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In re Unicom Computer Corp.

filed: April 13, 1994.

IN RE UNICOM COMPUTER CORPORATION, A CALIFORNIA CORPORATION, A/K/A UNICOM COMMUNICATIONS CORPORATION, NHC CORP., AND UNICOM CAPITAL CORPORATION. DEBTOR; UNICOM COMPUTER CORPORATION, AS DEBTOR-IN-POSSESSION, PLAINTIFF-APPELLEE,
v.
INTERNATIONAL BUSINESS MACHINES CORPORATION, A NEW YORK CORPORATION, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Northern District of California. D.C. No. CV-91-04377-WHO. William H. Orrick, District Judge, Presiding

Before: Choy, Reinhardt, and Leavy, Circuit Judges.

MEMORANDUM

I. INTRODUCTION

This bankruptcy case involves a dispute over 40 payments totaling $730,791.56 made by the debtor, Unicom Computer Corporation ("Unicom"), to the creditor, International Business Machines Corporation ("IBM"), during the 90-day period immediately preceding the filing of Unicom's petition for bankruptcy under Chapter 11 of the Bankruptcy Code.

IBM appeals the judgment of the district court, which held that 32 of the 40 payments were not made according to "ordinary business terms" under 11 U.S.C. § 547(c)(2)(C) and were therefore avoidable. IBM also appeals the district court's calculation of the prejudgment interest award. We affirm on the "ordinary business terms" issue, we reverse on the prejudgment interest issue, and we remand to the district court for a recalculation of interest.

II. BACKGROUND

Debtor Unicom Computer Corporation ("Unicom") was in the business of leasing, servicing, and supplying computers. About 90 percent of the products it handled was provided and installed by creditor International Business Machines Corporation ("IBM").

During the 90-day period immediately preceding the filing of Unicom's petition for bankruptcy, Unicom made 40 payments totaling $730,791.56 to IBM. The payments were made pursuant to 40 invoices that IBM had sent to Unicom primarily for the installation of equipment on the premises of Unicom's clients, but also for other services.

The 40 payments were made as follows: (i) none were made in accordance with the literal terms of IBM's national purchase contracts, which required payment upon installation ; (ii) five were made in accordance with IBM's national grace period policy, which allowed payment 30 days after installation ;*fn1 (iii) three were made within 30 days after notice of installation was given to Unicom;*fn2 (iv) 32 were made more than 30 days after installation or notice of installation.*fn3

III. PRIOR PROCEEDINGS

On September 12, 1988, Unicom filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code. On September 11, 1990, Unicom filed an adversary proceeding against IBM in Bankruptcy Court to recover the 40 payments totaling $730,791.56 that it had made to IBM during the 90-day period immediately preceding its bankruptcy petition.

The bankruptcy court concluded that all 40 transfers satisfied the requirements of § 547(c)(2) and therefore were not avoidable as preferential transfers. It reasoned that "the payments were as ordinary as this court has seen, and followed a pattern of dealing established well before the preference period." Id. Unicom appealed, claiming that the ordinary "pattern of dealing" between the parties was insufficient to satisfy the "ordinary business terms" requirement of 11 U.S.C. § 547(c)(2)(C).

The district court reversed the bankruptcy court's decision with respect to 32 of the 40 transfers. It found that the "ordinary business terms" requirement of 11 U.S.C. § 547(c)(2)(C) required the transfers to conform with an objective industry-wide practice standard. Finding that industry practice was payment within 30 days of installation or notice of installation, the district court held that only eight of the 40 transfers were made under "ordinary business terms" and thus were not avoidable.

The district court entered a judgment in favor of Unicom in the amount of $668,498.44. The court also awarded Unicom costs of $5,283.85 and prejudgment interest of $132,906.69. The court based its prejudgment interest rate on the date that the prejudgment interest first started to accrue. The district court denied IBM's ...


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