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In re Smith’s Home Furnishings, Inc.

United States Court of Appeals for the Ninth Circuit
265 F.3d 959 (2001)


Facts

Smith’s Home Furnishings, Inc. (Smith’s) (plaintiff) financed its inventory with loans from Transamerica Commercial Finance Corporation (TCFC). Smith’s gave TCFC a floating lien on inventory and proceeds. Smith’s did not maintain TCFC’s proceeds separately. TCFC required Smith’s make thirty-six payments before declaring it in default. Smith’s filed chapter 11 bankruptcy. TCFC liquidated Smith’s inventory, recovering more than Smith’s owed. The bankruptcy was converted to chapter 7. Smith’s bankruptcy trustee, Batlan, argued that the payments to TCFC were preferential and sought return of transfers made within ninety days of Smith’s petition date. TCFC declined, and Batlan sued. Batlan and TCFC stipulated that four of the five requirements of a preference were met. See 11 U.S.C. § 547(b)(1)-(5). The bankruptcy court held that Batlan had not proved that TCFC received a preference. TCFC’s affirmative defense was not reached. Batlan moved for reconsideration, but the court affirmed itself. Batlan appealed to the district court, which affirmed. Batlan then appealed to the United States Court of Appeals for the Ninth Circuit.

Rule of Law

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Issue

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Holding and Reasoning (Hall, J.)

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Dissent (Graber, J.)

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