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IN RE KMART CORPORATION

September 30, 2004.

In re: KMART CORPORATION, et al., Debtor, KMART CORPORATION, Plaintiff,
v.
UNIDEN AMERICA CORPORATION, Defendants.



The opinion of the court was delivered by: AMY J. ST. EVE, District Judge

MEMORANDUM OPINION AND ORDER

Defendant Uniden America Corporation ("Uniden") seeks leave to immediately appeal an interlocutory order entered by United States Bankruptcy Judge Susan Pierson Soderby on July 7, 2004. (In re Kmart Corp., et al., No. 02-B0274, R. 40-1, Mem. Op. and Order, July 7, 2004 ("Bankruptcy Order").) For the reasons stated herein, Uniden's motion for leave to appeal is denied.

LEGAL STANDARDS

  Uniden may appeal the Bankruptcy Court's interlocutory order only if it obtains leave of this Court. 28 U.S.C. § 158(a). It is within the Court's discretion to decide whether to allow the appeal. Fruehauf Corp. v. Jartran, Inc. (In re Jartran, Inc.), 886 F.2d 859, 866 (7th Cir. 1989). Although the Bankruptcy Code does not provide an explicit standard for assessing the appropriateness of such an appeal, courts in this district have applied the standard set forth in 28 U.S.C. § 1292(b) — which governs interlocutory appeals from the district court to the court of appeals — to the bankruptcy context. In re OBT Partners, 218 B.R. 418, 419-20 (N.D. Ill. 1998).

  Section 1292(b) provides that an interlocutory appeal may be taken if the underlying order "involves a controlling question of law as to which there is substantial ground for difference of opinion" and if "an immediate appeal from the order may materially advance the ultimate termination of the litigation." 28 U.S.C. § 1292(b). "There are four statutory criteria for the grant of a section 1292(b) petition to guide the district court: there must be a question of law, it must be controlling, it must be contestable, and its resolution must promise to speed up the litigation." Ahrenholz v. Board of Trs. of Univ. of Ill., 219 F.3d 674, 675-76 (7th Cir. 2000) (emphases in original). The party seeking leave to appeal must meet each of these requirements. Id. A court will not grant leave to appeal an interlocutory order absent "exceptional circumstances." Pullman Constr. Indus., Inc. v. Boockford and Co. (In re Pullman Constr. Indus.), 143 B.R. 497, 498 (N.D. Ill. 1992).

  BACKGROUND

  On January 22, 2002 (the "Petition Date"), Kmart Corporation and thirty-seven affiliates (collectively, "Kmart") filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. On May 2, 2003, Kmart filed a one-count adversary complaint against Uniden (the "Preference Complaint"), seeking to recover approximately $5.6 million in transfers that Kmart made to Uniden within ninety days of the Petition Date. Kmart contends that these payments constitute "avoidable preferences" under 11 U.S.C. § 547(b). In response, Uniden filed eleven affirmative defenses to the Preference Complaint.

  Kmart filed a motion to strike certain affirmative defenses.*fn1 The Bankruptcy Court granted the motion in part, and struck all affirmative defenses that were not specifically enumerated in Section 547(c) of the Bankruptcy Code and that did not constitute "threshold defenses."*fn2 (Bankruptcy Order at 8-12.) Specifically, the Bankruptcy Court struck Uniden's Third Affirmative Defense (unclean hands), Sixth Affirmative Defense (fraud), and Eleventh Affirmative Defense (setoff and/or recoupment) (collectively, the "Non-Statutory Defenses"). The Bankruptcy Court held that "the only defenses to the substance and merits of a preference action available to a defendant are those enumerated in the Code." (Bankruptcy Order at 7.)

  Uniden filed a motion in this Court for leave to immediately appeal the Bankruptcy Court's interlocutory order. The Court has jurisdiction to consider Uniden's motion pursuant to 28 U.S.C. §§ 158(a)(3) and 1292(b).

  ANALYSIS

  In this case, the parties do not dispute that there is a controlling question of law: "[w]hether the Bankruptcy Court erred in construing the defenses set forth in Section 547(c) of the Bankruptcy Code as the exclusive defenses to the substance and merits of the Preference Complaint brought by Kmart against Uniden." The parties focus on whether the question of law is contestable and whether the immediate resolution of the question would materially advance the litigation.

  I. The Bankruptcy Court's Ruling

  Section 547(b) of the Bankruptcy Code empowers a bankruptcy trustee to avoid any transfer that meets certain requirements. Section 547(c) of the Code sets forth a number of exceptions to the trustee's power to avoid such transfers.*fn3

  In this case, the Bankruptcy Court ruled that "the only defenses to the substance and merits of a preference action available to a defendant are those enumerated in [Section 547(c) of] the Code." (Bankruptcy Order at 7.) The Bankruptcy Court explained that "[t]he rationale is that under rules of statutory construction, where Congress enumerates exceptions to a general prohibition, additional exceptions are not to be implied, absent a contrary legislative intent." (Bankruptcy Order at 6 (quoting Official Unsecured Creditors Comm. of Intrastate Elec. Servs. v. Intrastate Sheet Metal, Inc. (In re Intrastate Elec. Servs., Inc.), Nos. 95 B 20173, 98 A 1923, 98 A 1925, 98 A 1926, 2000 WL 1346696, at *5 (Bankr. N.D. Ill. Sept. 8, 2000).) The Bankruptcy Court further ruled that a party may assert "threshold defenses" that are not specifically enumerated in Section 547(c): "`Threshold defenses' are those defenses that would bar recovery, before even opening the door to consider the substantive nature of the ...


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