Defendant’s Motion Fails to Defeat Trustee’s Clawback Effort; Payment History Too Irregular To Establish Pattern For Baseline
January 28, 2022, Eastern District of Kentucky – Plaintiff Ellen Arvin Kennedy, Liquidating Trustee for the Cambrian Liquidating Trust, brought a lawsuit to avoid and recover a transfer from the Defendant, the Estate of Roy Campbell, under Section 547, 548, and 549 for the benefit of the bankruptcy estate. The Trustee moved for summary judgment. Defendant objected and sought summary judgment on the ground that transfer is not avoidable because it was made in the ordinary course of business with the Debtor under 547(c)(2).
The Court found the relationship between the Debtor & Defendant was based on a lease. The lease required the Debtor to make tonnage royalty payments on or before the 25th day of the month following the mining, removal, and sale of the coal. Next, the Court found that the said transfer was made on April 15, 2019, and paid eleven invoices dated February 23, 2018, through December 31, 2018, all of which were past due by several months under the terms in the lease.
The Court highlighted that while untimely payments are generally considered outside the ordinary course of business, a creditor may present evidence to rebut this presumption if it can show that late payment is the regular course of dealing between the parties. However, in the case at bar, the Court found that Defendant’s argument that the Debtor always paid the invoices late was not persuasive enough because there was no proof of a consistent pattern of late payments. The Court held that the payment history was too irregular to establish a pattern for a baseline to compare to the transfer. Since Defendant could not establish a baseline to compare the transfer, the Court ruled that the transfer was not made in the ordinary course of dealing under 547(c)(2) and hence is liable to be avoided by the Trustee.
Kennedy v. Campbell (In re Cambrian Holding Co.), 2022 Bankr. LEXIS 228, United States Bankruptcy Court for the Eastern District of Kentucky