In re Kroh Bros. Development Co., Bankruptcy No. 87-00640-1-11
| Decision Date | 28 July 1989 |
| Docket Number | 87-01265-1-11,Bankruptcy No. 87-00640-1-11,87-01930-1-11 and 87-01266-1-11,Adv. No. 88-0581-1-11.,87-00641-1-11,87-01263-1-11 |
| Citation | 104 BR 182 |
| Parties | In re KROH BROTHERS DEVELOPMENT COMPANY, Kroh Brothers Equity Company, Kroh Brothers Realty Company, Kroh Investments I, Inc., Kroh Telecommunities, Inc., Ward Parkway Corp., Missouri Corporations, Debtors. KROH BROTHERS DEVELOPMENT COMPANY and The Kroh Operating Limited Partnership, By I.I. Ozar, Managing Agent and Estate Administrator, Plaintiffs, v. AOKI LANDSCAPE MAINTENANCE, INC., et al., Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
Jonathan Margolies, McDowell, Rice & Smith, Kansas City, Mo., for plaintiffs.
Kenneth C. Jones, Watson, Ess, Marshall & Engas, Olathe, Kan., for Continental Const. Eng.
MEMORANDUM ORDER ON PLAINTIFFS CLAIMS AGAINST DEFENDANT CONTINENTAL CONSTRUCTION ENGINEERS, INC.
Three issues are presented in this adversary: (1) whether defendant Continental Construction Engineers, Inc. presented sufficient evidence to establish its "ordinary course of business" defense under § 547(c)(2); (2) whether the date of delivery of a check or the date the drawee bank honors the check is the "date of transfer" within the meaning of § 547(c)(4); and (3) whether "new value" under § 547(c)(4) must remain unpaid. At the close of trial the court entered findings and conclusions on defendant's § 547(c)(2) defense, which are included in this opinion. Due to splits of authority on the remaining two issues, the court requested briefs. The parties have submitted post-trial briefs and the issues are ready for decision. Also pending is defendant's post-trial Motion to Amend the Evidence. For reasons set forth in this opinion, that Motion will be granted.
The court has jurisdiction over this proceeding pursuant to Decretal Paragraph 24 of its Order confirming the plan of reorganization in the main bankruptcy case of plaintiff Kroh Brothers Development Company (Kroh).1 That paragraph provides that the bankruptcy court shall retain jurisdiction over Debtors' Chapter 11 cases in accordance with Article 13 of the Plan.2
Defendant's evidence consisted of 189 exhibits and the testimony of Philip Gibbs, Continental's president. Continental, formed in August, 1976, is a civil engineering firm that works primarily on real estate development projects being developed by private developers. Its working relationship with Kroh began in 1981 and continued until Kroh filed bankruptcy on February 13, 1987. Gibbs testified that in 1985 and 1986 50% to 60% of Continental's business was with Kroh.
The first payment in question was a check for $46,887.34 that Gibbs picked up from Kroh's offices on December 12, 1986. It cleared the bank on December 22, 1986. Continental conceded at trial that this transfer was preferential. Accordingly, the court finds that the elements of § 547(b) have been met with respect to the $46,887.34 transfer. The parties stipulated that the date of demand for return of the $46,887.34 payment was March 24, 1988.
On December 15, 1986 Continental received from Kroh an additional check for $10,512.79. It cleared the bank on January 6, 1987. This check was not produced by defendant during discovery and thus was not admitted into evidence at trial. Defendant discovered the check post-trial and filed a motion to amend the evidence to include evidence of the check, its date of delivery and the date it cleared the drawee bank. Plaintiffs did not object to the motion. The motion will be granted. Defendant concedes the preferential nature of this second transfer in its post-trial filings. Accordingly, the court finds the elements of § 547(b) have been met with respect to the $10,512.79 payment.
Because the court found, as admitted by defendant, that all the elements of § 547(b) were present with respect to both the $46,887.34 and the $10,512.79 transfer, the court concludes that preferential transfers in those amounts occurred. The remaining findings and conclusions deal solely with defendant's defenses under § 547(c)(2) and (c)(4). Defendant bears the burden of proving these defenses. 11 U.S.C. § 547(g).
Section 547(c)(2) provides that a preferential transfer is not avoidable to the extent the transfer was:
A. The $10,512.79 Transfer
As stated in defendant's Motion to Amend Evidence, the court finds the $10,512.79 transfer was for payment on three invoices numbered 1980, 2000 and 2001. The invoices were not produced. Without the invoices it is impossible to make any findings under § 547(c)(2)(B) concerning the terms of payment and payment history on the projects billed for by the invoices. Additionally, there is no evidence in the record that the debts underlying the invoices were incurred in the ordinary course of business between the parties as required by § 547(c)(2)(A). Accordingly, the court makes no findings on those questions. Because there is no evidence from which it can be determined whether the elements of § 547(c)(2)(A) and (B) have been met, the court concludes defendant did not meet its burden of proof under § 547(c)(2) as to the $10,512.79 payment.
B. The $46,887.34 Transfer
The $46,887.34 transfer was for payment of 12 invoices for work done on three projects. Gibbs' testimony showed the work done on each project was requested by Kroh and that Kroh was billed for work performed at the end of each month. The court finds that, with respect to this transfer, defendant sustained its burden of proof under § 547(c)(2)(A) that the debts were incurred in the ordinary course of the parties' business.
Based on Plaintiffs' Exhibit 1, Defendant's Exhibits 1-12 and Defendant's Exhibit 152, the court finds the $46,887.34 transfer was made for the following invoices and respective projects and that payment on those invoices was received the following number of days after the date of the invoice with respect to each project:
INVOICE DATE OF PROJECT DAYS
NUMBER INVOICE NAME LATE
1774 4-30-86 119th 226
1819 5-31-86 119th 195
1846 6-30-86 119th 165
1901 7-31-86 119th 134
1925 8-31-86 119th 103
1959 9-30-86 119th 73
1736 3-31-86 Hallbrook 256
1777 4-30-86 Hallbrook 226
1798 4-30-86 Hallbrook 226
1849 6-30-86 Hallbrook 165
1790 4-30-86 Lee's Summit 226
1928 8-31-86 Lee's Summit 103
Section 546(c)(2)(B) requires a showing that the transfer was made in the ordinary course of business between the parties. This element implicitly requires proof, first, of the ordinary course of business between the parties and, second, that the transfer in question was within the bounds of the parties' ordinary course of business. Defendant failed to meet its burden of proof under § 547(c)(2)(B) for the following reasons.
First, defendant failed to satisfactorily prove what the ordinary course of business was between itself and Kroh in regard to terms of payment. Gibbs testified, and the court finds, there was no written agreement between defendant and Kroh concerning terms of payment. The understanding between Continental and Kroh concerning terms of payment was that on both major and smaller projects Continental would be paid in full or the account would be brought current at the time construction financing was secured for a project. If no construction financing was in place by end of the year, Kroh would bring an account current with "catch up" year-end payments in November and December. Gibbs testified that Kroh was sensitive to the fact that Continental gave employees Christmas bonuses and that it relied on Kroh's "catch up" payments in determining those bonuses. Gibbs also stated these terms of payment would be problematic if it were a smaller customer or a smaller project and that one would have to have a "good understanding" with those customers.
However, the evidence shows and the court finds that after 1982 Kroh did not "catch up" on payment for most of its projects at the end of the year. The following chart, compiled from Defendant's Exhibit 152,3 shows there were always October and November invoices from the preceding year that did not get paid until the next year:
TOTAL INVOICED
PRIOR TO 12/1 OF
TOTAL PAID THAT YEAR BUT
IN THAT PAID IN THE
YEAR YEAR FOLLOWING YEAR
1983 $ 45,468.61 $13,969.50
1984 $109,442.73 $ 4,812.55
1985 $105,237.43 $26,717.82
1986 $179,068.90 Not Available
Defendant's theory that the ordinary course terms of payment were for year-end "catch up" payments on smaller and larger projects is rejected in view of the court's finding that Kroh was never currently paid at year end after 1983.
Defendant's evidence also failed to show that payment was delayed until construction financing was in place and then became more regular. Other than the evidence regarding the projects for which defendant received the $46,887.34 payment, there was no evidence of when or if the remaining projects set forth in Exhibit 152 received construction financing. Absent such evidence the court cannot determine whether the payment scheme for projects paid by construction loans, as described by Gibbs, in fact existed between defendant and Kroh.
Based on the above findings, the court further finds that defendan...
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