United States District Court, S.D. Indiana, Evansville Division
ELLIOTT D. LEVIN as Chapter 7 Trustee for OneStar Long Distance, Inc., Appellant,
VERIZON BUSINESS GLOBAL, LLC, successor to MCI, INC., Appellee. In re OneStar Long Distance, Inc. Debtor. Elliott D. Levin, as Chapter 7 Trustee for OneStar Long Distance, Inc., Plaintiff,
MCI, Inc. Defendant. Bankruptcy Case No. 03-72697, Adversary Proceeding No. 05-07061
APPEAL FROM THE UNITED STATES BANKRUPTCY COURT
RICHARD L. YOUNG, Chief District Judge.
Appellant, Elliott D. Levin, in his capacity as Chapter 7 Trustee for the Debtor, OneStar Long Distance, Inc., appeals the Bankruptcy Court's Order on Summary Judgment Motions, entered on March 22, 2013, and March 28, 2013, respectively, concluding that all pre-petition transfers that OneStar made to MCI between October 8, 2003, and December 19, 2003, totaling $2, 471, 858.02, were subject to the "subsequent advance of new value" affirmative defense pursuant to 11 U.S.C. § 547(c)(4). For the reasons set forth below, the court REVERSES the decision of the Bankruptcy Court and REMANDS the case for proceedings consistent with this opinion.
I. Statement of Facts
OneStar was a reseller of telecommunication services which it purchased wholesale from suppliers such as MCI and other carriers, including Wiltel Communications. (Deposition of Alan Powers ("Powers Dep.") at 14, 19, 20; see also IceNet Pre-Petition Bank Statements, attached as Ex. H to MCI's Motion for Partial Summary Judgment). OneStar had a longstanding relationship with MCI and in that regard, entered into a number of Telecommunications Services Agreements with MCI. ( Id. at 89-90 & Dep. Ex. 20).
In 1999, the telecommunications industry "experienced a significant downturn in investor confidence, business volumes, and financial performance." (Deposition of William Stapleton ("Stapleton Dep.") at 72). OneStar was no exception. ( Id. ). By 2002, OneStar could not pay its monthly bills from MCI (including other creditors) as they came due. ( Id. at 129). In June of 2002, OneStar executed a security agreement and a promissory note payable to MCI totaling $5, 907, 396.48. (Deposition of Thomas Tracey ("Tracey Dep.") at 82 & Dep. Ex. 20). By late September of 2003, OneStar's debt to MCI rose to over $7.5 million, prompting MCI to issue notices of intent to disconnect service on September 29, 2003, and November 25, 2003, respectively, if MCI was not paid within seven (7) days of the date of the letter. ( Id. Ex. 15; Powers Dep. Ex. 19).
On October 7, 2003, IceNet was formed by the principals of OneStar. (Deposition of Martin Huebschman ("Huebschman Dep.") at 106-07; Huebschman Dep. Ex. 29; Powers Dep. at 181). On that same date, OneStar and IceNet entered into a Wholesale Services Agreement ("WSA"), whereby OneStar began to purchase telecommunication services from IceNet. (Powers Dep., Ex. 10; Huebschman Dep. at 106-07 (OneStar's Chief Financial Officer and General Counsel, Martin Huebschman, testified that although the WSA was backdated to when IceNet was formed as an LLC, October 7, 2003, was the "effective date" of when services began between the two entities).
On December 23, 2003, OneStar, IceNet, and MCI entered into a formal written agreement entitled the Assignment and Assumption Agreement ("Assignment"). (Powers Dep., Ex. 12). The Assignment assigned OneStar's service agreements with MCI to IceNet and IceNet assumed some, but not all, of OneStar's obligations (note and usage obligations) incurred for MCI service through that date. ( Id., Ex. 12, §§ 1(a), 1(d), 3(b), 3(e), 4 (a), 4(b)). IceNet's agreement to assume the note obligations was evidenced by a promissory note payable to MCI. ( Id., Ex. 12, § 4(a)). Pursuant to the Assignment, MCI agreed to provide and deliver telecommunication services to IceNet, who in turn began selling those services to OneStar. ( Id. ).
The parties dispute whether MCI's transition from providing telecommunication services to OneStar to providing such services to IceNet occurred overnight on December 22, 2003, the date the Assignment was actually executed. The Trustee contends MCI actually began supplying telecommunication services to IceNet, instead of OneStar, beginning in October 2003, and that the Assignment in December 2003 among OneStar, MCI and IceNet simply formalized an already existing practice among these parties and thereby officially assigned OneStar's rights under various telecommunication services agreements with MCI to IceNet. On the other hand, MCI contends that it continued to supply telecommunication services to OneStar until the Assignment was formally executed on December 22, 2003.
On December 31, 2003, an involuntary bankruptcy petition was filed against OneStar under Chapter 7 of Title 11 in the Bankruptcy Court. IceNet thereafter filed a proof of claim for the debts owed by OneStar to IceNet, asserting no charges for service for the period prior to the Assignment. (Huebschman Dep. Ex. 32). Instead, the only claim for usage expressly states that such charges "were incurred after the Bank Assignment was executed." ( Id. ).
In Count I of the present adversary proceeding between the Trustee and MCI, the Trustee alleges that the payments made by OneStar to MCI 90 days prior to the involuntary petition date, totaling $2, 471, 858.02, "constitute avoidable transfers pursuant to the provisions of § 547(b) of the Bankruptcy Code." ( See Complaint ¶ 20). MCI denied the allegations, and asserted the subsequent advance of new value defense under 11 U.S.C. § 547(c)(4). ( See Answer, ¶ 20 & Fifth Affirmative Defense). In its ruling on the parties' cross-motions for summary judgment, the Bankruptcy Court granted MCI's Motion for Partial Summary Judgment on New Value to or for the Benefit of the Debtor, thereby finding that MCI was entitled to the defense as a matter of law. In addition, the Bankruptcy Court denied as moot the Trustee's Motion for Summary Judgment and MCI's Motion for Summary Judgment.
All other facts necessary to this appeal will be addressed in the Discussion Section.
II. Standard of Review
Summary judgment is appropriate if the record "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). The court reviews de novo a bankruptcy court's grant of summary judgment, viewing the facts and all reasonable inferences in the light most favorable to the nonmoving party. Dick v. Conseco, Inc., 458 F.3d 573, 577 (7th Cir. 2006) ("In a second appeal from a bankruptcy court's decision, we apply the same standard of review as did the ...