Delaware Court Discusses Weighted Average and Range Analysis To Determine Ordinary Course of Business; Rules in Favor of Defendant
March 1, 2022, District of Delaware – Trustee George L. Miller commenced an adversary proceeding to avoid and recover certain prepetition transfers made by Debtors J&M Sales, Inc. to Defendant Exist, Inc. under Sections 547, 548, and 550 of the Bankruptcy Code. Following an unsuccessful mediation, the Trustee filed a motion for summary judgment concerning his claim under Section 547, asserting that there is no genuine issue of material fact relating to that claim. Exist argued that the alleged preferential payments were made in the ordinary course of business.
The Court found that the Debtors paid 12 invoices during the historical period. While the invoice terms were either Net 60 or Net 180, payments in the historical period ranged from 100 to 430 days past the invoice date. The one invoice paid during the preference period, by three separate transfers, was paid between 354-and 389-days past the invoice date. The Trustee argued that upon applying a “weighted average” analysis, the weighted average days from the invoice date to payment date increased from 276 days in the historical period to 371 days in the preference period, thus precluding an ordinary course defense. Exist argued that pure range analysis should be applied because the application of a weighted average approach improperly skewed the data.
The Court found that there are a variety of methods that may be applied to determine what the ordinary course of business was in any given case, and there is no single formula that the Court must use’ when deciding whether preferential transfers were made in the ordinary course of business. Quoting Menotte v. Oxyde Chem., Inc. (JLS Chem. Corp.), 424 B.R. 573, 581 (Bankr. S.D. Fla. 2010), the Court stated that various mathematical processes including the range, averages, and weighted percentages might be appropriate in determine ordinary course of business. The Court further stated that in the case at bar, the Trustee offered no reason why anything other than a pure range analysis should be used. The Court determined that, as the Third Circuit has observed, reliance on the average payment time may not portray the complete picture of the parties’ transaction history.
The Court found that applying a pure range analysis showed that the transfers (made on days 354 and 359 post invoice) were made within the historical period (with payments made between 100-and 430-days post invoice). The Court ruled that the transfers were made in the ordinary course of the parties’ business dealings and denied the Trustee’s motion for summary judgment.
Miller v. Exist, Inc. (In re J&M Sales Inc.), 2022 Bankr. LEXIS 508