Just over two years ago, Delaware Bankruptcy Judge Christopher Sontchi ruled that the filing of a bankruptcy fixes the preference analysis as of the petition date, thereby excluding post-petition payment of unpaid, pre-petition new value from the preferential exposure calculation. See Friedman’s Inc. v. Roth Staffing Co., L.P. (In re Friedman’s, Inc.), 2011 Bankr. LEXIS 4500 (Bankr. D. Del. Nov. 30,2011). While the Friedman’s case centered on the debtor’s first-day wage motion through which it paid the defendant creditor, we raised the question might the Friedman’s ruling also apply to other types of creditors, such as 503(b)(9) claimants? The subsequent Delaware district court and Third Circuit Court of Appeals affirmations of Judge Sontchi’s ruling suggested as much, but the strongest confirmation of Friedman’s applicability to 503(b)(9) claimants can be found in Judge Sontchi’s recent decision in Stanziale v. Car-Ber Testing, Inc. (In re Conex Holdings, LLC) 2013 Bankr. LEXIS 5470 (Bankr. D. Del. Dec. 27, 2013).

The Facts

The debtor in Conex Holdings was a general mechanical contracting and industrial services firm. One of the debtor’s accounts was a refinery owned by Motiva Enterprises, LLC (“Motiva”).  The defendant in this case was a subcontractor hired by the debtor to work at the refinery, and the debtor made preferential transfers to the defendant for services provided at the refinery. After these transfers, but prior to the petition date, the defendant provided additional services in an amount greater than the preferential transfers. When the debtor failed to pay the defendant for these services, the defendant filed a mechanics lien against the refinery. After the defendant filed for bankruptcy, Motiva paid the pre-petition invoices in exchange for a full release from the mechanics lien. The trustee then sued the defendant in order to avoid the preferential transfers, arguing that the post-petition, third party payment disqualified the defendant’s subsequent new value defense.

The Decision

On motion for summary judgment, the trustee argued that Friedman’s was wrongfully decided. Given that Friedman’s was affirmed by the Third Circuit Court of Appeals days earlier, Sontchi found flatly that the trustee’s first argument “without merit.”

The trustee also argued that Friedman’s was not controlling in Conex Holdings because Friedman’s dealt with the debtor’s post-petition payment of the defendant’s outstanding invoices, where Conex Holdings centered on a third party’s post-petition payment of the defendant’s outstanding invoices.  Judge Sontchi found this argument “equally unavailing” since the Third Circuit fixed the preference analysis as of the petition date and “broadly held that where ‘an otherwise unavoidable transfer’ is made after the filing of a bankruptcy petition, it does not affect the new value defense” (emphasis added). The only post-petition events that can alter the preference analysis are: certain contract assumptions or stipulated orders that require the trustee to cure defaults, and payments made under a reclamation claim. Because the transfers in Conex Holdings fit neither of these situations, the Friedman’s decision controls.

More importantly, however, Judge Sontchi’s decision demonstrates the broad scope of the Friedman’s ruling. No post-petition event, with the exception of the above-listed situations, can affect the preference analysis.  This means that payments made to 503(b)(9) claimants will not reduce those creditors’ subsequent new value defenses.