Fava v. Swick (In re Jenkins)

Decision Date26 July 2022
Docket NumberCase No.: 19-13234-JDW,A.P. No.: 20-01070-JDW
Citation642 B.R. 754
Parties IN RE: Steven Keith JENKINS, Debtor. William L. Fava, Trustee, Plaintiff, v. Billy Swick, Jr. and Gulf Coast Yacht Werks, Inc., Defendants.
CourtU.S. Bankruptcy Court — Northern District of Mississippi

William L. Fava, Fava Firm, Southaven, MS, Plaintiff, Pro Se.

Derek A. Henderson, Jackson, MS, for Plaintiff William L. Fava.

Bradley T. Golmon, Thomas J. Suszek, Oxford, MS, for Defendants.

MEMORANDUM OPINION AND ORDER

Jason D. Woodard, United States Bankruptcy Judge

This matter came before the Court on the Complaint to Avoid Transfers filed by the chapter 7 trustee against the defendants Billy Swick, Jr. and Gulf Coast Yacht Werks, Inc., and the trustee's Objection to Claims Filed by Gulf Coast Yacht Werks, Inc. & Bill Swick, Jr. , which were consolidated into the trial of the adversary proceeding.1 The competing claims between the parties are unrelated. The trustee asserts that numerous payments between the debtor and the defendants should be avoided as preferences or postpetition transfers and seeks turnover of those payments.2 The defendants contend that they are owed $419,418.34 for work performed by Mr. Swick on a vessel owned by the debtor.

At the trial, the Court heard testimony from five witnesses and received documents into evidence. Having considered all the evidence, post-trial briefs, and argument of counsel, the Court finds that the bankruptcy estate is due a judgment of $152,500.00 for the avoidable transfers, and Mr. Swick holds a secured claim of $123,200.00. Setoff of the claims is appropriate, leaving the bankruptcy estate with a claim of $29,300.00.

I. JURISDICTION

This Court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157(a) and 1334, and the United States District Court for the Northern District of Mississippi's Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc dated August 6, 1984. This is a core proceeding as set forth in 28 U.S.C. § 157(b)(2)(A), (B), (C), (F), (K), and (O). The parties agree that this Court has jurisdiction to enter a final judgment.3

II. FACTUAL FINDINGS4

The debtor, Steven Keith Jenkins, and the defendant, Billy Swick, Jr., are close friends, as the Court has previously detailed in prior orders and opinions.5 Mr. Swick is self-employed as the owner of Gulf Coast Yacht Werks, Inc., his co-defendant in this case. The trustee seeks to avoid preferential transfers made by the debtor to the defendants in repayment of a loan.6

Mr. Swick asserts a claim for work he completed on a boat owned by the debtor, called the "Game On." Mr. Swick previously contended that work bought him an interest in the boat, but the Court found it was owned solely by the debtor and was property of the bankruptcy estate.7 When the Court held that Mr. Swick had no ownership interest in the boat, the defendants each filed identical proofs of claim in the underlying bankruptcy case.8 The trustee objected to both claims.9

At trial, the Court considered evidence of the competing claims, which are unrelated but asserted between the same parties. Each claim will now be considered in turn.

A. Preferences

It is uncontroverted that the defendants loaned the debtor at least $100,000 in 2018. A check for $100,000 drawn on the account of Gulf Coast Yacht Werks, Inc., and signed by Mr. Swick, was deposited into the debtor's personal bank account on February 23, 2018.10 At trial, Mr. Swick testified that he also loaned the debtor an additional $50,000 in cash at that time. The debtor testified that he was loaned some cash beyond the $100,000 check but could not remember the amount. There are no loan documents or other writings to memorialize the loan, which was made between friends with no formal loan terms. There was no interest rate, maturity date, payment installment dates, or installment amounts, nor was there any collateral. There is no evidence of the loan terms beyond the testimony of Mr. Swick and the debtor and the $100,000 check. The evidence showed that the loan was from Mr. Swick personally, even though some of the money originally ran through Gulf Coast. In fact, Mr. Swick testified that he borrowed money from someone else to help make the loan to the debtor. Further, the debtor made all payments on the loan directly to Mr. Swick, not to Gulf Coast.

According to the testimony of both Mr. Swick and the debtor, the purpose of the loan was to help the debtor continue his farming operations. Mr. Swick testified that he believed he would be repaid after the debtor sold his crop. But when the trustee asked about Mr. Swick's prior testimony at a hearing in October 2020 that there were "no terms" to the loan, Mr. Swick stated "I guess I didn't recall at that time." The debtor testified that the loan terms were simply "pay me back when you can." Based on the sparse record, the Court finds that Mr. Swick loaned the debtor around $150,000 and that there were no other terms for repayment. The testimony indicated that Mr. Swick loaned the debtor $150,000. The parties’ documentation is virtually non-existent, and the evidence presented at trial did not reflect exactly $150,000 worth of transfers, but Mr. Swick testified that he was repaid in full. Accordingly, the Court will consider only the payments for which it has physical evidence (cancelled checks) and finds those amounts were sufficient to repay the loan in full.

Repayment of the loan was sporadic, and the method was certainly unorthodox. From time to time, the debtor directed his accountant, Jan Hudson, to make payments from accounts he controlled to Mr. Swick. Rather than mail the checks, Ms. Hudson wrote the checks, either signed them or had the debtor sign them, and deposited the checks directly into Mr. Swick's account. How Ms. Hudson obtained deposit slips for Mr. Swick's account, or at a minimum his account number, is unclear. It is equally unclear how she endorsed checks for Mr. Swick. At trial, both Ms. Hudson and Mr. Swick testified that they did not know each other. They both testified that she had no authority to act on his behalf, and she never notified him when she made these deposits. Nevertheless, the payments made it into Mr. Swick's account, and he acknowledged that he knew the deposits were loan payments whenever he saw his bank statements. Ms. Hudson credibly testified that she wrote and deposited each of the checks at the direction of the debtor, and that she never initiated the payments herself. The debtor testified that he directed Ms. Hudson to make those deposits "whenever we have the money." The loan payments are summarized below:11

November 2, 2018 – $60,000.00 deposited into Mr. Swick's account.12
February 25, 2019 – $5,000.00 deposited into Mr. Swick's account.13
March 21, 2019 – $5,000.00 deposited into Mr. Swick's account14
June 18, 2019 – two checks, totaling $65,000.00, deposited into Mr. Swick's account.15
July 26, 2019 – $10,000.00 deposited into Mr. Swick's account.16
September 12, 2019 – $7,500.00 check written to Mr. Swick.17

The bankruptcy case was filed on August 12, 2019.18 The Court finds that the debtor transferred to Mr. Swick a total of $145,000.00 in the year before the filing of the case, including a total of $75,000.00 transferred within 90 days of the filing of the case. All but $10,000.00 of the prepetition transfers were made to repay the loan. The July 26, 2019 receipt of deposit for the $10,000.00 check included a note that it was "not related to the loan from Swick."19 This check repaid the cost of a fishing trip fronted by Mr. Swick.

The Court finds that the final transfer, totaling $7,500.00, was made after the filing of the bankruptcy case and was the final payment to satisfy the loan balance.

B. Claims

The defendants make their own claims, which are unrelated to the loan.20 The defendants admitted that their claims are duplicate claims. It was clear from the evidence at trial that Mr. Swick provided the materials and did the work giving rise to the claim, even though some money may have run through Gulf Coast. Those claims are for labor and materials Mr. Swick provided to the boat owned by the debtor, even if he tangentially used his company in the process. Mr. Swick may have a claim for labor and materials, but the claim of Gulf Coast is due to be disallowed as a duplicate.

The boat is more than 25 years old. A variety of materials, improvements, and routine maintenance, detailed in the invoices from Mr. Swick, were confirmed by a vessel survey and expert testimony.21 The routine maintenance completed by Mr. Swick was required to maintain the condition of the boat. The other work improved the boat by replacing or adding new parts. Those improvements included pressure washing, sanding, painting, zinks, cushions, A/C pumps, toilets, window tint, electronics, a fuel bladder, the cockpit floor, a variety of engine parts, fish boxes, tuna tubes, and more.22 Those improvements are listed in detail in the invoices, which were admitted into evidence.23

Mr. Richard Schiehl is an expert in the condition and valuation of vessels. He examined and prepared multiple surveys/reports regarding the boat over the years. On January 9, 2022, Mr. Schiehl completed a report titled "Repair/Service/Maintenance/Improvement Verification." In the report, he reviewed the entire set of invoices detailing the labor and materials Mr. Swick provided to the boat. All but two invoices were marked as either confirming the work had been completed or that the work was routine maintenance. One invoice was marked as "not related" to improvements on the boat because it listed only shirts and visors. Another invoice was created after Mr. Schiehl's most recent survey. The Court found Mr. Schiehl's disinterested testimony to be credible and finds that the invoices accurately reflect the value of those materials and services, which total $419,418.34. The most recent sale price of the boat did not fully reflect the value of those improvements because...

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