 11

invoice age rose from 22 days during the historical period to 

27 days during the preference period. We’re skeptical that a

five-day difference in the average invoice age is substantial 

enough to take any of the preference-period payments

outside the ordinary course. Bankruptcy courts have 

deemed comparable deviations immaterial and held that all 

preference-period payments were ordinary on this basis. In 

re Archway Cookies, 435 B.R. 234, 244 (Bankr. D. Del. 2010)

(4.9-day difference); In re Am. Camshaft Specialties, Inc., 

444 B.R. 347, 356 (Bankr. E.D. Mich. 2011) (4-day difference).

That said, a discrepancy that is immaterial in the context of 

one business relationship might well be aberrational in the 

context of another. Accord In re Jeffrey Bigelow Design Grp., 

Inc., 956 F.2d 479, 486 (4th Cir. 1992) (recognizing that the

“‘focus of [the] inquiry must be directed to an analysis of the 

business practices which were unique to the particular 

parties under consideration’” (quoting In re Fulghum Constr. 

Corp., 872 F.2d at 743)). Given the fact-intensive, contextspecific nature of the ordinary-course defense, we are unwilling to upset the judge’s decision on this basis. 

But the judge’s subsequent finding—that invoices paid

more than 6 days on either side of the 22-day average were 

outside the ordinary course—was clear error. The judge 

applied Quebecor World and its so-called “bucketing” analysis to support this conclusion, but neither the facts nor the 

bankruptcy court’s analysis in that case bear any resemblance to this case. In Quebecor World the average invoice age 

during the historical period was 27.56 days, while the average invoice age during the preference period was 57.16 

days—a difference of nearly 30 days. 491 B.R. at 388. Given 

such a stark disparity, the bankruptcy court grouped historical-period invoices “in buckets by age.” Id. That analysis 
12 No. 15-2356

revealed that the debtor paid 88% of invoices during the 

historical period within 11 to 40 days after the invoice date. 

Expanding this range by five days on the high end, the court 

determined that any invoices paid more than 45 days after 

the invoice date were outside the ordinary course. Id.

Here a 16-to-28-day baseline range encompasses just 64% 

of the invoices that Sparrer Sausage paid during the historical period. Even more problematically, the judge offered no 

explanation for the narrowness of this range. Why exclude 

invoices that Sparrer Sausage paid within 14 days when 

these payments were among the most common during the 

historical period? The same goes for invoices that Sparrer 

Sausage paid within 29 days. Indeed by adding just two 

days to either end of the range, the analysis would have 

captured 88% of the invoices that Sparrer Sausage paid

during the historical period, a percentage much more in line 

with the Quebecor World analysis. Thus, a 16-to-28-day 

baseline appears not only excessively narrow but also arbitrary. 

Sparrer Sausage paid 9 of the 11 contested invoices within 14, 29, and 31 days of issuance. These payments fall either 

squarely within or just outside the 14-to-30-day range in 

which Sparrer Sausage paid the vast majority of invoices 

during the historical period. As such they are precisely the 

type of payments that the ordinary-course defense protects: 

recurrent transactions that generally adhere to the terms of a 

well-established commercial relationship. Sparrer Sausage

paid the other 2 invoices 37 and 38 days after they were 

issued, which is substantially outside the 14-to-30-day 

baseline. We conclude that Jason’s Foods’ preference liability 

is limited to these payments, which total $60,679.00.
No. 15-2356 13

C. New-Value Defense

Finally, we turn briefly to Jason’s Foods’ new-value defense. Under § 547(c)(4), a preferential transfer is offset “to 

the extent that, after such transfer, such creditor gave new 

value to or for the benefit of the debtor.” A creditor may 

avail itself of this defense if, after receiving a preferential 

transfer from the debtor, it advanced additional, unsecured 

credit that remains unpaid. In re Prescott, 805 F.2d 719, 727 

(7th Cir. 1986). The premise underlying the new-value 

defense is that by extending new value to the debtor without 

receiving payment, the creditor has effectively replenished 

the bankruptcy estate in the same way that returning a 

preferential transfer would. In re Globe Bldg. Materials, Inc., 

484 F.3d 946, 950 (7th Cir. 2007). 

It’s undisputed that Jason’s Foods supplied $63,514.00

worth of meat products to Sparrer Sausage between January 

18, 2012, and February 6, 2012, well after Sparrer Sausage

paid at least some invoices during the preference period. The 

parties also agree that Sparrer Sausage never paid Jason’s 

Foods for these products. Jason’s Foods is therefore entitled 

to a reduction of its preference liability in this amount. See 

5 COLLIER ON BANKRUPTCY ¶ 547.04[4][e] at 565–69 (Alan N. 

Resnick & Henry J. Sommer eds., 16th ed. 2015) (noting that 

§ 547(c) defenses may be used cumulatively). Because the 

new value that Jason’s Foods extended to Sparrer Sausage

($63,514.00) exceeds its remaining preference liability

($60,679.00), that liability is entirely offset. 

REVERSED AND REMANDED.