- Guttman v. Construction Program Group (In re Railworks Corp), No. 13-1931 (4th Cir. July 28, 2014)
- The court held that the bankruptcy court's grant of summary judgment in favor of Construction Program Group (CPG) was proper, thus reversing the district court. First, the 4th Circuit held that Guttman sufficiently pled his claims under sections 547 and 550. Next, the court turned to whether Guttman could recover the premium payment transfers under section 550. There was no dispute between the parties that CPG was not an initial transferee but Guttman argued that CPG was an entity for whose benefit the premium payment transfers were made. Guttman argued, as the district court had held, that CPG was both a mere conduit of money between the Debtor and the insurer, and one for whose benefit the transfer occurred. This was so because CPG was contingently liable to TIG for the Debtor’s premiums, but when the premiums were paid to TIG, that liability was extinguished. The 4th Circuit disagreed with district court’s reasoning and ultimate conclusion that CPG benefited from an avoidable transfer because its contingent liability to TIG was extinguished upon payment of the premiums to TIG. The 4th Circuit found that CPG “cannot be an entity for whose benefit the transfer was made if it is a mere conduit for the party that had a direct business relationship with the debtor.” Slip op. at 12. There was no dispute between the parties that CPG was a mere conduit. Yet, Guttman argued, as the district court held, that because CPG was contingently liable to TIG, that the liability was extinguished upon payment to TIG and that the extinguishment of the contingent liability benefitted CPG, Guttman had satisfied “the entity for whose benefit the transfer was made” component of section 550. The 4th Circuit disagreed, holding that the conduit defense would be eviscerated if that reasoning were to be adopted. As Guttman could not recover the premium payments under section 550, the court did not reach the issue as to whether they were avoidable under section 547.
- Procedural context:
- Appeal from the United States District Court for the District of Maryland. The bankruptcy court had granted summary judgment in favor of Construction Program Group ("CPG"). The district court reversed, vacating the the bankruptcy court's grant of summary judgment and remanding the case for further proceeding. CPG thereafter filed the appeal.
- Zvi Guttman, the Chapter 11 Litigation Trustee for the Debtor, filed a complaint against CPG seeking to avoid and recover premium payment transfers that the Debtor made to CPG during the 90 days preceding the Chapter 11 filing. The Debtor purchased insurance through CPG, the insurance agent, and CPG would thereafter transfer the payments to TIG Insurance Company, the insurer. CPG’s contract with TIG required the agent to hold all premiums that it collected in a segregated trust account for the insurer, but if the insured failed to pay, the agent remained liable to the insurer for the premiums. The Debtor made several payments to CPG within the 90 days preceding the debtor’s bankruptcy filing.
- Judge Keenan and Judge Floyd, Circuit Judges, and Judge Max O. Cogburn, Jr., United States District Judge for the Western District of North Carolina, sitting by designation.
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