A Preference “Playbook”: Judge Walrath’s CalPlant Decision Clarifies Key Defenses Under Bankruptcy Code 11 U.S.C. § 547
By: Michael L. Moskowitz, Esq.
On October 27, 2025, Judge Mary F. Walrath of the U.S. Bankruptcy Court for the District of Delaware issued a detailed opinion in Miller v. Industrial Finishes & Systems, Inc. (In re CalPlant I, LLC), Adv. No. 23-50690. The case involved a single $72,978.53 payment made by the debtor just days before filing for Chapter 11. In granting summary judgment for the liquidating trustee, Judge Walrath provided a comprehensive guide to analyzing the ordinary course and contemporaneous exchange defenses under Bankruptcy Code §547(c).
Case Background: Timing Is Everything
CalPlant I operated a California facility that manufactured fiberboard from rice straw. Its supplier, Industrial Finishes & Systems, provided materials under a 2019 consignment agreement. On September 30, 2021, the supplier issued an invoice for $72,978.53; CalPlant initiated an electronic funds transfer for that exact amount the same day. Four days later, it filed for bankruptcy.
The liquidating trustee sought to avoid that payment as a preferential transfer, arguing it was made within 90 days of the petition date and on account of an antecedent debt.
Judge Walrath’s Decision: A “Handbook” for Defending Preferences
Step 1: Establishing the Preference
The court found the plaintiff met every element under 11 U.S.C. §547(b).
- The supplier was a creditor, even if no proof of claim was filed.
- The debt was antecedent, because the right to payment arose when the debtor used the consigned supplies—not when the invoice issued.
- The payment occurred within the 90-day preference window.
This finding set the stage for the real battle: whether the supplier could establish an exception under 11 U.S.C. §547(c).
Step 2: The Contemporaneous Exchange Defense—Intent and “New Value” Matter
Under 11 U.S.C. §547(c)(1), the creditor must show:
- The parties intended a contemporaneous exchange;
- The exchange was substantially contemporaneous; and
- The debtor received new value in exchange.
Although the payment and invoice bore the same date, Judge Walrath held that the transfer did not qualify. The key flaw: the payment satisfied an existing obligation for goods already used throughout September. Accordingly, the court found no “new value” was provided at the time of the transfer.
The opinion reiterates that contemporaneity is about new value, not mere timing. Conclusory affidavits about “business benefits” or “relationship value” are not enough
Takeaway: “Same-day” payments may look contemporaneous, but without actual new value, they fail 11 U.S.C. §547(c)(1).
Step 3: The Ordinary Course Defense—When Early Payments Backfire
11 U.S.C. §547(c)(2) offers two paths:
- Subjective Test: Was the payment ordinary between these parties?
- Objective Test: Was it ordinary in the industry?
Subjective Test: “Weirdly Early” Payment
Payment history showed that CalPlant typically paid invoices 28–30 days after the invoice date—matching “net 30” terms. The September 30 payment, made on the day of invoicing, was an outlier.
Judge Walrath found that even the supplier’s own witness admitted the timing was “weird.” The Court concluded that early payments, like late ones, can fall outside the ordinary course when inconsistent with past practice
Takeaway: Paying faster than usual can eliminate the ordinary course defense.
Objective Test: Lack of Industry Evidence
The supplier also claimed that same-day payments were standard in the industry. But its evidence consisted only of affidavits from company employees, not data or comparative benchmarks.
Judge Walrath held that such self-serving testimony is insufficient to establish “ordinary business terms” under 11 U.S.C. §547(c)(2)(B)
Outcome: Preference Avoided, Payment Recovered
The court granted summary judgment for the trustee and ordered recovery of the $72,978.53 transfer under 11 U.S.C. §550. The opinion highlights a broader principle: preference defenses must be data-driven and contemporaneous, not post hoc rationalizations.
Practice Pointers for Preference Defendants
To Strengthen Your Defense:
- Maintain detailed records of invoice dates and payment timing.
- Use statistical comparisons (mean/median payment intervals) across the relationship.
- Obtain credible industry data or expert declarations—not just internal experience.
- Be consistent: avoid altering payment speed or method as a debtor’s financial condition worsens.
To Avoid Pitfalls:
- Avoid paying earlier than contract terms without documentation of consistent prior practice.
- Don’t rely on “relationship value” or speculative post-petition benefits as “new value.”
- Remember: early payments can look like favoritism—and defeat 11 U.S.C. §547(c) defenses.
Conclusion: A “Handbook” for Both Sides
Judge Walrath’s CalPlant decision distills years of case law into a clear, instructive framework. It reminds defendants that proving the ordinary course or contemporaneous exchange defenses requires hard evidence—of timing, intent, and industry standards—not assumptions or hindsight.
For bankruptcy practitioners, it’s both a cautionary tale and a blueprint for how to win (or lose) a preference case.
If you’re evaluating preference exposure or preparing a defense, FRB’s Creditors’ Rights & Bankruptcy Practice Group can to assist. Contact us at (516) 599-0888 or fill out the form below.
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