Findings of Fact

1. This is a preference action arising from payments under a contract between the Martech USA, Inc., and Brice, Inc., executed on July 8, 1993. There were 13 payments of money by Martech to Brice, summarized in tables in ¶¶ 4, 5 and 6 of these findings. Only the three summarized in ¶ 5 were the subject of the bench trial on January 31, 2001.

2. Martech took over the prime contract to build 366 Section 801 housing units for the military at Eilson Air Force Base in Fairbanks, Alaska, from HEBL, Inc., in May 1993. At the time, HEBL was in default in paying a number of subcontractors, including Brice.

3. On July 8, 1993, shortly after the takeover of the prime contract, Martech and Brice entered into an agreement which provided, among other things, for the 7 ABR129      payment for work that Brice performed for HEBL in the amount of $137,715.44. ⁽²⁾ A payment of $61,225.50 was to be made when the contract was executed, and the balance of $76,489.94 was due 60 days thereafter (September 6, 1993). The $61,255.50 was paid in late June 1993, over a week before the contract was actually executed, but the second installment was paid 36 days late, on November 2, 1993. The $76,489.94 payment is one of the transfers which is the subject of the January 31, 2001 trial and is further summarized in ¶ 5 of these findings.

4. Judge MacDonald has already granted partial summary judgment that a payment of $148,180.12 was made in the ordinary course of business and protected under 11 USC § 547(c)(2). This payment, plus three others which the parties agree were within the ordinary course defense, are depicted in the following table:

Invoice Date	Amt Due	Due Date	Amt Paid	Check No.	Date Made	No. Days Late
06/30/93	61,225.50	07/08/93	61,225.00	11838	06/30/93	0
07/16/97	75,381.83	07/30/93	75,381.83	43136	08/06/93	7
08/02/93	160,711.45	08/16/93	160,711.45	43978	09/02/93	16
08/16/93	148,180.12	08/30/93	148,180.12	44640	09/21/93	21

5. The three payments which were the subject of the bench trial on January 31, 2001, are:

7 ABR130     

Invoice Date	Amt Due	Due Date	Amt Paid	Check No.	Date Made	No. Days Late
07/02/93	2,250.00	07/16/93	2,250.00	44640	09/21/93	67
08/31/93	76,489.94	09/06/93	76,489.94	45629	10/12/93	36
09/01/93	226,489.09	09/15/93	100,000.00	46278	11/02/93	47
Alleged Preferences			178,739.94

This table includes the $76,489.94 mentioned in ¶ 3 of these findings. The parties agree that, under the terms of the invoices for $2,250.00 and $226,489.09, payments were due within 14 days of the invoice dates. The parties also agree that dates of the transfers and the number of days late shown on the table in ¶ 5 are accurate. ⁽³⁾

6. Certain invoices for work done by Brice for Martech were paid for after Martech filed a chapter 11 bankruptcy on December 19, 1993, by Veco Construction, Inc. Veco took over the prime contract from debtor Martech with court approval. The government wanted the project (the 366 housing units) to be free of liens, so required Veco to payoff all of Martech's unpaid subs and obtain lien release from them. In December 1993, Brice had filed a mechanics' lien under AS 34.35.070 for $552,498.56, plus interest. In July 1994, Brice released its lien (which had been extended) for the compromised amount of $549,270.94 which Veco paid to it. The invoices covered by the lien which Brice released were:

Invoice Dates	Amounts
09/01/93	126,489.09
09/17/93	196,108.21
10/01/93	70,056.77
10/18/93	37,954.18
11/03/93	110,379.18
12/30/93	9,368.00
Total	550,355.43

7 ABR131      Brice claims that the post-petition release of its possible lien rights on the $178,739.94 for the invoices mentioned in ¶ 5 constitutes "new value" under 11 USC § 547(c)(4), giving Brice a defense to the trustee's preference claim. Brice claims this defense even though the $178,739.43 had been paid pre-petition, before the date of the lien, was not actually included in the lien, and was not a part of the $550,000± unpaid balance due to Brice from Martech on the date of the bankruptcy filing.

7. The three payments in ¶ 5 were all made within 90 days of the bankruptcy petition, which was filed on December 19, 1993. Brice appears only to question two elements of the trustee's preference case, first, whether the trustee has established insolvency ⁽⁴⁾ and, second, whether, as a result of the transfers identified in ¶ 5, Brice would receive more than a creditor in chapter 7. ⁽⁵⁾ The trustee testified that there will be no distribution to the unsecured creditors. The court, therefore, finds that the trustee has produced sufficient evidence in this proceeding, combined with the court's ruling on insolvency in an omnibus proceeding, ⁽⁶⁾ to establish the prima facie elements of a preference ⁽⁷⁾ with respect to the ¶ 5 transfers.

8. The $100,000.00 payment (see, ¶ 5) which was one of the transfers involved in the January 31, 2001, trial, was partial payment on an $226,489.09 invoice. This was the only partial payment of an invoice in the dealings between Martech and Brice. It was made after a phone call from Brice financial officer Sam Richard Brice to 7 ABR132      Martech to prompt a payment to be made after it was late. Mr. Brice testified he made the call and Brice's expert witness, CPA Fred Strand, in investigating the facts in order to testify as an expert witness, was advised by Mr. Brice that a partial payment was made in response to this prodding. Although the prodding or collection efforts appear to have been low keyed and nonabusive, and though partial payments are not a per se indication that a transfer is not in the ordinary course of business, the court has considered these to be factor in determining whether the $100,000.00 payment was, in fact, in the ordinary course of business.

9. Fred Strand, a CPA, is an expert in construction accounting, auditing and analyzing the financial operations of construction businesses in Alaska. He testified that the degree of lateness of the three payments shown in ¶ 5 was common in Alaska for contractors like Martech and Brice. He testified that such late payments were not unusual and those shown in ¶ 5 were not exceptional in their lateness according to industry standards. The court accepts this testimony as reliable and probative on the issue of whether the payments were made according to "ordinary business terms" under the ordinary course of business defense to the claim of preference. ⁽⁸⁾ The trustee's cross-examination of Mr. Strand to establish that the payments were in the lower quartile of the Robert Morris & Assoc. Annual Statement Studies for 1994 ⁽⁹⁾ do not overcome Mr. Strand's conclusions. He noted that the RMA business categories suggested by the trustee's counsel were only approximations of the actual businesses of Martech and Brice, and that the RMA 7 ABR133       figures were a only a tool (a place to begin the analysis), not a definitive answer, regarding industry standards.

10. Regarding whether the three transfers identified in ¶ 5 of these findings were made in the ordinary course of business dealing between Martech and Brice, ⁽¹⁰⁾ the court finds that:

• $2,250.00 Payment- The payment of $2,250.00 was not discussed to any extent in the testimony, but since it was paid the latest, 67 days after the due date, the court finds it was out of the ordinary course of the dealings between Martech and Brice.
• $100,000.00 Payment- The payment of $100,000.00 was paid 47 days after the due date. It was a partial payment on a $226,489.09 invoice. And, it was made after some collection effort by Brice. Aside from the small $2,250.00 invoice which was due July 16, 1993, every payment made by Brice was successively later - these payments were made successively 0, 7, 16, 21, 36, and 47 days after the due dates (see, ¶¶ 4 and 5). Weighing these factors, the court finds that $100,000.00 payment was out of the ordinary course of the dealings between Martech and Brice.
• $76,489.94 Payment- The payment of $76,489.94 was made by Martech for the work done by Brice for HEBL. It was a second installment which was to be paid within 60 days of the execution of the contract on July 8, 1993. The first installment was paid in advance. The $76,489.94 payment was substantially more delinquent than all previous payments of any significant amount (previously 7 ABR134      the longest overdue was 21 days, and this one was 36 days late), and it is out of character with the business dealings created by the first installment of $61,255.50, which was paid in advance to get Brice motivated. The court finds that this payment was not made in the ordinary course of business dealing between Martech and Brice.

11. There is no basis for a constructive trust to be carved out of the $500,000 paid by Veco to Martech for Veco's purchase of the prime contract. Under the terms of a court approved sale of Martech's rights as prime contractor of the 366 unit housing project in about March 1994, Veco was to pay about $2.6 million in unpaid subcontractors' bills owed by Martech, including the $550,000 due to Brice (see, ¶ 6). The basis for Brice claiming a constructive trust against estate assets is its claim that it would not have it released its lien rights which could have been amended to cover the $178,739.94 had Brice known that a subsequent chapter 7 trustee might bring a preference action over two years later. This convoluted constructive trust claim is not supportable under the facts. First, Brice has not attempted to trace the funds, the $500,000 Veco payment to the Martech estate. Secondly, the chapter 7 trustee represents all the creditors for the purpose of facilitating an equitable distribution to them. The equitable distribution principle supercedes any equitable considerations in favor of Brice. It would be inequitable to elevate Brice over the other creditors of the estate - including administrative claimants and the many preference action defendants in other adversary proceedings who were also beneficiaries of the $2.6 million paid by Veco and who presumable also released their lien rights - by giving Brice a constructive trust over assets of the estate.

7 ABR135     

Conclusions of Law

1. The court has subject matter jurisdiction of this preference proceeding, and it is a core proceeding. ⁽¹¹⁾ The court has a personal jurisdiction over the parties and is authorized to enter a final judgment.

2. Pursuant to Judge MacDonald's summary judgment ruling, ⁽¹²⁾ and the parties agreement, the transfers identified in ¶ 4 of the findings of fact are excepted, under 11 USC § 547(c)(2), from recovery as preferences.

3. With respect to the three transfers identified in ¶ 5 of the findings of fact, the court concludes that the trustee has met his burden in establishing that they are preferential. ⁽¹³⁾

4. With respect Brice's defenses to the three preferential transfers identified in ¶ 5 of the findings, the court concludes that:

• New Value Defense- Brice has failed to establish a new value defense ⁽¹⁴⁾ based on its post-petition release of its state mechanics' lien rights because this defense is not applicable to post-petition transfers; ⁽¹⁵⁾ and, 7 ABR136     
• Ordinary Course of Business Defense- Brice has established that the transfers were made according to ordinary business terms, ⁽¹⁶⁾ but (under the facts of this proceeding) ⁽¹⁷⁾ has failed to establish that they were made in the ordinary course of the business affairs of Martech and Brice. ⁽¹⁸⁾

In reaching these conclusions, the court is mindful of the purpose of the ordinary course of business exception, which is to deter a race to the court house and assist struggling businesses by encouraging creditors to deal with them without excessive fear of having to return funds due to a subsequent bankruptcy. ⁽¹⁹⁾ Nonetheless, the court concludes the these three payments are outside the ambit of the defense. ⁽²⁰⁾

5. Brice is not entitled to a constructive trust on any assets held by the trustee, having failed to show equitable grounds for such treatment ⁽²¹⁾ or inequitable conduct by the trustee, or to trace the funds to be used as the trust proceeds. ⁽²²⁾

6. The trustee is entitled to a judgment for the three preferential transfers shown in ¶ 5 of the findings in the principal amount of $178,739.94, plus interest from the date of the complaint to the date of the judgment at the federal judgment rate,⁽²³⁾ plus costs 7 ABR137      and post-petition interest on the total unpaid balance at the federal judgment rate. The principal and interest calculated through July 23, 2001 are:

Principal	$178,739.94
Interest at 3.70% (2,047 days, from 12/15/95 to 07/23/01)	$37,084.27
Total judgment through, before costs	$215,824.21

. 7. Any claims of the trustee, except for those in which a judgment is to be awarded under ¶ 6 of the conclusion of law, are dismissed with prejudice.

DATED: July 23, 2001



HERBERT A. ROSS
U.S. Bankruptcy Judge

N O T E S:

1.	FRBP 7052.
2.	Subcontract By and Between MARTECH USA, INC. and BRICE, INC., Plaintiff's Exhibit 7 (at attached Exhibit B, page 2).
3.	See, In re Greene, 223 F3d 1064, 1067 fn3 (9th Cir 2000) (the transfer occurs when a check is honored by the paying bank).
4.	11 USC § 547(b)(3).
5.	11 USC § 547(b)(5).
6.	In re Martech Preference Litigation, A93-00889-192-DMD.
7.	11 USC § 547(b).
8.	See, 11 USC § 547(c)(2)(C).
9.	Plaintiff's Exhibit 10.
10.	See, 11 USC § 547(c)(2)(B).
11.	28 USC § 157(b)(2)(F).
12.	Order Granting in Part, and Denying in Part, Defendant's Motion for Summary Judgment, Docket Entry 40, filed on October 16, 2000.
13.	11 USC §§ 547(b) and 547(g); and, see, In re Lewis W. Shurtleff, Inc., 778 F2d 1416, 1421 (9th Cir 1985) with respect to the "greater percentage" test in § 547(b)(5).
14.	11 USC § 547(c)(4).
15.	In re Bellanca Aircraft Corp., 880 F2d 1275, 1284 (8th Cir 1987).
16.	11 USC § 547(c)(2)(C); Ganis Credit Corp. v Anderson (In re Jan Weilert R.V., Inc.), 258 BR 1, 6-7 (9th Cir BAP 2001).
17.	Cf, In re Food Catering & Housing, Inc., 971 F2d 396, 398 (9th Cir 1992).
18.	11 USC §§ 547(c)(2)(B), 547(g); Arrow Electronics, Inc. v Justus (In re Kaypro), 218 F3d 1070, 1073 (9th Cir 2000);.
19.	In re Kaypro, 218 F3d, at 1073 fn3.
20.	Compare, In re Food Catering & Housing, Inc., 971 F2d, at 398.
21.	Klondike Industries Corp. v Gibson, 741 P2d 1161, 1171 (Alaska 1987) (burden on the one claiming the equitable remedy of constructive trust).
22.	In re Advent Management Corp., 104 F3d 293, 295 (9th Cir 1997) (relying on California law).
23.	28 USC § 1961.