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Delaware: Claim, Not Invoice , Creates an Obligation to Pay

Pirinate Consulting Grp., LLC v. Md. Dep’t of the Env’t (In re Newpage Corp.), Nos. 11-12804 (KG), 13-52206 (KG), 2016 Bankr. LEXIS 2925 (U.S. Bankr. D. Del. Aug. 4, 2016)

Pirinate Consulting Group, LLC, the litigation trustee for the NP Creditor Litigation Trust brought an avoidance action against Maryland Department of the Environment (MDE) to avoid certain payments as preferences under §547(b) of the Bankruptcy Code. Both parties moved for summary judgment.

The Court found that both parties disputed the date upon which the Debtor became legally bound to pay. This disagreement focused on the letter MDE sent to the Debtor on March 29, 2011, which informed the Debtors about the fee related to an asbestos permit. The Trustee asserted that the letter amounted to an invoice and the Debtor became legally bound to pay upon receiving such invoice. MDE, on the other hand, claimed that the letter simply notified the Debtor about the fee approaching July 29, 2011, expiration date and the optional renewal process.

The Court concluded that whether the letter functioned as an invoice was immaterial because an invoice itself does not create a legal obligation to pay. Claims create an obligation to pay and claims arise when services are performed or goods are transferred or when parties intend for a debt to be due. The Court stated that in the case at bar MDE had no claim for the asbestos fee when it received the letter because MDE did not perform a service. The Debtor’s license was still in effect and the Debtor had already paid for the right to engage in asbestos removal activities up to the expiration date. Next, the parties’ actions did not suggest any intent to create an obligation to pay prior to receipt of services. The Court held that since MDE had no claim against the Debtor when the Debtor received the letter, a debt was never incurred and thus the license renewal transfer was not on account of an antecedent debt. The Court further found that the alleged transfers were protected by the ordinary course of business defense of §547(c)(2) because, the fees were more or less constant throughout the historical period. The Debtor consistently paid the permit fee and the asbestos fee on or around the due date and there was a remarkably consistent payment pattern with respect to the environmental fees. Further, the asbestos and permit fees were also contemporaneous exchanges protected by §547(c)(1) because, upon receipt of the asbestos fee, MDE immediately renewed Debtor’s license and paying the permit fee allowed the Debtor to stay in business in 2011.


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