Court Opinion

ID: 9485831
Source: CourtListenerOpinion
Date Created: 2023-08-05 11:31:16.990896+00
Date Added: 2024-06-11T17:51:23.272258
License: Public Domain

FLAUM, Circuit Judge,
dissenting.
I agree with the majority that under 11 U.S.C. § 547(c)(2)(C) Rose was required to show that Tolona’s payments had been made in accordance with the ordinary business *1034terms of the industry in order to defeat the inference that the payments were preferential. I respectfully dissent, however, because I cannot conclude that Rose in fact made the requisite showing.1
The bankruptcy court discussed in some detail the evidence offered by Rose to show conformity to the standard terms of the industry. As the bankruptcy judge characterized it, what little evidence was offered was ambiguous. One of Rose’s salesmen testified that few of Rose’s customers paid within the 7-day terms of its contracts but three-quarters paid within 21 days. An accounts receivable clerk testified that most local accounts paid within 14 days. Most importantly, the executive vice-president of Rose, Dwight Stiehl, testified that Tolona’s credit practices conformed to industry-wide norms. But, the bankruptcy court pointed out, Stiehl’s answer did not explain which credit practices of Rose — either the contractual terms that stated “net 7 days” or the special exceptions for late customers — were generally applied in the industry. Furthermore, Stiehl conceded, inconsistently with his other testimony, that Tolona was one of an “exceptional group of customers of Rose ... fall[ing] outside the common industry practice and standards.” In light of these anomalies in the evidence, the bankruptcy judge concluded that Rose had failed to establish that Tolona’s payments fit the industry practice.
Under Bankruptcy Rule 8013, the district court on appeal must defer to the bankruptcy court’s findings of fact unless they are clearly erroneous. See, e.g., In re Bonnett, 895 F.2d 1155, 1157-58 (7th Cir.1989) (reversing a district court’s reversal of a bankruptcy court’s decision because the former incorrectly applied a de novo standard of review to the latter’s factual determinations); In re Kimzey, 761 F.2d 421, 423 (7th Cir.1985) (“[T]he district court must accept the bankruptcy court’s findings of fact unless they are clearly erroneous. The court of appeals also must restrict its review of factual findings to this narrow standard.”) (citations omitted). The district judge in this case made no such determination, but instead held, without elaboration, that the bankruptcy court had “misinterpreted” Stiehl’s testimony. The district court chose not to address the difficulties that the bankruptcy court identified in Stiehl’s testimony, nor did it mention any other testimony that would have supported Rose’s contention. Rather, it simply announced that Stiehl’s statements supported a conclusion that Rose’s credit practices used with Tolona were no different from those applied generally in the industry.
I do not believe that such a summary reversal of a bankruptcy court’s findings of fact should stand. The district judge devoted most of his opinion to a defense of the view, which the court’s decision now rejects, that section 547(c)(2)(C) does not mandate an examination of “objective” industry standards if the debtor and the creditor had their own established course of dealing. Only in the final two paragraphs of its opinion did the district court touch upon the alternate theory that Stiehl’s testimony indicated that Tolona’s payment schedule actually did conform to industry-wide norms. Given the peremptory rejection of the bankruptcy court’s findings without a determination of clear error, I would reverse the district court’s decision and reinstate the decision of the bankruptcy court.

. Contrary to the position of the majority, I believe that Tolona did raise this issue on appeal. Part II of Tolona's brief recited the bankruptcy court’s conclusion that Rose had failed to carry its burden of proof, and further explained why that conclusion was justified on the record. While admittedly Tolona did not invoke the words "clear error,” it indicated its belief that the bankruptcy court's factual determinations should have been upheld, and, equivalently, that the district court paid them insufficient deference.