Cruickshank v. George R. Roberts Co. (In re Bos. Grand Prix, LLC), Case No. 16-12574-MSH

• Decision Date: 21 August 2018
• Docket Number: Adv. P. No. 17-1115-JNF,Case No. 16-12574-MSH
• Parties: In re BOSTON GRAND PRIX, LLC, Debtor GARY W. CRUICKSHANK, Chapter 7 Trustee, Plaintiff v. GEORGE R. ROBERTS COMPANY, Defendant
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

In re BOSTON GRAND PRIX, LLC, Debtor

GARY W. CRUICKSHANK, Chapter 7 Trustee, Plaintiff
v.
GEORGE R. ROBERTS COMPANY, Defendant

Case No. 16-12574-MSH
Adv. P. No. 17-1115-JNF

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MASSACHUSETTS

August 21, 2018

Chapter 11

MEMORANDUM

I. INTRODUCTION

The matter before the Court is the Motion of the Defendant, George R. Roberts Company (the "Defendant" or "GRRC"), for Partial Summary Judgment with respect to the Complaint filed by Gary W. Cruickshank, the Chapter 7 Trustee (the "Plaintiff" or the "Trustee") of Boston Grand Prix, LLC (the "Debtor" or "BGP") to avoid two allegedly preferential transfers made by checks payable to GRRC in the total amount of $278,326.63, both of which cleared the Debtor's bank on April 25, 2016, less than ninety days prior to the petition date. Pursuant to its Motion, the Defendant seeks partial summary judgment with respect to two defenses it has raised to the Plaintiff's preferential transfer claims: 1) whether, pursuant to 11 U.S.C. § 547(c)(4), the Defendant's delivery of concrete race

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blocks with a value of $99,330.00 constituted "new value" to the Debtor after its receipt of Check No. 1051 and Check No. 1042 from the Debtor on April 22, 2016; and 2) whether, pursuant to 11 U.S.C. § 547(c)(2), Check No. 1051 in the amount of $128,326.63 from the Debtor to GRRC was in payment of a debt incurred by the Debtor in the ordinary course of business and was made in the ordinary course of business between the Debtor and GRRC.

For the reasons set forth below, the Court shall enter an order granting the Motion for Partial Summary Judgment in part with respect to GRRC's new value defense and denying it in part with respect to its ordinary course of business defense. With respect to the latter defense, the Court concludes that there are genuine issues of material fact that preclude entry of summary judgment.

II. UNDISPUTED FACTS

On July 5, 2016, the Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. Gary W. Cruickshank, Chapter 7 Trustee of BGP, commenced this Adversary Proceeding against GRRC by filing the Complaint on September 13, 2017. Pursuant to 11 U.S.C. §§ 547, 550, and 551, the Plaintiff through his Complaint seeks to avoid and recover two allegedly preferential transfers made by the Debtor to GRRC in the amounts of $128,326.63 (Check No. 1051) and $150,000.00 (Check No. 1042), for a total of $278,326.63. GRRC filed its Answer to the Complaint on October 10, 2017 and moved for partial summary judgment on May 18, 2018.

GRRC is located in Alfred, Maine. It manufactures precast and custom concrete products for residential and commercial customers. It has operated for more than 50

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years and has 35-40 employees. Steve Ray ("Ray") is the President of GRRC and oversees GRRC's day-to-day business operations. He was responsible for overseeing its business relationship with the Debtor. Before entering into a contract with the Debtor, GRRC had never fabricated or sold race barriers.

In May 2015, the Debtor entered into agreements with the City of Boston and IndyCar, pursuant to which the Debtor agreed to organize and operate a car race for a five-year period. The Debtor intended to construct a 2.2 mile racetrack on the South Boston Waterfront encircling the Boston Convention Center. The race was scheduled to run each Labor Day weekend beginning in 2016. John F. Casey ("Casey") was the Debtor's chief executive officer.

In late 2015, according to Ray, the Debtor began negotiating to purchase custom-made concrete race blocks from GRRC (the "Race Blocks" and, each individually, a "Race Block"). The Race Blocks were intended to be used for the Debtor's construction of the anticipated Boston Grand Prix race track. In late 2015, GRRC submitted a proposal to the Debtor (the "Proposal") setting forth terms for the sale of Race Blocks. The Debtor executed a purchase order affirming the terms of the Proposal (the "Purchase Order"). Ray determined the invoice price for the Race Blocks based upon his knowledge of the precast industry and from quotes received from vendors for the items to be used to fabricate the barriers.

Through the Proposal and Purchase Order, the Debtor agreed to purchase, and GRRC agreed to manufacture and deliver, three types of custom-made Race Blocks in varying quantities: 2,200 "straight" Race Blocks; 100 "radius" Race Blocks; and 110 "pit"

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Race Blocks. According to the Proposal and Purchase Order, the Debtor agreed to pay to GRRC $944.00 for each straight Race Block; $979.00 for each radius Race Block; and $675.00 for each pit Race Block. GRRC's contract with the Debtor represented over 25% of GRRC's projected revenue in 2016. It had never entered into a contact of that magnitude before.

During the course of its relationship with the Debtor, GRRC maintained a "shipping log" (the "Shipping Log"), the accuracy of which the Plaintiff does not admit,¹ that tracked every shipment of Race Blocks that GRRC delivered to the Debtor, including, for each shipment, the date of delivery, the quantity of Race Blocks that were delivered by type of Race Block, and the truck driver who made the delivery.

GRRC also maintained contemporaneous "pick tickets," the accuracy of which the Plaintiff does not admit,² describing the quantity and timing of every shipment to the Debtor. The pick tickets were compiled by GRRC and kept with the invoice in which the deliveries identified in the pick tickets were billed to the Debtor. Starting on January 27, 2016, as new Race Blocks were manufactured, GRRC delivered by truck certain Race Blocks on an ongoing basis to a storage lot in Boston, Massachusetts, operated by the Massachusetts Port Authority (the "Lot"). The Race Blocks were delivered to the Lot at

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the instruction and agreement of the Debtor. GRRC delivered the Race Blocks either through its own drivers or by hiring third party drivers from Casco Bay Transportation. According to Ray, each set of Race Blocks that was shipped from GRRC's office in Maine was delivered to the Lot in Boston on that same day.³ Every Race Block was delivered in a condition consistent with the terms of the Proposal and Purchase Order and was intended to be used for the Debtor's construction of the anticipated Boston Grand Prix race track. According to Ray, the Race Blocks were described by a consultant working for the Debtor as "the finest race blocks they had ever seen made."

According to the Defendant, during its relationship with BGP, it typically invoiced the Debtor on a weekly basis for all of the Race Blocks that it had delivered in the prior week. GRRC issued 14 invoices to the Debtor with dates ranging from January 29, 2016 to April 30, 2016 as follows:

Invoice No.	Due Date	Invoice Amount
56138	1/28/16	$28,084.00
56148	2/5/16	$42,126.00
56157	2/12/16	$34,102.00
56147 [actually 56174]	2/22/16	$14,042.00
56197	2/26/16	$78,234.00
56213	3/7/16	$48,144.00
56231	3/14/16	$80,240.00
56246	3/19/16	$136,928.63
56267	3/28/16	$133,399.00
56290	3/31/16	$108,275.13
56343	4/13/16	$128,326.63
56383	4/18/16	$109,046.50
65434	4/25/16	$108,324.00
56495	4/30/16	$56,168.00

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The invoices sent to the Debtor for Race Blocks delivered between April 25, 2016 and April 29, 2016 were issued with a "NET DUE 30" payment term, meaning that payment was required within 30 days of receipt of the invoice. Indeed, all of GRRC's invoices to the Debtor contained the "NET DUE 30" payment term. The 30-day payment term also was included in the Proposal and Purchase Order, and all invoices included the same per-Race Block cost agreed to in the Proposal and Purchase Order, namely $944.00 per straight Race Block, $979.00 per radius Race Block, and $675.00 per pit Race Block.

The Debtor made the following payments to GRRC:

Check Clear Date	Check No.	Bank Account	Amount
3/24/16	1005	Leader Bank	$48,144.00
4/5/16	1025	Leader Bank	$133,399.00
4/25/16	1051	Leader Bank	$128,326.63
4/25/16	1042	Leader Bank	$150,000.00

The payments represented by Check Numbers 1051 and 1042 cleared the Debtor's bank account within the preference period.

On March 23, 2016, GRRC received Check No. 1005, dated March 22, 2016, by mail from the Debtor in the amount of $48,144.00. GRRC applied Check No. 1005 to Invoice No. 56213, dated March 7, 2016. The length of time between the invoice date and the check delivery date was 16 days; the length of time between the invoice date and the date the check cleared was 17 days. At the time GRRC applied this payment to invoice number 56213, there were five older invoices outstanding totaling $196,588.00 (56138, 56148, 56157, 56147 [sic], and 56197).

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On April 2, 2016, GRRC received Check No. 1025, dated March 31, 2016, from the Debtor by mail in the amount of $133,399.00. GRRC applied Check No. 1025 to Invoice No. 56267 in the amount of $133,399.00, dated March 28, 2016. The length of time between the invoice date and the check delivery date was 5 days; the length of time between the invoice date and the date the check cleared was 8 days. At the time that GRRC applied this payment to invoice number 56267, there were seven older unpaid GRRC invoices totaling $461,900.63 (invoice numbers 56138, 56148. 56147 [sic], 56197, 56213, 56231, and 56246).

According to Ray, he communicated by email and telephone with Casey in order to encourage Casey to make payments on outstanding invoices before Check No. 1005 and Check No. 1025 were received. Ray contacted Casey by email on March 18, 2016, before Casey sent Check No. 1005, and Ray called Casey on March 29, 2016, to request payment shortly before Casey sent GRRC Check No. 1025.⁴ Additionally, on April 19, 2016 at 11:31 a.m., Ray emailed Brian Hughes ("Hughes"), a consultant for the race track construction, stating, among...