Gonzales v. Sun Life Assurance Company of Canada

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
FURR'S SUPERMARKETS, INC.,
Debtor. 	No. 7-01-10779 SA
YVETTE J. GONZALES, TRUSTEE,
Plaintiff,
v. 	Adv. No. 03-1072 S
SUN LIFE INSURANCE COMPANY,
Defendant.
MEMORANDUM OPINION ON: DEFENDANT SUN LIFE INSURANCE
COMPANY’S MOTION FOR SUMMARY JUDGMENT (doc 50);
PLAINTIFF’S MOTION TO STRIKE AFFIDAVIT OF GENE DENISON
(doc 71); and PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT (doc 121)
This matter is before the Court on the Motion for Summary
Judgment filed by Defendant Sun Life Insurance Company (“Sun
Life” or “Defendant”)(doc 50) with supporting Memorandum (doc 52)
and numerous exhibits, Plaintiff’s Response and Memorandum in
Support (doc 70), and Defendant’s Amended Statement of Material
Facts in Support of Motion for Summary Judgment (doc 92),
Plaintiff’s Response to the Amended Statement of Material Facts
(doc 97), and Defendant’s Reply Brief (doc 101). 	Also before the
Court are Plaintiff’s Motion to Strike Affidavit of Gene Denison
(doc 71) and Defendant’s Response (doc 93) 1 . 	And, finally,
1Two other motions to strike were filed, but the parties
have suggested that those are now moot based on later
developments in the case. 	See Doc 128. 	Therefore, the Court
will not consider either 1) Defendant’s Motion to Strike Portions
of the Affidavits of Michael J. Caplan and portions of Trustee’s
Responses to Defendant’s First Interrogatories to Trustee (doc
100) and Plaintiff’s Response thereto (doc 107); or 2)
Plaintiff’s Motion to Strike Affidavit of David L. Neale (doc
105) and Defendant’s Response (doc 113).
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before the Court are Plaintiff’s Motion for Summary Judgment (doc
121) with Brief in Support (doc 122), and Supporting Third
Affidavit of Rachel Kefauver (doc 124), Defendant’s Response to
the Motion (doc 125) and Plaintiff’s Reply (doc 126). 	This is a
core proceeding to recover preferential transfers. 	28 U.S.C. §
157(b)(2)(F) 2.
Plaintiff filed this adversary proceeding on January 30,
2003 (doc 1), an amended complaint on February 7, 2003 (doc 3),
and a second amended complaint (hereafter “Complaint”) on May 12,
2004 (doc 15). 	Defendant filed an answer to the Complaint on
February 10, 2005 (doc 21), an amended answer on March 16, 2005,
and a second amended answer (hereafter, “Answer”) on July 28,
2005 (doc 42). 	Defendant also filed a “Waiver of Ordinary Course
of Business Defense” on June 29, 2005 (doc 38). 	Later, Defendant
conceded its Priority Claim Affirmative Defense included in its
Second Amended Answer to Second Amended Complaint, doc 42, p. 4,
¶ I. 	See Doc 125, p. 3.
Plaintiff’s complaint is a straightforward preference
complaint under 11 U.S.C. § 547(b) 3. 	Defendant’s Answer admits
2This case predates the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, so the amendments in that act
are not applicable to this case.
3The 2001 version of section 547 states, in part:
Except as provided in subsection (c) of this section,
the trustee may avoid any transfer of an interest of
the debtor in property–
(continued...)
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all allegations except three: 1) it denies that Plaintiff’s
Exhibit A to the Complaint, which lists 16 payments, is correct
and affirmatively states that it received only 3 separate checks;
2) it denies that the payments enabled it to receive more than it
would have received had the bankruptcy case at all times been a
case under chapter 7 of the Bankruptcy Code, the payments had not
been made, and the Defendant had received payment of its
antecedent debt to the extent provided under the bankruptcy code;
and 3) it denies that Plaintiff has the right to a judgment. 	The
Answer also contains 11 affirmative defenses: A) the payments
received were authorized by the February 8, 2001 “Employee
Benefits Order” (main case, doc 28); B) the payments were
authorized by estoppel and the “necessity of payment rule”; C) if
Defendant had not received the 3 payments during the preference
period, it would have received payment postpetition pursuant to
3(...continued)
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the
debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made--
(A) on or within 90 days before the date of the filing
of the petition; or
(B) between ninety days and one year before the date of
the filing of the petition, if such creditor at the
time of such transfer was an insider; and
(5) that enables such creditor to receive more than
such creditor would receive if--
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the
extent provided by the provisions of this title.
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the Employee Benefits Order, D) the payments were made from
moneys held in trust by Furr’s and did not belong to Furr’s, E) a
portion of the payments were “withheld” from employee’s paychecks
and did not constitute Furr’s property, F) Plaintiff should be
estopped by the “Employee Benefits Motion” (main case, doc 12, ¶¶
7, 25 and 26) from arguing that the withheld amounts constituted
property in which the Debtor had an interest, G) subsequent new
value in the form of continuing insurance coverage, H) new value
(contemporaneous exchange) in the form of continued services of
the Furr’s employees themselves, I) Sun Life would have received
these payments as Section 507(a)(4) priority claims anyway,
therefore would not have received less in a hypothetical chapter
7 case, 4 J) the Plaintiff should be estopped by the Employee
Benefits Motion (main case, doc 12, ¶ 36) from arguing that the
payments enabled Defendant to receive more than it would have
received in a chapter 7 case, and K) ordinary course of
business. 5
First, the Court will decide the motion to strike.
MOTIONS TO STRIKE PORTION OF DENISON AFFIDAVIT
4Affirmative defense I was later withdrawn. 	Doc 125, p. 4.
5Affirmative defense K was later withdrawn. 	Doc 38.
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Summary judgment is governed by Bankruptcy Rule 7056, which
incorporates Fed.R.Civ.P. 56. 6 	Rule 56(e)(2001) stated as
follows:
Form of Affidavits; Further Testimony; Defense
Required. Supporting and opposing affidavits shall be
made on personal knowledge, shall set forth such facts
as would be admissible in evidence, and shall show
affirmatively that the affiant is competent to testify
to the matters stated therein. Sworn or certified
copies of all papers or parts thereof referred to in an
affidavit shall be attached thereto or served
therewith. The court may permit affidavits to be
supplemented or opposed by depositions, answers to
interrogatories, or further affidavits. When a motion
for summary judgment is made and supported as provided
in this rule, an adverse party may not rest upon the
mere allegations or denials of the adverse party's
pleading, but the adverse party's response, by
affidavits or as otherwise provided in this rule, must
set forth specific facts showing that there is a
genuine issue for trial. If the adverse party does not
so respond, summary judgment, if appropriate, shall be
entered against the adverse party.
Thus, there are three requirements for an affidavit submitted in
conjunction with a motion for summary judgment: 1) it shall be
based on personal knowledge, 2) it shall set forth facts that
would be admissible in evidence, and 3) it shall show
affirmatively that the affiant is competent to testify to the
stated facts. 	Giles v. University of Toledo, 241 F.R.D. 466, 469
(N.D. Ohio 2007). 	An affidavit that fails to satisfy these three
6 All references to F.R.Civ.P. 56 and F.R.B.P. 7056 are to
the rules as they were worded from 1987 to 2007. 	Defendant’s
Motion for Summary Judgment was filed on December 27, 2005. 	Rule
56 was amended in both 2007 and 2010. 	Those changes are not
reflected in this decision. 	The Court found it most reasonable
to use the rules as they existed when the contested matter began.
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requirements is subject to a motion to strike and will not be
considered by the Court. 	Id. 	“The United States Court of
Appeals for the Tenth Circuit has explicitly held that legally
insufficient affidavits under Rule 56(e) are subject to a motion
to strike.” 	Servants of the Paraclete, Inc. v. Great American
Ins. Co., 866 F.Supp. 1560, 1564 (D. N.M. 1994) (citing Noblett
v. General Elec. Credit Corp., 400 F.2d 442, 445 (10 th Cir.)),
cert. denied, 393 U.S. 935 (1968).) 	“Furthermore, the United
States Court of Appeals for the Tenth Circuit has held that
‘conclusory’ summary judgment affidavits are legally
insufficient.” 	Id. 	An affidavit is conclusory when it draws
inferences. 	Id. at 1565. 	Similarly, affidavits that contain
inadmissible hearsay are legally insufficient. 	White v. Wells
Fargo Guard Services, 908 F.Supp. 1570, 1578 (M.D. Ala. 1995);
Giles, 241 F.R.D. at 471; compare Servants of the Paraclete, 866
F.Supp. at 1567 (out-of-court statements offered in affidavit
were not hearsay because they were not offered for their truth;
the affidavit was admissible.) 	Any defects in an affidavit are
waived if not challenged. 	Meinhardt v. Unisys Corp. (In re
Unisys Savings Plan Litigation), 74 F.3d 420, 437 n. 12 (3 rd
Cir.), cert. denied, 519 U.S. 810 (1996). 	And, if a statement is
successfully challenged, the Court does not strike the entire
affidavit; it disregards only the offending statement. 	Perez v.
Volvo Car Corp., 247 F.3d 303, 315 (1 st Cir. 2001)(“The rule
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requires a scalpel, not a butcher knife.”) 	Finally, it is proper
for the Court to consider a later deposition of the affiant to
determine whether the affidavit contains impermissible material.
Flair Broadcasting Corp. v. Powers, 733 F.Supp. 179, 182-83 (S.D.
N.Y. 1990).
The Denison affidavit (doc 43) is the source of many of the
facts in Defendant’s Motion for Summary Judgment’s Statement of
Undisputed Facts. 	Plaintiff seeks to strike portions of it
because it is not based on personal knowledge, does not set forth
facts that would be admissible in evidence, and contains both
legal conclusions and hearsay. 	Doc 71. 	Defendant replies (doc
93) that Plaintiff’s motion to strike is moot because Defendant
filed an Amended Statement of Material Facts in Support of
Defendant’s Motion for Summary Judgment (doc 92) that added
additional citations to the record other than just Denison’s
statements. 	The Court disagrees that the motion to strike is
moot; if the affidavit contains inadmissible statements, the
filing of other and additional references to the record does not
make the statements in the first affidavit admissible and the
Court would prefer a clear factual record. 	Defendant also
replies that, since filing the affidavit, Plaintiff deposed
Denison on substantially all of the statements and asks the Court
to consider the deposition testimony before striking anything.
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Finally, Defendant denies that any of the affidavit is not based
on personal knowledge or is based on hearsay.
The Court has reviewed the affidavit, the objection and
response, portions of the deposition testimony, and exhibits
submitted therewith, and finds that portions of the affidavit
should be stricken. 	Paragraphs 1 through 6 are admissible.
Plaintiff seeks to strike the last sentence of paragraph 7, based
on Denison Deposition, doc 71, Exh. A, Pt. 1, p. 89, ln. 6-20 (he
had no knowledge if withheld amounts were actually segregated);
p. 93, ln. 19-23 (same); p. 96, ln. 6-13 (he did not know if
funds could be traced); p. 97, ln. 1-15 (funds were possibly
commingled, he just did not know). 	The Court agrees. 	Therefore,
the last sentence of paragraph 7 is stricken.
Plaintiff moves to strike paragraph 8 because Denison is
expressing the intent of Debtor when it purchased the insurance,
claiming that he could not possibly know Debtor’s intent. 	The
Court disagrees, and finds that based on his high position in the
company and his longevity and various duties over the years, he
can express an opinion on corporate intent, especially if he was
familiar with the particular transaction involved. 	See Ondis v.
Barrows, 538 F.2d 904, 908 (1 st Cir. 1976)(Court found it
credible that an office manager would be someone in a position to
have personal knowledge of business matters.) 	Therefore,
paragraph 8 stands.
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Plaintiff moves to strike entire paragraph 9 because Denison
later testified that he was not very familiar with ERISA law and
relied on attorneys to tell him things. 	See Denison Deposition,
doc 71, Exh. A, Pt. 1, p. 9, ln. 2-6, 15, 20. 	The Court finds
that this paragraph is based on hearsay statements of attorneys
and will be stricken.
Paragraph 10 is admissible, but only up to and including the
phrase “made by the Debtor to Sun Life.” 	Denison’s deposition,
Id. at p. 88, ln. 9-25; p. 89, ln. 1-20; p. 92, ln. 14-18; p. 93,
ln. 19-23; p. 96, ln. 6-13; and p. 97, ln. 1-15, shows that he
had no personal first-hand knowledge of what became of amounts
withheld from wages. 	Therefore the second half of paragraph 10,
starting with “as well as the amounts” is stricken.
Similarly, paragraph 11 is admissible except for the
sentence that starts “Also, the Debtor exercised said authority”,
which will be stricken for the same reason as stated for
paragraph 10.
Plaintiff seeks also to strike the second sentence of
paragraph 12 dealing with employee withholdings; the Court finds
however, that Denison was in a position to know that there were
employee withholdings and will not strike this sentence. 	In
other words, the Court sees a difference between the general fact
that employees had insurance withheld from their paychecks and
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the rather specific facts concerning tracing (if possible) the
funds (if any) from withholding through payment.
Paragraphs 13 through 15 are admissible. 	Plaintiff seeks to
strike paragraph 16, but the Court finds it credible that
Denison, in his various positions with the Debtor, likely had
personal knowledge of the facts stated in paragraph 16.
Therefore, paragraph 16 will not be stricken. 	Paragraphs 17 and
18 are admissible.
The Court finds that entire paragraphs 19, 20 and 21 should
be stricken as statements not made on personal knowledge, or,
alternatively, statements made without establishing the requisite
foundation. 	Paragraph 19 is clearly hearsay: how could Denison
know that “Sun Life received three separate checks...” unless
someone told him that. 	Paragraphs 20 and 21 either are hearsay,
or statements made beyond Denison’s capacity to testify from
personal knowledge and will be stricken. 	The Court notes,
however, that the numbers in the affidavit agree with the numbers
on the checks.
Paragraph 22 is admissible. 	Paragraph 23 will be stricken.
Denison admitted he had not seen the Employee Benefits Motion
until after he executed the affidavit. 	Furthermore, the Employee
Benefits Motion speaks for itself and is part of the record.
Similarly, paragraph 24 will be stricken. 	Denison admitted he
had not seen the Employee Benefits Order until after he did the
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affidavit. 	Furthermore, the Employee Benefits Order speaks for
itself and is part of the record.
Paragraph 25 will be stricken. 	First, it is conclusory.
Second, it draws legal conclusions which are the province of the
Court. 	Third, nowhere does the Employee Benefits Order
“retroactively” authorize anything, so the content of paragraph
25 is factually incorrect on its face. 	Finally, the intent of
the Employee Benefits Order is obvious.
Paragraph 26 will be stricken as pure speculation.
Paragraph 27 likewise is pure speculation and without foundation
(“[A]s a result of the continuing benefits ... the Debtor
received the continuing services of said employees.”) and will be
stricken. 	Also, the affidavit does not establish a foundation
for which Denison could testify to the “value” of the services
provided. 	Paragraph 28 also discusses the value of the
insurance, without providing a basis for the testimony.
Alternatively, Denison was told the value and the paragraph
consists of inadmissible hearsay. 	Paragraph 28 will be stricken.
Paragraphs 29 through 31 are not based on personal knowledge
and will be stricken. 	Paragraphs 32 and 33 are admissible.
Paragraphs 34 through 43 are not based on personal knowledge, but
consist of hearsay and will be stricken. 	For example, paragraphs
34, 36, 37, 41 and 42 all discuss the receipt of checks by Sun
Life, which is obviously hearsay. 	Denison has no foundation to
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testify about the values discussed in paragraphs 38, 39 and 40,
and must have been told those values. 	Denison left the employ of
Debtor in June 2001, so could not personally know that Sun Life
was paid through August 2001. 	Denison may have some knowledge of
Robinson’s leaving Debtor and returning two months later, but the
statement regarding work falling behind in the benefits
department is hearsay.
Based on the foregoing, the Court finds that Plaintiff’s
Motion to Strike the Denison Affidavit (doc 91) is well taken in
part and will be granted in part.
SUMMARY JUDGMENT
Summary judgment is proper when there is no genuine issue as
to any material fact and the moving party is entitled to a
judgment as a matter of law. 	Bankruptcy Rule 7056 7. 	In
7 Bankruptcy Rule 7056 incorporates Fed.R.Civ.P. 56. 	The
relevant version of Rule 56 provides:
Summary Judgment
(a) For Claimant. 	A party seeking to recover upon a
claim, counterclaim, or cross-claim or to obtain a
declaratory judgment may, at any time after the
expiration of 20 days from the commencement of the
action or after service of a motion for summary
judgment by the adverse party, move with or without
supporting affidavits for a summary judgment in the
party's favor upon all or any part thereof.
(b) For Defending Party. 	A party against whom a claim,
counterclaim, or cross-claim is asserted or a
declaratory judgment is sought may, at any time, move
with or without supporting affidavits for a summary
judgment in the party's favor as to all or any part
thereof.
(c) Motion and Proceedings Thereon. 	The motion shall
(continued...)
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7(...continued)
be served at least 10 days before the time fixed for
the hearing. 	The adverse party prior to the day of
hearing may serve opposing affidavits. 	The judgment
sought shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact
and that the moving party is entitled to a judgment as
a matter of law. 	A summary judgment, interlocutory in
character, may be rendered on the issue of liability
alone although there is a genuine issue as to the
amount of damages.
(d) Case Not Fully Adjudicated on Motion. 	If on motion
under this rule judgment is not rendered upon the whole
case or for all the relief asked and a trial is
necessary, the court at the hearing of the motion, by
examining the pleadings and the evidence before it and
by interrogating counsel, shall if practicable
ascertain what material facts exist without substantial
controversy and what material facts are actually and in
good faith controverted. 	It shall thereupon make an
order specifying the facts that appear without
substantial controversy, including the extent to which
the amount of damages or other relief is not in
controversy, and directing such further proceedings in
the action as are just. 	Upon the trial of the action
the facts so specified shall be deemed established, and
the trial shall be conducted accordingly.
(e) Form of Affidavits; Further Testimony; Defense
Required. 	Supporting and opposing affidavits shall be
made on personal knowledge, shall set forth such facts
as would be admissible in evidence, and shall show
affirmatively that the affiant is competent to testify
to the matters stated therein. 	Sworn or certified
copies of all papers or parts thereof referred to in an
affidavit shall be attached thereto or served
therewith. The court may permit affidavits to be
supplemented or opposed by depositions, answers to
interrogatories, or further affidavits. 	When a motion
for summary judgment is made and supported as provided
in this rule, an adverse party may not rest upon the
mere allegations or denials of the adverse party's
pleading, but the adverse party's response, by
affidavits or as otherwise provided in this rule, must
(continued...)
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determining the facts for summary judgment purposes, the Court
may rely on affidavits made with personal knowledge that set
forth specific facts otherwise admissible in evidence and sworn
or certified copies of papers attached to the affidavits.
Fed.R.Civ.P. 56(e). 	When a motion for summary judgment is made
and supported by affidavits or other evidence, an adverse party
may not rest upon mere allegations or denials. 	Id. 	Rather,
“Rule 56(e) ... requires the nonmoving party to go beyond the
pleadings and by her own affidavits, or by the ‘depositions,
7(...continued)
set forth specific facts showing that there is a
genuine issue for trial. If the adverse party does not
so respond, summary judgment, if appropriate, shall be
entered against the adverse party.
(f) When Affidavits are Unavailable. 	Should it appear
from the affidavits of a party opposing the motion that
the party cannot for reasons stated present by
affidavit facts essential to justify the party's
opposition, the court may refuse the application for
judgment or may order a continuance to permit
affidavits to be obtained or depositions to be taken or
discovery to be had or may make such other order as is
just.
(g) Affidavits Made in Bad Faith. 	Should it appear to
the satisfaction of the court at any time that any of
the affidavits presented pursuant to this rule are
presented in bad faith or solely for the purpose of
delay, the court shall forthwith order the party
employing them to pay to the other party the amount of
the reasonable expenses which the filing of the
affidavits caused the other party to incur, including
reasonable attorney's fees, and any offending party or
attorney may be adjudged guilty of contempt.
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answers to interrogatories, and admissions on file,’ designate
‘specific facts showing that there is a genuine issue for
trial.’” 	Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
“Rule 56(e) permits a proper summary judgment motion to be
opposed by any of the kinds of evidentiary materials listed in
Rule 56(c), except the mere pleadings themselves.” 	Id. 	The
court does not try the case on competing affidavits or
depositions; the court's function is only to determine if there
is a genuine issue for trial. 	Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 249 (1986).
In ruling on a motion for summary judgment, the trial court
views the evidence and draws reasonable inferences therefrom in
the light most favorable to the nonmoving party. 	Mountain
Highlands, LLC v. Hendricks, 616 F.3d 1167, 1169-70 (10 th Cir.
2010)(citing Garrison v. Gambro, Inc., 428 F.3d 933, 935 (10th
Cir. 2005)). 	On those issues for which it bears the burden of
proof at trial, the nonmovant “must go beyond the pleadings and
designate specific facts so as to make a showing sufficient to
establish the existence of an element essential to [its] case in
order to survive summary judgment.” 	Id. at 1170 (quoting Cardoso
v. Calbone, 490 F.3d 1194, 1197 (10th Cir. 2007)) (internal
quotation marks omitted). 	“If a party that would bear the burden
of persuasion at trial does not come forward with sufficient
evidence on an essential element of its prima facie case, all
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issues concerning all other elements of the claim and any
defenses become immaterial.” 	Adler v. Wal-Mart Stores, Inc., 144
F.3d 664, 670 (10 th Cir. 1998)(citing Celotex, 477 U.S. at 322-
23). 	“[F]ailure of proof of an essential element renders all
other facts immaterial.” 	Mountain Highlands, 616 F.3d at 1170
(quoting Koch v. Koch Indus., Inc., 203 F.3d 1202, 1212 (10th
Cir.), cert. denied, 531 U.S. 926 (2000)).
New Mexico LBR 7056-1 governs summary judgment motions. It
provides, in part:
The memorandum in support of the motion shall set
out as its opening a concise statement of all of the
material facts as to which movant contends no genuine
issue exists. 	The facts shall be numbered and shall
refer with particularity to those portions of the
record upon which movant relies.
A memorandum in opposition to the motion shall
contain a concise statement of the material facts as to
which the party contends a genuine issue does exist.
Each fact in dispute shall be numbered, shall refer
with particularity to those portions of the record upon
which the opposing party relies, and shall state the
number of the movant's fact that is disputed. 	All
material facts set forth in movant’s statement that are
properly supported shall be deemed admitted unless
specifically controverted.
FACTS
In these cross-motions for summary judgment, the facts
derive from four sources: (1) Defendants Second Amended Answer
(doc 42) to Plaintiff’s Second Amended Complaint (doc 15)
(numbered herein as facts 1 through 11); (2) Defendant’s Amended
Statement of Material Facts (doc 92) and Plaintiff’s Response
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thereto (doc 97)(numbered herein as facts 101 through 159); (3)
Trustee’s Statement of Supplemental Facts (part II of doc 70) and
Defendant’s Response thereto (doc 101)(numbered herein as facts
201 through 236); and (4) Trustee’s Statement of Material Facts
(doc 122) and Defendants Response (doc 125)(numbered herein as
facts 301 through 346). 8 	As is apparent, the parties submitted a
considerable number of proposed undisputed facts 9 which the Court
has considered as appropriate.
FACTS DERIVED FROM 2 ND AMENDED ANSWER TO SECOND AMENDED COMPLAINT
These facts are from the Second Amended Answer (doc 42) to
the Second Amended Complaint (doc 15).
1. 	On February 8, 2001 (the “Petition Date”), Furr’s
Supermarkets, Inc., a Delaware corporation (“Furr’s” or “Debtor”)
commenced the above-captioned voluntary bankruptcy case under
chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §101
et seq. (the “Bankruptcy Code”).
2. 	On December 19, 2001, the Furr’s chapter 11 bankruptcy case
was converted to a chapter 7 case. 	The Plaintiff was appointed
the trustee on that date and continues in that capacity.
3. 	The Defendant transacted business with Furr’s in New Mexico.
8 The paragraphs of asserted material facts are
consecutively numbered but there are gaps in the numbering.
9 Typical of the parties’ submissions is “Exhibit E (Part 4)
to the Supplemental Extract of Discovery Supporting Defendant’s
Motion for Summary Judgment.” 	Doc 91.
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4. 	The Court has jurisdiction over the subject matter herein
and the parties to this action. 	This action is a core proceeding
under 28 U.S.C. §1334 and 28 U.S.C. §157(b)(2)(F). 	Venue is
proper in this Court.
5. 	Paragraph 5 alleges that after November 9, 2000, Furr’s paid
the Defendant the amounts set forth in Exhibit A to the Amended
Complaint (doc 3) filed on February 7, 2003 (together “the
Payments”) on or after the dates set forth therein. 	Defendant
denied this paragraph, affirmatively stating that the Exhibit A
was incorrect. 	Defendant claims that it received only three
separate checks during the preference period:
Check number 	Date 	Amount
#25128092 	November 7, 2000 	$ 	44,850.65
#225132000 	December 1, 2000 	$ 	44,570.16
#2513688 10 	January 5, 2001 	$ 	90,477.43
Total 	$ 	179,898.24
Defendant claims that there also may be additional errors on
Exhibit A. 	Trustee, in her Statement of Undisputed Facts, doc
122, ¶ 2, adopts Defendant’s denial. 	Therefore, the Court will
deem this allegation withdrawn and rely on Trustee’s doc 122, ¶
2, which is duplicated as fact 302, below.
10 This dollar amount should be $90,447.43. 	Fact 327 shows
that this is the sum of the November 2000 premium ($45,338.75)
and December 2000 premium ($45,108.68). 	See also fact 302
($90,447.43).
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6. 	Each of the Payments was made for or on account of an
antecedent debt owed by Furr’s to Defendant (individually and
collectively, the “Antecedent Debt”).
7. 	The Antecedent Debt was not a consumer debt.
8. 	The Payments were made while Furr’s was insolvent.
9. 	The Payments were made within 90 days before the Petition
Date (the “Preference Period”).
10. 	Defendant controverted paragraph 10 11 .
11. 	Defendant controverted paragraph 11 12 .
UNDISPUTED FACTS FROM DEFENDANT’S STATEMENT OF UNDISPUTED FACTS
These facts are from the Defendant’s Amended Statement of
Material Facts (doc 92) and Plaintiff’s Response thereto (doc
97).
11 Paragraph 10 stated:
The Payments enabled the Defendant to receive more than
it would have received had this bankruptcy case at all
times been a case under chapter 7 of the Bankruptcy
Code, the Payments had not been made, and the Defendant
had received payment of the Antecedent Debt to the
extent provided under the Bankruptcy Code.
12 Paragraph 11 stated:
Pursuant to 11 U.S.C. §547(b), the Plaintiff has the
right to a judgment against the Defendant for the
aggregate amount of the Payments, together with any
other payments made by Furr’s to the Defendant during
the Preference Period, if any, less any subsequent new
value the Defendant pleads and proves it provided to
Plaintiff, the amount of which, if any, Plaintiff does
not know (the “Avoidable Amount”). 	Defendant did
agree, however, that to the extent any payments are
found preferential, it is entitled to credit for
subsequent new value given to the Debtor.
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101 - 103. 13
104. The Debtor had approximately 2000 employees as Plan
participants in any given Plan year.
105 - 110.
111. The Debtor’s employees were paid on a weekly and/or biweekly
basis.
112. At all times material herein the Debtor maintained two
“controlled disbursement accounts” at First National Bank of
Fairfield. 	Everything was paid through the controlled
disbursement accounts. 	However, the Debtor also had other bank
accounts, including a payroll account, a master operating
account, a checking account used to pay vendors, landlords, and
utility bills, and other accounts used to pay employee benefits,
lottery payments, and money gram payments. All were “zero
balance” accounts.
113. At all times material herein (2000 and 2001), at the time
the Debtor issued and mailed or delivered checks to its
employees, the Debtor had no money set aside in any specific bank
account to “cover” said checks, and the Debtor had no money set
aside in any specific bank account in regard to the monies
“withheld” from its employees’ pay checks. 	Similarly, at the
time the Debtor issued and mailed checks to Sun Life the Debtor
13 No text following a number means that the Court reviewed
the fact, the objection to it, the affidavits or exhibits or
legal arguments, and found a genuine issue of material fact.
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had no money set aside in any specific bank account to “cover”
said checks. 	Rather, each business day the Debtor would take the
income from sales and draw on its line of credit with Fleet (and
later Heller) as necessary to meet the day’s requirements, and
wire transfer funds from its main operating account to the
controlled disbursement accounts at First National Bank of
Fairfield (to cover the checks clearing said bank that day).
Ultimately, all of the Debtor’s income from sales went directly
to Heller (because it had a lien on all of the debtor’s
accounts), and Heller would then wire transfer funds to the
Debtor’s main operating account, which the Debtor then wired to
one or both of the controlled disbursement accounts at First
National Bank of Fairfield.
114. During the preference period the officers of the Debtor had
discretionary authority regarding the disbursement of corporate
funds, subject to obligations and limitations imposed by the
secured creditors and by law. 	Gene Denison had authority to
approve invoices for payment. 	However, nothing went out the door
(nothing was paid) without the express approval of Tom Dahlen
(CEO) or Steve Mortensen (CFO).
115. The Debtor filed a Chapter 11 Petition in bankruptcy on
February 8, 2001, and continued as a debtor in possession until
December 19, 2001.
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116. As of the Petition Date the Debtor was a leading regional
supermarket chain, with operations in New Mexico and western
Texas. 	The Debtor employed approximately 4900 individuals, and
operated 71 stores. 	The Debtor’s work force consisted of
approximately 4320 hourly employees and approximately 500
salaried employees. 	More than 3400 of the employees were part
time employees.
117. Many of the Debtor’s employees were unionized. 	The Debtor’s
collective bargaining agreements with its unions established pay
rates, overtime pay, holiday pay, and other benefits. 	Said
collective bargaining agreements required that the Debtor
contribute certain amounts to the various Multi-Employer (Union)
health and welfare, and pension plans.
118.
119. Duplicate of fact 302.
120. - 122.
123. As of the Petition Date, the Debtor considered its ability
to rely on its employees to be a key component of the potential
success of its business and its ability to reorganize and
continue as a going concern. 	As of the Petition Date, the Debtor
believed that its employees relied on their wages and salaries to
pay basic living expenses, and that they relied on the employee
benefits provided by the Debtor to secure the health and
financial welfare of themselves and their families. 	As of the
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Petition Date, the Debtor believed that any failure to pay Pre-
Petition employee benefit obligations would create extreme
personal hardship for many employees, destroy employee morale,
and result in an unmanageable employee turnover. 14
124. On February 8, 2001, the Debtor filed its Motion for Order
Authorizing (A) Payment of Pre-Petition Employee Obligations and
(B) Continuation of Employee Benefit Plans and Programs
Postpetition (main case, doc. 12)(“Employees Benefits Motion.”)
125. On February 8, 2001 the Court entered an Order Authorizing
(A) Payment of Pre-Petition Employee Obligations and (B)
Continuation of Employee Benefit Plans and Programs Postpetition
(main case, doc 28)(“Employee Benefits Order.”)
126. - 133.
134. From 1991 forward Lana Booth, now known as Lana Robinson
(“Robinson”), an employee of the Debtor, was initially the
Debtor's health benefits coordinator, then it's health benefits
administrator, then its health benefits manager. 	Periodically
the Debtor's employees filled out and submitted benefits
enrollment forms to Robinson.
14 Trustee objected to the last sentence as disputed. 	This
statement derives directly from the Mortenson declaration (main
case, doc 4) ¶ 54. 	Trustee did not direct the Court to anything
in the record to contradict this statement. 	Therefore, the fact
is deemed undisputed. 	NM LBR 7056-1.
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135. Sun Life did not bill or invoice the Debtor. 	Rather, toward
the end of each month the Debtor's payroll department would run a
"census" on the number of the Debtor's current employees.
136. During the middle of each month Robinson would submit “self
bills” to the head of the Administrative Department of the Debtor
(and beginning in early 2000 to the head of the Human Resources
Department of the Debtor instead of to the Administrative
Department). 	Upon approval by the applicable department head,
Robinson would write the date of approval and the word
"Approved," and her name, "Lana Booth, Health Benefits Manager,"
on the self bills and submit them to the Debtor's accounting
department.
137.
138. In December of 1999, as head of the Debtor's Administrative
Department (as the Chief Administrative Officer), Gene Denison
filled out and signed an Application for Group Insurance (the
"Application") with Sun Life, and tendered a check in the amount
of $38,071.31 for the estimated premium for January 2000. The
date of the Application was December 30, 1999, and the "Effective
Date" written on the Application was January 1, 2000.
Subsequently, the check from the Debtor tendered with the
Application was replaced by a check received by Sun Life on or
about May 6, 2000. 	A January 6, 2000 letter was sent from Sun
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Life to the Debtor regarding the insurance benefits to be
provided by Sun Life.
139. Summarized in table at fact 327.
140. Robinson left the Debtor's employment on approximately June
7th of 2000 and came back to work for the Debtor in the last part
of August 2000, on a consulting basis at first, and then full
time in September of 2000. During the period of Robinson's
absence much of the work fell behind in the benefits department.
141. Summarized in table at fact 327.
142. Summarized in table at fact 327.
143. - 145.
146. Summarized in table at fact 327, and duplicate of fact 222.
147. Summarized in table at fact 327.
148. Summarized in table at fact 327.
149. Sun Life was paid in full for all insurance benefits
provided to the Debtor and its employees (including spouses and
children of employees) from January 1, 2000 through August 31,
2001.
150. Summarized in table at fact 327.
151.
152. As a result of the insurance coverage benefits provided by
Sun Life to the Debtor and its employees (and dependents), Sun
Life made the following payments to said employees, dependents,
and beneficiaries for claims made as of August 31, 2001: Employee
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Basic Life claims totaling $72,000: Dependent Basic Life claims
totaling $2000; Employee Optional Life claims totaling $25,000;
Dependent Optional Life claims totaling $10,000; AD & D claims
totaling $10,000; Long-Term Disability claims totaling
$42,318.60; and Short-Term Disability claims totaling
$196,974.85.
153. In addition to the above described claims paid for claims
made on or before August 31, 2001 (for the time period from
January 1, 2000 through August 31, 2001), Sun Life will continue
to make long-term disability payments to two former employees of
the Debtor (one in the amount of $130 per month through January
2, 2022, and the other in the amount of $1,185 per month through
October 23, 2027), so long as said employees continue to be
totally disabled (within the meaning of the terms of the amended
Policy), and are otherwise entitled to continuing benefits.
154. According to the Debtor's Schedules filed on March 26, 2001
the Debtor had $5,415,846.77 in unsecured priority claims.
155. As of November 8, 2005 the total amount received by the
Trustee in all of the Trustee's Section 547 preference actions
totaled $10,875,361.06. 	Additionally, as of said date the amount
claimed in outstanding complaints and amounts awarded but
uncollected totaled $2,268,443.23. 15
15 If the Trustee has some $13 million to distribute, there
are approximately $ 9.782 million of priority wage claims for
(continued...)
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156.
157. If this Case had been filed as a Chapter 7, Michael Caplan
(the Trustee’s expert) or any other appointed trustee would have
attempted to hire a law firm to pursue preference and avoidance
actions on a contingency fee basis, allowing them to receive a
one third contingency for each preference recovery.
158. During the Chapter 11 the Debtor's employees created a
preference screen and maintained the Debtor's computer system in
operation. However, based on the assumption that without access
to the Chapter 11 the Debtor's computer system (and the
preference screen performed postpetition) would not have been
available to the Trustee, Mr. Caplan is of the opinion that it is
possible that the preference recovery would have been
significantly less than $8 million.
159. In a hypothetical chapter 7 analysis virtually all of the
recovery on preference and avoidance claims would have gone to
priority tax claimants, employees, and other priority claims.
15 (...continued)
non-executive employees (fact 344) and $240,000 of priority wage
claims for executive employees (fact 345) or roughly $10.0
million of wage claims that would be paid prior to unsecured
creditors. 	Debtor’s Schedule F was over 2,700 pages long and
totaled $151 million. 	Debtor filed an amended Schedule F
eliminating some creditors and omitting duplicate entries;
amended Schedule F totaled $102 million. 	The Trustee has
represented to the Court repeatedly that she is not sure that
wage claims will be paid in full after administrative expenses.
In other words, there really is no question that Debtor was
massively and hopelessly insolvent in the 90 days before the
petition.
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After those payments it is possible there would have been nothing
left to pay general unsecured creditors. 	But even if there were
anything left to pay general unsecured creditors, it would be in
the nature of pennies on the dollar.
UNDISPUTED FACTS FROM TRUSTEE’S STATEMENT OF SUPPLEMENTAL FACTS
These facts are from the Trustee’s Statement of Supplemental
Facts (part II of doc 70) and Defendant’s Response thereto (doc
101).
201. Fact 307 is more comprehensive.
202. The policy premium payments from Debtor to Defendant were
due and payable monthly on the first day of each month.
203. Duplicate of fact 6.
204. Duplicate of fact 8.
205. Duplicate of fact 1.
206. Duplicate of fact 9.
207. Duplicate of fact 2.
208. Debtor and Debtor’s bankruptcy estate do not owe Defendant
any amount for unpaid insurance premiums.
209. Defendant was paid in full for all insurance coverage
provided to Debtor or to Debtor’s employees during the Preference
Period.
210. Summarized in table at fact 327.
211. Duplicate of fact 149.
212. Duplicate of fact 211.
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213. Debtor and Debtor’s employees received all the benefits due
to them under the terms of the insurance policy with Defendant
and Defendant does not owe any product, service or performance to
any of Debtor’s former employees under the terms of the insurance
policy, except to the extent that Defendant may continue to pay a
long-term disability benefit claim approved while the insurance
policy was in force. 	In response to this proposed fact, Sun Life
asserts that, in fact, there are two long term claims. 	The Court
finds the dispute not material.
214. Duplicate of fact 4.
215. In a hypothetical Chapter 7, the trustee would almost
certainly abandon all encumbered assets, including the debtor’s
cash, inventory, store leases, equipment leases, warehouse lease,
store fixtures, equipment, and liquor licenses, and/or the leases
would be rejected by operation of law under the Bankruptcy Code,
as there would be no equity in the assets that could be realized
by the estate, and there would be no funds available to pay rent
for the leased stores, for the leased warehouse in El Paso, or
for leased equipment. 	The trustee would have no way to operate
the debtor at all, much less for long enough to sell the assets,
or to preserve the assets until a sale could be accomplished.
216.-220. 	The parties agree these are no longer relevant.
221. In Furr’s chapter 11 case, there was never a deadline set or
noticed for filing prepetition claims.
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222. Debtor’s payments to Sun Life made postpetition were
authorized under the Code or by the Court, pursuant to 11 U.S.C.
§§ 363, 1107 & 1108. 	They may also have been authorized by the
Employee Benefits Order or some other order(s).
223.- 224. The parties agree these are no longer relevant.
225. As of the Petition Date, Furr’s employee payroll was
outstanding and owed; there were outstanding payroll checks from
the prior week; and there were employment taxes owed on the
outstanding payroll. 	The total of these amounts outstanding as
of the Petition Date was approximately $3.5 million. 	As of the
Petition Date, Furr’s owed at least approximately $2.4 million in
self-insured employee medical claims.
226. The Policy provided that the “Grace Period means the 45 days
following a premium due date during which premium payment may be
made.” “If the Policyholder fails to pay any premium within the
Grace Period, this Policy will terminate on the last day of the
Grace Period.” “The Grace Period is 45 days following a premium
due date during which premium payment may be made. 	During the
Grace Period the Policy shall continue in force, unless the
Policyholder has given Sun Life written notice to discontinue
this Policy. 	In any event, premiums are payable for any period
of time the Policy remains in force.” 	Sun Life could terminate
this Policy on any premium due date by giving written notice to
the Policyholder at least 60 days in advance. 	Sun Life admitted
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this fact was not disputed, but added that Sun Life had agreed to
a 60-day grace period and issued an amended policy on May 16,
2001, and it was attached to Dewar deposition as Exhibit 11.
227. Duplicate of fact 113.
228. Duplicate of fact 113.
229. Duplicate of fact 113.
230. Duplicate of fact 113.
231. The checks to Sun Life were drawn on the First National Bank
at Fairfield account. 	With respect to checks to Sun Life, on the
day the check was presented to Furr’s bank, First National Bank
of Fairfield, it would notify Furr’s of the aggregate amount of
all checks presented and Furr’s would wire transfer that amount
to the bank from the main operating account. 	Ms. Dunlap would
make the calculations of inflows versus outflows and how much
additional cash Furr’s would need to meet that day's requirements
and call Furr’s lender and ask it to wire funds to the main
operating account. 	In turn, Furr’s would wire the funds from the
main operating account to the bank in Fairfield.
232. All sales proceeds went into a main account each day. 	There
was one collective pot [of money] for everything to go into and
out of. 	There wasn't any one-to-one correlation of anything.
All receipts from all stores, regardless of where it came from
and regardless of where that money would ultimately be used for
all went into one pot.
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233. Furr’s had systems in place that would transfer all funds
collected in the stores into the main operating account every
day. 	When Heller became Furr’s lender, they settled up on a
daily basis. 	This meant that all of the funds incoming were
wired to Heller daily. 	Heller wired back the amount that was
required to make all the payments on any given day.
234. Furr's relationship with its lender required that it settle
up at the end of every day so that a minimal amount of funds was
left in Furr's bank accounts. 	Any excess funds were used to pay
down the line of credit every night. 	If a bank account ended up
with something in it at the end of the day it was because Furr’s
missed the projections. 	Furr’s used two “control disbursement
accounts” one for vendors and expenses and an account used for
payroll that both were maintained at a zero balance. 	Every day
the bank notified Furr’s how much in checks cleared and Furr’s
funded exactly what cleared each day.
235. Ms. Dunlap was Furr’s cash manager. 	She would project the
incoming amount of funds, basically the collections from the
store accounts, and project the outflow of funds, be it payroll
or benefits or taxes, et cetera, on a daily basis and what would
be left, if any, at the end of the day, or what Furr’s
requirements for cash would be at the end of the day. 	Furr's was
a net borrower. 	This meant that Furr's didn't have any cash of
its own, and that all of the money in Furr's bank accounts,
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including cash, was pledged to a lender. 	But, Sun Life commented
that Furr’s owned the cash it received from customers. 	This is
probably true for every day until the funds were swept.
236. There were meetings held almost daily with Mr. Mortensen to
decide which of Furr’s vendors was going to get paid. 	Once a
decision had been made about who was going to get paid, then
checks were sent out to those entities. 	Ms. Dunlap prepared cash
flow projections in part so that Furr’s knew how much money was
available so that Mr. Mortensen could then decide what checks to
send out. 	Mr. Mortensen was the chief financial officer during
the 90 days before the bankruptcy. 	He had the authority not to
issue a check to any particular person or entity.
UNDISPUTED FACTS FROM TRUSTEE’S STATEMENT OF UNDISPUTED FACTS
These facts are from the Trustee’s Statement of Material
Facts (doc 122) and Defendant’s Response thereto (doc 125).
301. Duplicate of fact 1.
302. Debtor paid Defendant a total of $179,868.24 (the
“Payments”) during the preference period in three (3) checks on
the dates in the amounts described with the check numbers,
amounts, payment due dates, check dates, dates received and dates
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of honor set out below. 	Defendant received and negotiated the
three checks described below.
Check Nos. Amounts 	Payment
due dates
Check
Dates
Date
Received
Date
Honored
25128092 	$44,850.65 9/1/00 	11/7/00 	11/13/00 	11/15/00
25132000 	$44,570.16 10/1/00 	12/1/00 	12/11/00 	12/14/00
25136888 	$90,447.43 11/1/00 &
12/1/00
01/5/01 	01/16/01 	01/17/01
(But see fact 327 (more comprehensive list.))
303. The policy premium payments from Debtor to Defendant were
due and payable monthly on the first day of each month.
304. Duplicate of fact 6.
305. Duplicate of fact 8.
306. Duplicate of fact 9.
307. Duplicate of fact 2.
308. Duplicate of fact 4.
309. Duplicate of fact 113.
310. Duplicate of fact 230.
311. Duplicate of fact 231.
312. Duplicate of fact 232.
313. Duplicate of fact 233.
314. Duplicate of fact 234.
315. Duplicate of fact 235.
316. Duplicate of fact 236.
317. Duplicate of fact 112.
318. Duplicate of fact 113.
319. Duplicate of fact 134.
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320. The Debtor’s purchase of life, accidental death &
dismemberment (“AD&D”), and disability insurance from Defendant
(and prior to that, from Unum Life Insurance Company of America
(“UNUM”)) was part of an insurance program providing the Debtor’s
employees and their dependents with several different kinds of
insurance.
321. Approximately half of Debtor’s employees participated in the
voluntary or optional coverage program.
322. Employee basic life, dependent basic life, employee basic
AD&D, and employee short-term and long-term disability insurance
premiums were paid by the Debtor on behalf of its employees.
Employee and dependent (spouse and child) optional life and
employee optional AD&D insurance (collectively, the “optional
insurance”) premiums were deducted from the employees paychecks.
Moneys deducted from employee’s checks to pay insurance premiums
to Defendant did not exist at the time the paycheck was cut.
There was no mechanism in place to segregate the money deducted
from the employee paychecks. 	On the day the employee paychecks
were cut, there wasn't any money anywhere designated to cover the
checks or the withholding.
323. The Defendant did not bill or invoice the Debtor. 	Rather,
toward the end of each month the Debtor’s payroll department
would run a “census” on the number of the Debtor’s current
employees. 	At the beginning of each month Robinson would take
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the census from the end of the previous month and prepare “self
bills” for the life, AD & D, and disability insurance provided by
Sun Life. 	Preparing the self bills involved determining how many
employees (plus spouses and children) were eligible for what
amount and type of coverage, and calculating the premiums to be
paid by the Debtor and the premiums being withheld from the
employees’ wages.
324. (Duplicates 136 in part.) 	During the middle of each month
Robinson would submit the self-bills to the head of the
Administrative Department of the Debtor (and beginning in early
2000 to the head of the Human Resources Department of the Debtor
instead of to the Administrative Department). 	Upon approval by
the applicable department head, Robinson would write the date of
approval and the word "Approved,” and her name, “Lana Booth,
Health Benefits Manager,” on the self bills and submit them to
the Debtor’s accounting department. 	The Debtor’s accounting
department would then prepare a check and print out a check stub
and return the check and check stub to Robinson to mail out to
Sun Life each month.
325. In preparing the self-bills, the Debtor did not know or try
to determine what was deducted from employee wages. 	Sun Life
admitted that this fact was not disputed, but added:
It is not accurate to say that in preparing the
“self bills” the Debtor did not know or try to
determine what was deducted from employee wages. 	Lana
Robinson, the Debtor’s health benefits administrator,
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did testify that she didn’t always have verification
that amounts shown on employee’s check stubs was
actually withheld. 	Later on in her deposition she
testified that when she calculated the premiums for
voluntary life she never looked at what was deducted
from an employee’s check. 	Rather, she looked at the
number of lives that the Debtor’s records showed to be
covered, whether or not they were receiving a paycheck,
and multiplied that by the rate based on the amount of
coverages they had. 	She said that she never went back
and compared what was actually withheld from the
paychecks to the amount she calculated. 	However, she
also said the actual amounts withheld from employee
paychecks should be close to the numbers shown on her
worksheets.
326. Duplicate of fact 226.
327. The following chart accurately reflects the premium payment
history by Debtor to Defendant.
Premium
Due Date
Premium
Amount
Received
by Sun
Coverage
period
Check
Date
Check
Number
Check
Amount
1/1/00 	$38,071.31 5/18/00 	1/2000 	5/11/00 25095418 	$38,071.31
2/1/00 	$44,414.26 3/6/00 	2/2000 	2/25/00 25080702 	$44,414.26
3/1/00 	$44,970.49 4/25/00 	3/2000 	4/14/00 25090140 	$44,970.49
4/1/00 	$44,313.36 6/6/00 	4/2000 	5/26/00 25098164 	$44,313.36
5/1/00 	$44,313.36 7/11/00 	5/2000 	6/30/00 See below See below
6/1/00 	$44,313.36 7/11/00 	6/2000 	6/30/00 25104681 	$88,626.72
7/1/00 	$45,046.52 9/19/00 	7/2000 	9/8/00 	25117292 	$45,046.52
8/1/00 	$43,991.51 9/25/00 	8/2000 	9/19/00 25119241 	$43,991.51
9/1/00 	$44,850.65 11/13/00 9/2000 	11/7/00 25128092 	$44,850.65
10/1/00 	$44,570.16 12/11/00 10/2000 12/1/00 25132000 	$44,570.16
11/1/00 	$45,338.75 1/16/01 	11/2000 1/5/01 	See below See below
12/1/00 	$45,108.68 1/16/01 	12/2000 1/5/01 	25136888 	$90,447.43
1/1/01 	$46,763.01 3/5/01 	1/2001 	2/27/01 See below See below
2/1/01 	$46,703.78 3/5/01 	2/2001 	2/27/01 30000610 	$93,466.79
3/1/01 	$44,961.79 5/1/01 	3/2001 	4/25/01 30004592 	$44,961.79
4/1/01 	$43,555.42 6/11/01 	4/2001 	6/1/01 	40001787 	$43,555.42
5/1/01 	$43,190.63 6/29/01 	5/2001 	6/25/01 40003341 	$43,190.63
6/1/01 	$41,123.41 7/30/01 	6/2001 	7/23/01 40005482 	$41,123.41
7/1/01 	$39,087.98 11/14/01 7/2001 	8/15/01 See below See below
8/1/01 	$38,106.17 8/22/01 	8/2001 	8/15/01 40006722 	$77,194.15
Sun Life admitted that this fact was not disputed, but stated
that in the row beginning with 7/1/01, that the “Received by Sun”
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date is not November 14, 2001, but August 22, 2001. 	Sun Life
cites to Trustee’s Interrogatory No. 22 and Trustee’s Request for
Admission No. 15 and Sun Life’s responses thereto. 	The Court
finds this not material.
328. (Duplicates 208.) Debtor and Debtor’s bankruptcy estate do
not owe Defendant any amount for unpaid insurance premiums.
329. (Duplicates 209.) Defendant was paid in full for all
insurance coverage provided to Debtor or to Debtor’s employees
during the Preference Period.
330. Duplicate of fact 211.
331. Duplicate of fact 212.
332. Duplicate of fact 213.
333. Duplicate of fact 215.
334. The trustee in a hypothetical chapter 7 case would be
confronted with 71 closed supermarkets located throughout New
Mexico and west Texas, and no funds available to pay rent, to pay
for utilities or security, to pay employees or consultants or to
use for other purposes. 	Such a trustee would be confronted with
spoiling perishable products in 71 grocery stores, and likely
with a large number of angry former employees who did not receive
their last paychecks.
335. In a hypothetical Chapter 7, the trustee would encounter a
computer system that was fragile, and out-of-date, which pre-
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petition required frequent interaction between Debtor’s
development staff and Lawson’s Help Desk.
336. In a hypothetical Chapter 7, the computer system would have
been shut down. 	Because the systems were customized it would
have required documentation of all the code customization in
order for those working on a contingency basis for a trustee to
understand all the intricacies of the system. 	There would have
been very little documentation to assist the trustee in
retrieving information from the system.
337.- 340. The parties agree these are no longer relevant.
341. Duplicate of fact 221.
342. Duplicate of fact 222.
343. The parties agree this fact is no longer relevant.
344. Based on Furr’s accounting records, on the Petition Date,
Furr’s owed at least $9,781,907.25 to its non-executive
employees, capped at $4,300.00 per employee. 	This amount is the
total, limited to $4,300.00 for each individual, of (a) wages
owed but unpaid on the Petition Date, (b) severance pay owed on
the Petition Date, (c) accrued, unused and uncompensated vacation
as of the Petition Date, and (d) the employer’s portions of the
Social Security, Medicare, state unemployment and federal
unemployment taxes on unpaid wages, severance and vacation pay as
of the Petition Date. 	All of the wage and vacation amounts
included in the above total were earned within 90 days before the
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Petition Date. 	The Social Security, Medicare, state unemployment
and federal unemployment tax amounts are calculated on wage and
vacation amounts earned within 90 days before the Petition Date
and on the severance pay owed on the Petition Date; the
calculation does not take into account certain federal & state
excess wages per employee and does not include taxes on those
excess wages.
345. As of the Petition Date, Furr’s owed at least $236,707.11 to
its employees that were on the executive payroll, capped at
$4,300.00 per employee. 	This amount is the total, limited to
$4,300.00 for each individual, of (a) wages and salaries owed but
unpaid on the Petition Date, (b) 3.75 days estimated accrued,
unused and uncompensated vacation as of the Petition Date, and
(c) the employer’s portions of the Social Security, Medicare,
state unemployment and federal unemployment taxes on unpaid wages
and vacation pay as of the Petition Date. 	All of the wage and
vacation amounts included in the above total were earned within
90 days before the Petition Date. 	All of the Social Security,
Medicare, state unemployment and federal unemployment tax amounts
are calculated only on amounts earned within 90 days before the
Petition Date; the calculation does take into account certain
federal & state excess wages per employee and does not include
taxes on those excess wages.
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346. As of the Petition Date, Furr’s owed at least approximately
$2.4 million in self-insured employee medical claims.
DISCUSSION
1. 	Plaintiff’s prima facie case
In this adversary proceeding the Plaintiff seeks to avoid a
preferential transfer under Bankruptcy Code section 547. 	The
United States Supreme Court discussed the policies underlying
that section in Union Bank v. Wolas (In re ZZZZ Best Co., Inc.),
502 U.S. 151 (1991).
The Bank and the trustee agree that § 547 is
intended to serve two basic policies that are fairly
described in the House Committee Report. 	The Committee
explained:
“A preference is a transfer that enables a
creditor to receive payment of a greater
percentage of his claim against the debtor than he
would have received if the transfer had not been
made and he had participated in the distribution
of the assets of the bankrupt estate. 	The purpose
of the preference section is two-fold. 	First, by
permitting the trustee to avoid prebankruptcy
transfers that occur within a short period before
bankruptcy, creditors are discouraged from racing
to the courthouse to dismember the debtor during
his slide into bankruptcy. 	The protection thus
afforded the debtor often enables him to work his
way out of a difficult financial situation through
cooperation with all of his creditors. 	Second,
and more important, the preference provisions
facilitate the prime bankruptcy policy of equality
of distribution among creditors of the debtor.
Any creditor that received a greater payment than
others of his class is required to disgorge so
that all may share equally. 	The operation of the
preference section to deter ‘the race of
diligence’ of creditors to dismember the debtor
before bankruptcy furthers the second goal of the
preference section-that of equality of
distribution.” [H.R. Rep. No. 95-595], at 177-178
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[(1977)], U.S. Code Cong. & Admin. News 1978, pp.
6137, 6138.
Id. at 160-61.
To establish a voidable preference the Trustee
must prove all five elements of § 547(b). 	They are:
any transfer of property of the debtor—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the
debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing
of the petition;...
(5) that enables such creditor to receive more than
such creditor would receive if—
(A) the case were a case under Chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the
extent provided by the provisions of this title.
Eckles v. Pan American Marketing (In re Balducci Oil Co.), 33
B.R. 843, 845 (Bankr. D. Colo. 1983). 	There are actually six
elements, the five numbered elements plus proof that the transfer
was of property of the estate. 	Before the Court considers
whether the Trustee has met her burden of proof in this case, the
Court will examine Sun Life’s affirmative defenses to determine
if any of them preclude the Trustee’s proof of any required
element.
2. 	Miscellaneous issues
But, before addressing the individual affirmative defenses,
the Court wants to clarify a misunderstanding that pervades
preference cases, including a case from this Court that may have
helped create the misunderstanding. See, e.g. Gonzales v. Food
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Marketing Group (In re Furr’s Supermarkets, Inc.), 320 B.R. 1, 6
(Bankr. D. N.M. 2004) (“[Section] 547(c) is the exclusive list of
defenses available to preferential transfers.”) 	This statement
does not mean that a defendant cannot challenge the elements that
a trustee must prove to establish a preference. 	See 11 U.S.C. §
547(b). 	In other words, a defendant is free to allege and
attempt to prove that the transfer was not made with debtor’s
property, that it was not a creditor, that there was no
antecedent debt, that the payment was outside of the preference
period, that the debtor was solvent, or that receipt of the
payment did not improve its position. 	See, e.g. Sloan v. Zions
First Nat'l Bank (In re Castletons, Inc.), 990 F.2d 551, 555
(10th Cir. 1993) (Trustee's avoidance claim rejected because “she
did not satisfy her burden of proof under § 547(b)(5)”.)
Nor, to be accurate, are the creditor’s affirmative defenses
limited to section 547(c). 	For example, a majority of courts
addressing the issue recognize a “contract assumption defense” as
a complete bar to preference recovery. 	See Weinman v. Allison
Payment Systems, LLC (In re Centrix Financial, LLC), 434 B.R.
880, 885-886 (Bankr. D. Colo. 2010). 	Similarly, as discussed
below, Sun Life has raised estoppel arguments as affirmative
defenses in this adversary proceeding. 	Indeed, it is easy to see
how affirmative defenses such as accord and satisfaction,
payment, release, res judicata, statute of limitations and
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waiver, all identified in Rule 8(c)(1), F.R.Civ.P., incorporated
into Rule 7008(a), F.R.B.P., come into play in a preference
action.
Rather, the statement necessarily means that, once the
elements of section 547(b) are proved and the preference
established, the only “preference-specific defenses” to the
trustee’s recovery of that preference are those set forth in
section 547(c). 	See section 547(c) (“The trustee may not avoid
under this section a transfer....”) (emphasis added); Rushton v.
E & S Inter. Enter., Inc. (In re Eleva, Inc.), 235 B.R. 486, 488
(10 th Cir. BAP 1999)(“Once a trustee has established that a
transfer is a preference, a creditor may assert a defense as
provided in 11 U.S.C. § 547(c).”)
The Court will also address several issues that are common
to several of Sun Life’s defenses. 	First, it does not matter
that Debtor obtained the funds used to pay Sun Life from
extensions on a line of credit by Heller.
As a general rule, under § 547(b), a debtor's
transfer of borrowed funds constitutes a preferential
transfer of the debtor's property, assuming the other
elements of that section are met. 	See Matter of Smith,
966 F.2d 1527, 1537 (7th Cir. 1992) (“When a debtor
effectively borrows nonearmarked funds and exercises
control by using the funds to pay a preferred creditor
over others, the estate has been diminished.”).
Bailey v. Big Sky Motors (In re Ogden), 314 F.3d 1190, 1199 (10th
Cir. 2002). 	See also Amdura Nat’l Distribution Co. v. Amdura
Corp., Inc. (In re Amdura Corp.), 75 F.3d 1447, 1451 (10 th Cir.
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1996)(“We presume that deposits in a bank to the credit of a
bankruptcy debtor belong to the entity in whose name the account
is established."); Manchester v. First Bank & Trust Co. (In re
Moses), 256 B.R. 641, 645 (10 th Cir. BAP 2000)(When debtor
borrowed money from his pension plan and paid off a bank loan,
that payment diminished his subsequent bankruptcy estate. 	On the
petition date the funds were no longer available to pay unsecured
creditors.); Gray v. Travelers Ins. Co. (In re Neponset River
Paper Co.), 231 B.R. 829, 834 (1 st Cir. BAP 1999)(Funds
transferred to a creditor came from an advance on a working
capital agreement that was accounted for on debtor’s financial
statement as a liability. 	The bankruptcy appellate panel held
that this was a transfer of debtor’s property.) 	Accord Southmark
Corp. v. Grosz (In re Southmark Corp.), 49 F.3d 1111, 1116 and
n.16 (5 th Cir. 1995)(Same, and noting that any funds under
control of a debtor, regardless of the source, are properly
deemed to be the debtor’s property. 	Collecting cases.)
Second, earmarking does not apply in this case.
“In cases where a third person makes a loan to a debtor
specifically to enable him to satisfy the claim of a
designated creditor, the proceeds never become part of
the debtor's assets, and therefore no preference is
created. 	The rule is the same regardless of whether
the proceeds of the loan are transferred directly by
the lender to the creditor or are paid to the debtor
with the understanding that they will be paid to the
creditor in satisfaction of his claim, so long as such
proceeds are clearly ‘earmarked.’” 	4 Collier on
Bankruptcy ¶ 547.25 at 547-(101-102) (15th ed. 1986).
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Coral Petroleum, Inc. v. Banque Paribas-London (In re Coral
Petroleum, Inc.), 797 F.2d 1351, 1356 (5th Cir. 1986). 	See also
Moses, 256 B.R. at 650 (As the bottom line, if debtor controls
the proceeds of a loan and is free to use the funds in any way,
there is no earmarking.); Neponset River, 231 B.R. at 835 (“This
control by the debtor of the distribution of funds precludes the
application of the earmarking doctrine herein.”) 	There is
nothing in the record that alleges that Heller required or
instructed Debtor to pay Sun Life, and there are no allegations
or evidence that Debtor was required to pay Sun Life. 	And,
debtor had control of the borrowed funds before they were
transferred because they flowed through Debtor’s account. 	See
Fact 113.
Courts have used this dominion/control test to
determine whether a transfer of property was a transfer
of “an interest of the debtor in property.” 	See, e.g.,
McLemore v. Third Nat'l Bank in Nashville (In re
Montgomery), 983 F.2d 1389, 1395 (6th Cir. 1993); In re
Smith, 966 F.2d 1527, 1531 (7th Cir. 1992). 	Under this
test, a transfer of property will be a transfer of “an
interest of the debtor in property” if the debtor
exercised dominion or control over the transferred
property. 	See id.
Parks v. FIA Card Services, N.A. (In re Marshall), 550 F.3d 1251,
1255 (10th Cir. 2008), cert. denied, 129 S.Ct. 2871 (2009).
And, finally, Sun Life argues “estoppel” several times in
different contexts without specifying the exact flavor of the
estoppel. 	Black’s Law Dictionary (9 th ed. 2009) lists thirty-
three types of estoppel. 	The Court assumes that Sun Life is
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arguing judicial estoppel, but the Court will also consider
application of collateral estoppel, equitable estoppel, and
promissory estoppel.
JUDICIAL ESTOPPEL
The doctrine of judicial estoppel states that
“where a party assumes a certain position in a legal
proceeding, and succeeds in maintaining that position,
he may not thereafter, simply because his interests
have changed, assume a contrary position, especially if
it be to the prejudice of the party who has acquiesced
in the position formerly taken by him.” 	Davis v.
Wakelee, 156 U.S. 680, 689, 15 S.Ct. 555, 39 L.Ed. 578
(1895). 	While judicial estoppel is “ ‘probably not
reducible to any general formulation of principle,’ ”
New Hampshire v. Maine, 532 U.S. 742, 750, 121 S.Ct.
1808, 149 L.Ed.2d 968 (2001), the following factors are
crucial in deciding when to apply the doctrine:
First, a party's later position must be
clearly inconsistent with its earlier position.
Moreover, the position to be estopped must
generally be one of fact rather than of law or
legal theory. 	Second, whether the party has
succeeded in persuading a court to accept that
party's earlier position, so that judicial
acceptance of an inconsistent position in a later
proceeding would create the perception that either
the first or the second court was misled....
Third, whether the party seeking to assert an
inconsistent position would derive an unfair
advantage or impose an unfair detriment on the
opposing party if not estopped.
Johnson v. Lindon City Corp., 405 F.3d 1065, 1069 (10th
Cir. 2005) (internal citations and quotation marks
omitted).
United States v. Villagrana-Flores, 467 F.3d 1269, 1278-79 (10 th
Cir. 2006), cert. denied, 549 U.S. 1149 (2007). 	See also Kane v.
Nat’l Union Fire Ins. Co., 535 F.3d 380, 385-86 (5 th Cir. 2008):
“Judicial estoppel is a common law doctrine that
prevents a party from assuming inconsistent positions
in litigation.” 	In re Superior Crewboats, Inc., 374
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F.3d [330] at 334 [(5 th Cir. 2004)] (citing Brandon v.
Interfirst Corp., 858 F.2d 266, 268 (5th Cir. 1988)).
“ ‘The purpose of the doctrine is to protect the
integrity of the judicial process by preventing parties
from playing fast and loose with the courts to suit the
exigencies of self interest.’ ” 	Id. (quoting In re
Coastal Plains, Inc., 179 F.3d [197] at 205 [(5 th Cir.
1999)]. 	As an equitable doctrine, “[g]enerally,
judicial estoppel is invoked where ‘intentional
self-contradiction is being used as a means of
obtaining unfair advantage in a forum provided for
suitors seeking justice.’ ” Id. 	[sic][Superior
Crewboats, 374 F.3d] at 334-35 (quoting Scarano v.
Cent. R.R. Co., 203 F.2d 510, 513 (3d Cir. 1953)).
Application of judicial estoppel is within the trial court’s
discretion. 	Kane, 535 F.3d at 384; Matthews v. Denver Newspaper
Agency LLP, 649 F.3d 1199, 1209 (10 th Cir. 2011).
When analyzing judicial estoppel, the Court examines three
factors. 	First, the later statement must clearly be inconsistent
with the party’s earlier statement in litigation. 	See Cleveland
v. Policy Mgt. Systems Corp., 526 U.S. 795, 802 (1999) (The Court
of Appeals ruled that claims under both the Americans with
Disabilities Act and Social Security Disability Insurance were
directly conflicting: namely, “I am too disabled to work” and “I
am not too disabled to work.” 	Id. 	The Supreme Court examined
the actual language at issue and found that there were many
situations where an SSDI claim and an ADA claim could comfortably
exist side by side, and reversed the Court of Appeals.) 	Id. at
803. 	See also Devan v. CIT Group Commercial Services, Inc. (In
re Merry-Go-Round Enter., Inc.), 229 B.R. 337, 345 (Bankr. D. Md.
1999)(The Maryland Bankruptcy Court found that statements of
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solvency made by the debtor-in-possession (“DIP”) in postpetition
motions did not conflict with the allegations of trustee’s
preference complaint of preference-period insolvency because the
DIP’s motions did not even mention insolvency as defined by the
code or the related concept of fair valuation.)
Inherent in the first factor is that the same party must
make both representations, or perhaps they must be in privity
with or bound by the acts and representations of the maker of the
first statement. 	It does not impede the judicial process if two
different parties make conflicting statements. 	See Meda v. Snell
& Wilmer, L.L.P. (In re Schugg), 2009 WL 3132932 at *5 (D. Ariz.
2009)(Regardless of debtor’s acts or omissions, Meda, the plan
trustee, never made any inconsistent statements to the Court.
Judicial estoppel did not apply.); The Liquidation Committee v.
Binsky & Snyder, Inc. (In re J.A. Jones, Inc.), 361 B.R. 94, 104
(Bankr. W.D. N.C. 2007)(“First, the Debtor’s statements made in
connection with the 2003 Motion are not binding on these post-
confirmation creditor’s committees, negating judicial
estoppel.”); and Id. at 105:
Lastly, the use of judicial estoppel is
inappropriate in this case because the “party to be
estopped” would be the general body of unsecured
creditors, not the party that made the statement, which
is the Debtor. 	Certainly, Defendants have not
identified any prior position or assertion by the
Committees that is inconsistent with the one they have
taken in these proceedings.
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Another consideration for the first factor is whether the
statements made were of “fact.” 	Johnson v. Lindon City Corp.,
405 F.3d at 1069 (“Moreover, the position to be estopped must
generally be one of fact rather than of law of legal theory.”)
(Citing Lowery v. Stovall, 92 F.3d 219, 224 (4 th Cir. 1996),
cert. denied, 519 U.S. 1113 (1997)). 	See also The Liquidation
Committee, 361 B.R. at 105:
Judicial estoppel cannot be applied to the
statements relied upon by the Debtors in the 2003
Motion because they are not “assertions of fact.” 	The
application of judicial estoppel cannot be applied to
an assertion of law. 	Pittston Co. v. United States,
199 F.3d 694, 701 n. 4 (4th Cir. 1999) (“[J]udicial
estoppel applies only to the making of inconsistent
statements of fact, and therefore is of no relevance to
[the litigant's] legal contention ....”); Marathon Oil
Co., 149 F.3d [283] at 292 [(4 th Cir. 1998)]; Folio v.
City of Clarksburg, 134 F.3d 1211, 1217–18 (4th Cir.
1998) (“[T]he position must be one of fact, rather than
law or legal theory.”). 	Defendants cite part of the
2003 Motion, which states, “the Subcontractors may have
mechanic's liens and materialmen's lien rights” and
“the Subcontractors may be secured creditors.” Brief of
Lorton Contracting Co. at 18, The Liquidation Committee
v. Lorton Contracting Company, Case No. 05–3222 (Bankr.
W.D. N.C. May 31, 2006) (emphasis added). 	Any
statement regarding the validity of a mechanic's lien
and/or a creditor's secured status is an assertion of
law to which judicial estoppel does not apply.
See also Philip Services Corp. v. Luntz (In re Philip Services
(Delaware), Inc.), 284 B.R. 541, 550 (Bankr. D. Del. 2002)(“[T]he
position must be one of fact, rather than law or legal theory.”),
aff’d., 303 B.R. 574 (D. Del. 2003). 	Compare New Hampshire v.
Maine, 532 U.S. 742, 751 (2001)(“New Hampshire's claim that the
Piscataqua River boundary runs along the Maine shore is clearly
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inconsistent with its interpretation of the words ‘Middle of the
River’ during the 1970's litigation.”); Cleveland, 526 U.S. at
802 (“This case does not involve ... directly conflicting
statements about purely factual matters, such as ‘The light was
red/green,’ or ‘I can/cannot raise my arm above my
head.’”)(Emphasis in original.)(Holding that judicial estoppel
did not apply). 	See also Sturn v. Boker, 150 U.S. 312, 336
(1893):
What the complainant said in his testimony was a
statement of opinion upon a question of law, where the
facts were equally well known to both parties. 	Such
statements of opinion do not operate as an estoppel.
If he had said, in express terms, that by that contract
he was responsible for the loss, it would have been,
under the circumstances, only the expression of an
opinion as to the law of the contract, and not a
declaration or admission of a fact, such as would estop
him from subsequently taking a different position as to
the true interpretation of the written instrument.
The second factor in the judicial estoppel analysis directs
the Court to examine whether the Court in fact accepted the first
statement. 	If it has,
judicial acceptance of an inconsistent position in a
later proceeding would create “the perception that
either the first or the second court was misled,”
Edwards [v. Aetna Life Ins. Co.], 690 F.2d [595], at
599 [(6 th Cir. 1982)]. 	Absent success in a prior
proceeding, a party's later inconsistent position
introduces no “risk of inconsistent court
determinations,” United States v. C.I.T. Constr. Inc.,
944 F.2d 253, 259 (5 th Cir. 1991), and thus poses
little threat to judicial integrity. 	See [United
States v.] Hook, 195 F.3d [299], at 306 [(7 th Cir.
1999)]; Maharaj [v. Bankamerica Corp.], 128 F.3d [94],
at 98 [(2 nd Cir. 1997)]; Konstantinidis [v. Chen], 626
F.2d [933], at 939 [(D.C. Cir. 1980)].
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New Hampshire, 532 U.S. at 750-51.
Under the third factor the Court examines whether a party
would gain an unfair advantage or impose an unfair detriment if
not estopped by prior statements. 	Id. at 751.
COLLATERAL ESTOPPEL
Sun Life seeks to estop Plaintiff using a prior federal
court order. 	“Federal principles of collateral estoppel apply to
prior judgments that are rendered by a federal court.” 	McCart v.
Jordana (In re Jordana), 232 B.R. 469, 475 (10th Cir. BAP 1999)
(citing cases), aff’d., 216 F.3d 1087 (10 th Cir. 2000)(Table).
In order for collateral estoppel to apply, the
following elements must be present: (1) the issue
previously decided is identical with the one presented
in the action in question, (2) the prior action has
been finally adjudicated on the merits, (3) the party
against whom the doctrine is invoked was a party or in
privity with a party to the prior adjudication, and (4)
the party against whom the doctrine is raised had a
full and fair opportunity to litigate the issue in the
prior action.
Id. at 475-76 (Citation and internal quotation marks omitted.)
EQUITABLE ESTOPPEL
There are four elements of a traditional estoppel
claim: (1) the party to be estopped must know the
facts; (2) the party to be estopped must intend that
his conduct will be acted upon or must so act that the
party asserting the estoppel has the right to believe
that it was so intended; (3) the party asserting the
estoppel must be ignorant of the true facts; and (4)
the party asserting the estoppel must rely on the other
party's conduct to his injury.
Spaulding v. United Transp. Union, 279 F.3d 901, 909 (10th Cir.),
cert. denied, 537 U.S. 816 (2002)(Citations omitted.)
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PROMISSORY ESTOPPEL
[T]he plaintiff must establish that a) defendant made a
promise, b) the promise was made under circumstances
where the promisor intended and reasonably expected the
promise would be relied upon by the promisee, c) the
promisee acted reasonably in reliance on the promise,
and d) a refusal to enforce the promise would result in
an injustice.
EDO Corp. v. Beech Aircraft Corp., 911 F.2d 1447, 1454 (10th Cir.
1990).
The Court will now address Sun Life’s affirmative defenses.
3. 	Sun Life’s Affirmative Defenses
A) 	Employee Benefits Order
Sun Life claims that the payments received were authorized
by the February 8, 2001 “Employee Benefits Order” (main case, doc
28) and that that order is now the law of the case. 	The caption
of that Order is: Order Authorizing (A) Payment of Prepetition
Employee Obligations and (B) Continuation Of Employee Benefit
Plans and Programs Postpetition. 	The Order provides, in part, 1)
the Debtor is authorized to pay or otherwise honor the
Prepetition Employee Obligations to, or for the benefit of, the
Employees; 2) the Debtor is authorized to continue postpetition
the employee benefit plans and programs in effect immediately
before the filing of this case; 3) the banks upon which any
checks are drawn in payment of the Prepetition Employee
Obligations, either before, on or after the petition date, are
authorized and directed to honor such checks upon presentation
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any such checks; 4) the banks are authorized and directed to rely
on the representations of the Debtor as to which checks are in
payment of the Prepetition Employee Obligations; 	5) the Debtor
is authorized to pay any and all withholding taxes, social
security taxes and other payroll taxes (local, state and
federal), whether such taxes relate to the period before or after
the Petition Date; 6) the banks upon which any checks are drawn
in payment of such taxes, whether before, on, or after the
Petition Date, are authorized and directed to honor such checks
upon presentation any such checks; 7) neither the provisions
contained in the order, nor any payments made by the Debtor under
the Motion, shall be deemed an assumption of any employee benefit
plan, program or contract, or otherwise affect the Debtor's
rights under 11 U.S.C. §§ 365, 1113, or 1114 to assume or reject
any executory contract between the Debtor, any employee, or any
provider of employee services or benefits.
The caption of the Order is that it is “authorizing”
Prepetition Employee Obligations and a Continuation Of Employee
Benefit Plans. 	Black’s Law Dictionary 133 (6 th ed. 1990) defines
“authorize” as “to empower”, or “to permit a thing to be done in
the future.” 	“Approval”, in contrast, is defined as “the act of
confirming, ratifying, assenting, sanctioning, or consenting to
some act or thing done by another.” 	Id. at 102. 	Therefore, the
caption makes clear that the order is dealing with things to be
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done in the future, i.e., postpetition, and is not pertinent to
things completed prepetition. 	Similarly, the decretal portion
authorizes 1) the Debtor “to pay” certain things now unpaid; 2)
the Debtor to continue benefit plans and programs postpetition;
3) banks to honor checks upon presentation; 4) banks to rely on
the representations of the Debtor as to which checks are in
payment of the Prepetition Employee Obligations; 	5) the Debtor
to pay any taxes; and 6) banks to honor tax checks upon
presentation. 	Everything authorized would occur postpetition.
The Order does not approve anything that happened
prepetition. 	Specifically it does not approve or ratify payments
to Sun Life, which Defendant admits is not even mentioned by name
in the Order. 	Furthermore, the Order specifically states:
Neither the provisions contained herein, nor any
payments made by the Debtor under the Motion, shall be
deemed an assumption of any Employee benefit plan,
program or contract, or otherwise affect the Debtor's
rights under 11 U.S.C. §§ 365, 1113, or 1114 to assume
or reject any executory contract between the Debtor,
any Employee, or any provider of employee services or
benefits.
Nothing in the Employee Benefits Motion contradicts or
expands the relief granted in the Order. 	Therefore, neither the
Motion or the Order have anything to do with the three payments
Sun Life received and which had already cleared the bank before
the petition was filed. 	The Motion and Order are totally
irrelevant to whether Sun Life received a preference. 	See Peltz
v. Hartford Life Ins. Co. (In re Bridge Information Systems,
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Inc.), 321 B.R. 247, 254 (Bankr. E.D. Mo. 2005)(When benefit
order authorized a debtor to pay for prepetition services but
also expressly stated that it did not require assumption of an
executory contract, it cannot insulate the creditor from a
trustee’s preference claim.)
Sun Life is essentially arguing that by filing the Employee
Benefits Motion Debtor was seeking to abandon or release any
preference claims related to the subject matter of those motions.
First, it is clear that a preference action is property of the
estate, and not property of the debtor. 	See 11 U.S.C. § 541(a)
(The estate consists of all legal or equitable interests of the
debtor in property as of the commencement of the case (except as
specified) and, among other things, any interest in property that
the trustee recovers under section 550 of this title.); Spicer v.
Laguna Madre Oil and Gas, II, LLC (In re Texas Wyoming Drilling,
Inc.), 422 B.R. 612, 632 (Bankr. N.D. Tex. 2010). 	Once a
preferential transfer action is property of the estate, unless
disposed of during a chapter 11 case it is still property of the
estate upon conversion to Chapter 7. 	Id. at 633. 	Disposal of
such an action would require a judgment, recovery, release,
transfer or the equivalent to occur during the Chapter 11. 	Id.
at 633-34. 	None of these occurred. 	See main case docket.
Furthermore, no notice of any such disposition appears in the
record. 	Nor were the preference claims settled, which would have
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required notice under Bankruptcy Rule 9019(a). 	And, finally, the
preference claims were not abandoned. 	Abandonment is governed by
Section 544, and provides:
§ 554. Abandonment of property of the estate
(a) After notice and a hearing, the trustee may abandon
any property of the estate that is burdensome to the
estate or that is of inconsequential value and benefit
to the estate.
(b) On request of a party in interest and after notice
and a hearing, the court may order the trustee to
abandon any property of the estate that is burdensome
to the estate or that is of inconsequential value and
benefit to the estate.
(c) Unless the court orders otherwise, any property
scheduled under section 521(a)(1) of this title not
otherwise administered at the time of the closing of a
case is abandoned to the debtor and administered for
purposes of section 350 of this title.
(d) Unless the court orders otherwise, property of the
estate that is not abandoned under this section and
that is not administered in the case remains property
of the estate.
The docket sheet does not show any motions to abandon, notices of
proposed abandonment, or orders authorizing abandonment. 	In
summary, the Court finds that this preference action is still
property of the estate and that it has not been abandoned.
Sun Life cites to several cases in support of its defense A.
One is directly on point, Official Committee of Unsecured
Creditors v. Medical Mutual of Ohio (In re Primary Health
Systems, Inc.), 275 B.R. 709 (Bankr. D. Del. 2002), aff’d, C.A.
No. 02-cv-00301-SLR (D. Del. Feb. 27, 2003)(unpublished). 	In
Primary Health the unsecured creditors committee brought a
preference action against the defendant, which filed a motion to
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dismiss arguing that the payments it had received pre-petition
were authorized by a “benefits order” that authorized the debtor
to pay prepetition compensation and other employee benefits, and
that directed banks to honor checks, and authorized the debtor to
continue to make benefit payments. 	Id. at 710. 	The bankruptcy
judge dismissed the case, stating that the benefits order had
become the law of the case. 	Id. at 711. 	The court did not
address the fact that the order only authorized postpetition
transfers, not prepetition transfers. 	Id. 	Nor did that court
explain how an order could become law of the case as to
prepetition transfers when that issue was neither raised or
actually litigated. 	See Octagon Resources, Inc. v. Bonnett
Resources Corp. (In re Meridian Reserve, Inc.), 87 F.3d 406, 409
(10 th Cir. 1996):
“The law of the case is a judicial doctrine designed to
promote decisional finality. 	Once a court decides an
issue, the doctrine comes into play to prevent the
re-litigation of that issue in subsequent proceedings
in the same case.” 	Pittsburg & Midway Coal Mining Co.
v. Watchman, 52 F.3d 1531, 1536 n. 4 (10th Cir. 1995).
“The doctrine applies to issues previously decided,
either explicitly or by necessary implication.” 	Guidry
v. Sheet Metal Workers Int'l Ass'n, 10 F.3d 700, 705
(10th Cir. 1993), reh'g on other grounds, 39 F.3d 1078
(10th Cir. 1994) (en banc), cert. denied, 514 U.S.
1063, 115 S.Ct. 1691, 131 L.Ed.2d 556 (1995) (citation
omitted).
First, the Court finds that the Employee Benefits Order in
this case is not the “law of the case” as to the recovery of
preferences. 	The issue of preference liability was not raised,
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and definitely not decided by the order, either explicitly or by
implication. 	The order dealt only with postpetition payments of
certain outstanding employee benefit prepetition liabilities and
the ability to continue making employee benefit payments
postpetition.
Second, this Court rejects the reasoning set out in Primary
Health. 	Similarly, another bankruptcy judge from the District of
Delaware declined to follow Primary Health in HLI Creditor Trust
v. Export Corp. (In re Hayes Lemmerz Int’l., Inc.), 313 B.R. 189,
193 (Bankr. D. Del. 2004):
First, the payments at issue here were not made under
the Critical Vendor Order; rather, they were made
before the Critical Vendor Motion was filed and before
the Critical Vendor Order was entered. 	Therefore, the
payments at issue are not protected by the Order.
(Emphasis in original. 	Footnote omitted.) 	And, id. at 193-94:
[T]he Critical Vendor Order did not identify Export as
a critical vendor, did not require that Export's pre-
petition claims be paid in full, and did not provide
that any preferential payments previously made to
Export could not be recovered. 	In fact, in granting
the Critical Vendor Motion, there was no consideration
or analysis of whether any potential critical vendor
had received a preference.
(Emphasis in original.) 	The Court finds Hayes Lemmerz persuasive
and adopts its reasoning.
Sun Life cited other cases which the Court also does not
find persuasive. 	In Seidle v. GATX Leasing Corp. (In re Airlift
Int’l., Inc.), 778 F.2d 659, 660 (11 th Cir. 1985), the Eleventh
Circuit addressed the “tension” between section 547 (preferences)
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and section 1110 16 (which allows a debtor’s continued possession
of aircraft after defaults are cured). 	Debtor and GATX entered a
postpetition stipulation to cure defaults and retain an airplane.
Id. at 661. 	The bankruptcy court approved the stipulation. 	Id.
The 11 th Circuit reasoned that the stipulation “secured” GATX’s
rights to receive payment in full, including prepetition
defaults, and therefore there was no improvement in position as
required by section 547(b)(5). 	Id. at 665.
In this case, Debtor never entered a stipulation to cure
prepetition defaults 17 , never gave notice of any such
stipulation, never presented such a stipulation to the Court, and
never assumed a contract with Sun Life. 	See absence of such a
motion or notice on the docket. 	Therefore, this Court finds
Airlift Int’l. unpersuasive.
16 	[F]or purposes of the subsection 547(b)(5) analysis,
sections 365 and 1110 work substantially the same.
Section 1110 forces assumption or rejection of airline
equipment contracts within sixty days of the petition
where a typical executory contract may be assumed or
rejected anytime prior to confirmation of a chapter 11
plan. 	Compare 11 U.S.C. § 365 with 11 U.S.C. § 1110.
Philip Services Corp., 284 B.R. at 552 n.10.
17 Even assuming there is any statutory provision that would
allow this, except through assumption. 	See section 365.
Although not yet decided by the Tenth Circuit, a majority of
courts addressing the issue recognize a “contract assumption
defense” as a complete bar to preference recovery. 	See In re
Centrix Financial, LLC, 434 B.R. at 886 and n.3.
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Next, Sun Life cites Alvarado v. Walsh (In re LCO Enter.),
12 F.3d 938, 942 (9 th Cir. 1993), a case in which a debtor-in-
possession assumed a lease of its business premises.
Here, the lease was assumed. 	That assumption fixed
Lincoln's right to immediate payment in full of the
prepetition rent in exchange for LCO's continued
possession of the property. 	The legal effect of that
assumption is that the rent payments of $92,007.46 made
within the preference period did not operate to improve
Lincoln's position.
Id. 	Debtor never assumed any contract with Sun Life, so LCO is
not persuasive.
Similarly, the ruling of In re Superior Toy & Manufacturing
Co., Inc., 78 F.3d 1169, 1172 (7 th Cir. 1996), is that assumption
of a contract gives the contracting party a secured interest in
monies due; if the contract is not assumed, the contracting party
is subject to section 547(b). 	Superior Toy is not applicable
because Debtor never assumed a contract with Sun Life.
Finally, the Court does not understand Sun Life’s citation
of Neuger v. United States (In re Tenna Corp.), 801 F.2d 819 (6 th
Cir. 1986) or Marlow v. Rollins Cotton Company (In re Julien
Co.), 202 B.R. 89 (W.D. Tenn. 1996), aff’d. in part, vacated in
part, 146 F.3d 420 (1998) in the context of the Employee Benefits
Order. 	Both of those cases discuss on what date the court
conducts the hypothetical chapter 7 liquidation.
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In summary, the Court finds that Sun Life’s argument that
the payments received were authorized by the February 8, 2001
“Employee Benefits Order” is not well taken.
B) 	Estoppel and Necessity of Payment Rule
Sun Life next argues that the prepetition payments it
received were authorized by estoppel and the “necessity of
payment rule”. 18 	In support of this argument, Sun Life claims
that paragraphs 30 and 31 19 of the Employee Benefits Motion
affirmatively stated that payment of the Prepetition Employee
Obligations was authorized by 11 U.S.C. § 105 and the “necessity
18 It is difficult for the Court to conceive how payments
received by Sun Life prepetition could have been “authorized” by
pleadings filed postpetition that made no mention of those
earlier payments or the identity of the recipients.
19 Those paragraphs provide:
30. 	The Debtor submits that this Court should
authorize, under section 105(a) of the Bankruptcy Code,
payment in full of the Prepetition Employee
Obligations. 	Section 105(a) provides that "the court
may issue any order, process, or judgment that is
necessary or appropriate to carry out the provisions of
this title."
31. 	Under the "necessity of payment" rule, first
enunciated by the Supreme Court in Miltenberger v.
Logansport, C. & S.W. R. Co., 106 U.S. 286 (1882), a
bankruptcy court may use its section 105 equitable
powers to permit a debtor-in-possession to pay
prepetition claims when payment is necessary to
effectuate a successful reorganization. 	See In re
Lehigh & New England Ry. Co., 657 F.2d 570, 581 (3d
Cir. 1981) (necessity of payment doctrine "teaches no
more than, if payment of a claim which arose prior to
reorganization is essential to the continued operation
of the [business] during the reorganization, payment
may be authorized even if it is made out of corpus").
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of payment” rule. 	Sun Life argues that because the Court granted
the Employee Benefits Motion, the payments made to Sun Life
during the preference period were in effect retroactively
authorized. 	Sun Life, citing Primary Health, also argues that
this is now law of the case.
Sun Life’s argument is not well taken. 	As discussed
immediately above in the section dealing with the Employee
Benefits Order, the Employee Benefits Order did not pertain to
anything paid before the filing of the bankruptcy. 	It did not
immunize anyone from preference liability. 	And, as stated in the
motion’s paragraph 31, the “necessity of payment doctrine
‘teaches no more than, if payment of a claim which arose prior to
reorganization is essential to the continued operation of the
[business] during the reorganization, payment may be
authorized’”. 	It does not compel a debtor in possession to pay,
it merely authorizes it. 	And, based on that authorization, the
Debtor in fact paid some prepetition amounts due to Sun Life
after the petition and entry of the Employee Benefits Order.
Finally, the Court does not find that the order was law of the
case. 	The Plaintiff in this case is not violating the Employee
Benefits Order by filing this adversary.
Furthermore, the Court finds that estoppel does not apply.
First, Plaintiff is not judicially estopped for several reasons.
Plaintiff is the Chapter 7 trustee, a representative of unsecured
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creditors, and not in privity or bound by the Chapter 11 Debtor.
Meda, 2009 WL 3132932 at *5; The Liquidation Committee, 361 B.R.
at 104; Texas Wyoming Drilling, 422 B.R. at 635 (“Yet the
creditors have not contradicted themselves in court.”)(Citations
omitted, emphasis in original.)(Holding that Chapter 7 trustee is
not judicially estopped by the debtor-in-possession, but that,
even if he were, conversion cured the defect.) 	Second, the Court
does not find that the Debtor’s earlier statement that “if
payment of a claim which arose prior to reorganization is
essential to the continued operation of the [business] during the
reorganization, payment may be authorized” actually conflicts
with the Plaintiff’s current statement that during the preference
period, this creditor unfairly received more than other unsecured
creditors and the payment should be recovered. 	Finally, the
Court does not find that the equities of the case require the
Plaintiff to not pursue this preference. 	The preference arose
when the case was filed, it was always there for either the
Debtor in Possession or the Trustee to pursue for the benefit of
all unsecured creditors, and nothing the Debtor-in-Possession did
should change that. 	In fact, it would be inequitable for Sun
Life to retain more than its fair share of the estate.
The Court also finds collateral estoppel does not apply.
The issues are simply not the same. 	Neither the Chapter 7
Trustee nor Sun Life were involved in the Employee Benefits
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Motion or its resolution and had no opportunity to litigate a
position. 	And, finally, neither equitable estoppel or promissory
estoppel apply because there are no allegations that Sun Life
relied on any representation or that it was reasonable in doing
so. 	The Court specifically finds that Sun Life would not have
been reasonable relying on the Employee Benefits Motion and Order
as a release of preference liability because that issue is not
addressed in the motion or order.
C. 	Course of dealing and the Employee Benefits Order
Sun Life argues that the payments received were authorized
through the course of dealing between Sun Life and Debtor after
the filing and by the Employee Benefits Order. 	Debtor paid the
January, 2001 and first 8 days of February, 2001 (i.e.,
prepetition) premiums postpetition pursuant to the Employee
Benefits Order on March 5, 2001. 	Sun Life argues that this
demonstrates that, had it not been paid at all in the preference
period, it would have received all unpaid premiums pursuant to
the Employee Benefits Order. 	Sun Life cites GATX, 778 F.2d at
665, for the proposition that if GATX had not been paid pre-
petition it would have received payment postpetition when the
bankruptcy court approved its stipulation with the debtor.
Sun Life’s fanciful argument is based on pure speculation
and is not susceptible to proof. 	The Employee Benefits Order
authorized payments, but did not compel them. 	In this case,
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Debtor did not enter a stipulation with Sun Life postpetition.
Therefore, GATX is inapt. 	Similarly, Debtor did not assume any
contract with Sun Life that would have given it the contract
assumption defense.
D) 	Plan Assets Fiduciary, ERISA Technical Trust, and/or
Constructive Trust.
Sun Life’s argument D focuses on the fact that property held
in trust by a debtor does not become property of the bankruptcy
estate. 	See 11 U.S.C. § 541(d); Cunningham v. Brown, 265 U.S. 1,
11 (1924); EBS Pension, L.L.C. v. Edison Brothers Stores, Inc.
(In re Edison Brothers Stores, Inc.), 243 B.R. 231, 235 (Bankr.
D. Del. 2000):
[C]ourts have concluded that property which a debtor
holds in trust (express or constructive) for another
does not become property of the estate when the debtor
files for bankruptcy. 	See, e.g., In re Columbia Gas
Systems, Inc., 997 F.2d 1039, 1059 (3d Cir. 1993)
(“Congress clearly intended the exclusion created by
section 541(d) to include not only funds held in
express trust, but also funds held in constructive
trust”).
And,
In order to establish rights as a trust recipient, a
claimant must make two showings: (1) demonstrate that
the trust relationship and its legal source exist, and
(2) identify and trace the trust funds if they are
commingled.” 	Goldberg v. New Jersey Lawyers' Fund, 932
F.2d 273, 280 (3d Cir. 1991). 	The identification of
the trust funds is a question of federal law. 	See id.
and cases cited therein.
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Id. at 238. 	See also Hatoff v. Lemons & Assoc., Inc. (In re
Lemons & Associates, Inc.), 67 B.R. 198, 213 (Bankr. D. Nev.
1986)(Same.);
1. 	Plan Assets Fiduciary
Sun Life states that $64,737.02 out of the three checks
constituted amounts "withheld" by the Debtor from its employees'
paychecks, and $115,131.22 out of the three checks, constituted
the Debtor's "employer contributions" to pay premiums for
employee and dependent basic life, employee basic AD & D, and
employee short term and long term disability insurance.
Therefore, Sun Life argues that the funds withheld from
employees' paychecks and paid to Sun Life, together with the
employer contributions paid to Sun Life 20 , did not constitute
property in which the Debtor had an interest at the time of
payment, and/or said withheld funds constituted moneys held in
trust (either a technical trust or a constructive trust) that the
Debtor was required by federal law (the Employee Retirement
Income Security Act of 1974, 29 U.S.C. § § 1001, et. seq)
("ERISA") to pay to Sun Life.
20 Because the analysis of employee withholdings is different
from the analysis of employer contributions, each is discussed
separately. 	See Trustees of the Colorado Ironworkers Pension
Fund v. Popovich (In re Popovich), 359 B.R. 799, 802 (Bankr. D.
Colo. 2006)(Stating that there is a “significant” difference
between employee contributions and employer contributions in any
trust analysis.)
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Sun Life argues that Debtor was both the plan sponsor and
the plan administrator. 21 It claims that Debtor exercised
discretionary authority and/or control with respect to management
of the plan and/or management or disposition of assets. 22 	Sun
Life argues that this control is evidenced by terminating one
insurance company in December 1999 and starting a policy with Sun
Life in January 2000, by withholding and contributing funds, and
by terminating the contract with Sun Life in August, 2001 23 . 	By
21 Plaintiff disputes this but it is not material.
22 Fact 115 states, in part: “During the preference period
the officers of the Debtor had discretionary authority regarding
the disbursement of corporate funds, subject to obligations and
limitations imposed by the secured creditors and by law.”
23 But see 29 C.F.R. § 2509.75-8, D-2:
Q: Are persons who have no power to make any decisions
as to plan policy, interpretations, practices or
procedures, but who perform the following
administrative functions for an employee benefit plan,
within a framework of policies, interpretations, rules,
practices and procedures made by other persons,
fiduciaries with respect to the plan:
...
(3) Preparation of employee communications material;
(4) Maintenance of participants' service and employment
records;
...
(7) Orientation of new participants and advising
participants of their rights and options under the
plan;
(8) Collection of contributions and application of
contributions as provided in the plan;
...
(11) Making recommendations to others for decisions
with respect to plan administration?
A: No. Only persons who perform one or more of the
(continued...)
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using this language, Sun Life is attempting to prove that Debtor
was a plan fiduciary and thereby bootstrap the existence of a
trust.
Section 3(21)(a) of ERISA, 29 U.S.C. § 1002(21)(a),
defines a person as a fiduciary of an ERISA plan to the
extent that he:
(i) [E]xercises any discretionary authority or
discretionary control respecting management of such
plan or exercises any authority or control respecting
management or disposition of its assets, (ii) he
23 (...continued)
functions described in section 3(21)(a) of the Act with
respect to an employee benefit plan are fiduciaries.
Therefore, a person who performs purely ministerial
functions such as the types described above for an
employee benefit plan within a framework of policies,
interpretations, rules, practices and procedures made
by other persons is not a fiduciary because such person
does not have discretionary authority or discretionary
control respecting management of the plan, does not
exercise any authority or control respecting management
or disposition of the assets of the plan, and does not
render investment advice with respect to any money or
other property of the plan and has no authority or
responsibility to do so.
However, although such a person may not be a plan
fiduciary, he may be subject to the bonding
requirements contained in section 412 of the Act if he
handles funds or other property of the plan within the
meaning of applicable regulations.
The Internal Revenue Service notes that such persons
would not be considered plan fiduciaries within the
meaning of section 4975(e)(3) of the Internal Revenue
Code of 1954.
The Court questions whether changing insurance companies or
terminating the plan altogether is the type of behavior that
would classify Debtor as a fiduciary. 	It is not alleged that
Debtor had any influence on Sun Life’s internal administration of
benefits, eligibility, investment policy, etc.
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renders investment advice for a fee or other
compensation, direct or indirect, with respect to any
moneys or other property of such plan, or has any
authority or responsibility to do so, or (iii) he has
any discretionary authority or discretionary
responsibility in the administration of such plan.
(emphasis added). 	The definition, thus, encompasses a
variety of duties commonly performed by fiduciaries,
including the providing of investment advice,
administrative control over a plan, advising on whom to
retain as legal or investment advisors to a plan, and,
ultimately, how to invest plan assets. 	Once deemed a
fiduciary, either by express designation in the plan
documents or the assumption of fiduciary obligations
(the functional or de facto method), the fiduciary
becomes subject to ERISA's statutory duties. 	These
duties, as summarized by the Supreme Court, “relate to
the proper management, administration, and investment
of fund assets, the maintenance of proper records, the
disclosure of specified information, and the avoidance
of conflicts of interest.” 	Mass. Mut. Life Ins. Co. v.
Russell, 473 U.S. 134, 142-43, 105 S.Ct. 3085, 87
L.Ed.2d 96 (1985).
Navarre v. Luna (In re Luna), 406 F.3d 1192, 1201 (10th Cir.
2005).
In Pegram v. Herdrich, 530 U.S. 211, 224 (2000), the United
States Supreme Court recognized that trustees of ERISA plans have
similar duties to those imposed on common law trustees. 	But, it
noted that under the common law a trustee is prohibited from
placing himself in a position where it would be in his benefit to
violate his duty to the trust beneficiaries. 	Id. at 225. 	In
contrast, an ERISA fiduciary may have financial interests adverse
to the beneficiaries. 	Id. 	“ERISA does require, however, that
the fiduciary with two hats wear only one at a time, and wear the
fiduciary hat when making fiduciary decisions.” 	Id. 	(Citation
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omitted.) 	The statute defines an administrator as a fiduciary
only “to the extent” that he acts in such a capacity. 	Id.
(Citing 29 U.S.C. § 1002(21)(a).)
Therefore, in every case charging breach of fiduciary duty
the threshold question is not whether someone adversely affected
the plan’s beneficiaries’ interest, but whether the person was
acting as a fiduciary when taking the action subject to the
complaint. 	Id. at 225-26.
1(A). 	Plan Assets Fiduciary - Employer Contributions
The Luna case, although involving dischargeability under
section 523(a)(4) for breach of fiduciary duty, is relevant to
the current case. 	The issue was whether the Lunas, as owners of
Luna Steel Erectors, Inc. (“Steel”) were fiduciaries of Steel’s
ERISA plan. 	Id. at 1197. 	Steel ceased operations owing over
$121,000 of employer contributions 24 to the plan. 	Id. 	The
bankruptcy court found that ERISA imposed fiduciary obligations
that would satisfy the requirements of section 523(a)(4), but the
unpaid contributions were not plan assets and thus there was no
defalcation. 	Id. at 1198. 	The district court affirmed. 	Id.
The Tenth Circuit disagreed that unpaid contributions were
not plan assets. 	Id. at 1120. 	The Court instead found that
while the ERISA plan did not have a present interest in the
24 “[A]t no point did the Lunas withhold any portion of their
employees' wages.” 	Luna, 406 F.3d at 1197.
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unpaid contributions until they were paid, it did have a future
interest in the contractually owed contributions. 	Id. 	“A future
interest in property is ‘an interest ... which is not, but may
become a present interest.’” 	Id. at 1199 (Citing Restatement
(First) of Property § 153(1)(a) (1936).) 	Based on this finding,
the plan had a contractual right to collect the contributions.
Id. at 1200.
Next, the circuit court addressed the issue of whether the
Lunas were ERISA fiduciaries. 	Id. at 1201. 	The Court cited
Pegram, 530 U.S. at 225, for the proposition that ERISA trustees
can “wear different hats” and an employer fiduciary can have
interests adverse to employer’s interests. 	Luna, 406 F.3d at
1202. 	Therefore, the court reframed the issue as whether the
Lunas exercised any “authority or control respecting management
or disposition of plan assets.” 	Id.
Recall, in Pegram, 530 U.S. at 225-26, the Supreme Court
stated that the threshold issue was whether the defendant was
acting as a fiduciary when taking the action subject to the
complaint. 	In the instant case, all premiums were paid to Sun
Life but the trustee is attempting to recover some of them. 	So,
the relevant issues are 1) whether the Debtor was acting as a
fiduciary when it made the payments, and/or 2) were the funds
paid to Sun Life “trust funds” or had they lost that status.
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But, as discussed below, in the end it does not matter whether
the Debtor was a fiduciary or not. 25
The Luna court found it obvious that it was the plan trustee
who had the right to collect the unpaid contributions from the
Lunas, and that the Lunas had “no say” over whether that right
would be enforced or not. 	Id. at 1202. 	Consequently, the Lunas
were not fiduciaries as to the unpaid contributions.
The Luna court went further and stated that, even if the
unpaid contributions themselves were plan assets, the statutory
definition of an ERISA fiduciary would not be met because there
25 Sun Life also argues that the funds in its hands are trust
funds and therefore not recoverable. 	This is not the law. 	See
Kupetz v. United States (In re California Trade Technical
Schools, Inc.), 923 F.2d 641 (9th Cir. 1991). 	California Trade
Technical Schools (“CTTS”) wrongfully diverted Title IV (Higher
Education Act of 1965) trust funds intended for student
beneficiaries to general operating expenditures. 	Id. at 644-45.
The Department of Education (“DOE”) demanded restitution. 	Id. at
645. 	CTTS repaid the funds in several transfers stating its
intention was to replace the trust funds. 	The last transfer was
89 days before CTTS’s bankruptcy. 	Id. at 647. 	The Ninth Circuit
recognized that in the hands of DOE the funds were trust funds.
Id. 	But, it found that the status of the funds in CTTS’s hands
“at the time of that transfer” (i.e., the restitution payment on
the 89th day prior to bankruptcy) governed avoidability. 	Id.
(Emphasis in original.) 	The Court noted that CTTS had dissipated
the diverted trust funds for operations and the funds were not
traceable, so DOE was a general, unsecured creditor. 	Id.
(Citing Collier on Bankruptcy, ¶ 541.13 at 541-79.) 	The court
restated the issue as whether the restitutional deposit was
itself an avoidable transfer. 	Id. 	It found the transfer
preferential. 	Id. at 648.
Therefore, Sun Life’s argument that Plaintiff cannot recover
trust funds fails.
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were no earmarked or segregated funds. 26 	Id. at 1204.
Similarly, in this case Debtor had no earmarked or segregated
funds and would not meet the definition of an ERISA fiduciary.
The court also analyzed the status of the Lunas under the
common law of trusts. 	It found that making contractually owed
contributions to an ERISA plan had little to do with traditional
fiduciary responsibilities. 	Id. 	It stated that the relationship
between the Lunas and the plan was best characterized as
contractual, not fiduciary. 	Id. (Citing Restatement (Third) of
Trusts § 5(i) and cmt. i (“A contract to convey property does not
give rise to a fiduciary relationship.”) and § 5(k) and cmt. k
(“A debtor does not as such stand in a fiduciary relationship to
his or her creditors. 	A creditor as such has against the debtor
merely a personal claim, which can be enforced by judicial
proceedings to reach the debtor's property. 27 ”)
26 See discussion below regarding tracing.
27 Comment k continues with a discussion of employer/employee
relationships:
Often agreements are made between an employer and
its employees under which the employer is to deduct
certain amounts from the wages of the employees and is
either to hold those amounts as trustee or to transfer
the amounts to another as trustee of a fund (such as a
retirement fund) for the benefit of the employees. 	In
such a case, a trust arises as to the amounts deducted
as soon as they are either set aside by the employer
for the employees' purposes or paid over to another
person for those purposes. 	Until then, the employer's
obligation is merely a debt, with the “obligee” (the
employer or other person) holding a chose in action
(continued...)
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The Court summarized by stating that a delinquent employer-
contributor is merely a debtor, not a fiduciary. 	Id. at 1205.
It found that the Lunas’ decision to use their limited funds to
pay other business expenses rather than to make plan
contributions was a “business decision, not a breach of fiduciary
duty.” 	Id. at 1207. 	Accord Rahm v. Halpin (In re Halpin), 566
F.3d 286, 290 (7 th Cir. 2009):
We agree with the Department's interpretation that
employer contributions become assets only after being
paid. 	Under “ordinary notions of property rights,” if
a debtor fails to meet its contractual obligations to a
creditor, the creditor does not automatically own a
share in the debtor's assets. 	The creditor, rather,
has a “chose in action,” an assignable contractual
right to collect the funds owed by the debtor. 	See
Mexican Nat'l R.R. Co. v. Davidson, 157 U.S. 201, 206,
15 S.Ct. 563, 39 L.Ed. 672 (1895). 	As one treatise
explains, “[t]he terms ‘choses in actions' and ‘debts'
are used by courts to represent the same thing when
viewed from opposite sides. 	The chose in action is the
right of the creditor to be paid, while the debt is the
obligation of the debtor to pay.” 	63C Am.Jur.2d
Property § 22 (2008). 	Accordingly, the unpaid amounts
are debts; they are not assets held in trust for the
benefit of the creditor.
Trust law similarly supports this analysis. 	Cf.
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,
110-11, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989) (directing
courts to consider trust law when “develop[ing] a
federal common law of rights and obligations under
ERISA-regulated plans.” 	(internal quotation marks
omitted)). 	Under well-settled principles of trust law,
27 (...continued)
(the claim against the employer) in trust. 	The claim
that is held in the trust estate is like the claims of
the other general creditors of the employer except to
the extent of any preference that may be conferred by
statute or other rules of law or equity, preferences
that are not peculiar to the trust law.
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a debtor-creditor relationship is not a fiduciary
relationship. 	See Restatement (Third) of Trusts § 5(k)
& cmt. k (indicating that the relationship of a debtor
to a creditor is not fiduciary in nature; rather the
creditor has a personal claim against the debtor); see
also id. at § 5(i) & cmt. i (stating that a contract to
convey property does not give rise to a fiduciary
relationship). 	Indeed, the Restatement of Trusts
explains that, with regard to amounts deducted by an
employer for eventual contribution on behalf of an
employee, “[a] trust arises as to the amounts deducted
as soon as they are either set aside by the employer
for the employees' purposes or paid over to another
person for those purposes. 	Until then, the employer's
obligation is merely a debt, with the ‘obligee’ ...
holding a chose in action ... in trust.” 	Id. at § 5
cmt. k.
(Footnote omitted.) 	See also Trustees of the Graphic
Communications International Union Upper Midwest Local 1M Health
and Welfare Plan v. Bjorkedal, 516 F.3d 719, 732 (8th Cir. 2008)
(“The fiduciary status applies, however, only when the individual
is performing a fiduciary duty; it ‘is not an all-or-nothing
concept’”.)(Citing Darcangelo v. Verizon Communications, Inc.,
292 F.3d 181, 192 (4th Cir.2002)).; id. (The threshold question
is whether the defendant was acting as a fiduciary.)(Citing
Pegram, 530 U.S. at 226); id. (Corporate assets do not become
plan assets simply because they are owed.); id. at 733 (Owners of
company with ERISA plan failed to make contributions. 	“An act of
omission fails to satisfy the requirement that the individual
exercise discretionary authority over plan assets. 	See § [29
U.S.C.] 1002(21)(A)(i).”)(Emphasis in original.) 	See also COB
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Clearinghouse Corp. v. Aetna U.S. Healthcare, Inc., 362 F.3d 877,
881-82 (6th Cir.), cert. denied, 543 U.S. 870 (2004):
Whether an employer who is also an ERISA plan
sponsor is a fiduciary of the plan generally requires a
detailed analysis of the employer's actions and whether
those actions were performed in the employer's
fiduciary capacity. 	See Hunter v. Caliber Sys., Inc.,
220 F.3d 702, 718 (6th Cir. 2000). 	“[W]e must examine
the conduct at issue to determine whether it
constitutes ‘management’ or ‘administration’ of the
plan, giving rise to fiduciary concerns, or merely a
business decision that has an effect on an ERISA plan
not subject to fiduciary duties.” Id. (citations and
internal quotations omitted).
The Court concludes that Debtor was not an ERISA fiduciary
with respect to the employer contributions before they were paid.
This conclusion is based primarily on the fact that, until the
funds were paid, there were no funds; there was only an unsecured
obligation to pay them. 	A debt is not a trust. 	Restatement
(Third) of Trusts § 5(k) (2003). 	See also Halpin, 566 F.3d at
290 (“[E]mployer contributions became plan assets only after
being paid.”)
1(B). 	Plan Assets Fiduciary - Employee Withholdings
In Luna, the Tenth Circuit noted that the Lunas never
withheld any portion of their employee’s wages. 	Luna, 406 F.3d
at 1197. 	However, in dicta the court advised:
Our holding that employers who fail to pay
contractually-owed contributions to a plan are not, by
virtue of that fact alone, fiduciaries, must be
distinguished from the situation where an employer has
control over funds that were withheld from employees'
pay checks. 	Where the issue is not employer
contributions (as here), but rather employee
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contributions held by the employer, courts will
recognize that the employer meets ERISA's statutory
definition of a fiduciary. 	See, e.g., Phelps v. C.T.
Enters., Inc., 394 F.3d 213, 219 (4th Cir. 2005)
(“Where ... an employer is entrusted with employee
funds for remittance to a claims administrator ... the
employer is acting in a fiduciary capacity under
ERISA.”).
Id. at 1206, n. 13. 	But, although the court recognized that
other jurisdictions impose fiduciary obligations regarding
withheld funds, it also noted that under the Restatement (Third)
of Trusts § 5, cmt. k the trust arises as to the amounts deducted
when they are either set aside or paid over to another person.
Id. at 1205, n. 11. 	Until then, the employer’s obligation is
merely a debt. 	Id. 	“Thus, according to the Restatement, a trust
arises only when an employer actually deducts and sets aside
amounts from an employee’s salary.” 	Id. at 1206. 	Therefore, it
appears that the Tenth Circuit might find a fiduciary duty with
regard to withheld funds (as for, e.g., section 523(a)(4)
dischargeability purposes), but be unable to find any specific
trust property if the debtor chose to spend the funds instead of
depositing them (setting them aside) into a trust account.
Undisputed facts 113, 232 and 322 demonstrate that
employees’ payroll checks were “net” checks after deductions, and
when issued there were no funds in the bank to cover either the
net checks or the amounts listed as withheld. 	All funds were
commingled. 	The amounts withheld were not segregated and there
was not even a method in place to segregate them. 	Debtor had to
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borrow money from Heller to cover each paycheck as it cleared the
bank, and had to borrow from Heller to pay payroll taxes and the
amounts due to Sun Life. 	None of the payments to Sun Life were
timely in the preference period. 	Fact 327.
The Court finds that Debtor never set aside withheld funds.
Under Luna, the funds became trust funds only when Debtor paid
them to Sun Life. 	Until then, Debtor owed an unsecured debt to
Sun Life. 	Also, according to the Luna court, the statutory
definition of ERISA fiduciary is not met unless there are
earmarked or segregated funds. 	Luna, 406 F.3d at 1204.
Consequently, Debtor was not an ERISA fiduciary when paying Sun
Life.
In conclusion, the Court finds that Sun Life’s argument that
the transfers are unavoidable because the funds were all plan
assets in the hands of the Debtor as fiduciary and not property
of the Debtor as Debtor is not well taken. 	However, even if
Debtor were a fiduciary as to employee withholdings, that would
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not end the inquiry. 	For, in bankruptcy court, there usually 28
is no trust if there is no identifiable res.
2. 	ERISA Technical Trust and/or Constructive Trust.
2(A) ERISA Technical Trust
28 In Begier v. Internal Revenue Service, the United States
Supreme Court addressed the question of whether income tax
withheld from employees and excise taxes collected from its
customers were “property of the debtor” when paid to the Internal
Revenue Service out of the debtor’s general operating account in
the period preceding the debtor’s bankruptcy. 	496 U.S. 53, 59
(1990). 	The Court examined the Internal Revenue Code’s trust-
fund tax provision, 26 U.S.C. § 7501: “Whenever any person is
required to collect or withhold any internal revenue tax from any
other person and to pay over such tax to the United States, the
amount of tax so collected or withheld shall be held to be a
special fund in trust for the United States.” 	Id. at 60. 	Begier
argued that the debtor had never segregated the taxes but rather
paid them from its general operating account. 	Id. 	The Supreme
Court dismissed this argument, finding that the statute did not
require segregation. 	Id. 	The Court acknowledged that under
common-law principles a trust is created in property and does not
come into existence until the settlor identifies the trust res.
Id. at 62. 	But, a § 7501 trust is “radically different” from the
common-law paradigm; § 7501 provides that the “amount” collected
or withheld is placed in trust, not specific property. 	Id. 	The
Court noted that “the common law of trusts is not binding on
Congress.” 	Id. at n.4. 	Justice Scalia concurred in the
judgment. 	Id. at 67. 	Writing separately, he agreed that § 7501
obviously gave the United States the advantages of being a trust
beneficiary. 	Id. at 70. 	But, he believed that “[a] trust
without a res can no more be created by legislative decree than
can a pink rock-candy mountain.” 	Id. 	He concurred in the
judgment because he believed that even if there were no trust
before the debtor paid the tax, when it wrote the check to the
government it came into being. 	Id. at 71. 	He further observed
that, ordinarily, a debtor’s alienation of property by placing it
in a trust would constitute a transfer and a preference. 	Id.
But, he believed that § 7501 expressed an intention to create an
“immediate” trust from the time of the collection or withholding,
so the payment would not be preferential. 	Id.
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A trust consists of three elements: 1) a trustee who holds
trust property and administers it for the benefit of one or more
others; 2) one or more beneficiaries to whom the trustee owes
duties with respect to the trust property; and 3) trust property,
which is held by the trustee for the beneficiaries. 	Restatement
(Third) of Trusts § 2 cmt. f (2003). 	Either or both of elements
(1) and (2) may be temporarily absent without destroying the
trust or preventing its creation. 	Id. 	A trust cannot be created
unless there is trust property. 	Id. cmt. i. 	The trustee has a
duty to see that trust property is designated or identifiable as
property of the trust, and also a duty to not commingle the trust
property. 	Id. § 84. 	If a trustee wrongfully disposes of trust
property and uses the proceeds to acquire other property, the
beneficiary is entitled either to enforce a constructive trust of
the property acquired, or to enforce an equitable lien on that
property, as long as the product of the trust property is held by
the trustee and can be traced. 	Restatement (Second) of Trusts §
202(1) (1959) 29 . 	On the other hand, if the trustee wrongfully
disposes of trust property and dissipates the proceeds or does
29 “No one except a beneficiary or his agent can maintain a
suit against the trustee to enforce the trust or to enjoin
redress for a breach of trust.” 	Restatement (Second) of Trusts §
200 (1959). 	“A person who incidentally benefits from the
performance of the trust, but who is not a beneficiary of the
trust, cannot maintain a suit to enforce the trust.” 	Id. cmt. c.
Sun Life is at most an incidental beneficiary of the trust in
this case. 	Sun Life was a party to an insurance policy with the
Debtor and therefore a creditor.
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not preserve the property or no longer has the property or the
beneficiary cannot trace the property, the beneficiary has a
claim against the trustee for breach of trust and is a general
creditor. 	Id. § 202(2) (1959). 	To successfully trace trust
property the beneficiary must prove the trustee once had the
trust property or its product and must prove that the trustee
still holds the property, or property which is in whole or in
part the product of the trust property. 	Id. cmt. on subsection
(2). 	If the proceeds have been dissipated or if the beneficiary
cannot trace the property, the beneficiary has only a general
unsecured claim against the trustee. 	Id.
Technical trusts are those which arise by law before any
wrongdoing, but not involving a traditional declaration of trust,
a clearly defined trust, and an intent to create a trust
relationship. 	Berres v. Bruning (In re Bruning), 143 B.R. 253,
256 (D. Colo. 1992). 	Technical trusts arise as a result of
defined obligations imposed upon a debtor by state or federal
statute. 	Cundy v. Woods (In re Woods), 284 B.R. 282, 288 (D.
Colo. 2001)(citing In re Romero, 535 F.2d 618, 622 (10 th Cir.
1976)). 	“For a state statute to create an express or technical
trust ... the statute must define the trust res, establish
trustee duties, and impose the trust prior to any wrongdoing
creating the obligation.” 	Tway v. Tway (In re Tway), 161 B.R.
274, 279 (Bankr. W.D. Okla. 1993).
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There is no real dispute that ERISA creates a statutory
trust. 	29 U.S.C. § 1103, Establishment of trust, provides in
part:
(a) Benefit plan assets to be held in trust; authority
of trustees.
Except as provided in subsection (b) of this section,
all assets of an employee benefit plan shall be held in
trust by one or more trustees. ...
(b) Exceptions 30
The requirements of subsection (a) of this section
shall not apply--
(1) to any assets of a plan which consist of insurance
contracts or policies issued by an insurance company
qualified to do business in a State;
(2) to any assets of such an insurance company or any
assets of a plan which are held by such an insurance
company; ...
“Plan assets” in turn are defined in 29 U.S.C. § 1002(42) as:
“plan assets as defined by such regulations as the Secretary may
prescribe, ...” 	The applicable regulation appears at 29 C.F.R. §
2510.3.102(a)(1):
General rule. ... [T]he assets of the plan include
amounts (other than union dues) that a participant or
beneficiary pays to an employer, or amounts that a
participant has withheld from his wages by an employer,
for contribution or repayment of a participant loan to
the plan, as of the earliest date on which such
contributions or repayments can reasonably be
segregated from the employer's general assets.
30 The parties did not address exceptions (b)(1) or (2),
which superficially seem to apply. 	This Court will also not
address them because they do not impact the result. 	Even when an
exception to 29 U.S.C. § 1103(a) applies, there is still a
fiduciary duty to ensure that employee contributions are not used
for the company’s operating expenses. 	Phelps v. CT Enter., Inc.,
194 Fed.Appx. 120, 124, 2006 WL 2310665 at *3 (4th Cir. 2006)
(per curiam) (unpublished).
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The Luna court noted that the definition of plan assets does not
address employer contributions. 	Luna, 406 F.3d at 1199 n. 3.
[T]he Department of Labor has instructed that “the
assets of a plan generally are to be identified on the
basis of ordinary notions of property rights under
non-ERISA law. In general, the assets of a welfare plan
would include any property, tangible or intangible, in
which the plan has a beneficial ownership interest.”
Department of Labor Advisory Opinion No. 93-14A (May 5,
1993), 1993 WL 188473, at *4.
Id. at 1199. 	The Court concluded:
Under ordinary notions of property rights, an
ERISA plan does not have a present interest in the
unpaid contributions until they are actually paid to
the plan. 	In other words, the plan cannot use, devise,
assign, transfer, or otherwise act upon contributions
that it has not yet received. 	This does not mean,
however, that the plan has no property interest in the
unpaid contributions. 	It does. 	Pursuant to ordinary
notions of property rights, the plan holds a future
interest in the collection of the contractually-owed
contributions. 	A future interest in property is “an
interest ... which is not, but may become a present
interest.” 	Restatement (First) Property § 153(1)(a)
(1936). 	A chose in action, for example, is a future
interest, and, like all property interests, it is
transferrable. 	See id. § 163 cmt. b. 	Applying these
principles here, although the plan does not possess the
unpaid contributions themselves, it does possess the
contractual right to collect them.
Id. at 1199-1200 (Footnotes omitted; emphasis in original).
Putting these concepts together, the property of an ERISA
trust consists of: 1) all property previously paid into or
forwarded to the trust and any net earnings thereon, 2) funds
that a participant or beneficiary pays to an employer, or amounts
that a participant has withheld from his wages by an employer,
for contribution [to] or repayment of a participant loan from the
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plan, as of the earliest date on which such contributions or
repayments can reasonably be segregated from the employer's
general assets, 3) a future interest 31 in the collection of items
specified in number 2) until the date they “can reasonably be
segregated from the employer's general assets”, and 4) a future
interest in contractually-owed employer contributions 32 .
The fiduciary duties of an ERISA trustee are set forth in 29
U.S.C. § 1104. 	The most important for our purposes is §
1104(a)(1)(A). 	(“[A] fiduciary shall discharge his duties with
respect to a plan solely in the interest of the participants and
beneficiaries and--(A) for the exclusive purpose of: (i)
31 The Luna court observed that a future interest in property
is an interest which is not now a present interest but may become
one. 	Luna, 406 F.3d at 1199. 	Conversely, it may never become a
present interest.
32 The Court finds that the relaxed tracing rules of Begier
should not apply in this situation. 	In Begier, Justice Scalia
recognized that placing an asset into trust is a “transfer” and
could possibly be a preference. 	496 U.S. at 71. 	He viewed 26
U.S.C. § 7501 as creating an “immediate” trust at the time that
the taxes were collected or withheld. 	Under ERISA 1) the
employer contributions do not become trust funds until paid and
2) the employee contributions either become trust funds when
segregated (29 C.F.R. 2510.3-102) or paid (Luna, Restatement
(Third) of Trusts). 	This delay does not necessitate an
“immediate” trust, but rather creates an opportunity for
erstwhile trust funds to lose that character. 	If the funds lose
their status as trust funds, it breaks the “nexus” required for
Begier tracing. 	See Morin v. CERES Corp. (In re AAPEX Systems,
Inc.) 273 B.R. 35, 43 and 44 n. 10 (Bankr. W.D. N.Y. 2002)(Begier
allows “reasonable assumptions” for tracing, but when trust funds
are not segregated and the bank account is subsequently overdrawn
there is “absolutely no connection” between the trust funds and
the remaining bank balance.), aff’d., Morin v. Frontier Business
Technologies, 288 B.R. 663 (W.D. N.Y. 2003).
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providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan.”)
Prohibited transactions for the fiduciary are set out in 29
U.S.C. § 1106. 	The two most important for our purposes are §
1106(a)(1)(B) (“(1) A fiduciary with respect to a plan shall not
cause the plan to engage in a transaction, if he knows or should
know that such transaction constitutes a direct or indirect--
...(B) lending of money or other extension of credit between the
plan and a party in interest.”) and § 1106(b)(1) (“A fiduciary
with respect to a plan shall not--(1) deal with the assets of the
plan in his own interest or for his own account.”)
It is undisputed that Debtor did not segregate 33 employee
withholdings. 	Had Debtor promptly paid Sun Life, it would have
reduced the amounts available for other borrowing. 	So, instead
of paying the withholdings within a reasonable time Debtor
33 	One of the fundamental principles of trust law is that
a fiduciary has the duty to separate strictly trust
property from his own property and to avoid the
commingling of funds. 	The segregation of funds serves
to prevent conflicts between a fiduciary's personal
interests and his duty of loyalty to the beneficiary of
the trust. 	See Bird v. Stein, 258 F.2d 168, 177 (5th
Cir. 1958), cert. denied, 359 U.S. 926, 79 S.Ct. 608, 3
L.Ed.2d 628 (1959); Restatement (Second) of Trusts §
179. 	This duty to segregate trust assets applies not
only to traditional trusts but also to benefit plans
covered under ERISA. 	See, e.g., Corley v. Hecht Co.,
530 F.Supp. 1155, 1163 (D.D.C.1982) (holding employer
liable for breach of fiduciary duty for failure to
segregate trust assets).
Professional Helicopter Pilots Ass'n v. Denison, 804 F.Supp.
1447, 1452-53 (M.D. Ala. 1992).
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borrowed funds daily to pay other general operating expenses.
Then, months later it would borrow funds to make its late
payments to Sun Life. 	We do not know when Debtor could have
segregated the assets, only when it actually did. 	The substance
of this transaction was that Debtor borrowed and commingled the
withheld funds, used them for other expenses and purposes, and
then repaid the borrowed funds to Sun Life with the proceeds of
new borrowings.
To summarize the analysis to this point, Sun Life argues
that the funds are not recoverable because they were not
“property of the debtor” because they were funds from an ERISA
trust. 	Assuming arguendo that Sun Life need not trace its
receipts to any actual funds, those receipts nevertheless
consisted of the employer’s share and each employee’s share. 	The
employer’s share does not become a plan asset until received so
at the time of the payment to Sun Life it was not yet a trust
fund. 	The employee’s share is also probably not a plan asset
until paid under the Luna and Restatement (Third) theories. 	But,
even if the employee’s share was an amount held in trust, Debtor
dissipated it by paying expenses with it. 	Once trust funds are
transferred to a bona fide purchaser for value neither the
trustee or the beneficiary have any further claim to them.
Research Planning, Inc. v. Segal (In re First Capital Mortgage
Loan Corp.), 917 F.2d 424, 427 (10th Cir. 1990); see also
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Restatement (First) of Trusts § 74 cmt. a (1935)(Beneficiary
loses interest in trust property when transferred to a bona-fide
purchaser.) 	Rather, the beneficiary has a cause of action
against the trustee for breach of its fiduciary obligations. 	Id.
See also Kupetz, 923 F.2d at 648:
While there appears to be no case law directly
addressing whether a debtor-trustee's deposit of
non-trust funds into a trust account by way of
restitution constitutes a preference subject to
avoidance, the facts of the April 26 deposit clearly
fit the language of section 547. 	The money paid back
into the account consisted of property that could have
been used to satisfy the claims of CTTS's creditors,
and was therefore property of the estate under Danning
[v. Bozek (In re Bullion Reserve of North America), 836
F.2d 1214 (9 th Cir.), cert. denied, 486 U.S. 1056
(1988)]. 	Because the trust funds originally diverted
were dissipated and could not be traced, DOE stood in
the position of a general creditor with regard to those
funds. 	Collier on Bankruptcy ¶ 541.13, at 541–79.
Having been made for DOE's benefit, the deposit
satisfies the requirement that the transfer be “to or
for the benefit of a creditor,” under section
547(b)(1). 	The parties agree that the deposit was made
in payment of a debt that CTTS had owed DOE since at
least January, 1983. 	Thus the April 26 deposit was
made “on account of an antecedent debt,” as required by
section 547(b)(2). 	There is no dispute regarding
either CTTS's insolvency, under section 547(b)(3), or
the fact that April 26, 1983 fell within ninety days of
CTTS's filing, under section 547(b)(4). 	The facts
reflect that DOE's position was effectively identical
to that of CTTS's other general creditors and that all
of CTTS's creditors stood to receive less than their
full claims. 	The government concedes that it received
more by the $211,682.02 deposit than it would have had
the deposit not been made and had CTTS's estate been
liquidated according to the provisions of the
Bankruptcy Code, as required by § 547(b)(5). 	We
therefore find that the April 26th deposit constitutes
an avoidable preference under section 547.
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(Footnote omitted.) 	Finally, see Schifter v. First Fidelity
Financial Services, Inc. (In re First Fidelity Financial
Services, Inc.), 36 B.R. 508, 510-11 (Bankr. S.D. Fla. 1983)(When
trustee of express trust fails to preserve the trust intact and
commingles it with his own funds, there is a breach of fiduciary
duty and the express trust no longer exists. 	The beneficiaries
have at most an interest in a constructive trust.) 	This suggests
that Sun Life was not paid with ERISA trust funds, but rather
with borrowed funds. 	This defense is not well taken.
2(B) Constructive Trust
Before undertaking the determination of whether the unpaid
funds were subject to a constructive trust, the Court must
consider whether imposition of a trust would be equitable. 	Hill
v. Kinzler (In re Foster), 275 F.3d 924, 927 (10th Cir. 2001).
To do this, the Court must weigh the claims of the other
creditors before employing any equitable fictions. 	Id. at 928.
One factor is whether other similarly situated creditors would be
harmed. 	Id. 	See also Kalish v. The Landing (In re The Landing),
160 B.R. 820, 824 (Bankr. E.D. Mo. 1993):
The practical effect of a constructive trust in a
bankruptcy case is to elevate a plaintiff's claims
above the claims of all other creditors because assets
in a constructive trust are not part of the bankruptcy
estate. 	See In re Kennedy & Cohen, 612 F.2d [963] at
965 [(5th Cir. 1980)]. 	In the matter being considered
here, if such a trust were imposed, the Plaintiffs
would receive value before any other creditors of the
Chapter 11 estate. 	The Plaintiffs would also receive a
return of their investment in Option I (a separate
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debtor) ahead of all other creditors in that separate
Chapter 7 liquidation proceeding. 	These results would
disrupt the orderly system of distribution of assets
established in the Code. 	The congressionally mandated
scheme of priorities is to be respected and enforced by
the Bankruptcy Courts.
In this case, Sun Life received all amounts due, both pre-
and postpetition. 	Fact 328. 	If Plaintiff is successful in this
case, Sun Life would repay the preference and have an unsecured
claim for the amount repaid. 	11 U.S.C. § 502(h) 34 . 	This would
equalize Sun Life’s treatment with the other unsecured
prepetition creditors who did not receive a 100% return. 	The
Court finds that it would not be equitable to allow Sun Life
better treatment than others in its same class. 	See, e.g.,
Edmondson v. Bradford-White Corp. (In re Tinnell Traffic
Services, Inc.), 41 B.R. 1018, 1021-22 (Bankr. M.D. Tenn. 1984)
(Court refuses to recognize constructive trust containing funds
obtained by fraud because it would harm other creditors.) 	This
is particularly true given the fact that Debtor did not assume
its contract with Sun Life, nor did the Debtor provide any notice
to other unsecured creditors that would have allowed them to
object to the unequal treatment.
However, even if the Court found this to be a situation
calling for an equitable adjustment to distribution, Sun Life
cannot establish a trust. 	The claimant of an ownership interest
34 Section 502(h) gives to a creditor that returns a
preference a claim that is treated as if it arose prepetition.
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in property that would otherwise be considered a part of the
bankruptcy estate must be able to identify and trace the property
to which he claims ownership. 	Hill v. Kinzler (In re Foster),
275 F.3d 924, 926-27 (10 th Cir. 2001); Jobin v. Youth Benefits
Unlimited, Inc. (In re M & L Business Machine Co.), 59 F.3d 1078,
1081 (10th Cir. 1995) (Citations omitted.); Sender v. The Nancy
Elizabeth R. Heggland Family Trust (In re Hedged-Investment
Assoc., Inc.), 48 F.3d 470, 474 (10 th Cir. 1995)(“It is beyond
peradventure that, as a general rule, any party seeking to
impress a trust upon funds for purposes of exemption from a
bankruptcy estate must identify the trust funds in the original
or substituted form.”)(quoting First Federal of Michigan v.
Barrow (In re Salem Mortgage Co.), 878 F.2d 912, 915 (6 th Cir.
1989)); Rollins v. Metropolitan Life Ins. Co., 912 F.2d 911, 915
(7th Cir. 1990)(Same.) 	Furthermore, Begier’s relaxed tracing
rules do not apply to constructive trusts. 	Ferris, Baker Watts,
Inc. v. Stephenson (In re MJK Clearing, Inc.), 371 F.3d 397, 402
(8th Cir. 2004)(A constructive trust contains property wrongfully
obtained by another and is therefore a trust in specific
property, not a trust in an amorphous amount.)(Citation
omitted.); Official Committee of Unsecured Creditors v. Catholic
Diocese of Wilmington, Inc. (In re Catholic Diocese of
Wilmington, Inc.), 432 B.R. 135, 158 n. 81 (Bankr. D. Del. 2010)
(Citing MJK Clearing, 371 F.3d at 402); Rocin Liquidation Estate
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v. Alta AH & L (In re Rocor Int’l, Inc.), 352 B.R. 319, 329
(Bankr. W.D. Ok. 2006)(To impose a constructive trust, the
preference defendant must both trace the funds and prove fraud.)
A concept entwined with tracing is the “lowest intervening
balance rule.” 	United States Dept. of Energy v. Seneca Oil Co.
(In re Seneca Oil Co.), 906 F.2d 1445, 1451 (10th Cir. 1990).
That rule provides:
[W]hen a trustee has commingled trust funds with his
own funds, the creditor may recover the lowest balance
to which the common fund has been depleted, on the
theory that the trustee is presumed to use the
trustee's own money first. 	See In re Mahan & Rowsey,
817 F.2d [682] at 684 [(10th Cir. 1987)]; Ayers v. Fay,
187 Okl. 230, 102 P.2d 156, 159 (1940).
See also Cunningham, 265 U.S. at 11-12:
[T]o succeed they must trace the money, and therein
they have failed. 	It is clear that all the money
deposited by these defendants was withdrawn from
deposit some days before they applied for and received
payment of their unmatured notes. 	It is true that by
the payment into the account of money coming from other
banks and directly from other dupes the bank account as
such was prevented from being exhausted; but it is
impossible to trace into the Hanover deposit of Ponzi
after August 1st, from which defendants' checks were
paid, the money which they paid him into that account
before July 26th. 	There was, therefore, no money
coming from them upon which a constructive trust, or an
equitable lien could be fastened. 	Schuyler v.
Littlefield, 232 U.S. 707, 34 Sup. Ct. 466, 58 L. Ed.
806 [(1914)]; In re Mulligan (D. C.) 116 Fed. 715 [(D.
Mass. 1902)]; In re Matthews' Sons, 238 Fed. 785, 151
C. C. A. 635 [(2 nd Cir. 1916), cert. denied, 243 U.S.
647 (1917)]; In re Stenning, [1895] 2 Ch. 433 [1895 WL
9888)]. 	In such a case, the defrauded lender becomes
merely a creditor to the extent of his loss and a
payment to him by the bankrupt within the prescribed
period of four months is a preference. 	Clarke v.
Rogers, 228 U. S. 534, 33 Sup. Ct. 587, 57 L. E. 953
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[(1913)]. 	In re Door, 196 Fed. 292, 116 C. C. A. 112
[(9 th Cir. 1912)]; In re Kearney (D. C.) 167 Fed. 995
[(E.D. Pa. 1909)].
Cunningham strongly suggests that when an account is depleted of
its fraudulently obtained funds, subsequent replenishments do not
restore the tainted funds as trust funds, but replaces them free
of the trust. 	This is also the holding in Frontier Pepper’s
Ferry, LLC v. Landamerica 1031 Exchange Services, Inc. (In re
Landamerica Financial Group), 2009 WL 1269578 at *12 (Bankr. E.D.
Va. 2009):
The operating account of LES was swept daily. 	Once the
account went to zero, tracing became impossible as a
matter of law. 	“[E]ven assuming the existence of a
trust relationship, a creditor cannot sufficiently
identify or trace the trust res through a commingled
fund where the fund is too small to satisfy the claims
of similarly situated parties.” 	In re Lemons &
Assocs., 67 B.R. [198] at 213 [(Bankr. D. Nev. 1986)].
All of Debtor’s funds were swept daily. 	Therefore they had
zero balances daily. 	It is not possible to trace funds because
there never were any. 	There is no property that could be held in
a constructive trust. 	Payment to Sun Life was not made with
trust funds. 	Payment to Sun Life was simply late payment on a
debt. 	The Court finds that defense D) is not well taken.
E) 	Payments were “withheld” from employee’s paychecks.
Sun Life argues that some of the payments were withheld from
employee paychecks and therefore were not property of Debtor. 	To
the extent that this argument is different from defense D, the
Court responds as follows. 	Fact 113 states that in 2000 and 2001
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when Debtor issued checks it had no money to back up the checks,
and with respect to the employee’s paychecks there was no money
set aside for amounts withheld. 	All payments came from funds
supplied by new borrowings. 	Debtor may have been breaching
contracts with its employees or even possibly violating some
statute or rule by not segregating withholdings, but that does
not transform the fact that there was 1) no money held in trust
for the withholdings, 2) no money segregated or even allocated
for Sun Life, or 3) no money even available at the time of
payments became due, because of the nature of the zero balance
accounts. 	Debtor had to borrow funds from Heller to make each
payment on the day the check hit the bank. 	See fact 322, which
states in part:
Moneys deducted from employee’s checks to pay insurance
premiums to Defendant did not exist at the time the
paycheck was cut. 	There was no mechanism in place to
segregate the money deducted from the employee
paychecks. 	Employees’ deductions were subtracted from
their gross pay, but the amounts deducted did not exist
at the time the paycheck was cut. 	On the day the
employee paychecks were cut, there wasn't any money
anywhere designated to cover the checks or the
withholding.
F) Estoppel by ¶¶ 7, 25 and 26 of the “Employee Benefits Motion”.
Paragraph 7 of the Motion states:
The debtor also seeks authorization to continue
postpetition the employee benefit plans and programs
giving rise to the Prepetition Employee Obligations in
the manner and to the extent that they were in effect
immediately before the Petition Date. 	As part of the
foregoing relief, the Debtor seeks authorization to pay
any and all local, state and federal withholding and
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payroll-related or similar taxes relating to
prepetition periods, including but not limited to, all
withholding taxes, Social Security taxes and Medicare
taxes, as well as all other trust-fund type
withholdings such as garnishment contributions and
savings, pension plan, or other deductions, if any.
The term Prepetition Employee Obligations is meant to
include all such payments.
Paragraph 25 of the Motion states:
The Debtor routinely withholds from Employee’s
paychecks amounts that the Debtor is required to
transmit to third parties. 	Examples of such
withholdings include Social Security, FICA, federal and
state income taxes, garnishments, health care payments,
retirement fund withholdings, savings, and charitable
donations.
Paragraph 26 of the Motion states:
The Debtor believes that these withheld funds, to
the extent that they remain in its or it’s agent’s
possession, constitute monies held in trust and
therefore are not property of the Debtor’s bankruptcy
estate.
Paragraph 7 requests authorization to pay any and all unpaid
local, state and federal withholding and payroll-related or
similar items relating to prepetition periods and continue to pay
them postpetition. 	Debtor subsequently paid Sun Life for January
and eight days of February. 	Paragraph 7 does not refer to
payments already made prepetition. 	And, paragraph 7 makes no
reference to Sun Life.
Paragraph 25 begins: “The Debtor routinely withholds from
Employee’s paychecks amounts that the Debtor is required to
transmit to third parties.” 	The remainder of the paragraph only
itemizes examples of what it withheld. 	Paragraph 25 asserts
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nothing else. 	It does not state that the amounts withheld
physically existed or are or were segregated or are or were
available for payment on any particular date. 	It merely declares
that Debtor had a duty to transmit amounts withheld. 	Sun Life
would have the Court read “withhold” as “withhold actual
identifiable funds and deposit them in a segregated account.”
However, the definition of “withhold” carries no such
connotation. 	See Webster’s New Collegiate Dictionary 1355 (9 th
ed. 1991)(“4. to deduct ... from income.”); MacMillan Dictionary,
http://www.macmillandictionary.com (“To deliberately not give
something to someone.”); Oxford Dictionary,
http://oxforddictionaries.com/ (“Refuse to give (something that
is due to or is desired by another”)). 	Accord Begier, 496 U.S.
at 61 (“[T]here is no general requirement that the withheld funds
be segregated from the employer’s general funds”; this implies
that sums are “withheld” whether or not segregated.) (Quoting
Slodov v. United States, 436 U.S. 238, 243 (1978)). 	Paragraph 25
was a true statement: Debtor withheld amounts from payroll and
had a duty to pay them to third parties.
Paragraph 26 states: “to the extent that [withheld funds]
remain in its or it’s agent’s possession” they would be trust
funds. 	This may be a true statement, especially if the funds
could be traced. 	Compare In re College Bound, Inc., 172 B.R.
399, 403 (Bankr. S.D. Fla. 1994)(“As long as the Debtor had funds
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in excess of the employee withholdings, the amounts withheld from
employee wages are deemed trust funds.”)(Emphasis added.) 	In
this case, however, Debtor had no funds at all. 	Debtors’
accounts had a daily zero balance. 	Debtor had funds if, when and
only to the extent that Heller allowed future advances on a line
of credit. 	No funds were traceable to amounts withheld.
Furthermore, the Court finds that judicial estoppel does not
apply. 	First, Plaintiff is the Chapter 7 trustee, a
representative of unsecured creditors, and not in privity or
bound by the Chapter 11 Debtor. 	See supra at pp. 46-47. 	Second,
the Court does not find that the Debtor’s earlier statements that
“if payment of a claim which arose prior to reorganization is
essential to the continued operation of the [business] during the
reorganization, payment may be authorized” actually conflicts
with the Plaintiff’s current statement that during the preference
period, this creditor received more than other unsecured
creditors and the payment should be recovered. 	Id. at 48.
Similarly, the earlier statement that Debtor routinely withheld
amounts does not conflict with the elements of a preference
claim. 	Finally, Debtor’s earlier statement that the withheld
funds in its possession or its agent’s possession are trust funds
is a legal conclusion not creating a judicial estoppel. 	See,
supra at p. 49.
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The Court also finds collateral estoppel does not apply.
The issues are simply not the same. 	And, neither the Chapter 7
Trustee nor Sun Life were involved in the employee benefits order
motion or its resolution and had no opportunity to litigate a
position. 	And, finally, neither equitable estoppel or promissory
estoppel apply because there are no allegations that Sun Life
relied on any representation or that it was reasonable in doing
so. 	The Court specifically finds that Sun Life would not have
been reasonable relying on the Employee Benefits Motion and Order
as a release of preference liability because that issue is not
addressed in the motion or order.
G) 	Subsequent new value in the form of continuing insurance
coverage (Section 547(c)(4)).
Section 547(c)(4) provides as follows:
(c) The trustee may not avoid under this section a
transfer--
...
(4) to or for the benefit of a creditor, to the extent
that, after such transfer, such creditor gave new value
to or for the benefit of the debtor--
(A) not secured by an otherwise unavoidable
security interest; and
(B) on account of which new value the debtor did
not make an otherwise unavoidable transfer 35 to or for
the benefit of such creditor.
“New value” is defined in section 547(a)(2) as:
35 The section 547(c)(4) defense is considered at this point
in the Memorandum Opinion only to parallel Sun Life’s list of
affirmative defenses as they appear in the Motion. 	In fact, the
Court examined all the previous and remaining defenses before
considering the 547(c)(4) defense to determine if any of the
payments were “otherwise unavoidable.”
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“new value” means money or money's worth in goods,
services, or new credit, or release by a transferee of
property previously transferred to such transferee in a
transaction that is neither void nor voidable by the
debtor or the trustee under any applicable law,
including proceeds of such property, but does not
include an obligation substituted for an existing
obligation.
Under section 547(b), a transfer is deemed to occur on the
date that a check is honored. 	Eleva 235 B.R. at 488 (citing
Barnhill v. Johnson, 503 U.S. 393, 401 (1992)). 	On the other
hand, the majority of courts (including the Tenth Circuit
Bankruptcy Appellate Panel) hold that, for section 547(c)(4), the
transfer occurs when the check is delivered. 	Id. (Citations
omitted.) 	Thus a creditor’s provision of services 36 or goods
qualifies for new value status as soon as the debtor has
delivered the check that represents the preferential payment
against which the new value counts.
Section 547 is generally thought to advance two bankruptcy
policies. 	Mosier v. Ever-Fresh Food Co. (In re IRFM, Inc.), 52
F.3d 228, 232 (9th Cir. 1995) 	First, it achieves an equality of
distribution (“Policy 1") of a debtor’s assets among its
36 There is really no question that a continued provision of
insurance coverage constitutes new value. 	Official Committee of
Unsecured Creditors of Maxwell Newspapers, Inc. v. Travelers
Indemnity Co. (In re Maxwell Newspapers, Inc.), 192 B.R. 633, 638
(Bankr. S.D. N.Y. 1996)(“[B]ecause the provision of insurance
coverage was a benefit to the estate, I conclude that it
constitutes ‘new value’ under section 547(a)(2).”); Clark
v. Frank B. Hall & Company of Colorado (In re Sharoff Food
Service, Inc.), 179 B.R. 669, 678(Bankr. D. Colo. 1995); In re
Dick Henley, Inc., 45 B.R. 693, 699 (Bankr. D. La. 1985).
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unsecured creditors by allowing a trustee to recover payments
made that favor any particular creditor on the eve of bankruptcy.
Id. 	Second, it encourages creditors to continue to do business
with financially troubled debtors with an eye toward avoiding
bankruptcy altogether (“Policy 2"). 	Id.; see also Charisma
Investment Co., N.V. v. Airport Systems, Inc. (In re Jet Florida
System, Inc.), 841 F.2d 1082 (11th Cir. 1988):
[C]ourts have consistently looked to the principal
policy objectives underlying the preference provisions
of the Bankruptcy Code. The first objective is to
encourage creditors to continue extending credit to
financially troubled entities while discouraging a
panic-stricken race to the courthouse. Another related
objective of this section is to promote equality of
treatment among creditors. The subsequent advance
exception promotes these general policy objectives
because its utility is limited to the extent to which
the estate was enhanced by the creditor's subsequent
advances during the preference period.
Id. at 1083-84 (citations and internal punctuation omitted).
The new value defense particularly serves Policy 2:
First, it encourages creditors to do business with
financially troubled debtors. A creditor will be more
likely to continue to advance new value to a debtor if
all these subsequent advances may be used to offset a
prior preference. 37 	If a second advance of new value
carries no benefit, the creditor will be unlikely to
make it. 	Second, this approach recognizes the fluid
nature of ongoing commercial activity where a creditor
looks to a debtor's entire repayment history, instead
37 Strictly speaking, section 547(c) does not refer to “set
off”. 	Rather, it says that “[t]he trustee may not avoid ... a
transfer – ... to the extent that....” 	Columbia Packing Co. v.
Allied Container Corp. (In re Columbia Packing Co.), 44 B.R. 613,
614 (Bankr. D. Mass. 1984). 	At least in this context, the effect
is the same.
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of one isolated transaction, to decide whether to
advance new credit. 38
In re IRFM, Inc., 52 F.3d at 232 (citation omitted). 	Section
547(c)(4) is finely tuned to protect those creditors who, after
receiving a preference, in effect return some or all of the
preference to the estate by providing new value to the debtor.
The relevant inquiry is whether that new value replenishes the
estate. 	If the debtor pays for that new value the estate is not
replenished and the preference continues to unfairly benefit the
creditor. 	Kroh Bros. Development Co. v. Continental Construction
Engineers, Inc. (In re Kroh Bros. Development Co.), 930 F.2d 648,
652 (8th Cir. 1991).
The text of section 547(c)(4), short and simple on its face,
presents some difficulty. 39 	Accordingly, courts have not
uniformly interpreted the statute. 	One specific issue is whether
in calculating the amount of the new value which the creditor
will be allowed as a defense, must that new value “remain
unpaid”, or at least remain unpaid at the time of the petition
date? 	That is, in interpreting §547(c)(4)(B), does the creditor
get the benefit of a subsequent unsecured advance of new value if
38 These statements omit perhaps the primary motivating
advantage for a supplier of goods or services to continue to do
business with a struggling debtor: each continuing sale
presumably generates a profit for the creditor.
39 Or, as characterized in 5 Collier on Bankruptcy
¶547.04[4][e] (Alan N. Resnick & Henry J. Sommer eds., 16 th ed.),
“the subtle and intricate wording of §547(c)(4)....”
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that subsequent advance is paid for postpetition? 40 	A summary of
the development of the law is as follows:
If "new value" is paid with a transfer that is subject
to avoidance (or that would be subject to avoidance but
for the application of the subsequent new value
exception), it still qualifies as "new value." 	Earlier
decisions often made reference to the purported need
for subsequent new value to remain "unpaid" in order to
qualify under the section 547(c)(4) exception. 	With
increasing consistency, more modern decisions have
rejected the notion that the new value must remain
"unpaid," as representing an oversimplification of the
proper application of section 547(c)(4). 	These later
decisions have recognized that, while it is true that
all unpaid subsequent new value should fall within the
scope of section 547(c)(4), this does not mean that all
subsequent new value upon which payment has been made
necessarily falls outside the scope of section
547(c)(4). 	Thus, if subsequent new value has been paid
by a payment that is itself avoidable, then it should
still qualify as subsequent new value for purposes of
section 547(c)(4). 	Moreover, if subsequent new value
has been paid by a payment that would be avoidable but
for the fact that the latter payment is itself
unavoidable as a result of the further application of
the section 547(c)(4) exception, then the original
subsequent new value should be recognized as still
falling within the scope of the section 547(c)(4)
exception. 	This construction more fully takes into
account the subtle and intricate wording of section
547(c)(4). 	However, to the extent that the debtor made
an unavoidable transfer on account of the new value,
the "new value" defense does not apply. 	In this
regard, section 547(c)(4) should not provide a defense
to the extent that a preference transferee received
"critical vendor" payments for the subsequent new
value, or received administrative expense payments
under section 503(b)(9) for the subsequent new value
because that new value represented goods shipped during
40 Or by a third party. 	E.g., Kroh Bros. Development Co.,
930 F.2d at 653. 	In Kroh Bros., the 8 th Circuit ruled that
payment to the creditor by a third party rather than by the
debtor did not deplete the estate and therefore did not reduce
the amount of the creditor’s subsequent new value defense.
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the twenty days immediately before the bankruptcy
filing.
5 Collier on Bankruptcy ¶547.04[4][e] (footnotes omitted).
For the purposes of the issues in this case, there are two
lines of interpretation. 	The first one (“Line 1") can be
summarized by this quote from an early bankruptcy case:
For § 547(c)(4) to apply, three requirements must
be met. 	First, the creditor must extend new value as
defined in § 547(a)(2) as “money or ... new credit”
after the challenged payment. 	The payment which is the
subject of Count III of the Amended Complaint was made
on September 27, 1979. 	Following that date, Trust
Company made three further credit extensions to Bishop
on October 3rd, October 4th and November 21st.
Therefore, “new value” as defined in § 547(a) (2) was
extended after the payment. 	Secondly, the new value
must be unsecured. 	Section 547(c)(4)(A). The parties
agree that the new value was unsecured. 	Finally, the
new value must go unpaid. 	Section 547(c)(4)(B).
Pettigrew v. Trust Co. Bank (In re Bishop), 17 B.R. 180, 183
(Bankr. N.D. Ga. 1982)(Emphasis added). 	Note that the text of
the statute does not say “go unpaid.” 	Other Line 1 cases that
have followed Bishop, or at least used the same language, are set
out in the margin. 41 	This line of cases has generally been
41 See Rovzar v. Prime Leather Finishes Co. (In re Saco Local
Development Corp.), 30 B.R. 859, 861 (Bankr. D. Me. 1983);
Keydata Corp. v. Boston Edison Co. (In re Keydata Corp.), 37 B.R.
324, 328 (Bankr. D. Mass. 1983); Erman v. Armco, Inc. (In re
Formed Tubes, Inc.), 46 B.R. 645, 646 (Bankr. E.D. Mich. 1985);
Chaitman v. Paisano Automotive Fluids, Inc. (In re Almarc Mfg.,
Inc.), 62 B.R. 684, 686 (Bankr. N.D. Ill. 1986); Armstrong v.
Marine Bank Dane County (In re Prescott), 805 F.2d 719, 728 (7th
Cir. 1986); In re Jet Florida System, Inc.), 841 F.2d at 1083;
New York City Shoes, Inc. v. Bentley International, Inc. (In re
New York City Shoes), 880 F.2d 679, 681 (3rd Cir. 1989).
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referred to as the majority view. 42 	See, e.g., Braniff, Inc. v.
Sundstrand Data Control, Inc. (In re Braniff, Inc.), 154 B.R.
773, 783 (Bankr. M.D. Fl. 1993). 	In fact, the “remains unpaid”
language also appears as dicta in both Tenth Circuit Bankruptcy
Appellate Panel decisions and decisions of this Court. 	See
Eleva, 235 B.R. at 488-89; Gonzales v. DPI Food Products, Inc.
(In re Furr’s Supermarkets, Inc.), 296 B.R. 33, 45 (Bankr. D.
N.M. 2003) (citing Eleva, Inc., 235 B.R. at 488-890.)
One branch of the Line 1 cases takes a further step by
limiting the phrase “remains unpaid” to “as of the date of the
bankruptcy petition.” 	Note that the text of the statute also
does not say “as of the date of the bankruptcy petition.” 	See
Energy Cooperative, Inc. v. Cities Service Co. (In re Energy
Cooperative, Inc.), 130 B.R. 781, 789 (N.D. Ill. 1991):
[T]he requirement that the new value remain unpaid
applies only through the date of the filing of the
bankruptcy petition. 	“Additional post-preference
unsecured credit must be unpaid in whole or in part as
of the date of the petition.” 	Almarc, 62 B.R. at 686
(emphasis added). 	See also In re New York City Shoes,
Inc., 880 F.2d 679, 680 (3rd Cir. 1989) (“[T]he debtor
must not have fully compensated the creditor for the
“new value” to the debtor as of the date that it filed
its bankruptcy petition” (emphasis added)). 	Neither of
the Trustee's cases cited on this matter challenge our
application of the statute, as both involve repayment
of the new value pre-bankruptcy. 	In re Prescott, 805
F.2d 719, 722–3 (7th Cir. 1986); In re Saco Local Dev.
Corp., 30 B.R. 859, 861–2 (Bkrtcy. D.C.[sic] Me. 1983).
Therefore, we will not use the post-bankruptcy
42 Whether it continues to be the “majority” view is itself
subject to doubt. 	See 5 Colliers ¶547.04[4][e], quoted above.
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transactions between Cities and ECI to limit Cities'
pre-bankruptcy new value defense.
See also Grant v. Sun Bank/North Central Florida (In re Thurman
Construction, Inc.), 189 B.R. 1004, 1014 (Bankr. M.D. Fla. 1995):
The Eleventh Circuit has held that § 547(c)(4)
requires that the new value remain unpaid as of the
petition date, rather than the date the court
adjudicates a preference action. 	In re Braniff, Inc.,
154 B.R. 773, 784 (Bankr. M.D. Fla. 1993). See In re
Jet Florida System, Inc., 841 F.2d 1082 (11th Cir.
1988). 	Plaintiff contends, and the Thurman estate
admits, that Sun Bank received payment for the new
advance through the Thurman estate. 	The transaction
records for loan 26, however, indicate that as of the
date of the petition, the $10,000 advance remained
unpaid. 	(Defendant Thurman Ex. 1). 	Thus, the fact
that Sun Bank received payment of the new value
subsequent to the petition date is irrelevant to this
discussion. 	The Court finds that the value remained
unpaid as of the petition date.
and McKloskey v. Schabel (In re Schabel), 338 B.R. 376, 381
(Bankr. E.D. Wisc. 2005)(The Seventh Circuit had ruled that new
value must remain unpaid. 	Bankruptcy Court dismissed trustee’s
preference action because new value was unpaid at the time of the
petition even though later paid by the debtor.); New York City
Shoes, 880 F.2d at 680 (“Third, the debtor must not have fully
compensated the creditor for the ‘new value’ as of the date that
it filed its bankruptcy petition.”)
The second line of cases interpreting section 547(c)(4)
(“Line 2”) recognizes that the text of the statute does not have
a “remains unpaid” requirement. 	See, e.g., Valley Candle Mfg.
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Co., Inc. v. Stonitsch (In re Isis Foods, Inc.), 39 B.R. 645, 653
(D. Mo. 1984):
[Section 547(c)(4)] contains only two exceptions
to the set off of new value advanced after a payment:
(1) when the new value is secured by an otherwise
unavoidable security interest; and (2) when, on account
of the new value given, the debtor makes an otherwise
unavoidable transfer to or for the benefit of the
creditor. ... 	The dictum in the cases relied upon by
the appellee to the effect that the new value must be
“unsecured” and go “unpaid” is an inaccurate and
confusing paraphrase of the clearly stated statutory
exceptions.
Other Line 2 cases are set out in the margin. 43
43 See Young v. Peter J. Saker, Inc. (In re Paula Saker &
Co., Inc.), 53 B.R. 630, 634 (Bankr. S.D. N.Y. 1985); Boyd v. The
Water Doctor (In re Check Reporting Services, Inc.), 140 B.R.
425, 432 (Bankr. W.D. Mich. 1992); The Successor Committees of
Creditors Holding Unsecured Claims v. Bergen Brunswig Drug Co.
(In re Ladera Heights Community Hospital, Inc.), 152 B.R. 964,
968 (Bankr. C.D. Cal. 1993); Wallach v. Vulcan Steam Forging (In
re D.J. Management Group), 161 B.R. 5, 6 (Bankr. W.D. N.Y. 1993);
Pay ‘N Pack Stores, Inc. v. Slide-Co. (In re PNP Holdings Corp.),
167 B.R. 619, 622 (Bankr. W.D. Wash. 1994); Mosier v. Ever-Fresh
Food Co. (In re IRFM, Inc.), 52 F.3d 228, 232 (9th Cir. 1995);
MRM Holding Corp. v. C & C Consultants, Inc. (In re MMR Holding
Corp.), 203 B.R. 605, 608 (Bankr. M.D. La. 1996); Roberds, Inc.
v. Broyhill Furniture (In re Roberds, Inc.), 315 B.R. 443, 471
(Bankr. S.D. Ohio 2004); Gonzales v. Nabisco Division of Kraft
Foods, Inc. (In re Furr’s Supermarkets, Inc.) 317 B.R. 423, 429
(10th Cir. BAP 2004); Hall v. Chrysler Credit Corp. (In re JKJ
Chevrolet, Inc.), 412 F.3d 545, 552 (4th Cir. 2005);
Intercontinental Polymers, Inc. v. Equistar Chemicals, LP (In re
Intercontinental Polymers, Inc.), 359 B.R. 868, 880 (Bankr. E.D.
Tenn. 2005); Kaye v. Tecumseh Power Co. (In re Murray, Inc.),
2007 WL 5582730 at *2 (Bankr. M.D. Tenn. 2007); Wahoski v.
American & Efrid, Inc. (In re Pillowtex Corp.), 416 B.R. 123, 130
(Bankr. D. Del. 2009); TI Acquisition, LLC v. Southern Polymer,
Inc. (In re TI Acquisition, LLC), 429 B.R. 377, 385 (Bankr. N.D.
Ga. 2010); Circuit City Stores, Inc. v. Mitsubishi Digital
Electronics America, Inc. (In re Circuit City Stores, Inc.), 2010
WL 4956022 at *7 (Bankr. E.D. Va. 2010).
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Most Line 2 cases that examine the issue reduce further the
amount the creditor can claim as a credit (against the amount it
must repay the estate) pursuant to the section 547(c)(4) defense
by considering the effect of postpetition payments received by
the creditor. 	The reason usually stated is that the statute
itself has no time limitation on the date of the repayment. 	See
JKJ Chevrolet, 412 F.3d at 552-53 (“[S]ome of the challenged
transfers occurred after JKJ CP filed for bankruptcy and these
transfers may in fact be ‘otherwise avoidable.’”) 	See also TI
Acquisition, 429 B.R. at 385 (“[T]he defense of § 547(c)(4) does
not limit itself to the pre-petition period.”); Moglia v.
American Psychological Assn. (In re Login Bros. Book Co.), 294
B.R. 297, 300 (Bankr. N.D. Ill. 2003)(“[B]oth the plain language
and policy behind the statute indicate that the timing of a
repayment of new value is irrelevant.”); MMR Holding, 203 B.R. at
209:
An unavoidable post-petition transfer on account
of new value extended subsequent to a preference should
limit the use of § 547(c)(4) by the amount of the
unavoidable transfer, as without a reduction in the new
value offset, the transferee would be receiving double
use of the new value (once as consideration for the
unavoidable transfer which effects a dollar-for-dollar
reduction, and once as an offset to the prior
preference which would also reflect a dollar-for-dollar
reduction). 	There is no requirement within § 547(c)(4)
which limits the universe of facts to be considered to
those arising prepetition.
and D. J. Management, 161 B.R. at 8 (Holding that section 549 is
relevant to a section 547(c)(4) defense.) 	See also Friedee
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Goldman Halter, Inc. v. Aircomfort, Inc. (In re The Consolidated
FGH Liquidating Trust), 392 B.R. 648, 655 n.11 (Bankr. S.D. Miss.
2008):
The Trust also argues that the fact that
Aircomfort received payment after the petition date
does not alter that payment was received and that
Aircomfort was compensated for the new value it asserts
as a defense against the preferential payments. 	See,
Wallach v. Vulcan Steam Forging (In re D.J. Management
Group), 161 B.R. 5 (Bankr. W.D. N.Y. 1993); MMR Holding
Corp. v. C & C Consultants, Inc. (In re MMR Holding
Corp.), 203 B.R. 605 (Bankr. M.D. La. 1996)(an
unavoidable postpetition transfer on account of new
value extended subsequent to a preference should limit
the use of § 547(c)(4) by the amount of the unavoidable
transfer.)
This view is not unanimous in Line 2 cases. 	See Phoenix
Restaurant Group, Inc. v. Ajilon Professional Staffing LLC (In re
Phoenix Restaurant Group, Inc.), 317 B.R. 491, 496-97 (Bankr.
M.D. Tenn. 2004):
Similarly, § 547(c)(4)(B) focuses on actions of
the debtor “on account of which new value the debtor
did not make an otherwise unavoidable transfer ....”
Throughout § 547, “the debtor” refers to the
prepetition entity that transferred property or engaged
in business with the preference defendant. 	Had
Congress intended § 547(c)(4)(B) to account for
payments made post petition, the section would have
included something like “an otherwise unavoidable
transfer of an interest of the estate in property to or
for the benefit of such creditor.” 	Instead, Congress
disqualified only new value paid for by “the debtor”
with an otherwise unavoidable transfer. 11 U.S.C. §
547(c)(4)(B).
See also Commissary Operations, Inc. v. Dot Foods, Inc. (In re
Commissary Operations, Inc.), 421 B.R. 873, 878 (Bankr. M.D.
Tenn. 2010), in which a different judge from the Middle District
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of Tennessee Bankruptcy Court ruled that section 503(b)(9) 44
claims were “analagous” to critical vendor claims.
The possibility that a § 503(b)(9) claimant might
receive payment for the deliveries it made to a debtor
within the 20 days prior to the petition date does not
remove those deliveries from the definition of “new
value” in 11 U.S.C. § 547(a)(2). 	As discussed in
Phoenix Rest. Group, Inc. v. Proficient Food Co. (In re
Phoenix Rest. Group, Inc.), the “preference window of §
547 closed on the date of the filing of the bankruptcy
petition and post-petition payments could not be used
to deplete pre-petition ‘new value.’ ” 	373 B.R. 541,
547. 	Thus, the possibility that a debtor may pay a
creditor's § 503(b)(9) claim post-petition does not
negate the value represented by the claim that the
creditor provided to the debtor. 	The deliveries
benefit the estate, for purposes of 11 U.S.C. §§
547(a)(2) and 547(c)(4), regardless of whether the §
503(b)(9) claimants are paid at a later date for those
deliveries. 	Even if the creditor receives a limited
post-petition payment on its § 503(b)(9) claim to cover
the “value” of the goods, the debtor-in-possession has
realized the mark-up profit on the re-sale of the goods
(or use of the goods incorporated into a finished
product for sale, for a manufacturing or distributor
debtor) and has the ability to fill an order to its
customers' satisfaction. 	Meeting and fulfilling the
expectation of customers achieves the most important
goal of a business entity—to maximize its goodwill.
Id. at 878-79. 	But see Friedman’s Inc. v. Roth Staffing
Companies, L.P. (In re Friedman’s Inc.), 2011 WL 5975283 at *4
(Bankr. D. Del. 2011)(Court states its “serious doubts” about the
44 That section provides:
After notice and a hearing, there shall be allowed
administrative expenses, other than claims allowed
under section 502(f) of this title, including– ...
(9) the value of any goods received by the debtor
within 20 days before the date of commencement of a
case under this title in which the goods have been sold
to the debtor in the ordinary course of such debtor's
business.
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dual entity theory but decided that it need not address 45 the
issue because of the Third Circuit’s New York City Shoes’
requirement that the new value had to be determined as of the
date of the petition.)
The Tenth Circuit Bankruptcy Appellate Panel has not stated
that “remains unpaid” is an element of the defense. 	Gonzales v.
Nabisco, 317 B.R. at 429. 	But there is no specific Tenth Circuit
guidance on whether postpetition payments should be considered in
the analysis.
To analyze this issue, this Court constructed a series of
six hypotheticals that examine the various interpretations of
section 547(c)(4) in light of the overall return to general
unsecured creditors with its emphasis on treating creditors
equally. 	They include analysis of a simple preference recovery
(Hypothetical 1) through analyses of the different treatments
afforded to post-petition payments. 	(Hypotheticals 5 and 6).
The detailed calculations are attached to this Memorandum Opinion
as Exhibit A.
45 Friedman’s argued that “debtor” was defined in the code as
a person concerning which a bankruptcy case was filed, which
means that there is no debtor until a case is filed. 	Therefore,
a debtor cannot be a prepetition entity so the use of the word
debtor in section 547 cannot be a limiting factor in the
preference calculation. 	The Court rejected this argument and
found that the “debtor” was a corporate entity that existed both
pre-petition and postpetition.
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For all hypotheticals, assume Creditor C delivered $100,000
of goods to Debtor D before the preference period. 	During the
preference period D paid C the $100,000. 	D now has a zero
balance with C. 	Assume that the payment meets the definition of
a preference. 	D files a Chapter 11 petition. 	On the petition
date there are no secured debts and D’s sole asset is $500,000 in
cash (or less, if D makes the payments specified in the different
examples). 	There are $75,000 of priority claims. 	There are
$1,000,000 in unsecured debts to creditors other than C. 	Also
assume that the estate has no administrative claims. 46
In Hypothetical 1, there are no other transactions between C
and D pre- or post-petition. 	D recovers the preference. 	The
estate will have $600,000 to distribute (the $500,000 cash plus
the preference recovery of $100,000). 	After priority claims,
$525,000 is available for $1,100,000 of unsecured claims (the
$1,000,000 plus C’s reinstated claim under 502(h) of $100,000).
There is a 47.727% dividend to general unsecured creditors. 	From
C’s perspective, it advanced a total of $100,000 in credit.
After repaying the $100,000 as a preference it receives a
dividend of $47,727, placing it in the same position as if it had
never been paid. 	All unsecured creditors are treated equally.
Hypothetical 2 is identical to number 1, except that after
46 The hypotheticals also ignore any transaction costs that
would be incurred by the creditor, including of course attorney
fees and costs.
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receipt of the $100,000 C extends $40,000 of new credit in the
form of goods. 47 	There are no other transactions between C and D
pre- or post-petition. 	When D files its bankruptcy C has a
balance due of $40,000 for which it files a proof of claim. 	When
D attempts to collect the $100,000 as a preference, C can assert
section 547(c)(4) as a defense to the extent of $40,000. 	C
returns $60,000 and then files a $60,000 section 502(h) claim for
the recovered preference. 	The estate will have $600,000 to
distribute (the $500,000 cash plus proceeds from the $40,000 of
new goods plus the preference recovery of $60,000). 	After
priority claims, $525,000 is available to pay $1,100,000 of
unsecured claims (the other creditors’ claims of $1,000,000 plus
C’s proof of claim for $40,000 48 plus C’s reinstated claim under
47 The hypotheticals also assume that the new value that D
receives continues to benefit the estate by that amount on the
petition date.
48 The Bankruptcy Code does not require C to reduce its pre-
petition unsecured claim by the amount C applies to a section
547(c)(4) defense. 	See Maxwell Newspapers, Inc., 192 B.R. at
640:
According to the Committee, in order for Travelers to
maintain its subsequent new value defense, it must give
up its unsecured claim against the estate for the
insurance coverage constituting its new value
contribution, or otherwise, Travelers would be
“permitted to recover twice on account of [its
subsequent new value] defense.” 	(Committee Memorandum
of Law at 16).
Again, the Committee is in error; Travelers does
not seek to recover twice on the same claim but only to
recover once on each of two separate claims. 	Its
subsequent new value defense serves to protect the
(continued...)
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502(h) of $60,000). 	There is a 47.727% dividend to general
unsecured creditors. 	All unsecured creditors are treated
equally.
Hypothetical 3 is the same as Hypothetical 2, except it
assumes that D did not pay C the $100,000 and instead of
advancing the $40,000 of new goods on credit C insisted on a
C.O.D. payment. 	In this case the estate would have $600,000 in
cash (consisting of the original $500,000, plus the $100,000 it
did not pay to C less the $40,000 C.O.D. payment, plus $40,000
from the proceeds from the new goods purchased on C.O.D.). 	C
files a proof of claim for the $100,000 it was not paid. 	There
is no preference recovery. 	After priority claims, $525,000 is
available to pay $1,100,000 of unsecured claims (the other
48 (...continued)
payment it received within the preference period on
account of antecedent debt. 	Thus, Travelers can have
no claim against the Debtor for that antecedent debt.
However, because Travelers will have to disgorge the
preferential Second Quarter Payment, it will now be
uncompensated for the second quarter insurance coverage
it provided to the Debtor. 	Pursuant to section 502(h)
of the Code, once Travelers disgorges the preference,
it will have an unsecured claim for the value of that
insurance coverage, for which it may recover in
accordance with the terms laid out in the Debtor's
confirmed plan of reorganization.
(Citations omitted); Columbia Packing Co., 44 B.R. at 615 (“The
claims of the creditors are not to be diminished by more than any
payments they are allowed to retain and for which they have not
already given credit.” 	See also Vern Countryman, The Concept of
a Voidable Preference in Bankruptcy, 38 Vand. L.Rev. 713, 790
(1985) (“Countryman”) (citing Columbia Packing as the correct
analysis.)
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creditors’ claims of $1,000,000 plus C’s proof of claim for
$100,000). 	There is a 47.727% dividend to general unsecured
creditors. 	All unsecured creditors are treated equally.
Because the results of Hypothetical 2 and 3 are identical,
the effect of section 547(c)(4) treatment is to lock C into its
claim as an unsecured creditor that will receive equal treatment
with other unsecured creditors for its claim as of the date it
receives the first preferential payment, but then treats C as if
it were a C.O.D. creditor that gets paid 100% of any value it
advances during the preference period (up to the amount of the
preference it received). 	See Countryman, 38 Vand. L.Rev. at 788
n. 380. 	This encourages a creditor to continue to deal with a
debtor approaching bankruptcy because the creditor suffers no
additional harm from continuing to do business with the debtor
(and in fact might result in a debtor avoiding bankruptcy
altogether). 	See Bogdanov v. Avnet, Inc. (In re Amherst
Technologies, LLC), 2011 WL 4625698 at *7 (D. N.H. 2011)
(Unpublished):
[The] critical values underlying the [section
547(c)(4)] defense ... [are]: (1) providing foundering
debtors an opportunity to work their way back to
solvency that they otherwise would not have, by
encouraging continued extension of risky credit, see In
re Pillowtex Corp., 416 B.R. at 130–31, and (2)
“treat[ing] fairly” those creditors who continue to
extend credit to the debtor, by preventing an
“increas[e] [in their] bankruptcy loss.” 	Id.
(quotation omitted).
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Hypothetical 4 is identical to number 2, except that after
C’s extension of $40,000 of new credit, D makes a $25,000 payment
to C that qualifies as an ordinary course of business payment and
is therefore not avoidable. 	C’s $40,000 section 547(c)(4)
defense from Hypothetical 2 is reduced by the later $25,000
payment because D did make an “otherwise unavoidable transfer, 49 ”
allowing D to recover $85,000 as a preference for which C has a
section 502(h) claim upon returning that amount to D. 	The estate
will have $600,000 to distribute (the $500,000 plus proceeds of
the new goods of $40,000, less the $25,000 ordinary course of
business payment, plus the preference recovery of $85,000). 	C is
owed $15,000 at the petition date for which it files a proof of
claim. 	C also has an $85,000 502(h) claim. 	After priority
claims, $525,000 is available for $1,100,000 of unsecured
creditors (the $1,000,000 plus C’s proof of claim for $15,000
plus C’s 502(h) claim under of $85,000). 	There is a 47.727%
49 Section 547(c) starts: “The trustee may not avoid under
this section [i.e. 547] ... ” 	So, subsection c sets out the
requirements that a creditor must satisfy to provide a defense to
the trustee’s preference action.
In other words, D cannot avoid the transfer to C to the
extent that, after the transfer C provided new value to D that is
a) not secured by an unavoidable security interest and b) that
because of that new value D did not make an otherwise unavoidable
transfer to C. 	Since D did make the $25,000 “otherwise
unavoidable transfer” (unavoidable due to the ordinary course
defense) the requirements of section 547(c)(4)(B) are not
satisfied, so the defense fails to the extent of that otherwise
unavoidable transfer.
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dividend to general unsecured creditors. 	All unsecured creditors
are treated equally.
Hypothetical 5 is the same as Hypothetical 4, except
that instead of D paying the $25,000 to C, it files Chapter 11 50
and, as part of a first day motion, D obtains permission to pay
“critical vendors”. 	The Court’s order authorizes D to pay
critical vendors, but also provides that any such payment is not
required and that any payment so made is not deemed to be an
assumption or rejection of any contract or lease. 	D then makes
the $25,000 payment to C under the order, without C having
provided any additional goods, on credit or otherwise. 	This
payment is authorized by section 549.
Assume also that the bankruptcy is filed in a jurisdiction
that holds that postpetition activity is not relevant to section
547(c)(4) defenses. 	So, basically Hypothetical 5 is the same as
Hypothetical 4 except for the timing of the $25,000 payment.
But, when D sues C to recover a preference, C’s section 547(c)(4)
defense is for the $40,000 unpaid as of the date of the petition.
In consequence D recovers $60,000 for which C has a 502(h) claim.
In hypothetical 5, the estate has only $575,000 to
distribute (the $500,000 cash less the $25,000 critical vendor
payment plus $40,000 from the proceeds of the new goods and the
50 D of course has waited at least 21 days to file so as to
not trigger a section 503(b)(9) administrative claim.
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$60,000 preference recovery.) 	After priority claims, there is a
net of $500,000 for $1,075,000 of unsecured creditors (the
$1,000,000 of other claims plus C’s proof of claim for $15,000
(the $40,000 of new goods less the $25,000 it received as a
critical vendor 51 ) and C’s 502(h) claim of $60,000). 	There is a
46.511% dividend to general unsecured creditors. 	This is a
reduction of 1.216% that is attributable directly to D’s
inability to recover $25,000 of the preference because the
postpetition payment to C is deemed irrelevant.
Hypothetical 6 is the same as Hypothetical 5, except that
the bankruptcy is filed in a jurisdiction that holds that
postpetition events are relevant to section 547(c)(4) defenses.
Therefore, when D sues C to avoid the $100,000 preference, C’s
section 547(c)(4) defense is limited to the $40,000 of new goods
less the $25,000 postpetition critical vendor payment. 	C must
return $85,000 to D. 	C files a proof of claim for $15,000 and
has a 502(h) claim for $85,000.
In Hypothetical 6, the estate has $600,000 to distribute
(the $500,000 less the $25,000 critical vendor payment, plus
51 Morris v. Vulcan Chemical Credit Union (In re Rubia), 257
B.R. 324, 327 (10 th Cir. BAP)(“Of course, VCCU is required to
reduce its unsecured claim against the estate to reflect any
reduction of its debt, including any reduction resulting from the
debtor's Postpetition Payments.”), aff’d., 23 Fed.Appx. 968 (10 th
Cir. 2001) (unpublished.) 	Vulcan Chemical was not a section 547
case. 	However, the Court reads it as a simple, somewhat obvious
statement that a creditor cannot collect more than it owes from a
debtor.
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$40,000 in proceeds from the new goods, plus the $85,000
preference recovery.) 	After priority claims, there is a net of
$525,000 for $1,100,000 of unsecured claims (the $1,000,000 plus
C’s proof of claim of $15,000 ($40,000 less the critical vendor
payment of $25,000) plus C’s $85,000 502(h) claim.) 	There is a
47.727% dividend to general unsecured creditors. 	All unsecured
creditors are treated equally.
From the discussion above, the Court finds that the most
reasonable interpretation of section 547(c)(4) is the one set out
in Hypothetical 6. 	It results in absolutely equal treatment of
all unsecured claims. 	Accord 5 Collier on Bankruptcy ¶
547.04[4][e] at 547-68 (“[S]ection 547(c)(4) should not provide a
defense to the extent that a preference transferee received
‘critical vendor’ payments for the subsequent new value, or
received administrative expense payments under section
503(b)(9).”)
If a court uses the dual identity approach that determines
preference liability without regard to postpetition events the
unsecured creditors are harmed by postpetition payments of
unsecured debt. 	Whether the debtor becomes a different debtor-
in-possession or not, the estate does not change. 	The estate is
defined in section 541 as including all legal or equitable
interests of the debtor in property as of the commencement of the
case and any interest in property that the trustee recovers under
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certain bankruptcy code provisions (including preferences). 	A
postpetition payment depletes the return to unsecured creditors
the same as if it were made pre-petition and not recovered as a
preference. 	Cutting off the preference calculation at the filing
of a case makes no economic sense.
During the preference period Debtor paid Sun Life the
following (fact 302):
Amounts 	Payment due
dates
Check Dates Date Received
$44,850.65 	9/1/00 	11/7/00 	11/13/00
$44,570.16 	10/1/00 	12/1/00 	12/11/00
$90,447.43 	11/1/00 &
12/1/00
01/5/01 	01/16/01
Sun Life’s Amended Statement of Material Facts (doc 92)
facts 43 to 45 (which would have been 143 to 145 above) sought to
fix the value of insurance benefits following each of the above
payments. 	Fact 43 claims that the value from receipt of the
November 7 check to the receipt of the December 1 check was
$25,829.92. 	Fact 44 claims that the value from receipt of the
December 1 check to the receipt of the January 5 check was
$34,344.06. 	Fact 45 claims that the value from receipt of the
January 5 check to the date of the petition was $24,526.80.
These figures, and their calculation, appear on Exhibit B of Sun
Life’s Amended Statement of Material Facts. 	Doc 92. 	In the
calculations Sun Life lists the dates the checks were issued and
received and their amounts. 	However, it then deducts from the
amount of the check the dollar amount withheld from the employees
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to calculate Debtor’s share of the payment. 	Sun Life then bases
the remaining calculations on this net amount.
The Court disagrees with the theory underlying this method.
It necessarily assumes that only the employer’s share is subject
to being a preference. 	This might be correct if the employer
funded the withholdings, segregated them and Sun Life could trace
them directly to each payment. 	But, as discussed above,
withholdings were in reality just other debts and the entire
premium payments were from new borrowings which constituted
Debtor’s property. 	The Court’s calculations of new value are
based on the gross payments.
The value of anything Sun Life provided after the petition
was filed does not count as “new value” for purposes of section
547(c)(4). 	Bergquist v. Anderson-Greenwood Aviation Corp. (In re
Bellanca Aircraft Corp.), 850 F.2d 1275, 1284 (8 th Cir.
1988)(Postpetition advances are given to the estate, not to or
for the benefit of the debtor.) 	See also Brown v. Kitchenmaster
(In re Hertzler Halstead Hospital), 334 B.R. 276, 291 n.58
(Bankr. D. Kansas 2005)(Same, and citing cases.) 	Sun Life
agrees. 52 	See Sun Life Memo, doc 52 at 25-26 (citing Field v.
Maryland Motor Truck Assoc. Workers Compensation Self-Insurance
Group (In re George Transfer, Inc.), 259 B.R. 89, 96 (Bankr. D.
52 To be sure, Sun Life also asserts that the postpetition
payments it received should not reduce the amount of its
subsequent new value credit.
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Md. 2001)(Unfortunately for the defendant, its refund to the
debtors does not qualify under Section 547(c)(4) as “new value”
because it was made postpetition.)) and Chiasson v. Strachan
Shipping Co. (In re Massan Shipping Industries, Inc.),272 B.R.
625, 632 (E.D. La. 2001).
Given the Court’s analysis of applying post petition
payments to reduce the amount of Sun Life’s new value defense, it
may seem counterintuitive, or simply arbitrary and capricious, or
both, not to credit Sun Life with those payments to the estate to
increase its subsequent new value defense. 	The reasons usually
given for the differing treatment are three-fold. 	First, there
are protections for postpetition transfers to the estate. 	E.g.,
Dick Henley, 45 B.R. at 699 and n.8 (postpetition insurance
coverage that goes unpaid results in a priority administrative
claim rather than addition to the amount of a section 547(c)(4)
credit). 	See also Sharoff Food Services, 179 B.R. at 678
(trustee was also pursuing a postpetition turnover claim against
creditor, and creditor should be protected against double dipping
by trustee).
In this instance, Sun Life had an administrative claim for
providing postpetition insurance coverage (or would have, had it
not been paid), and in fact Sun Life was paid for providing that
insurance coverage.
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Second, some courts reason that the purpose of section
547(c)(4) is to encourage creditors to deal with the prepetition
debtor, Wolinsky v. Central Vermont Teachers Credit Union (In re
Ford), 98 B.R. 669, 682-84 (D. Vt. 1989), and that section does
not focus on the harm to the creditor. 	Id. 	See also Sharoff
Food Services, 179 B.R. at 678. 	Whether the statute does not
focus on harm to the creditor is perhaps questionable, since the
encouragement to deal with the creditor prepetition does seem to
take the creditor’s interests into account.
Third, allowing such a credit might also put part of the
case out of the control of the debtor, the creditors and the
Court. 	Id. 53
As for PSE & G's claim that it is entitled to an
offset in the amount of the value of services provided
post-petition, that claim is hereby rejected.
Post-petition advances of new value may not be applied
to offset preferential transfers. 	To allow a creditor
to offset post-petition advances against preferential
transfers would be contrary to other provisions of the
Code dealing with post-petition advances, would
possibly prejudice the interests of other creditors,
and would “ignore the orderly mechanisms established by
Congress to protect all interested parties concerned.”
53 An example of such a result, albeit in another context,
is Ashland Petroleum Co. v. Appel (In re B & L Oil Company), 782
F.2d 155 (10 th Cir. 1986), in which the creditor, finding itself
owed a considerable sum for unpaid oil deliveries on the date of
the petition, purchased large quantities of oil postpetition and
then successfully asserted the doctrine of recoupment to avoid
paying for its postpetition purchases, thereby netting out its
prepetition claim.
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Kellman v. P.S.E.&G. (In re Jolly “N”, Inc.), 122 B.R. 897, 909-
10 (Bankr. D. N.J. 1991) (citations omitted).
This Court need not rule on these rationales (at least the
latter two), however, since as noted Sun Life was paid for its
postpetition services to the estate.
The Court will now calculate Sun Life’s new value defense.
At the start of the preference period, November 10, 2000, Debtor
owed Sun Life the premiums for September 1, 2000 ($44,850.65),
October 1, 2000 ($44,570.16) and November 1, 2000 ($45,338.75)
for a total of $134,759.56.
There is no evidence nor is there an allegation that the
insurance contract between the Debtor and Sun Life was anything
other than an arms length transaction. 	This suggests that each
party valued the services to be provided as equal to the amount
of the premiums to be paid. 	See Webster v. Harris Corp. (In re
NETtel Corp., Inc.), 319 B.R. 290, 295 (Bankr. D. D.C. 2004)
(“Presumptively, the increase in value to the estate arising from
a subsequent performance of services will be measured by the
contract price of the services.”)(Citing In re Jones Truck Lines
Inc., 130 F.3d 323, 328 n.4 (8th Cir. 1997) and In re Molten
Metal Technology, Inc., 262 B.R. 172, 176 (Bankr. D. Mass.
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2001)). 	The Court therefore computes the values of the services
as follows:
Month 	Premium 	Days in Month 	Per Diem
November 2000 	$45,338.75 	30 	$1,511.29
December 2000 	$45,108.68 	31 	$1,455.12
January 2001 	$46,763.01 	31 	$1,508.48
February 2001 	$46,703.78 	28 	$1,667.99
The Court further finds that each individual payment Debtor
made to Sun Life during the preference period was a preference.
For example, the November 13, 2000 payment was for an antecedent
debt (the September 2000 premium). 	It was not a contemporaneous
exchange. 	It was late. 	It was not an ordinary course of
business payment. 	This is true also for the December 11, 2000
payment (for October) and the January 16, 2001 payment (for
November and December). 	Therefore, each of the payments are
avoidable by the Trustee under section 547(b). 	The postpetition
critical vendor payment is unavoidable by the Trustee because it
was authorized under section 549.
In Exhibit B attached hereto, the Court performs the section
547(c)(4) calculations. 	It starts on November 13, 2000, by
noting the first preferential payment of $44,850.65. 	It then
deducts the value of new services provided from November 13, 2000
to December 11, 2000 when the next payment is received, leaving a
running preference balance of $3,152.40. 	It then adds the next
preferential payment of $44,570.16 to bring the running balance
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to $47,722,56. 	After December 11, 2000 Sun Life provided new
value of $53,238.08 before the next payment on January 16, 2001.
Of that amount, however, only $47,722.56 can be applied to
previous payments and the benefit of $5,515.52 is lost. 54 	The
running balance is therefore zero. 	On January 16, 2001 Sun Life
received $90,447.43 in payments. 	After January 16, 2001 Sun Life
provided new value of $35,971.12 through the petition date of
February 8, 2001. 	This new value would reduce the running
balance to $54,476.31. 	But, the critical vendor payment made on
March 5, 2001 paid back the value of the services from 1/1 to
1/16 ($24,135.68) and from 1/17 to 1/31 ($22,627.20 55 ) and from
2/1 to 2/8 ($13,343.92). 	These critical vendor payments are not
otherwise avoidable, so may not be used to offset the new value
against the preference. 	The earlier new value, for November 14,
2000 through December 31, 2000 is allowed as a credit because the
payments for those periods were avoidable as preferences. 	The
end result is that Sun Life has received a preference in the
amount of $114,583.24 that the Trustee may recover.
54 Any excess of new value over prior preferential payments
cannot be carried forward to offset future preferential payments.
It is a “subsequent new value” defense, not “subsequent new
payment” defense.
55 In other words, all of the January payment of $46,763.01.
This figure differs from the sum of the 1/1 to 1/16 payment and
the 1/17 to 1/31 payment by $0.13 due to rounding.
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As a reconciliation of this number, one can analyze the
overall picture. 	As of the start of the preference period Debtor
owed Sun Life $134,759.56 (consisting of $44,850.65 for September
2000; $44,570.10 for October 2000; and $45,338.75 for November
2000). 	To date the Trustee expects this bankruptcy will not pay
a dividend to non-priority unsecured creditors. 	Therefore, to
receive equal treatment with all other unsecured creditors Sun
Life should receive nothing for that $134,759.56 56 owed at the
start of the preference period.
Sun Life was then owed $45,108.68 for the December 2000
payment, $46,763.01 for the January 2001 payment and $13,343.93
for the first 8 days of February 2001 (total, $105,215.62).
Therefore, if no payments had been made from November 10 to the
petition, Sun Life would have been owed $239,975.18.
But, Sun Life received $179,868.24 during the preference
period and received $60,106.93 on March 5, 2001 as a critical
vendor payment. 	The total receipts, $239,975.18, equal the total
amount that would have been due on the petition date if no
payments had been made in the preference period. 	In other words,
Sun Life was paid in full, unlike other prepetition unsecured
creditors; this suggests that a preference recovery is due.
56 If it turns out there will be a dividend, creditors would
be notified and Sun Life can file a proof of claim for amounts
repaid as a preference. 	That claim would then receive the same
percentage dividend as other unsecured creditors.
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The subsequent new value defense treats a creditor as being
paid C.O.D. on subsequent new value during the preference period
up to the amount of the preference balance. 	Therefore, we allow
Sun Life credit against its preference for the new value of
services for November 14 to 30, 2000 ($25,691.93), December 2000
($45,108.68), January 2001 ($46,763.01) and February 1 to 8, 2001
($13,343.93) in the total amount of $130,907.55. 	But, we must
subtract the $5,515.52 that Sun Life lost by advancing new value
in excess of the running preference balance. 	See fn. 54.
Therefore, Sun Life should be allowed a new value defense of
$125,392.03.
When Sun Life pays the $114,583.24 preference, it will have
ended up with a net prepetition receipt of $65,285.00 (total
$179,868.24 received less $114,583.24 repaid). 	Its postpetition
receipts of $46,763.01 for the January 2001 premium and
$13,343.92 for the first eight days of February 2001 premium are
not avoidable. 	Sun Life therefore ends up with a total of
$125,391.93 57 .
H) 	New value (contemporaneous exchange) in the form of
continued services of the Furr’s employees themselves
(Section 547(c)(1)).
Bankruptcy Code section 547(c)(1) provides:
(c) The trustee may not avoid under this section a
transfer--
57 The difference of $0.10 in the previous paragraph is due
to rounding.
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(1) to the extent that such transfer was--
(A) intended by the debtor and the creditor to or for
whose benefit such transfer was made to be a
contemporaneous exchange for new value given to the
debtor; and
(B) in fact a substantially contemporaneous exchange.
In Official Unsecured Creditors Committee v. Airport
Aviation Services, Inc. (In re Arrow Air, Inc.), 940 F.2d 1463,
1465-66 (11 th Cir. 1991) the Eleventh Circuit discussed the
application of section 547(c)(1):
The contemporaneous-exchange-for-new-value
exception is an affirmative defense; so a transferee
seeking to rely on it has the burden of establishing
all required elements. 	See Jet Florida, Inc. v.
American Airlines, Inc. (In re Jet Florida Systems,
Inc.), 861 F.2d 1555, 1558 (11 th Cir. 1988). 	And, as
the name of the exception suggests, it has three basic
requirements: (1) the transferee must have extended new
value to the debtor in exchange for the payment or
transfer, (2) the exchange of payment for new value
must have been intended by the debtor and transferee to
be contemporaneous, and (3) the exchange must have been
in fact substantially contemporaneous. 	See, e.g.,
Tyler v. Swiss Am. Secs., Inc. (In re Lewellyn & Co.,
Inc.), 929 F.2d 424 (8th Cir. 1991); 11 U.S.C.A. §
547(c)(1).
The checks that Plaintiff claims are preferential are as
follows (fact 302):
Due date 	Coverage
period
Amount 	Check date 	Date
received
09/01/00 	9/2000 	$44,850.65 	11/07/2000 	11/13/2000
10/01/00 	10/2000 	$44,570.16 	12/01/2000 	12/11/2000
11/01/00 	11/2000 	$45,338.75 	01/05/01 	01/16/01
12/01/00 	12/2000 	$45,108.68 	01/05/01 	01/16/01
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Each check was dated at least two months after the services
were provided by Sun Life. 	The checks and services were not
contemporaneous. 	The checks could not have been intended as
contemporaneous exchanges because Sun Life had already provided
its services and Debtor was simply paying bills late. 	And, in
fact the exchanges were not contemporaneous. 	Compare Jones Truck
Lines, Inc. v. Central States, Southeast and Southwest Areas
Pension Fund (In re Jones Truck Lines, Inc.), 130 F.3d 323, 327
(8 th Cir. 1997):
To illustrate, assume that an employer fails to pay an
employee's salary and benefits when due. 	The employee
complains and threatens to resign, or his union
threatens to strike. 	If the employer responds by
paying (or providing collateral for) the past-due
salary or benefits, that transfer is not for new value.
See In re Elton Trucking, Inc., 1996 WL 261059 (Bankr.
N.D. Ill. 1996); In re Burner Servs. & Combustion
Controls Co., 1989 WL 126487 (Bankr. D. Minn. 1989).
If the employer also resumes paying the employee's
current salary and benefits when due, and the employee
keeps working, those current payments are
contemporaneous exchanges for “new value,” the
employee's continuing services.
(Footnote omitted.) 	This defense is not well taken.
I) 	Sun Life would have received these payments as Section
507(a)(4) priority claims anyway, therefore would not have
received less in a hypothetical chapter 7 case.
This defense was withdrawn.
J) 	Plaintiff should be estopped by ¶ 36 of the Employee
Benefits Motion from arguing that the payments enabled
Defendant to receive more than it would have received in a
chapter 7 case.
Paragraph 36 of the Benefits Motion states:
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The payment of the Prepetition Employee
Obligations in the ordinary course of business should
neither prejudice general unsecured creditors nor
materially affect the Debtor’s estates [sic] because
section 507(a)(3) and (a)(4) priority claims are
entitled to payment in full under a reorganization
plan. 	See 11 U.S.C. § 1129(a)(9)(B).
This statement is a bare legal conclusion. 	While it is true
that priority claims must be paid as a condition of confirmation,
see 11 U.S.C. § 1129(a)(9)(A)-(B) 58 , it is also obvious that if
there is not a 100% return to creditors any priority claim must
be paid in full before any unsecured creditors are paid.
The Benefits Motion does not otherwise state or infer that
unsecured creditors will be paid in full. 	It does not refer to
preferential transfers. 	It does not refer to Sun Life. 	It
promises nothing to anyone; all it does is seek authority to pay
a certain type of claim. 	All paragraph 36 does is to state the
obvious; whether the priority claims are paid now or later,
payment should not prejudice general unsecured creditors because
the priority claims need to be paid before the non-priority
unsecured claims in all events.
As for the estoppel argument, the Debtor-in-Possession’s
statement was a legal conclusion which does not estop later
claims. 	Second, the fact that priority claims are paid before
58 Subsection (A) requires payment in cash on the effective
date of the plan of section 503(a)(3) claims. 	Subsection (B)
allows deferred payment of accepting classes of section 503(a)(4)
claims but otherwise requires payment in cash.
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unsecured claims does not contradict the elements of a preference
claim nor the allegations of the complaint against Sun Life that
it was preferred to other unsecured creditors. 	Collateral
estoppel does not apply because the issues are not the same.
And, finally, there are no allegations that anyone misstated
facts or that Sun Life relied on misstated facts.
The Court finds defense J not well taken.
TRUSTEE’S CASE
Having found that none of Sun Life’s affirmative defenses
are meritorious, the Court finds that Trustee has, in fact, shown
that she is entitled to summary judgment.
Element 	Proof
any transfer of property of the
debtor—
Borrowed funds belong to
debtor. 	Bailey, 314 F.3d at
1199. 	Debtor had dominion and
control over its checking
account. 	Fact 114. 	Parks,
550 F.3d at 1255.
(1) to or for the benefit of a
creditor;
Fact 142.
(2) for or on account of an
antecedent debt owed by the
debtor before such transfer was
made;
Fact 6.
(3) made while the debtor was
insolvent;
Fact 8.
(4) made—
(A) on or within 90 days before
the date of the filing of the
petition;
Fact 9.
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(5) that enables such creditor
to receive more than such
creditor would receive if—
(A) the case were a case under
Chapter 7 of this title;
(B) the transfer had not been
made; and
(C) such creditor received
payment of such debt to the
extent provided by the
provisions of this title.
Facts 159 & 215. 	See Still v.
Rossville Bank (In re
Chattanooga Wholesale Antiques,
Inc.), 930 F.2d 458, 465 (6 th
Cir. 1991)(“Unless the estate
is sufficient to provide a 100%
distribution, any unsecured
creditor (as the bank must be
treated prior to confirmation
of the plan) who receives a
payment during the preference
period is in a position to
receive more than it would have
received under a Chapter 7
liquidation.”) (Citation
omitted.) 	See also Elliott v.
Frontier Properties/ LP 102 (In
re Lewis W. Shurtleff, Inc.),
778 F.2d 1416, 1421 (9th Cir.
1985)(“[A]s long as the
distribution in bankruptcy is
less than one-hundred percent,
any payment ‘on account’ to an
unsecured creditor during the
preference period will enable
that creditor to receive more
than he would have received in
liquidation had the payment not
been made.”); Rocor Int’l,
Inc., 352 B.R. at 330 (Same.)
In sum, Plaintiff has established the preferential transfer and
Sun Life has established its subsequent new value defense, in
part.
PREJUDGMENT INTEREST
In the Tenth Circuit, if a statute does not prohibit the
award of prejudgment interest, prejudgment interest may generally
be awarded if: “1) the award of prejudgment interest would serve
to compensate the injured party, and 2) the award of prejudgment
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interest is otherwise equitable.” 	Turner v. Davis, Gillenwater &
Lynch (In re Investment Bankers, Inc.), 4 F.3d 1556, 1566 (10 th
Cir. 1993), cert. denied, 510 U.S. 1114 (1994)(Citations
omitted.) 	Bankruptcy judgments traditionally award prejudgment
interest on preference recoveries unless the amount of the
contested payment is undetermined until judgment. 	Id. (Citations
omitted.)
This adversary proceeding was filed in 2003. 	As
demonstrated by the docket, the parties engaged in extensive
discovery and stipulated to many continuances of pretrial
conferences and extensions of discovery deadlines. 	Defendant
filed its Motion for Summary Judgment in December, 2005 and then
as discovery continued it filed supplemental discovery and a
revised statement of material facts in April, 2006. 	Various
motions were filed to strike affidavits, which were all opposed
and briefed into 2007. 	The parties repeatedly attempted to
settle. 	The Plaintiff, through her attorneys, at various times
expressed an intention to file a cross motion for summary
judgment. 	Then the adversary slipped off the parties’ and the
Court’s radars. 	Finally, in 2009 the Court set a status
conference which resulted in a scheduling order (doc 119) and the
Plaintiff’s Motion for Summary Judgment in November, 2009 which
came under submission on March 16, 2010. 	Thereafter, the parties
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submitted stipulations that included a suggested “roadmap” to the
summary judgment motions.
The Court commends the parties on the high quality and
originality of the arguments and the depth of details in support
of their respective positions. 	On the other hand, the number of
issues and voluminous details in support of the facts required an
extensive amount of time to absorb, analyze, organize and decide.
Therefore, the Court also accepts some responsibility for the
delays in this case.
An award of prejudgment interest would obviously compensate
the estate for the loss of use of the preferentially transferred
funds. 	However, in this case the Court finds that the award
would not be equitable to Sun Life. 	Sun Life’s defenses were not
unreasonable. 	Its arguments were creative, logical and based on
a good faith belief that it might prevail, at least on some
theories. 	And, Sun Life was ready to proceed when it filed its
motion.
The request for prejudgment interest will be denied.
CONCLUSION
The Court will enter an Order in conformity with this
Memorandum Opinion granting Plaintiff’s Motion for Summary
Judgment, awarding Plaintiff a Judgment but denying Plaintiff’s
request for Prejudgment Interest, and denying Defendant’s Motion
for Summary Judgment.
Page -134-
Case 03-01072-s Doc 130 Filed 12/20/12 Entered 12/20/12 11:02:39 Page 134 of 138

Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	December 20, 2012
Copies to:
Thomas D Walker
Attorney for Plaintiff
500 Marquette Ave NW Ste 650
Albuquerque, NM 87102-5309
Victor E Carlin
Moses Law Firm
PO Box 27047
612 First Street, NW
Albuquerque, NM 87125-7047
Office of the United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
Attached:
Exhibit A: Hypothetical applications of section 547(c)(4).
Exhibit B: Application of section 547(c)(4) to Sun Life.
Page -135-
Case 03-01072-s Doc 130 Filed 12/20/12 Entered 12/20/12 11:02:39 Page 135 of 138

HYPOTHETICAL APPLICATIONS OF SECTION 547(c)(4)
Exhibit A to Memorandum Opinion in Gonzales v. Sun Life Insurance Co., Adv. 03-1072.
1 	2 	3 	4 	5 	6
assets
petition 	$ 	500,000 	$ 	500,000 	$ 	560,000 	$ 	475,000 	$ 	500,000 	$ 	500,000
new goods 	$ 	0 	$ 	40,000 	$ 	40,000 	$ 	40,000 	$ 	40,000 	$ 	40,000
crit vendor 	$ 	0 	$ 	0 	$ 	0 	$ 	0 	$ 	(25,000) 	$ 	(25,000)
§ 547 	$ 	100,000 	$ 	60,000 	$ 	0 	$ 	85,000 	$ 	60,000 	$ 	85,000
subtotal 	$ 	600,000 	$ 	600,000 	$ 	600,000 	$ 	600,000 	$ 	575,000 	$ 	600,000
priority 	$ 	(75,000) 	$ 	(75,000) 	$ 	(75,000) 	$ 	(75,000) 	$ 	(75,000) 	$ 	(75,000)
net 	$ 	525,000 	$ 	525,000 	$ 	525,000 	$ 	525,000 	$ 	500,000 	$ 	525,000
claims
petition 	$ 1,000,000 	$ 1,000,000 	$ 1,000,000 	$ 1,000,000 	$ 1,000,000 	$ 1,000,000
502(a)claim 	$ 	0 	$ 	40,000 	$ 	100,000 	$ 	15,000 	$ 	15,000 	$ 	15,000
502(h)claim 	$ 	100,000 	$ 	60,000 	$ 	0 	$ 	85,000 	$ 	60,000 	$ 	85,000
total 	$ 1,100,000 	$ 1,100,000 	$ 1,100,000 	$ 1,100,000 	$ 1,075,000 	$ 1,100,000
% dividend 	47.727% 	47.727% 	47.727% 	47.727% 	46.512% 	47.727%
Case 03-01072-s Doc 130 Filed 12/20/12 Entered 12/20/12 11:02:39 Page 136 of 138

APPLICATION OF SECTION 547(c)(4) TO SUN LIFE
Exhibit B to Memorandum Opinion in Gonzales v. Sun Life Insurance Co., Adv. 03-1072
The section 547(c)(4) analysis follows:
Date 	Payment
Amount
for
month
of
New
value
dates
Number
of
days
Per diem 	New Value
Amount
Increase
-Deduction
Running
Preference
Amount
11/13/00 	$44,850.65 	9/00 	$44,850.65 	$44,850.65
New value after 11/13/10 	11/14 to
11/30
17 	$1,511.29 	$25,691.93
12/1 to
12/11
11 	$1,455.12 	$16,006.32
New value reduction 	$-41,698.25 	$3,152.40
12/11/00 	$44,570.16 	10/00 	$44,570.16 	$47,722.56
New value after 12/11/10 	12/12 to
12/31
20 	$1,455.12 	$29,102.40
1/1 to
1/16
16 	$1,508.48 	$24,135.68
New value reduction 	$-53,238.08 	$0.00
1/16/01 	$45,338.75 	11/00 	$45,338.75 	$45,338.75
1/16/01 	$45,108.68 	12/00 	$45,108.68 	$90,447.43
New value after 1/16/01 	1/17 to
1/31
15 	$1,508.48 	$22,627.20
2/1 to
2/8
8 	$1,667.99 	$13,343.92
Case 03-01072-s Doc 130 Filed 12/20/12 Entered 12/20/12 11:02:39 Page 137 of 138

Date 	Payment
Amount
for
month
of
New
value
dates
Number
of
days
Per diem 	New Value
Amount
Increase
-Deduction
Running
Preference
Amount
New value reduction 	$-35,971.12 	$54,476.31
2/8/01 	PETITION
3/5/01 	$46,763.01 	1/01 	$46,763.01 	$101,239.32
3/5/01 	$46,703.78 	2/01 	for entire month. $46,703.78 /28 *8 = 	$13,343.92 	$114,583.24
-2-
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