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Velde v. Philipp; Velde v. Kroeplin: US District Court : BANKRUPTCY | UNIFORM COMERCIAL CODE - contemplated. exchange for new value, not preferred transfer

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
David G. Velde,
Plaintiff,
Civ. No. 06-3880 (RHK/RLE)
MEMORANDUM OPINION AND
ORDER
v.
Randy Kroeplin,
Defendant.
David G. Velde,
Plaintiff,
Civ. No. 06-3881 (RHK/RLE)
MEMORANDUM OPINION AND
ORDER
v.
Joe Philipp,
Defendant.
Justin P. Weinberg, Michael S. Dove, Mary Kay Mages, Gislason & Hunter LLP, New Ulm,
Minnesota, for Plaintiff.
Lowell P. Bottrell, Anderson, Bottrell, Sanden & Thompson, Fargo, North Dakota, for
Defendants Randy Kroeplin and Joe Philipp.
INTRODUCTION
These bankruptcy adversary proceedings arise out of payments made by Daniel
Miller to Defendants Randy Kroeplin (Civ. No. 06-3880) and Joe Philipp (Civ. No. 06-
-2-
3881). Plaintiff David Velde, the Trustee of Millers bankruptcy estate, seeks to recover
these payments as preferential and fraudulent transfers under the Bankruptcy Code.
Presently before the Court are the parties cross-motions for summary judgment in each of
the two cases. For the reasons set forth below, the Court will deny the Trustees Motions
and grant the Defendants Cross-Motions.
BACKGROUND
Miller previously owned Danielson Grain, a crop-storage elevator in East Grand
Forks, Minnesota. In that capacity, Miller bought, sold, and stored crops.
On February 3, 2004, an involuntary Chapter 7 bankruptcy petition was filed against
Miller in the United States Bankruptcy Court for the District of Minnesota. Miller
subsequently converted the involuntary petition to a case under Chapter 11 of the
Bankruptcy Code. On September 29, 2004, the Bankruptcy Court converted the matter
back to a Chapter 7 case and appointed Velde as the Trustee of Millers bankruptcy estate.
The Trustee then commenced several adversary proceedings including the two
cases sub judice seeking to recover the value of several checks Miller had issued in the
90-day period prior to February 3, 2004. The instant Defendants demanded trials by jury
and did not consent to jury trials before the Bankruptcy Court. Accordingly, the
Bankruptcy Court ordered the actions transferred to this Court. See 28 U.S.C. 157(e).
In pertinent part, the following facts in these cases appear to be undisputed and are
substantially similar:
1 The bank was listed as a payee in order to extinguish its security interest in the grain Kroeplin had
sold to Miller.
2 Two other points bear mentioning. First, in the Kroeplin action, the Trustee has also asserted that
a 0,000 check issued on November 10, 2003, which cleared Millers bank account, was a preferential
and/or fraudulent transfer. Although the Trustee does not address this payment in his Motion, Kroeplin
argues in his Cross-Motion that he is entitled to summary judgment on all claims concerning this November
10, 2003 check. And, in his Opposition to the Cross-Motion, the Trustee has not addressed Kroeplins
arguments. Accordingly, the Court deems abandoned the Trustees claims concerning the 0,000
check. See, e.g., A.C. ex rel. M.C. v. Indep. Sch. Dist. No. 152, Civ. No. 06-3099, 2006 WL 3227768,
at *4 (D. Minn. Nov. 7, 2006) (Frank, J.) (holding that plaintiff abandoned claims by failing to address
defendants argument in his response to defendants summary-judgment motion); Stieg v. Pattonville-
Bridgeton Terrace Fire Prot. Dist., 374 F. Supp. 2d 777, 786 (E.D. Mo. 2005) (same).
-3-
1. The Kroeplin action: Miller issued a check for 5,000 on November 10,
2003, payable to Kroeplin and to his bank in order to pay for grain that Kroeplin had
previously delivered to Miller.1 The check bounced, and Miller partially replaced it on
November 26, 2003, with a ,000 bank check. The funds for the bank check came from
Millers bank account.
2. The Philipp action: Miller issued a check for ,606.84 on October 17,
2003, payable to Philipp and to his bank in order to pay for grain that Philipp had previously
delivered to Miller. The check bounced, and Miller replaced it on November 5, 2003, with
a bank check. The funds for the bank check came from Millers bank account.
The Trustee now moves for summary judgment in each of these cases, arguing that
the Defendants must repay to the bankruptcy estate the value of the replacement checks
because they constitute avoidable transfers under 11 U.S.C. 547(b), the preferences
statute. The Defendants have cross-moved for summary judgment, arguing that several
exceptions to that statute apply and, hence, that the transfers are not avoidable.2
Second, in both the Kroeplin action and the Philipp action, the Trustee has asserted that the
payments at issue are not only recoverable as preferences under the Bankruptcy Code but also as
fraudulent transfers. In his Motion, the Trustee does not seek summary judgment on his fraudulenttransfer
claims, but the Defendants do so in their Cross-Motions. And, the Trustee has (once again) failed
to respond to the Defendants arguments concerning the fraudulent-transfer claims in his Oppositions to
the Cross-Motions. Accordingly, the Court will also deem abandoned the fraudulent-transfer claims.
As a result of the foregoing, all that remains for the Court to analyze is whether the replacement
checks issued to the Defendants are avoidable under the Bankruptcy Code as preferential transfers.
-4-
STANDARD OF DECISION
Summary judgment is proper if, drawing all reasonable inferences in favor of the
nonmoving party, there is no genuine issue as to any material fact and the moving party is
entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477
U.S. 317, 322-23 (1986). The moving party bears the burden of showing that the material
facts in the case are undisputed. Id. at 322; Mems v. City of St. Paul, Dept of Fire & Safety
Servs., 224 F.3d 735, 738 (8th Cir. 2000). The Court must view the evidence, and the
inferences that may be reasonably drawn from it, in the light most favorable to the
nonmoving party. Graves v. Ark. Dept of Fin. & Admin., 229 F.3d 721, 723 (8th Cir.
2000); Calvit v. Minneapolis Pub. Schs., 122 F.3d 1112, 1116 (8th Cir. 1997). The
nonmoving party may not rest on mere allegations or denials, but must show through the
presentation of admissible evidence that specific facts exist creating a genuine issue for
trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Krenik v. County of Le
Sueur, 47 F.3d 953, 957 (8th Cir. 1995).
ANALYSIS
I. Each transfer satisfies the elements of Section 547(b)
3 An antecedent debt is a debt incurred before the allegedly preferential transfer. In re Bridge
Info. Sys., 474 F.3d at 1066-67. A debt is incurred on the date upon which the debtor first becomes
legally bound to pay. Id. at 1067. Here, Miller became bound to pay on the dates that the grain was
delivered by the Defendants, which occurred before the replacement checks were issued.
-5-
A bankruptcy trustee may avoid a transfer made to or on behalf of a creditor, on or
within 90 days of the filing of a bankruptcy petition, if (1) the debtor was insolvent on the
date of the transfer, (2) the transfer was for an antecedent debt, and (3) the transfer allowed
the creditor to receive more than it would have received in a Chapter 7 liquidation. 11
U.S.C. 547(b); Peltz v. Edward C. Vancil, Inc. (In re Bridge Info. Sys., Inc.), 474 F.3d
1063, 1066 (8th Cir. 2007). An avoided transfer may be recovered by the trustee. See
11 U.S.C. 550(a).
Here, the Trustee has established all of the prerequisites to avoidability with respect
to the transfers at issue. First, both of the transfers clearly occurred within 90 days of
February 3, 2004, when the involuntary bankruptcy petition was filed against Miller, and
both were on account of antecedent debts owed to creditors, namely, the Defendants.3
Second, a debtor is presumed to have been insolvent during the 90-day period immediately
prior to the filing of a bankruptcy petition, see 11 U.S.C. 547(f), and Defendants have
proffered no evidence to rebut that presumption here. Third, it is generally well settled
that unless creditors would receive a 100% payout, any unsecured creditor who receives a
payment during the preference period is in a position to receive more than it would have
received under a Chapter 7 liquidation. Hoffinger Indus., Inc. v. Bunch (In re Hoffinger
Indus., Inc.), 313 B.R. 812, 827 (Bankr. E.D. Ark. 2004) (internal quotation marks and
-6-
citations omitted); accord Still v. Rossville Bank (In re Chattanooga Wholesale Antiques,
Inc.), 930 F.2d 458, 465 (6th Cir. 1991); Zachman Homes, Inc. v. Oredson (In re Zachman
Homes, Inc.), 40 B.R. 171, 173 (Bankr. D. Minn. 1984). Here, the Trustee notes that when
Miller converted the involuntary Chapter 7 bankruptcy petition into a Chapter 11 case, he
submitted documents stating that he had over million in liabilities and less than
million in assets, thereby clearly indicating that Millers creditors would not receive a
100% payout. (See, e.g., Trustees Philipp Mem. at 4.) Thus, the Trustee has established
that the transfers allowed the Defendants to receive more than they would have received in
a Chapter 7 liquidation, and the Defendants do not argue otherwise.
Accordingly, the Trustee has established each of the elements to avoidability set
forth in 11 U.S.C. 547(b) with respect to the transfers at issue.
II. The contemporaneous-exchange-for-new-value exception applies
Although they largely concede that the transfers at issue satisfy the requirements for
avoidability under Section 547(b), the Defendants argue, inter alia, that the
contemporaneous-exchange-for-new-value exception applies and that this exception
precludes the Trustee from avoiding the transfers. The contemporaneous-exchange-fornew-
value exception is codified in 11 U.S.C. 547(c), which states in pertinent part:
(c) The Trustee may not avoid under this section a transfer
(1) to the extent that such transfer was
(A) intended by the debtor and the creditor to or for whose
benefit such transfer was made to be a contemporaneous
exchange for new value given to the debtor; and
-7-
(B) in fact a substantially contemporaneous exchange.
The Defendants argue that this exception applies here because the commodities they sold
to Miller were subject to security interests held by their banks. For this reason, the checks
Miller issued to pay for the commodities were made payable both to the Defendants and to
the banks, in order to extinguish the banks security interests. According to the Defendants,
this renders each of the checks a contemporaneous exchange for new value, with the new
value being the release of the banks security interests in the commodities. (See Kroeplin
Mem. at 15-30; Philipp Mem. at 18-32.)
The Court has been down this road before. In four other adversary proceedings
commenced by the Trustee against creditors of Miller to recover allegedly preferential
transfers, the creditors made the exact same arguments that Kroeplin and Philipp make
here. See Velde v. Kirsch (In re Miller), 366 B.R. 902 (D. Minn. 2007) (on appeal to this
Court from the Bankruptcy Court); Velde v. Reinhardt (In re Miller), 366 B.R. 894 (D.
Minn 2007) (three adversary proceedings pending before this Court). The facts of each of
those cases are on all fours with this case: Miller received grain or other commodities
from the creditor; Miller issued a check to the creditor and to the creditors bank in order
to pay for the commodities, but the check bounced; and Miller then replaced the bounced
check with a bank check, the funds for which came from his bank account. In each of those
cases, this Court concluded that the contemporaneous-exchange-for-new-value exception
applied and, accordingly, that the payments were not avoidable as preferential transfers
4 Kirsch and Reinhardt have been appealed to the Eighth Circuit; those appeals remain pending.
Absent reversal by the Court of Appeals, however, the rulings in those cases remain in full force and effect.
5 As a result, it is unnecessary to consider the applicability of the other defenses raised by the
Defendants.
-8-
under the Bankruptcy Code. See Kirsch, 366 B.R. at 904-07; Reinhardt, 366 B.R. at 898-
901.
Insofar as the facts in the cases at bar are nearly indistinguishable from the facts in
Kirsch and Reinhardt, the Courts analysis in those prior cases applies with equal force
here. Accordingly, the Court incorporates herein by reference its discussion of the
contemporaneous-exchange-for-new-value exception in Kirsch and Reinhardt. The Trustee
has offered no new arguments here that is, arguments not raised in these prior cases as
to why the contemporaneous-exchange-for-new-value exception should not apply, and the
Court perceives no reason to revisit its holdings in those cases at this juncture.4 For the
same reasons stated in Kirsch and Reinhardt, the Court concludes that Section 547(c)(1)s
contemporaneous-exchange-for-new-value exception must apply here. Accordingly, the
Trustee cannot avoid the transfers to Kroeplin and Philipp under Section 547 of the
Bankruptcy Code, and the Defendants are therefore entitled to summary judgment.5
CONCLUSION
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
ORDERED:
1. In Case No. 06-3880, Velde v. Kroeplin, Plaintiffs Motion for Partial
Summary Judgment (Doc. No. 12) is DENIED, Defendants Cross-Motion for Summary
-9-
Judgment (Doc. No. 18) is GRANTED, and Plaintiffs Complaint is DISMISSED WITH
PREJUDICE; and
2. In Case No. 06-3881, Velde v. Philipp, Plaintiffs Motion for Summary
Judgment (Doc. No. 11) is DENIED, Defendants Cross-Motion for Summary Judgment
(Doc. No. 16) is GRANTED, and Plaintiffs Complaint is DISMISSED WITH
PREJUDICE.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: November 13 , 2007 s/Richard H. Kyle
RICHARD H. KYLE
United States District Judge
 

 
 
 

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