Opinion

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

:

In re:

: Chapter 11

SUNEDISON, INC., et al., :

: Case No. 16-10992 (DSJ)

Reorganized Debtors. :

: (Jointly Administered)

:

DRIVETRAIN, LLC, IN ITS CAPACITY

:

AS TRUSTEE OF THE SUNEDISON

: Adv. Pro. No. 19-01110 (DSJ)

LITIGATION TRUST,

:

Plaintiff, :

:

– against –

:

EXPEDITORS INTERNATIONAL, :

EXPEDITORS INTERNATIONAL INC., :

EXPEDITORS INTERNATIONAL OF :

WASHINGTON, INC., AND :

EXPEDITORS INTERNATIONAL (UK) :

LTD., :

:

Defendants. :

DECISION RESOLVING CROSS-MOTIONS FOR SUMMARY

JUDGMENT

APPEARANCES:

BRESSLER, AMERY & ROSS, P.C.

Counsel for Defendants Expeditors International, Expeditors International Inc., Expeditors

International of Washington, Inc., and Expeditors International (UK) Ltd.

362 Broadway

Providence, RI 02909

Counsel for Defendants

By: Lisa Kresge

COLE SCHOTZ P.C.

Counsel for Plaintiff Drivetrain, LLC, in its capacity as Trustee of the SunEdison Litigation Trust

1325 Avenue of the Americas, 19th Floor

New York, New York 10019

By: Mark Tsukerman

DAVID S. JONES

UNITED STATES BANKRUPTCY JUDGE

The SunEdison Litigation Trust has brought this and other actions to recover alleged

preferential transfers and/or fraudulent conveyances paid by the debtors prior to the bankruptcy

filings. This decision concerns various payments made to a group of related defendants that

provided delivery, warehousing, and similar services to debtors. The main issues raised by

defendants’ motion is whether the action is time-barred by virtue of a post-petition agreement to

shorten the time to take certain actions, and whether the defendants hold valid security interests

in the amounts they received, with the legal consequence that the payments they received are not

subject to avoidance or recovery by the Trustee as a matter of law. The Trustee cross-moved for

partial summary judgment solely on the question of the timeliness of its action.

For reasons described below, defendants’ motion for summary judgment is denied and the

Trustee’s cross-motion is granted. The time-shortening agreement relied on by defendants is

ineffective or inapplicable for multiple reasons, and, meanwhile, genuine disputes of material

fact exist that preclude summary judgment on the question whether defendants held valid

security interests that render them secured creditors from whom no preference or avoidance

recovery could be allowed.

More specifically, before the Court is the contested motion (the “Expeditors Motion,”

Adv. Dkt.1 56) of Defendants Expeditors International of Washington, Inc. (“EIW”) and

1 “Adv. Dkt. #” refers to documents filed on the electronic docket of this adversary proceeding

[19-01110].

Expeditors International (UK) Ltd. (“EI UK” and, collectively with EIW, “Expeditors”). The

motion seeks summary judgment to dismiss the complaint filed by Drivetrain, LLC, in its

capacity as Trustee (“Plaintiff” or “Trustee”) of the SunEdison Litigation Trust (“Trust”). In

support of its motion, the Defendant filed the following: (i) a statement of undisputed facts (the

“Defendant’s Statement of Undisputed Material Facts,” Adv. Dkt. 57) and a response to

Plaintiff’s Statement of Undisputed Material Facts (“Defendant’s Response SOMF,” Adv. Dkt.

73); (ii) the declaration of Bradley S. Powell, Defendant’s former Chief Financial Officer (the

“Powell Decl.,” Adv. Dkt. 58); (iii) the declaration of Joseph Markus, Defendant’s Global

Account Manager (the “Albert Decl.,” Adv. Dkt. 59); (iv) the declaration of Bradley S. Powell,

Defendant’s Global Account Manager (the “Markus Decl.,” Adv. Dkt. 60); (v) the declaration of

Lisa M. Kresge, Counsel to Defendant (the “Kresge Decl.,” Adv. Dkt. 61); (vi) the declaration of

Tracey Hamman, Defendant’s Director of Global Credit (the “Hamman Decl.,” Adv. Dkt. 62) and

a reply declaration of Tracey Hamman (the “Reply Hamman Decl.,” Adv. Dkt. 73-3); (vii) a

reply declaration of David H. Pikus, Defendant’s Director of Global Credit (the “Pikus Decl.,”

Adv. Dkt. 73-4); (viii) a Reply Memorandum in Support of Defendant’s Motion for Summary

Judgement and Memorandum in Opposition to Plaintiff’s Cross-Motion for Summary Judgment

(Adv. Dkt. 74).

The Trustee opposes the motion and cross-moves for partial summary judgment striking

Defendant’s Time-Bar Defense (the “Plaintiff’s Motion”). The Trustee filed the following

supporting documents: (i) a statement of undisputed facts (the “Plaintiff’s Statement of

Undisputed Material Facts,” Adv. Dkt. 67), and a response to Defendant’s Statement of

Undisputed Material Facts “Plaintiff’s Response SOMF,” Adv. Dkt. 68); (ii) the declaration of

Alex Canale (the “Canale Decl.,” Adv. Dkt. 69); (iii) the declaration of Cameron A. Welch,

counsel to Plaintiff (the “Welch Decl.,” Adv. Dkt. 70); and (iv) a Reply Memorandum in Support

of Plaintiff’s Cross Motion for Summary Judgement as to Defendants’ “Time-Bar Defense”

(Adv. Dkt. 75).

As noted and for the reasons discussed below, Defendants’ summary judgment motion is

DENIED and the Trustee’s cross-motion for partial summary judgment is GRANTED.

BACKGROUND

A. Main Bankruptcy Case

SunEdison, Inc., a renewable energy holding company, along with twenty-five affiliates, filed

chapter 11 petitions on April 21, 2016.2 This Court, on April 25, 2016, entered an order to jointly

administer the Debtors’ chapter 11 cases solely for procedural purposes. See Order Granting

Debtors’ Motion for Order (I) Directing Joint Administration of the Chapter 11 Cases Pursuant

to Bankruptcy Rule 1015(b) and (II) Waiving Requirements of Bankruptcy Code Section

342(c)(1) and Bankruptcy Rule 2002(n), Case No. 16-10992, Dkt. No. 66).3 In July 2017, the

Court confirmed the Second Amended Joint Plan of Reorganization of SunEdison, inc. and Its

Debtor Affiliates (the “Plan”) (Dkt. No. 3735). The Plan provided for the creation of the

GUC/Litigation Trust and selected Drivetrain LLC to serve as the GUC/Litigation Trust Trustee.

(Dkt. No. 3735 at 22).

B. Adversary Proceeding

On April 7, 2019, the Trustee commenced this adversary proceeding against Expeditors, a

global logistics company that provided transportation, distribution, and related services to

Debtors. The Complaint seeks to recover alleged preferential transfers and fraudulent

2 Additional affiliates subsequently filed chapter 11 cases.

3 “Dkt. No. #” refers to documents filed on the electronic docket of the main case [16-10992].

conveyances made to Defendants on or after September 1, 2015, pursuant to sections 544, 548,

and 550 of the Bankruptcy Code, and sections 273, 274, 275, 278 and 279 of the New York

Debtor and Creditor Law. See Complaint against Expeditors International, Expeditors

International, Inc., Expeditors International of Washington, Inc., Expeditors International (UK)

Ltd. (I) to Avoid and Recover Transfers Pursuant to 11 U.S.C. Sections 544, 547, 548 and 550

and NYDCL Sections 273, 274, 275, 278 and 279 and (II) Disallow Claims Pursuant to 11

U.S.C. Section 502(d), Adv. Dkt. 1. The debtor entities that made the relevant transfers are: (a)

MEMC Pasadena, Inc.; (b) NVT, LLC.; (c) NVT Licenses, LLC.; (d) PVT Solar, Inc. d/b/a

EchoFirst Inc.; (e) Solaicx; (f) SunEdison, Inc. (formerly MEMC Electronic Materials); and (g)

SunEdison Products Singapore Pte Ltd (collectively “Payor-debtors” or “Debtors”).

Expeditors moved for summary judgment arguing that: (i) the Trustee’s claims are time-

barred under an agreement that they contend shortened the statutory limitations period; and (ii)

alternatively, and independent of the time-bar defense, the Trustee’s preference claim fails

because the Defendants were fully secured on the Petition Date and the Transfer Dates. See

Expeditors’ Mot., Adv. Dkt. 56.

The Trustee opposes Expeditors’ Motion, and in his cross-motion seeks partial summary

judgment striking Expeditors’ Time-Bar Defense. See Trustee’s Opp. and Cross Mot., Adv. Dkt.

66.

JURISDICTION

This Court has jurisdiction over this bankruptcy case and this adversary proceeding

pursuant to 28 U.S.C. §§ 157(b), 1334, and the Amended Standing Order of Reference M-431,

dated January 31, 2012 (Preska, C.J.). This is a “core proceeding” pursuant to 28 U.S.C. §

157(b)(2)(E) because it concerns a request for the turnover of property of the estate (core

proceedings include “orders to turn over property of the estate”). This Court possesses the

authority to enter a final judgment in a core proceeding “arising under title 11” consistent with

Article III of the United States Constitution. See Stern v. Marshall, 564 U.S. 462, 474–75 (2011);

see also In re Fairfield Sentry Ltd. Litig., 458 B.R. 665, 674 (S.D.N.Y. 2011) (proceedings arise

under title 11 “when the cause of action or substantive right claimed is created by the Bankruptcy

Code”). Venue is proper in this District under 28 U.S.C. §§ 1408 and 1409.

DISCUSSION

A. Summary Judgment Legal Standard

The Court “shall” grant summary judgment when “there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a)

(made applicable in bankruptcy proceedings by Fed. R. Bankr. P. 7056). “A fact is ‘material’ only

if the fact has some affect on the outcome of the suit.” In re Gallagher v. Gordon, No. 09-CV-

6425-CJS, 2010 WL 1816643, at *3 (W.D.N.Y. May 3, 2010) (citing Catanzaro v. Weiden, 140

F.3d 91, 93 (2d Cir. 1998). The burden is on the moving party to show that summary judgment is

warranted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). In analyzing a motion for

summary judgment, courts must view the evidence in the light most favorable to the non-moving

party and draw all reasonable inferences in favor of the non-moving party. Amnesty Am. v. Town

of West Hartford, 361 F.3d 113, 122 (2d Cir. 2004). Summary judgment is generally unwarranted

if a reasonable jury could return a verdict in favor of the non-moving party. See Anderson, 477

U.S. at 248.

B. Time-Bar Defense

Defendants contend that the Trustee’s claims are time-barred pursuant to a purported

agreement, between the Defendants and Debtors, to shorten the period during which the Trustee

can bring avoidance actions. In the main bankruptcy case, on April 26, 2016, the court entered

the Interim Order Authorizing Payment of Prepetition Claims of Certain Lien Claimants and

Confirming Administrative Expense Status for Certain Goods Delivered to Debtors Postpetition

(the “Interim Lien Claimants Order”). See Dkt. No. 82. Defendants argue that the order

authorized Debtors to negotiate terms by which Defendants would continue to provide services.

Their argument is based entirely on paragraph 4 of the Interim Lien Claimant’s Order, which

provides:

The Debtors may, in their sole discretion, condition payment of any Lien

Claimant on the written agreement of such Lien Claimant to continue

supplying goods and services to the Debtors on the Agreed Terms.

Interim Lien Claimants Order ¶ 4.

Defendants assert that in an April 29, 2016 email exchange between the parties’ counsel,

Debtors and Defendants consented to shorten the Debtors’ statutory limitations period as one of

the “Agreed Terms.” They specifically point to paragraph 5 of the email, which states:

The Debtors agree that any challenge by the debtors to the validity, extent,

perfection or priority of Expeditors’ pre-petition claims or liens or any claim

against Expeditors under Chapter 5 of the bankruptcy code must be made

within 120 days after the date of this letter agreement. If no such challenge is

made, the debtors stipulate that Expeditors’ pre-petition claims are allowed as

secured claims.

See Powell Decl., Ex. A; Adv. Dkt. 58.

The Trustee argues both that this agreement is unenforceable, and that it does not mean

what Defendants say. First, the Trustee challenges the validity of the agreement, arguing that it

does not constitute a transaction that is in the ordinary course of business and that, therefore, the

Debtors were required to provide notice to creditors and obtain Court authorization to enter the

agreement, neither of which occurred. Although Defendants point to paragraph 4 of the Interim

Lien Claimants’ Order, the Trustee argues that the order does not authorize the agreement

because: (i) shortening the challenge period is not a type of trade terms that the order allowed;

(ii) the order forbade the Debtors from waiving their rights and claims under the Code or any

other applicable law; and (iii) even though the order authorized entry into certain “trade terms,”

the April 29 email setting forth the parties’ agreement addressed the challenge period under a

subsection that concerned “adequate protection terms,” not under a separate subsection that

specifically addressed “post-petition trade terms.” Additionally, the Trustee argues that even if

the agreement was valid, it does not bar the Trustee’s claims because it was written to only apply

to the “Debtors” and not the Trustee, and because the agreement does not address avoidance

actions, instead referring only to claims that would challenge the validity, extent, perfection or

priority of Expeditors’ pre-petition claims or liens.

The Court agrees with the Trustee that the claims are not time-barred.

1. The Agreement on Which Defendants Rely Required – and Did Not Have – Court

Approval

Most fundamentally, and as does not appear to be disputed, an agreement surrendering

recovery rights under Chapter 5 of the Bankruptcy Code is a non-ordinary-course agreement that,

as such, required notice and Court approval. As is discussed below, the only potentially

applicable order anyone has identified does not authorize the agreement, and includes two

separate provisions that Defendants ignore and that specify that the order does not authorize the

surrender of statutory rights, which Chapter 5 recovery rights assuredly are. And, as the parties

do not dispute, unauthorized non-ordinary-course agreements are void. See, e.g., In re Enron

Corp., No. 01-16034 (AJG), 2003 WL 1562202, at *16 (Bankr. S.D.N.Y. Mar. 21, 2003)

(“Absent notice and an opportunity for a hearing, non-ordinary course of business transactions

are void.”) (collecting cases).

Chapter 5 of the Bankruptcy Code establishes critical rights of the estate to recover assets

of the estate for the benefit of creditors. The trustee’s avoidance powers are essential statutory

tools guarding against what Congress has long provided would be an unjust result of rewarding

creditors whom a debtor chooses to pay earlier and in full, to the detriment of similarly situated

but less fortunate creditors who go unpaid, and who have to settle for cents on the dollar. See In

re Perma Pac. Props., 983 F.2d 964, 968 (10th Cir. 1992) (“It is the ultimate aim of the

preference law in the Bankruptcy Code to insure that all creditors receive an equal distribution

from the available assets of the debtor.”) (internal citation omitted); In re F & S Cent. Mfg.

Corp., 53 B.R. 842, 846 (Bankr. E.D.N.Y. 1985) (“The provision was enacted to promote the

Code’s policy of preserving a financially distressed debtor’s estate so that the debtor’s assets may

be fairly distributed amongst all creditors, not merely those who are favored.”).

The case law concerning whether an agreement is or is not entered in the ordinary course

of business confirms that the surrender of such a critical right on behalf of a bankruptcy estate

lies outside the ordinary course of a debtor’s business.

The statutory backdrop is familiar. “Section 363(c)(1) of the Bankruptcy Code authorizes

a debtor-in-possession to enter into transactions involving property of the estate within the

ordinary course of business without notice or a hearing. However, where the transaction is

outside the ordinary course of the debtor's business, the debtor may not ‘use, sell, or lease’ estate

property until creditors and other interested parties are given notice of the proposed transaction

and the opportunity for a hearing if they object.” In re Lavigne, 114 F.3d 379, 384 (2d Cir. 1997)

(citing 11 U.S.C. § 363(b)(1)). “The framework of section 363 is designed to allow a trustee (or

debtor-in-possession) the flexibility to engage in ordinary transactions without unnecessary

creditor and bankruptcy court oversight, while protecting creditors by giving them an

opportunity to be heard when transactions are not ordinary.” In re Roth Am., Inc., 975 F.2d 949,

952 (3d Cir. 1992) (internal citation omitted).

Since the Code does not define “ordinary,” courts apply a two-part test – the vertical test

and the horizontal test – to determine whether a transaction is “within the ordinary course of

business.” See Enron Corp., 2003 WL 1562202, at *16. If the transaction fails either prong, it is

considered a non-ordinary course of business. In re Bridge Info. Sys., Inc., 293 B.R. 479, 486

(Bankr. E.D. Mo. 2003).

Under the vertical test, the court inquires “whether the transaction imposes economic

risks consistent with a hypothetical creditor’s expectations measured from the time that the

creditor chose to contract with this particular debtor.” Enron Corp., 2003 WL 1562202, at *17

(internal citation omitted). “The ‘vertical dimension’ focuses on the debtor's internal operations,

comparing the debtor's prepetition business with its postpetition conduct.” U.S. ex rel. Harrison

v. Est. of Deutscher, 115 B.R. 592, 598 (M.D. Tenn. 1990). The test “analyzes whether interested

parties would reasonably expect[] the particular debtor in possession to seek court approval

before entering into the questioned transaction.” Bridge Info. Sys., Inc., 293 B.R. at 486 (citing In

re Crystal Apparel, Inc., 220 B.R. 816, 832 (Bankr. S.DN.Y. 1998)).

Meanwhile, the horizontal test calls for “an industry-wide comparative analysis of the

debtor’s business to other similar businesses and requires considering whether such other

businesses would engage in the proposed transaction as ordinary business.” Enron Corp., 2003

WL 1562202, at *17. “[A] transaction occurs in the ordinary course when there is a showing that

the transaction is the sort occurring in the day-to-day operation of the debtor's business, or

businesses like it.” Est. of Deutscher, 115 B.R. at 598.

Here, assuming without deciding that the email agreement means what Defendants

contend, the agreement fails both tests. As for the vertical test, as articulated in Crystal Apparel,

a reasonable creditor would not expect a debtor to enter an agreement of such consequential

effect to the estate’s assets, which in turn affects the creditor’s potential recovery, without notice

and court approval of the agreement in question. Indeed, as the Trustee rightly notes, in the DIP

financing context where provisions shortening limitations periods are frequently included,

federal bankruptcy rules require the debtor to explicitly disclose such provisions in a motion. See

Fed. R. Bankr. P. 4001(c)(1)(B)(viii) (requiring disclosure of any provision that involves “a

release, waiver, or limitation on a claim or other cause of action belonging to the estate or the

trustee, including any modification of the statute of limitations or other deadline to commence an

action”). That express requirement is born of a recognition that also applies here: Given the

importance of a debtor’s rights to assert avoidance actions (discussed above) and the meaningful

impact of those actions or their waiver on creditors, the waiver of such rights is highly

consequential, and interested parties would reasonably expect any such agreement to be the

subject of notice and a request for Court approval before a debtor bound itself and its estate.

The emailed provision also fails the horizontal test. While Expeditors argue that

shortening limitations period for affirmative claims is customary in the logistics industry, they do

not account for constraints necessitated in the bankruptcy context, and by the Bankruptcy Code

itself. As the court in Crystal Apparel, Inc. explained, even where a commercial term or practice

is common outside the bankruptcy context, “that does not mandate the conclusion that [it] is in

the ordinary course of business for a Chapter 11[] debtor. If that were so, nothing would seem to

be out of the ordinary course of business in a chapter 11 case.” Crystal Apparel, Inc., 220 B.R. at

832. There, the court found that while it might, outside the bankruptcy context, be a common

practice for an employment agreement to provide for significant financial compensation if an

employee’s job is impacted by a change in control of the debtor, it “is inimical to the policies of

the Bankruptcy Code to so prefer top management without notice to creditors.” Id. at 832-33.

Similarly, even assuming without finding that the kind of agreement at issue here is common

practice in the logistics industry, it is not part of the ordinary day-to-day operations of a debtor,

and it certainly is not aligned with the Bankruptcy Code’s policy of ensuring the fair and similar

treatment of all creditors. For these reasons, both tests have not been satisfied, and, thus, the

agreement constitutes a transaction in the non-ordinary course of business that required court

approval.

This conclusion next raises the question whether the Interim Liens Claimants Order

provided the required Court authorization. As explained above and as Defendants emphasize,

paragraph 4 of the order permitted Debtors, “in their sole discretion, [to] condition payment of

any Lien Claimant on the written agreement of such Lien Claimant to continue supplying goods

and services to the Debtors on the Agreed Terms.” Interim Lien Claimants Order ¶ 4. Defendants

argue that this provision authorized Debtors to enter the purported agreement memorialized in

the April 29, 2016 email.

This argument, however, is undermined by a careful review of the interim order, which in

two separate places expressly disclaims authorizing Debtors to waive statutory rights. Clearly,

paragraph 4 of the order empowered the Debtors to make payments to the lien claimants in

exchange for continued service based on terms agreed to by both parties. But Defendants’

reading is too sweeping and ignores specific, contrary provisions of the same order. Specifically,

paragraphs 7 and 11 of the order both bar Debtors from waiving statutory rights in the way that

Defendants assert Debtors did here through the post-order email agreement.

Paragraph 7 of the interim order provides:

Neither the Debtors nor any other party in interest concedes that any Liens

(contractual, common law, statutory or otherwise) satisfied pursuant to this

Order are valid, and notwithstanding anything herein, or any action that the

Debtors may take in connection with the relief granted herein, including but

not limited to any payment by the Debtors in connection with any Lien Claim,

the Debtors do not waive any and all of their rights to challenge the extent,

validity, perfection or possible avoidance of the related Liens and payments.

Interim Lien Claimants Order ¶ 7 (emphasis added).

Put more plainly, paragraph 7 states that any action by Debtors under the order does

not “waive” rights including to raise various statutory challenge to payments made by the

Debtors. These include but are not limited to Chapter 5 preference and avoidance actions

such as the adversary proceeding now before this Court.

Relatedly, paragraph 11 of the order provides:

Notwithstanding the relief granted in this Order and any actions taken pursuant to

such relief, nothing in this Order shall be deemed: (a) an admission as to the

validity of any claim against a Debtor; (b) a waiver of the Debtors’ or any

appropriate party in interest’s rights to dispute any claim on any grounds; (c) a

promise or requirement to pay any claim; (d) an implication or admission that any

particular claim is of a type specified or defined in this Order or the Motion; (e) a

request or authorization to assume any agreement, contract, or lease pursuant to

Bankruptcy Code section 365; or (f) a waiver of the Debtors’ rights under the

Bankruptcy Code or any other applicable law.

Interim Lien Claimants Order ¶ 11.

Distilling this provision to what is most pertinent here, paragraph 11 says that no relief

granted in the order (necessarily including paragraph 4 on which Defendants rely) and “any

action pursuant to” the order “shall be deemed . . . a waiver of Debtors’ rights under the

Bankruptcy Code. . . .”

Both paragraph 7 and paragraph 11 thus explicitly establish that the order does not waive

any statutory rights that Debtors otherwise would have, and that no action or agreement made

under the purported authority of the order could do so. This is fatal to Defendants’ contention

that the agreement on which their argument hangs was authorized by the order.

2. Defendants Likely Misconstrue the Agreement, Even If It Were Permissible

Although the lack of Court authorization for the provision on which Defendants rely is

dispositive, their position also likely fails based on the composition and language of the April 29

email itself.

The email’s introductory sentences explained the purpose of the enumerated points in the

email, stating: “Expeditors and the Chapter 11 debtors have agreed to the following adequate

protection terms for Expeditors and post-petition trade terms”. See Powell Decl., Ex. A; Adv. Dkt.

58. That language is followed by seven enumerated paragraphs, of which only paragraph 3,

which reads as a logically self-contained, freestanding provision, is expressly made incident to

Debtors’ authority under the Interim Lien Claimants Order to determine “Agreed Terms.”

Paragraph 5 – the email’s separate paragraph that concerns the statutory limitations period – does

not make any reference to the Interim Lien Claimants Order. Consequently, the reasonable

reading is that paragraph 5 is not an agreement that the parties crafted on the authority of the

Interim Lien Claimants Order. This understanding makes sense given the explicit provisions of

paragraphs 7 and 11 of the order, which, as discussed above, explicitly provide that Debtors were

not authorized to surrender statutory rights such as those arising under Chapter 5.

3. Defendants’ Reliance on State Law in Non-Bankruptcy Contexts Is Misplaced

Defendants advance an alternate theory that the agreement (as they construe it) was

authorized as a matter of New York state law. This contention lacks merit.

It is true that New York state law allows contracting parties to shorten the time to

commence a civil action. NY CPLR § 201; Krohn v. Felix Indus., Inc., 226 A.D.2d 506, 506,

(1996) (“It is well settled that parties to a contract may agree to limit the period in which an

action must be commenced to a shorter time than that otherwise provided by the applicable

Statute of Limitations.”). However, this general feature of New York law does not save

Defendants’ reading. First, paragraphs 7 and 11 of the order control by explicitly barring Debtor

from surrendering statutory rights such as those arising under Chapter 5. Moreover, generally

applicable state law of contract cannot, in a bankruptcy-specific case, override provisions of the

Bankruptcy Code. Indeed, although Defendants cited three cases for the proposition that

bankruptcy courts “enforce contractually shortened limitations periods that are valid under state

law”, Expeditors Mot. at 9, those cases are inapposite. The court in In re Jewish Hosp. & Med.

Ctr. of Brooklyn, 90 B.R. 45, 46 (Bankr. E.D.N.Y. 1988) found that a post-petition agreement that

was entered into with the court and other parties’ approval was reasonable under state law.

Meanwhile, In re All Am. Semiconductor, Inc., 623 B.R. 643, 649 (Bankr. S.D. Fla. 2020) and In

re Glob. Indus. Techs., Inc., 333 B.R. 251, 259 (Bankr. W.D. Pa. 2005) did not involve post-

petition agreements. Notably, Defendants could not, either in their briefs or at the hearing, cite

any case where a bankruptcy court enforced a previously undisclosed post-petition agreement of

a debtor to shorten the statutory limitations period. Adopting Defendants’ position is unsupported

by law, and would run roughshod over fundamental provisions of the Bankruptcy Code,

including the requirement of Section 363 that non-ordinary-course agreements require notice and

Court approval. See Enron Corp., 2003 WL 1562202, at *16 (“Absent notice and an opportunity

for a hearing, non-ordinary course of business transactions are void.”) (collecting cases). Thus,

even New York law makes clear that it would not support Defendants here, because New York

law recognizes that “[o]ne cannot logically find a contract void and still uphold a provision of the

very same contract.” Chassman v. People Res., 151 Misc. 2d 525, 529, 573 N.Y.S.2d 589, 591

(Civ. Ct. 1991). Debtors’ agreement with Expeditors thus either does not mean what Expeditors

assert, or if the isolated provision did mean what Expeditors says, that agreement would be void

and thus not support the defense they assert.

4. Defendants’ Equitable Estoppel Argument Fails

Defendants also argue that the Trustee is equitably estopped from challenging the

purported agreement shortening the statutory limitations period because Expeditors relied on the

Debtors’ representation, which in turn led to Expeditors’ continued services to Debtors and the

release of certain liens. The Trustee responds that there was no factual misrepresentation, and

Expeditors could not have reasonably relied on an invalid agreement. The Trustee further argues

that there was no detrimental reliance, as “[d]efendants were paid, in full, on their prepetition

claims and for all of their post-petition services ….” Trustee’s Reply at 8.

Equitable estoppel is a doctrine that “‘is properly invoked where the enforcement of the

rights of one party would work an injustice upon the other party due to the latter’s justifiable

reliance upon the former’s words or conduct.’” Veltri v. Bldg. Serv. 32B-J Pension Fund, 393

F.3d 318, 326 (2d Cir. 2004) (quoting Kosakow v. New Rochelle Radiology Assocs., P.C., 274

F.3d 706, 725 (2d Cir. 2001)). It “is grounded in notions of fair dealing and good conscience and

should be applied where the enforcement of the rights of one party would work an injustice upon

the other party due to the latter’s justifiable reliance upon the former’s words or conduct.” In re

Jiminez, No. 98-4471 (JMP), 2008 WL 2026147, at *7 (Bankr. S.D.N.Y. May 9, 2008) (internal

quotation and citations omitted); see also In re Texaco Inc., 254 B.R. 536, 560 (Bankr. S.D.N.Y.

2000). A party can be equitably estopped from asserting a position or entitlement if three

elements are present: (a) the party to be estopped made a misrepresentation of fact to the other

party with reason to believe the representation would be relied on; (b) the other party reasonably

relied on the representation to its detriment; and (c) the party to be estopped had actual or

constructive notice of the true facts. See Jiminez 2008 WL 2026147, at *7; Readco, Inc. v.

Marine Midland Bank, 81 F.3d 295, 301 (2d Cir. 1996). The party claiming estoppel must also

establish that: (a) it lacked knowledge and the means of learning the truth of the facts in

question; (b) that it relied on the conduct (or statement) of the party to be estopped; and (c) that it

acted in a manner that showed a prejudicial change of its position. Onanuga v. Pfizer, Inc., 369 F.

Supp. 2d 491, 500 (S.D.N.Y. 2005).

These elements are not all present here. Expeditors could not have “justifiably” or

“reasonably” relied on the notion that prepetition payments made during the preference period

were immune from Chapter 5 preference actions because they had full knowledge or at least

access to the interim order on which they now rely, and, as the preceding discussion shows, that

order does not authorize Debtors to surrender statutory rights in the guise of “Agreed Terms” for

the continued provision of services.

Expeditors’ summary judgment motion as to the time-bar defense therefore is DENIED.

The Trustee’s cross-motion for summary judgment striking the defense is GRANTED.

C. Lien Defense

Alternatively, Defendants seek summary judgment on the Trustee’s preference claims on

the theory that Expeditors was a fully secured creditor on account of carrier’s liens (including

maritime liens and replacement liens) and warehouse liens that Expeditors held “at all relevant

times.” See Expeditors Mot. at 9. The Trustee did not cross-move on this portion of the motion,

arguing merely that this issue presents a question for trial.

If Expeditors was fully secured, then the Trustee could not meet his burden (see 11

U.S.C. § 547(g)) to show that the transferee received more than it would have in a chapter 7

liquidation, and subsection (5) of § 547(b) of the Code thus could not be satisfied.4

The parties’ dispute is centered around subsection (b)(5), meaning whether the Trustee

can demonstrate that the transfers enabled Expeditors to receive more than they would have

received in a Chapter 7 liquidation. “To satisfy [Section] 547(b)(5), the plaintiff must prove that

the transferee received more as a result of the preference than if the preference was never paid,

and instead, the transferee received a distribution on its claim in a hypothetical chapter 7 case.”

In re Teligent, Inc., 380 B.R. 324, 339 (Bankr. S.D.N.Y. 2008). “As a practical matter, this

element is satisfied whenever the plaintiff shows that the creditor would receive less than 100%

in a hypothetical chapter 7 distribution.” Id. (internal citations omitted). It is well-settled that

“‘[u]nder §547(b)(5), a transfer to a fully secured creditor is immunized from preference attack

because the creditor would have been paid in full in a hypothetical Chapter 7 liquidation by

4 Section 547(b) of the Bankruptcy Code empowers a trustee to “avoid any transfer of an interest of the debtor in

property” if the transfer was:

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made– A) on or within 90 days before the date of the filing of the petition; or (B) between ninety days and

one year before the date of the filing of the petition, if such creditor at the time of such transfer was an

insider; and

(5) that enables such creditor to receive more than such creditor would receive if –if such creditor at the time of

such transfer was an insider; and (A) the case were a case under chapter 7 of this title; (B) the transfer had

not been made; and (C) such creditor received payment of such debt to the extent provided by the

provisions of this title.

11 U.S.C. § 547(b).

virtue of its realization on its collateral.’” Gallagher 2010 WL 1816643, at *5 (quoting In re

360nettworks (USA) Inc., 327 B.R. 187, 190 (Bankr. S.D.N.Y. 2005)).

Defendants argue that they were a fully secured creditor at “all relevant times.” The

relevant time for section 547(b)(5) liquidation test analysis is the petition date. The Supreme

Court established the appropriate liquidation test in Palmer Clay Prods. Co. v. Brown, 297 U.S.

227, 229 (1936). “In interpreting the preference provision of the former Bankruptcy Act, the

Supreme Court observed that the preferential effect of the payment must be determined ‘not by

what the situation would have been if the debtor's assets had been liquidated and distributed

among his creditors at the time the alleged preferential payment was made, but by the actual

effect of the payment as determined when bankruptcy results’ ….Thus, the Code § 547(b)(5)

analysis is to be made as of the time the Debtor filed its bankruptcy petition.” In re CIS Corp.,

195 B.R. 251, 262 (Bankr. S.D.N.Y. 1996) (quoting Palmer Clay Prods. Co. v. Brown, 297 U.S.

227, 229 (Bankr. S.D.N.Y. 1936)).

As noted earlier, defendants’ lien defense is premised on the contention that Expeditors

held “carrier’s liens, replacement liens, and specific and general warehouse liens on all goods in

their possession”. Expeditors’ Mot. at 16. Uniform Commercial Code § 7-307 provides that a

“carrier has a lien on the goods covered by a bill of lading or on the proceeds thereof in its

possession for charges after the date of the carrier's receipt of the goods for storage or

transportation, …and for expenses necessary for preservation of the goods incident to their

transportation or reasonably incurred in their sale pursuant to law.” U.C.C. § 7-307(a).

Furthermore, “[i]t is settled law in the United States that a maritime lien can arise only by

operation of law, regardless of any agreement between the parties.” In re World Imports, Ltd.

Inc., 498 B.R. 58, 61 (Bankr. E.D. Pa. 2013) (citing Newell v. Norton, 70 U.S. 257, 262 (1865)

(“Maritime liens are not established by the agreement of the parties.... They are consequences

attached by law to certain contracts, and are independent of any agreement between the parties

that such liens shall exist. They, too, are stricti juris.”)).

As for a warehouse lien, Uniform Commercial Code §7-209 grants a warehouse an

automatic possessory lien on specific goods stored by the warehouse. See U.C.C. § 7-209. The

parties may, through an agreement, convert the specific lien to a general lien to cover other

goods. Id.

As proof of the asserted liens, Defendants point to a number of agreements that governed

“the transportation, customs brokerage, and warehouse and distribution services that Expeditors

provided to the Payor-Debtors,” namely: the Logistics Services Agreement as amended (“LSA”),

Expeditors’ General Terms and Conditions of Service, Credit Applications, and Customs Power

of Attorney, Expeditors’ Ocean Bill of Lading Terms and Conditions, Expeditors’ Air Waybill

Terms and Conditions, Expeditors Terms and Conditions for Shipments Transported by Truck,

Expeditors’ Distribution Terms and Conditions for Warehouse and Distribution Services. See

Expeditors’ Mot. at 19-20 (citing Def.’s Stmt. of Facts ¶¶ 4 & 18).

The Trustee challenges Defendants’ lien defense, arguing that (a) Expeditors improperly

relies on collateral owned or possessed by non-debtor third parties to substantiate the asserted

liens; (b) Defendants failed to establish ownership, quantity and value of the alleged “warehouse

collateral” and “in transit collateral” that purportedly backs the warehouse liens; and (c) there is

no evidentiary support to substantiate the asserted replacement liens against NVT Licenses and

SunEdison Products Singapore Pte Ltd., two of the Debtors.

1. Analysis

Summary judgment based on Defendants’ lien defense would be improper because the

Trustee has demonstrated the presence of a genuine dispute of material facts as to the ownership

of the asserted collateral. The Hamman Declaration proffered by Defendants posits two

categories of collateral: “Warehouse Collateral” which is “the goods for which Expeditors

provided warehouse and distribution services (or, in the case of NVT Licenses, LLC, warehouse

services)” and “In-Transit Collateral” which is “the goods for which Expeditors provided

transportation services where the applicable Payor-Debtor was either shipper, consignee, or

seller.” Hamman Decl. at 3. The Trustee, however, argues that much of this asserted collateral is

not owned by the estate, or, at least, that Defendants have not proved ownership.

Ownership of the collateral is undeniably a material fact. “A fact is ‘material’ only if the

fact has some effect on the outcome of the suit.” Gallagher 2010 WL 1816643, at *3 (citing

Catanzaro v. Weiden, 140 F.3d 91, 93 (2d Cir. 1998)). Expeditors’ asserted status as a fully

secured creditor cannot be substantiated without the collateral; by definition, a debtor’s

obligation to a creditor or a lienholder is secured only up to the value of the collateral to which

the lien attaches. See 11 U.S.C. § 506(a) (1) (“An allowed claim of a creditor secured by a lien

on property in which the estate has an interest … is a secured claim to the extent of the value of

such creditor’s interest in the estate’s interest in such property … and is an unsecured claim to

the extent that the value of such creditor’s interest … is less than the amount of such allowed

claim.”).

Although Expeditors insists that ownership of the goods/collateral is immaterial, this line

of argument was rightly rejected by this Court in In re Pameco Corp., 356 B.R. 327, 336–37

(Bankr. S.D.N.Y. 2006), and by the Fourth Circuit in In re Virginia–Carolina Fin. Corp., 954

F.2d 193, 198 (4th Cir. 1992). As the latter court put it, “we cannot accept the contention that a

creditor’s security interest in an asset of an entity not in bankruptcy, which ‘fully collateralizes’ a

loan to the bankrupt, enables the creditor to elect to draw from the bankruptcy estate 100% of the

debt owed, at the expense of the debtor’s other creditors.” Virginia-Carolina Fin. Corp., 954 F.2d

at 198. The appeals court further explained that “[w]hile the bankruptcy code recognizes and

respects the preeminent status given to the secured creditor by state commercial codes, a creditor

is ‘secured’ under the code only to the extent of the value of his interest in property of the

estate.” Id. (citing 11 U.S.C. § 506(a)); see also Pameco Corp., 356 B.R. at 336–37.

Expeditors’ reliance on In re Sharon Steel Corp., 176 B.R. 384 (Bankr. W.D. Pa. 1995) to

show otherwise is misguided. There, the court denied summary judgment because it could not

determine the existence, validity, and extent of alleged carrier’s and warehouse liens, but the

court also held that if the liens were valid, they would have priority over a secured creditor. That

case, however, concerned the priority of interests in a debtor’s property. There was no dispute or

discussion about the ownership of the property, and certainly not a grant of summary judgment

determining a creditor to be fully secured based on property that the non-movant contended was

not property of the estate.

Here, as explained in the Hamman Declaration, Expeditors “assigned” collateral to the

debtors based on their status either as the consignee, shipper or seller for a particular transaction.

The Trustee objects that this method of allocation was unreliable because it utilized inconsistent

criteria, but even more fundamentally for bankruptcy-law purposes, Defendants’ methodology

skips over the necessary task of identifying the actual owner of the goods that Defendants deem

to be collateral. The Trustee alleges that if the collateral is reassigned, it will result in a “material

decrease” in Expeditors’ asserted collateral. Canale Decl. at 4. Expeditors’ method, the Trustee

further argues, also facilitated the allocation of the same collateral to multiple debtors, as

described below:

“[B]ased on our review thus far, the inconsistent criteria used in the Hamman

Declaration Exhibits A and B appears to have caused the same in-transit inventory

to be assigned to two different Payor-Debtors on at least two occasions: a. HBL

612630408 - Hamman Exhibit A applies different ownership criteria by entity:

“Consignee” for NVT and “Shipper” for SPS. As a result, it appears that the same

HBL was used to support in-transit inventory allocations for both NVT (as

Consignee) and SPS (as Shipper), i.e., the same inventory appears to have been

allocated twice. (See Reference Numbers 13 and 23 in Exhibit A). b. HBL

411293227 - Hamman Exhibits A and B apply different ownership criteria by entity:

“Shipper” for SUNE and “Seller” for SPS. As a result, the same HBL was used to

support in-transit inventory allocations for both SUNE (as Shipper) and SPS (as

Seller), i.e., the same inventory appears to have been allocated twice. Despite

Hamman indicating SPS was the “Seller,” the relevant shipping records for this

HBL identify SPS as “Consignee” and Flextronics as “Exporter.” (See Reference

Numbers 24 and 26 in Exhibit A).”

Canale Decl. at 6.

In another instance, the Trustee alleged that Expeditors’ analysis failed to account for the

transfer of warehouse inventory from one debtor entity, SPS, to another debtor entity, PVT Solar,

despite an email correspondence from a SunEdison employee documenting the transfer, Canale

Decl. at 11, to which Expeditors responded that the Trustee did “not identify any inaccuracies or

omissions in the data from Expeditors’ El Paso warehouse management system.” Reply Hamman

Decl. at 3. All of these taken together indicate the presence of material factual disputes as to the

ownership of the collateral Expeditors relies on. While the Court agrees with Expeditors that the

liens are against the goods, the ownership of the goods is a material fact that has not been

established so as to permit summary judgment. See Virginia–Carolina Fin. Corp., 954 F. 2d at

196-198. These issues alone give rise to a genuine dispute of material fact that precludes

summary judgment.

There are other issues that also appear to require a trial. For example, as to the quantity

and thus the value of the asserted collateral, the parties disagree about what key elements should

be factored in the analysis. Defendants contend that the Trustee, for his Warehouse Collateral

analysis, included irrelevant metrics “that have no bearing on the quantities of each item in

storage for any Payor-Debtor” Hamman Reply Dec. at 22, and for the In-Transit Collateral

analysis, the Trustee failed to “include all of the relevant information.” Hamman Reply Dec. at

24. A dispute that centers around the underlying parameters to be used in a calculation is the kind

of valuation or computational dispute that is appropriate for trial. See Brown v. Progressive

Mountain Ins. Co., 716 F. Supp. 3d 1349, 1355-56 (N.D. Ga. 2024) (denying summary judgment

where “the parties disagree over the propriety of excluding certain numbers and what the

numbers mean for purposes of the [calculation].”).

In sum, whether the collateral attached to Expeditors’ liens is owned by the Debtors is a

relevant factor in determining whether the challenged transfers are avoidable under section

547(b) of the Code. Furthermore, there is a genuine dispute as to material facts such as the

ownership and value of the collateral. Defendants’ summary judgment motion on the question of

the existence and value of liens securing their entitlements is therefore denied.

CONCLUSION

For the foregoing reasons, the Court DENIES Defendants’ summary judgment motion in

its entirety, and GRANTS the Trustee’s cross-motion for partial summary judgment on the issue

of whether the applicable statute of limitation was validly shortened by agreement of the parties.

The Trustee is to submit a proposed order effectuating this ruling on notice. The parties are to

contact chambers to schedule a case management conference.

Dated: New York, New York

July 31, 2026

s/ David S. Jones

Honorable David S. Jones

United States Bankruptcy Judge