RECENT VICTORIES 2009

In Garrison City Broadcasting v. York Women's Care, Kevin Libby and Erica Johanson successfully defended at trial and again on appeal a vigorously-fought battle brought by a creditor of York Women's Care to recoup from it, its landlord, and the owner of both entities payments for back-due rent that York Women's Care had made to its landlord after it had become insolvent.  Maine's Fraudulent Transfers Act ("MFTA") prohibits payment by an insolvent debtor to a related entity for a debt that arose prior to insolvency, excepting payments made in the ordinary course of the debtor's business.  The MFTA allows an unpaid creditor who successfully pursues such a claim to obtain the proceeds of the transfers from the transferee up to the amount of the unpaid creditor's claim.

Garrison City Broadcasting provided on-air advertising for York Women's Care, which later became insolvent and eventually was closed, wound-down, and liquidated with a balance of $9,720.00 left owing to Garrison City.  Garrison City claimed that York Women's Care's post-insolvency payment of back-due rent to an entity also owned by York's owner was a fraudulent transfer.  The Defendants maintained that these payments were not fraudulent as they had been made in the ordinary course of York Women's Care's business.

The Plaintiff pursued its claim through extensive discovery of bank and accounting records and a jury-waived trial at the Superior Court.  At trial, the Defendants established that York Women's Care had not made any payments to its landlord in excess of amounts that were actually due under the rental contract, and argued that the timing of the payments--which was the basis for Plaintiff's claim--did not establish that they were outside of the ordinary course of business.  The trial court concluded that York Women's Care's late rental payments had been made in the ordinary course of its business.  Upon the Plaintiff's motion for further findings of fact, the Court observed that "if York Women's Care had any chance to remain in business, the rent needed to be paid, and that "old debts for radio advertising unfortunately would not have the same urgency for a business trying to stay alive as paying the rent would. 

On appeal, the Plaintiff claimed that York Women's Care's payment of back-due rent could only be in the "ordinary course of business if it had been part of a pattern of late payment between the debtor and the insider established prior to the debtor's insolvency.  Defendants acknowledged that there was no such pattern or practice.  However, they argued that this narrow definition of "ordinary course of business" was unsupported by the case law, which called for a fact-specific inquiry of the circumstances involved in each case.   The Law Court agreed, observing that "late payment of rent may be an abnormal practice as between a debtor and an insider, but may still constitute a transfer of funds in the ordinary course of business when assessed in the broader context of a particular business circumstances.