Memorandum of Decision Re: Contemporaneous Exchange

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Decisions
UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA
In re MOONSTONE MOUNTAINEERING, INC.,                                       No. 97-13484        Debtor(s). ______________________________________/ LINDA S. SCHUETTE, Trustee,        Plaintiff(s),    v.                                                                                                           A.P. No. 98-1073 DONNA RAPP, dba DONITA DEISGNS,        Defendant(s). _______________________________________/
Memorandum of Decision
     Defendant Donita Rapp is a designer of apparel. Before its Chapter 7 bankruptcy, debtor Moonstone Mountaineering, Inc., was a maker of outdoor apparel. In March, 1997, Rapp and Moonstone entered int an agreement whereby Rapp would design items of outdoor apparel for Moonstone. A written contract was prepared but not signed. While the unsigned contract called for payment to Rapp based on designs, she invoiced and was paid on an hourly basis.      Rapp received timely payment of her invoices until May, 1997, when the payments started arriving late. The May 1 billing was paid May 28; the May 15 billing was paid June 22; and the June 2 billing was paid July.      Concerned about the late payments, Rapp wrote to Moonstone on July 15, 1997, stating that she intended to withhold her work product from Moonstone unless Moonstone brought the account current. On July 21, Moonstone paid Rapp $5,220.00 on account of her June 15 billing and $6,132.00 on account of her July 1 invoice. This brought Moonstone current and Rapp sent her work product.      Rapp billed Moonstone $6268.00 on July 15, $3939.00 on August 5, and $2,901.00 on August 27. None of these bills were paid. Moonstone filed its Chapter 7 petition on September 18, 1998. By this adversary proceeding, the Chapter 7 trustee seeks recovery of $4,514.00 as a preference. The trustee reaches this amount by deducting the two unpaid August billings from the July 21 payment. Now before the court are countermotions for summary judgment.      Rapp's motion is rather easily dealt with, as she relied solely on section 547(c)(1) of the Bankruptcy Code, arguing that her release of the designs was a contemporaneous exchange for new value. However, Rapp has produced no evidence that both parties intended the payment to be contemporaneous. No having met this burden, her motion cannot be granted. In re Gateway Pacific Corp., 214 B.R. 870, 876 (8th Cir.BAP 1997).      The trustee's motion is more problematical. She correctly identifies the issue of new value pursuant to section 547(c)(4) of the Code, but for some reason is giving Rapp credit for at least $1,825.00 in design time contained in the August 5 invoice which was for work performed before the July 21 payment.      If Rapp has no viable defense, it seems that she must return at least $6,339.00. While she has not proved her defense, the court is not prepared to rule at this time that such a defense is impossible. The court is not comfortable resolving a case based on legal theories not fully explored by the parties. The court will accordingly deny both motions without prejudice to renewal after both sides have reviewed their legal position and the facts more thoroughly.
Dated: July 31, 1998                                                                              _____________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy