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The Ninth Circuit rejected the plaintiff's argument that the California cases it cited stood for the proposition that officers were fiduciaries of the corporation. To the contrary, the court ruled that these cases merely stated that 'officers owe fiduciary duties in their capacity as agents of a corporation; they fail to hold that officers are trustees of a statutory trust with respect to corporate assets.' Citing a 1940 California Supreme Court decision, Bainbridge v. Stoner, 16 Cal. 2d 423, the court held that 'although officers and directors are imbued with the fiduciary duties of an agent and certain duties of a trustee, they are not trustees with respect to corporate assets.'

First-time Transaction Can Be 'Ordinary Course' Preference Exception

The Bankruptcy Court for the Western District of Pennsylvania has ruled that in certain circumstances a first-time transaction between a debtor and a creditor may qualify as an ordinary course transaction for purposes of ' 547(c)(2)(B). The court held that adopting the minority, per se, rule would discourage rather than encourage first-time creditors from doing business with a struggling debtor during the ninety-day preference window. In re Forman Enterprises, Inc., 2003 WL 21295971 (June 3).

A Chapter 7 trustee sought to avoid as a preference under ' 547(b) of the Bankruptcy Code a payment that the debtor made to a knitting mill for a shipment of sweaters about 5 weeks before the debtor filed for bankruptcy. In determining that this first-time transaction between the debtor and a creditor qualified as 'ordinary course' for purposes of ' 547(c)(2), the court considered the time, the amount and the manner in which payment occurred. Here, the court found 'nothing unusual' that would lead to the conclusion that the payment in question was out of the ordinary course of business for the parties. The court further noted that 'the evidence did not support the inference that the parties considered [the] debtor to be in default with respect to payment of the first invoice or that [the creditor] had resorted to extraordinary measures in an attempt to dragoon debtor into making a past-due payment for the first shipment of sweaters.'

The Bankruptcy Court for the Western District of Pennsylvania has ruled that in certain circumstances a first-time transaction between a debtor and a creditor may qualify as an ordinary course transaction for purposes of ' 547(c)(2)(B). The court held that adopting the minority, per se, rule would discourage rather than encourage first-time creditors from doing business with a struggling debtor during the 90-day preference window. In re Forman Enterprises, Inc., 2003 WL 21295971 (June 3).

A Chapter 7 trustee sought to avoid as a preference under ' 547(b) of the Bankruptcy Code a payment that the debtor made to a knitting mill for a shipment of sweaters about 5 weeks before the debtor filed for bankruptcy. In determining that this first-time transaction between the debtor and a creditor qualified as 'ordinary course' for purposes of ' 547(c)(2), the court considered the time, the amount and the manner in which payment occurred. Here, the court found 'nothing unusual' that would lead to the conclusion that the payment in question was out of the ordinary course of business for the parties. The court further noted that 'the evidence did not support the inference that the parties considered [the] debtor to be in default with respect to payment of the first invoice or that [the creditor] had resorted to extraordinary measures in an attempt to dragoon debtor into making a past-due payment for the first shipment of sweaters.'

State Law Allows Corporate Officer to Discharge Liability for Fraud

The Ninth Circuit has ruled that although corporate directors and officers have some fiduciary duties, the relationship is not one of trust but of agency, and as a result their liability for corporate fraud is dischargeable under the Bankruptcy Code. Cal-Micro Inc. v. Cantrell (In re Cantrell), No. 01-17358 (May 28).

A default judgment was entered against a corporate officer who was sued for using corporate assets for his own personal benefit. The former officer then filed a Chapter 7 Bankruptcy and sought to discharge the $1.3 million debt, which the company claimed was non-dischargeable under Section 523(a)(4).

The Ninth Circuit rejected the plaintiff's argument that the California cases it cited stood for the proposition that officers were fiduciaries of the corporation. To the contrary, the court ruled that these cases merely stated that 'officers owe fiduciary duties in their capacity as agents of a corporation; they fail to hold that officers are trustees of a statutory trust with respect to corporate assets.' Citing a 1940 California Supreme Court decision, Bainbridge v. Stoner , 16 Cal. 2d 423, the court held that 'although officers and directors are imbued with the fiduciary duties of an agent and certain duties of a trustee, they are not trustees with respect to corporate assets.'

First-time Transaction Can Be 'Ordinary Course' Preference Exception

The Bankruptcy Court for the Western District of Pennsylvania has ruled that in certain circumstances a first-time transaction between a debtor and a creditor may qualify as an ordinary course transaction for purposes of ' 547(c)(2)(B). The court held that adopting the minority, per se, rule would discourage rather than encourage first-time creditors from doing business with a struggling debtor during the ninety-day preference window. In re Forman Enterprises, Inc., 2003 WL 21295971 (June 3).

A Chapter 7 trustee sought to avoid as a preference under ' 547(b) of the Bankruptcy Code a payment that the debtor made to a knitting mill for a shipment of sweaters about 5 weeks before the debtor filed for bankruptcy. In determining that this first-time transaction between the debtor and a creditor qualified as 'ordinary course' for purposes of ' 547(c)(2), the court considered the time, the amount and the manner in which payment occurred. Here, the court found 'nothing unusual' that would lead to the conclusion that the payment in question was out of the ordinary course of business for the parties. The court further noted that 'the evidence did not support the inference that the parties considered [the] debtor to be in default with respect to payment of the first invoice or that [the creditor] had resorted to extraordinary measures in an attempt to dragoon debtor into making a past-due payment for the first shipment of sweaters.'

The Bankruptcy Court for the Western District of Pennsylvania has ruled that in certain circumstances a first-time transaction between a debtor and a creditor may qualify as an ordinary course transaction for purposes of ' 547(c)(2)(B). The court held that adopting the minority, per se, rule would discourage rather than encourage first-time creditors from doing business with a struggling debtor during the 90-day preference window. In re Forman Enterprises, Inc., 2003 WL 21295971 (June 3).

A Chapter 7 trustee sought to avoid as a preference under ' 547(b) of the Bankruptcy Code a payment that the debtor made to a knitting mill for a shipment of sweaters about 5 weeks before the debtor filed for bankruptcy. In determining that this first-time transaction between the debtor and a creditor qualified as 'ordinary course' for purposes of ' 547(c)(2), the court considered the time, the amount and the manner in which payment occurred. Here, the court found 'nothing unusual' that would lead to the conclusion that the payment in question was out of the ordinary course of business for the parties. The court further noted that 'the evidence did not support the inference that the parties considered [the] debtor to be in default with respect to payment of the first invoice or that [the creditor] had resorted to extraordinary measures in an attempt to dragoon debtor into making a past-due payment for the first shipment of sweaters.'