Jason’s Foods, Inc. v. Unsecured Creditors Comm.

Jason’s, a wholesaler, provided unprocessed meat to Sparrer, a sausage manufacturer. Sparrer filed Chapter 11 bankruptcy petition. During the 90-day preference period preceding the filing, Sparrer paid invoices from Jason’s totaling $586,658.10. The Unsecured Creditors Committee sought to recover those payments as avoidable preferences under 11 U.S.C. 547(b). Jason’s asserted that the transfers were made in the ordinary course of business and were nonavoidable under section 547(c)(2), or that it had provided meat to Sparrer in January-February of 2012 without receiving payment, offsetting its preference liability (section 547(c)(4)). The bankruptcy judge determined that before the preference period, Sparrer generally paid Jason’s invoices within 16-28 days. Of the 23 invoices that Sparrer paid during the preference period, 12 fell within that range. The judge concluded that those 12 payments were ordinary and nonavoidable. The remaining 11 payments, totaling $306,110.23, were not ordinary and must be returned to the bankruptcy estate. The district court affirmed. The Seventh Circuit reversed. Nothing indicated that it was unusual for Sparrer to pay Jason’s invoices within 14, 29, or 31 days of issuance. The only payments that can fairly be deemed out of the ordinary are those made 37-38 days after receipt of invoice. Jason’s preference liability is limited to those invoices and is offset by invoices Sparrer failed to pay. View "Jason's Foods, Inc. v. Unsecured Creditors Comm." on Justia Law