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Second Circuit – Bankruptcy Court Did Not Abuse its Discretion in Excluding the Documentary Evidence While Granting Judgment For Trustee

John Nagle Co. v. McCarthy (In re Cousins Fish Mkt., Inc.), No. 15-3710-bk, 2016 U.S. App. LEXIS 12753 (2d Cir. July 12, 2016)

Debtor Cousins Fish Mkt., Inc was a retail seller of fish and seafood in New York. Defendant John Nagle Co. was a fish and seafood wholesaler located in Massachusetts. Nagle supplied Cousins with fish and seafood. During the course of business, Cousins made transfers worth $108k to Nagle allegedly during the 90-day period prior to the bankruptcy and the Trustee of Cousin’s bankruptcy estate sought to avoid these transfers as preferences. The bankruptcy court entered judgment against Nagle and in favor of the Trustee after ruling that the alleged transfers were avoidable preferences under Sec. 547(b). The District Court affirmed. Nagle appealed.

On appeal, Nagle alleged that the bankruptcy court erred by excluding certain documentary evidence and witness testimony from the bench trial and also erred in concluding that Nagle failed to prove its affirmative defenses under Sections 547(c) (1) and (c) (2).

The Second Circuit rejected Nagle’s appeal as meritless and found that after conducting a hearing on the Trustee’s motion in limine, the bankruptcy court did articulate the factors from Patterson v. Balsamico, 440 F.3d 104, 117 (2d Cir. 2006), and considered each seriatim. Thus, the bankruptcy court’s findings were not erroneous. The Court agreed with the lower courts that – Nagle failed to meaningfully explain why the evidence was not produced or disclosed during discovery; that prejudice to the Trustee would be great given that discovery had been closed for more than three months despite previous extensions; and that a continuance would be inopportune because the bench trial was scheduled to commence in only two weeks and pretrial statements were due in less than one week. Hence, the Second Circuit held that based on the facts and circumstances, it cannot rule that the bankruptcy court abused its discretion in excluding the documentary evidence and related witness testimony.

Next, since Nagle did not introduce any testimony or contractual terms governing the transfers, the Second Circuit agreed with the bankruptcy court’s holding that Nagle failed to prove the requisite intent under Sec. 547(c)(1) with respect to the contemporaneous exchange for new value defense. The Second Circuit also found that Nagle failed to prove a sufficient baseline of prior dealings between the parties and there was a lack of evidence of when payments were due during the pre-preference period or of an agreement between the parties that showed the terms of the transfers. Thus, the Court held that the ordinary course defense under Sec. 547 (c) was also unavailable to Nagle.

The Second Circuit affirmed the judgment of the bankruptcy court and ruled in favor of the Trustee.