United States Bankruptcy Appellate Panel of the First Circuit
PMC MARKETING CORP., Debtor. NOREEN WISCOVITCH-RENTAS, Chapter 7 Trustee, Plaintiff-Appellant,
VILLA BLANCA VB PLAZA LLC, a/k/a Villa Blanca Shopping Center, LLC, Defendant-Appellee
Appeal from the United States Bankruptcy Court for the District of Puerto Rico. Bankruptcy Case No. 09-02048-BKT, Adversary Proceeding No. 12-00071-BKT. (Hon. Brian K. Tester, U.S. Bankruptcy Judge).
Rafael A. González Valiente, Esq., on brief for Plaintiff-Appellant.
Maria Fernanda Velez Pastrana, Esq., on brief for Defendant-Appellee.
Before Feeney, Deasy, and Cary, United States Bankruptcy Appellate Panel Judges.
Feeney, U.S. Bankruptcy Appellate Panel Judge.
Noreen Wiscovitch-Rentas, the plaintiff and chapter 7 trustee (the " Trustee" ), appeals from the following bankruptcy court orders relating to her complaint seeking to avoid and recover preferential transfers: (1) the December 2, 2014 order (the " Order" ) granting the motion for summary judgment filed by the defendant-appellee, Villa Blanca VB Plaza LLC, a/k/a Villa Blanca Shopping Center LLC (" Villa Blanca" ), and denying her cross-motion for summary judgment; and (2) the April 10, 2015 order denying reconsideration (the " Denial of Reconsideration" ). For the reasons discussed below, we REVERSE the Order in part, and VACATE and REMAND in part for further proceedings consistent with this opinion; the appeal of the Denial of Reconsideration is waived.
Villa Blanca is the owner of Villa Blanca Shopping Center in Caguas, Puerto Rico. Pursuant to a certain lease agreement executed in June 1985, the debtor, PMC Marketing Corp. (the " Debtor" ), rented commercial space at Villa Blanca Shopping Center, where it conducted business as
" Farmacias El Amal." 
On March 18, 2009, the Debtor filed a petition for chapter 11 relief. The bankruptcy court converted the case to chapter 7 on May 20, 2010; the Trustee was appointed the same day. On March 2, 2012, the Trustee filed a single-count complaint against Villa Blanca for " turnover of preferential transfers pursuant to § 547,"  alleging that the Debtor transferred $20,915.22 to Villa Blanca within 90 days of the petition date. The Trustee further alleged that the challenged transfer: (i) was made for or on account of an antecedent debt; (ii) was made while the Debtor was insolvent; and (iii) enabled Villa Blanca to receive more than it would if the payment had not been made. Accordingly, the Trustee requested judgment against Villa Blanca in the amount of $20,915.22, plus costs, expenses, and attorney's fees.
Villa Blanca answered the complaint, acknowledging that within 90 days of the petition date the Debtor made two rent payments of $10,457.61 each--one on December 16, 2008, and the other on January 13, 2009. Villa Blanca asserted several affirmative defenses, including that the alleged transfers were excepted from avoidance pursuant to § 547(c), because they were made " as part of the regular course of business between the parties, specifically as payment of the monthly rent for the leased premises . . . ." 
Villa Blanca explained in its answer that the " Debtor remained in possession of the [leased] premises at least until July 2011," and that the monthly rent was $10,457.61, due on the first day of each month. Villa Blanca attached as an exhibit to its answer a copy of a " tenant ledger" for Farmacias El Amal for the period from December 16, 2008, through July 1, 2009, which reflected the dates of the two challenged payments.
Following a pretrial scheduling conference conducted on September 5, 2012, the bankruptcy court entered a scheduling order (the " September 2012 Scheduling Order" ), which required the completion of discovery within 60 days (November 4, 2012) and the filing of dispositive motions within 30 days thereafter (December 4, 2012). The court set December 19, 2012, as the date for a pretrial hearing. The bankruptcy court docket reflects that neither party filed a dispositive motion by the prescribed deadline. Accordingly, following the December 19, 2012 pretrial conference, the bankruptcy court entered an order (the " December 2012 Order" ), whereby it sanctioned both parties for their failure to comply with the September 2012 Scheduling Order or to request relief from it, and set new deadlines in the case. Pursuant to the December 2012 Order,
the court granted 15 days for the completion of interrogatories (January 3, 2013), required the filing of Villa Blanca's motion for summary judgment within 15 days of the completion of interrogatories (January 18, 2013), and directed the filing of the Trustee's opposition within 30 days thereafter (February 17, 2013). Additionally, the court scheduled a pretrial conference for April 24, 2013.
On January 18, 2013, the deadline for the filing of its motion for summary judgment, Villa Blanca filed a non-emergency motion requesting a 15-day extension of time. The bankruptcy court's docket reflects that the bankruptcy court did not rule on Villa Blanca's motion for an extension of time and that Villa Blanca did not renew its request. Nonetheless, Villa Blanca, apparently having learned little from the bankruptcy court's earlier imposition of sanctions, filed a motion for summary judgment (the " Summary Judgment Motion" ) on February 12, 2013, 25 days after the deadline established in the December 2012 Order. The Trustee did not object to the late filing of the Summary Judgment Motion, and the bankruptcy court appears to have disregarded the lateness of the Summary Judgment Motion.
In the Summary Judgment Motion, Villa Blanca disputed the amount of the Trustee's claim and acknowledged that the January 13, 2009 payment fell within the 90-day preference period. Villa Blanca reiterated, however, that the transfer could " not be avoided based on [§ ] 547(c)."
Villa Blanca's argument presented in the accompanying memorandum of law was three-pronged: (1) the Trustee lacked sufficient evidence to prove her case; (2) only one of the challenged payments, namely the January 13, 2009 payment, fell within the 90-day preference period; and (3) " the payments made by [the] Debtor . . . were in the ordinary course of business by a tenant to the landlord." The thrust of Villa Blanca's " ordinary course of business" argument was that the challenged transfer was a late rental payment and, as such, could be considered ordinary because it was " within the pattern of payments between the parties." Villa Blanca elaborated that the " Debtor's payment history . . . reflected repeated late payments" and that Villa Blanca accepted those payments, " because they were made with the promise . . . to clear out the total amount owed." As evidence of the Debtor's payment history, Villa Blanca attached to the memorandum of law another Farmacias El Amal payment ledger, this one covering the period from May 1, 1997, to July 31, 2011, and totaling 32 pages. Additionally, Villa Blanca argued, without elaboration, that in " the present case the five requirements established by [§ ] 547(b) . . . have not been met . . . ."
Subsequently, on March 5, 2013, the Trustee filed a motion requesting a five-day extension of time to oppose the Summary Judgment Motion (although by that time, the deadlines set forth in the December 2012 Order had lapsed by virtue of Villa Blanca's tardy filing of the Motion for Summary Judgment). The bankruptcy court granted the Trustee's motion and entered an order which required the filing of her opposition by March 11, 2013.
On March 7, 2013, the Trustee timely filed an opposition to the Summary Judgment Motion, which included a cross-motion for summary judgment (collectively the " Cross-motion" ). In it, she challenged Villa Blanca's ordinary course of business defense, but conceded that the Debtor had made only a single, preferential payment for $10,457.61. As evidence of that payment, she pointed to a $10,457.61 check dated October 31, 2008, from Farmacias El Amal made payable to Villa Blanca, which she contended was deposited on January 14, 2009 (the " January 2009 Payment" ), and met all of the requirements of § 547.
The Trustee's challenge of Villa Blanca's " ordinary course of business" defense in the Cross-motion was two-fold. First, she argued that the defense must fail because Villa Blanca neither alleged nor demonstrated that the January 2009 Payment was made in accordance with the ordinary business terms of the industry. Second, she asserted that the payment was inconsistent with the terms of the contract between the parties, and, therefore, did not satisfy the ordinary course of business exception. In support of her claim that the January 2009 Payment was outside the ordinary course of business between the parties, she argued that a review of the payments made by the Debtor during the 18-month period preceding the January 2009 Payment revealed that there was " no set [payment] pattern" and that the Debtor " was making late payments and accumulating arrears." The Trustee elaborated that in some months the Debtor made no payments, while in others it made two. In furtherance of her argument that the challenged payment was inconsistent with the ordinary business terms of the industry, she argued that Villa Blanca provided no evidence that the industry permitted late payments and the accumulation of arrears. Accordingly, the Trustee asked the bankruptcy court to deny the Summary Judgment Motion and grant the Cross-motion.
Contemporaneously with the Cross-motion, the Trustee filed her counter-statement of facts (the " Counter-statement" ), in which she chronicled the Debtor's payment history from September 2007 through January 2009 to demonstrate there was no set payment pattern:
[The] Debtor made payments in the following manner in the 18 months prior to the last payment: 1 payment [o]n September 27, 07; 1 payment [o]n October 29, 07; NO PAYMENT in November of 07[; ] 1 payment [o]n December 3, 07; 1 payment [o]n January 8, 08; 1 payment [o]n February 19, 08; 1 payment [o]n March 17, 08; 1 payment [o]n April 18, 08; 2 payments [o]n May 29, 08; 1 payment [o]n June 16, 08; 1 payment [o]n July 22, 08; NO PAYMENT in August of 08; 1 payment [o]n September 19, 08; 1 payment[ ] [o]n October 16, 08; NO PAYMENT in November of 08; 1 payment [o]n December 16, 08; and 1 payment [o]n January 13, 09.
Subsequently, on April 12, 2013, the Trustee filed an assented-to motion, requesting the continuance of the April 24, 2013 pretrial hearing, " pending disposition of the motion for summary judgment." Accordingly, on April 15, 2013, the bankruptcy court entered an order, " vacat[ing] and set[ting] aside" [sic] the April 24, 2013 pretrial hearing.
Also on April 15, 2013, 39 days after filing the original Cross-motion, the Trustee filed an amended opposition and cross-motion for summary judgment (collectively, the " Amended Cross-motion" ). The
Trustee modified her original argument by, inter alia, deleting the discussion regarding the ordinary course of business in the industry; specifying that the January 2009 Payment was on account of the rent due for the month of October 2008; and adding an analysis of the degree of lateness of the Debtor's payments during the preference period, which showed the average lateness during the pre-preference period was 64.3 days and the median was 59 days, while during the preference period the average lateness and the median were both 105 days. In support of the Amended Cross-motion, the Trustee filed an amended counter-statement of relevant facts (the " Amended Counter-statement" ), in which she reiterated her analysis of the data concerning the Debtor's payment history. Based on the foregoing, the Trustee again asked the court to deny the Summary Judgment Motion and to enter judgment in her favor.
The bankruptcy court's docket reflects that approximately 19 months passed without a response from Villa Blanca or any action by the court with respect to the Cross-motion or the Amended Cross-motion. The Trustee, therefore, filed a motion seeking an order granting her unopposed summary judgment request on November 17, 2014. Villa Blanca still did not respond, nor did the court impose any deadlines or schedule further proceedings.
On December 2, 2014, the bankruptcy court entered the Order without a hearing. As a preliminary matter, the court struck the Amended Cross-motion and the Amended Counter-statement from the record, because they " were filed without leave of court, forty . . . days after [the Trustee's] initial response." After noting that the case " hinge[d] on the ordinary course of business defense," the court ruled:
[T]he Debtor's Tenant's Ledger reveal[ed] an inconsistent payment date and thus demonstrate[d] that the lessor/lessee payment relationship between the Debtor and [Villa Blanca] seemed to be a rather flexible one. Therefore, [Villa Blanca] has met the burden for both § 547(c)(2) and § 547(c)(2)(A).
The court rejected the Trustee's argument that Villa Blanca " fail[ed] to present any evidence to justify § 547(c)(2)(B)," adding that the " argument would have had merit had [C]ongress not changed the language of § 547(c)(2)." Accordingly, the court concluded:
[T]here are no genuine issues of material fact and thus a trial is unnecessary. With no genuine issues of material facts at hand, this Court will not address whether $10,457.61 or $20,915.22 could be avoided by the Trustee since the Defendant has established the standard of ordinary course of business exception. Summarily, Plaintiff failed to present sufficient evidence to demonstrate that there is a genuine issue of fact in dispute for a trial, or that summary judgment should be granted in her favor.
WHEREFORE, IT IS ORDERED that Defendant's Motion for Summary Judgment shall be, and it hereby is, GRANTED. The adversary case is dismissed. Clerk to enter judgment.
On the same date, the bankruptcy court entered a Judgment, granting the Summary Judgment Motion, denying the Cross-motion, and dismissing the adversary proceeding.
The day after the bankruptcy court entered the Order, Villa Blanca filed a
belated motion requesting leave to file a response to the Amended Cross-motion together with its proposed response, acknowledging that it " did not timely file its reply to [the Trustee's] motions due to inadvertence." The bankruptcy court ...