Freedom Group, Inc. v. Lapham-Hickey Steel Corp. (In re Freedom Group, Inc.)

On June 2, 1992, Lapham-Hickey Steel Corporation (Lapham-Hickey) (creditor) obtained a $7,335.49 judgment against Freedom Group, Inc. (Freedom) (debtor) in state court. On June 15, Lapham-Hickey served a notice of garnishment on Freedom’s bank. At the time, Freedom’s account balance was $108.25. On June 16, Freedom deposited $18,000 into the account. On June 17, the state court entered a final garnishment order directing the bank to pay the judgment from Freedom’s account. The bank paid Lapham-Hickey $7,743.11 (i.e., the amount of the judgment plus interest). On September 14, Freedom declared bankruptcy. Under 11 U.S.C. § 547(b)(4)(A), a transfer to a creditor is avoidable if made within 90 days before the declaration of bankruptcy. Ninety days before Freedom’s bankruptcy declaration was June 16. Freedom subsequently sought to undo the seizure of the $7,743.11 as an avoidable preferential transfer. The bankruptcy court found the transfer avoidable and ordered Lapham-Hickey to return the money, but the district court reversed. Freedom appealed. On appeal, Lapham-Hickey asserted that service of the garnishment notice on June 15 should be considered the transfer for purposes of § 547. Because that notice was served over 90 days before the bankruptcy declaration, Lapham-Hickey claimed that the transfer could not be avoided.