June 26, 2017

Tenth Circuit: No Avoidance of Transaction Made Within Ordinary Course of Business

The Tenth Circuit Court of Appeals issued its opinion in In re C.W. Mining Co.: Jubber v. SMC Electrical Products, Inc. on Monday, August 10, 2015.

C.W. Mining was forced into bankruptcy after creditors filed a petition for involuntary bankruptcy on January 8, 2008. In June 2007, C.W. had entered into an agreement with SMC Electrical Products, Inc., to purchase equipment in order to switch from a continuous method of mining to a longwall method. On September 18, 2007, SMC submitted an invoice to C.W. for $808,539.75, due in 30 days. C.W. made a $200,000 payment on the invoice on October 16, 2007, two days before it was due. The bankruptcy trustee initiated an adversary proceeding to avoid the transfer under 11 U.S.C. § 547(b). The bankruptcy court granted SMC summary judgment and rejected the trustee’s claim on the grounds that the transfer was made in the ordinary course of business. The BAP affirmed, and the trustee appealed to the Tenth Circuit.

The Tenth Circuit analyzed avoidance and the ordinary course of business exception, including the scrutiny applied to first-time transactions. The Tenth Circuit explained the purpose of the ordinary course of business transaction in detail, and examined its application as to both parties in the business transaction. Applying its analysis to the circumstances of this case, the Tenth Circuit found that the transaction between C.W. and SMC was within the ordinary course of business. The purchase was an arms’ length transaction for the purpose of assisting in mining operations. The Tenth Circuit dismissed the trustee’s arguments, characterizing them as an argument against a first-time transaction and finding that was not enough to avoid the transfer.

The bankruptcy court’s ruling was affirmed.

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