The opinion of the court was delivered by: Christopher C. Conner United States District Judge
Presently before the court is an appeal from the decision of the United States Bankruptcy Court for the Middle District of Pennsylvania granting summary judgment in favor of appellee, Connie Wagner ("Wagner"), on the preference action filed by appellant, Charles A. Bierbach ("Bierbach"). For the reasons that follow, the court will affirm the decision of the bankruptcy court.
Debtor James R. Fry ("Fry") filed a voluntary petition under Chapter 7 of the Bankruptcy Code on October 18, 2004. (Doc. 2-2 ¶ 1; Doc. 2-3 ¶ 1.) Fry's petition revealed that prior to filing bankruptcy, he made regular monthly payments of $865.00 to M&T Bank in satisfaction of a business debt. (Doc. 2-2 ¶ 3; Doc. 2-3 ¶ 3; Doc. 2-6 at 9.) The loan payments were made "by an automatic withdrawal from Mr. Fry's M&T Bank account on the same day of each month." (Doc. 2-6 ¶ 12.) In total, Fry paid $10,380.00 to M&T Bank in the year prior to his bankruptcy filing. (Doc. 2-2 ¶ 6; Doc. 2-3 ¶ 6.) Fry's debt was secured by property owned by Wagner, who is currently Fry's fiancée.*fn1 (Doc. 2-2 ¶ 5; Doc. 2-3 ¶ 5.) According to Wagner, she voluntarily pledged her real estate as collateral for Fry's debt and "had no intention of ever bringing any action against Mr. Fry if he would default." (Doc. 2-6 at 8.) Wagner characterizes her pledge as a gift and says she received no consideration for it. (Id.) Wagner also testified that she and Fry have never maintained joint bank accounts, commingled their assets, or counseled each other regarding business or financial affairs.*fn2 (Id. at 7.)
Bierbach was appointed trustee of Fry's bankruptcy estate on October 25, 2004. (Doc. 2-2 ¶ 2; Doc. 2-3 ¶ 2.) On March 31, 2005, Bierbach filed a complaint to recover the $10,380.00 paid to M&T Bank, alleging that the payments constituted a preferential transfer for the benefit of Wagner and should be returned to the bankruptcy estate. (See Doc. 2-2.) The parties filed cross-motions for summary judgment. (See Docs. 2-4, 2-6.) In her motion for summary judgment, Wagner alleged that the payments to M&T Bank were not subject to recapture by the bankruptcy estate because the payments were either: (1) non-preferential transfers because Wagner was neither a creditor of Fry's nor an "insider" as defined by the Bankruptcy Code, or (2) preferential transfers that were exempt from recapture because they had been made "in the ordinary course of the business and affairs of both the Bank and Mr. Fry." (Doc. 2-6 ¶¶ 6, 8, 14.) On October 15, 2005, the parties agreed to submit their preference action to the bankruptcy court for decision based upon all documents of record. (Doc. 2-15.) On December 8, 2006, the bankruptcy court entered judgment in favor of Wagner and against Bierbach. (Doc. 2-17.)
On January 16, 2007, Bierbach timely filed a notice of appeal from the decision of the bankruptcy court. (Doc. 1.) The appellate issues have been fully briefed and are ripe for disposition.
An appeal from an order of a bankruptcy court places the district court in the posture of an appellate tribunal, requiring it to accord the appropriate level of deference to the decision of the bankruptcy judge. In re Sharon Steel Corp., 871 F.2d 1217, 1222 (3d Cir. 1989); see also FED. R. BANKR. P. 8013 (stating that district court may affirm the order of the bankruptcy court or remand any portion of its decision "with instructions for further proceedings"). The factual findings of the bankruptcy court should not be overturned unless "clearly erroneous," but the lower court's resolution of legal issues receives plenary review. Sharon Steel, 871 F.2d at 1222. The district court should overrule issues committed to the discretion of the bankruptcy judge only if a manifest abuse of that discretion is apparent. Id.
The grant of discretion fundamentally alters the nature of appellate review. See Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 438-39 (1996). When reviewing a lower court's application of mandatory provisions, the appellate court's focus is on the final decision, and the court may affirm a logically unsound decision so long as the result is correct. See J. E. Riley Inv. Co. v. Commissioner, 311 U.S. 55, 58 (1940) ("Where the decision below is correct it must be affirmed by the appellate court though the lower tribunal gave a wrong reason for its action."). In contrast, discretionary provisions place the authority to decide whether the final decision is "correct" in the hands of the lower court. See Washington v. Phila. County Court of Common Pleas, 89 F.3d 1031, 1035 (3d Cir. 1996). The appellate tribunal serves only to ensure that discretion was exercised rationally, that all relevant factors were considered, and that no clear analytical error was made. Oddi v. Ford Motor Co., 234 F.3d 136, 146 (3d Cir. 2000). The focus is on the means, not the end. A manifest abuse will generally be found only when the lower court failed either to comprehend the nature of its discretion or to employ it reasonably. See Cleary ex rel. Cleary v. Waldman, 167 F.3d 801, 804 (3d Cir. 1999); Ray v. Robinson, 640 F.2d 474, 478 (3d Cir. 1981).
To promote equality of distribution among creditors, section 547(b) of the Bankruptcy Code provides trustees with the power to recover certain preferential transfers for the benefit of the bankruptcy estate. See generally Union Bank v. Wolas, 502 U.S. 151, 161 (1991). In general, preferential transfers may be recovered only if they were made within ninety days of a bankruptcy filing. However, transfers made to "insiders" may be recovered if they were made within one year of a bankruptcy filing.*fn3 See 11 U.S.C. § 547(b)(4).
In the action sub judice, Bierbach alleges that he is authorized to recover the $10,380.00 paid to M&T Bank in the year preceding Fry's bankruptcy filing because such payments were made for the benefit of Wagner, an insider. Section ...