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District Court Affirms Bankruptcy Court ‘s Remand Order and Ruled Against Reopening the Record Due to Undue Burden on the Trustee and Considerations of Judicial Economy

March 30, 2017, DelawareBurtch v. Prudential Real Estate & Relocation Sevs. (In re AE Liquidation, Inc.,No. 16-252-LPS, 2017 U.S. Dist. LEXIS 47580 (D. Del. Mar. 30, 2017)

Debtor Eclipse Aviation Corporation, a manufacturer of private jets, engaged Defendant Prudential Real Estate &Relocation Services to provide relocation benefits to its employees under a relocation services agreement. The Debtor filed for bankruptcy, and the Trustee brought a complaint against Prudential asserting that certain transfers made by Eclipse to Prudential within the ninety days preceding the bankruptcy were preferential and avoidable under §547(b) of the Bankruptcy Code. Prudential asserted affirmative defenses under §547(c)(2) and §547(c)(4) of the Bankruptcy Code. The parties agreed that Prudential had a new value defense but disputed the amount. Crediting the full amount of Prudential’s new value defense, the Bankruptcy Court granted judgment for Trustee. Both parties appealed.

The Trustee argued that the Bankruptcy Court erred by including alleged invoices in its calculation of Prudential’s new value defense. The Court reasoned that even if the services outlined 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, i.e. November 25, 2008, and post-petition transfers cannot qualify new value. Since the services rendered a week prior to March 5, 2009, occurred after the petition date, and the previous order did not distinguish between the services provided pre-petition and post-petition for the purpose of calculating Prudential’s new value defense, the District Court remanded the matter to the Bankruptcy Court to reexamine and determine the appropriate amount of Prudential’s new value defense. The Bankruptcy Court issued a remand order and 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. Prudential appealed the remand order.

Prudential argued that the remand order was entered in error. Prudential reasoned that the Bankruptcy Court’s decision to eliminate the subject invoices from Prudential’s new value defense was based on the incorrect premise that Prudential did not want to open the actual record and wanted to rely on the factual record established at trial, despite Prudential’s request to reopen the record. Had it been permitted to submit additional evidence, Prudential argued that its witness would have provided “more detailed testimony as to the alleged invoices to explain why they were, indeed, for services rendered pre-petition.” Conversely, the Trustee argued that the facts and circumstances of this case did not warrant reopening the record.

The Court found that once the Trustee made a prima facie showing that the alleged invoices constituted preferential transfers under §547(b), the burden shifted to Prudential to establish each element of its affirmative defense. To carry its burden of establishing new value, Prudential was required to prove the date on which it rendered the services to the Debtor, and invoice dates were not sufficient. The Court determined Prudential had a full and adequate opportunity to set forth this evidence during a two-day trial. However, Prudential failed to do so, and Prudential’s failure did not warrant reopening the record, four years after the trial, especially in light of the burden this would impose on the Trustee and considerations of judicial economy. The Court ruled that the Bankruptcy Court did not abuse its discretion in denying Prudential’s request to reopen the record. The Court affirmed the remand order.