In re Pameco Corp.

• Decision Date: 22 November 2006
• Docket Number: Adversary No. 05-01970 (ALG).,Bankruptcy No. 03-13589 (ALG).
• Citation: 356 B.R. 327
• Parties: In re PAMECO CORPORATION, Debtor. Buchwald Capital Advisors LLC, Trustee of the Pameco Corporation, et al., Liquidating Trust, Plaintiff, v. Metl-Span I., Ltd., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

356 B.R. 327

In re PAMECO CORPORATION, Debtor Buchwald Capital Advisors LLC, Trustee of the Pameco Corporation, et al., Liquidating Trust, Plaintiff, v. Metl-Span I., Ltd., Defendant.

Bankruptcy No. 03-13589 (ALG).

Adversary No. 05-01970 (ALG).

United States Bankruptcy Court, S.D. New York.

November 22, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Morrison Cohen, LLP, Co-Counsel for the Liquidating Trustee by Joseph Moldovan, Esq., Michael R. Dal Lago, Esq., New York, NY.

Ask Financial LLP, Co-Counsel for the Liquidating Trustee by Karen M. Scheibe, Esq., Joseph L. Steinfeld, Esq., Joseph A. Hess, Esq., Eagan, MN.

Kazlow & Kazlow, Co-Counsel for-Metl-Span I., Ltd., By Gene R. Kazlow, Esq., Stuart L. Sanders, Esq., New York, NY.

Bernstein Law Firm, P.C., Co-Counsel for Metl-Span I., Ltd., by Kirk B. Burkley, Esq., Robert S. Bernstein, Esq., Pittsburgh, PA.

MEMORANDUM OF OPINION

ALLAN L. GROPPER, United States Bankruptcy Judge.

Introduction

This is an adversary proceeding brought by Buchwald Capital Advisors LLC, Trustee of the Pameco Corporation, et al., Liquidating Trust ("Plaintiff"), against MetlSpan I., Ltd. ("Defendant") seeking the avoidance and recovery, pursuant to Bankruptcy Code §§ 547-550, of a transfer made by Pameco Corporation (the "Debtor") to Defendant. Plaintiff and Defendant have both moved for summary judgment on the claims raised in the adversary complaint.

Background

The Debtor was a distributor of heating, ventilation, air conditioning and refrigeration equipment and related materials. Defendant is a producer and supplier of metal products. The Debtor and Defendant were parties to a prepetition construction project with three parties, Shamrock, Inc. ("Shamrock"), Tropicana, Inc. ("Tropicana") and BMP Moorestown Realty, LLC ("BMP"). The project involved the construction of a Tropicana facility on property located in New Jersey that was owned by BMP (the "Premises"). Shamrock was the general contractor on the project, the Debtor served as a subcontractor for Shamrock, and Defendant was a supplier to the Debtor. The Debtor arranged for the purchase of certain metal products from Defendant and contracted with Shamrock to provide these products for the construction project.

The following facts are established in the moving affidavits, and they are not contested in material part. Defendant shipped certain products to the Premises on December 30, 2002. On December 31, 2002, Defendant sent an invoice to the Debtor for the products in the amount of $25,943.91, with a payment date of January 30, 2003. The Debtor failed to make payment by such date, and during the following month Defendant called the Debtor several times in an effort to obtain payment of the amounts owed. On February 28, 2003, the Debtor wrote a check to Defendant in the amount of $25,943.91, but subsequently stopped payment on the check, and it did not clear.

On March 12, 2003, Defendant requested that the Debtor remit payment forthwith by cashier's check. The Debtor failed to make such payment and on March 21, 2003, Defendant recorded a construction lien claim against the Premises in the amount of $25,943.91 (the "Lien"), pursuant to N.J. Stat. Ann. § 2A: 44A-8. Defendant delivered notification of the Lien to BMP, Tropicana and the Debtor. On March 21, 2003, Shamrock issued a check to the Debtor in the amount of $25,846.35, and on March 28, 2003, the Debtor issued a check to the Defendant for $25,943.91 (the "Payment").

On April 1, 2003, the Controller for Shamrock sent a fax to Defendant's then counsel, stating:

I am following up on the lien claim that you filed on behalf of your client, Metal Span [sic]. It is my understanding last week that our supplier, Pameco Corp. had made arrangements to either send you a certified check or overnight check. Would you please confirm that you have indeed received the necessary funds so that I may inform our customer of its resolution.

(Ex. A to Aff. of Raymond Miller, the "Shamrock Fax.") The Debtor's check cleared on or about April 7, 2003, and Defendant released the Lien on April 16, 2003.

On June 3, 2003, the Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On November 8, 2004, this Court confirmed the Debtor's Amended Liquidating Plan (the "Plan"), and Plaintiff was appointed Liquidating Trustee in accordance therewith.

Thereafter, Plaintiff commenced this adversary proceeding seeking the avoidance and recovery of the Payment on the following grounds: (i) avoidance of a preference under § 547(b); (ii) avoidance of a fraudulent conveyance under § 548(a)(1)(B); (iii) recovery of a postpetition transfer under § 549; and (iv) recovery of an avoidable transfer under § 550. Both parties have filed motions for summary judgment on all claims raised in Plaintiff's complaint.

For the reasons set forth below, Defendant's motion for summary judgment is denied. Plaintiffs motion for summary judgment is granted only with respect to those claims in the complaint relating to § 547 of the Bankruptcy Code.

Discussion

In accordance with Bankruptcy Rule 7056, which incorporates Fed.R.Civ.P. 56, summary judgment may be granted "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Morenz v. Wilson-Coker, 415 F.3d 230, 234 (2d Cir.2005). The moving party bears the burden of demonstrating the absence of any genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); see also Ames Dep't Stores, Inc. v. Wertheim Schroder & Co., Inc., 161 B.R. 87, 89 (Bankr.S.D.N.Y.1993). A fact is considered material if it might affect the outcome of the suit under governing law. See Anderson, 477 U.S. at 248, 106 S.Ct. 2505. When the court considers a motion for summary judgment, it must resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought. Heyman v. Commerce & Indus. Ins. Co., 524 F.2d 1317, 1318 (2d Cir.1975); see also Ames Dep't Stores, Inc., 161 B.R. at 89. However, a party opposing a motion for summary judgment cannot rest on its pleadings but must provide evidence to support the essential elements of its case. See Anderson, 477 U.S. at 248, 106 S.Ct. 2505; DePippo v. Kmart Corp., 335 B.R. 290, 294-95 (S.D.N.Y.2005), citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

The parties have not pursued any contentions on these summary judgment motions as to the applicability of the provisions of the Bankruptcy Code relating to fraudulent and post-petition transfers, §§ 548(a)(1)(B) and 549, and have instead properly focused on whether the Payment can be avoided as a preference under § 547(b).¹ Specifically, as argued by the parties, the issues for determination are as follows: (i) does the Payment constitute a transfer of the Debtor's property; (ii) does the Payment satisfy the requirement of § 547(b)(5) that the Payment enabled Defendant to receive more than it would have received if the Payment had not been made and Defendant had been paid to the extent provided by Chapter 7 of the Bankruptcy Code; and (iii) is Defendant able to invoke one of the exceptions to the avoidance of a preference in § 547(c) of the Bankruptcy Code?

I. The Payment Constitutes a Transfer of the Debtor's Property

A prepetition transfer may not be avoided as a preference under the Bankruptcy Code unless it qualifies as a "transfer of an interest of the debtor in property," as set forth in the introductory clause of § 547(b). Defendant asserts that the Payment does not meet this requirement because, as a matter of equity, the Court should impose a constructive trust in favor of Defendant on the funds Shamrock paid to the Debtor. This in turn would make the Payment a transfer of Shamrock's, rather than the Debtor's, property. Defendant claims that the imposition of a constructive trust is required because (i) Shamrock allegedly transferred funds to the Debtor with the expectation that the Debtor would use these funds to satisfy Defendant's Lien, and (ii) the Debtor was under a legal obligation to convey Shamrock's funds to Defendant because it knew or should have known of Shamrock's expectation.

The parties do not dispute that New Jersey law governs whether a constructive trust should be imposed on the funds paid by Shamrock because the funds were allegedly paid in order to remove a lien imposed on New Jersey property pursuant to New Jersey law. See In re Howard's Appliance Corp., 874 F.2d 88, 93-4 (2d Cir.1989) ("One must look to state law ... to determine whether to impose a constructive trust on property within the debtor's possession.") In order to prevent unjust enrichment, New Jersey courts will impose a constructive trust where the recipient of a transfer of property acquired the property through wrongful behavior, such as "fraud, mistake, undue influence or breach of confidential relationship." Id. at 94, quoting D'Ippolito v. Castoro, 51 N.J. 584, 588, 242 A.2d 617, 619 (1968); Flanigan v. Munson, 175 N.J. 597, 608, 818 A.2d 1275 (2003).

In this case, Defendant's claim that a constructive trust should be imposed on the funds Shamrock paid to the Debtor fails because there is no evidence of misconduct or wrongful behavior on the part of the Debtor. By alleging that the Debtor had a legal obligation to convey Shamrock's funds to Defendant, Defendant appears to argue that the Debtor would have breached a confidential or special relationship with Shamrock had the Payment not been made. However, the record demonstrates that the Debtor and...