Opinion
Case No. 02-01234-AJM-7, Case No. 02-2387-AJM-7, Jointly Administered under Case No. 02-01234-AJM-7
September 30, 2002
Paul Deignan/Richard Richmond, for Petitioning Creditor Franklin-Sand Realty, LLC
Gregory Bekes/Alien Grotke, for Contemporary Contractors, Inc. and Jonas Anderson Interveners
I. INTRODUCTION
This case came before the Court for trial on August 1 and 2, 2002. The matters heard by the Court at that time were the Amended Involuntary Petitions filed against the above-referenced Alleged Debtors, Contemporary Contractors, Inc. ("CCI"), and Jonas Charles Anderson ("Anderson") on January 25, 2002, and February 15, 2002 respectively, and as amended on June 17, 2002, the Answer to Involuntary Petition Under Chapter 7 filed by CCI and Anderson on March 20, 2002 (the "Answer"), and the Motions to Dismiss Involuntary Petition filed by CCI and Anderson April 8, 2002 (the "Motions to Dismiss"). Pursuant to the Court's order dated May 22, 2002, these cases are being jointly administered, but separate claims and case dockets are being maintained.
These involuntary cases were commenced against CCI and Anderson pursuant to 11 U.S.C. § 303(b)(2) by Franklin-Sand Realty, LLC ("Franklin-Sand"), which filed its Involuntary Petition on January 25, 2002 against CCI and on February 15, 2002 against Anderson. In their answers and Motions to Dismiss, CCI and Anderson alleged as one of their defenses that they each had more than twelve (12) creditors, and that therefore at least three (3) qualified petitioners were required for each involuntary pursuant to 11 U.S.C. § 303(b)(1). In response thereto, Franklin-Sand filed in each case its Motion for Leave to File Amended Involuntary Petition on June 14, 2002, which Motion was heard by the Court on June 17, 2002. After the Court noted at that hearing that the list of creditors required by Bankruptcy Rule 1003 and filed by CCI and the list of "Personal Credit Accounts" filed by Anderson, all on May 22, 2002, did not show the existence of more than twelve (12) creditors, both CCI and Anderson stipulated that they no longer advanced the defense that they had more than twelve (12) creditors, and that they would maintain that it had no creditors, as was represented by its list of creditors. The Court then granted in both cases the Motion for Leave to File Amended Involuntary Petition, and on June 17, 2002, entered in both cases its Order Joining Additional Petitioning Creditors joining additional petitioners with Franklin-Sand.
II. JURISDICTION
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 157(b)(1) and 28 U.S.C. § 1334.
III. FINDINGS OF FACT
The Court's findings of fact are derived from (i) the evidence adduced at trial, including the testimony of witnesses, and (ii) the Court's independent examination and noticing of the official record of the instant case.
1. On January 25, 2002 (hereafter the "CCI Petition Date") and February 15, 2002 (hereafter the "Anderson Petition Date"), involuntary petitions were filed against CCI and Anderson, seeking relief under Chapter 7 of the Bankruptcy Code.
2. On March 20, 2002, CCI and Anderson filed in their respective cases their Answer, and on April 8, 2002, they filed their Motions to Dismiss.
3. On June 17, 2002, the Court granted Franklin-Sand leave to file an amended involuntary petition in each case, and by its order dated June 17, 2002, the following petitioners were joined with Franklin-Sand in the CCI case: Bryan-Sand Realty, LLC ("Bryan-Sand"); St. Joseph Realty, LLC ("St. Joe Realty"); Century Steel Fabricating, Inc. ("Century Steel"); Apex Paving Excavating, Inc. ("Apex Paving"); Holland Roofing of Indianapolis, Inc. ("Holland Roofing"); Shelby Materials; Stout's Mechanical Airmaster Heating Cooling, Inc. ("Stout's Mechanical"); Suburban Glass Service ("Suburban Glass"); Epperson Painting, Inc. and the George Will Company, Inc., resulting in a total of eleven (11) petitioning creditors. The following petitioners were joined with Franklin-Sand in the Anderson case: Bryan-Sand Realty, LLC ("Bryan-Sand"); St. Joseph Realty, LLC ("St. Joe Realty"); Century Steel Fabricating, Inc. ("Century Steel"); Holland Roofing of Indianapolis, Inc. ("Holland Roofing"); Epperson Painting, Inc. and the George Will Company, Inc., resulting in a total of seven (7) petitioning creditors.
4. CCI is an Indiana corporation which was engaged in the construction business as a general contractor.
5. Anderson is the president and principal of CCI. Anderson is not a farmer or a family farmer.
6. CCI entered into a construction contract with Franklin-Sand dated September 5, 2001 (the "Franklin Contract"), for the construction of a shopping center known as Wal-Mart Plaza in Franklin, Indiana (the "Franklin Project").
7. Anderson personally guaranteed the debts and obligations of CCI to Franklin-Sand under the Franklin Contract.
8. CCI entered into a construction contract with Bryan-Sand dated September 4, 2001 (the "Bryan Contract"), for the construction of a shopping center known as Wal-Mart Plaza in Bryan, Ohio (the "Bryan Project").
9. Anderson did not personally guaranty the Bryan Contract.
10. CCI entered into a construction contract with St. Joseph Realty dated March 30, 2001 (the "St. Joseph Contract"), for the construction of a shopping center known as Cub Plaza in St. Joseph, Missouri (the "St. Joseph Project").
11. Anderson personally guaranteed the debts and obligations of CCI to St. Joe Realty under the St. Joseph Contract.
12. Franklin-Sand, Bryan-Sand and St. Joe Realty (together the "Sandor Entities") issued 20 two-party checks jointly payable to CCI and various of CCI's subcontractors on the Bryan Project, the Franklin Project and the St. Joseph Project to insure that the subcontractors were paid for their work.
13. According to the terms of the Franklin Contract, the Bryan Contract and the St. Joseph Contract, all the proceeds of the two-party checks were to have gone to the subcontractors. See page 2, Section 6 of each contract.
14. Franklin-Sand also issued a one-party check made payable to Apex Paving only, in the amount of $51,185.70, all proceeds intended for Apex Paving.
15. Anderson endorsed the 20 two-party checks intended for payment to subcontractors alone, and the one-party check made payable solely to Apex Paving, together totaling $533,647.24 (together the "Subcontractors' Checks"), presented them for payment to Bank One, deposited the funds in the account of CCI, and did not, as of the either the CCI or Anderson Petition Date, use those funds to pay subcontractors.
16. As of the time of the trial, only $292,872.00 of the $533,647.24 had been paid by CCI or Anderson to the subcontractors.
17. As of the time of the trial, the remaining $240,775.24 of the $533,647.24 had not been paid to the subcontractors by CCI or Anderson, nor had it been paid to Bank One Indiana, NA, the depository bank.
18. Anderson and CCI knowingly and intentionally exercised unauthorized control over the property of the subcontractors and the Sandor Entities by negotiating the Subcontractors' Checks and keeping the proceeds.
19. Anderson and CCI intended, by their unauthorized control of the Subcontractors' Checks, to deprive the subcontractors of the use and value of the Subcontractors' Checks.
20. Anderson and CCI were unable to identify any just cause or excuse for their exercise of unauthorized control over the Subcontractors' Checks.
21. Anderson and CCI never attempted to confirm with either a subcontractor or with a Sandor Entity whether or not the subcontractor had actually been paid prior to negotiating each of the Subcontractors' Checks and keeping the money.
22. Anderson and CCI negotiated the Subcontractors' Checks and kept the proceeds, knowing that the subcontractors had not already been paid by a Sandor Entity.
23. Anderson and CCI obtained the Subcontractors' Checks from the Sandor Entities, and obtained the proceeds from their negotiation from both the Sandor Entities and Bank One, under the false pretense that the Subcontractors' Checks would be used to pay the subcontractors, pursuant to CCFs agreements with the Sandor Entities.
24. As of the Petition Date, the following entities held claims against CCI which were not contingent as to liability or the subject of bona fide dispute, in the following principal amounts:
a. Petitioner Century Steel, $56,800.00.
b. Petitioner Stout's Mechanical, $65,000.00.
c. Petitioner Holland Roofing, $38,000.00.
d. Petitioner Suburban Glass, $14,864.85.
e. Petitioner Apex Paving, $58,103.65.
f. Petitioner Epperson Painting, $2,000.00.
g. Petitioner George Will Company, Inc., $56,000.00.
h. Bank One, $533,647.00, later reduced to $240,775.00 by CCI's subsequent payments to subcontractors.
i. Petitioner Franklin-Sand, $265,907.00, for two-party checks (and the check to Apex Paving alone) not paid to subcontractors,
j. Petitioner Bryan-Sand, $218,671.24, for two-party checks not paid to subcontractors,
k. Petitioner St. Joe Realty, $49,069.00, for two-party checks not paid to subcontractors.
25. As of the Petition Date, the following petitioning creditors held claims against Anderson based upon Andersen's negotiation of two-party checks, personal guarantees, and debts related to the Motocross Project which claims were not contingent as to liability or the subject of bona fide dispute, in the following amounts:
a. Century Steel, $56,800.00.
b. Holland Roofing, $38,000.00.
c. Epperson Painting, $2,000.00.
d. George Will Company, Inc., $56,000.00.
e. Franklin-Sand, $265,907.00, for two-party checks (and the check to Apex Paving alone) not paid to subcontractors, plus guaranty debt.
f. Bryan-Sand, $218,671.24, for two-party checks not paid to subcontractors.
g. St. Joe Realty, $49,069.00, for two-party checks not paid to subcontractors, plus guaranty debt.
26. By stipulation, and for purposes of 11 U.S.C. § 303(b)(2) only, neither CCI nor Anderson had more than twelve (12) creditors each. 27. The claims against CCI and Anderson by the petitioning creditors were not contingent as to liability, nor subject to a bona fide dispute, and are in the aggregate greater than $11,625.00 more than the value of any lien on property of CCI securing such claims by the holders of such claims.
28 None of the petitioning creditors are employees or insiders of CCI, or Anderson, nor are any of the petitioning creditors transferees of transfers avoidable under Title 11.
29. As of the Petition Date, the following entities, in addition to the petitioning creditors, held claims against Anderson:
a. Stout's Mechanical, $65,000.00;
b. Suburban Glass, $14,865.85;
c. Apex Paving, $58,103.65; and
d. Bank One, $533,647.24, later reduced to $240,775.00 by CCFs subsequent payments to subcontractors.
30. As of their respective Petition Dates, neither CCI nor Anderson were generally not paying their debts as they became due, and those debts which were due were not the subject of a bona fide dispute.
31. To the extent that Court makes findings of fact in its Conclusions of Law or Discussion below, those findings are incorporated herein.
III. CONCLUSIONS OF LAW
1. CCI is a commercial corporation that may be a debtor under Chapter 7 of the Bankruptcy Code. Anderson is a person who may be a debtor under Chapter 7 of the Bankruptcy Code.
2. The petitioning creditors in both cases have met the requirements of the Bankruptcy Code as to their number, the nature of their claims, and the aggregate amount of their claims so as to satisfy either 11 U.S.C. § 303(b)(1) or (2).
3. The claims of the petitioning creditors in both cases are not subject to bona fide dispute.
4. The involuntary petitions were timely controverted by CCI and Anderson.
5. CCI and Anderson were generally not paying their debts as they became due, and those debts which were due were not the subject of a bona fide dispute.
6. The contracts between CCI and the Sandor Entities required that the two-party checks issued to CCI and the various subcontractors could be used only to pay the subcontractor joint-payees.
7. Anderson guaranteed the debts and obligations of CCI to the respective Sandor Entities under the Franklin Contract and the St. Joseph Contract.
8. Anderson is personally liable to the subcontractors, the Sandor Entities and to Bank One for his wrongful negotiation of the Subcontractors' Checks and the retention by CCI of the proceeds.
9. The totality of the circumstances in this case, including the number of CCI's debts, the amounts of those debts, the materiality of CCI's and Anderson's non-payment of those debts and effect it had on their creditors, and the manner in which CCI conducted its business and Anderson conducted CCI's business, in addition to meeting the requirements expressly articulated by 11 U.S.C. § 303, warrant the entry of an order for relief under Chapter 7 of the Bankruptcy Code against CCI and Anderson.
10. To the extent that the Court makes conclusions of law in its Findings of Fact above or Discussion below, those conclusions are incorporated herein.
IV. DISCUSSION
The determinative and contested issue before the Court was whether CCI and Anderson in their respective cases were generally not paying their debts "as such debts become due, unless such debts are the subject of a bona fide dispute." 11 U.S.C. § 303(h)(1). The same test for "bona fide dispute" for purposes of § 303(h)(1) and the alleged debtor generally not paying its debts is also applied to "bona fide dispute" in § 303(b), regarding the qualifications for petitioners. In re Busick. 65 B.R. 630, 637 (N.D. Ind. 1986), aff'd 831 F.3d 745 (7th Cir. 1987). It also follows that if a debt is subject to a bona fide dispute, then that debt is not "due" in the sense contemplated by § 303(h)(1).
The test for whether a debt is subject to a bona fide dispute is that "the bankruptcy court must first determine whether there is an objective basis for either a factual or a legal dispute as to the validity of the debt." Busick. 831 F.3d 745, 749. However, the Court is not required to determine the final outcome of any dispute; it need only find whether or not a dispute exists. Id. Therefore, only a limited analysis of the claims against CCI and Anderson is necessary. See id. In this case, there is overwhelming evidence that the debts at issue are not subject to bona fide dispute, and that CCI and Anderson was generally not paying them when they became due.
The Court heard the testimony of witnesses over two (2) complete days, both from Anderson on behalf of himself and on behalf of CCI in opposition to the entry of the order for relief in these cases, and from the following persons, on behalf of the respective petitioners and/or creditors in support of the entry of the order for relief:
David Eskenazi and Sidney Eskenazi, for the Sandor Entities.
William E. Smith, for Bank One Indianapolis, NA.
Greg Sheets and Barbara Carroll, for Century Steel.
Chris Kaiser, for Stout's Mechanical.
Chris Peronto, for Holland Roofing.
Mark Wagner and Timothy Halloran, for Suburban Glass.
Leslie B. Stanley, for Apex Paving.
Millie Epperson, for Epperson Painting.
Kenneth Walje, for George Will Company, Inc., and
Greg Wertz, for Shelby Materials.
The uncontroverted testimony was that CCI, by and through its principal Anderson, was a general contractor engaged in the business of commercial construction, and had entered into certain construction contracts as general contractor with Franklin-Sand for the building of the Franklin Project; with Bryan-Sand for the building of the Bryan Project; and with St. Joe Realty for the building of the St. Joseph Project.
CCI and Jonas Anderson also entered into a contract for the purchase of real estate in Martinsville, Indiana, and the construction of a certain dirt racing track thereon referred to as "Club Motocross of Martinsville" (the "Motocross Project").
The evidence demonstrated that CCI, and through his personal guaranty, Anderson, incurred large debts through CCI's failure to complete the above projects, by not paying its subcontractors for work they had performed, and by wrongfully negotiating twenty-one (21) checks, drawn by Franklin-Sand, Bryan-Sand and St. Joe Realty, each made jointly payable to CCI and one of its subcontractors, and in one instance, made payable to a subcontractor alone, Apex Paving, which proceeds rightfully belonged solely to the subcontractors (hereafter the "Subcontractors' Checks").
The Subcontractors' Checks totaled $533,647.24; however, CCI eventually paid $292,872.00 of those checks to the subcontractors and/or to the Sandor Entities. Nevertheless, by both of the Petition Dates, and through the date of the trial, $240,775.24 of the Subcontractors' Checks still had not been paid by either CCI or Anderson. Not only were those amounts due and payable to the unpaid subcontractors, but in addition CCI's wrongful negotiation of the Subcontractors' Checks created an additional liability to Bank One, which paid those checks which were not "properly payable," due to CCI's breach of its transfer warranties.
Anderson admitted negotiating the Subcontractors' Checks, and that the proceeds were kept by CCI. However, the argument advanced by Anderson and CCI as justification for the negotiation of the Subcontractors' Checks is unpersuasive. Anderson testified that (1) CCI was not obligated to pay any amount to any of its subcontractors until it received full payment for the entire project from the Sandor Entities, and that (2) CCI had the authority and right to negotiate the two-party checks by itself and keep the funds, because Anderson believed that the Sandor Entities had already paid those subcontractors "behind his back." Therefore, both CCI and Anderson argued they were generally paying their debts when due, because it was the belief of Anderson that nothing was actually "due" to the subcontractors.
These arguments fail for a number of reasons. First, the evidence showed that CCI was required to pay its subcontractors when CCI received the two-party checks from the Sandor Entities; it was at that time the payment was "due" to the subcontractors, and not at the conclusion of the entire project when payment in full had been made to CCI. Second, the testimony of Anderson as to his belief that the subcontractors had been paid by the Sandor Entities without his knowledge, therefore justifying his negotiation of the two-party checks, simply is not credible. Third, Andersen's beliefs, justifiable or not, are irrelevant as to whether or not CCI was actually paying its debts when due. That is a legal issue, which is not founded on Anderson's belief, however credible or incredible, that those debts were not "due."
CCFs and Anderson's argument that no payments were "due" the subcontractors was based on the language in paragraph B.(6) on page 4 of the CCI subcontract, which states that, "Contractor shall pay subcontractor ten (10) days after their receipt of payment from the Owner upon receipt of proper billing applications and waivers." CCI and Anderson argued that this provision, commonly known in the industry as a "paid when paid" provision, meant that CCI did not have to pay the subcontractor, even when it received the two-party check, until CCI was paid in full for the entire project by the respective Sandor Entity. However, this argument is contrary to the plain language of the CCI subcontract, and was controverted by the testimony of the witnesses for the subcontractors and for the Sandor Entities. In the first place, the clause on which CCI relies is contained in a provision of the subcontract dealing with progress payments. Furthermore, the evidence at trial established that the "pay when paid" clause was a clause dealing with timing, and was not a contingency clause, as argued by CCI and Anderson. CCI's own form contract contains a mandatory payment clause in Article 4.1, which states in no uncertain terms that "[t]he Contractor shall pay the Subcontractor in current funds for the performance of the Work. . . ."
Furthermore, the interpretation given to the "pay when paid" clause by all witnesses testifying in that regard, other than Anderson, is also supported by case law. In Midland Engineering Co. v. John A. Hall Const. Co., 398 F. Supp. 981 (N.D. Ind. 1975), the court concluded that a similar clause was merely a covenant by the contractor to pay the subcontractor within a reasonable time; it is a timing clause only, not a contingency clause.
The evidence showed that the system of payment according to the terms of the contracts with the Sandor Entities and with the subcontractors was as follows: When a draw request was made to one of the Sandor Entities by CCI, the Sandor Entity would issue a check made jointly payable to CCI and the relevant subcontractor. All of the proceeds of the jointly payable check were to go to CCI's subcontractor, as those proceeds represented the amount owed to the subcontractor for the work it had performed. The Sandor Entities required this arrangement so that they would be assured that payments they made for the subcontractors actually were paid to the subcontractors. The contracts between CCI and the Sandor Entities expressly state this requirement, and "that such funds will be used for no other purpose or purposes." See Section 6 of each contract.
However, Anderson testified that when he received each of the Subcontractors' Checks, he believed that the subcontractor had been already been paid directly by a Sandor Entity. Anderson testified that he believed this to be the case because Line No. 9 on the form "Affidavit and Request for Payment" provided to the subcontractor by CCI stated that "Previous to this request for payment, the Company has received in payment on said contract the sum of [blank]." However, the evidence showed that it was common practice in the industry, and was also required by CCI, for the subcontractor to fill in, not the amount of money previously received, but the total amount of the previous draw requests made by the subcontractor, whether paid or not. The testimony at trial showed that the reason for doing that was to make clear and distinguish the amount of that particular draw request from previous draw requests; it was not to be understood as confirmation of monies actually received by the subcontractor.
Anderson's own testimony confirmed this practice. Anderson himself submitted such an Affidavit and Request for Payment to a Sandor Entity on behalf of CCI with a dollar amount filled in on Line No. 9. On cross-examination, Anderson reluctantly admitted that the amount did not represent payments actually received from the Sandor Entity, but only the total amount of the previous draw requests, both paid and unpaid.
Furthermore, Anderson testified on cross-examination that he never inquired of either a subcontractor or a Sandor Entity whether or not that subcontractor had already been paid directly by a Sandor Entity before negotiating a two-party check and keeping the money for CCI. The Court must conclude, after weighing this and other evidence, that no person could reasonably have believed he was authorized to negotiate the Subcontractors' Checks, deposit the funds in CCI's checking account, and not pay the subcontractors forthwith from those funds.
Even if Anderson's testimony that he believed the subcontractors had been paid by the Sandor Entities were credible, Anderson's belief in that regard is irrelevant. As a matter of law, CCI was not authorized to negotiate the checks: "If an instrument is payable to two (2) or more persons not alternatively, it is payable to all of them and maybe negotiated, discharged, or enforced only by all of them." Ind. Code 26-1-3.1-110(d). In this case, it is clear that the Subcontractors' Checks were jointly payable, and in the case of the one check to Apex Paving alone, only Apex Paving was authorized to negotiate the check.
The uncontroverted evidence at trial was that Anderson endorsed the Subcontractors' Checks, presented them for payment at his bank, Bank One, had the funds deposited in the account of CCI, and that CCI did not use those funds to pay the subcontractors as required.
CCFs and Anderson's negotiation of the Subcontractors' Checks was also a breach of CCFs transfer warranty to the depositary bank, Bank One. CCI and Anderson transferred the twenty-one (21) checks to Bank One. "An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument." Ind. Code 26-1-3.1-203(a). "A person who transfers an instrument for consideration warrants to the transferee . . . that (1) the warrantor is a person entitled to enforce the instrument. . . ." Ind. Code 26-1-3.1-416(a)(1). The transfer warranty also includes a warranty that there are no missing endorsements that prevent the transferor from making the transferee a person entitled to enforce the instrument. See Official Comment 2 to UCC § 3-416. CCI and Anderson were not the persons entitled to enforce the instrument by themselves; only with the endorsement of the joint-payee subcontractors could such an argument even be made. The transferee may recover damages from the warrantor of the instrument for the breach. Ind. Code 26-1-3.1-416(b).
The uncontroverted evidence at trial showed that Bank One suffered damages in the amount of $240,775.00 as a result of CCI's and Anderson's breaches of the transfer warranty. A cause of action for breach of the transfer warranty "accrues when the claimant has reason to know of the breach." Ind. Code 26-1-3.1-416(d). In this case, Bank One knew of the breach when it received the checks without the subcontractors' endorsements. Therefore, those debts arising from CCI's and Anderson's breaches of the transfer warranty arose and were due by the Petition Date.
Furthermore, the evidence at trial showed that debts in addition to those related to construction projects of the Sandor Entities also were not being paid when due. The uncontroverted evidence showed that CCI and Anderson entered into a contract to purchase real estate for the Motocross Project. CCI and Anderson failed to close on the sale of the real estate, but nevertheless began construction on the project. CCI and Anderson also failed to pay the subcontractors on the Motocross Project, which resulted in the filing of a number of mechanic's liens against the owners' property, and the owners obtaining a permanent injunction against CCI and Anderson, enjoining them from continuing to have work performed on the real estate that they did not own.
Anderson's argument that his problems and the problems of CCI were all caused by the Sandor Entities is not well taken. Anderson testified that the reason he did not pay his subcontractors as required by his contracts with the Sandor Entities was that the Sandor Entities were not paying CCI when required. However, the testimony of David Eskenazi and Sidney Eskenazi showed that the Sandor Entities stopped paying CCI only when they began receiving demands for payment from subcontractors who they thought had been paid with the two-party checks delivered to CCI and Anderson. Only when the Sandor Entities discovered that CCI and Anderson had negotiated and converted the checks, and that mechanic's liens were being filed against the Sandor Entities' real estate as a result, did payments to CCI stop, and reasonably so. CCI had clearly breached its contracts with the Sandor Entities.
The result of CCFs breach and the conversion of the checks was that the Sandor Entities had to pay the subcontractors twice for the same work. Although Anderson did deliver a payment of $40,000.00 to Sidney Eskenazi, at that time there still remained the balance of the $533,647.24 in Subcontractors' Checks, which were eventually paid down to $240,775.00.
V. CONCLUSION
After weighing the evidence presented in this case, the Court concludes that the petitioners have met their burden of showing that the entry of an order for relief against both CCI and Anderson is appropriate and necessary. Although there was evidence that both CCI and Anderson were paying some relatively small recurring accounts timely, the evidence demonstrated that CCI and Anderson were generally not paying their debts when they became due. A broad definition and a multi-factor test, rather than a simple mechanical test, is the approach taken by the majority of courts. This approach is supported by the Bankruptcy Commission's report: "[I]t is not possible to lay down guidelines that fit all cases. It is intended that the court consider both the number and amount [of debts] in determining whether the inability or failure is general." See 2Collier on Bankruptcy \para\6 303.14[1], pg. 303-83, quoting Report of the Commission on the Bankruptcy Laws of the United States, H.R. Doc. No. 137, 93d Cong. 1st Sess. Pt. II, 75, n. 5 (1973).
Factors frequently considered by courts in making the determination whether the debtor is not generally paying its debts when they were becoming due include:
A. The number of debts;
B. The amount of delinquency;
C. The materiality of non-payment;
D. The nature and conduct of the debtor's business; and
E. Serious allegations regarding the conduct of the debtor's business.
See 2 Collier ¶ 6 303.14[1][b]. pp. 303-84, 5 and cases cited therein.
Considering the factors enumerated above, and all of the circumstances in this case, the evidence shows that CCI and Anderson were generally not paying their debts when they became due. The number and amount of debts of both CCI and Anderson justify the filing of the involuntary petitions and the entry of the order for relief in each case.
In an attempt to avoid a finding that CCI and Anderson were generally not paying their debts when they became due, CCI and Anderson tried to portray CCI as a small struggling business under the heel of the Sandor Entities. However, that argument is unconvincing in light of the overall manner in which CCI conducted its business and the way Anderson conducted his business through CCI. CCI and Anderson collected monies from the Sandor Entities which were to go to CCI's subcontractors, but instead kept them. The subcontractors went unpaid, and the Sandor Entities had to pay them twice for the same work. During this time, when it argued it simply could not afford to pay its subcontractors, CCI and Anderson provided and paid for a luxury company car (a BMW X5) for Andersen's wife, who was employed by CCI as an office secretary. CCI made a payment on that BMW X5 in the amount of $15,000.00 on September 19, 2001, just one (1) day after CCI had deposited into its account one (1) of the Subcontractors' Checks in the amount of $12,707.00, while the subcontractor for which that checks was intended went unpaid.
CCI's and Andersen's failure to pay debts when they became due was not limited to projects related to the Sandor Entities. With respect to the Motocross Project, CCI and Anderson breached a contract to purchase real estate but nevertheless commenced to build on that real estate after failing to close the sale. CCI and Anderson again failed to pay their subcontractors on the Motocross Project, causing mechanic's liens to be filed against the property.
ORDER
Therefore, based on the foregoing findings and conclusions, the Court hereby GRANTS the Amended Involuntary Petitions and DENIES the Alleged Debtors' Motions to Dismiss. Accordingly, the Court hereby enters its ORDER FOR RELIEF against the Debtors in the above-captioned bankruptcy cases. IT IS FURTHER ORDERED that, within fifteen (15) days from the date of this order, each of the Debtors file their schedule of assets and liabilities, a schedule of current income and expenditures, a schedule of executory contracts and unexpired leases, and a statement of financial affairs, and all other papers as required under Rule 1007 of the Rules of Federal Bankruptcy Procedure. IT IS FURTHER ORDERED that each case retain its separate case and claims docket until further order of this Court.