The appellant, Cellmark Paper, Inc. ("Cellmark"), appeals from a judgment entered by the United States Bankruptcy Court for the Southern District of New York (Gerber, J.), following a bench trial. The Bankruptcy Court found that the appellee, Ames Merchandising Corporation ("Ames"), was entitled to recover as preferential transfers, pursuant to sections 547 and 550 of the Bankruptcy Code, four transfers totaling $1.9 million*fn1 made to Cellmark in the ninety-day preference period preceding Ames' August 20, 2001 bankruptcy filing. Cellmark was Ames' principal supplier of paper used for promotional material. The parties' familiarity with the underlying facts, procedural history, and specification of issues for review is assumed.
When reviewing a decision of the Bankruptcy Court, this Court reviews the Bankruptcy Court's conclusions of law de novo but accepts its findings of fact unless they are clearly erroneous. See Fed. R. Bankr. P. 8013; In re Halstead Energy Corp., 367 F.3d 110, 114 (2d Cir. 2004). Mixed questions of law and fact are reviewed de novo, giving deference to the Bankruptcy Court's factual findings unless they are clearly erroneous. In re Vebeliunas, 332 F.3d 85, 90 (2d Cir. 2003); In re Teligent, Inc., 326 B.R. 219, 224 (S.D.N.Y. 2005).
Cellmark first challenges the Bankruptcy Court's conclusion that the payments in question were preferential transfers under section 547(b) of the Bankruptcy Code. In particular, Cellmark disputes the Bankruptcy Court's finding that Cellmark failed to rebut the statutory presumption of debtor insolvency.*fn2
"Insolvency is a question of fact, and the findings of the Bankruptcy Court in this regard will not be disturbed unless they are clearly erroneous." In re Roblin Indus., Inc., 78 F.3d 30, 35 (2d Cir. 1996) (citations omitted). Under section 547(f) of the Bankruptcy Code, a debtor is presumed to have been insolvent during the ninety days preceding the filing of the petition. 11 U.S.C. § 547(f); Roblin, 78 F.3d at 34. This presumption may be rebutted, but the party challenging the avoidability of the transfer bears the burden of proof to "introduce[e] some evidence that the debtor was not in fact insolvent at the time of the transfer." Roblin, 78 F.3d at 34; see also In re Vasu Fabrics, Inc., 39 B.R. 513, 516 (Bankr. S.D.N.Y. 1984). Section 101(32) of the Bankruptcy Code defines the term "insolvent," in the context of a corporate business debtor, to mean "financial condition such that the sum of such entity's debts is greater than all of such entity's property, at a fair valuation . . . ." 11 U.S.C. § 101(32)(A). Thus, insolvency is measured with reference to the "fair market price of the debtor's assets that could be obtained if sold in a prudent manner within a reasonable period of time to pay the debtor's debts." Roblin, 78 F.3d at 35. The Bankruptcy Court concluded that Cellmark had failed to rebut the presumption of insolvency because Cellmark relied only upon Ames' books and records as of the time of the bankruptcy filing, and the schedules of assets and liabilities filed by Ames at the outset of the bankruptcy proceeding, all of which, the court found, listed the book value rather than the fair market value of Ames' assets and liabilities. In re Ames Dep't Stores, Inc., 450 B.R. 24, 31-32 (Bankr. S.D.N.Y. 2011).
Cellmark does not appear to contest this finding but instead argues that the Bankruptcy Court erred as a matter of law in concluding that such evidence was insufficient to rebut the presumption of insolvency. However, "book values are not ordinarily an accurate reflection of the market value of an asset[,]" Roblin, 78 F.3d at 36 (collecting cases), and schedules or other financial documents based on the book value of the debtor's assets have generally been deemed insufficient to rebut the presumption of insolvency, see, e.g., In re The Heritage Org., L.L.C., 413 B.R. 438, 501-02 (Bankr. N.D. Tex. 2009); In re Intercontinental Polymers, Inc., 359 B.R. 868, 873 (Bankr. E.D. Tenn. 2005) (collecting cases); In re Luster-Coate Metallizing Corp., No. 01-22764, 2004 WL 432038, at *6 (Bankr. W.D.N.Y. Feb. 3, 2004).*fn3 Thus, the Bankruptcy Court did not err in concluding that, because Cellmark offered no evidence of the fair market value of Ames' assets, it failed to rebut the presumption of insolvency.*fn4
Cellmark next contends that the Bankruptcy Court erred in concluding that Cellmark failed to establish the ordinary course of business defense to the preference statute. In order to establish this defense, Cellmark bore the burden of proving three elements by a preponderance of the evidence: (1) that the debt was incurred by the debtor in the ordinary course of business; (2) that the transfers were made in the ordinary course of business or financial affairs of the debtor and the transferee; and (3) that the transfers were made according to ordinary business terms. 11 U.S.C. § 547(c)(2); 11 U.S.C. § 547(g).*fn5 The Bankruptcy Court found, as a mixed question of law and fact, that the second element was not met - namely, that the transfers were not made in the ordinary course of business.*fn6
Ames, 450 B.R. at 35. Mixed questions of law and fact are reviewed de novo, with embedded findings of fact reviewed for clear error. Vebeliunas, 332 F.3d at 90; Teligent, 326 B.R. at 224.
The Bankruptcy Court's conclusion that the transfers in question were not made in the ordinary course of business was correct and supported by the evidence as a whole. The Bankruptcy Court applied several factors relied upon by courts in this Circuit in assessing whether a given transfer was made in the ordinary course of business, such as the prior course of dealings of the parties, the amount of the payment, the manner of the payment, and whether the payment was the result of any pressure by the creditor or favoritism by the debtor. See Ames, 450 B.R. at 32 & n.45 (citing In re 360networks (USA) Inc., 338 B.R. 194, 210 (Bankr. S.D.N.Y. 2005) (collecting cases)). The Bankruptcy Court found that the transfers at issue were unique in terms of the manner and timing of payment, and that they deviated from the baseline of past payments between the parties. In particular, the Bankruptcy Court noted that Invoice 70 - an invoice for close to $1.4 million that was paid in two payments - differed from past payments in that it was not issued in numerical sequence, was paid in partial payments, and was sent out and paid earlier than corresponding invoices from previous years. Ames, 450 B.R. at 29, 33-34. The Bankruptcy Court found particularly persuasive the fact that Invoice 70 had been manually generated, which was unprecedented in the parties' three-year relationship and which required both Cellmark and Ames to override their computerized systems in order to generate and to pay the invoice. Id. at 29-30, 33. The Bankruptcy Court found that the explanations of Cellmark's witnesses for the unique nature of Invoice 70 were not credible and concluded that the invoice had been manually generated for the purpose of obtaining payment from Ames earlier than usual and before the Petition Date. Id. at 33-34.
The Bankruptcy Court also found evidence of favoritism by the debtor, noting that Ames had stopped using an automated accounts payable system during the preference period and instead had begun making individualized decisions about payment based on the identity of the vendor and the needs of Ames' business. Id. at 27, 34. These decisions, the Bankruptcy Court found, were influenced by the actions of Eugene Bankers, Ames' Senior Vice President of Marketing and Advertising, who repeatedly inquired about the status of payments to Cellmark and made comments about the importance of Cellmark being paid. Id. at 27-28, 34-35. Therefore, the Bankruptcy Court correctly concluded that, on balance, the relevant factors weighed against a finding that the transfers in question had been made in the ordinary course of business.
Cellmark, however, takes issue with several of the Bankruptcy Court's factual findings. In particular, Cellmark contends that the Bankruptcy Court erred in finding that the explanations of Cellmark's witnesses for the manual preparation of Invoice 70 were not credible and in finding that Invoice 70 had been manually generated for the purpose of obtaining ...