United States District Court, E.D. Virginia, Alexandria Division
In re THE TRULAND GROUP, INC., et al, Debtors.
H. JASON GOLD, in his capacity as trustee for The Truland Group, Inc., et al,, Appellee. MYERS CONTROLLED POWER, LLC,, Appellant,
M. Brinkema, United States District Judge
the Court is Myers Controlled Power, LLC's
("Myers" or "appellant") appeal from an
order of the bankruptcy court in this adversary proceeding
granting judgment in favor of H. Jason Gold, the trustee
("trustee" or "appellee") for the
avoidance and recovery of a preference in the amount of $2,
107, 039.86, along with prejudgment interest at the federal
rate. The appeal has been fully briefed,  and the Court finds
that oral argument would not aid the decisional process. For
the reasons stated below, the judgment of the bankruptcy
court will be affirmed.
dispute arises out of a large-scale construction project
related to the Washington Metropolitan Area Transit
Authority's ("WMATA") Orange and Blue Lines.
Mem. Op. 1-2. WMATA engaged Clark Construction Group, LLC
("Clark") to serve as the prime contractor for the
$273 million renovation. Id. at 2. Clark then
subcontracted with Truland Walker Seal Transportation, Inc.
("TWST"), one of several affiliated companies
performing electrical contracting work under the name
"Truland." Id. at 1-2. Among other terms,
the subcontract between Clark and TWST included a
"flow-down" provision requiring TWST to pay all
subcontractors and suppliers to prevent those parties from
making any claims against the surety that guaranteed
TWST's performance. Id. at 2. TWST ultimately
decided to use Myers, the appellant, as a second-tier
subcontractor to provide necessary electrical equipment and
switches. Id. at 2-3. Myers did not contract with
TWST directly; rather, it signed a supplier subcontract with
Nationwide Electrical Services, Inc. ("NES"), a
disadvantaged business enterprise. Myers sent all but one of
its invoices to NES. Id. at 3. Even so, "Myers
took its directions exclusively from TWST, not from
Truland companies ran into serious financial difficulties in
the spring of 2014 and became unable to make the required
flow-down payments to their suppliers and subcontractors.
Mem. Op. 4. As unpaid invoices began to accumulate, Myers
notified TWST and Clark that it would cease delivering
equipment until payments resumed. Id. Because
TWST's financial difficulties were threatening the
schedule of the overall project, the parties began searching
for alternative arrangements. Myers initially sought direct
payment and a guarantee from Clark. Clark refused, insisting
instead on an arrangement in which checks made jointly
payable to Myers and TWST would be sent to TWST for
endorsement and then delivered to Myers. Id. at 5.
Based on Clark's representations about this arrangement,
Myers released equipment worth approximately $1.8 million on
May 27, 2014. Id. at 6. The parties executed the
Joint Check Agreement ("JCA") on June 16, 2014, and
two days later, Myers released additional equipment worth
over $250, 000. Id. On July 11, 2014, Clark
delivered a check made jointly payable to TWST and Myers in a
total amount of $2, 107, 039.86; TWST endorsed the check,
returned it to Clark, and Clark forwarded it to Myers.
filed a Chapter 7 bankruptcy petition on July 23, 2014.
TWST's petition was jointly administered with those of
The Truland Group, Inc. and the rest of its subsidiaries
(collectively, "debtors"). The trustee instituted
this adversary proceeding in July 2016, seeking to recover
the $2, 107, 039.86 paid to Myers under the JCA as an
avoidable transfer under 11 U.S.C. § 547(b). Myers
opposed the trustee's efforts on several grounds,
including that Myers was not a creditor of TWST or any of the
other debtors at the time of the alleged transfer; that the
joint check was not TWST's "property," at least
for purposes of bankruptcy law, at the time of the transfer;
and that the transfer was not avoidable because it was a
substantially contemporaneous exchange for new value under 11
U.S.C. § 547(c).
bankruptcy court held a trial on the merits in February and
March of 2018. Based on the parties' written submissions
and the evidence adduced at trial, the bankruptcy court found
that Myers was TWST's creditor at the time of the
transfer in July 2014; that the joint check was properly part
of the bankruptcy's estate as of that date; that the JCA
and resulting payment constituted an avoidable transfer from
TWST to Myers; and that although the parties had intended to
effect an exchange for new value through the JCA, that
exchange was not "substantially contemporaneous"
and thus was not covered by § 547(c)'s defense to
avoidance. The bankruptcy court concluded that the trustee
was entitled to recovery of the $2, 107, 039.86 transfer
along with prejudgment interest at the federal rate, as
calculated from the date of filing of the adversary
proceeding. Myers timely filed this appeal.
bankruptcy court had jurisdiction over this dispute under 28
U.S.C. § 1334 and the Order of Reference entered on
August 15, 1984. This is a core proceeding under 28 U.S.C.
§ 157(b)(2)(F), and the Court has jurisdiction over
Myers's appeal under 28 U.S.C. § 158(a). On appeal,
the bankruptcy court's legal determinations are reviewed
de novo, and its factual findings are reviewed for
clear error. Fairchild Dornier GMBH v. Official Comm. of
Unsecured Creditors (In re Dornier Aviation (N. Am.).
Inc.). 453 F.3d 225, 231 (4th Cir. 2006); see First
Owners' Ass'n of Forty Six Hundred Condo.. Inc. v.
Gordon Props.. LLC (In re Gordon Props.. LLC).
516 B.R. 323, 327 (E.D. Va. 2014) ("A district court
sitting as an appellate court in a bankruptcy proceeding
reviews the [bankruptcy] court's legal conclusions de
novo.... [F]indings of fact will be overturned only if
consideration 'of the entire record leaves [the reviewing
court] with the definite and firm conviction that a mistake
has been committed.'" (third alteration in original)
(quoting Harman v. Levin. 772 F.2d 1150, 1153 (4th
the Bankruptcy Code, the trustee may avoid any transfer of an
interest of the debtor in property-
or for the benefit of a creditor;
or on account of an antecedent debt owed by the debtor before
such transfer was made;
made while the ...