In Re Jwj Contracting Co., Inc., Debtor, Endo Steel, Inc. v. Joseph J. Janas, Trustee

JWJ Contracting (“JWJ”) made a payment to its subcontractor Endo Steel, Inc. (“Endo”) within the 90 days preceding the filing of JWJ’s bankruptcy petition. In view of that payment, Joseph Janas, JWJ’s Chapter 7 Trustee (“Trustee”), initiated an action in the bankruptcy court to avoid the payment as a preference under Bankruptcy Code § 547(b).

The bankruptcy court rejected the Trustee’s preference claim and granted summary judgment in favor of Endo, holding that JWJ’s payment, which replaced a previously dishonored check, was a contemporaneous exchange for new value in the form of Endo’s earlier release of its Little Miller Act bond claim, and thus the payment was exempt from avoidance under Bankruptcy Code § 547(c)(1). The Bankruptcy Appellate Panel (“BAP”) reversed. See Janas v. Marco Crane & Rigging Co. (In re JWJ Contracting Co., Inc.), 287 B.R. 501 (9th Cir. BAP 2002). It held that because Endo had given JWJ an unconditional release of the bond claim in exchange for what turned out to be an NSF check, the subsequent payment that replaced the NSF check was given in exchange for what had become an unsecured debt, and did not result in a contemporaneous exchange for new value.…