In Re: Conex Holdings LLC et al.

Filing 9

MEMORANDUM re 6 motion to certify appeal. Signed by Judge Leonard P. Stark on 3/23/15. (ntl)

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
Chapter 7
Bankr. Case No. 11-10501-CSS
(Jointly Administered)

INRE:
CONEX HOLDINGS, LLC, et al.,
Debtors.
CHARLES A. STANZIALE, JR., Chapter 7 Trustee :
of Conex International, LLC,
Appellant,

Civ. No. 14-cv-179-LPS
Adv. Pro. No. 12-51132-CSS

v.
CAR-BER TESTING, INC.,
Appellee.

MEMORANDUM
Presently before the Court is Chapter 7 Trustee Charles A. Stanziale, Jr.'s (the
"Appellant") motion to certify (D.I. 6) ("Certification Motion") this appeal (D.1. 1) directly to the
United States Court of Appeals for the Third Circuit pursuant to 28 U.S.C. § 158(d)(2)(A).
1.

Background. 1 On February 24, 2011, Conex Holdings, LLC and affiliated entities

(collectively the "Debtors"), consented to the entry of orders for relief under chapter 7 of the
Bankruptcy Code. (Bankr. Case No. 11-10501-CSS) That same day, the Office of the United
States Trustee appointed Appellant as Chapter 7 Trustee for Debtors' case. Prior to bankruptcy,
Debtors operated a general mechanical contracting and industrial services firm based in
Beaumont, Texas. (D.I. 6 at 6) Debtors provided various services to oil refineries in Texas.
(Id.) Motiva Enterprises, LLC ("Motiva") had contracted with Debtors to complete a capital

improvement project at its oil refinery. (Id. at 7) On this project, Debtors hired Car-Ber Testing,

Because the Court writes primarily for the benefit of the parties, the Court presumes
familiarity with the pertinent background facts.
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Inc. (the "Appellee") as a subcontractor. (Id.) Under the terms of a Master Service Agreement,
Motiva retained the right to offset and withhold any amounts due and owing to Debtors in order
to satisfy any lien Debtors' subcontractors asserted against Motiva's refineries. (Id.) As the
project progressed, Debtors failed to pay Appellee for certain prepetition services, prompting
Appellee to file a mechanic's lien against Motiva's property. (Id. at 8) After Debtors filed
bankruptcy, Motiva and Appellant reached an agreement whereby Motiva set-off $563,173.67
against amounts due to Debtors' estate, which were in tum used to satisfy various
subcontractors' mechanic's liens. (Id.) Of this amount, $126,192.44 was allocated to satisfy
Appellee's mechanic's lien (the "Motiva Settlement Payment"). (Id.)
2.

On December 5, 2012, Appellee filed an adversary proceeding (Adv. Pro. No. 12-

51132-CSS), pursuant to 11 U.S.C. §§ 547 and 550, to recover Debtors' prepetition payments to
Appellee that occurred within the 90 days preceding the petition date. Appellee moved for
summary judgment, arguing that it advanced "new value" to Debtors following the preferential
payments, which reduced its liability for those preference payments under 11 U.S.C. § 547(c)(4).
Appellant countered that this "new value" defense should not apply because Appellee had been
paid post-petition for that value through the Motiva Settlement Payment.
3.

The Bankruptcy Court issued an Order granting Appellee's motion on December

27, 2013, relying principally on In re Friedman's, Inc., 738 F.3d 547 (3d Cir. 2013). (D.I. 1-1)
Appellant appealed from that Order and filed the present Certification Motion. (D.I. 6)
4.

Parties' Contentions. Appellant argues that this case merits direct appeal to the

Third Circuit because: ( 1) it presents a question of law of public importance, (2) there are

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conflicting decisions on the issue, and (3) direct appeal will materially advance this case. (D.I. 6
at 11, 14, 15) Appellant's underlying argument is that Friedman's recognized an exception to its

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own rule that is logically analogous to this case. (Id. at 5) Appellee, without argument, joins
Appellant's Certification Motion solely on the basis that a direct appeal will materially advance
the progress of this case. (D.I. 7 at 1) Appellee does not agree with the merits of Appellant's
Certification Motion that Friedman's is either unclear or raises an undecided question of law.
(Id. at 2) Because the parties failed to comply in a timely manner with the procedural

requirements that would have obligated the Court to certify an appeal to the Court of Appeals,
the Court must evaluate the motion for itself. 2
5.

Legal Standards. Pursuant to§ 158(a), district courts have mandatory jurisdiction

to hear appeals "from final judgments, orders, and decrees" and discretionary jurisdiction over
appeals "from other interlocutory orders and decrees." 28 U.S.C. § 158(a)(l), (3). Motions for
direct appeal to the court of appeals are governed by 28 U.S.C. § 158(d)(2)(A), which provides:
(2)(A) The appropriate court of appeals shall have jurisdiction of
appeals described in the first sentence of[§ 158] subsection (a) if
the bankruptcy court, the district court, or the bankruptcy appellate
panel involved, acting on its own motion or on the request of a party
to the judgment, order, or decree described in such first sentence, or
all the appellants and appellees (if any) acting jointly, certify that(i) the judgment, order, or decree involves a question of law
as to which there is no controlling decision of the court of
appeals for the circuit or of the Supreme Court of the United
States, or involves a matter of public importance;

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Although both Appellant and Appellee joined in the request, arguably establishing a
"request made by a majority of the appellants and a majority of appellees," the Court cannot
grant the certification on this basis. 28 U .S.C. § 158(d)(2)(B)(ii). "A joint certification by all the
appellants and appellees under 28 U.S.C. § 158(d)(2)(A) must be made by using the appropriate
Official Form." Fed. R. Bankr. P. 8006(c); see Official Bankr. Form 24. The record lacks this
requisite joint certification. Nor does the Court have discretion to permit the parties now to file
the joint certification, as it would be untimely. See Fed. R. Bankr. P. 8006(t)(l) ("[A] request by
a majority of the appellants and a majority of the appellees[ ]must be filed with the clerk of the
court where the matter is pending within 60 days after the entry of the judgment, order, or
decree.").
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(ii) the judgment, order, or decree involves a question oflaw
requiring resolution of conflicting decisions; or
(iii) an immediate appeal from the judgment, order, or decree
may materially advance the progress of the case or
proceeding in which the appeal is taken;
and if the court of appeals authorizes the direct appeal of the
judgment, order, or decree.
28 U.S.C. § 158(d).
4.

Discussion. After considering Appellant's arguments, the underlying Bankruptcy

Court Order, and the applicable precedent, the Court concludes that this case does not present
circumstances that warrant direct certification to the Third Circuit.
5.

No Controlling Authority or Matter of Public Importance. Appellant first argues

that there is "no controlling authority on whether the exception articulated by the Third Circuit in
its Friedman's decision also applies to the facts present in the appeal." (DJ. 6 at 11) Under the
Bankruptcy Code, a trustee may avoid certain transfers that the debtor made within the 90 days
preceding the bankruptcy filing. See 11 U.S.C. § 547(b). One defense a creditor can raise to a
trustee's preference action is the so-called "new value" defense:
(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 to or for
the benefit of such creditor ....
11 U.S.C. § 547(c). Section 547(c)(4)(B), however, limits the creditor's "new value" ifthe
debtor subsequently paid for that value. See id. In Friedman's, the Third Circuit addressed
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whether or not an "otherwise unavoidable transfer" under 547(c)(4)(B) could include postpetition payments. In re Friedman's, Inc., 738 F.3d at 549. The Court found that it did not,
effectively establishing the bankruptcy filing date as the cut-off for calculating a creditor's
available "new value" defense under§ 547(c)(4). See id
6.

The Court recognized one exception to that rule, which is not at issue here. See

id at 562 (explaining that trustee's assumption of executory contract under§ 365 precludes

preference action); see also D.I. 6, at 1. In a footnote that this Court views as dictum, 3 the Third
Circuit also noted that goods sold subject to an asserted right of reclamation may deserve a
second exception to this rule, but declined to resolve that question. See id at 561 n.9 (noting
agreement with In re Phoenix Rest. Grp., Inc., 373 B.R. 541 (Bankr. M.D. Tenn. 2007)).
Appellant suggests that this second potential exception should apply here because the "new
value" Appellee provided to Debtors was secured with a lien against Motiva (and ultimately paid
for with receivables owed to Debtors' estate), which is analogous to a creditor providing goods
subject to a right ofreclamation and claiming that they constitute "new value." (D.I. 6 at 3) In
both scenarios, Appellant asserts, the creditor fails to truly provide "new value" because it has
the ability to recover that value back from the bankruptcy estate. (Id)
7.

Appellant argues that Friedman 's does not necessarily control the present facts

because the Third Circuit arguably could extend the second exception to apply to situations that
are logically similar to providing goods subject to a right of reclamation. (Id) The Court
disagrees. Appellant is not arguing the absence of controlling law; rather, he is arguing the

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The Court stated that "[it] need not resolve the question of whether assertion of a
reclamation claim should reduce a new value defense .... " In re Friedman's Inc., 738 F.3d at
561 n.9. If a determination is not necessary to the ultimate holding, it is dictum. See id. at 552.

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absence of a decision that adopts his position. A "controlling decision" of the Third Circuit for
the purposes of§ 158(d)(2)(A)(i) is one that admits of no ambiguity in resolving the issue. In re
Goody's Family Clothing, Inc., 2009 WL 2355705, at *2 (D. Del. July 30, 2009); see also In re
Fisker Auto. Holdings, Inc., 2014 WL 576370, at *3 (D. Del. Feb. 12, 2014). The law in
Friedman's squarely applies to this case. Even if the footnote in Friedman 's constituted the

precedential portion of that opinion, the facts of this case do not fit within the right-toreclamation exception. See In re Friedman's, Inc., 738 F.3d at 549. The Friedman's ruling is
not ambiguous merely because the Third Circuit in that case did not address the present facts.
See In re Goody's Family Clothing, Inc., 2009 WL 2355705, at *2.

8.

Appellant next argues that this issue raises a matter of public importance because

it involves a potential defense that could affect at least sixteen other preference actions in this
case. (D.1. 6 at 16) The fact that an appeal will affect other parties to Debtors' bankruptcy does
not establish an issue of public importance. See In re Goody's Family Clothing, Inc., 2009 WL
2355705, at *2 (holding that appeal affecting only parties in the case is not matter of public
importance). Appellant's theory is dependent on the specific facts of this case and the Court is
not persuaded that it "transcend[s] the litigants and involves a legal question the resolution of
which will advance the cause of jurisprudence to a degree that is usually not the case." In re Am.
Home Mortgage Inv. Corp., 408 B.R. 42, 44 (D. Del. 2009) (quoting 1 Collier on Bankruptcy

5.05[A] (15th ed. rev.)).
9.

Question of Law Requiring Resolution of Conflicting Decisions. Appellant

recognizes that "there are no conflicting decisions amongst the Circuit Courts regarding the
scope of the exception set forth in Friedman's." (D.I. 6 at 14) Appellant, however, argues that
"the Third Circuit noted in its opinion that ' [d]istrict and bankruptcy courts are nearly equally

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divided on the issue' of when a payment must be made by a debtor to defeat a new [value]
defense." (Id. at 14-15) (quoting In re Friedman's, 738 F.3d at 553) These cases, however, do
not detract from Friedman 's binding authority within this Circuit, and thus do not justify direct
certification under § 158(d)(2)(A)(ii). See In re Goody's Family Clothing, Inc., 2009 WL
2355705, at *2.
10.

Material Advancement of this Case. Appellant argues that certification will

materially advance this case because, as argued before, this issue has arisen in sixteen other
preference actions in Debtors' bankruptcy. (D.I. 6 at 16) Appellant contends that a direct
certification will allow the Third Circuit to definitively rule on the requested expansion of the
Friedman's exception. (Id.) However, there is nothing extraordinary or urgent about this

situation that recommends departing from the standard appellate process. The matter is primed
for briefing before this Court; whereas, the Third Circuit must first review and accept a
certification request before the appeal can proceed in that Court. See 28 U.S.C. § 158(d)(2)(A);
In re Johns-Manville Corp., 449 B.R. 31, 34 (S.D.N.Y. 2011) (finding that without sufficient

reason for direct appeal, process can actually lengthen rather than expedite appeal). The Court
does not find that certification will materially advance this case.
11.

Conclusion. For the reasons discussed, the Court will deny Trustee's

Certification Motion. An appropriate Order follows.

UNITED STATES DISTRICT JUDGE

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