The opinion of the court was delivered by: Joe Billy McDADE United States Senior District Judge
E-FILED Friday, 01 April, 2011 01:01:45 PM Clerk, U.S. District Court, ILCD
Before the Court is a Bankruptcy Appeal filed by Appellant Rodney Rothert, appealing Bankruptcy Judge William V. Altenberger's January 20, 2010 decision finding that a transfer made by Debtor Patriot Seed, Inc., to Appellant was a voidable preference pursuant to 11 U.S.C. § 547. For the following reasons, the Bankruptcy Court's decision is AFFIRMED.
The basic facts underlying this proceeding are not disputed, and are taken from Judge Altenberger's Opinion.*fn1 Prior to filing Bankruptcy, the Debtor was in the business of producing seed corn and seed beans for sale to farmers for planting. With respect to the seed beans, the Debtor had a contract to produce "Round Up Ready" soybean seed with Monsanto Chemical Company, the holder of the patent.
The Debtor in turn contracted with Appellant Rothert and various other farmers*fn2
("the Growers") to grow the seed beans for sale to the Debtor, who in turn would sell the seed beans to other farmers for production of soybean crops. Appellant Rothert had contracted to grow seed beans with Debtor from 1997 until 2002.
Prior to the 2002 crop year, the procedure the Debtor and the Growers utilized was as follows. In the fall of the year preceding the applicable crop year, or early into the crop year, the Growers would purchase from the Debtor the soybean seed from which to grow the new seed beans. In the spring of the crop year, the Debtor and the Growers would enter into a contract for the growing of the seed beans for that crop year. In the fall of the crop year, as the seed beans were harvested, the Growers would have them weighed and delivered to Debtor's facility, where they were stored in segregated bins and tested. After performing the tests, the Debtor would send each individual Grower a letter indicating whether the seed beans met prescribed standards. If they did, the seed beans could be priced by the Grower and purchased by the Debtor. If the Grower priced his seed beans on or before the first of May, the contract would provide that payment was to be made within seven days after the first Monday in May. If the seed beans were priced after the first of May, then payment would be made within ten business days after the price was established. The Debtor would finance the payments to the Growers by a line of credit from Lincoln State Bank.
The procedure for the 2002 crop year, which is the crop year giving rise to this litigation, was different. The difference arose because Debtor switched its financing from the Lincoln State Bank to the John Deere Farm Plan Credit Program ("Farm Plan"). On May 16, 2003, Debtor sent the Growers a letter advising them of the switch and that the date of payment would be extended to an estimated date of June 10th, along with 1% interest "to compensate for the delay in payment." The Debtor held a meeting at a local hotel to discuss the delayed payment issue with its growers. None of the Growers, including Appellant Rothert, opposed the delay in payment, nor did they try to recover the seed beans or sue for the contract price. Checks were issued on or after June 9, 2003. Specifically, Debtor paid Appellant on June 9, 2003 and June 26, 2003, in the amounts of $155,959.75 and $4,151.84, ("June 2003 payments") respectively. (Doc. 5 at 13). Debtor also paid Appellant $1,559.60 on June 9, 2003 for 1% interest from May 12, 2003 until June 9, 2003. (Doc. 5 at 13).*fn3
On September 4, 2003, Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On March 16, 2004, the case was converted to one under Chapter 7, and Richard Barber was appointed as the Chapter 7 Trustee for the case. The Trustee commenced the instant adversary proceeding against Appellant Rothert and eight other Growers ("Defendant Growers") pursuant to § 547(b) of the Bankruptcy Code, alleging that the delayed 2003 payments were recoverable as preferences. In response, the Defendant Growers denied the existence of a preference and raised affirmative defenses under § 547(c), namely that the delayed payments were a contemporaneous exchange for new value or thatthey were conducted in the ordinary course of business. See 11 U.S.C. §§ 547(b) and (c). Bankruptcy Judge Altenberger found that the payments were, in fact, preferential transfers pursuant to 11 U.S.C. § 547(b), and that the Defendant Growers failed to carry their burden of proof in demonstrating that they were either a contemporaneous exchange for new value pursuant to § 547(c)(1), or that they were made in the ordinary course of business pursuant to § 547(c)(2). In re Patriot Seeds, Inc., 2010 WL 381620 (Bankr. C.D. Ill. Jan. 20, 2010). Accordingly, Judge Altenberger ordered that the money paid to the Defendant Growers in June of 2003 be paid back to the Trustee, in addition to pre-judgment interest at a rate of 4.43%. Id.
Only Appellant Rothert's appeal of the Bankruptcy Court's decision is before the Court at this time. Appellant is not appealing the Bankruptcy Court's determination that the June 2003 payments qualified as preferential transfers under § 547(b), or that they were not a contemporaneous exchange for new value under § 547(c)(1). (Doc. 5 at 5-6). Instead, the only issues on appeal are whether the Bankruptcy Judge erred in his determination that the June 2003 payments from Debtor to Appellant Rothert did not fall under the "ordinary course of business exception" found in § 547(c)(2), and whether the Bankruptcy Judge erred in awarding Plaintiff pre-judgment interest. (Doc. 5 at 5-6).
This Court has jurisdiction to review the decision of the Bankruptcy Judge pursuant to 28 U.S.C. § 158(a). District courts are to apply a dual standard of review when considering a bankruptcy appeal. The findings of fact of the Bankruptcy Judge are reviewed for clear error, while the conclusions of law are reviewed de novo. In re Yonikus, 996 F.2d 866, 868 (7th Cir. 1993); In re Ebbler Furniture and Appliances, Inc., 804 F.2d 87, 89 (7th Cir. 1986); see also, Bankruptcy Rule 8013 (West 1995). A finding of fact is "clearly erroneous" when the reviewing court is left with the definite and firm conviction that a mistake has been made. Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573 (1985).
As previously mentioned, the only issues on appeal are the applicability of § 547(c)(2), the "ordinary course of business" exception, to the payments made by Debtor to Appellant in June of 2003, and, if that provision is indeed not applicable, whether Debtor is entitled to pre-judgment interest on the amount of the claimed preference payment. The Court will first examine Appellant's arguments with regards to the applicability of § 547(c)(2) to this case, and then turn to the Bankruptcy Judge's determination of pre-judgment interest.
I.Applicability of § 547(c)(2)
Some background on the general policy behind the law of preferential transfers may be helpful to give context to this case. Section 547(b) of the Bankruptcy Code provides that a trustee may recover "any transfer of an interest of the debtor in property" if five conditions are met.*fn4 One of the purposes of this provision is to prevent the debtor, during his slide toward ...