USCA1 Opinion

UNITED STATES COURT OF APPEALS

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT

_________________________

No. 97-9005

IN RE:

HEALTHCO INTERNATIONAL, INC.,

Debtor.

_________________________

WILLIAM A. BRANDT, JR., TRUSTEE,

Plaintiff, Appellee,

v.

REPCO PRINTERS & LITHOGRAPHICS, INC.,

Defendant, Appellant.

_________________________

APPEAL FROM THE BANKRUPTCY APPELLATE PANEL

OF THE FIRST CIRCUIT

_________________________

Before

Selya, Circuit Judge,

_____________

Coffin, Senior Circuit Judge,

____________________

and Stahl, Circuit Judge.

_____________

_________________________

Duane L. Coleman, with whom

Larry E. Parres and Lewis, Rice

________________

_______________

___________

& Fingersh, L.C. were on brief, for appellant.

________________
Daniel C. Cohn, with
________________

whom

David B. Madoff and

_________________

Cohn &
_______

Kelakos, LLP, were on brief, for appellee.

____________

_________________________

December 22, 1997

_________________________

SELYA, Circuit Judge.

SELYA, Circuit Judge.
______________

Repco Printers & Lithographics,

Inc. (Repco) asserts

a right to retain

Healthco International, Inc.

(Healthco) shortly before

commenced insolvency proceedings.

with

Repco

Circuit

but

the Bankruptcy

(BAP) did

not.

procedural wrinkle, we

the disputed payment

of business"

a payment made to

Repco

The

Healthco

bankruptcy court

agreed

Appellate

Panel

appeals.

After ironing

uphold the BAP's core

was not a transfer "in

within the meaning of 11

Nevertheless, because the BAP misgauged

U.S.C.

of

it by

the First

out a

determination that

the ordinary course

547(c)(2)(1994).

the posture of the case,

we vacate its judgment and remand for further proceedings.

I.
I.

BACKGROUND
BACKGROUND

We draw our

is

account from the stipulated

comprised of twenty-five

record, which

uncontested statements of

fact and

thirteen exhibits (including various depositions and affidavits).

In

better

distributor of

James

Mills,

company,

business

days,

Healthco

dental equipment and

chief

contacted

executive

Fred

relationship.

time

officer

Mills,

of

handled

major

August 1992,

owner,

who

Healthco's

to

knew

product catalog.

forward, Repco

as

In

proposed that Repco

in St. Louis) print Healthco's

that

supplies.

Zaegel, Repco's

professionally and socially,

From

functioned

parent

explore a

Zaegel

both

(headquartered

Zaegel

virtually

all

agreed.

of the

diverse printing needs of Boston-based Healthco.

During

this

interlude,

Repco

extended

Healthco in accordance with standard printing

credit

to

industry practice:

Repco

would bill contemporaneously

anticipate

receiving

payment

for each service,

in

sixty

days,

on

and would

average,

notwithstanding contrary credit terms expressed in its invoices.1

For

its part, Healthco customarily would accumulate invoices and

then pay some (but not all) of

a lump-sum company check.

until

early

April of

the

the accumulation by mailing Repco

Over the

period from the fall of 1992

following

year,

Healthco paid

one

hundred fourteen

Repco invoices

with sixteen different

checks,

totalling around $400,000.

Whenever

practice

Repco's

cash

flow ebbed,

Each

was

Zaegel's

to contact customers and solicit payment of outstanding

invoices that were at least sixty days

called

it

Healthco's treasurer,

time,

Souza

arranged

Arthur

for

old.

To this end, Zaegel

Souza, on

check

to

four occasions.

be

cut

shortly

some

of

Repco's

thereafter.

Despite

unrequited

March.

these

periodic

invoices were

Zaegel tried to

almost two

hundred days

old by

late

prompt Souza once again, but experienced

difficulty in reaching him.

financial officer,

payments,

Zaegel then called Healthco's chief

James Moyle.

Zaegel, who

never before

had

made a dunning call to Moyle, politely informed him that Healthco

____________________

1Repco's invoices
reflects,

however, that this

the breach; most

of

firms

bore a net

ten days legend.

credit term was

The record

honored mainly in

of Repco's customers (and, indeed, the majority

purchasing

services

in

the

competitive

printing

industry) ignored this stricture.

was

holding numerous

Repco

invoices

that

were

substantially

overdue.2

At the

conclusion of this

five-minute conversation,

Moyle stated that he would investigate the matter.

Moyle vouchsafed in

Repco to

be "Healthco's

his affidavit

most pivotal

effort to

overcome its financial

Repco was

about to

vendor

considered

in the

company's

problems," presumably

undertake the printing

Healthco's quarterly catalog.

that he

because

and distribution

He asked Souza

how much Healthco

owed Repco and what was "the fastest way" to pay the debt.

replied

Repco

that Healthco

invoices and

payment method.

Repco

received

satisfied in

had in

that

one fell

$235,558.64 in

wire transfer

Moyle directed

the funds

hand

on

would

13,

swoop sixty-eight

1993.

Souza

outstanding

be the

Souza to wire the

April

of

quickest

full amount.

That

payment

invoices ranging

from

brand new to two hundred days old.

Healthco sought the protection

on June 9, 1993.

The

of the bankruptcy court

firm's ledgers disclosed that it had

made

only two other wire transfers in satisfaction of antecedent debts

during

the

previous ninety

Healthco's

trustee

successfully

in

days.

The record

bankruptcy,

challenged both of

William

A.

confirms

that

Brandt,

Jr.,

the other payments

as voidable

preferences.

II.
II.

PROCEDURAL HISTORY
PROCEDURAL HISTORY

____________________

2The
financial

record indicates that Zaegel was unaware of Healthco's

problems at this time;

invoices cordially with Moyle; and

that he discussed the past-due

that he neither threatened to

cut off printing services nor demanded an immediate payment.

In

due season,

proceeding seeking

the

to recover

defended on three grounds:

time

of the

transfer, (2)

ordinary course

new

value"

brought

the $235,558.64

this

adversary

payment.

Repco

(1) that Healthco was solvent

at the

that the

of business" within

547(c)(2), and (3) that

"subsequent

trustee

transfer was "made

the meaning of 11

in all events Repco's

within

the

meaning

in the

U.S.C.

services provided

of

11

U.S.C.

547(c)(4).

value in

The

parties stipulated that Repco

the amount of $31,977.38, reducing

against Repco to

$203,581.26 and removing the

from

The

the case.

remaining

issues,

bankruptcy court

reserving

adjudication and proceeding

the

had conferred new

the trustee's claim

"new value" issue

then bifurcated

solvency

the two

question for

to tackle the applicability

later

vel non
___ ___

of Repco's "ordinary course of business" defense.

The parties

cross-moved for

issue.

After

the bankruptcy

parties

submitted the issue

above.

On

July 17,

trustee's complaint.

its entirety:

court

summary judgment on

denied both

on the stipulated

1996, the

motions,

this

the

record described

bankruptcy court

dismissed the

The court's two-paragraph rescript reads in

trial was scheduled in this matter for May

1, 1996.

However, the parties filed a motion

to submit

the matter on stipulated facts and

exhibits,

which

was

granted

on April

20,

1996.

In consideration of said

facts and exhibits,

the complaint is

dismissed by virtue

ordinary

of

course

business

of the

defense.

separate order will issue.

The

trustee filed a

timely notice

of appeal

and the

parties opted to have the appeal heard by the BAP (in lieu of the

district court).3

For reasons that are not readily apparent, the

parties mutually invited de novo review of the bankruptcy court's

decision.

wire

The BAP accepted

transfer

business,

and

had not

ruled

the invitation, determined that

been

made

that the

in

the ordinary

payment

was

the

course

of

"preferential, and

subject to recovery by the Trustee under Section 547."

Brandt v.
______

Repco Printers & Lithographics, Inc. (In re Healthco), No. MW 96____________________________________ ______________

026, slip op. at 12 (B.A.P. 1st Cir. 1997).

III.
III.

STANDARD OF REVIEW
STANDARD OF REVIEW

Bankruptcy cases differ

in

This appeal ensued.

that

the court

appellate review.

of

from most other federal

appeals does

not

cases

afford first-instance

Rather, Congress has provided for intermediate

review,

conferring

appellate

on district

panels the authority

courts

and federal

to hear appeals

bankruptcy

from bankruptcy

court decisions, but preserving to the parties a right of further

review in the courts of

such

appeals.

an appeal comes to

us by way of

BAP, our regimen is the same:

decision,

scrutinize that

158.

Whether

the district court or the

we focus on the bankruptcy court's

court's findings

error, and afford de novo review to

Martin v.
______

See 28 U.S.C.
___

of

fact for

clear

its conclusions of law.

Bajgar (In re Bajgar), 104

______ _____________

F.3d 495,

497 (1st

See
___

Cir.

____________________

3In this
mixed history.

circuit, bankruptcy

After a short-lived experiment, the

panels

was discontinued

Council

revivified the

interested parties
review before a

appellate panels

in

1983.

BAP structure

The First
on

have had

use of such

Circuit Judicial

July 1,

1996, giving

the option of electing intermediate appellate

BAP panel rather than before

a federal district

court.

1997); Grella
______

v. Salem Five Cent Sav. Bank,

_________________________

Cir. 1994).

Since

this is

intermediate

appellate

exactly the

tribunal

must

particular deference to the conclusions

the district court or

the BAP).

42 F.3d 26, 30 (1st

same regimen

use,

exhibit

no

of that tribunal (be

it

See Palmacci v.
___ ________

we

that the

Umpierrez, 121
_________

F.3d 781, 785 (1st Cir. 1997).

We

crucial

now move

issue

in

from the

this

general to

adversary

the specific.

proceeding

revolves

The

around

Repco's access to the "ordinary course of business" defense under

11 U.S.C.

547(c)(2).

statute presents

review.

F.2d

See
___

1172,

A bankruptcy court's construction of this

a question of

thus engenders

plenary

Fidelity Sav. & Inv. Co. v. New Hope Baptist, 880

_________________________
_________________

1174

(10th

Cir.

assessment in

connection

appertains in

a given

findings

law and

which

1989).

bankruptcy

court's

statutory

defense

with

whether

the

case is

a horse

of

collectively

comprise such

different hue;

the

an

are

factbound and thus engender clear-error review.

assessment

See Yurika Foods

___ ____________

Corp. v. United Parcel Serv. (In re Yurika Foods Corp.), 888 F.2d
_____
___________________ ________________________

42, 45

(6th

Cir. 1989).

statute is unexceptional

to whether the

within

decision normally

whole

of

sweep.

Hence,

the

that a

reviewing court

the record,

bankruptcy

clear

[the

appellate

comes

court's

error.

"ought not

conclusions drawn therefrom

the

issue relates

a factual matter,

reviewable for

of fact or

rendition of

and the only justiciable

would be

of course,

findings

the court's

challenged transfer, as

the statutory

means,

Here,

This

to upset

unless, on the

judges] form

strong,

unyielding belief

that a

mistake has been

made."

Cumpiano v.
________

Banco Santander P.R., 902 F.2d 148, 152 (1st Cir. 1990).
____________________

This familiar

standard is

not diluted

parties proceed on a stipulated record.

merely because

We long have held that a

bankruptcy court's factual findings are entitled to the deference

inherent in clear-error

live

review even when

they do not

testimony, but, rather, evolve entirely from a paper record

that is equally available to the reviewing court.

Tully
_____

implicate

(In re Tully), 818

___________

F.2d 106, 109

See Boroff v.
___ ______

(1st Cir. 1987) (citing

Anderson v. City of Bessemer City, 470 U.S. 564, 574-75 (1985));

________
______________________

see also RCI Northeast Servs. Div. v. Boston Edison Co., 822 F.2d
___ ____ _________________________
_________________

199, 202

not

(1st Cir. 1987)

forfeit `clearly

(explaining that "findings of

erroneous'

deference merely

stem from

a paper record").4

The

confirmed

by

the Federal

Rule

7052

of

fact do

because they

soundness of this approach is

Rules

of

Bankruptcy

Procedure, which expressly adopts Rule 52(a) of the Federal Rules

of Civil Procedure.

The

latter rule, in its latest incarnation,

____________________

4To be sure, occasional statements of this court, if wrested

from

context, might

circumstances.
(1st Cir. 1991).

See,
___

appear to

suggest de

novo review

e.g., Brewer v. Madigan, 945

____ ______
_______

F.2d 449, 452

Context provides a clearer perspective.

cases in which we purposed to

sometimes will indicate the absence

true.

In the

scrutinize a paper record de novo,

there were no facts in dispute.

________________________________

far from universally

in such

Although a

stipulated record

of factual discord, that

See Vetter v.
___ ______

is

Frosch, 599 F.2d 630,

______

632

(5th

Cir.

1979) ("Many

counter-affidavits,
know there

cases

and stipulated

are issues of

fact which

are

tried

records,

on depositions,

where the

parties

must be resolved,

but are

content to have them resolved on the basis of written, as opposed

to oral,

testimony

and evidence.").

Here, the

existence

of

genuine factual issues is made manifest by the bankruptcy court's

well-founded denial

of

the parties'

cross-motions for

summary

judgment.

provides in pertinent part:

"Findings of fact, whether based on

________________

oral or documentary evidence,

______________________________

shall not

be

set aside

unless

clearly

erroneous,

and

due

regard

shall

be

given

to

the

opportunity of the trial court to judge of the credibility of the

witnesses."

(Emphasis supplied).

Notwithstanding

the

obvious

applicability

of

the

"clearly erroneous" standard to the case at hand, there is a rub.

The parties both

urged the BAP to review

the bankruptcy court's

decision de novo

and to resolve the issue

of whether Healthco's

transfer of funds to Repco escapes classification as a preference

without affording any

special respect to the

factual determinations.

See In re Healthco,
___ _______________

litigants

are united

essay plenary,

The

BAP yielded

supra, slip op.

_____

in their

at 5.

bankruptcy court's

to this

What is

insistence that we,

nondeferential review

importuning.

more, the

too, should

of the bankruptcy

court's

decision.

Under these

simply

to honor

Taylor, 54
______

Aesop).

any

contradicts the

(adopting Fed. R.

find the

circumstances,

request.

971 (1st Cir.

wishes is that

For one

articulate

shall

the parties'

F.3d 967,

problem with

peculiar

thing,

the

Civ. P.

1995) (warning

court's

factual

findings

52(a)'s requirement

facts specially"),

but

tempted

v.

that "[t]he

true") (citing

bankruptcy

practice, see Fed.

___

are

United States
_____________

they sometimes come

particularized

rules of

Cf.
___

we

failure

not

R. Bankr.

that "the

also makes

to

only

P. 7052

court

clear-error

review

invited

exceptionally difficult.5

the BAP

argument in

indulge

this court,

that course.

on

to

appellate advocacy."

972 F.2d

in de

novo

they continued to

review

and, at

urge that

oral

we follow

Declining to do so would risk "plac[ing] a premium

agreeable acquiescence

Inc.,
____

For another thing, the parties

to perceivable

error as a

weapon of

Dedham Water Co. v. Cumberland Farms Dairy,

________________
_______________________

453, 459

(1st Cir.

1992) (quoting

Merchant v.
________

Ruhle, 740 F.2d 86, 92 (1st Cir. 1984)).

_____

This

is an interesting concatenation of events, but we

need not decide whether we should hold the parties to the invited

error;

in this

choice between

outcome on

instance, all

the two standards

appeal.

that, whether we

review

"clearly

or

roads

bow to

convention

Rome because

of review will not

In short, this

bow to the

lead to

case is

affect the

sufficiently plain

parties' wishes and afford

and employ

our

the

de novo

more deferential

erroneous" rubric, we, like the BAP, would be compelled

to set aside the bankruptcy court's contrary determination.

IV.
IV.

THE MERITS
THE MERITS

In order

looming

to guard

insolvency, the

against favoritism

Bankruptcy

in the

Code provides

face of

that certain

payments

made by

the debtor

within ninety

days

preceding the

bankruptcy

proceedings

are

voidable

institution

of

preferences.

See 11 U.S.C.
___

547(b).

as

This rule is not ironclad.

____________________

5Of

course,

if

reviewing

court

determines

that

bankruptcy court's findings are too indistinct, it may decline to

proceed

further and

remand for

more explicit

findings.

avenue was open to the BAP and it is equally open to us.

10

This

Thus, the Code holds harmless transfers made by the debtor during

the

ninety-day

satisfied.

preference

period

if

certain

Specifically, a bankruptcy trustee may

criteria

are

not annul a

preference-period transfer to the extent that the transfer was

(A)

in payment

of a

debt

incurred by

the

debtor in the ordinary course of business . .

. [between] the debtor and the transferee;
(B) made in the ordinary course of business .
. . of the debtor and the transferee; and
(C)

made

according

to

ordinary

business

terms[.]

11 U.S.C.

547(c)(2).

The rationale behind this

clear:

because "the

[is] to

discourage unusual

creditors

ordinary

during

course

general policy

the

of the

action by either

debtor's

exemption

slide

preference section

the debtor

into

promotes

carve-out is

or his

bankruptcy,"

the

the

corresponding

congressional

desire

relations."

H.R.

"to

Rep.

leave

No.

595

itself

is

undisturbed

normal

(1977),

reprinted
_________

financial

in
__

1978

U.S.C.C.A.N. 5963, 6329.

The

definition

abhor

statute

of the

term "ordinary course

interpretive vacuums,

articulating

transfer

factors

warrants

include

they

protection under

the

amount

transferee, and the

was effected.

and

as

to

of business."

have

filled

the

Courts

this

one,

several factors that bear upon whether a particular

payment, the historic course

the

uninstructive

See
___

Software Corp. v.
______________

section

transferred,

547(c)(2).

the

timing

These

of

the

of dealings between the debtor

and

circumstances under which

In re Yurika Foods, 888

___________________

the transfer

F.2d at

45; First
_____

Curtis Mfg. Co. (In re First Software Corp.),

_______________ ___________________________

11

81 B.R. 211, 212 (Bankr.

record

evidence

convinced

that

extraordinary

light

the

After

considering the

of

these

factors,

we

transfer

from

Healthco

to

and that

finding otherwise.

The

in

D. Mass. 1988).

the bankruptcy

court

are

firmly

Repco

clearly erred

was

in

We explain briefly.

amount

of

the

payment

was

uncommonly

large;

Healthco never before had

made a lump-sum payment to Repco in an

amount approaching $235,000.6

nearly

ten

times

as

large

Put another way,

as the

average

previously made by the debtor to Repco.

the payment was highly suspicious.

and

in the

accounting

process, liquidated

old).7

There

moreover,

the challenged

course

between

disputed

transfer

ventured to

pay all

____________________

payments

Then, too, the timing of

and new bills,

that

more than ninety

were by

days old)

prepubescent (i.e., less than thirty

were,

dealings

the

several invoices

similarities between

of

of

It lumped old

standards ancient (i.e.,

and several that were

the payment was

marked

the

virtually

payment and

the parties.

first

its outstanding

no

For

occasion

days

significant

the antecedent

example,

that

Repco invoices,

the

Healthco

the first

6To

be sure,

payment is

as Repco

points

attributable in some

the sum of $96,689.19.

magnitude of

measure to a single

the

invoice in

This circumstance does not contradict the

conclusion that the payment was

Healthco

out, the

abnormal.

remitted over $235,000

The fact remains that

in satisfaction

separate Repco invoices, thereby

of sixty-eight

dwarfing earlier remittances as

to both the number of invoices and the total dollars involved.

7As the
satisfied
categories.

by

BAP noted, roughly

the wire

fifty percent

transfer

See In re Healthco,
___ _______________

contrast, very old

fell

into

supra, slip
_____

of the
one of

invoices
these

two

10.

By

op. at

and very new invoices comprised

no more than

fifteen percent of any group of invoices previously paid.

12

time that

Healthco wired funds to Repco, and the first time that

Healthco's

chief financial

payment to Repco.

officer interceded

to effectuate

Inasmuch as the hallmark of a

payment in the

ordinary course is consistency with prior practice, see WJM, Inc.

___ _________

v. Massachusetts Dep't of Pub. Welfare, 840 F.2d

____________________________________

996, 1011 (1st

Cir. 1988), this string of "firsts" is telling.

The circumstances surrounding

the

matter.

these,

it

Healthco

paid

only

the wire transfer clinch

owed money to hundreds

Repco,

Kerr

of creditors.

Manufacturing,

and

Of

Clarke

Industries in full by wire transfer during the preference period.

All three of these businesses had detectable links

principals:

Thomas

Hicks, chairman and chief

to Healthco's

executive officer

of

the firm

that owned

owned Healthco),

parent

was a director

corporation; James

Co., chaired the

had a longstanding

these

explanation

and beneficial owner

Mills, chairman

of

of Kerr's

and served as

above, Mills also

relationship with Repco's proprietor.

special

especially true of

in turn,

Healthco Holding

officer; and as mentioned

relationships,

for preferment

deposition,

Co. (which,

board of Clarke's parent company

its chief executive

from

Healthco Holding

of

there

the three

is

no

Apart

reasonable

creditors.

This

is

Repco; as Zaegel himself testified during his

it is general

industry custom

to "pay

the printer

last."

Other

transfer

circumstances

highlight

relationship.

Souza,

the

associated

importance

with

of

Healthco's treasurer,

the

Repco's

challenged

special

testified that

by

13

February 1993

when were being

Moyle overrode

decisions about

which creditors

made by a committee of

this mechanism to

were to

be paid

Healthco executives; yet

effect the Repco payment.

At

the same time, it was clear both from Zaegel's kid-glove approach

and

from the

competitive nature

Repco's continued service

of the printing

did not hinge upon

industry that

Healthco's payment

of all

outstanding

Moyle's claim

debt as

that he

celeritously

as possible.

directed the payment

to be

Thus,

made because

Repco was "pivotal" to Healthco's operations is entitled to

very

little weight.

We need

fully

go no

persuades us

further.

that the

The circumstantial

debtor deviated

evidence

sharply

from its

customary business practices to favor a select trio of creditors,

Repco

taking

included.

care

of

hardball with

Bankruptcy Code

This is

precisely

few

well-connected

the general multitude

intended to curtail.

Co. (In re Roblin Indus.),

___ ______________________

78

the type

vendors

of preferment

while

that the drafters

See Lawson v.
___ ______

F.3d 30,

40

(2d

playing

of the

Ford Motor
__________

Cir.

1996)

(explaining that "equality of distribution among creditors of the

debtor"

is

one

goal

of

the

preference

provision)

(quoting

legislative history).8

Repco's other

them

without

arguments are unconvincing and we reject

elaboration.

It

suffices

to

say

that

the

____________________

8The

other

precluding the

main

goal

of

the

preference

debtor "from trying to stave

provision

off the evil day by

giving preferential treatment to his most importunate creditors,"

In re Tolona Pizza Prods. Corp., 3
__________________________________
1990)

is not implicated here.

F.2d 1029, 1032

See supra note 2.

___ _____

14

(7th Cir.

circumstances

its

surrounding the

extraordinary

determination

challenged

nature.

challenged transfer

Therefore,

we

amply evince

affirm

the

BAP's

that, contrary to the bankruptcy court's view, the

transfer

was

not

made in

the

ordinary

course of

business.

Unlike the BAP, however, we

do not believe that such a

determination clears the way for judgment on the trustee's claim.

The

bankruptcy court reserved the issue of Healthco's insolvency

an essential element

remains open.

that extent

of the preference claim

and that issue

Consequently, we must vacate the BAP's judgment to

and remand to

the BAP with

directions that

it, in

turn, remand

the

cause

to the

bankruptcy

court

for

further

proceedings.

Affirmed in part, vacated in part, and remanded.

Affirmed in part, vacated in part, and remanded.
_________________________________________________

costs.
costs.
_____

No
No
__

15