In re Broadview Lumber Co., Inc.

Decision Date28 June 1994
Docket NumberBankruptcy No. 91-30593. Adv. No. 93-3018.
PartiesIn re BROADVIEW LUMBER COMPANY, INC., Debtor. Thomas J. O'NEAL, Trustee, Plaintiff, v. SOUTHWEST MISSOURI BANK OF CARTHAGE, and Mercantile Bank of Joplin, and Richard Mansfield and Jenny Mansfield, Defendants.
CourtUnited States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri





Thomas J. O'Neal, Bussell, O'Neal & Hall, Springfield, MO, for plaintiff.

John J. Podeleski, Douglas K. Crandall, Crandall & Dally, Carthage, MO, for Southwest Missouri Bank.

John R. Sims, Sims, Bridges & Dolence, Neosho, MO, for Richard and Jenny Mansfield.

Tom K. Noland, Spencer, Scott & Dwyer, Joplin, MO, for Mercantile Bank of Joplin.


ARTHUR B. FEDERMAN, Bankruptcy Judge.

Thomas J. O'Neal, the Chapter 7 trustee in this involuntary bankruptcy (the "trustee"), brings an adversary proceeding against Southwest Missouri Bank of Carthage, Missouri ("SMB"), Mercantile Bank of Joplin, Missouri ("Mercantile") and Richard and Jenny Mansfield (the "Mansfields"). This is a core proceeding under 28 U.S.C. § 157(b)(2)(E) and (F) over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a), and 157(b)(1).

This adversary proceeding involves the interaction of debtor, Broadview Lumber Company, Inc. ("Broadview"), its President Richard Mansfield, ("Mansfield"), SMB, and Mercantile. Put simply, the issues are whether Mr. Mansfield looted the debtor, and whether either of the defendant banks made such looting possible.

The following shall constitute the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52 as made applicable to this adversary action by Federal Rule of Bankruptcy Procedure 7052. Because the trustee asks for separate relief as to different groups of defendants, I will treat each group separately. All references to "the Complaint" are to the Second Amended Complaint, filed February 14, 1994.

A. The Debtor and Mansfield's Debt Structures

Prior to January 1991, Broadview was a wholesale lumber brokerage firm that had been doing business in Carthage, Missouri since 1905. Mansfield was an employee of Broadview from 1962 until 1977, when he succeeded Frank N. Jones, Sr. as president. By 1990, Mansfield owned fifty percent of the stock of Broadview, which had five other stockholders, none of whom is either related to Mansfield or a party in this litigation. Pl.Ex. 64. Mansfield was authorized a salary of $11,550.00 per month by the Board of Directors on November 11, 1986. Mansfield testified that he voluntarily reduced the salary figure to $8,500.00 during 1990 because a number of directors felt he was being overcompensated. As president, Richard Mansfield caused Broadview to borrow $300,000.00 from SMB on August 13, 1984, secured by a lien on real estate owned by Broadview. Pl. Exh. # 86. The loan was guaranteed by the Small Business Administration ("SBA") up to ninety percent of its value. Mansfield signed a personal guarantee on the portion of the loan guaranteed by the SBA. Pl.Exh. # 88. Debtor maintained its corporate checking account at SMB.

Broadview's primary financing immediately prior to 1991 was supplied by Fidelcorp, an asset-based lender, using a formula for advancing monies against account receivables up to a limit of four and one/half million dollars. This line of credit was personally guaranteed by Mansfield. The CIT Group ("CIT") acquired Fidelcorp sometime before January 1, 1991. Mansfield testified that debtor had often been out of formula in the past but Fidelcorp had continued to advance funds until debtor could stabilize its cash flow.

B. Events of January-May 1991

Without apparent notice, CIT refused to advance further funds on January 2, 1991. Broadview had issued over $400,000.00 in checks with no funds to back them up and was almost immediately forced to cease operations. Mansfield attempted to find an alternative source of funding, but realized by January 7, 1991, that Broadview would have to close its doors.

Mansfield informed Gary Denny, the President of SMB, that Broadview was ceasing to do business. Denny also testified that it was general knowledge in the bank that debtor had closed its doors. From January through May 9, 1991, Mansfield worked only for Broadview. During this time he liquidated inventory and collected receivables sufficient to pay off the guaranteed CIT obligation. By April 1991, the loan to CIT had been fully repaid.

By May, 1991, Mansfield and his wife Jenny Mansfield had started a new business called Capital Funds. Mansfield began taking telephone calls at the number listed for Capital Funds at approximately this same time.1 Thereafter, Mansfield continued to make efforts to collect monies owed to Broadview, however, not all the monies collected were made available to Broadview and its creditors. In addition, Mansfield continued to seek buyers for the Broadview office building to eliminate the other debt personally guaranteed by him.

C. Settlement With Unsecured Creditors

As of January 2, 1991, debtor had approximately 1.3 million dollars in unsecured trade debt. After the CIT loan had been satisfied, Mansfield was still attempting to sell debtor's real estate, and he was being besieged by calls from trade creditors. He, therefore, retained the services of both an accountant and an attorney to advise him while he continued to wind up the affairs of Broadview. An out-of-court settlement proposal was developed by the attorney to deal with the unsecured creditors. Between January and August of 1991 Richard Mansfield informed all the unsecured creditors that Broadview was no longer in business and that he was attempting to collect accounts receivables to pay outstanding debts. Richard Campbell, an unsecured creditor, filed suit against Broadview in the Circuit Court of Jasper County, Missouri and that suit was set for summary judgment on July 30, 1991. Mansfield stated he was concerned that judgment creditors would attempt to garnish debtor's bank account at SMB. For that reason he wire transferred $263,630.00 from SMB to account number XX-XXX-X at Bank IV of Pittsburg, N.A. ("Bank IV") on July 15, 1991.2 Then, on September 6, 1991, Mansfield transferred the sum of $235,931.86 from Bank IV account number XX-XXX-X into Bank IV account number XX-XXX-X. Mansfield intended to distribute only the $235,931.86 from account number XX-XXX-X to the unsecured creditors pro rata, and to keep the rest. On August 30, 1991, Broadview sent a letter and check drawn on Bank IV account number XX-XXX-X to each unsecured creditor proposing payment of approximately 16.6% in full accord and satisfaction of debt. Pl. Exh. # 180. A number of the unsecured creditors accepted this payment, however, others either returned the checks, held the checks, or cashed the checks with a disclaimer that the payment was not being accepted in full accord and satisfaction. Before all checks had cleared from Bank IV account number 12-736-1, Kelly Truck Lines, an unsecured creditor, filed a writ of garnishment in aid of attachment and attached approximately $12,000.00 of the funds remaining in said account. Then, on September 26, 1991, Louisiana Pacific Corporation obtained a judgment against Broadview in excess of $80,000.00. Apparently concerned that Louisiana Pacific might also garnish the unclaimed funds, Richard Mansfield, on or about October 2, 1991, withdrew all funds held at Bank IV, totalling $61,722.96, in four cashier checks made payable to Broadview. Of those funds, he retained $25,000.00 which he now claims was salary due him. The remainder of the Bank IV funds, and additional funds that were later collected, were used to purchase cashier's checks from SMB. The bulk of those monies were ultimately diverted to Mansfield.

An involuntary bankruptcy was filed against Broadview on November 12, 1991, some ten months after it closed its doors.3 Mansfield testified that at the time the bankruptcy was filed he was holding approximately $50,000.00 in cashier's checks made payable to debtor. On March 5, 1992, the Court held a conference with counsel for the petitioning creditors and Broadview. Thereafter, Broadview's counsel advised Mansfield that an Order granting the involuntary petition would be entered shortly. The next day, March 6, 1992, Mr. Mansfield went to SMB and caused two cashier's checks payable to Broadview, in the total amount of $19,743.77, to be deposited into his and his wife's personal account, leaving Broadview with no available cash. That same day, bankruptcy relief was granted by the Court. Mansfield advised his counsel that the company had no money as of November 12, 1991.4 Broadview therefore filed schedules and a statement of affairs which listed unsecured claims of $1,596,915.33, and assets of $20,000.00 in real property and $5,000.00 in personal property as of November 12, 1991. The schedules do not list the cashier's checks made payable to debtor which were being held by Mansfield on November 12, 1991.

D. The Trustee's Preference Actions Against Richard Mansfield
1. The January — May 1991 Salary and Expense Payments

The Trustee in Count VI seeks to recover certain payments that Mansfield caused Broadview to make to him within one year of the petition. Mansfield testified that he routinely did not draw a salary for the fourth quarter of a given year, preferring to take his salary for October, November, and December in January of the following year for income tax purposes. Therefore, on January 2, 1991, a check was drawn to Mansfield from Broadview in the sum of $19,388.03. Pl.Ex. # 95. In addition, Mansfield received payments from Broadview up to and including May 9, 1991, for salary and expense reimbursements. The Trustee seeks to recover these payments,...

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