Jacobsen Construction entered into a contract with Kiddco to perform subcontract work on a project at Wake Technical Community College.  On May 7, 2004, Kiddco submitted an invoice to Jacobsen for $90,625.27 for grading work at the site and on June 2, 2004, submitted a second invoice for another $102,366.70.   On June 10, 2004, Jacobsen paid Kiddco $35,000 and then on June 29, 2004, Jacobsen paid another $55,625.27.   On September 24, 2004, Jacobsen filed Chapter 7, and the Trustee ultimately sought to avoid all of the payments to Kiddco as preferential payments under 11 U.S.C. § 547.  The bankruptcy court dismissed the preference action as to the June 10, 2004 payment, but held that the June 29, 2004, payment was avoidable as a preference.

Kiddco appealed, first arguing  that the transfer did not enable it to obtain more than it would have in a hypothetical Chapter 7 liquidation.  Kiddco asserted that it would have recovered these funds by enforcing its bond rights.  Relying on United Rentals v.  Angell, 592 F.3d 525 (4th Cir.  2010), the District Court held that this defense to a presence focuses on what the creditor would receive from the bankruptcy estate, not from other sources.

Kiddco also asserted that it had provided Jacobsen with new value, pursuant to 11 U.S.C. § 547(c)(1), by continuing work and not filing a bond claim.  Both the bankruptcy and district courts, however, held that Kiddco was required and failed to show evidence, beyond its own assertion, that it had intended to file a bond claim.

For a copy of the opinion, please see:

Kiddco v. Callaway- Avoidance of Preferential Payment to Subcontractor.PDF

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