1

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF VIRGINIA

Alexandria Division

In re: )

)

THE TRULAND GROUP, INC., ) Case No. 14-12766-BFK

) Chapter 7

Debtor. )

___________________________________ )

)

H. JASON GOLD, )

IN HIS CAPACITY AS TRUSTEE FOR )

THE TRULAND GROUP, INC., ET AL., ) Adversary Proceeding

) No. 16-01151-BFK

Plaintiff, )

)

v. )

)

MYERS CONTROLLED POWER, LLC, )

)

Defendant. )

MEMORANDUM OPINION 

This matter came before the Court on the Defendant’s Motion for Summary Judgment

and Memorandum in Support. Docket Nos. 33, 34. The Plaintiff filed an Opposition to the 

Motion. Docket No. 41. The Defendant filed a Reply Memorandum. Docket No. 42. The Court 

heard the arguments of the parties on October 31, 2017. 

This adversary proceeding is brought by the Chapter 7 Trustee of Truland Walker Seal 

Transportation, Inc. (“TWST”) against a supplier of electrical equipment, Myers Controlled 

Power, LLC (“Myers”), for the avoidance and recovery of an alleged preference under Section 

547 of the Bankruptcy Code. 11 U.S.C. § 547(b). Alternatively, the Trustee seeks to avoid and 

recover the payment under Section 548(a)(1)(B) of the Code, alleging that the payment to Myers 

was for less than reasonably equivalent value, at a time when the Debtor was insolvent or had an 

unreasonably small capital to operate its business. 11 U.S.C. § 548(a)(1)(B). 

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For the reasons stated below, the Court finds that Myers has not met its burden to show 

that there was a contemporaneous exchange for new value under Section 547(c)(1) of the Code

when it released certain electrical equipment in exchange for the payment from the Debtor (the 

focus here being whether the exchange was truly “contemporaneous”). The Court finds, on the 

other hand, that there is no genuine dispute that the release of the equipment was reasonably 

equivalent value for the payment made under Section 548(a)(1)(B). Accordingly, the Court will:

(a) deny the Defendant’s Motion on Count I, the Preference Count; and (b) grant the Defendant’s 

Motion on Count II, the Section 548(a)(1)(B) Count. 

Undisputed Facts

The Court finds that the following facts are not genuinely in dispute. 

1. TWST was one of a group of affiliated companies doing business under the name 

“Truland.” Truland and its affiliates comprised one of the largest electrical contractors in the 

United States, with very substantial contracts, including the federal government’s Utah Data 

Center project, the Marriott Marquis in Washington, D.C., and the job that gave rise to this 

adversary proceeding, the Rehabilitation of the Orange/Blue Line – Stadium Armory to National 

Airport – for the Washington Metropolitan Area Transit Authority (WMATA). 

A. The Parties’ Contractual Arrangements. 

2. In January 2011 TWST, as Subcontractor, entered into a Subcontract Agreement 

with Clark Construction Group, LLC (“Clark”) as the prime contractor on the Orange/Blue Line 

job. Motion, Ex. A. The total sum to be paid under the Subcontract was $45,000,000.00. Id., ¶ 

4(a). 

3. Partial payments of 95% of the approved work and for on-site stored materials 

were permitted under the Subcontract. Id., ¶ 4(b). 

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4. The Subcontract contained what is generally known as a “flow down” provision, 

meaning that TWST as a Subcontractor was contractually obligated to pay its subcontractors and 

suppliers, and to avoid any bond claims against the surety that guaranteed TWST’s performance. 

Id., ¶ 4(c). 

5. Myers did not subcontract directly with TWST. Rather, Myers entered into a 

Supplier Subcontract with Nationwide Electrical Services, Inc. (“NES”) for services and 

equipment. Motion, Ex. D. The total amount to be paid under the Myers-NES Supplier 

Subcontract was $17,041,113.00. Id., ¶ 4. The Myers-NES Supplier Subcontract contained a 

flow down provision similar to the one in the Clark-TWST Subcontract. Id., ¶ 3. 

6. Myers and the Trustee dispute whether there was ever a written subcontract 

between NES and TWST. The Trustee asserts that there was a subcontract, but is unable to locate 

or produce one. Whether or not there was a written subcontract between NES and TWST is, in 

the Court’s view, immaterial to the outcome of this dispute. 

B. The Joint Check Agreement. 

7. By the spring of 2014, Truland and its affiliates were significantly “out of trust” 

with their suppliers, meaning that they were receiving payments from general contractors but

were not paying the suppliers and subcontractors in violation of the flow down provisions of 

their subcontracts. Charles Goldstein, who had been hired as Truland’s Chief Restructuring 

Officer, concluded that as of March 31, 2014, the out of trust balance was approximately $23.7 

million. Motion, Ex. M.

8. On April 29, 2014, one of Truland’s officers noted in an e-mail that TWST was 

“on payment hold from Clark so joint checks is a possibility as they are not otherwise paying us 

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until we can provide clear lien releases.” Motion, Ex. I, at 1 (Chuck Tomasco e-mail, Apr. 29, 

2014). 

9. Chuck Tomasco noted on May 1, 2014, that “MCP [Myers Controlled Power] has 

currently stopped delivering equipment which will delay the entire project and jeopardize the 

$28M K-Line change order we’re awaiting from WMATA/Clark . . . [W]e have also requested 

that Clark issue them payment via joint check but have not confirmed yet.” Id. at 3 (Chuck 

Tomasco e-mail, May 1, 2014). 

10. Myers refused to release the equipment to TWST. Id. at 7 (Sanchez e-mail, May 

7, 2014) (“[W]e have had to stop testing and shipments of the ABB transformers. Presently six 

(6) transformers are ready for shipment.”) 

11. Myers requested “one party” checks from Clark, that is, checks payable only to 

Myers. Motion, Ex. J, at 5 (Sanchez e-mail to Clark, May 7, 2014). Myers also requested a 

payment guarantee from Clark. Id.

12. Clark, as the prime contractor, insisted on a joint check arrangement. Motion, Ex. 

J, at 11 (Breeden e-mail, May 13, 2014) (“Clark will issue Joint Checks to MCP/Truland that 

will be endorsed by Truland and then sent to MCP by Clark.”) 

13. On June 9, 2014, Clark, Myers and TSWT entered into a Joint Check Agreement

(“JCA”). Motion, Ex. L.

C. Myers Explores Making a Payment Claim on the Bond. 

14. As the negotiations for the Joint Check Agreement proceeded in May 2014, 

Myers began exploring the process of making a claim against Fidelity and Deposit Company of 

Maryland/Zurich American (together, “Zurich”), Truland’s bonding company on the 

Orange/Blue Line job. Motion, Ex. H.

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15. Myers never made a formal claim on the bond. Rather, Zurich signed off on the 

Joint Check Agreement, and no payment was made on the surety bond. Motion, Ex. J, at 14-16.1

D. The Payment and the Release of the Equipment. 

16. On May 27, 2014 (about two weeks before the JCA), Myers, satisfied with 

Clark’s representations that it would enter into a JCA, released equipment with a cost of 

$1,819,206.31. Motion, Ex. O, at 1. This invoice included $181,920.63 in “Overhead/Profit,” for 

a total of $2,001,126.94. Id.

17. On June 18, 2014 (nine days after the parties signed the JCA), Myers released 

additional equipment with a cost of $261,667.00. Id. at 9. The June 18th Bill of Sale included an 

additional $26,166.70 for “Overhead/Profit,” for a total Invoice of $287,833.70. Id.

18. On July 11, 2014, Clark delivered a check (No. 10101212) to TWST in the 

amount of $2,197,039.86. Motion, Ex. N. The check was payable jointly to Myers and TWST. 

Id.

19. TWST endorsed the check and had it delivered back to Clark. Clark then 

forwarded the check to Myers. Motion, Ex. B, at 44-45.

E. Truland and its Affiliates file for Bankruptcy Protection. 

20. TWST filed a voluntary petition under Chapter 7 with this Court on July 23, 2014.

Case No. 14-12774-BFK. 

21. The case is being jointly administered (but not substantively consolidated) with 

the Chapter 7 cases of The Truland Group, Inc., and its subsidiaries, in Case No. 14-12766-BFK. 

Case No. 14-12766-BFK, Docket No. 150. 

22. The Trustee filed this Adversary Proceeding on July 21, 2016. Docket No. 1. 

 

1

 On June 22, 2015, NES made a demand for payment on the surety bond in the amount of $144,197.42, “as a fee 

for handling the material.” Reply Mem., Ex. B.

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Conclusions of Law

The Court has jurisdiction over this matter pursuant to 28 U.S.C. 1334 and the Order of 

Reference entered by the U.S. District Court for this District on August 15, 1984. This is a core 

proceeding under 28 U.S.C. §§ 157(b)(2)(F) (proceedings to determine, avoid or recover 

preferences) and (H) (proceedings to determine, avoid or recover fraudulent transfers). 

Summary judgment is appropriate where there is no genuine dispute as to any material 

fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Bankr. P. 7056 

(incorporating Fed. R. Civ. P. 56). The moving party has the initial burden of showing that there 

are no material facts in dispute, and that it is entitled to judgment as a matter of law. Celotex 

Corp. v. Catrett, 477 U.S. 317, 322–24 (1986). When the moving party has met its initial burden, 

the burden then shifts to the nonmoving party to present specific facts demonstrating that there is 

a genuine issue for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 

586–87 (1986).

Whether a fact is material or not depends on the substantive law at issue in the case. 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “Only disputes over facts that might 

affect the outcome of the suit under the governing law will properly preclude the entry of 

summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.” Id.

Summary judgment “is properly regarded not as a disfavored procedural shortcut, but rather as 

an integral part of the Federal Rules as a whole, which are designed ‘to secure the just, speedy 

and inexpensive determination of every action.’” Celotex Corp., 477 U.S. at 327 (quoting Fed. 

Rule Civ. Proc. 1). The Court must view the facts and the inferences reasonably drawn therefrom 

in the light most favorable to the non-moving party. United States v. Carolina Transformer Co.,

978 F.2d 832, 835 (4th Cir. 1992).

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I. Count I – Alleged Preferential Transfer (11 U.S.C. § 547(b)). 

Section 547(b) of the Code provides that the trustee may avoid “any transfer of an 

interest of the debtor in property” that is: 

(1) to or for the benefit of a creditor; 

(2) for or on account of an antecedent debt owed by the debtor before such transfer was 

made; 

(3) made while the debtor was insolvent; 

(4) made—

(A) on or within 90 days before the date of the filing of the petition; or 

(B) between ninety days and one year before the date of the filing of the petition, if such 

creditor at the time of such transfer was an insider; and 

(5) that enables such creditor to receive more than such creditor would receive if—

(A) the case were a case under chapter 7 of this title; 

(B) the transfer had not been made; and 

(C) such creditor received payment of such debt to the extent provided by the provisions 

of this title. 

11 U.S.C. § 547(b). 

There is no question that there was a transfer to Myers within the 90 days preceding the 

bankruptcy case. There also is no question that TWST was insolvent during the 90-day 

preference period. See 11 U.S.C. § 547(f) (rebuttable presumption of insolvency). The issue is 

whether there was a transfer of the Debtor’s (TWST’s) property. Alternatively, Myers argues 

that it has an affirmative defense that the transfer was a substantially contemporaneous exchange 

for new value under Section 547(c)(1). First, though, the Court must explore the issue of whether 

Myers was a creditor of TWST with an antecedent debt for purposes of Section 547.

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A. Was Myers a Creditor?

Section 547(b) allows the Trustee to avoid transfers “to or for the benefit of a creditor,”

“for or on account of an antecedent debt.” 11 U.S.C. § 547(b)(1)-(2). Myers argues that it had no 

contract directly with the Debtor, and therefore cannot be considered to be a creditor. The term 

“creditor” is defined as one with a claim against the Debtor. 11 U.S.C. § 101(10)(A). The term 

claim is defined as any right to payment, whether “liquidated, unliquidated, fixed, contingent, 

matured or unmatured, disputed, undisputed, legal, equitable, secured or unsecured.” 11 U.S.C. § 

101(5)(A).2

The Trustee responds that there was one Invoice, dated July 18, 2014, from Myers 

directly to Truland Corporation in the amount of $113,200.00. Trustee’s Opposition, Ex. 1. 

Myers argues that this invoice was only for testing of the equipment and for storage fees 

engendered when Myers was required to store the equipment while the JCA was being 

negotiated. Even without this Invoice, though, Myers would have had a claim in quantum meruit

against TWST for the value of the equipment it delivered on May 27 and June 18, 2014, and for 

which it was not paid until July 11, 2014. Moreover, both TWST and Myers were parties to the 

JCA. As of the delivery dates for the equipment, Myers had a contingent claim against TWST 

under the JCA.3

2 Myers’ position here is inconsistent with its position that the Clark-TWST Subcontract created a trust for its

benefit, discussed below. Where there is a trustee-beneficiary relationship and the trustee (here, TWST) defaults in

its fiduciary duties to the beneficiary, the beneficiary has a claim for damages against the trustee. See 11 U.S.C. §

523(a)(4) (nondischargeability of claims for defalcation while acting in a fiduciary capacity).

3 Myers certainly took the position that TWST owed it money when it began exploring making the bond claim. See

Motion, Ex. H, at 4 (Grootonk [Myers] e-mail May 14, 2014: “Please restart the process of filing against Truland’s

payment bond for the $1.4M that Clark paid Truland but Truland has not paid Myers.”)

8

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Taking the evidence in the light most favorable to the non-moving party, here the 

Trustee, the Court finds that Myers was a creditor of TWST at the time that the transfer was 

made on July 11, 2014. 

B. Do the Proceeds of the Check Constitute Property of the Estate? 

Section 547(b) allows the Trustee to avoid transfers of the debtor’s interest in property. 

11 U.S.C. § 547(b). Section 541(d), on the other hand, provides that property to which the debtor 

has bare legal title, held in trust for another, is not property of the estate. 11 U.S.C. § 541(d); Old 

Republic Nat'l Title Ins. Co. v. Tyler (In re Dameron), 155 F.3d 718, 721-22 (4th Cir.1998) 

(“[W]hen a ‘debtor does not own an equitable interest in property he holds in trust for another, 

that interest is not ‘property of the estate’ for purposes of the Bankruptcy Code.”) (citing Begier 

v. IRS, 496 U.S. 53, 59 (1990)). This principle limits the ability of a trustee to avoid transfers of 

property that the debtor held in trust for another. See, e.g., Holmes Envtl., Inc. v. SunTrust Banks, 

Inc. (In re Holmes Envtl., Inc.), 287 B.R. 363, 382 (Bankr. E.D. Va. 2002) (“Here the funds in 

the escrow account representing the monies earned by the performance of Hazmed on the Corps 

Contract are not estate property; therefore, no preference can occur.”)

Myers makes two arguments as to why the proceeds of the joint check were not property 

of the estate. 

(i) The Clark-TWST Subcontract. 

Myers argues first that the flow down provision contained in the Clark-TWST 

Subcontract created a trust for its benefit. Motion, at 6-7 (“The Clark Subcontract created an 

implied trust whereby TWST was contractually required to remit payments to its 

subcontractors”). The Court finds, however, that the flow down provision in the Clark-TWST 

Subcontract lacks the characteristics of a trust. See Racetrac Petroleum, Inc. v. Khan (In Re 

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Khan), 461 B.R. 343, 348 (E.D. Va. 2011) (three primary indicia of an intent to create a trust: (a) 

the designated trustee lacks legal title to the property; (b) the trustee is restricted in its use of the 

property; and (c) the property remains separate from the trustee’s own property) (citing In re 

Strack, 524 F.3d 493, 499 (4th Cir. 2008)). The flow down provision in the Clark-TWST has 

none of these attributes.

Absent the JCA, the funds would have been TWST’s property upon receipt. There was no 

requirement in the Subcontract for the segregation of the funds. A violation of the flow down 

provision by TWST would have given rise to an ordinary breach of contract claim or a quantum 

meruit claim and nothing more. 

The flow down provision in the Clark-TWST Subcontract did not create a trust. 

(ii) The Joint Check Agreement. 

Myers’ second argument in favor of a trust relies on the JCA and the Fourth Circuit’s 

decision in Mid-Atlantic Supply, Inc. of Virginia v. Three Rivers Aluminum Co., 790 F.2d 1121 

(4th Cir. 1986). The Mid-Atlantic case involved a dispute between a lower-tier supplier 

(TRACO) and a lender with a security interest in the Debtor’s accounts receivable (United 

Virginia Bank). TRACO sought relief from the automatic stay with respect to a joint check 

payable to TRACO and the Debtor. Id. at 1122. The Court granted the motion and the Debtor

appealed. The case was then converted to Chapter 7, and the Chapter 7 Trustee abandoned any 

interest in the check. United Virginia Bank then moved to intervene, claiming a security interest 

in the check and its proceeds. Id. at 1123. The bankruptcy court held in favor of TRACO, and the 

Bank appealed. Id.

The Fourth Circuit held that under the joint check arrangement the Debtor “had not the 

slightest interest in the check,” and that there was a constructive trust in favor of TRACO. Id. at 

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1127. The Fourth Circuit described the Debtor’s (Mid-Atlantic’s) position as that of a “mere 

conduit,” under which its function “was solely to indorse the joint check and pass it on to 

TRACO as TRACO’s property.” Id. Although the Mid-Atlantic case involved a dispute between

a supplier and a secured party, its holding has been applied in the context of preference cases. 

See e.g., In re Railworks Corp., 387 B.R. 156, 164-67 (Bankr. Md. 2008); In re Diamond K 

Corp., No. 04-50356, 2007 WL 2229727, at *3-4 (Bankr. E.D. Tex. 2007). 

The Trustee attempts to distinguish Mid-Atlantic by arguing that under the Virginia 

Uniform Commercial Code, both TWST and Myers had a legal interest in the check. Va. Code § 

8.3A-110(d).4 If TWST sought to enforce the instrument, though, it would have been subject to 

Clark’s contractual defense under the JCA that it intended to pay Myers, not TWST. Va. Code § 

8.3A-305(a)(2). Further, the UCC is clear that one taking an instrument other than a holder in 

due course “is subject to a claim of a property or possessory right in the instrument or its 

proceeds.” Va. Code § 8.3A-306. See also Va. Code § 8.1A-103(b) (“Unless displaced by the 

particular provisions of the UCC, the principles of law and equity, including the law merchant 

and the law relative to capacity to contract, principal and agent, estoppel, fraud, 

misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating 

cause supplement its provisions.”) TWST did not occupy the position of a holder in due course 

because it took the instrument with full knowledge of the JCA, and hence, was subject to both 

 

4 Section 8.3A-110(d) states as follows: 

If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be 

negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is 

payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, 

discharged, or enforced only by all of them. If an instrument payable to two or more persons is ambiguous 

as to whether it is payable to the persons alternatively, the instrument is payable to the persons 

alternatively.

Va. Code § 8.3A-110(d). 

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Myers’ rights to the proceeds and Clark’s defense to pay anyone other than Myers. Va. Code § 

8.3A-302(a)(2) (holder in due course must take “without notice of any claim to the instrument” 

and “without notice that any party has a defense or claim in recoupment.”) The Trustee’s 

argument under Virginia Uniform Commercial Code Section 8.3A-110(d), therefore, does not 

supplant the holding of Mid-Atlantic.

The Trustee further responds to the Mid-Atlantic joint check argument by asserting that 

the JCA itself was executed on June 9, 2014, within the 90-day preference period. This is a more 

forceful argument. The Trustee cites In re R.J. Patton Co., Inc., 348 B.R. 618 (Bankr. D. Conn.

2006), and In re Buono, 119 B.R. 498 (Bankr. W. D. Pa. 1990), for the proposition that where a 

joint check agreement is entered into within the 90 days, the agreement is a preference. See 

Patton, 348 B.R. at 625 (“When the Defendant signed the JPA’s and simultaneously accepted the 

Joint Checks, the Debtor’s interest in the Receivables was transferred to the Defendant and that 

was a transfer of property of the Debtor within the preference period”) (emphasis in original); 

Buono, 119 B.R. at n.1. Here, the Trustee has the better argument. There was no joint check 

arrangement from the outset of the parties’ dealings. The parties entered into the JCA after 

TWST was in default, after Myers refused to release the equipment, and within the 90-day 

preference period. Myers unquestionably improved its position when it entered into the JCA with 

Clark and the Debtor.5

The Court finds that the JCA and the joint check issued pursuant to that agreement 

constitute a preference – subject to Myers’ contemporaneous exchange for new value defense, 

discussed below. 

 

5 The JCA fits comfortably within the definition of a “transfer,” in that it was a “mode, direct or indirect, absolute or 

conditional, voluntary or involuntary of disposing of or parting with – (i) property; or (ii) and interest in property.” 

11 U.S.C. § 101(54)(D). Myers’ position is that, by virtue of the JCA, TWST parted with all interest in the proceeds 

of the check. 

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C. Myers’ Defense Under Section 547(c)(1) (Substantially 

Contemporaneous Exchange for New Value). 

Section 547(c)(1) provides a defense to preference liability where the transfer is a 

substantially contemporaneous exchange for new value. 11 U.S.C. § 547(c)(1). Section 547(c)(1) 

is intended “‘to encourage creditors to continue to deal with troubled debtors’ by ‘prevent[ing] 

trustees from avoiding payments that were clearly intended to support a new transaction, instead

of an antecedent debt.’” In re ESA Envtl. Specialists, Inc., 709 F.3d 388, 397-98 (4th Cir. 2013) 

(quoting United Rentals, Inc. v. Angell (In re United Rentals), 592 F.3d 525, 529 (4th Cir. 

2010)). The party asserting the new value defense has the burden of proof. Id. The key question 

is “whether the alleged preferential transfer diminished the debtor's estate, i.e., whether the 

debtor in fact acquired a new asset that offset the loss in value to the estate when the debtor 

transferred existing assets to acquire the new asset at issue.” Id. at 398.

Myers posits that it is entitled to the new value defense in two ways: (a) the release of its 

bond claim against Zurich; and (b) the release of the equipment that it was holding prior to the 

payment. The Court will examine both claims. 

(i) Myers’ Alleged Release of its Bond Claim. 

Myers first claims that it released a bond claim against Zurich, which benefited the 

Debtor. See GEM Constr. Corp. of Virginia, 262 B.R 638, 652 (Bankr. E.D. Va. 2000). As noted 

above, though, Myers began investigating making a bond claim against the surety bond, but it

never actually made a bond claim. Rather, the parties – including Zurich – entered into the JCA,

thereby making any claim under the bond unnecessary. See Def.’s Mem., at 5 (“In May 2014, 

Myers contacted Zurich Insurance Company, TSWT’s bonding company, regarding nonpayments”); Def.’s Reply Mem., at 17 (“Myers was in the process of making a bond claim with 

Zurich).”

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The situation, then, is indistinguishable from United Rentals where the Fourth Circuit 

rejected a new value defense based on the release of “inchoate” rights to make a bond claim. 592

F.3d at 532 (“Since United never even attempted to make any claim on the bond here, the Surety 

never obtained any lien that it could release.”) The Court finds that Myers never actually made a 

bond claim, and therefore, did not release a bond claim as new value to the Debtor. 

(ii) Myers’ Delivery of the Equipment. 

Myers argues in the alternative that it provided new value based on the release of the 

equipment. Myers released equipment with a value of $1,819,206.31, plus Overhead/Profit of 

$181,920.63, on May 27, 2014, in anticipation of the JCA and the delivery of a joint check from 

Clark. Motion, Ex. O, at 1. It released an additional $261,667.00 in equipment on June 18, 2014,

plus Overhead/Profit of $26,166.70. Id. at 9.

The Trustee argues that the evidence fails to establish that the parties mutually intended 

the release of the equipment to be a substantially contemporaneous exchange for new value. See

11 U.S.C. § 547(c)(1)(A) (“[T]o the extent that such transfer was intended by the debtor and the 

creditor . . . to be a contemporaneous exchange for new value”). The parties’ intent may be 

“gleaned from, inter alia, ‘the agreement or the course of dealings between the parties.’” In re 

Holmes Environmental, Inc., 287 B.R. 363, 385 (Bankr. E.D. Va. 2002) (quoting Everlock 

Fastening Sys., Inc. v. Health All. Plan (In re Everlock Fastening Sys., Inc.), 171 B.R. 251, 255 

(Bankr. E. D. Mich. 1994)). It is clear in this case that Myers had no intention of releasing its 

equipment without the JCA being put into place. It released the equipment with the full 

expectation that Clark would issue a joint check. The Court finds that Myers’ evidence of the

parties’ intent, through the e-mail exchanges that took place in anticipation of the JCA,

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establishes a mutual intent to create a substantially contemporaneous exchange for new value. 

Motion, Ex. I, at 1-2 (Hinton emails, Apr. 28, 2014 and Apr. 29, 2014).

Was the exchange in fact substantially contemporaneous? See 11 U.S.C. § 547(c)(1)(B) 

(“[I]n fact a substantially contemporaneous exchange”). The Court finds that it was not. The 

“substantially contemporaneous” standard is a flexible one, requiring the Court to take into 

account the particular facts and circumstances of each case. In re Genmar Holdings, Inc., 776

F.3d 961, 964 (8th Cir. 2015) (citing In re Dorholt, 224 F.3d 871, 874 (8th Cir. 2000) (quotation 

omitted)); In re Hedrick, 524 F.3d 1175, 1190 (11th Cir. 2008). 

Other courts have found the delivery of goods to be substantially contemporaneous where

the goods are delivered within roughly two weeks of the transfer. Pine Top Ins. Co. v. Bank of 

America Nat. Trust & Sav. Ass'n, 969 F.2d 321, 328 (7th Cir. 1992) (delay of two to three 

weeks); In re Payless Cashways, Inc., 306 B.R. 243, 252 (8th Cir. B.A.P. 2004) (payment for 

goods by EFT within 15 days of delivery); Matter of Anderson-Smith Assocs., 188 B.R. 679, 689

(Bankr. N.D. Ala. 1995) (nine-day delay; “A transaction can be substantially contemporaneous 

even where there is some separation between the events of the extension of new value and the 

transfer by the debtor”) (citing In re Kiddy Toys, Inc., 178 B.R. 928, 936 (Bankr. D. P.R. 1994)).

Somewhat longer periods of time, on the other hand, have been held not to be 

substantially contemporaneous. In re Furr’s Supermarkets, Inc., 485 B.R. 672, 738 (Bankr. N.M. 

2012) (checks for insurance premiums provided “at least two months” after coverage provided 

by insurer deemed not substantially contemporaneous); In re Interstate Bakeries Corp., No. 04-

45814, 2012 WL 6614969, at * 5 (Bankr. W.D. Mo. Dec. 19, 2012) (average delay of 31 days 

not substantially contemporaneous); In re Messamore, 250 B.R. 913 (Bankr. S.D. Ill. 2000) 

(delay of 50 days not substantially contemporaneous); In re McLaughlin, 183 B.R. 171, 176

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(Bankr. W.D. Wis. 1995) (32 days from attachment to perfection of a security interest not 

substantially contemporaneous); In re Freestate Management Services, Inc., 153 B.R. 972, 984 

(Bankr. D. Md. 1993) (delay of 24 days not substantially contemporaneous); In re Arctic Air 

Conditioning, Inc., 35 B.R. 107, 109 (Bankr. E. D. Tenn. 1983) (30 days not substantially 

contemporaneous). 

In this case, the vast majority of the equipment ($1,819,206.31) was released on May 

27th, 44 days (over six weeks) before the payment on July 11th by joint check. The lesser amount 

of equipment ($261,667.00) was released on June 18th, 23 days (three weeks and two days)

before the joint check was issued on July 11th. The Trustee is correct in his argument that the 

execution of the JCA was a preference, so Myers cannot rely on the JCA as a defense under MidAtlantic. The Court finds that a gap of 44 days, and a gap of 23 days, are simply too long to be 

considered truly “contemporaneous” under Section 547(c)(1).

For these reasons, the Court finds that Myers has not established a defense to liability 

under Section 547(c)(1) of the Code. The Court will deny Myers’ motion for summary judgment 

on Count I.6

II. Count II – Constructively Fraudulent Transfer 

(11 U.S.C. § 548(a)(1)(B)). 

In Count II, the Trustee argues in the alternative that the payments are avoidable as 

constructively fraudulent transfers because Myers received a payment from TWST for which 

TWST was not legally obligated. 11 U.S.C. § 548(a)(1)(B) (transfers for “less than reasonably 

equivalent value” avoidable where accompanied by insolvency or unreasonably small capital). 

 

6 Myers also asserts an “earmarking” defense on Count I. The earmarking defense does not apply here because 

Clark did not extend a loan to TWST to repay a debt to Myers. Rather, Clark was paying outstanding invoices to 

TWST under a joint check arrangement. See ESA Envtl. Specialists, Inc., 709 F.3d at 396 (“The earmarking doctrine 

applies only when the debtor borrows money from one creditor and the terms of that agreement require the debtor to 

use the loan proceeds to extinguish specific, designated, existing debt.”) 

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Myers responds with the same argument as above, that the transfer was made pursuant to the 

JCA and, therefore, the proceeds of the joint check were not property of the Debtor’s estate. This 

argument is problematic, though, because as the Court finds above, the JCA itself was a 

preference. 

More to the point, however, the release of the equipment constituted value to TWST for 

purposes of Section 548(a)(1)(B). Specifically, Myers released the equipment, thereby satisfying 

TWST’s contractual obligation to Clark to supply the goods. The term “value” is defined for 

purposes of Section 548 to include the satisfaction of an antecedent debt. 11 U.S.C. § 

548(d)(2)(A). The Fourth Circuit has adopted the “indirect benefit” theory, where “if the giving 

of the consideration to [a] third person otherwise confers an economic benefit upon the debtor, 

then the debtor's net worth has been preserved, and [the statute] has been satisfied—provided of 

course, that the value of the benefit received by the debtor approximates the value of the property 

or obligation he has given up.” In re Jeffrey Bigelow Design Grp., Inc., 956 F.2d 479, 485 (4th

Cir. 1992) (quoting Rubin v. Mfrs. Hanover Trust Co., 661 F.2d 979, 991-92 (2d Cir. 1981)).

Here, TWST paid Myers with funds from Clark, and Myers satisfied TWST’s contractual 

obligation to deliver the equipment to Clark. The value of the equipment approximates the 

amount of the payment. Under Section 548(a)(1)(B), the value provided need not be substantially 

contemporaneous with the transfer. In re Bulmer, No. 15-3116-RLM-7A, 2017 WL 562436, at *

5 (Bankr. S. D. Ind. 2017); In re Kenrob Info. Tech. Sols., Inc., 474 B.R. 799, 803 (Bankr. E. D. 

Va. 2012). The release of the equipment in this case constituted reasonably equivalent value in 

that it satisfied TWST’s contractual obligation to deliver the equipment to Clark.7

 

7 Myers did not raise the indirect benefit argument in its papers. Rather, it argued that the Trustee’s fraudulent 

transfer claim lacked plausibility because Myers was paid with a joint check. Myers did, however, raise the new 

value issue in response to Count I in arguing that “Myers also provided new value in the form of releasing materials 

it was withholding for the WMATA project.” Def.’s Reply Mem., at 19. In the Court’s view, the indirect benefit 

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The Trustee argues that the amount of the check ($2,107,039.86) is roughly $26,000.00 

more than the value of the equipment as stated on the two Invoices, excluding overhead and 

profit (the two invoices total $2,080,873.31 for the equipment only). Myers acknowledges the 

difference in its Reply Memorandum. Reply Mem., at 19 (“[T]he joint check was for specific 

Myers’ invoices . . . plus, the additional amount of $26,386.54”). The simple answer is that the 

amount of the check is equal almost to the penny to the amount of the two invoices including the 

profit and labor on the second invoice ($26,166.70), but excluding the profit and labor on the 

first invoice ($181,920.63), which comes out to a total of $2,107,040.01, a difference of fifteen 

cents. It appears, therefore, that Clark agreed to pay the Overhead/Profit number on the second 

invoice (at the time, Myers was threatening to charge for storage of the equipment). The Court is 

not aware of any case law that excludes profit and overhead in determining whether reasonably 

equivalent value was provided under Section 548(a)(1)(B). See In re LandAmerica Fin. Grp.,

Inc. v. S. California Edison Co. (In re LandAmerica Fin. Grp., Inc.), 525 B.R. 308, 316 (Bankr. 

E.D. Va. 2015) (“In determining ‘reasonably equivalent value,’ it is therefore unnecessary to 

‘demand a precise dollar-for-dollar exchange’”) (citing Bakst v. U.S. (In re Kane & Kane), 479

B.R. 617, 628 (Bankr. S. D. Fla. 2012)).8

The Court will, therefore, grant summary judgment to the Defendant on Count II. 

 

issue is substantially similar to Myers’ new value argument on Count I. The difference, as noted above, is that under 

Section 547(c)(1) the new value must be substantially contemporaneous with the transfer, while under Section 

548(a)(1)(B), the value provided need not be contemporaneous.

8 The exception would be for fictitious profits in the Ponzi scheme context. In re Bernard Madoff Securities LLC,

458 B.R. 87, 111 (Bankr. S.D. N.Y. 2011). Unlike the debtors in the Ponzi scheme cases, the Debtor in this case was 

legally obligated to pay the profit and overhead components to Myers, and this case does not involve allegations of 

actually fraudulent conduct under Section 548(a)(1)(A) and corresponding state law.

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III. The Remaining Counts in the Complaint. 

The remaining Counts in the Complaint are: Count III (Unauthorized Post-Petition 

Transfer - 11 U.S.C. § 549), Count IV (Recovery of Property – 11 U.S.C § 550) Count V 

(Preservation of Avoidance – 11 U.S.C. § 551), and Count VI (Disallowance of Claim – 11

U.S.C. § 502(d)). Count III fails because there was no post-petition transfer in this case. The 

Court, therefore, will dismiss Count III.

Counts IV, V and VI all depend on the avoidance of the transfer under Counts I or II, 

which the Court holds above may be avoided under Count I. The Court, therefore, will deny the 

Defendant’s Motion on Counts IV, V and VI. 

Conclusion 

For the foregoing reasons the Court will enter a separate Order under which:

A. The Court will deny the Defendant’s Motion for Summary Judgment on Counts I, 

IV, V and VI. 

B. The Court will grant Defendant’s Motion for Summary Judgment on Count III.

C. The Court will grant the Defendant’s Motion for Summary Judgment on Count II.

D. The Clerk will mail a copy of this Memorandum Opinion and the accompanying 

Order, or will provide cm-ecf notice of their entry, to the parties below. 

Date: _____________________ ___________________________________

Brian F. Kenney

Alexandria, Virginia United States Bankruptcy Judge

Jan 8 2018 /s/ Brian F. Kenney

Entered on Docket: January 8, 2018

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Copies to:

Dylan G. Trache

101 Constitution Avenue, N.W., Suite 900

Washington, D.C. 20001

Counsel for the Plaintiff

Jennifer McLain McLemore

909 East Main Street, Suite 1200

Richmond, VA 23219

Counsel for the Defendant

James M. McHugh

220 Market Avenue, South, Eighth Floor

Canton, Ohio 44702

Counsel for the Defendant

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