Matter of Kroh Bros. Development Co.
| Decision Date | 20 April 1990 |
| Docket Number | 89-1022-CV-W-5,Adv. No. 88-0581-1-11.,Bankruptcy No. 87-00640-1-11 |
| Parties | In the Matter of KROH BROTHERS DEVELOPMENT CO., Debtor. KROH BROTHERS DEVELOPMENT CO., Kroh Brothers Equity Co., Kroh Brothers Realty Co., Kroh Investments I, Inc., Kroh Telecommunities, Inc., Ward Parkway Corporation, Plaintiffs-Appellants, v. CONTINENTAL CONSTRUCTION ENGINEERS, INC., Defendants-Appellees. |
| Court | U.S. District Court — Western District of Missouri |
Jonathan A. Margolies, Kelly Charles Tobin, McDowell, Rice & Smith, Kansas City, Mo., for plaintiffs-appellants.
Robert E. Fitzgerald, Jr., Ann Thompson, Kenneth E. Jones, Watson, Ess, Marshall & Enggas, Kansas City, Mo., for defendants-appellees.
Before this Court is the appeal and cross-appeal from an adversary proceeding decided by Bankruptcy Judge Karen M. See. Plaintiffs in the action below were the administrators of the debtors' bankruptcy estates, and sought recovery as preferential transfers of sums paid by the debtors to defendant Continental Construction Engineers, Inc. The Bankruptcy Court, agreeing in part with defendants' defense to the preferential transfer claim, reduced plaintiffs' claim, awarding plaintiffs $27,909.94. In accordance with the following reasoning, this Court affirms the decision of the Bankruptcy Court.
The Kroh Brothers Development Company ("KBDC"), formerly one of Kansas City's largest real estate development companies, filed its petition for relief under Chapter 11 of the Bankruptcy Code on February 13, 1987. Other entities related to KBDC subsequently filed bankruptcy under Chapter 11. The Bankruptcy Court consolidated all of the related Chapter 11 cases and confirmed a plan of reorganization for all debtors on March 8, 1988. Plaintiffs in this action are the administrators of the debtors' bankruptcy estates (collectively referred to as "Administrators"), who are the designated parties-in-interest under the plan of reorganization.
The defendant in this action is Continental Construction Engineers, Inc. ("Continental"), a civil engineering firm which had provided professional engineering services to KBDC since 1981. Continental had performed a variety of civil engineering services for KBDC, including work on a real estate development project known as Hallbrook Farm. Debtor KBDC, as the sole general partner of KBHF Associates, Limited Partnership, had acquired in August of 1986 a portion of Hallbrook Farm for development pursuant to agreements with Hallmark Farms Associates.
Continental received a check from KBDC on December 12, 1986, in the amount of $46,887.34, representing payment on twelve invoices for work done for KBDC. KBDC's bank paid this check on December 22, 1986.
Continental received a second check from KBDC on December 15, 1986, in the amount of $10,512.79, representing payment on three additional invoices. KBDC's bank paid this check on January 6, 1987. These two checks, in the total amount of $57,400.13, were the basis of the Administrators' complaint against Continental. The complaint was filed on August 5, 1988 to recover the sum, plus interest, as a preferential transfer.
Continental's defense in the action was that the Administrators' preferential transfer claim was barred by 11 U.S.C. § 547(c)(4). That section of the Bankruptcy Code bars the bankruptcy trustee's recovery of preferential transfers when the creditor has conferred new value on the debtor after the transfer. Continental claimed that it had conferred new value on the debtor's estate by the performance of work for KBDC during the time period between the delivery of the first check on December 12, 1986 and the bankruptcy filing on February 13, 1987. Continental contended that because of this new value, the Administrators' preferential transfer claim was barred.
Continental stated that most of the services rendered after delivery of the first check on December 12, 1986 were in connection with the Hallbrook Farm project. KBDC was invoiced for the work performed after December 12, 1986, but did not pay. Continental received payment for the services from other parties.
KBDC entered into an agreement with Hallmark Farm Associates, from whom it had purchased its interest in Hallbrook Farm, on January 18, 1987. That agreement transferred and assigned, for consideration, all of KBDC's interest in Hallbrook Farm. The transfer included the engineering work performed to that date by Continental.
The Bankruptcy Court tried the adversary proceeding on January 10, 1989. The court determined that the Administrators had established a prima facie case of preferential transfer. The Court issued a memorandum order on July 28, 1989, holding that Continental had provided KBDC's bankruptcy estate with new value totaling $29,490.00, reducing the Administrators' preference claim to $27,909.94.
Plaintiffs, the Administrators, now appeal the Bankruptcy Court's action to this Court, and defendant, Continental, cross-appeals. The Administrators' appeal is based on the following issues: (1) whether the Bankruptcy Court erred in holding that the date of transfer of funds, for the purposes of the 11 U.S.C. § 547(c)(4) "new value" bar to recovery, is the date of the check's delivery rather than the date the check clears the bank; (2) whether the Bankruptcy Court erred in holding that 11 U.S.C. § 547(c)(4) allows a creditor who has been paid for the "new value" added to the creditor's estate to nonetheless assert the "new value" defense; and (3) whether the Bankruptcy Court's factual determination that the debtor's interest in the Hallbrook Farm project terminated on January 18, 1987 is clearly erroneous. Continental's issue on cross-appeal is whether the Bankruptcy Court was clearly erroneous in refusing to include the services rendered by Continental employee Philip Gibbs in its calculation of the amount of new value.
This Court has appellate jurisdiction to hear appeals from orders of bankruptcy judges pursuant to 28 U.S.C. § 158 (1984). This Court must review on appeal the issues of law and the issues of fact under two different standards. The following issues in the case at bar are issues of law: (1) whether the transfer date of a check under 11 U.S.C. § 547(c)(4) is the date of delivery or the date the check clears the bank; and (2) whether new value advanced to the debtor by a preference defendant may be paid and still qualify as a defense under 11 U.S.C. § 547(c)(4). This Court, as an appellate court, may make determinations on issues of law on a de novo basis without deference to the Bankruptcy Court's determination on the issue. In re Blankemeyer, 861 F.2d 192 (8th Cir.1988); Combs v. Rubin, 101 B.R. 590, 591 (W.D. Mo.1989).
The issue of when KBDC's interest in the Hallbrook Farm project terminated, and the disputed computation of the amount of new value are issues of fact. This Court, as an appellate court, must accept the Bankruptcy Court's findings of fact unless they are clearly erroneous. Bankr.R. 8013. The "clearly erroneous" standard means that factual findings of the trial court will be reversed only when the reviewing court, on the entire evidence, is left with a definite and firm conviction that a mistake has been made. Anderson v. City of Bessemer, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985) (citations omitted). Reversal is appropriate under these circumstances even if there was some evidence to support the judgment in the lower court. Id.
The Administrators contend that the Bankruptcy Court erred in concluding that the time of transfer for the purposes of 11 U.S.C. § 547(c)(4) is the time of delivery of the check. This is an issue of law, and will be reviewed by this Court on a de novo basis.
The Administrators state that case law establishes the transfer date as the date the check is honored by the drawee bank, rather than the date the check is delivered. The date is at issue because the calculation of the amount of "new value" will vary according to when the transfer is deemed to have occurred. If the transfer is determined to have occurred when the checks were honored by the bank, several days of Continental's professional services rendered after delivery of the checks would go uncompensated.
The Bankruptcy Court below, in a well-reasoned decision, held that the date of transfer for the purposes of computing "new value" is the time of delivery of the check. The Bankruptcy Court relied both on established case law, see, e.g., Amarex, Inc. v. Aztec Specialty Leasing Co. (In re Amarex, Inc.), 88 B.R. 362, 365 (W.D.Okla. 1988); Thomas W. Garland, Inc. v. Union Electric Co. (In re Thomas W Garland, Inc.), 19 B.R. 920, 928 (E.D.Mo.1982), and on public policy.
The strong public policy of encouraging creditors to deal with troubled businesses was a focus of the Bankruptcy Court's opinion. The intent of the Bankruptcy Court was to promote that public policy by holding that transfers occur upon check delivery, thereby lengthening the period of time for calculating the "new value." The action of the Bankruptcy Court is supported by a recent Eighth Circuit opinion recognizing that important policy. Bergquist v. Anderson-Greenwood Aviation Corp. (In re Bellanca Aircraft Corp.), 850 F.2d 1275, 1280 (8th Cir.1988).
This Court is unpersuaded by the Administrators' argument that the Court is bound by precedent established by Dubuque Packing Co. v. Stonitsch (Matter of Isis Foods, Inc.), 37 B.R. 334 (W.D.Mo.1984). The Dubuque Packing court did not construe 11 U.S.C. § 547(c)(4), but instead construed 11 U.S.C. § 549(a), a section allowing bankruptcy trustees to avoid post-petition transfers. Dubuque Packing therefore does not control the issue of time of transfer in the case at bar.
This Court will not further restate the sound reasoning of the Bankruptcy Court. This...
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