Court Opinion

ID: 3029593
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:43:05.731192+00
Date Added: 2024-06-11T11:16:02.920008
License: Public Domain

United States Bankruptcy Appellate Panel
                            FOR THE EIGHTH CIRCUIT

                                    No. 02-6021 WA

In re:                                     *
                                           *
Gary Stewart,                              *
                                           *
         Debtor.                           *
                                           *
Gary Stewart;                              *         Appeal from the United States
Joyce Bradley Babin, Trustee,              *         Bankruptcy Court for the
                                           *         Western District of Arkansas
         Plaintiffs - Appellees,           *
                                           *
               v.                          *
                                           *
Barry County Livestock Auction, Inc.;      *
Bill Younger,                              *
                                           *
         Defendants - Appellants.          *

                               Submitted: August 30, 2002
                                Filed: September 17, 2002

Before KRESSEL, SCHERMER and FEDERMAN, Bankruptcy Judges

SCHERMER, Bankruptcy Judge
      Barry County Livestock Auction, Inc. (“Barry County”) appeals the bankruptcy
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court order avoiding two transfers as preferential pursuant to 11 U.S.C. § 547(b).
We have jurisdiction over this appeal from the final order of the bankruptcy court.
See 28 U.S.C. § 158(b). For the reasons set forth below, we affirm.

                                       ISSUE

       The issue on appeal is whether the bankruptcy court erred when it concluded
that the preferential transfers of two cashier’s checks from the Debtor Gary Stewart
(“Debtor”) to Barry County pursuant to 11 U.S.C. § 547(b) did not constitute
contemporaneous exchanges pursuant to 11 U.S.C. § 547(c)(1) and were not made in
the ordinary course of business pursuant to 11 U.S.C. § 547(c)(2). We conclude that
the bankruptcy court did not err in determining that the contemporaneous exchange
and the ordinary course of business defenses were not available to shelter the
avoidance of the transfers.

                                 BACKGROUND

      On April 11, 2000, the Debtor filed a petition for relief under Chapter 13 of the
Bankruptcy Code. During the ninety days preceding the bankruptcy filing, the Debtor
delivered two cashier’s checks to Barry County which are the subject of this dispute.

      Beginning in July 1997, the Debtor purchased cattle at the weekly livestock
auctions conducted by Barry County. The Debtor paid for the cattle by personal
checks delivered the day of each auction. Between July 19, 1997, and January 10,
2000, the Debtor delivered eighty-eight (88) personal checks to Barry County, only
one of which bounced. The Debtor’s check dated December 18, 1999, was returned

         1
      The Honorable Robert F. Fussell, United States Bankruptcy Judge for the
Western District of Arkansas.
                                          2
for insufficient funds and the Debtor replaced it with a cashier’s check on January 8,
2000.

       During the ninety-day preference period, January 11, 2000, through April 11,
2000, the Debtor purchased seven lots of cattle from Barry County, each by personal
check. Four of the seven checks delivered during this preference period were
returned for insufficient funds. The Debtor replaced two of these checks with the
cashier’s checks which are the subject of this dispute. One of the cashier’s checks
arises out of the Debtor’s purchase of livestock on January 29, 2000. On that day, the
Debtor delivered his personal check number 4029 in the amount of $17,580.70 to
Barry County for the purchase of cattle. The Debtor’s check was returned for
insufficient funds. When the Debtor arrived at the auction on February 12, 2000, the
Debtor tendered a cashier’s check in the amount of $17,580.70 to replace his check
number 4029. On February 19, 2000, the Debtor delivered his personal check number
4049 in the amount of $29,168.85 for the purchase of cattle, which check was
likewise returned for insufficient funds. On March 4, 2000, the Debtor tendered a
cashier’s check in the amount of $29,168.85 to replace his check number 4049.

                            STANDARD OF REVIEW

      We review the bankruptcy court’s findings of fact for clear error and its
conclusions of law de novo. Harrah’s Tunica Corp. v. Meeks (In re Armstrong), 291
F.3d 517, 521-22 (8th Cir. 2002); Official Plan Comm. v. Expeditors Int’l of
Washington, Inc. (In re Gateway Pac. Corp.), 153 F.3d 915, 917 (8th Cir. 1998).

                                   DISCUSSION

      The parties do not dispute that the delivery of the cashier’s checks during the
preference period constitute preferential transfers pursuant to 11 U.S.C. § 547(b)(2).
Barry County asserts that the preferential transfers are not avoidable because they

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qualify as contemporaneous exchanges pursuant to 11 U.S.C. § 547(c)(1) or,
alternatively, they were made in the ordinary course of business pursuant to 11 U.S.C.
§ 547(c)(2).

 11 U.S.C. § 547(c)(1) – Contemporaneous Exchange for New Value Defense

       Pursuant to 11 U.S.C. § 547(c)(1), an otherwise preferential transfer is not
avoidable to the extent such transfer was intended by the debtor and the creditor to
or for whose benefit such transfer was made to be a contemporaneous exchange for
new value given to the debtor and was in fact a substantially contemporaneous
exchange. For purposes of 11 U.S.C. § 547, “new value” is defined as money or
money’s worth in goods, services, or new credit, or release by a transferee of property
previously transferred to such transferee in a transaction that is nether void nor
voidable under any applicable law, including proceeds of such property, but does not
include an obligation substituted for an existing obligation. 11 U.S.C. § 547(a)(2).
Barry County has the burden of establishing by a preponderance of evidence that both
the Debtor and Barry County intended the delivery of the cashier’s checks to be
contemporaneous exchanges, that the exchanges were in fact contemporaneous, and
that the exchanges were for new value. Official Plan Comm. v. Expeditors Int’l of
Washington, Inc. (In re Gateway Pac. Corp.), 153 F.3d 915, 918 (8th Cir. 1998);
Jones Truck Lines, Inc. v. Central States Pension Fund (In re Jones Truck Lines,
Inc.), 130 F.3d 323, 326-27 (8th Cir. 1997).

       The bankruptcy court determined that the transfers of cattle from Barry County
to the Debtor occurred on the dates of the auctions and that the deliveries of the
cashier’s checks two weeks after the auctions in satisfaction of the purchase prices
were not contemporaneous exchanges for new value. We agree. The Debtor
transferred each cashier’s check in satisfaction of his obligation arising out of the
dishonored personal check delivered two weeks earlier for the purchase of cattle.
This does not constitute a contemporaneous exchange.

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       Barry County does not dispute that the transfers of the cashier’s checks were
not contemporaneous exchanges for the previously acquired cattle. Rather, Barry
County argues that the cashier’s checks were delivered to Barry County in exchange
for the right to participate in new auctions to be conducted on the dates the cashier’s
checks were delivered. According to Barry County, the “new value” was the right to
participate in that day’s auction and that “new value” was exchanged at the time each
cashier’s check was delivered. In order to succeed on this theory, Barry County must
establish that each delivery of a cashier’s check was intended by the Debtor and Barry
County as a contemporaneous exchange for the right to participate in a new auction
and that such right constitutes “new value” as defined in 11 U.S.C. § 547(a)(2).

       A review of the record indicates that both the Debtor and Barry County
intended the cashier’s checks to satisfy the obligations arising out of the dishonored
personal checks. Both the Debtor and Barry County agreed that it was Barry
County’s policy to not accept additional personal checks from the Debtor until after
an outstanding bounced check had been satisfied. Accordingly, the opportunity to
participate in future auctions was a consequence of the satisfaction of the bounced
checks. However, the intent of the Debtor and Barry County was to satisfy the
outstanding obligations.

       Furthermore, the right to participate in future auctions does not qualify as “new
value” under 11 U.S.C. § 547(a)(2). “New value” for purposes of preference defenses
is defined as money or money’s worthy in goods, services or new credit, or release
by a transferee of property previously transferred to such transferee in a transaction
that is neither void nor voidable. 11 U.S.C. § 547(a)(2). The definition expressly
excludes “an obligation substituted for an existing obligation.” 11 U.S.C.
§ 547(a)(2). The right to participate in a future auction is not money nor credit, nor

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is it a good or service the value of which is quantified in the record.2 To the contrary,
the cashier’s checks were replacement payments substituted for the earlier bounced
checks and thus are expressly excluded from the definition of “new value” set forth
in 11 U.S.C. § 547(a)(2). The bankruptcy court properly rejected Barry County’s
contemporaneous exchange defense.

          11 U.S.C. § 547(c)(2) – Ordinary Course of Business Defense

       Alternatively, Barry County argues that the cashier’s checks were delivered in
the ordinary course of business. To qualify for the ordinary course defense, a transfer
must have been in payment of a debt incurred by the debtor in the ordinary course of
business of the debtor and the transferee, made in the ordinary course of business of
the debtor and the transferee, and made according to ordinary business terms.
11 U.S.C. § 547(c)(2). Barry County must establish each element by a preponderance
of the evidence. Official Plan Comm. v. Expeditors Int’l of Washington, Inc. (In re
Gateway Pac. Corp.), 153 F.3d 915, 917 (8th Cir. 1998); Concast Canada, Inc. v.
Laclede Steel Co. (In re Laclede Steel Co.), 271 B.R. 127, 130 (B.A.P. 8th Cir. 2002).

       Although there is no precise legal test to determine ordinary course, the
controlling factor is whether the transactions between the debtor and the transferee
were consistent both before and during the preference period. In re Gateway Pac.
Corp., 153 F.3d at 917; In re Laclede Steel Co., 271 B.R. at 131. The evidence
established that the Debtor purchased cattle at auctions conducted by Barry County
for over two and one-half years prior to the preference period during which the
Debtor always paid by personal check delivered on the date of the auction. Only one
out of eighty-eight personal checks delivered by the Debtor to Barry County between

      2
      The preferential transfers in question were in the amounts of $17,580.70
and $29,168.85, respectively. Was the right to participate in one auction worth
$17,580.70 while the right to participate in another auction worth $29,168.85?
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July 19, 1997, and January 10, 2000, bounced, and that check was delivered shortly
before the preference period and was satisfied by a replacement cashier’s check
delivered three days prior to the commencement of the preference period. In contrast,
during the preference period the Debtor purchased seven lots of cattle from Barry
County by personal check and four of the seven personal checks were returned for
insufficient funds, two of which were later satisfied by the cashier’s checks which are
the subject of this dispute. The single insufficient funds check delivered prior to the
preference period does not establish an ordinary course of business of bouncing
checks and replacing them with cashier’s checks. Rather, it reflects the beginning of
the Debtor’s slide into bankruptcy. The parties’ dealings during the preference period
were not consistent with their dealings prior thereto and thus were not in the ordinary
course of business of the Debtor and Barry County. Central Hardware Co., Inc. v.
Sherwin-Williams Co. (In re Spirit Holding Co., Inc.), 153 F.3d 902, 905-906 (8th Cir.
1998)(wire transfer to replace checks not in ordinary course of business).3
Consequently the cashier’s checks do not qualify for the ordinary course of business
defense.

                                  CONCLUSION

      The bankruptcy court properly concluded that the Debtor’s delivery of
cashier’s checks to replace prior dishonored checks did not constitute
contemporaneous exchanges for new value nor were they transfers in the ordinary
course of business of the Debtor and Barry County. Consequently, neither the
contemporaneous exchange for new value defense set forth in 11 U.S.C. § 547(c)(1)
nor the ordinary course of business defense set forth in 11 U.S.C. § 547(c)(2) is

      3
       We need not address the other two prongs – whether the cashier’s checks
were in payment of debts incurred by the Debtor in the ordinary course of business
of the Debtor and Barry County and whether they were in accordance with
ordinary business terms – because Barry County did not satisfy the ordinary
course of business of the debtor and transferee prong of the test.
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available to shield the avoidance of the transfers of the cashier’s checks as
preferential pursuant to 11 U.S.C. § 547(b). The order and judgment of the
bankruptcy court is accordingly AFFIRMED.

     A true copy.

           Attest:

                    CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
                    EIGHTH CIRCUIT

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