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Richardson v. Terry Bullock Garages

February 26, 2007

IN RE: BULLOCK GARAGES, INC.
JEFFREY D. RICHARDSON, CHAPTER 7 TRUSTEE FOR BULLOCK GARAGES, INC., PLAINTIFF-APPELLEE,
v.
TERRY BULLOCK GARAGES, INC., DEFENDANT-APPELLANT.



The opinion of the court was delivered by: Michael P. McCUSKEY Chief U.S. District Judge

OPINION

This is an appeal from an Opinion entered by the United States Bankruptcy Court for the Central District of Illinois (Bankruptcy Case No. 02-93419) brought pursuant to 28 U.S.C. § 158(a). In Adversary Case No. 04-09021, the Bankruptcy Court found in favor of the Chapter 7 trustee, Jeffrey D. Richardson, and against Defendant, Terry Bullock Garages, Inc. (TBG). Judgment was entered in the amount of $85,550.13 plus prejudgment interest. Following this court's careful and thorough review of the arguments of the parties and the Record on Appeal provided by the Bankruptcy Court, this court affirms the Opinion of the Bankruptcy Court.

FACTS

Bullock Garages, Inc. (BGI) was in the business of manufacturing and selling prefabricated garages since approximately 1985.*fn1

BGI operated four mills which manufactured the prefabricated garages. BGI also maintained sales offices and independent dealerships. Terry Bullock is TBG's majority shareholder and president. On April 30, 1984, TBG entered into a dealership agreement, establishing a Springfield, Illinois, dealership for selling garages manufactured by BGI.*fn2

The dealership agreement was subsequently amended, and TBG established dealerships in O'Fallon and Bloomington, Illinois. Under the terms of the dealership agreements, TBG had the exclusive right to sell BGI products within that territory. Conversely, TBG was obligated to sell only BGI products. In the course of its business, TBG entered into contracts with its customers and, in turn, ordered garage kits from BGI. BGI then billed TBG for the garage kits that were built.

BGI was having financial difficulties in 2001, and, by 2002, BGI was insolvent. BGI's milling operations were reduced, and BGI was without funds to purchase materials, to pay its employees, or to pay its subcontractors. BGI had approximately 300 uncompleted garage contracts, and was unable to build the garage kits on its own prior to the conclusion of the 2002 construction season. TBG was keenly interested in BGI's continued viability and began negotiations to acquire BGI's business. The negotiations involved BGI's largest lender, Old National Bank, which held a first priority security interest in most of BGI's assets.

On September 5, 2002, Terry Bullock organized T.L. Bullock Builders, Inc. (TLBB). On September 6, 2002, TLBB entered into a contract with BGI. The effective date of the contract was September 7, 2002. Pursuant to the terms of this agreement, TLBB agreed to complete the approximately 300 uncompleted garages and enter into new contracts for prefabricated garages using BGI facilities and employees. TLBB employed BGI's workforce, including carpenters and mill workers, while BGI retained its management employees and maintained its sales force and corporate headquarters. The agreement required BGI (and its related companies) "to assign all existing customer garage contracts to [TLBB]." The agreement also provided that TLBB agreed "to honor and carry out those contracts by completing and/or building and erecting all garages under contract." TLBB agreed to pay for material and direct labor costs incurred in carrying out the terms of existing customer contracts. The agreement further provided that BGI was "not assigning any receivables to [TLBB]," but that TLBB agreed to collect the receivables of BGI, reimburse TLBB for its direct costs and a 10% profit and remit the balance to BGI. The agreement stated that "[f]or purposes of this paragraph, 'receivables' shall be considered to be not only current receivables but amounts earned in the future from existing contracts." The agreement also stated that "[a]ll new customer garage contracts after the effective date of this agreement shall be written in the name of and belong to [TLBB]." The terms of the agreement were set out in a notice to BGI's staff. This notice stated that "[a]ll contracts for garages entered into on Saturday, September 7, 2002, or thereafter will be entered into on behalf of [TLBB], which will assume complete responsibility for the performance of such contracts."

TLBB commenced operations on September 9, 2002, and operated using BGI's facilities and employees for about three weeks. TLBB completed approximately 150 garage kits during this time. Old National Bank then withdrew its consent from the arrangement and threatened litigation. TLBB ceased operations on September 27, 2002. During the three weeks it was in operation, all garages sold were built by TLBB. After the agreement terminated, BGI renewed operations and built approximately 100 additional garages. Old National Bank then initiated a foreclosure action against BGI. On November 1, 2002, BGI filed a voluntary petition under Chapter 11 of the Bankruptcy Code. BGI's bankruptcy case was subsequently converted to a Chapter 7 proceeding.

On March 19, 2004, Jeffrey D. Richardson, the Chapter 7 trustee, commenced an adversary proceeding against TBG. The trustee claimed that TBG purchased garages from BGI prior to BGI's bankruptcy and owed $94,852.29 in outstanding unpaid invoices. The trustee therefore sought judgment against TBG in the amount of $94,852.29 plus prejudgment interest. An evidentiary hearing was held on April 20, 2005.*fn3 At the hearing, TBG's dealership agreements and the September 6, 2002, agreement entered into between BGI and TLBB were introduced into evidence. Randy Bullock, BGI's president and sole shareholder, testified that, under the terms of the September 6, 2002, agreement, TLBB was to finish the contracts that were in existence prior to that date. He also testified that the receivables from those contracts remained assets of BGI but the obligation to build them became TLBB's obligation. He stated that BGI and TLBB entered into the agreement because they were trying to keep things running for a while until an agreement for Terry Bullock to buy the business could be negotiated, with the approval of Old National Bank. Sheila Falconer, BGI's comptroller, testified that it was her understanding that contracts that were signed prior to September 6, 2002, remained the property of BGI and were collectable by BGI. The trustee introduced a folder of invoices into evidence which showed the amount billed to TBG for garages built to fulfill contracts entered into between TBG and various customers. The contracts attached to the invoices showed that the contracts were dated prior to September 7, 2002.*fn4

The evidence showed that no payment had been made by TBG to BGI or to TLBB for these invoices.

Terry Bullock testified that TBG had a credit coming on some of the invoices because the garages TBG received were short on some items. Documentation showing these credits was introduced into evidence. Terry Bullock also testified that BGI would not let him take two garages that were built for TBG. The deposition of Vicki McGuar was also admitted into evidence. McGuar testified that she is a tax accountant and provided accounting services for Terry Bullock, TBG and TLBB. McGuar testified that, under the terms of the September 6, 2002, agreement, TLBB was responsible for finishing contracts for BGI. She testified that they were given a list of the contracts to be completed. McGuar testified that contracts after September 6, 2002, were TLBB's contracts.

Following the evidentiary hearing, the trustee filed a Closing Argument and Brief. The trustee noted that, under the terms of the September 6, 2002, agreement, TLBB agreed to complete all existing garage contracts for cost plus a 10% profit and that all existing contracts were considered receivables, which were not assigned to TLBB. The trustee argued that garage contracts which TBG executed with customers prior to September 7, 2002, but which were not built by September 6, 2002, were BGI receivables. Therefore, he argued that TBG owed BGI for the amounts invoiced.

TBG filed a Responsive Closing Argument and Memorandum of Law. TBG made three arguments: (1) TBG was entitled to credits totaling $1,437.56 for shorted materials; (2) TBG should not be required to pay $7,864.60 for two garages which were never delivered to TBG; and (3) the garages were produced by TLBB, not BGI, so TBG did not owe anything to BGI. In support of its third argument, TBG contended that the order date shown on the invoices submitted by Trustee Richardson showed that all of these garages were ordered by TBG during the term of TLBB's production operations. TBG argued that it was the placing of the order by the dealer that formed the contract with the manufacturer. TBG also argued that the garages were manufactured and delivered by TLBB. TBG argued that there "was no offer, no acceptance, nor performance by BGI of any contract with TBG with respect to" these garages. TBG argued that, based upon the September 6, 2002, agreement, the ...


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