In re HHGREGG, Inc.

Gregg Appliances, Inc., hhgregg, Inc., and HHG Distributing, LLC (collectively, HHGregg) (debtor) operated a chain of retail stores that sold appliances. Whirlpool Corporation (creditor) routinely sold goods to HHGregg, including during the 45 days before HHGregg filed for bankruptcy. Whirlpool made a timely demand to reclaim its goods by sending a demand letter to HHGregg four days after it filed for bankruptcy, followed by filing an adversary proceeding seeking either the return of the goods or the proceeds from any post-petition sales. Before filing, HHGregg had a revolving credit agreement with Wells Fargo as administrative and collateral agent for other lenders. Wells Fargo advances were secured with first priority floating liens on virtually all of HHGregg’s assets, including existing and future inventory (like Whirlpool appliances) and its proceeds. In the adversary proceeding, Whirlpool argued that Wells Fargo was not entitled to protection as a good-faith purchaser under Uniform Commercial Code § 2-702 because it continued to lend to HHGregg on the eve of bankruptcy, allegedly when Wells Fargo knew HHGregg could not pay vendors like Whirlpool. Wells Fargo’s priority lien in the inventory made Whirlpool’s reclamation claim virtually worthless. Wells Fargo and the lenders countered that good faith is irrelevant under Bankruptcy Code § 546(1) as amended in 2005, making Whirlpool’s reclamation claim subject to Wells Fargo and the lenders’ prior lien rights.