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In re Ae Liquidation, Inc.

United States District Court, D. Delaware

March 30, 2017

IN RE AE LIQUIDATION, INC., et al, Debtors.
v.
PRUDENTIAL REAL ESTATE AND RELOCATION SERVICES, INC., etal., Defendants/Appellants. JEOFFREY L. BURTCH, Chapter 7 Trustee, Plaintiff/Appellee, Bankr. No. 08-13031-MFW Adv. Pro. No. 10-55543-MFW

          MEMORANDUM

          LEONARD P. STARK, UNITED STATES DISTRICT JUDGE

         Pending before the Court is the Prudential[1] Appellants' appeal (D.I. 1) from the Bankruptcy Court's Opinion and Order, Burtch v. Prudential Real Estate and Relocation Servs., Inc., et al. (In re AE Liquidation, Inc.), 2016 WL 1238848 (Bankr. D. Del. Mar. 29, 2016) ("Remand Order"). For the reasons that follow, the Court will affirm the Remand Order.

         I. BACKGROUND

         Eclipse Aviation Corporation ("Eclipse"), a manufacturer of private jets, engaged Prudential to provide relocation benefits to its employees under a Relocation Services Agreement. On November 25, 2008 ("Petition Date"), Eclipse filed its voluntary petition for relief under chapter 11 of the Bankruptcy Code. On March 5, 2009, the case was converted to chapter 7, and Trustee was appointed. In November of 2010, Trustee filed a complaint against Prudential asserting that twelve transfers made by Eclipse to Prudential within the ninety days preceding the Petition Date ("Preference Period"), totaling $781, 702.61, were preferential and avoidable under § 547(b) of the Bankruptcy Code. Prudential asserted affirmative defenses under the Bankruptcy Code, including § 547(c)(2)'s ordinary course defense, [2] and § 547(c)(4)'s new value defense.[3]

         In March of 2013, the Bankruptcy Court held a two-day trial in the adversary proceeding. The parties agreed that Prudential had a new value defense but disputed the amount. Trustee conceded new value totaling $56, 057.42, while Prudential asserted $128, 379.40 of new value was provided to Eclipse following the Petition Date. Prudential's Director of Accounting, Ms. Williams-Varner, prepared a chart setting forth the services rendered to Eclipse after September 2, 2008 (the date of first Preference Period transfer) and the corresponding invoices. (See 3/12/13 Tr. at 101) Trustee argued that 21 invoices dated March 5, 2009, in total amount of $71, 808.03, for household goods insurance charges ("Subject Invoices"), did not constitute new. value because Prudential failed to prove the dates on which the services were actually provided. See In re First Jersey Sec, Inc., 180 F.3d 504, 511 (3d Cir. 1999) (holding that debt arises at outset of services, not when invoice for services is issued). Ms. Williams-Varner testified that in providing household goods insurance, Prudential paid the insurance premium to the insurance carrier at the time of closing on the sale of the employee's home. (See 3/12/13 Tr. at 102:18-103:8; 104:14-22; 106-07) The invoice to Eclipse for those services was generated one week after that closing. (Id. at 104) Additionally, Ms. Williams-Varner verified her conclusions by reference to Prudential's internal computer systems and did not include any services as new value unless she was "a hundred percent sure." (Id. at 105-06) On the basis of this testimony, Prudential argued that it had satisfied its burden under § 547(c)(4) to establish the date services were provided to Eclipse with respect to household goods insurance - one week before the March 5, 2009 invoice date. Trustee did not cross-examine Ms. Williams-Varner on this issue.

         On July 17, 2013, the Bankruptcy Court issued its decision. See Burtch v. Prudential Real Estate and Relocation Servs., Inc., et al. (In re AE Liquidation, Inc.), 2013 WL 3778141 (Bankr. D. Del. July 17, 2013) ("Prior Order"). The Bankruptcy Court determined that Prudential had proven its new value defense in the full amount of $128, 379.40 (to be applied against preferential transfers of $781, 702.61). See Id. at * 11. The Bankruptcy Court found Ms. Williams-Varner's testimony on the Subject Invoices to be "persuasive and uncontested" and that the services "were performed approximately one week before [the invoice date of] March 5, 2009." Id. at *10. Crediting the full amount of Prudential's new value defense, the Bankruptcy Court granted judgment in favor of Trustee in the amount of $653, 323.20.[4]

         Both parties appealed the Prior Order to this Court. See Burtch v. Prudential Real Estate and Relocation Servs., Inc., et al. (In re AE Liquidation, Inc.), 2015 WL 5301553 (D. Del. Sept. 10, 2015). Trustee argued that the Bankruptcy Court erred by including the Subject Invoices in its calculation of Prudential's new value defense because even if the services set forth in the Subject Invoices were provided a week before the March 5, 2009 invoice date, as its witness testified, those services were still provided after the Petition Date (November 25, 2008), and post-petition transfers cannot qualify new value. Prudential argued that Trustee had waived this argument by waiting to raise it on appeal, but the Court determined that Trustee had included the argument in its post-trial briefing. See Id. at *6 n.8. The Court further agreed with Trustee that only services provided prior to the Petition Date are included for purposes of new value under § 547(c)(4), based on the Third Circuit's guidance in In re Friedman's Inc., 738 F.3d 547, 549 (3d Cir. 2013). See Id. *6-*7. Because services provided one week before March 5, 2009 would have occurred after the Petition Date, and because the Prior Order did not distinguish between services rendered pre-petition and post-petition for the purpose of calculating Prudential's new value defense, the Court remanded the matter to the Bankruptcy Court to "reexamine [the Subject Invoices] to determine the appropriate amount of Prudential's new value defense."[5] See Id. at *7.

         Thereafter, at a court-ordered status conference, the Bankruptcy Court asked the parties how they wished to proceed in addressing the issues on remand. (See D.I. 10-2, 10/14/15 Tr. at 4:16) Prudential's counsel requested that the Bankruptcy Court consider reopening the record to clarify its witness' testimony on the Subject Invoices, and Trustee opposed the request. (See Id. at 4-6) Based on the parties' characterization of the issue on remand, the Bankruptcy Court stated, "I think it's just a matter of going to the record . . ." (Id. at 6:13-15) Prudential did not file a motion to reopen the record. On October 27, 2015, the parties filed a stipulated briefing schedule, and briefing by Trustee and Prudential was completed on January 15, 2016. Based on the chart and trial testimony, Trustee asserted that the Subject Invoices related to sendees rendered after the Petition Date and should not have been taken into account in calculating Prudential's new value defense. Prudential argued that the Subject Invoices dated March 2009 were prepared solely in support of its proof of claim and did not reflect the date that the underlying services were actually rendered to Eclipse.

         On March 29, 2016, the Bankruptcy Court issued the Remand Order. In setting forth the procedural history, the Bankruptcy Court noted that, with respect to both the new value and prejudgment interest issues, "[t]he parties agreed that no additional evidence was required on either point and the matter could be decided after additional briefing." AE Liquidation, 2016 WL 1238848, at *1. The Bankruptcy Court determined that, contrary to Prudential's assertion, its witness ''testified that the date the sendees underlying the invoices were rendered occurred one week prior to the [March 2009] invoice date.” Id. at *2 (citing 3/12/13 Tr. at 101-02). The witness "also testified unambiguously that the dates included in [Prudential"s chart] correspond with the actual invoice dates.” Id. (quoting 3/12/13 Tr. at 105:22-106:8). On this basis, the Bankruptcy Court determined that the amount of the new value defense should be reduced from $128, 379.40 to $56, 571.37 to reflect only services provided pre-petition.[6] See Id. at *2. On April 11, 2016, Prudential filed its notice of appeal regarding the Remand Order. (See D.I. 1)

          II. CONTENTIONS

         Prudential argues that the Remand Order was entered in error because "[t]he Bankruptcy Court's decision to eliminate the Subject Invoices from Prudential['s] new value defense is explicitly based on the incorrect premise that Prudential did not want to reopen the factual record to clarify [Ms. Williams-Varner's] testimony . . ." and wanted to rely on the factual record established at trial. (See D.I. 9 at 6) Because Prudential made a request to reopen the record at the status conference, Prudential argues "[t]his issue alone warrants remand." (Id.) Conversely, Trustee argues that Prudential waived its right to seek to reopen the record because it filed no motion to reopen following the status conference and proceeded with briefing. (See D.I. 10 at 3)

         Prudential further argues that the Bankruptcy Court erred in denying Prudential's request to reopen the record for the purpose of clarifying its witness' testimony. (See D.I. 9 at 6-7) According to Prudential, in testifying as to the information contained in the chart, the Bankruptcy Court expressed its preference that Prudential not go through each individual invoice:

Q. Okay. Let's go through, if we could, each one of these. We had ended on - the last ...

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