Webster v. Scott & Reid General Contractors, Inc.

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
NETtel CORPORATION, INC., et
al.,
Debtors.
___________________________
WENDELL W. WEBSTER, Trustee,
Plaintiff,
v.
SCOTT & REID GENERAL
CONTRACTORS, INC.,
Defendant.
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Case No. 00-01771
(Chapter 7)
(Jointly Administered)
Adversary Proceeding
No. 02-10118
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION AND ORDER RE
TRUSTEE’S MOTION FOR SUMMARY JUDGMENT
Invoking 11 U.S.C. §§ 547(b) and 550(a), the complaint in
this proceeding against Scott & Reid General Contractors, Inc.
(“Scott & Reid”) seeks to recover a pre-petition payment of
$129,508.36 made by the debtor, NETtel Corporation, Inc.
(“NETtel”), to Scott & Reid. 	The plaintiff, Wendell W. Webster,
The Memorandum Decision and Order below is hereby
signed. Dated: October 9, 2008.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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1 	Except for the § 547(c)(1) defense, the court’s decision
of November 9, 2005, rejected all of Scott & Reid’s affirmative
defenses mentioned in its motion for summary judgment. 	Scott &
Reid has not disputed Webster’s contention that only two
additional defenses have been raised in Scott & Reid’s answer
(apparently served on Webster but not filed), and that those
defenses are without merit. 	I agree that those two additional
defenses (“waiver, release, and/or collateral estoppel” and
failure to name all persons needed for a just adjudication) are
without merit in light of Scott & Reid’s silence and its failure
to allege facts supporting these conclusory defenses.
2
is the trustee of NETtel's estate under Chapter 7 of the
Bankruptcy Code.
Webster has moved for summary judgment, asserting that Scott
& Reid has conceded every element of an avoidable transfer and
that the court has rejected each of the substantive defenses
asserted by Scott & Reid. 	Although Webster has discharged his
burden to show that all five elements of § 547(b) apply, there
remain unresolved issues relating to Scott & Reid’s
contemporaneous exchange for new value defense under § 547(c)(1)
that were not definitively rejected by the court in its
disposition of Scott & Reid’s summary judgment motion. 	Webster
is correct, however, that the other defenses raised by Scott &
Reid have been rejected or are insufficient conclusory
allegations without supporting facts. 1 	Accordingly, partial
summary judgment will be granted in Webster’s favor, leaving the
§ 547(c)(1) defense as the only remaining issue in this
proceeding.
By failing to address the outstanding issues regarding
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§ 547(c)(1) in his motion (by, for example, not asserting that
Scott & Reid is unable to adduce evidence to show that a
purchaser would have been on notice of Scott & Reid's
constitutional lien), Webster has failed to discharge his burden
as the moving party to demonstrate the absence of issues of
material fact relating to Scott & Reid’s § 547(c)(1) defense.
Accordingly, the court will grant summary judgment in favor of
the trustee as to § 547(b) and all defenses other than
§ 547(c)(1).
Because the bona fide purchaser issue should be susceptible
of inexpensive and prompt discovery, and may result in a prompt
conclusion of this proceeding, I will only temporarily deny
summary judgment as to the § 547(c)(1) defense, and require Scott
& Reid within 60 days to adduce evidence, after a 45-day
opportunity for discovery on the issue, that a purchaser of the
debtor’s lease would have been on actual notice as to Scott &
Reid’s constitutional lien. 	At that juncture, I will grant the
trustee summary judgment if Scott & Reid has come up empty
handed.
I
WEBSTER HAS DISCHARGED HIS
BURDEN TO SHOW THE APPLICABILITY OF SECTION 547(b)
Webster, who has the burden of proof to establish the
applicability of § 547(b), has filed an unopposed Statement of
Material Facts Not in Genuine Dispute with his motion for summary
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judgment. 	District Court LCvR 56.1, made applicable by LBR 7056-
1, provides that:
Each motion for summary judgment shall be accompanied
by a statement of material facts as to which the moving
party contends there is no genuine issue . . . . 	An
opposition to such a motion shall be accompanied by a
separate concise statement of genuine issues setting
forth all material facts as to which it is contended
there exists a genuine issue necessary to be litigated
. . . . 	In determining a motion for summary judgment,
the court may assume that facts identified by the
moving party in its statement of material facts are
admitted, unless such a fact is controverted in the
statement of genuine issues filed in opposition to the
motion.
The United States Court of Appeals for the District of Columbia
Circuit has upheld a trial court’s power to treat a moving
party’s statement of material facts as admitted if the opposing
party fails to comply with LCvR 56.1 by filing a separate
statement of material facts as to which there is a genuine issue.
SEC v. Banner Fund Int’l, 211 F.3d 602, 616 (D.C. Cir. 2000)
(holding that the District Court was “fully justified” in
treating unopposed statement of material facts as admitted).
Indeed, a trial court judge “should not be obliged to sift
through hundreds of pages of depositions, affidavits, and
interrogatories in order to make his own analysis and
determination of what may, or may not, be a genuine issue of
material disputed fact . . . . [and a trial court] may
legitimately look to and rely upon counsel to identify the
pertinent parts of the record, to isolate the facts that are
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deemed to be material, and to distinguish those facts which are
disputed from those that are undisputed.” 	Twist v. Meese, 854
F.2d 1421, 1425 (D.C. Cir. 1988) (not an abuse of discretion to
deem facts in statement of material facts admitted if no counter-
statement of genuine issues of material fact filed); but see
Burke v. Gould, 286 F.3d 513, 518 (D.C. Cir. 2002) (District
Court does not abuse its discretion if it declines to invoke the
requirements of LCvR 56.1).
Webster’s unopposed Statement of Material Facts Not in
Genuine Dispute sets forth sufficient facts to establish the
applicability of all five elements of § 547(b). 	In light of
Scott & Reid’s failure to file a statement of material facts as
to which there is a genuine issue, the court has the power to
grant summary judgment as to the trustee’s showing that the
transfer at issue constitutes an avoidable transfer, subject to
any applicable defenses, within the meaning of § 547(b).
Even if the court were not to treat the trustee’s Statement
of Material Facts as admitted, Scott & Reid’s opposition can be
read as conceding that the trustee has demonstrated the
applicability of § 547(b), and that only Scott & Reid’s
affirmative defense under § 547(c)(1) -- the contemporaneous
exchange for new value defense -- remains in dispute. 	Scott &
Reid’s opposition states that “Scott & Reid does not contest that
the Trustee has met his burden of establishing the basic elements
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2 	The court’s order entered on November 10, 2005, directed
Scott & Reid to file an answer within 10 days. 	No such answer
has been filed. 	This would be an additional reason for treating
Scott & Reid as conceding that the elements of § 547(b) have been
established. 	However, in moving for summary judgment the trustee
refers to the defendant’s answer, so apparently Scott & Reid at
least served an answer on the trustee.
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of a preferential payment under Section 547 of the Bankruptcy
Code . . . .” and then proceeds to address those parts of the
court’s Opinion that addressed Scott & Reid’s § 547(c)(1)
defense. 	Thus, even if Scott & Reid had filed a statement of
material facts as to which there is a genuine issue, it does not
appear that Scott & Reid contests the trustee’s ability to prove
the essential elements of § 547(b). 2
The one notable § 547(b) issue that Scott & Reid failed to
address in its opposition relates to the trustee’s showing under
§ 547(b)(5) that the transfer enabled Scott & Reid to receive
more than it would have received under a chapter 7 distribution
had the transfer not been made. 	The trustee’s affidavit
establishes that there will be less than a 100% dividend to
unsecured creditors in this bankruptcy case, and this constitutes
a prima facie showing that § 547(b)(5) applies. 	White v.
Bradford (In re Tax Reduction Institute) 148 B.R. 63 (Bankr.
D.D.C. 1992); Kroh Bros. Dev. Co. v. Commerce Bank of Kansas City
(In re Kroh Bros. Dev. Co.), 86 B.R. 186 (Bankr. W.D. Mo. 1988);
Lubman v. C.A. Guard Masonry Contractor, Inc. (In re Gem Constr.
Corp. of Va.), 262 B.R. 638 (Bankr. E.D. Va. 2000). 	Scott & Reid
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3 	In disposing of Scott & Reid’s motion for summary
judgment, the court discussed the reasoning of Rand Energy Co. v.
Strata Directional Tech., Inc. (In re Rand Energy Co.), 259 B.R.
274 (Bankr. N.D. Tex. 2001), and the speculative inquiry that
would apply under § 547(b)(5), if Rand controlled, regarding
whether, had the transfer not taken place, Scott & Reid would
have perfected its lien, thereby rendering the lien unavoidable
by the trustee under § 547(c)(6). 	As discussed in the prior
decision, there was doubt that Rand was correctly decided, doubt
that at the time of the transfer of the payment by NETtel a lien
could still be perfected, and doubt that such a lien would have
any value. 	In light of Scott & Reid’s failure to raise Rand, the
court now deems the issue waived and finds that the trustee has
satisfied his burden to show the applicability of § 547(b)(5).
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has adduced no evidence or argument to rebut the trustee’s
showing. 3
Accordingly, in the exercise of its discretion under LCvR
56.1, the court shall treat the trustee’s Statement of Material
Facts as admitted and shall grant summary judgment in favor of
the trustee as to his showing that 11 U.S.C. § 547(b) applies.
II
THE TRUSTEE IS NOT ENTITLED TO SUMMARY JUDGMENT
ON SCOTT & REID’S CONTEMPORANEOUS EXCHANGE FOR NEW VALUE DEFENSE
In disposing of Scott & Reid’s motion for summary judgment,
the court held that Scott & Reid was not entitled to summary
judgment on its § 547(c)(1) contemporaneous exchange for new
value defense because, inter alia, there was no indication that a
bona fide purchaser would have been on actual notice of Scott &
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4 	Under Texas law, “[a]ctual notice exists when knowledge
is actually brought home to the parties to be affected by it, or
where the parties might, by the use of reasonable diligence, have
informed themselves of the existence of certain facts.” 	Detering
Co. v. Green, 989 S.W.2d 479, 481 (Tex. 1999).
5 	Scott & Reid will also need to demonstrate that a bona
fide purchaser would have had actual notice of the constitutional
lien in order to establish that the lien can be viewed as
“previously transferred” within the meaning of § 547(a)(2).
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Reid’s constitutional lien. 4 	Because no lien affidavit was filed
and thus no constructive notice given of the lien, in the absence
of a hypothetical bona fide purchaser being on actual notice, the
trustee can avoid the unperfected constitutional lien under
§ 544(a)(3). 5 	See McEvoy v. Ron Watkins, Inc., 105 B.R. 362
(Bankr. N.D. Tex. 1987). 	Although Scott & Reid has failed to
address the court’s prior ruling on this issue, and has failed to
file a separate statement of material facts giving rise to a
genuine issue for trial or to offer any argument why the court
should not adhere to the reasoning of its prior ruling, Webster
has likewise failed to set forth as a fact not in genuine dispute
that a bona fide purchaser would not have been on actual notice
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6 	The decision regarding Scott & Reid’s motion for summary
judgment stated that because there was “no indication on this
record that a hypothetical bona fide purchaser would have been
put on actual notice of Scott & Reid’s constitutional lien, . . .
. Webster could avoid the lien.” (Docket Entry No. 21, entered
Nov. 10, 2005, at p. 17.) 	But that ruling was based on viewing
the record that Scott & Reid supplied in support of its motion
for summary judgment in the light most favorable to Webster. 	It
was not a ruling based on the record that Scott & Reid might
establish at a trial or in opposition to a motion for summary
judgment by Webster. 	It did not rule that, as a matter of law,
regardless of what evidence Scott & Reid might submit, Scott &
Reid could not prevail on the bona fide purchaser issue.
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of Scott & Reid’s constitutional lien. 6 	Accordingly, LCvR 56.1
does not permit the court to treat that fact (that a bona fide
purchaser would not have been on actual notice of Scott & Reid’s
constitutional lien) as conceded to be true.
Although Scott & Reid bears the ultimate burden of proof on
its § 547(c)(1) defense and, in order to prevail, will ultimately
be required to prove that a bona fide purchaser would have been
on actual notice of Scott & Reid’s lien, as the moving party, it
is Webster’s burden in seeking summary judgment to establish that
Scott & Reid has failed to show an ability to establish this
material fact relating to its § 547(c)(1) defense. 	Webster’s
motion is altogether silent on this issue. 	Although Webster is
not required to submit evidence negating Scott & Reid’s ability
to prove this fact, to discharge his burden Webster must at least
“point[] out to the [court] that there is an absence of evidence
to support the nonmoving party’s case.” 	Celotex Corp. v.
Catrett, 477 U.S. 317, 325 (1986).
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7 	Discovery was originally scheduled to be completed, in
four months, by April 18, 2003. 	Pursuant to a joint request of
the parties filed on April 1, 2003, the scheduling order was
vacated, and discovery was stayed pending the disposition of
Scott & Reid’s motion for summary judgment. 	The order denying
that motion for summary judgment was entered on November 10,
2005, and the parties were free to resume discovery. 	That order
directed that:
The parties shall within 15 days after entry of this
order submit an agreed proposed amended scheduling
order or a request for a further scheduling conference.
They may contact Sally Myers of the clerk's office to
secure a proposed pretrial conference date for purposes
of preparing an agreed proposed amended scheduling
order.
No agreed proposed amended scheduling order and no request for a
further scheduling conference was ever filed.
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Scott & Reid notes in its opposition that at trial, after
discovery, it may be able to present evidence proving its
§ 547(c)(1) defense. 	Although Scott & Reid has had ample time to
conduct discovery, its time to complete discovery has not
expired. 7 	However, the issue of whether a bona fide purchaser of
the debtor’s lease would have been on actual notice of the
constitutional lien is one as to which Scott & Reid should be in
possession of relevant evidence, if there is any to support Scott
& Reid on that issue. 	Its silence on this issue suggests that
evidence does not exist to demonstrate that a hypothetical bona
fide purchaser would have been on actual notice of the
constitutional lien. 	Webster failed to contend that through
discovery he has learned that Scott & Reid is unable to present
such evidence, and that is why at this juncture summary judgment
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8 	Only if Webster had raised the lack of such evidence
would Scott & Reid have been required to demonstrate that such
evidence does exist or, alternatively, file a Rule 56(f)
affidavit regarding the need for discovery to attempt to locate
such evidence.
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cannot be granted in Webster’s favor. 8 	But if Scott & Reid
cannot after discovery produce such evidence, that will permit
the court to grant Webster’s motion. 	Discovery on that issue
should be relatively simple and inexpensive. 	Requiring Scott &
Reid (and Webster) promptly to conduct any discovery on that
issue, and requiring Scott & Reid to file a supplemental response
to Webster’s motion demonstrating that it has such evidence will
permit prompt resolution of this proceeding if Scott & Reid is
unable to produce such evidence. 	In the meantime, the parties
will be directed to appear at a scheduling conference at which
the deadlines for other discovery will be set (unless they
jointly agree to defer the scheduling conference).
Several additional issues relating to Scott & Reid’s new
value defense remain unresolved, including:
(1) whether the parties intended that the lien on the
leasehold interest be released in exchange for the
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9 	Webster’s motion did not address this issue (because he
viewed the § 547(c)(1) defense as having been rejected by the
court’s discussion of the bona fide purchaser issue in its
decision regarding Scott & Reid’s motion for summary judgment).
It is noted that two items of evidence attached to Webster’s
motion, if unrebutted, might support a ruling in his favor on
this issue. 	The two items are:
• 	the Declaration of James C. Ellis (stating that Scott &
Reid’s threat of placing a mechanic’s lien on the
owner’s building was the only lien and the only type of
lien any representative of Scott & Reid discussed); and
• 	Scott & Reid’s fax to Ellis dated August 22, 2000
(threatening to place a lien “on the building” thereby
causing “great distress for the building owner as well
as Scott & Reid”).
Unless the lien on the debtor’s leasehold interest were
discussed, the parties could not have formed a meeting of the
minds–-an intention–-that the lien on the debtor’s leasehold
interest be released in exchange for the transfer.
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transfer; 9 and
(2) whether the lien that was released, in comparison
to the amount of the transfer, was of equal or greater
value.
However, the court will only reach these issues if Scott & Reid
first demonstrates that a reasonable finder of fact would be
entitled to find that a bona fide purchaser would have had actual
notice of the constitutional lien at the time the lien was
released.
III
It is thus
ORDERED that the trustee’s motion for summary judgment is
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GRANTED as to the issue of whether the trustee has established
all five elements of an avoidable transfer under 11 U.S.C.
§547(b), and the amount of the transfer ($129,508.36), and as to
all defenses other than the § 547(c)(1) defense, such that if the
§ 547(c)(1) defense is rejected, the trustee shall be entitled to
judgment in his favor in the amount of $129,508.36, together with
prejudgment interest from October 25, 2002 (the date of service
of the complaint). 	It is further
ORDERED that the trustee’s motion for summary judgment is
otherwise TEMPORARILY DENIED. 	It is further
ORDERED that within 45 days after entry of this order, Scott
& Reid and the trustee may conduct discovery on the issue of
whether a bona fide purchaser of the debtor’s lease would have
been on actual notice of Scott & Reid’s constitutional lien. 	It
is further
ORDERED that within 60 days after entry of this order, Scott
& Reid shall file with the court a memorandum supported by
sufficient evidence to demonstrate that a reasonable finder of
fact would be entitled to rule in Scott & Reid’s favor on this
issue such as to preclude the grant of summary judgment in favor
of Webster. 	It is further
ORDERED that Webster may file a responsive memorandum within
14 days after the filing of Scott & Reid’s memorandum. 	It is
further
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14	O:\TEEL\Laura\OPINIONS\Scott & Reid - 2nd MFSJ\Scott & Reid - Trustee Summary Judgment_v4.wpd
ORDERED that a scheduling conference will be held on October
21, 2008, at 9:30 a.m. to address setting a discovery schedule
for other issues in this proceeding.
[Signed and dated above.]
Copies to:
All counsel of record; Office of the United States Trustee.
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