Considering the Industry Standard of the Ordinary Course of Business Preference
By Bradley D. Blakeley
Thousands of vendors around the country find themselves,
like ABX Enterprises, Inc. (ABX), defending preference actions
brought by debtors, trustees and plan administrators in Delaware.
Some vendors are in the unfortunate position of having the ordinary
course of business exception as their sole defense. As ABX and
the Debtors' plan administrator have found, to successfully assert
or defeat an ordinary course defense in a motion for summary judgment,
a party must introduce evidence of those practices in which firms
generally similar to the debtor and defendant engage.
In In re APS Holding Corporation, 282 B.R. 795 (3rd
Cir. 2002), the U.S. Bankruptcy Court denied cross-motions for
summary judgment on APX's ordinary course of business defense.
The Court found that the parties' failed to introduce evidence
of the industry standard. The Court also ruled that ambiguities
existed as to whether the alleged preferential transfers were made
in the ordinary course of business between APX and the Debtors.
The Plan Administrator introduced the Debtors' employee's
testimony that the Debtors customarily paid their shippers by company
check within ten days of the date of invoicing. The Plan Administrator
asserted that such testimony evidenced the alleged preferential
transfers were not ordinary in relation to industry standards.
The Court found, however, that the argument was unpersuasive. The
Court agreed that the testimony may be relevant as to industry
standards, but is not determinative.
Instead, the Court held that the industry standard
must be established not only by evidence of those practices in
which the Debtors engage with their own shippers, but also evidence
of those practices in which firms generally similar to the Debtors
and APX engage citing to the Ninth Circuit case of In re Kaypro,
218 F.3d 1070, 1073-1074 (9th Cir. 2000). Both vendor and prosecutor
alike, must be mindful of their responsibility to introduce evidence
of the practices in which firms generally similar to the debtor
and defendant engage to successfully assert or defeat an ordinary
Reprinted by permission from The Trade Vendor
Quarterly Blakeley & Blakeley
LLP Winter 02