H. Jason Gold, in His Capacity for the Truland Grp., Inc. v. Myers Controlled Power, LLC (In re Truland Grp., Inc.), Case No. 14-12766-BFK

CourtUnited States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia
Writing for the CourtBrian F. Kenney United States Bankruptcy Judge
Docket NumberCase No. 14-12766-BFK,Adversary Proceeding No. 16-01151-BFK
Decision Date08 January 2018



Case No. 14-12766-BFK
Adversary Proceeding No. 16-01151-BFK


January 8, 2018

Chapter 7


This matter came before the Court on the Defendant's Motion for Summary Judgment and Memorandum in Support. Docket Nos. 33, 34. The Plaintiff filed an Opposition to the Motion. Docket No. 41. The Defendant filed a Reply Memorandum. Docket No. 42. The Court heard the arguments of the parties on October 31, 2017.

This adversary proceeding is brought by the Chapter 7 Trustee of Truland Walker Seal Transportation, Inc. ("TWST") against a supplier of electrical equipment, Myers Controlled Power, LLC ("Myers"), for the avoidance and recovery of an alleged preference under Section 547 of the Bankruptcy Code. 11 U.S.C. § 547(b). Alternatively, the Trustee seeks to avoid and recover the payment under Section 548(a)(1)(B) of the Code, alleging that the payment to Myers was for less than reasonably equivalent value, at a time when the Debtor was insolvent or had an unreasonably small capital to operate its business. 11 U.S.C. § 548(a)(1)(B).

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For the reasons stated below, the Court finds that Myers has not met its burden to show that there was a contemporaneous exchange for new value under Section 547(c)(1) of the Code when it released certain electrical equipment in exchange for the payment from the Debtor (the focus here being whether the exchange was truly "contemporaneous"). The Court finds, on the other hand, that there is no genuine dispute that the release of the equipment was reasonably equivalent value for the payment made under Section 548(a)(1)(B). Accordingly, the Court will: (a) deny the Defendant's Motion on Count I, the Preference Count; and (b) grant the Defendant's Motion on Count II, the Section 548(a)(1)(B) Count.

Undisputed Facts

The Court finds that the following facts are not genuinely in dispute.

1. TWST was one of a group of affiliated companies doing business under the name "Truland." Truland and its affiliates comprised one of the largest electrical contractors in the United States, with very substantial contracts, including the federal government's Utah Data Center project, the Marriott Marquis in Washington, D.C., and the job that gave rise to this adversary proceeding, the Rehabilitation of the Orange/Blue Line - Stadium Armory to National Airport - for the Washington Metropolitan Area Transit Authority (WMATA).

A. The Parties' Contractual Arrangements.

2. In January 2011 TWST, as Subcontractor, entered into a Subcontract Agreement with Clark Construction Group, LLC ("Clark") as the prime contractor on the Orange/Blue Line job. Motion, Ex. A. The total sum to be paid under the Subcontract was $45,000,000.00. Id., ¶ 4(a).

3. Partial payments of 95% of the approved work and for on-site stored materials were permitted under the Subcontract. Id., ¶ 4(b).

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4. The Subcontract contained what is generally known as a "flow down" provision, meaning that TWST as a Subcontractor was contractually obligated to pay its subcontractors and suppliers, and to avoid any bond claims against the surety that guaranteed TWST's performance. Id., ¶ 4(c).

5. Myers did not subcontract directly with TWST. Rather, Myers entered into a Supplier Subcontract with Nationwide Electrical Services, Inc. ("NES") for services and equipment. Motion, Ex. D. The total amount to be paid under the Myers-NES Supplier Subcontract was $17,041,113.00. Id., ¶ 4. The Myers-NES Supplier Subcontract contained a flow down provision similar to the one in the Clark-TWST Subcontract. Id., ¶ 3.

6. Myers and the Trustee dispute whether there was ever a written subcontract between NES and TWST. The Trustee asserts that there was a subcontract, but is unable to locate or produce one. Whether or not there was a written subcontract between NES and TWST is, in the Court's view, immaterial to the outcome of this dispute.

B. The Joint Check Agreement.

7. By the spring of 2014, Truland and its affiliates were significantly "out of trust" with their suppliers, meaning that they were receiving payments from general contractors but were not paying the suppliers and subcontractors in violation of the flow down provisions of their subcontracts. Charles Goldstein, who had been hired as Truland's Chief Restructuring Officer, concluded that as of March 31, 2014, the out of trust balance was approximately $23.7 million. Motion, Ex. M.

8. On April 29, 2014, one of Truland's officers noted in an e-mail that TWST was "on payment hold from Clark so joint checks is a possibility as they are not otherwise paying us

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until we can provide clear lien releases." Motion, Ex. I, at 1 (Chuck Tomasco e-mail, Apr. 29, 2014).

9. Chuck Tomasco noted on May 1, 2014, that "MCP [Myers Controlled Power] has currently stopped delivering equipment which will delay the entire project and jeopardize the $28M K-Line change order we're awaiting from WMATA/Clark . . . [W]e have also requested that Clark issue them payment via joint check but have not confirmed yet." Id. at 3 (Chuck Tomasco e-mail, May 1, 2014).

10. Myers refused to release the equipment to TWST. Id. at 7 (Sanchez e-mail, May 7, 2014) ("[W]e have had to stop testing and shipments of the ABB transformers. Presently six (6) transformers are ready for shipment.")

11. Myers requested "one party" checks from Clark, that is, checks payable only to Myers. Motion, Ex. J, at 5 (Sanchez e-mail to Clark, May 7, 2014). Myers also requested a payment guarantee from Clark. Id.

12. Clark, as the prime contractor, insisted on a joint check arrangement. Motion, Ex. J, at 11 (Breeden e-mail, May 13, 2014) ("Clark will issue Joint Checks to MCP/Truland that will be endorsed by Truland and then sent to MCP by Clark.")

13. On June 9, 2014, Clark, Myers and TSWT entered into a Joint Check Agreement ("JCA"). Motion, Ex. L.

C. Myers Explores Making a Payment Claim on the Bond.

14. As the negotiations for the Joint Check Agreement proceeded in May 2014, Myers began exploring the process of making a claim against Fidelity and Deposit Company of Maryland/Zurich American (together, "Zurich"), Truland's bonding company on the Orange/Blue Line job. Motion, Ex. H.

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15. Myers never made a formal claim on the bond. Rather, Zurich signed off on the Joint Check Agreement, and no payment was made on the surety bond. Motion, Ex. J, at 14-16.1

D. The Payment and the Release of the Equipment.

16. On May 27, 2014 (about two weeks before the JCA), Myers, satisfied with Clark's representations that it would enter into a JCA, released equipment with a cost of $1,819,206.31. Motion, Ex. O, at 1. This invoice included $181,920.63 in "Overhead/Profit," for a total of $2,001,126.94. Id.

17. On June 18, 2014 (nine days after the parties signed the JCA), Myers released additional equipment with a cost of $261,667.00. Id. at 9. The June 18th Bill of Sale included an additional $26,166.70 for "Overhead/Profit," for a total Invoice of $287,833.70. Id.

18. On July 11, 2014, Clark delivered a check (No. 10101212) to TWST in the amount of $2,197,039.86. Motion, Ex. N. The check was payable jointly to Myers and TWST. Id.

19. TWST endorsed the check and had it delivered back to Clark. Clark then forwarded the check to Myers. Motion, Ex. B, at 44-45.

E. Truland and its Affiliates file for Bankruptcy Protection.

20. TWST filed a voluntary petition under Chapter 7 with this Court on July 23, 2014. Case No. 14-12774-BFK.

21. The case is being jointly administered (but not substantively consolidated) with the Chapter 7 cases of The Truland Group, Inc., and its subsidiaries, in Case No. 14-12766-BFK. Case No. 14-12766-BFK, Docket No. 150.

22. The Trustee filed this Adversary Proceeding on July 21, 2016. Docket No. 1.

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Conclusions of Law

The Court has jurisdiction over this matter pursuant to 28 U.S.C. 1334 and the Order of Reference entered by the U.S. District Court for this District on August 15, 1984. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(F) (proceedings to determine, avoid or recover preferences) and (H) (proceedings to determine, avoid or recover fraudulent transfers).

Summary judgment is appropriate where there is no genuine dispute as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Bankr. P. 7056 (incorporating Fed. R. Civ. P. 56). The moving party has the initial burden of showing that there are no material facts in dispute, and that it is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986). When the moving party has met its initial burden, the burden then shifts to the nonmoving party to present specific facts demonstrating that there is a genuine issue for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).

Whether a fact is material or not depends on the substantive law at issue in the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Id. Summary judgment "is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp., 477 U.S. at 327 (quoting Fed. Rule Civ. Proc. 1). The Court must view the facts and the inferences reasonably drawn therefrom in the light most favorable to the non-moving party. United States v. Carolina Transformer Co., 978 F.2d 832, 835 (4th Cir. 1992).

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I. Count I - Alleged Preferential Transfer (11 U.S.C. § 547(b)).


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