CASE NO. 96-10665-FJO-7A, ADV. PRO. NO. 98-533United States Bankruptcy Court, S.D. Indiana, Indianapolis Division
November 4, 1996
Tim Wade, Counsel for Ad-Link Marketing.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
JAMES K. COACHYS, United States Bankruptcy Judge.
This matter comes before the Court on the Motion for Summary Judgment (the “Motion”) filed by Plaintiff Joseph W. Hammes, Trustee for the Bankruptcy Estate of 50 Below, Inc. (the “Trustee”) against Defendant Ad-Link Marketing (“Ad-Link”). The Trustee’s Complaint seeks to avoid and recover an allegedly preferential payment made by the Debtor to Ad-Link prior to bankruptcy. As set forth more fully below, the Court concludes that there are no genuine issues regarding any material fact and that the Trustee is entitled to judgment in his favor as a matter of law.[1]
FINDINGS OF FACT
1. Ad-Link is in the business of marketing advertisements.
2. In early 1996, 50 Below, Inc. (“50 Below” or Debtor”) retained the services of Ad-Link.
3. Ad-Link arranged for various media outlets to run advertisements for 50 Below.
4. On April 30, 1996, Ad-Link sent an invoice to 50 Below in the amount of $20,710.00.
5. On August 12, 1996, Ad-Link received a check from 50 Below in the amount of $11,350.01 in partial payment of the above invoice.
6. Ad-Link immediately deposited the check in its own bank account.
7. Ad-Link subsequently wrote several checks totaling in excess of $11,350.01, payable to the media outlets that ran 50 Below’s advertisements.
8. Ad-Link could have, but chose not to extract a commission from the $11,350.01 that it received from 50 Below.
9. 50 Below did not fully pay Ad-Link for the services rendered.
10. On September 27, 1996, Ad-Link filed a Complaint on Account to recover an outstanding balance of $22,700.02 from 50 Below.
11. On November 4, 2000 (the “Petition Date”), 50 Below filed its Voluntary Petition for Relief (the “Bankruptcy Petition”).
12. On November 2, 1998, the Trustee filed its Complaint to avoid and recover the $11,350.01 payment made by 50 Below to Ad-Link on August 12, 1996.
13. Ad-Link answered the Complaint and also filed a Defendant’s Defense Under Rule 12(b)(7) and Rule 19 (the “Motion to Dismiss”), in which Ad-Link asserted that it was a “mere conduit” for the disputed transfer, that certain media parties needed to have been named as indispensable parties and that the Complaint should be dismissed.
14. Following a hearing, the Court denied Ad-Link’s Motion to Dismiss.
CONCLUSIONS OF LAW
1. Summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.Pro. Rule 56.
2. With a motion for summary judgment, the burden rests on the moving party to demonstrate “that there is an absence of evidence to support the nonmoving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325
(1986). After the moving party demonstrates the absence of a genuine issue for trial, the responsibility shifts to the non-movant to “go beyond the pleadings” to cite evidence of a genuine factual dispute precluding summary judgment. Id. at 322-23.
3. If the non-movant does not come forward with evidence that would reasonably permit the finder of fact to find in its favor on a material question, then the court must enter summary judgment against it. Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986)).
4. Section 547(b) of the Bankruptcy Code, 11 U.S.C. § 101, et seq. (the “Code”) provides in relevant part:
Except as provided in subsection (c) 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 is insolvent;
(4) made
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 days and one year before the date of 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.
5. The Trustee bears the burden of establishing all of the elements of Section 547(b). See 11 U.S.C. § 547(g).
6. Pursuant to Section 547(b), to be preferential, a payment must constitute a transfer of an interest in the debtor’s property. A transfer consists of “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property . . . .” 11 U.S.C. § 101(58). A payment made by a debtor typically constitutes a transfer. Levit v. Ingersoll Rand Fin. Corp., 874 F.2d 1186, 1195 (7th Cir. 1989).
7. The undisputed evidence shows that 50 Below effectuated a transfer upon making payment to Ad-Link in the amount of $11,350.01.
8. Under Section 547(b), the transfer must consist of an interest in the debtor’s property.
9. Generally, property belongs to the debtor for purposes of § 547(b) if its transfer will deprive the bankruptcy estate of something which would otherwise be used to satisfy the claims of creditors. In re Bullion Reserve of North America, 836 F.2d 1214, 1217 (9th Cir. 1988).
10. Here, the evidence indicates that the funds used to pay Ad-Link, absent the transfer, would be used to satisfy the claims of the Debtor’s other creditors. Therefore, 50 Below transferred an interest in its property upon making payment to Ad-Link.
11. Section 547(b)(1) provides that to be preferential, a transfer must have been made to or for the benefit of a creditor. A “creditor” is an entity who possesses a claim against the debtor. 11 U.S.C. § 101(10). “Claim” refers to the “right to payment, whether or not such payment is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured . . . .” 11 U.S.C. § 105(5).
12. It is undisputed that 50 Below was obligated to pay Ad-Link for services rendered and that Ad-Link was a creditor of 50 Below at the time of the transfer. Accordingly, the transfer made by 50 Below to Ad-Link constitutes a transfer to or for the benefit of a creditor.
13. To be avoidable pursuant to Section 547(b)(2), a transfer must have been made on or for account of an antecedent debt. Whether a debt is antecedent or current depends upon when it was incurred. Upstairs Gallery, Inc. v. Macklowe West Dev. Co., L.P. (In re Upstairs Gallary, Inc.), 167 B.R. 915, 918 (9th Cir. B.A.P 1994).
14. The undisputed evidence presented by the Trustee indicates that Ad-Link provided services to 50 Below prior to the date of the payment at issue. Thus, the payment was made for or on account of an antecedent debt.
15. Pursuant to Code Section 547(b)(4)(A), to constitute a preference, 50 Below’s payment to Ad-Link must have been made within the 90 days prior to the filing of the Bankruptcy Petition, i.e., on or after August 6, 2000.
16. 50 Below issued its check to Ad-Link on August 12, 2000, and it was honored sometime thereafter. See Barnhill v. Johnson, 503 U.S. 393 (1992) (transfer date determined by date check is honored by bank). Thus, 50 Below effectuated its transfer to Ad-Link within the preference period.
17. Pursuant to Code Section 547(b)(3), a debtor must be insolvent at the time of the transfer for the transfer to be preferential. A debtor is presumed to be insolvent within the 90 days prior to the filing of the bankruptcy petition. 11 U.S.C. § 547(f).
18. 50 Below has not rebutted this presumption and is therefore deemed to have been insolvent at the time of the transfer to Ad-Link.
19. Finally, to satisfy Section 547(b)(5), the Trustee must show that Ad-Link, by virtue of the $11,350.01 payment, received more than it would have if (a) the case were a case under Chapter 7 of the Code; (b) the transfer had not been made; and (c) Ad-Link received payment to the extent provided by the Code.
20. The undisputed evidence presented by the Trustee shows the following:
(a) The bankruptcy estate currently has $177,001.40 on deposit in an interest bearing account;
(b) the sole unadministered asset of the estate is this adversary proceeding;
(c) Ad-Link has a general unsecured claim in the bankruptcy case; and
(d) More than $2,168,000.00 in claims filed against the estate-approximately including unsecured claims of $1,735,000.00 and priority claims of $20,000.
21. Given the above figures, it appears that 50 Below’s general unsecured creditors will receive little if any distribution. Consequently, Ad-Link received more than it would have received in a Chapter 7 liquidation.
22. Based upon the undisputed evidence set forth above, the Court concludes as a matter of law that the payment made by 50 Below to Ad-Link in the amount of $11,350.01 was preferential and is therefore avoided pursuant to Section 347(b) of the Code.
23. In his Motion, the Trustee also maintains that he is entitled to recover this amount from Ad-Link pursuant to Section 550 of the Code. That section provides in relevant part:
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section . . . 547 of this title, the trustee may recover, for the benefit of the estate, the property transferred or, if the court so orders, the value of such property, from —
(1) the initial transferee of such transfer . . . .
24. Generally, the party that receives a transfer of property directly from the debtor is the “initial transferee.” However, in its Answer and Motion to Dismiss, Ad-Link argued that it was a “mere conduit” of the transfer at issue and, thus, was not the initial transferee for purposes of Code Section 550. See Bonded Fin. Serv’s, Inc. v. European American Bank, 838 F.2d 890, 894 (7th Cir. 1988) (at a minimum, “transferee” connotes party that exercises dominion and control over the transferred asset).
25. This Court rejected Ad-Link’s conduit argument and denied the Motion to Dismiss, and this Court need not revisit that issue in ruling upon the Trustee’s Motion. In any event, Ad-Link did not renew this argument in responding to the Trustee’s Motion.[2]
26. The undisputed evidence shows that Ad-Link was the “initial transferee” of the $11,350.01 transfer from 50 Below for purposes of Section 550. The Trustee is therefore entitled to recover the value of the transfer from Ad-Link.
27. Based on the foregoing, this Court concludes that there are no genuine issues of material fact and that the Trustee is entitled to judgment against Ad-Link as a matter of law. The transfer made by 50 Below to Ad-Link in the amount of $11,350.01 was preferential and is avoided pursuant to Section 547(b) of the Code. The evidence further shows that the Trustee is entitled, pursuant to Code Section 550, to recover that amount from Ad-Link for the benefit of the bankruptcy estate.
28. The Court shall enter an Order consistent with the above Findings and Conclusions