UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ROBERT F. ANDERSON, Trustee in
Bankruptcy for Plantation Ford
Tractor, Incorporated,
Plaintiff-Appellant,

v.

ROBERT R. KNOTH; FIRST FEDERAL
SAVINGS AND LOAN ASSOCIATION, of                                    No. 97-2511
Charleston,
Defendants-Appellees,

and

JOHN F. CURRY, as Trustee for
Robert R. Knoth,
Defendant.

Appeal from the United States District Court
for the District of South Carolina, at Charleston.
C. Weston Houck, Chief District Judge.
(CA-94-1924-2)

Argued: October 30, 1998

Decided: December 1, 1998

Before WILLIAMS and MOTZ, Circuit Judges, and
STAMP, Chief United States District Judge for the
Northern District of West Virginia, sitting by designation.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Henry Flynn Griffin, III, ANDERSON & ASSOCIATES,
P.A., Columbia, South Carolina, for Appellant. David Brian Wheeler,
HOLMES & THOMSON, L.L.P., Charleston, South Carolina, for
Appellees. ON BRIEF: Trudy Hartzog Robertson, HOLMES &
THOMSON, L.L.P., Charleston, South Carolina, for Appellees.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Robert F. Anderson, trustee in bankruptcy for Plantation Ford
Tractor, Inc., brought this action against Robert R. Knoth and First
Federal Savings and Loan Association of Charleston. The trustee
sought to recover allegedly fraudulent and preferential transfers by
Plantation to Knoth and First Federal, to have Knoth's secured claim
against Plantation subordinated to Plantation's other creditors, and to
pierce Plantation's corporate veil and thus hold Knoth liable for all of
the debts of Plantation. The district court granted some, but not all,
of the relief requested. The trustee appeals, asserting that the district
court erred in refusing: (1) to void preferential transfers made by
Plantation to First Federal during the year prior to the filing of the
bankruptcy petition; (2) to hold that Knoth's advances to Plantation
constituted capital contributions; and (3) to pierce Plantation's corpo-
rate veil. We affirm.

Knoth and H. Lee Ray incorporated Plantation in South Carolina
on August 28, 1989, as a closely held subchapter"S" corporation.
Knoth and Ray were the sole incorporators, officers, and shareholders
throughout the corporation's existence. Plantation sold and serviced
Ford tractors and other equipment.

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On September 14, 1989, Knoth borrowed $800,000 from First Fed-
eral and subsequently lent these funds to Plantation in exchange for
a security interest in Plantation's personal property. The loan from
First Federal to Knoth was guaranteed by Ray and secured by land
owned by Knoth. In all other respects, the terms of the loan from
Knoth to Plantation, e.g. the amount of the monthly payments, were
similar to the terms of the loan from First Federal to Knoth. Plantation
used $740,000 of the loan proceeds to purchase certain assets from
Steen Ford Tractor, and used the remaining $60,000 as operating cap-
ital. Ray ran the corporation's day-to-day operations, made decisions
on payments to Plantation's creditors and from 1989 until 1991
received an annual salary of $70,000. Knoth provided financial sup-
port, met with Ray and others to discuss the status of the business,
and prior to the Bankruptcy filing, was not paid a salary. The only
corporate meeting at which minutes were taken occurred in Septem-
ber 1989. Thereafter, Knoth and Ray met from time to time to discuss
the business. Meetings were not held on a regular basis.

One week after the start of business in September 1989, Hurricane
Hugo hit South Carolina, generating a large volume of business for
Plantation during the next four or five months. Plantation reported a
profit of $82,220 for 1989 and accordingly distributed $15,000 each
to Knoth and Ray. Thereafter, Plantation's business declined. In early
1990, it began paying its bills late and Knoth started making short-
term loans to Plantation, which it paid back when there was money
to do so. Plantation's 1990 tax return stated a loss of $62,357. Its
1991 return indicated a loss of $1,562,253. Short-term loans made by
Knoth to Plantation during this period did not stop the decline of the
business. On July 17, 1992, Plantation filed for bankruptcy.

Plantation's liabilities greatly exceeded its assets throughout the
year prior to its filing for bankruptcy. During that period, Knoth lent
Plantation $371,360.00 and was paid back $258,562.58. Plantation
also made a number of payments to First Federal during that year.
These payments were made in a fashion similar to payments made by
Knoth on other loans that Knoth had with First Federal. With the
exception of a $100,000 payment on January 31, 1992, all of Planta-
tion's payments to First Federal corresponded to the monthly pay-
ments that were due to First Federal on the original $800,000 loan.
The source of the $100,000 payment was a $270,000 loan that Planta-

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tion obtained from Charleston Capital Corporation the same day. In
exchange for Plantation's agreement to make this $100,000 payment,
First Federal released ten acres of land owned by Knoth, which he
had pledged as part of the collateral to First Federal on the original
$800,000 loan. Knoth then pledged the ten-acre parcel to Charleston
Capital as collateral for the new $270,000 loan to Plantation.

After a three-day trial, the district court held that Plantation was
undercapitalized from the start and that Knoth had secured an unfair
advantage over other creditors by structuring his cash contributions to
Plantation as loans rather than as equity capital. Consequently, the
court equitably subordinated Knoth's post-petition claims on the loan
notes to the claims of the other creditors.

The district court also found that the transfers made to Knoth and
First Federal during the year prior to Plantation filing for bankruptcy
constituted preferences under 11 U.S.C. § 547. However, the court
concluded that the trustee could not avoid the transfers to First Fed-
eral because those transfers came within § 547(b)'s exception for
transfers made in the ordinary course of business. The court reasoned
that all payments other than the $100,000 payment corresponded to
regular monthly payments. See In re Jeffrey Bigelow Design Group,
Inc., 956 F.2d 479 (4th Cir. 1992). It explained that the $100,000
transfer was permissible because it did not deplete Plantation's exist-
ing capital, but was obtained from the new $270,000 loan from
Charleston Capital Corporation.*
_________________________________________________________________
*As the district court noted, the $100,000 payment from Plantation to
First Federal did not diminish the funds available to the debtor. Nor did
it enable First Federal to obtain more from the debtor than it could have
otherwise obtained during the bankruptcy proceedings; First Federal
could have foreclosed on the ten-acre property that secured its loan to
Knoth. The release of the ten-acre property by First Federal enabled
Plantation to receive the $270,000 loan from Charleston Capital. Imme-
diately after that loan, Plantation had $170,000 (i.e., $270,000 minus the
$100,000 payment to First Federal) more than what was available prior
to the loan to pay its creditors. Although not explicitly stated by the dis-
trict court, this transaction fits within § 547(c)(1)'s "contemporaneous
exchange for new value" exception to avoidable preferences.

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The court rejected the trustee's argument that Knoth's loans to
Plantation should be considered capital contributions and that, there-
fore, the repayments made to Knoth and First Federal were unlawful
distributions pursuant to South Carolina Code § 33-6-400(c). The
court reasoned that none of the payments had the earmarks of a distri-
bution, and that they were, in fact, repayments of loans.

Finally, the court refused to pierce the corporate veil of Plantation
and hold Knoth personally liable. The court applied the test articu-
lated in Dewitt Truck Brothers v. W. Ray Fleming Fruit Co., 540 F.2d
681 (4th Cir. 1976), and concluded that the trustee had not presented
any evidence (other than the initial undercapitalization) of indepen-
dent acts by Knoth in which he disregarded the creditors' claims to
the corporate property in favor of himself.

We have carefully considered the arguments, briefs, record, and
applicable law and affirm on the basis of the well-reasoned opinion
of the district court. See Anderson v. Knoth, C.A. No. 2:94-1924-2
(September 30, 1997).

AFFIRMED

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