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In re National Gas Distributors

United States Bankruptcy Court for the Eastern District of North Carolina
346 B.R. 394 (2006)


Facts

National Gas Distributors, LLC (NGD), owned by Paul Lawing, received financing from Branch Banking and Trust Company (BB&T) (defendant). The financing included a $1 million line of credit, a $2.5 million working-capital loan, and letters of credit. NGD’s debt to BB&T was secured by assets owned by Paul Lawing’s wife Ann, rather than its own business assets. Both Paul and Ann also served as guarantors. The line of credit obligation was initially due to mature in November 2003. Its maturity was extended to November 2004, then to November 2005, then to December 23, 2005. On December 15, 2005, NGD paid the $755,329.80 balance for the credit line. The working-capital loan was initially set to mature in March 2005. Its maturity was extended three times, ultimately to December 23, 2005. On December 19, 2005, NGD paid off the outstanding balance of $2,508,186.35. On December 20, 2005, NGD paid BB&T $850,000 to serve as collateral for two existing letters of credit. In exchange, BB&T released the property of Ann Lawson that had been pledged as security for those letters of credit. In January 2006, NGD became subject to a state receivership. Later that same month it filed a Chapter 11 bankruptcy petition. Richard Hutson II (the trustee) (plaintiff) was appointed trustee for the case. Hutson sought to avoid the transfers by NGD to BB&T in payment of the line of credit and working-capital loan obligations. BB&T objected, arguing that the payments were excepted from avoidance under 11 U.S.C. § 547(c)(2)(B) because they were made on “ordinary business terms.” In support of its argument, BB&T offered evidence by affidavit that it was customary practice within BB&T and the banking industry to extend maturity dates and for loan payoffs to occur within a few weeks prior to maturity. The trustee moved for summary judgment.

Rule of Law

Issue

Holding and Reasoning (A. Thomas Small, J.)

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