In re Globe Holdings, Inc., Bankruptcy No. 01-70115-CMS.

• Decision Date: 28 March 2007
• Docket Number: Adversary No. 03-70005-CMS.,Bankruptcy No. 01-70116-CMS-11.,Bankruptcy No. 01-70115-CMS.
• Citation: 366 B.R. 186
• Parties: In re GLOBE HOLDINGS, INC.; Globe Manufacturing Corp.; Debtor. Dennis J. Buckley, Litigation Trustee, Plaintiff, v. Carrier Corporation, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Alabama

366 B.R. 186

In re GLOBE HOLDINGS, INC.; Globe Manufacturing Corp.; Debtor Dennis J. Buckley, Litigation Trustee, Plaintiff, v. Carrier Corporation, Defendant.

Bankruptcy No. 01-70115-CMS.

Bankruptcy No. 01-70116-CMS-11.

Adversary No. 03-70005-CMS.

United States Bankruptcy Court, N.D. Alabama, Western Division.

March 28, 2007.

COPYRIGHT MATERIAL OMITTED

Larry D. Henin, Stanley A. Bowker, Anderson Kill & Olick PC, New York, NY, William Dennis Schilling, Birmingham, AL, for Plaintiff.

R. Scott Williams, Haskell Slaughter & Young, Birmingham, AL, for Defendant.

Heather A, Lee, Burr & Forman LLP, Birmingham, AL, for Robert Gregory.

Lloyd Chandler Peeples, III, United States Attorneys Office, Jesse S. Vogtle, Jr., Balch & Bingham, Birmingham, AL, for Globe Holdings Inc.

MEMORANDUM OF DECISION

C. MICHAEL STILSON, Bankruptcy Judge.

This matter was before the court on the complaint of Dennis J. Buckley, litigation trustee for Globe Holdings, Inc.; and Globe Manufacturing Corp., seeking to avoid allegedly preferential payments to defendant Carrier Corporation. The court, having reviewed the facts in the context of applicable law, finds that the trustee established that the payments were preferential pursuant to 11 U.S.C. § 547(b); and that Carrier failed to prove they were sheltered by the "ordinary course" defense `of 11 U.S.C. § 547(c)(2). Judgment must be entered IN FAVOR OF THE PLAINTIFF; and AGAINST THE DEFENDANT.

FINDING. OF FACTS

Dennis J. Buckley, litigation trustee for Chapter 11 debtors Globe Holdings, Inc.; and Globe Manufacturing Corp. (Globe), filed this complaint on January 10, 2003, seeking to retrieve a total of $615,831.00 from Carrier Corporation. Buckley's suit seeks to have the court declare that two payments Globe made to Carrier on a contract are avoidable as preferences pursuant to 11 U.S.C. § 547(b).

Carrier raised two defenses to the complaint: (1) Carrier asserted that the trustee failed to show it received more because of the payments than it would have received in a Chapter 7, claiming the right to a mechanic's lien on Globe real estate; and (2) Carrier also asserted that these payments were made in the ordinary course of business under 11 U.S.C. § 547(c)(2).

The court heard evidence and arguments of the parties at trial on November 1, 2006.

On June 6, 2000, Carrier executed a contract with Globe captioned CHILLER PLANT INSTALLATION AGREEMENT FOR GLOBE MANUFACTURING COMPANY. See Defendant's Exhibit 8. The parties contracted for Carrier to make major modifications to Globe's chiller system located at its Fall River, Massachusetts textile plant. There was also an agreement that the regional utility company would assist in the payment of the cost of the contract because of the energy savings to be accomplished by the upgrades.

Page 7 of Carrier's Exhibit 8 is a Schedule B setting out the payment schedule as follows:

                1. $ 93,928.00  Equipment ordering-receipt of order
                                (Interrogatory 9 showed this payment
                                came 78 days after invoice.)
                2. $162,072.00  State of work — piping materials and
                                site mobilization (Paid 50 days after
                                invoice, Interrogatory 9)
                3. $250,000.00  Delivery of pumps, VFD's, cooling
                                towers and heat exchanger (Paid 51
                                days after invoice, Interrogatory 9)
                4. $365,831.00  Delivery of chiller units and air handler-construction
                                progress (Paid 64 days
                                after invoice, Interrogatory 9)
                5. $270,121.00  Completion of chiller plant and AHU
                                installation and start-up
                6. $108,048.00  Final payment, project fully completed
                                and commissioned
                

The trustee's lawsuit seeks to recover payments 3 and 4. (Payments 5 and 6 were made by the utility company directly to Carrier and are not at issue in this suit.)

Pursuant to the terms of the agreement all payments were due to Carrier "net 30 days from date of invoice." (Carrier Exhibit 8, page 1, paragraph 4). Carrier's Exhibit 10 is a copy of an invoice dated September 19, 2000 for the $250,000.00 installment called for under the agreement. Carrier's Exhibit 11 is a copy of another invoice, also dated September 19, 2000, in the amount of 8365,831.00, the fourth payment called for on Schedule B.

Buckley introduced Carrier's answers to interrogatories into evidence as Plaintiff's Exhibit B. In answer to Interrogatory 9, Carrier responded.

The first invoice to the Debtor, dated June 7, 2000, in the amount of Ninety Three Thousand Nine Hundred Twenty Eight and No/100 Dollars (U.S. $98,928.00) was paid by the Debtor in seventy Eight (78) days.

The second invoice to the Debtor, dated June 20, 2000, in the amount of One Hundred Sixty Two Thousand Seventy Two and No/100 Dollars(U.S. $162,072.00) was paid by the Debtor in fifty (50) days.

The third invoice to the Debtor, dated September 19, 2002, in the amount of Two Hundred Fifty Two Thousand and No/100 Dollars (U.S. $250,000.00) was paid by the Debtor in fifty one (51) days.

The fourth invoice to the Debtor, dated September 19, 2002, in the amount of Three Hundred Sixty Five Thousand Eight Hundred Thirty One and No/100 Dollars (U.S. $365,831.00) was paid by the Debtor in sixty four (64) days.

Globe Holdings, Inc., and its subsidiary, Globe Manufacturing Corp., filed Chapter 11 bankruptcy petitions in this court on January 13, 2001. (At the time, Globe operated a plant in Tuscaloosa, Alabama.) So Carrier's payments on the third and fourth invoices were made within 90 days of the filing of the bankruptcy petition. The court confirmed the debtors' joint Chapter 11 plan on January 23, 2002 after Globe assets had been liquidated.

The plan also provided for the establishment of a litigation trust to pursue residual claims and causes of action on behalf of certain Globe creditor groups. Buckley is trustee of the Globe Holdings, Inc. and Globe Manufacturing Corp. Litigation Trust, as successor in interest and representative of the Chapter 11 debtors. It was in that capacity that the trustee filed this preference lawsuit on January 10, 2003.

Paragraph 4 on page 1 of Carrier's Exhibit 8 states that "All material and work provided by Carrier pursuant to this Agreement is deemed to be an improvement to real property within any mechanic's lien provision applicable to the real property." The fact that these major components would fall within this contractual definition is not in dispute. The parties disagreed on the status Carrier would hold as a creditor under Massachusetts law. Following Globe's payments 3 and 4, it took no steps to create or perfect a mechanic's lien in the real estate.

Carrier's service representative Chris O'Connor testified on the nature of the contract and payments under the terms of this and other Carrier contracts. O'Connor said that the documents showed Carrier's Exhibit 10 was paid approximately 50 days after the date of invoice, and that Carrier's Exhibit 11 was paid approximately 60 days after the date of the invoice.

He also testified that while all Carrier contracts have the net-30-days provision, the term is not complied with. O'Connor did testify that Carrier tracks payments and described what Carrier characterized as a "date sales outstanding figure" (DSO) figure which tracks how long it takes customers to pay invoices. He stated that the average DSO in the eastern region of the United States was only 44 days, shorter than the actual DSOs on the contested payments.

O'Connor testified that Carrier's credit and collection department tracked payments on accounts, and the department contacted him only when a problem arose. He said he never heard anything from credit and collection about the Globe account. He did testify that credit and collection became nervous at about 90 days after an unpaid invoice, and would take enforcement action such as stopping work on a job. Nothing happened on the Globe account to his knowledge, he said.

David Witham also testified on behalf of Carrier. Witham is a professional engineer by training and was employed by Carrier as project manager on the Globe job. He testified that over the last 10 years he has handled 50 to 60 similar jobs involving utility companies and company plant modifications.

In his role as project manager, Witham said he would generally approve invoices for payment by owners; and would hear from contractors if they were not paid. He testified that' he did not know when invoices were mailed or when they were paid. His general sense of payment activity came only when unpaid contractors complained, he said. He referred to the sending of invoices and receipt of payments as "back office work", and not something he dealt with directly.

Witham testified that 45- to 60-day delay between invoicing and payment was usual in this industry. Anything over 60 days and people began to get concerned, he said. A lag of 90 days or more would be outside the range of normal payment practices in this industry, he said.

At the conclusion of the November 1, 2006 hearing, the court allowed the parties to submit post-trial briefs, taking the case under submission for a decision as of December 13, 2006.

CONCLUSIONS OF LAW

This court has jurisdiction of Globe's liquidating Chapter 11 case pursuant to 28 U.S.C. § 1334(a). The court has jurisdiction of this lawsuit, a core bankruptcy proceeding arising under the Bankruptcy Code, pursuant to 28 U.S.C. § 1334(b). Jurisdiction is referred to this Bankruptcy Court by the General Order of Reference of the United States District Courts for the Northern District of Alabama, Signed July 16, 1984, As Amended July 17, 1984.

I.

The trustee has met his burden of showing that all elements of an avoidable preference under 11 U.S.C. § 547(b) are present in these payment transactions.

The trustee brought this action asserting that the Globe's payments to Carrier on invoices in Exhibits 10 and 11 were preferential transfers within the meaning of ...