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AE Liquidation Opinion Narrows New Value Defense

Burtch v. Prudential Real Estate & Relocation Servs. (In re AE Liquidation, Inc.), Nos. 08-13031 (MFW), 10-55543 (MFW), 2016 Bankr. LEXIS 980 (U.S. Bankr. D. Del. Mar. 29, 2016)

Delaware, March 29, 2016 -The matter was remanded from the District Court on the appeal of the Bankruptcy Court’s decision dated July 17, 2013. In that opinion, Judge Walrath had ruled that (i) $781,702.61 of pre-petition transfers to Defendant Prudential Real Estate & Relocation Servs. were preferential; (ii) Prudential had a new value defense totaling $128,379.40; and (iii) the Trustee was not entitled to prejudgment interest.

After both parties appealed, the District Court ruled that post-petition new value was not protected and that the Trustee was entitled to pre-judgment interest. The District Court held that the only services provided prior to the petition date should be included in the new value defense and directed the Bankruptcy Court on remand to reconsider the amount of Prudential’s new value defense. The Court also directed the Bankruptcy Court to explain explicitly why prejudgment interest was denied.

The Trustee argued that of the $128,379.40 in new value, $71,808.83 of the invoices related to post-petition services and, therefore, not eligible for new value credit. Prudential responded that the post-petition invoices were prepared solely to support its proof of claim and did not reflect the actual date the underlying services were performed. The Court agreed with the Trustee and concluded that Prudential’s new value defense should be reduced to $56,571.37 ($128,379.40 less $71,808.03) to reflect only services provided pre-petition. Thus, the Trustee was entitled to judgment in the amount of $781,702.61 less the new value of $56,571.37, for a total of $725,131.24.
On the prejudgment interest argument, the Court agreed with the Trustee as prejudgment interest is routinely granted in avoidance actions. The Court relied upon Hechinger Investment v. Universal Forest Products (In re Hechinger), 489 F.3d 568, 570-71 (3d Cir. 2007) and held that there was no reason to deny prejudgment interest. The Court stated that though the award of prejudgment interest is within the Court’s discretion, the discretion “must be exercised according to law, which means that prejudgment interest should be awarded unless there is a sound reason not to do so.”

Accordingly, Judge Walrath revised a calculation of new value pursuant to an order from the District Court remanding the case and reduced Prudential’s new value defense to $56,571.37 and entered judgment in favor of the Trustee for $725,131.24. ($56,571.37 minus $781,702.61, for a total of $725,131.24) Prejudgment interest in amount of $5,186.97 was also awarded the Trustee.