1

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF VIRGINIA

Alexandria Division

In re: )

)

LANSDOWNE CONSTRUCTION, LLC ) Case No. 18-11754-BFK

) Chapter 7

)

Debtor. )

____________________________________)

)

H. JASON GOLD, ) Adversary Proceeding

CHAPTER 7 TRUSTEE, ) No. 19-01056-BFK

)

Plaintiff, )

)

V. )

)

T & B ELECTRIC, L.L.C, )

)

Defendant. )

____________________________________)

MEMORANDUM OPINION

This matter is before the Court on cross-motions for summary judgment. The Defendant, 

T&B Electric, LLC (“T&B”) filed its Motion on November 25, 2019. Docket No. 11. The 

Plaintiff-Trustee filed his Motion on November 26, 2019. Docket No. 13. The Trustee filed an 

Opposition to T&B’s Motion on December 27, 2019. Docket No. 24. T&B did not file a separate 

Opposition to the Trustee’s Motion, but the Court considers the Memorandum in Support of 

T&B’s Motion to be an Opposition to the Trustee’s Motion. At the hearing on January 10, 2020, 

the Court authorized the Trustee to file a Supplemental Memorandum. The Trustee filed a 

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Supplemental Memorandum on January 16, 2020. Docket No. 29. The matter is now ripe for a 

decision.1

For the reasons discussed below, the Court will: (a) grant the Trustee’s Motion; and (b) 

deny T&B’s Motion. 

Undisputed Facts

The Court finds that the following facts are not genuinely disputed. 

A. The Lansdowne-3 Boys Prime Contract.

1. In June 2016, Lansdowne Construction, LLC (“Lansdowne,” or “the Debtor”) 

entered into a Standard Form of Agreement as general contractor with 3 Boys, LLC, for the 

construction of a project known as Rosner Stafford Toyota on Garrisonville Road, in Stafford, 

Virginia. Tr. Ex. C.2

2. The 3 Boys-Lansdowne Contract included the following provisions: 

§ 9.3.1 At the time required by Article 5 of the Agreement, the Contractor shall submit to

the Architect an itemized completed portions of the Work. Such application shall be 

notarized, if required, and supported by such data substantiating the Contractor’s right to 

payment as the Owner, Owner’s lender (if any) or Architect may require, including but 

not limited to copies of requisitions from Subcontractors and material suppliers and lien 

waivers from the Contractor and Subcontractors, and shall reflect retainage if provided 

for in the Contract Documents.

§ 9.3.3 The Contractor warrants that title to all Work covered by an Application for 

Payment will pass to the Owner no later than the time of payment. The Contractor further 

warrants that upon submittal of an Application for Payment all Work for which 

Certificates for Payment have been previously issued and payments received from the 

Owner shall, to the best of the Contractor’s knowledge, information, and belief, be free 

and clear of liens, claims, security interests or encumbrances in favor of the Contractor, 

Subcontractors, material suppliers, or other persons or entities making a claim by reason 

of having provided labor, materials and equipment relating to the Work. Should any lien 

1 T&B also filed a Supplemental Memorandum, which the Court did not authorize. Docket No. 30. The Court 

allowed the Trustee a Supplemental Memorandum to address a case cited by T&B at the hearing, which was not 

cited in T&B’s Memorandum of Law (the GEM Construction case, discussed below). The Court will not consider 

T&B’s Supplemental Memorandum. 

2 The Trustee’s Exhibits will be referred to as “Tr. Ex. __.” The Defendant’s Exhibits will be referred to as “T&B 

Ex. __.” 

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be filed against the Project or the Owner’s property, the Contractor shall, within fifteen 

(15) days of such filing, discharge or bond off such lien at its sole expense, and 

indemnify the Owner from any loss, claim, expense or damage relating to or arising from 

such lien, provided the Owner has made payment to the Contractor with respect to the 

amount and Work to which the lien is related and excluding any Work for which the 

Owner has not made payment. 

§ 9.5.1 The Architect may withhold a Certificate for Payment in whole or in part, to the 

extent reasonably necessary to protect the Owner, if in the Architect’s opinion the 

representations to the Owner required by Section 9.4.2 cannot be made. If the Architect is 

unable to certify payment in the amount of the Application, the Architect will notify the 

Contractor and Owner as provided in Section 9.4.1. If the Contractor and Architect 

cannot agree on a revised amount, the Architect will promptly issue a Certificate for 

Payment for the amount for which the Architect is able to make such representations to 

the Owner. The Architect may also withhold a Certificate for Payment or, because of 

subsequently discovered evidence, may nullify the whole or a part of a Certificate for 

Payment previously issued, to such extent as may be necessary in the Architect’s opinion 

to protect the Owner from loss for which the Contractor is responsible, including but not 

limited to loss resulting from acts and omissions described in Section 3.3.2, because of 

1. defective Work not remedied;

2. third party claims filed or reasonable evidence indicating probable filing of such 

claims unless security acceptable to the Owner is provided by the Contractor;

3. failure of the Contractor to make payments properly to Subcontractors or for labor, 

materials or equipment; 

4. reasonable evidence that the Work cannot be completed for the unpaid balance of the 

Contract Sum; 

5. damage to the Owner or a separate contractor;

6. reasonable evidence that the Work will not be completed within the Contract Time, 

and that the unpaid balance would not be adequate to cover actual or liquidated 

damages for the anticipated delay; or

7. failure to carry out the Work in accordance with the Contract Documents.

§ 9.5.3 If the Architect withholds certification for payment under Section 9.5.1.3, the 

Owner may, at its sole option, issue joint checks to the Contractor and to any 

Subcontractor or material or equipment suppliers to whom the Contractor failed to make 

payment for Work properly performed or material or equipment suitably delivered. If the 

Owner makes payments by joint check, the Owner shall notify the Architect and the 

Architect will reflect such payment on the next Certificate for Payment.

3. In August 2016, Lansdowne entered into a Subcontract with T&B for electrical 

work on the project. Tr. Ex. D. 

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4. In October 2016, 3 Boys assigned the Contract to Sheehy Stafford Property, LLC 

(“Sheehy”), when Sheehy purchased the property. Tr. Ex. AA (Consent to Assignment and 

Release). 

5. On or about November 16, 2017, T&B submitted an invoice to Lansdowne in the

amount of $30,250.00, which Lansdowne submitted as part of its Application No. 10. Tr. Ex. E. 

The Application was in the amount of $27,225.00, the amount of the T&B Invoice, less 10% 

retainage. Id.

6. On or about December 19, 2017, T&B submitted an invoice to Lansdowne in the 

amount of $8,990.00, which Lansdowne submitted as part of its Application No. 11. Tr. Ex. F. 

The Application was in the amount of $8,091.00, the amount of the T&B Invoice, less 10% 

retainage. Id.

7. On the same day, December 19, 2017, T&B submitted its Final Application for 

Payment, in the amount of $42,582.30. Tr. Ex. G. This Final Application included a Final 

Waiver of Lien and Unconditional Release. Id., p. 6. 

8. On or about March 27, 2018, Lansdowne submitted its Final Application for 

Payment, in the amount of $4,642.00. Tr. Ex. H; T&B Ex. G. This Application included a 

General Contractor Final Waiver of Lien and Conditional Release. Id., p. 9. 

9. On April 19, 2018, T&B filed a Memorandum of Mechanic’s Lien in the land 

records of Stafford County, claiming a mechanic’s lien against Sheehy’s property in the amount 

of $82,489.00. Tr. Ex. Q; T&B Ex. C. 

10. On April 26, 2018, David Brooks of Lansdowne sent an e-mail to Brian Ganow of 

T&B notifying T&B that Sheehy was issuing joint checks to the subcontractors and that the joint 

checks were available for pickup from Sheehy’s office. Tr. Ex. S. 

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11. Sheehy Auto Stores, Inc. (“Sheehy Auto Stores”) issued a joint check payable to 

Lansdowne and T&B in the amount of $82,489.00. Tr. Ex. R. A representative of Lansdowne 

endorsed the check.3

12. Brian Ganow, the principal and owner of T&B stated in his Affidavit: “At no 

point did either myself or anyone representing T&B enter into any discussion with Lansdowne 

regarding a joint check agreement or execute such an agreement with Lansdowne.” T&B Ex. E, 

Ganow Aff., ¶ 4.4

13. When T&B picked up the check, it executed and delivered a Certificate of 

Release of its Memorandum of Mechanic’s Lien and a Final Lien Waiver. T&B Ex. D, pp. 2-3.

B. Lansdowne Files for Bankruptcy. 

14. On May 15, 2018, Lansdowne filed a Voluntary Petition under Chapter 7 in this 

Court. In re Lansdowne Constr., LLC, No. 18-11754-BFK (Bankr. E.D. Va. filed May 15, 2018).

Mr. Gold was appointed as the Trustee. Id., Docket No. 21.

15. On September 7, 2018, Sheehy filed a Consent Motion for Modification of the 

Automatic Stay. Id., Docket No. 150. 

16. In its Consent Motion, Sheehy represented that it owed the Debtor $534,139.48, 

subject to certain offsets for costs to complete the project ($24,000.00), and amounts that it had 

paid to the subcontractors so that it could obtain the releases of mechanic’s liens ($276,464.87). 

Id., Docket No. 150, ¶¶ 4-6.

3 Sheehy Auto Stores, Inc., a Delaware corporation, is separately incorporated from Sheehy Stafford Property, LLC, 

a Virginia limited liability company. T&B Exs. B, F. 

4 T&B further asserted as an uncontested fact in its Memorandum: “At no time [did] T&B enter into a joint check 

agreement with either Lansdowne, 3 Boys or any other party.” Docket No. 11, Def.’s Mem. of P. & A., p. 3. The 

Trustee does not dispute this as an uncontested fact. See Docket No. 13, Tr.’s Mem. in Supp., p. 3 “There was no 

written joint check agreement among the parties. See Motion, Exhibit E, Affidavit of Brian Ganow, at ¶ 4.” 

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17. Sheehy further alleged that an additional $334,347.30 was owed to 

subcontractors, and that therefore, there was no remaining balance due on its contract with 

Lansdowne. Id., Docket No. 150, ¶ 8. 

18. On October 3, 2018, the Court entered a Consent Order Modifying the Automatic 

Stay so that Sheehy could accomplish its setoff and pay the remaining subcontractor claims. Id.,

Docket No. 171. 

19. Sheehy filed a Proof of Claim in the amount of $634,812.17. Id., Proof of Claim 

No. 86-1. In its Proof of Claim, Sheehy claimed that it had a right of setoff in the contract 

proceeds of $534,139.48. Id., Proof of Claim No. 86-1, p. 5. 

Conclusions of Law

This 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). The Defendant has consented to the entry of a final order resolving this adversary 

proceeding. Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665 (2015); Docket No. 6, Pretrial

Scheduling Order, ¶ 6 (requiring any objection to the entry of a final order by the Bankruptcy 

Court to be filed within 30 days of entry of the Scheduling Order and promptly set for a hearing). 

Summary judgment may be granted where there are no material facts in dispute and the 

moving party is entitled to judgment as a matter of law. FED. R. BANKRUPTCY P. 7056

(incorporating Rule 56 of the Federal Rules of Civil Procedure). 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 

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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.

R. CIV. P. 1).

I. The Court Will Grant the Trustee’s Motion.

Bankruptcy Code Section 547(b) permits the avoidance of a transfer where the transfer 

was:

(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 

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

of this title. 

11 U.S.C. § 547(b) (2018).

In this case, there is no genuine dispute that T&B was a creditor of the Debtor at the time 

of the transfer. The debts were antecedent debts. The Debtor is presumed statutorily to be 

insolvent within the 90 days preceding the case, and T&B has not raised a solvency defense. See 

11 U.S.C. § 547(f). The transfer was made within 90 days of the bankruptcy filing. The Trustee 

has submitted an Affidavit, attesting to the fact that the payment enabled T&B to receive more 

than it would have received in a liquidation. Docket No. 13, Gold Decl., ¶¶ 9, 10. 

The Court finds, therefore, that the Trustee has met his burden of proof on the elements 

of a preference under Section 547(b), subject to an examination of T&B’s affirmative defenses, 

below. 

II. T&B’s Motion Will be Denied. 

T&B has raised four affirmative defenses. The Court will examine each defense, below. 

A. The Payments Were Made by an Affiliate of the Owner. 

T&B argues first that because the check came from Sheehy Auto Stores, the Debtor 

suffered “no damages” as a result of the payment (this is a variant of the earmarking defense, 

discussed below). Clearly, though, the Debtor had a contractual right to payment from Sheehy,

subject to any offsets by Sheehy, and had rights as a payee on the joint check. VA. CODE ANN. §

8.3A-110(d) (West 2019) (“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.”) 

Had Lansdowne refused to endorse the check, T&B could not have deposited it. 

T&B’s argument further would mean that Lansdowne could have sued Sheehy for breach 

of contract for payment of the $82,489.00, notwithstanding the payment by Sheehy Auto Stores.

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Had Lansdowne done so, Sheehy Auto Stores could have sued T&B for unjust enrichment. 

T&B’s argument has no support in the case law. If nothing else, the parties clearly intended the 

joint check to represent a credit on the balance owed by Sheehy to Lansdowne under their 

contract. 

The Court rejects this argument as an affirmative defense.

B. The Joint Check was Property of the Estate.

T&B next argues that the payment cannot be considered a preference because it was by 

joint check, relying on Mid-Atlantic Supply, Inc. of Virginia v. Three Rivers Aluminum Co. (In re 

Mid-Atlantic Supply Co.), 790 F.2d 1121 (4th Cir. 1986). In Mid-Atlantic, the Fourth Circuit held 

that a joint check was held in trust by the Debtor for the benefit of the joint payee, and therefore 

did not constitute property of the estate. Importantly, the Fourth Circuit noted that the supplier 

and the debtor entered into a written letter agreement for joint checks before the supplier started 

work on the project and before delivery of the goods. Id. at 1123 (“Lawson signed the required 

letter and TRACO then commenced work on the order.”) The Fourth Circuit described this 

written agreement as “a valid, binding agreement, which both Mid-Atlantic and Lawson were 

estopped to revoke.” Id. at 1127. The Fourth Circuit distinguished its holding from the Fifth 

Circuit’s decision in Georgia Pacific Corp. v. Sigma Service Corp., 712 F.2d 962 (5th Cir. 

1983), which came to opposite result. In Sigma, as in Mid-Atlantic, there was a letter agreement 

for joint checks. However, the Fifth Circuit described this agreement as “unilateral,” placing no 

obligation on the debtor to endorse the checks, and allowing Sigma to withdraw its consent to the 

arrangement at will. Sigma, 790 F.2d at 1127.

More recently, this Court held that a joint check agreement entered into during the 90-day 

preference period was itself a preference and could be avoided under Section 547 of the Code. 

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Gold v. Myers Controlled Power, LLC (In re Truland Group, Inc.), 588 B.R. 447, 457 (Bankr. 

E.D. Va. 2018) (“The Court does not see how a preference (the JCA) can save a preference (the 

payment”), aff’d, 604 B.R. 258 (E.D. Va. 2019). 

In this case, T&B argues that the absence of an agreement for the issuance of joint checks 

is immaterial, that is, a joint check can never be a preference. T&B acknowledges that there was 

no joint check agreement in place. See Docket No. 11, Ganow Aff., ¶ 4 (“At no point did either 

myself or anyone representing T&B enter into any discussion with Lansdowne regarding a joint 

check agreement or execute such an agreement with Lansdowne.”) If anything, the parties in this 

case agreed to a joint check arrangement contemporaneously with the issuance of the joint check 

on April 27, 2016. Before that, there was no discussion of payment by joint check, and no joint 

checks were issued to T&B at any time prior to the payment at issue. The Court does not see how 

T&B is in a better position than Myers Controlled Power, which had a written joint check 

agreement, albeit one entered into within 90 days of the bankruptcy filing. 

The Court is unable to read the requirement for an enforceable, non-avoidable, joint 

check agreement out of the Fourth Circuit’s holding in Mid-Atlantic. For these reasons the Court 

finds that the joint check defense does not save this transfer from avoidance under Section 

547(b). 

C. Earmarking. 

T&B next argues that the funds provided by Sheehy Auto Stores were earmarked for 

payment to the Debtor. The Fourth Circuit has held that the earmarking defense only applies 

where “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.” In re ESA 

Envtl. Specialists, Inc., 709 F.3d 388, 396 (4th Cir. 2013). The proceeds of an earmarked loan 

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never become property of the Debtor’s estate whether or not the funds pass through the Debtor’s 

hands, “so long as the proceeds are clearly ‘earmarked.’” Id. Therefore, “no preference is created 

because the transfer does not diminish the value of the Debtor’s estate.” Id. at 395 (internal 

quotations omitted).

T&B produced no evidence that Sheehy Auto Stores made a loan to Lansdowne for the 

specific purpose of paying T&B. T&B argues, essentially, that one creditor (Sheehy Auto Stores)

was substituted for another (T&B), and that therefore the Debtor’s estate has not been 

diminished, relying on a pre-Code case, Virginia National Bank v. Woodson (In re Decker), 329

F.2d 836, 839 (4th Cir. 1964). In Decker, the Debtor, Sterling Decker, was indebted to The 

People’s National Bank of Charlottesville, predecessor to Virginia National Bank, for the sum of 

approximately $8,000.00 arising out of certain overdrafts in his account. Under the threat of 

criminal prosecution, Mr. Decker prevailed upon his sister, Vivian Decker, to pay the Bank the 

$8,000.00. The Fourth Circuit held that this was not a preference, as Vivian Decker, was 

substituted for the Bank as a creditor. In re Decker, 329 F.2d at 839-40 (“As a general rule, such 

a payment, in and of itself and without more, will not create a preference since there has been no 

diminution of value of the estate.”)5

The Fourth Circuit clarified Decker in ESA. In ESA, the Debtor had contracts with the 

federal government for construction projects, which required it to post surety bonds. The surety 

bonds were issued by Hanover Insurance Company, which required ESA to post a letter of credit 

in the amount of $1.375 million. SunTrust Bank issued the letter of credit, but required ESA to 

5 One complication of the Decker case was that, when Vivian Decker loaned her brother the $8,000, she took an 

assignment of her brother’s shares in a nonprofit corporation, the Berkley Community Swimming Pool Corporation. 

The Fourth Circuit held that this could have constituted a preference against the Bank, and remanded the case for a 

determination of the value of the shares. Id. at 840 (noting that the issue was “not what the creditor receives but what 

the bankrupt’s estate has lost.”) 

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maintain a Certificate of Deposit as collateral in the same amount. ESA borrowed the money 

from Prospect Capital to deposit with SunTrust. When ESA was forced to file for Chapter 11, 

Hanover drew on the letter of credit in the full amount, and SunTrust liquidated the Certificate of 

Deposit. The bankruptcy filing was within 90 days of the deposit of the $1.375 million with 

SunTrust (which, as noted, was borrowed from Prospect). The Trustee sued Hanover to recover 

this amount as a preference. Hanover asserted that: (a) the loan proceeds from Prospect were 

earmarked for its benefit; and (b) the transfer was a contemporaneous exchange for new value. 

The Bankruptcy Court dismissed the Trustee’s Complaint on both grounds, and the District 

Court affirmed. 

The Fourth Circuit affirmed, but approached the earmarking defense in a different way 

than the Bankruptcy Court and the District Court. The Fourth Circuit held that “the transfer from 

Prospect to ESA to SunTrust and later to Hanover lack[ed] a critical element of an earmarking 

defense: the funds at issue were not used to pay an antecedent debt.” In re ESA Envtl. 

Specialists, Inc., 709 F.3d at 396. In the course of its decision, however, the Fourth Circuit made 

it clear that in order for the earmarking defense to apply: (a) there must be a loan to the Debtor, 

and (b) the funds must clearly be earmarked for receipt by the ultimate transferee. 

In this case, there is no evidence that Sheehy Auto Stores made a loan to Lansdowne so 

that Lansdowne could pay T&B. If anything, Sheehy Auto Stores made an intercompany loan to 

its affiliate, Sheehy, to pay T&B. Lansdowne simply endorsed the joint check. The fact that a 

joint check was issued does not, however, standing alone, satisfy the requirements for 

earmarking. See Davis v. Best Supply Co. (In re WB Services, LLC), 590 B.R. 553, 561 (Bankr. 

D. Kan. 2018); In re RJ Patton Co., Inc., 348 B.R. 618 (Bankr. D. Conn. 2006). 

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The earmarking defense is not available to T&B in the case because there is no evidence 

that Sheehy Auto Stores made a loan to the Debtor for the purposes of paying its debt to T&B. 

D. Contemporaneous Exchange for New Value. 

Finally, T&B asserts that the release of its Memorandum of Mechanic’s Lien on the 

owner’s property was a contemporaneous exchange for new value under Section 547(c)(1). The 

purpose of the § 547(c)(1) exception is “to encourage creditors to continue to deal with troubled 

debtors without fear that they will have to disgorge payments received for value given.” United 

Rentals, Inc. v. Angell, 592 F.3d 525, 529 (4th Cir. 2010) (quoting 5 COLLIER ON BANKRUPTCY ¶

547.04 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2009)). As the Fourth Circuit has 

noted, “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.” In re ESA 

Envtl. Specialists, Inc., 709 F.3d at 398. The party asserting a new value defense bears the 

burden of proof. Id.; United Rentals, 592 F.3d, at 531. 

T&B argues first that the release of its Memorandum of Mechanic’s Lien saved 

Lansdowne the cost of having to bond off its lien under Section 9.3.3 of Lansdowne’s contract 

with the owner. This may be hypothetically true, but T&B has not presented any evidence of

what it would have cost Lansdowne to bond off an $82,000.00 mechanic’s lien. The new value 

defense applies only “to the extent that such transfer” was intended to be a substantially 

contemporaneous exchange, and was in fact a substantially contemporaneous exchange, for new 

value. 11 U.S.C. §547(c)(1). T&B’s argument in this regard fails for lack of evidence.

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More substantively, T&B argues that the release of its mechanic’s lien avoided a setoff

by Sheehy of the amount of T&B’s lien, and therefore constituted value to the Debtor.6 This

argument is not without support in the case law. See O’Rourke v. Seaboard Surety Co. (In re E.R. 

Fegert, Inc.), 887 F.2d 955 (9th Cir. 1989); In re GEM Constr., 262 B.R. 638 (Bankr. E.D. Va. 

2000). Accepting that the release of a mechanic’s lien (or a surety bond claim) against the 

owner’s property can constitute new value, the Court finds that the evidence in this case falls 

short of establishing new value to the Debtor. T&B argues that the release of its lien enabled the 

owner, Sheehy, to pay Lansdowne without a setoff for the amount paid to T&B. There is, 

however, no evidence that Sheehy paid Lansdowne anything after (or contemporaneously with) 

the payment to T&B. The only evidence that the Court has before LWis that in the bankruptcy case 

Sheehy claimed, without contradiction, that its contract with Lansdowne was “upside down,”

that is, that Lansdowne as the general contractor owed Sheehy more than Sheehy owed to it.

Even with the payment to T&B, and avoidance of a partial setoff, T&B has not met its burden of 

proof to demonstrate new value to the Debtor. See In re GEM Constr., 262 B.R. at 645-46 (“the 

value given for the transfer must actually and in real terms enhance the worth of debtor’s estate 

so as to offset the reduction in the estate the transfer caused.”)

The Court finds, therefore, that T&B’s new value defense fails. 

Conclusion 

For the foregoing reasons, counsel for the Trustee will submit a separate, endorsed Order 

under which: 

6 The Trustee argues that there is no evidence that the parties actually intended the release of the lien to be a 

contemporaneous exchange for new value. See 11 U.S.C. § 547(c)(1)(A) (“intended by the debtor and the creditor to 

or for whose benefit such transfer was made to be a contemporaneous exchange for new value.”) The Court finds 

that T&B has satisfied its burden here – the parties could not have had any other intent than that the payment would 

result in a release of the lien. Sheehy Auto Stores made the payment with the full expectation that the lien would be 

released, and T&B accepted the payment with the understanding that it would release its lien. For its part, 

Lansdowne endorsed the check with the expectation that Sheehy would pay T&B and T&B would release its lien. 

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A. Judgement will be granted to the Trustee on Count I (Preferential Transfer) and 

Count III (Recovery of Avoided Transfer) of the Trustee’s Complaint in the amount of 

$82,489.00 with post-judgment interest accruing at the federal judgment rate from the entry of 

the judgment and costs. 

B. Count II will be dismissed without prejudice.7

C. Count IV (Preservation of Property) will be dismissed as moot. 

D. Count V (Disallowance of Claim) will be dismissed as moot.8

The Clerk of Court will mail copies of this Memorandum Opinion, or will provide cm-ecf 

notice of its entry, to the parties below. 

Date: _____________________ ___________________________________

Brian F. Kenney

Alexandria, Virginia United States Bankruptcy Judge

Copies to:

Valerie P. Morrison

Nelson Mullins Riley & Scarborough LLP

101 Constitution Avenue, N.W.

Suite 900

Washington, DC 20001

Counsel for the Ch. 7 Trustee

Richard G. Hall

7369 McWhorter Place

Suite 412

Annandale, VA 22003

Counsel for the Defendant

7 The Court uses the term without prejudice here because, in the event that this ruling is reversed and remanded on 

appeal, the Trustee can re-state Count II. 

8 It does not appear that T&B filed a proof of claim in the case, based on a review of the Court’s claims register. 

Feb 21 2020 /s/ Brian F. Kenney

Entered on Docket: Feb 21 2020

Case 19-01056-BFK Doc 32 Filed 02/21/20 Entered 02/21/20 17:42:08 Desc Main

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