Piazza v. Pac. Mar. Indus. Corp. (In re George G. Sharp)

Decision Date25 May 2022
Docket Number20-10590 (MEW),Adv. Pro 21-1000 (MEW)
PartiesIn re GEORGE G. SHARP, INC., Debtor. v. PACIFIC MARITIME INDUS. CORP., Defendant. DEBORAH J. PIAZZA, as Chapter 7 Trustee of George G. Sharp, Inc., Plaintiff,
CourtU.S. Bankruptcy Court — Southern District of New York

Chapter 7

TARTER KRINSKY & DROGIN LLP New York, New York BY: Jill Makower Esq. (Telephonically) Attorneys for Deborah J. Piazza Chapter 7 Trustee

LAW OFFICES OF CLINTON D. HUBBARD San Diego, California BY Clinton D. Hubbard, Esq. (Telephonically) and MILLER JOHNSON LAW San Diego, California By: Jon Bernard Miller, Esq. (Telephonically) Attorneys for Pacific Maritime Industries Corp.



Debtor George G. Sharp, Inc. ("Sharp") entered into a contract with the U.S. Navy, and in order to fulfill that contract Sharp ordered materials from Pacific Maritime Industries Corp. ("PMI"). The parties agree that Sharp made payments to PMI during the 90-day "preference" period that preceded Sharp's bankruptcy filing on February 25, 2020. PMI contends that the payments were prepayments and were not preferences, and that in any event the "new value" defense shields PMI from liability. The Trustee contends that the payments made by Sharp were made under a contract entered months before the payments were made; that the payments therefore were on account of an "antecedent debt" that was "owed" by Sharp before the payments were made; and that the "new value" defense is not available for various reasons.

PMI's motion for summary judgment, and the Trustee's cross-motion, were argued on January 26, 2022. On February 16, 2022 the parties filed additional submissions to address questions the Court had raised.

Jurisdiction and Constitutional Authority

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and 11 U.S.C. § 547. The parties agree that this Court has the statutory power and the Constitutional authority to render a final decision, and they have consented to the entry of a final judgment by this Court. Complaint [ECF No. 1] ¶ 6; Answer [ECF No. 7] ¶ 6.

Facts Not Subject to Genuine Dispute

The parties disagree as to how to characterize the facts and what labels to apply to them, but for the most part the underlying events are not subject to genuine dispute.

1. The parties agree that beginning in mid-2019, and continuing to the time of its Chapter 7 filing on February 25, 2020, Sharp was not able to pay its debts as they came due.

2. In 2019, Sharp issued two purchase orders to PMI for the proposed fabrication of Navy shipboard furniture. These purchase orders were issued to allow Sharp to fulfill its own obligations under orders that the Navy had placed with Sharp. One order (purchase order ES12532) was issued on or about May 2, 2019 at a price of $661, 749 before shipping. The other order (purchase order ES12550) was issued on or about July 16, 2019 at a price of $105, 290 before shipping. Each purchase order proposed a "net 45 days" payment term.

3. In email exchanges on July 23, 2019 and July 29, 2019, PMI's Contracts Director, Michael Edwards, informed the president of Sharp that two prior invoices to Sharp were past due and that PMI had put the new purchase orders "on hold until we can work out payment terms."

4. In an email dated July 30, 2019, Sharp informed PMI that it would not "pay in advance." The record does not include any details as to any discussions or other communications between the parties about this issue between July 30, 2019 and August 9, 2019. However, apparently the parties had not reached agreement by August 9, 2019. In an email dated August 9, 2019, Sharp's project manager, Paul Noftz, acknowledged that "the subject purchase orders were on hold" pending (1) the payment of the outstanding balance on another purchase order, (2) "[p]ayment schedules for the subject purchase orders;" and (3) resolution of shipping costs.

5. On August 15, 2019, Sharp requested that PMI provide invoices for the two relevant purchase orders in order to help Sharp expedite payment from the Navy, so that Sharp could expedite payment to PMI. Mr. Noftz told Mr. Edwards that Sharp had had success in getting early payment from the Navy by presenting a supplier's early invoice.

6. PMI provided Sharp with the requested invoices. The invoice for the larger purchase order (No. ES12532) was dated as of August 1, 2019 and included a statement that payment would be due within 45 days (i.e., by September 15, 2019). The invoice for the smaller purchase order (No. ES12550) was dated as of August 15, 2019 and also included a statement that payment would be due in 45 days (i.e., by the end of September 2019). There is no information in the record as to what the parties' expectations were, at that time, as to when goods were to be delivered and as to whether these payment dates meant that payments would be made before, after, or roughly contemporaneously with the deliveries of goods.

7. Some payments were made by Sharp prior to the 90-day preference period with respect to goods covered by Purchase Orders ES12532 and ES12550, including payments that were made prior to shipments that occurred on November 5, 2019. During the Hearing, the parties agreed that Sharp had made payments for the November 5, 2019 shipments prior to the dates on which the shipments occurred and prior to the 90-day preference period, and that the Trustee does not challenge those payments.

8. As of late October 2019 some portions of Purchase Order ES12532 remained open. In a series of emails from October 30, 2019 through December 9, 2019, PMI asked Sharp when payments of the balances for this "large contract" would be made, and asked when PMI "will get paid in full for this large contract." The emails stated that PMI otherwise was ready to deliver the items that Sharp had requested.

9. On December 12, 2019 the Navy (by email) asked PMI whether the "material on the outstanding invoice that Sharp owes you is ready for shipment." PMI responded that same day by noting the price of the remaining items and explaining that the "reason for COD payment is from previous PO's with George Sharp, they took a year and more to get the invoices paid, we could not let this happen on these large orders. To complete this Order after payment has been received should take approx. 3 weeks."

10. The record does not disclose whether the Navy made payments to Sharp in December 2019. However, on December 13, 2019, Sharp sent a check to PMI in the amount of $246, 769.65, which cleared on January 3, 2020. On December 17, 2019, Sharp sent an additional check in the amount of $200, 000, which cleared on December 23, 2019. The Trustee agrees that these checks represented payments with respect to the $446, 769.65 of outstanding items on purchase order ES12532. These are the two payments by Sharp that are at issue in this adversary proceeding.

11. PMI contends that Sharp maintained a positive credit balance with PMI (i.e., Sharp had paid more than it owed) throughout the preference period and that Sharp never owed PMI money during that time. The Trustee takes issue with the characterizations of the various payments as "prepayments" or as giving rise to "credit balances." However, the Trustee does not dispute that during the preference period all payments were made before the deliveries of goods.

12. On February 3, 2020, the Navy sent Sharp a list of materials "that George Sharp has paid for, but that has yet to be shipped by Pacific Maritime," and asked Sharp to arrange to have the remaining materials shipped to Q.E.D. Systems, Inc. ("Q.E.D.") rather than to Sharp. On February 4, 2020, Sharp forwarded the list of materials it had received, and asked that PMI ship the materials to Q.E.D. Id. Mr. Edwards responded by email that date and said PMI would make the shipping arrangements. Id.

13. PMI shipped $457, 163 of goods to QED on or about February 5, 2020, March 4, 2020, March 5, 2020, March 18, 2020, April 15, 2020 and April 30, 2020. Some of those shipments were made after the filing of Sharp's bankruptcy case on February 25, 2020.

Summary Judgment Standard

Federal Rule of Civil Procedure 56(a), which is applicable to this adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7056, provides that summary judgment shall be rendered if a movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). Substantive law determines the facts that are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In considering a motion for summary judgment, the evidence is viewed in the light most favorable to the non-moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970).

The Parties' Contentions

Section 547(b) of the Bankruptcy Code allows a trustee to avoid certain transfers of property made by an insolvent debtor within ninety days preceding the petition date, providing five elements are established. One such element is that the transfer was made "for or on account of an antecedent debt owed by the debtor before such transfer was made." 11 U.S.C. § 547(b)(2). Another element is that the transfer enabled the creditor "to receive more" than such creditor would have received in a chapter 7 case if the transfer had not been made and if the creditor had received payment to the extent provided under the Bankruptcy Code. Id. § 547(b)(5). A separate provision of section 547 provides a trustee may not avoid a transfer to the extent that, after such transfer, the creditor "gave new value to or for the benefit of the debtor" on account of which the...

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