In re Seventh Ave. South, Inc.

• Decision Date: 13 April 1981
• Docket Number: Bankruptcy No. 7-80-00261.
• Citation: 10 BR 289
• Parties: In re SEVENTH AVENUE SOUTH, INC., t/a The Clothier, Debtor.
• Court: U.S. Bankruptcy Court — Western District of Virginia

10 B.R. 289 (1981)

In re SEVENTH AVENUE SOUTH, INC., t/a The Clothier, Debtor.

Bankruptcy No. 7-80-00261.

United States Bankruptcy Court, W.D. Virginia, Roanoke Division.

April 13, 1981.

J. Albert Ellett, Roanoke, Va., for debtor.

J. Glenwood Strickler, Roanoke, Va., Trustee.

Bruce C. Ellett, claimant.

MEMORANDUM OPINION AND ORDER

H. CLYDE PEARSON, Bankruptcy Judge.

Upon motion of the Trustee and the Debtor by counsel, a re-hearing was granted upon objections filed to claims No. 1 and 2 herein by Bruce C. Ellett claiming priority wages. This Court previously had ordered a priority upon said claims to the extent provided in 11 U.S.C. § 507(a)(3) of $2,000.00. Claim No. 1 was filed in the sum of $150.75 representing a final payroll check which failed to clear the bank and was returned to the former employee. Claim No. 2 was filed in the sum of $4,454.00 as priority representing commissions earned and unpaid.

Upon re-hearing the evidence appeared as follows: Bruce C. Ellett, employee of the Debtor, was engaged by the President of the Debtor, Richard Berrong, in the capacity as apparent chief representative of the Debtor in a subsidiary venture as a wholesaler for Cargo Fashions, Inc., 116 S. Long Beach Rd., Rockville Centre, New York 11570, in the areas of Virginia, North and South Carolina. The employee testified that she traveled extensively to New York and elsewhere in Virginia, North and South Carolina promoting the sale of apparel manufactured, produced or distributed by Cargo Fashions, Inc. In addition to the travel and exhibition of the merchandise at shows seeking sales to retailers the employee maintained the books and records of this subsidiary venture and from the evidence appeared to be substantially in charge of this operation. The employee commenced services to the Debtor in this capacity in February or March of 1979 promoting through May sales of the "Fall line" of merchandise. She further testified that the sales activity was to some degree seasonal in that her duties were directed at promoting generally Spring, Summer and Fall line of this merchandise. She commenced her work in this capacity in January or February, 1979; that sales continued through the Summer, Fall and Winter of 1979 and that most of the commission set forth in Claim No. 2 was a result of sales in the first season made in the Spring of 1979 of the "Fall line". Following the demonstration and sale of the "Fall line" she had started working on the succeeding lines for the next season until the closing of the Debtor's business, and subsequently thereafter, the Chapter 7 petition was filed.

The employee filed with her claim, which was exhibited at the hearing and made a part of the evidence, a summary of the earnings from the sale of Cargo Fashions, Inc. merchandise. The statement reflects "season: Fall, 1979 Final Statement". The total gross was $159,937.00. Total clear orders to date $152,559.50. Total shipped full price $138,185.00. Total returns to date $8,758.00. Balance $129,426.70 less 8% sales discount $10,354.14, balance $119,072.56. Commission at 7% $8,335.08. Total written off price to date $22.87. Total shipped off price to date $19,122.00. Commission due at 3% — $573.66. Balance $8,908.74. The employee, Ellett, contends that under her agreement with Berrong, this balance of $8,908.74 was to have been divided 50-50 between Ellett and Berrong.

The Cargo statement further reflects an additional entry less draws to date: ($7,200.00), balance $1,708.74, balance due sample line $5,658.01, net balance due Cargo $3,949.27.

Mr. Berrong testified that he was the Chief Operating Officer of the Debtor in charge of its entire operation including subsidiary wholesale division representing Cargo Fashions, Inc.; that the $7,200.00 was paid to him and that Ellett would be entitled only to the one-half of the $1,708.74 amounting to $854.37 in addition to the $150.75 representing unpaid salary check returned to Ellett and failing to clear the bank. Ellett maintains, however, that her understanding was that the "balance line" reflecting $8,908.74 was the amount upon which she and Berrong had agreed to be divided 50-50 and that that sum should not be diminished by the amount of $7,200.00 which Berrong withdrew as his own income from the operation.

The testimony of Berrong was unclear and inconclusive as to the facts surrounding his arrangement with Ellett. This was particularly noticeable since he was President and Chief Operating Officer of the Debtor Corporation. When questioned as to his withdrawals of the $7,200.00, the witness responded that this sum was compensated with Ms. Ellett by the payment of her salary of $800.00 per month, however, Ellett's testimony was clear and explicit that the 50-50 division of the net balance was in addition to her salary.

Crucial to the issue in this case is the time of the compensation earned within the purview of 11 U.S.C. § 507(a)(3).¹

With respect to that question, the evidence was unclear as to the specific arrangements and payments thereon. Berrong testified that the commissions could not be paid, although earned and herein ascertainable until all records had been completed, credits given, along with returns and adjustments which would enable a final tally to be made of commissions earned due and payable; that he had not received from Cargo Fashions, Inc. any statement such as the one Ellett obtained and attached to her claim and exhibited evidence herein until after filing of the petition in this Court on March 12, 1980. Ellett testified that she obtained a statement from Cargo Fashions, Inc. after the petition was filed in order to document her claim to commissions. Berrong further testified that the computations after all adjustments would not have been available and, hence, commissions earned known until November or December of 1979. The evidence is unclear as to when the Debtor's business ceased. It obviously was prior to March 12, 1980 when the petition was filed. The file reflects the last inventory was made on January 30, 1980, however, Ellett's claim No. 1, which has evidence of the returned check attached thereto reflects that this check failed to clear after the business closed and the date upon this check evidenced by the bank's stamp returning the same to Ellett was February 8, 1980. It is reasonable to assume that the negotiation of the payroll...