| ABI

November 11, 2024

Standard Deviation Can’t Be the Only Test to Prove the ‘Ordinary Course’ Defense

District judge in Delaware says that expert testimony must establish whether standard deviation is a proper statistical test to prove the ‘ordinary course’ defense to a preference.

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Opinion Link

View Opinion

https://abi-opinions.s3.us-east-1.amazonaws.com/Fred's.pdf

Case Details

Case Citation

FI Liquidating Trust v. Terminix International Co. LP (In re Fred’s Inc.), 23-1233 (D. Del. Oct 29, 2024)

Case Name

FI Liquidating Trust v. Terminix International Co. LP (In re Fred’s Inc.)

Case Type

Business

Court

3rd Circuit

Delaware

Bankruptcy Tags

Preferences

Business Reorganization

Comments

Submitted by Edward Phillips on November 12, 2024

Standard deviation is an indicator but is not determinative. Typically, 68% of subject data will fall within one standard deviation, 95% will fall within two standard deviations and 99.7% will fall within three standard deviations. In this case, the data used to compute the standard deviation indicates a standard deviation of 76.5 with a midpoint of 102.5. Given that three standard deviations are 332 days (102.5+(76.5*3)), the payments were all over the place. On its face, a asserting range of 26-179 days seems to defy logic. A better way to assess ordinary course would have been to look at a weighted average payments two years prior to the beginning of the preference period and then observing where a concentration (if any) of value was transferred. A pattern should emerge around where the weighted average of the transfers and it's not going to be a span of 151 days.