Opinion · Court of Appeals for the Ninth Circuit

In Re Zzzz Best Co., Inc., a California Corporation, Debtor. Herbert Wolas, Chapter 7 Trustee for the Estate of Zzzz Best Co., Inc. v. Union Bank

In Re Zzzz Best Co., Inc., a Cal. Corp., Debtor. Herbert Wolas, Chapter 7 Tr. for the Est. of Zzzz Best Co. v. Union Bank, 921 F.2d 968 (9th Cir. 1990)

Type
Opinion
Court
Court of Appeals for the Ninth Circuit
Jurisdiction
Federal
Date
1990-12-28
Topic
bankruptcy

PER CURIAM: ZZZZ Best entered into an eight-month revolving credit agreement with Union Bank in December 1986. It made several payments of interest and loan commitment fees between December 1986 and July 1987, when the company filed for bankruptcy. The trustee, Wolas, tried to recover some of the payments for the benefit of the creditors as preferential transfers avoidable under 11 U.S.C. § 547. The bank defended the payments as being made in the ordinary course of business, and thus protected from recovery under § 547(c)(2). Wolas replied they were not protected because ZZZZ Best had been operating a fraudulent “Ponzi” scheme and so had no “ordinary” course of business.

Citator

UpLaw has not yet analyzed In Re Zzzz Best Co., Inc., a California Corporation, Debtor. Herbert Wolas, Chapter 7 Trustee for the Estate of Zzzz Best Co., Inc. v. Union Bank. The absence of a flag is not a finding that it is good law.

Authority status
pending
Cited by
9 opinions
IN RE ZZZZ BEST CO., INC.,921 F.2d 968(9th Cir. 1990)
IN RE ZZZZ BEST CO., INC., A CALIFORNIA CORPORATION, DEBTOR.
HERBERT WOLAS, CHAPTER 7 TRUSTEE FOR THE ESTATE OF ZZZZ BEST CO., INC.,
PLAINTIFF-APPELLANT, v. UNION BANK, DEFENDANT-APPELLEE.
No. 89-55902.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted December 4, 1990.
Decided December 28, 1990.
Terry A. Ickowicz, and Steven N. Kurtz, Wolas, Soref Ickowicz, Los Angeles, Cal., for plaintiff-appellant.Page 969

John Graham, Frandzel Share, Los Angeles, Cal., for defendant-appellee.
Appeal from the United States District Court for the Central District of California.
Before BROWNING, PREGERSON and LEAVY, Circuit Judges.
PER CURIAM:
[1] ZZZZ Best entered into an eight-month revolving credit agreement with Union Bank in December 1986. It made several payments of interest and loan commitment fees between December 1986 and July 1987, when the company filed for bankruptcy. The trustee, Wolas, tried to recover some of the payments for the benefit of the creditors as preferential transfers avoidable under11 U.S.C. § 547. The bank defended the payments as being made in the ordinary course of business, and thus protected from recovery under § 547(c)(2). Wolas replied they were not protected because ZZZZ Best had been operating a fraudulent "Ponzi" scheme and sohadno "ordinary" course of business. The bankruptcy court found for the bank as a matter of law, and the district court affirmed. We reverse on the authority ofIn re CHG Int'l,Inc.,897 F.2d 1479(9th Cir. 1990). without reaching the "Ponzi" scheme issue.

[2] InCHG Int'lwe held that interest payments on long-term debt are not covered at all by the ordinary course of business exception.Id.at 1482, 1486. Union Bank argues the revolving line of credit in this case is not "long-term" because it is for less than a year; however, one of the two loans at issue inCHGInt'lwas for only seven months, yet the court considered it long-term.

[3] The bank also argues the revolving line of credit in this case differs from the loan at issue inCHG Int'lbecause it was prepayable at any time and the debtor's continued access to funds depended on continuing to make interest payments. However, as a practical matter, a debtor's continuing access to any loan depends on continuing to make interest payments — if payments are discontinued, the debtor is in default and the loan will be called. The debtor became bound when it delivered its promissory note to the bank; the exact amount of interest owed each month is irrelevant. We fail to see any significant difference between a revolving line of credit and an ordinary loan for purposes of § 547(c)(2).

[4] REVERSED.