US SUPREME COURT DECISIONS

UNION BANK v. WaLAS, CHAPTER 7 TRUSTEE FOR THE ESTATE OF ZZZZ BEST CO., INC. 502 U.S. 151

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OCTOBER TERM, 1991

Syllabus

UNION BANK v. WaLAS, CHAPTER 7 TRUSTEE FOR THE ESTATE OF ZZZZ BEST CO., INC.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

No.90-1491. Argued November 5, 1991-Decided December 11, 1991

During the 90-day period preceding its filing of a petition under Chapter 7 of the Bankruptcy Code, ZZZZ Best Co., Inc. (Debtor) made two interest payments and paid a loan commitment fee on its long-term debt to petitioner, Union Bank (Bank). Mter he was appointed trustee of the Debtor's estate, respondent Wolas filed a complaint against the Bank to recover those payments as voidable preferences under 11 U. S. C. § 547(b). The Bankruptcy Court held that the payments were transfers made in the ordinary course of business pursuant to § 547(c)(2) and thus were excepted from § 547(b). The District Court affirmed, but the Court of Appeals reversed, holding that the ordinary course of business exception was not available to long-term creditors.

Held:

1. Payments on long-term debt, as well as those on short-term debt, may qualify for the ordinary course of business exception to the trustee's power to avoid preferential transfers. Section 547(c)(2) contains no language distinguishing between long- and short-term debt and, therefore, provides no support for Wolas' contention that its coverage extends only to short-term debt. Moreover, § 547's relevant history in part supports, and is not otherwise inconsistent with, a literal reading of the statute. While § 547(c)(2), as originally enacted, was limited to payments made within 45 days of the date a debt was incurred, Congress amended the provision in 1984 by deleting the time limitation entirely. That Congress may have intended only to address particular concerns of specific short-term creditors in the amendment or may not have foreseen all of the consequences of its statutory enactment is insufficient reason for refusing to give effect to § 547(c)(2)'s plain meaning. Also unpersuasive is Wolas' argument that Congress originally enacted § 547(c)(2) to codify a judicially crafted "current expense" rule covering contemporaneous exchanges for new value, since other § 547(c) exceptions occupy some (if not all) of the territory previously covered by that rule, and since there is no extrinsic evidence that Congress intended to codify the rule in § 547(c)(2). Nor does the fact that the exception's availability to long-term creditors may not directly further § 547's underlying policy of equality of distribution among all creditors support


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limiting § 547(c)(2) to short-term debt, for it does further the provision's other policy of deterring creditors from racing to the courthouse to dismember a debtor and may indirectly further the equal distribution goal as well. Pp. 154-162.

2. The question whether the Bankruptcy Court correctly concluded that the Debtor's payments qualify for the ordinary course of business exception remains open for the Court of Appeals on remand. P. 162. 921 F.2d 968, reversed and remanded.

STEVENS, J., delivered the opinion for a unanimous Court. SCALIA, J., filed a concurring opinion, post, p. 163.

John A. Graham argued the cause for petitioner. With him on the briefs were Lesley Anne Hawes, Donald Robert Meyer, and Stephen Howard Weiss.

Herbert Wolas, pro se, argued the cause for respondent.

With him on the brief was Terry A. Ickowicz. *

JUSTICE STEVENS delivered the opinion of the Court. Section 547(b) of the Bankruptcy Code, 11 U. S. C. §547(b), authorizes a trustee to avoid certain property transfers made by a debtor within 90 days before bankruptcy. The Code makes an exception, however, for transfers made in the ordinary course of business, § 547(c)(2). The question presented is whether payments on long-term debt may qualify for that exception.

On December 17, 1986, ZZZZ Best Co., Inc. (Debtor), borrowed $7 million from petitioner, Union Bank (Bank).l On

*Briefs of amici curiae urging reversal were filed for the American Bankers Association by John J. Gill III and Michael F. Crotty; for the American Council of Life Insurance et al. by Phillip E. Stano, Robert M. Zinman, Richard E. Barnsback, Bruce Hyman, and Christopher F. Graham; for the California Bankers Association by Robert L. Morrison and Kenneth N Russak; for the New York Clearing House Association by Richard H. Klapper, John L. Warden, Robinson B. Lacy, and Michael M. Wiseman; and for Robert Morris Associates by Raymond K. Denworth, Jr.

1 The Bankruptcy Court found that the Bank and Debtor executed a revolving credit agreement on December 16, 1986, in which the Bank agreed to lend the Debtor $7 million in accordance with the terms of


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