Thursday, August 23, 2018

THE 11TH CIRCUIT CLARIFIES THAT NEW VALUE NEED NOT REMAIN UNPAID TO CONSTITUTE A VALID PREFERENCE DEFENSE


By: Jeffrey N. Schatzman
Schatzman & Schatzman, P.A.
Miami, Florida

            In Kaye v. Blue Bell Creameries, Inc. (In re BFW Liquidation, LLC), 2018 U.S. App. LEXIS 22504 * | __ F.3D __ | 2018 WL 3850101 (11th Cir 2018), decided on August 14, 2018, the Eleventh Circuit Court of Appeals made clear that any reliance on its decision in Charisma Investment Company, N.V. v. Airport Systems, Inc. (In re Jet Florida System, Inc.), 841 F.2d 1082 (11th Cir. 1988), that the new value exception (11 U.S.C. § 547(c)(4)) only applies if any new value given remains unpaid, is misplaced. In Jet Florida System, the Eleventh Circuit was faced with determining whether rent payments made by the debtor to a landlord after the debtor had vacated the premises were subject to the new value exception.  In considering the exception, the court stated that § 547(c)(4) “has generally been read to require: (1) that the creditor must have extended the new value after receiving the challenged payments, (2) that the new value must have been unsecured, and (3) that the new value must remain unpaid.”  In re Jet Fla. Sys., at 1083.  The court ultimately rendered its decision by applying only the first element and found that there was no new value given by the landlord since the debtor had vacated the premises and therefore, no benefit was conferred upon the estate.