By: Scott B. Riddle, Esq.
Bob Eisenbach at the Business Bankruptcy Blog discusses the case of Wood v. Stratos Product Development, LLC (In re Ahaza Systems, Inc.), 2007 U.S.App. LEXIS 7607 (9th Cir. April 3, 2007), wherein the Ninth Circuit held that even first-time transactions between the parties can come within the ordinary course defense to preference claims. Bob provides the following excerpt from the opinion –
[W]hen we have no past debt between the parties with which to compare the challenged one, the instant debt should be compared to the debt agreements into which we would expect the debtor and creditor to enter as part of their ordinary business operations. Consistent with Food Catering [971 F.2d 396 (9th Cir. 1982)], however, this analysis should be as specific to the actual parties as possible. Thus, we hold that to fulfill § 547(c)(2)(A), a first-time debt must be ordinary in relation to this debtor’s and this creditor’s past practices when dealing with other, similarly situated parties. Only if a party has never engaged in similar transactions would we consider more generally whether the debt is similar to what we would expect of similarly situated parties, where the debtor is not sliding into bankruptcy.
In a prior post entitled Partial Payment of Note Was Within "Ordinary Course" Defense Even Where It Was the First Transaction Between Parties, I discussed Judge Diehl’s opinion in Ogier, Chapter 7 Trustee for Express Factors, Inc. v. Trautman, 2005 Bankr. LEXIS, Adv. No. 04-6076 (Bankr. N.D. Ga. September 30, 2005). I have a vague memory that Judge Drake also issued an opinion holding that first time transactions could be within the ordinary course, but that was many years ago.