The U.S. Bankruptcy Court for the District of Delaware recently granted a preference defendant’s motion for summary judgment based in part on the objective element of the ordinary-course-of-business defense, with potentially far-reaching implications for preference defendants. As part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) amendments to the Bankruptcy Code, creditors gained a significant advantage in defending preference claims. Pre-BAPCPA, preference defendants seeking to prove the ordinary-course-of-business defense under § 547 (c) (2) of the Bankruptcy Code had to satisfy both the subjective and the objective elements of the defense. The BAPCPA amendments to § 547 (c) (2) made it easier for preference defendants to prove the ordinary-course-of-business defense by satisfying either the subjective or objective elements of the defense.

The bankruptcy court’s August 2024 decision in Center City Healthcare LLC v. Medline Indus. Inc. (In re Center City Healthcare LLC)1 discusses the evidence that a creditor must present to successfully assert an objective ordinary-course-of-business defense. Noteworthy is the court’s holding that any evidence of a creditor’s/defendant’s extraordinary or unusual collection actions during the preference period is irrelevant to determining the applicability of the defense. Just a few months before the Center City Healthcare decision, the U.S. Bankruptcy Court for the Southern District of Ohio in ASPC Creditor Trust v. Sturm Ruger & Co. Inc. (In re ASPC Corp.),2 relying on very similar reasoning, also granted the preference defendant’s motion for summary judgment based on the objective ordinary-course-of-business defense.

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