## Facts

- Roberds, Inc., a retail furniture company, operated as a Chapter 11 debtor-in-possession and brought an adversary proceeding against Broyhill Furniture, a trade creditor and supplier.
- Roberds sought to avoid and recover 32 transfers made to Broyhill during the 90-day period before the bankruptcy filing, totaling $2,797,806.71, as preferential transfers under 11 U.S.C. § 547(b).
- The complaint also sought recovery under 11 U.S.C. § 550 and disallowance of Broyhill’s claims under 11 U.S.C. § 502(d) unless the avoidable transfers were repaid.
- A separate avoidance theory under 11 U.S.C. § 544(b) and Ohio law was dismissed on partial summary judgment before trial.
- Broyhill denied liability and asserted defenses including (i) ordinary course of business under § 547(c)(2) and (ii) subsequent new value under § 547(c)(4).
- Trial focused on transaction-level evidence of payment timing, collection practices, deviations from the parties’ historical dealings near bankruptcy, and the extent to which post-transfer shipments replenished the estate.

## Issues

1. Whether, and for which transfers, Broyhill proved the ordinary course of business defense under 11 U.S.C. § 547(c)(2), including both the parties’ historical course of dealing and consistency with ordinary business terms.
2. How to calculate the subsequent-new-value defense under 11 U.S.C. § 547(c)(4), including whether “paid” new value may be credited when the later payment for that new value is itself avoidable.
3. What net amount, if any, Roberds could recover under 11 U.S.C. § 550 after applying proven § 547(c) defenses, and whether § 502(d) required disallowance of Broyhill’s claims pending repayment.

## Decision

- The court held that some, but not all, of the 32 transfers were protected by the ordinary course of business defense; the defense was applied on a transfer-by-transfer basis rather than globally.
- The court accepted a “paid new value” approach under § 547(c)(4), permitting new value to offset preference exposure even if the debtor later paid for that new value, so long as the later payment was itself avoidable.
- After applying ordinary-course protection and subsequent-new-value offsets, the court determined the net recoverable preference amount was $372,531.56.
- The court authorized recovery of the net avoidable transfers under § 550 and applied § 502(d) to condition allowance of Broyhill’s claims on turnover of the avoidable amount.

## Legal Principles

- A creditor asserting § 547(c)(2) must prove the transfer was for a debt incurred in the ordinary course and that the transfer was both (i) ordinary between the parties (subjective) and (ii) made according to ordinary business terms (objective); courts may require transaction-specific analysis where payment behavior changes near bankruptcy.
- For § 547(c)(2)(C), expert testimony on ordinary business terms may be admissible based on general commercial credit expertise and is not limited to experts with industry-exclusive experience, if otherwise reliable.
- Under § 547(c)(4), subsequent new value may offset preferences when the creditor later extends goods or value that replenishes the estate; the statute does not categorically bar credit for new value that was later paid if the payment is itself avoidable, because the estate is not left depleted once avoidance is taken into account.
- Net preference liability, as reduced by valid § 547(c) defenses, is recoverable under § 550.
- Under § 502(d), a creditor’s claim may be disallowed until the creditor repays avoidable transfers determined in the avoidance action.

## Conclusion

The court partially avoided the challenged transfers, rejected an all-or-nothing ordinary-course defense, and materially reduced liability by crediting subsequent new value—including “paid” new value where the repayment was itself avoidable—resulting in a net preference recovery of $372,531.56 and claim disallowance pending repayment under § 502(d).


In re Roberds, Inc., 315 B.R. 443 (Bankr. S.D. Ohio 2004)