Albert's Capital Servs., LLC v. Kreitz Motor Express, Inc. (In re Liquidating Estate of H&P, Inc.)
| Decision Date | 23 February 2023 |
| Docket Number | Case No. 16-21620-CMB,Adv. No. 18-2045-CMB, Adv. No. 18-2046-CMB |
| Parties | IN RE: The LIQUIDATING ESTATE OF H&P, INC., f/k/a Heyl & Patterson, Inc., Debtor Albert's Capital Services, LLC, Plan Administrator for the Liquidating Estate of H&P, Inc., f/k/a Heyl & Patterson, Inc., Plaintiff v. Kreitz Motor Express, Inc., t/d/b/a K.M.X. Inc. and Krietz Motor Express, Inc., t/d/b/a K.M.X. International, Defendant Albert's Capital Services, LLC, Plan Administrator for the Liquidating Estate of H&P, Inc., f/k/a Heyl & Patterson, Inc., Plaintiff v. Custom Fabrications, Inc., Defendant |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
J. Julius Bolock, Matthew Thomas Logue, Quinn Logue LLC, Pittsburgh, PA, Anthony Thomas Gestrich, Kelly Esther McCauley, Michael J. Roeschenthaler, Daniel R. Schimizzi, Whiteford Taylor & Preston, Pittsburgh, PA, Scott M. Hare, Whiteford, Taylor & Preston LLP, Pittsburgh, PA, Joseph Daniel Vorsteg, Whiteford, Taylor & Preston LLP, Baltimore, MD, for Plaintiff Albert's Capital Services, LLC, Plan Administrator for the Liquidating Estate of H&P, Inc. f/k/a Heyl & Patterson, Inc. in 18-2045.
Michael M. Monsour, Barry W. Sawtelle, Daniel R. Schimizzi, Kozloff Stoudt, Wyomissing, PA, for Defendant.
J. Julius Bolock, Matthew Thomas Logue, Quinn Logue LLC, Pittsburgh, PA, Anthony Thomas Gestrich, Scott M. Hare, Kelly Esther McCauley, Michael J. Roeschenthaler, Daniel R. Schimizzi, Whiteford, Taylor & Preston LLP, Pittsburgh, PA, for Plaintiff Albert's Capital Services, LLC in 18-2046.
These are two preference avoidance actions pursuant to 11 U.S.C. § 547(b) that were filed by Albert's Capital Services, LLC ("Albert's Capital" or "Plaintiff") in its capacity as the Plan Administrator for the Liquidating Estate of Debtor Heyl & Patterson, Inc. ("H&P" or "Debtor"). The Defendants, Kreitz Motor Express, Inc. t/d/b/a K.M.X. Inc. and Krietz Motor Express, Inc. t/d/b/a K.M.X. International (collectively, "KMX") in Adv. No. 18-2045, and Custom Fabrications, Inc. ("Custom," and together with KMX "the Defendants")1 in Adv. No. 18-2046, are unrelated, but are represented by the same law firm. The two cases were tried together on January 10-11, 2023 with the consent of all Parties. At issue are prepetition payments from the Debtor to KMX totaling $592,194.29, and from the Debtor to Custom totaling $513,866.50. For the reasons explained below, the Court finds that Plaintiff has proven avoidable preferential transfers to KMX in the amount of $116,734.90 and to Custom in the amount of $40,347.90.2
H&P filed a voluntary Chapter 11 petition on April 29, 2016. H&P's initial intent was to continue its operations as a debtor-in-possession and to use the bankruptcy process as a means of reorganizing. See Declaration of John R. Edelman, Main Case Doc. No. 19 at ¶13. Reorganization efforts proved unsuccessful, however, and as a result H&P switched tactics to a sale of substantially all of its assets which was approved by the Court on December 8, 2016. See Main Case Doc. Nos. 346, 347.
On April 28, 2017, a Joint Plan of Liquidation ("Plan") was filed by H&P and the Official Committee of Unsecured Creditors, and it was confirmed by the Court on August 14, 2017. See Main Case Doc. Nos. 506, 576. Under the Plan, Albert's Capital was appointed as Plan Administrator with a role, among other things, to pursue, settle or abandon all remaining causes of action of the Liquidating Estate. See, generally, Plan Administrator Agreement at Sections 4.03, 7.01, and 8.01(4) attached as Exhibit 1 to the Confirmation Order. The Plan Administrator is also authorized to file objections to any Claims filed in the bankruptcy case. Id. at Sections 5.06 and 6.01.
Both of the adversary proceedings at issue here were filed on March 29, 2018, and both involve preference action claims for payments made to the Defendants by H&P in the 90-day period preceding the bankruptcy filing.3 The two adversaries have for the most part proceeded in close tandem.
As was mentioned above, a trial was held over the course of two days in January. The Plaintiff introduced 63 Exhibits into evidence, comprising more than 1400 pages of documents, and then immediately rested, without calling any witnesses. In their case, the Defendants called the following as witnesses: John Edelman ("Edelman"), the former majority owner and CEO of the Debtor; Mary Holste ("Holste"), the former controller of the Debtor; Raymond Shore ("Shore"), the former supervisor of project managers for the Debtor; Leonard Walnoha ("Walnoha")4 , the former operations manager for the Debtor; James Vitez ("Vitez"), the owner of KMX; and Jeff Cook ("Cook"), the owner of Custom. Defendants also introduced a number of Exhibits into evidence. Following the trial the Parties submitted briefs and proposed findings of fact and conclusions of law.
In the Joint Stipulation of Facts and Statement of Facts in Dispute ("Joint Stipulation") filed by the Parties at Doc. No. 302 in Adv. No. 18-2045 and at Doc. No. 269 in Adv. No. 18-2046,5 they agreed on a number of facts that are significant to the Court's decision. Drawing on both the Joint Stipulation and the evidence that was presented by the Parties at trial, the Court makes the findings of fact that follow.
Until 2016, H&P was a firm based in Pittsburgh that was in the business of producing and selling industrial machinery, including for the bulk transfer of materials related to energy production, such as rail car and barge unloaders. H&P's manner of operating was to bid the technical applications, create the engineering, and subcontract vendors and subcontractors to obtain the parts, equipment, components and other services, including steel fabrication and logistical services.
On December 10, 2014, H&P entered into a contract with Mitsui Miike Machinery Co., Ltd. ("MMM" and "the MMM Contract") in connection with the design and construction of an automated coal loading facility in far eastern Russia (the "MMM Project" or "Project") that would provide for the unloading of coal from rail cars into a yard for subsequent loading onto freighter ships. When completed, the equipment that H&P would be designing was to be shipped for use at Vostochny Port in Russia. Within the MMM Contract, the Marubeni Corporation is identified as both "Shipper" and "Customer," while the "Final Customer" is defined as Vostochny Port.
The MMM Contract set a total contract price to be paid to H&P of $8 million, with $7,908,150 representing payment for the equipment to be manufactured and its delivery to Russia, and the small remainder representing on-site supervision services that H&P would provide during installation of the equipment in Russia. The equipment portion of the MMM Contract was to be paid out in percentage-based installments as specific performance milestones were met by H&P. For example, 5% of the contract price was due within 30 days after the arrival in MMM's office of an original invoice issued by H&P after signing the contract, another 5% was due within 30 days after the arrival in MMM's office of an invoice from H&P after the receipt by MMM of approved project drawings, another 1% was due within 30 days after the arrival in MMM's office of an invoice from H&P after MMM received technical documents required for declaration of conformity with Russian Customs Union certificate, etc. There were 13 such milestones set forth in the MMM Contract. See Plaintiff Exhibit 1 at Section 3.1(a) - (m).
After the MMM Contract was signed, H&P then contracted with multiple subcontractors and vendors for the goods and services necessary for it to fulfill the Contract. One of those subcontractors was Custom, a steel fabrication company located in Plant City, Florida. In the spring of 2015, H&P began requesting quotes, issuing purchase orders, and exchanging drawings with Custom regarding the fabrication of steel components needed for the MMM Project. Custom and H&P never entered into an overall stand-alone contract document, but in June 2015, Custom began fabrication and construction of steel components pursuant to H&P's purchase orders, including Purchase Orders 9398, 9900, 9944, and 9953. H&P had not previously dealt with Custom.
Custom would periodically submit invoices to H&P for the work Custom performed. Each Invoice contained an Invoice Number, the date of issuance, the applicable H&P Purchase Order Number, the amount due, and the term "Net 30," meaning that payment on the invoice was due 30 days after the invoice was issued. The invoices issued by Custom that are at issue in the present case are only those that resulted in payment to Custom occurring during the 90 days preceding the bankruptcy filing, and these will be referred to as the "Custom Invoices." The following Chart 1 summarizes the Custom Invoices:
Chart 1- Custom Invoices
Invoice No.
Amount
Issue Date
Due Date
3441
$ 15,500
Dec. 22, 2015
Jan. 21, 2016
3447
$ 7,005
Jan, 15, 2016
Feb. 14, 2016
3457
$163,828.50
Jan. 29, 2016
Feb. 28, 2016
3468
$ 69,750
Feb. 23, 2016
Mar. 24, 2016
3469
$ 740
Feb. 19, 2016
Mar. 20, 2016
3478
$104,387
Mar. 10, 2016
Apr. 9, 2016
3481
$ 69,750
Mar. 21, 2016
Apr. 20, 2016
3484
$ 82,906
Mar. 31, 2016
On February 4, 2016, H&P paid Custom $15,500.00 for Invoice 3441 with unrestricted funds from H&P's bank account. H&P did not make any other payments to Custom in February 2016 or March 2016, or the first half of April 2016. By April 17, 2016, the remaining Custom Invoices as noted in the above Chart 1 were all overdue and H&P had not paid any of them. Thus, as of April 18, 2016, Custom was a creditor of H&P for goods which it had fabricated to completion, as reflected in the unpaid Custom Invoices. On April 18, 2016, H&P wired a total amount of $498,366.50 to Custom on account of the unpaid Custom Invoices. The source and circumstances surrounding that April 18th payment are important and will be discussed below. The total amount...
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