Garvin v. West Coast Winsupply Inc. - Preference Action Ruling

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Oct. 3, 2025 Get Citation Alerts Download PDF Add Note

Garvin v. West Coast WinSupply, Inc.

United States Bankruptcy Court, N.D. Florida

• Citations: None known
• Docket Number: 23-03008

• Precedential Status: Unknown Status

• Opinion

• Authorities (36)

• Cited By (0)

• Summaries (0)

• Similar Cases (537)

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Trial Court Document

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF FLORIDA
PENSACOLA DIVISION

Living Water Fire Protection, LLC, Case No. 21-30616
Debtor.
Karin A. Garvin,
Plaintiff,
v. Adversary Case No. 23-3008
West Coast WinSupply, Inc.,
Defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW FOLLOWING TRIAL
The chapter 7 debtor in this case – Living Water Fire Protection, LLC (“Living Water”) –
was a subcontractor that installed commercial fire protection systems. Defendant West Coast
Winsupply, Inc. sold the debtor materials such as sprinkler heads and pipes that were used in
those installations. When the defendant learned that the debtor was going out of business, it
stepped up its collections efforts. It ultimately received a little over $129,000 owed on seven
jobs in Florida and Alabama from general contractors and property owners during the ninety
days before the bankruptcy petition. The chapter 7 trustee has sued to recover those payments as
preferences under Bankruptcy Code § 547, contending that the defendant’s claims were
unsecured and thus it received more than it otherwise would have in the chapter 7 bankruptcy.
But the defendant had special rights as a material supplier under both Florida and Alabama law,
and the court finds – with one exception – that because of those rights the defendant did not
receive more than it would have in chapter 7.
The court held a bench trial on August 1, 2025 on the claims brought by the plaintiff-
trustee Karin A. Garvin (“the trustee” or “pl.”) as chapter 7 trustee for Living Water’s
bankruptcy estate seeking to avoid seven alleged preferential transfers under Bankruptcy Code §
547(b) to defendant West Coast Winsupply, Inc. (“Winsupply” or “def.”). The court heard

sworn testimony from Lorenzo Evans, Karin Garvin, Peter Joseph Cimino, Erin Faulkner
(appearing by video by agreement of the parties), Angelina Lim, and R. Michael DeLoach. The
court admitted the trustee’s exhibits 1-17 and 23-33 and Winspply’s exhibits 4C and 4F without
objection, and Winsupply’s exhibits 4A, 4B, 4D, and 4E over the trustee’s objection.
This is a core proceeding under 28 U.S.C. § 157 (b)(2)(F), and the parties agreed to the
entry of a final judgment by this court. (See Joint Report, doc. 21, at ¶1). For the reasons
discussed below, the court finds in Winsupply’s favor on all transfers but one.

Findings of Fact
The relationship between Winsupply and the debtor

From 2018 to 2021, Winsupply sold materials such as sprinkler heads and pipes to Living
Water for its use as a subcontractor that provided fire protection construction services to general
contractors and property owners, including the government, on construction projects in
Northwest Florida and Alabama. (See Joint Statement of Undisputed Facts, doc. 87, at ¶3; Evans
Test., Tr., at 36:1-24).1 In other words, Living Water installed sprinkler systems for buildings
such as schools, hospitals, commercial buildings, and houses. (See Evans Test., Tr., at 36:1-7).
In January 2018, Living Water signed a credit application in favor of Winsupply,
providing that billing terms are as set forth in the sales invoices for all purchases under Living

1 The court will refer to this as the “J.S.,” to the Trial Transcript (doc. 127) as “Tr.,” and to
Testimony as “Test.” throughout.
Water’s account with Winsupply. (See J.S., at ¶2; Pl.’s ex. 1). Winsupply’s invoices state
payment is due ‘Net 30’ (30 days of the invoice date), but Living Water’s payments to
Winsupply routinely exceeded 30 days. (See J.S., at ¶¶ 4-5; Pl.’s ex. 2). Living Water generally
paid by check, and often paid one check for several invoices. (See, e.g., Cimino Test., Tr., at

70:4-8; Pl.’s exs. 30-33).
On May 24, 2021, Winsupply was informed that another company, Total Fire Protection,
was going to take over Living Water’s operations. (See J.S., at ¶6; Pl.’s ex. 3). As of that date,
Living Water was late in its payments to Winsupply and owed $173,050.58. (See J.S., at ¶¶7-9;
Pl.’s ex. 4). Winsupply almost immediately began recording claims of lien against some of the
construction projects for which Living Water was a subcontractor and for which Winsupply had
unpaid invoices and/or notifying the general contractors and property owners that it had unpaid
invoices. (See J.S., at ¶8; Pl.’s ex. 7-14; Faulkner Test., Tr., at 75:12-76:19). Winsupply had not
recorded any other claims of lien on projects it worked on with Living Water before then. (See
Cimino Test., Tr., at 70:11-16; see also Evans Test., Tr., 37:22-38:23; Pl.’s ex. 7).

Winsupply collected payments due from general contractors and/or property owners on
multiple projects, primarily by way of a direct payment to Winsupply or, in some cases, a
general contractor’s joint check to Winsupply and Living Water. (See J.S., at ¶10; see also id., at
¶8). It collected almost $160,000 in less than two months. (See Faulkner Test., Tr., at 93:3-4;
J.S., at ¶13; Pl.’s exs. 4-5, 8-14).
Living Water ultimately filed for chapter 7 bankruptcy in September 2021 and Ms.
Garvin was appointed trustee. Around that same time, Living Water’s former office manager
absconded with most of Living Water’s records on suspicion of embezzlement.2 (See Evans
Test., Tr., at 44:2-17, 52:5-21, 60:1-16).

The alleged preferential payments

At issue in this action are seven accounts receivable payments totaling $129,079.93 from
general contractors or owners on seven projects (“the projects”) in Alabama and Florida: five
private construction jobs and two government jobs. (See J.S., at ¶11; Pl.’s ex. 6; Cimino Test.,
Tr., at 123:8-19, 125:6-11, 127:21-24). All the payments were made within 90 days of Living
Water’s bankruptcy filing.
The project names, locations, and methods of payment for the seven payments are as
follows:
• Alabama projects

• South Baldwin (private job): $14,187.13 by joint check from the general contractor to Living Water and Winsupply that was endorsed by Living Water.
• Trojan (private job): $15,608.40 direct payment from the general contractor.
• Trojan/Ulta (private job): $6,435.70 by joint check from the general contractor to Living Water and Winsupply that was endorsed by Living Water.

• Florida projects
- Seasound (private job): $16,158.91 direct payment from the general contractor.
- Town Center (private job): $27,437.11 direct payment from the owner.
- Watercraft (government job): $38,810.90 by joint check from the general
contractor to Living Water and Winsupply that was endorsed by Living Water.
- Tyndall (government job): $10,441.78 direct payment from the general contractor.

(See J.S., at ¶11; Pl.’s exs. 6, 8-14). Trojan and Trojan/Ulta were the same general location (a

2 Because of this the court allowed Winsupply attorney Angelina Lim to testify about documents
– specifically two contracts (Def.’s exhibits 4B and 4D) – that she received in response to
subpoena, as the trustee’s attorney would not stipulate to their admission. Those two contracts,
and one other that was admitted through witness Lorenzo Evans (Def.’s exhibit 4A) do not relate
to any of the seven construction projects at issue in this action.
shopping center), but two payments were received from two contractors. (See, e.g., Faulkner
Test., Tr., at 90:19-23; Cimino Test., Tr., at 126:3-9; Pl.’s exs. 10-11, 15).
Winsupply also recorded claims of lien on two of the Florida projects. It recorded a
claim of lien related to the Seasound project on or about May 28, 2021 and related to the Town

Center project on or about June 22, 2021. (See Pl.’s exs. 7-8, 13, 15).

Winsupply’s general practices
Former Winsupply accounts receivable employee Erin Faulkner, who was with the
company from August 2019 to December 2024, testified about what Winsupply did when a job
starts:
A. So a customer calls. We create the – we obtain a credit application, verify
their information from the credit app process as far as a limit, set a – a limit to
their account. And moving forward, we ask for job detail information. So that

way, we can input it in our system and notice – send notice to owners for the
projects that we have obtained information.

Q: Notice owners? Okay. So you always – do you send – do you always send
notice to owners or notice to general contractors for every delivery that you make
to a customer?

A: That is obtained material for a project, yes.

Q: Okay. Is this an outside service you use, or is this a service that you do
internally?

A: It is an outside third party.

Q: I see. So you just provide the details of where you left the project, the general
contractor or the owner, and it’s automatically generated for each site work, right?
Site drop?

A: Correct.

(Faulkner Test., Tr., at 98:10-99:6; see also id., at 74:9-13).
Peter Cimino, Winsupply’s president at all relevant times, confirmed that it utilized a
third party, National Association of Credit Managers, to send notices to owners and general
contractors on Winsupply’s behalf on both private and government jobs. (See Cimino Test., Tr.,
at 116:14-119:21, 123:8-128:5, 132:7-133:23). He explained that notice was given on all of the

Alabama and Florida projects that are the subject of this action, and that such notices are always
done “immediately once the job has been given” or “within a few days.” (See id., at 132:7-
133:7).

Conclusions of Law
The court will first address issues about Winsupply’s expert, Michael DeLoach, and will
then address the trustee’s preference claims.

Mr. DeLoach
The trustee objected to Mr. DeLoach’s testimony and the admission of his expert report

(Def.’s exhibit 1). The court took the admissibility of the report under submission. The court
will not admit the report because it has not relied on any testimony of the expert or any part of
the expert report in reaching its conclusions.

Preferences under Bankruptcy Code § 547(b)
Under Code § 547(b),
the trustee may . . . avoid any transfer of an interest of the debtor in property –
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such
transfer was made;
(3) made while the debtor was insolvent;
(4) made . . . on or within 90 days before the date of the filing of the [bankruptcy]
. . . ; and
(5) that enables such creditor to receive more than such creditor would receive
if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the
provisions of this title.

Under Code § 547(c)’s “ordinary course of business defense,”
the trustee may not avoid . . . a transfer . . .
(2) to the extent that such transfer was in payment of a debt incurred by the debtor
in the ordinary course of business or financial affairs of the debtor and the
transferee, and such transfer was—
(A) made in the ordinary course of business or financial affairs of the debtor
and the transferee; or
(B) made according to ordinary business terms . . . .

The parties stipulated that the elements of § 547 are met except for (1) whether
the transfers were “of an interest of the debtor in property,” i.e., whether the money paid to
Winsupply by the general contractors and/or owners would have been property of the estate; (2)
whether Winsupply received more than it would have under § 547(b)(5), i.e., the liquidation
analysis; and (3) whether the transfers were made in the ordinary course of business or according
to ordinary business terms, i.e., the ordinary course defense. The court will start with the
liquidation analysis and then move on to the parties’ arguments about property of the estate and
the ordinary course defense.

(1) Liquidation analysis
The trustee’s analysis showed that if the seven payments “came back to the estate,
approximately $129,000, and Winsupply had an unsecured claim for that amount, that
[Winsupply] would have received approximately $40,000.” (See Garvin Test., Tr., at 64:11-21).
She argues that this is dispositive because unsecured creditors in Living Water’s bankruptcy are
not receiving a 100% distribution. Her argument in essence is that she should have received any
payments owed the debtor Living Water from the general contractors and/or owners and then
distributed those payments on a pro rata basis to the unsecured creditors.

The chapter 7 trustee has only the rights of the debtor in property of the estate. “A
chapter 7 trustee ‘stands in the shoes’ of a debtor with respect to the debtor’s interest in assets
which become part of the estate.” In re Romagnoli, 631 B.R. 807, 814 (Bankr. S.D. Fla. 2021)
(citation omitted). “An ‘elementary rule of bankruptcy is that the bankruptcy trustee succeeds
only to the title and rights in the property that the debtor possessed.’” See In re Raborn, 470
F.3d 1319, 1323 (11th Cir. 2006) (citation, brackets, and ellipses omitted). “[T]he Bankruptcy
Code is not intended to expand the debtor’s rights against others more than they exist at the
commencement of the case. The trustee c[an] take no greater rights than the debtor [it]self had.”
See In re Witko, 374 F.3d 1040, 1042-43 (11th Cir. 2004) (citations, brackets, and ellipses
omitted). In other words, the trustee acquires only those interests which the debtor would have

had in an asset. See In re Romagnoli, 631 B.R. at 814-15. While “federal law determines
whether an interest is property of the bankruptcy estate, . . . property interests are created and
defined by state law. [T]here is no reason why such interest should be analyzed differently
simply because an interested party is in bankruptcy.” See In re Witko, 374 F.3d at 1043 (citation,
quotation marks, and brackets omitted).
Winsupply was not a “traditional” general unsecured creditor under the applicable
Alabama and Florida state law that the parties agree apply to the projects. See, e.g., In re Apex
Road Com., LLC, No. 8:19-BK-03648-RCT, 2022 WL 2093358, at *5 (Bankr. M.D. Fla. June 3,
2022) (“‘The § 547(b)(5) test is automatically satisfied whenever a general unsecured creditor
. . . receives any payment within the preference period unless the estate is sufficient to pay
unsecured claims in full.’”) (citation omitted) (emphasis added). Under that law, as detailed
below, the evidence shows that Winsupply had more rights than a general unsecured creditor for
all but one of the projects and the trustee had no greater rights than Living Water would have had

vis-à-vis that creditor. The trustee would have had to pay Winsupply what it was owed from the
accounts receivable and cannot show that Winsupply would have received more than it would
have received under § 547(b)(5) except on the Tyndall project. Winsupply is entitled to
judgment in its favor on all claims but the trustee’s claim related to the Tyndall project.
(a) The Alabama projects (South Baldwin, Trojan, Trojan/Ulta)
Alabama Code § 35-11-210 provides for two types of materialman’s liens: a lien against
the property itself for the full price of materials furnished (a “full price” lien) and a more limited
lien against the unpaid balance due to a contractor by an owner (an “unpaid balance” lien). See
Valley Joist, Inc. v. CVS Corp., 954 So. 2d 1115, 1117 (Ala. Civ. App. 2006). It is only this
“unpaid balance” lien that is at issue.

The payments to Winsupply on the Alabama projects all came from general contractors.
Alabama Code § 35-11-210 created a lien in favor of Winsupply as materialman against the
general contractors to the extent of “the amount of any unpaid balance due the contractor by the
owner . . . .” See Buckner v. Alpha Lumber & Supply Co., 628 So. 2d 450, 452 (Ala. 1993).
These unpaid balance liens came “into existence immediately” when Winsupply furnished
materials. See Greene v. Thompson, 554 So. 2d 376, 379 (Ala. 1989); see also generally In re
Neylon, 18 B.R. 765 (Bankr. S.D. Ala. 1982). No advance notice is required.3 See Bailey
Mortg. Co. v. Gobble-Fite Lumber Co., 565 So. 2d 138, 141-42 (Ala. 1990); Teague Hardware

3 The trustee confuses Alabama’s unpaid balance lien (no advance notice required) with a full
price lien (advance notice required).
Co. v. Bankhead Dev. Co., 151 So. 2d 611, 612 (Ala. 1963). Alabama courts have rejected the
trustee’s argument that Alabama Code § 35-11-210 does not apply because Winsupply provided
materials to a subcontractor (Living Water), not to the general contractors. See, e.g., Crane Co.
v. Sheraton Apartments, 58 So. 2d 614, 615-17 (Ala. 1952); see also A GUIDE TO MECHANICS’

LIENS IN ALABAMA, 61 Ala. Law. 202 (2000) (“Generally speaking, . . . a material supplier to a
prime contractor or a subcontractor has the right to file an ‘unpaid balance’ mechanic’s lien
[under Alabama Code § 35-11-210].”) (emphasis added).
Creation (which occurs automatically) and perfection of an unpaid balance lien are
separate issues. For perfection,
a materialman must: (1) provide written notice of the claimed lien to the owner;
(2) file a verified statement of lien in the probate court in the county where the
subject real property is located; and (3) file suit to enforce the lien and obtain a
money judgment against the materialman’s direct debtor.

Valley Joist, 954 So. 2d at 1117. The materialman must (1) give notice under Alabama Code §
35-11-218. See Gobble-Fite, 565 So. 2d at 142. “With this notice, ‘the owner then can take
appropriate action in the disbursement of remaining contract monies to the general contractor to
ensure that the potential lienors are satisfied and the property is not encumbered.’” See id. (citation omitted). After notice, the materialman must (2) file the verified statement “within four
months” of the final furnishing of materials, which courts have determined by looking to the
materialman’s last invoice date. See Ala. Code § 35-11-215; Gobble-Fite, 565 So. 2d at 143;
Government St. Lumber Co. v. Baldwin Cnty. Sav. & Loan Ass’n, 532 So. 2d 645, 646-47 (Ala.
1988). And (3), the materialman must sue to enforce the lien “within six months after the
maturity of the entire indebtedness secured thereby . . . .” See Ala. Code § 35-11-221; Gobble-
Fite, 565 So. 2d at 143. “More than likely, this will be . . . the date materials were last
furnished.” See Gobble-Fite, 565 So. 2d at 143.
Winsupply’s last invoices to Living Water on the Alabama projects are dated March
(Trojan and Trojan/Ulta) and May (South Baldwin) 2021. (See Pl.’s ex. 4). The issue of notice
is discussed in further detail below but, with respect to the Alabama projects, even if notice was
not given at the beginning of Winsupply’s involvement, Winsupply still could have enforced its

“unpaid balance” lien by providing notice, filing a verified statement within four months (until
July and September 2021 respectively),4 and then filing suit within six months. Winsupply could
have done so after the bankruptcy filing, if timely, and the trustee would have had no recourse.
See 11 U.S.C. §§ 362 (b)(3) and 546(b); see also generally In re Cook, 384 B.R. 282 (Bankr.
N.D. Ala. 2008); Matter of Peek Constr. Co., Inc., 80 B.R. 226 (Bankr. N.D. Ala. 1986).
Of course, Winsupply ultimately did not have to perfect its unpaid balance liens because
the general contractors on the Alabama projects paid Winsupply in June and early July 2021 in
exchange for a release of its lien rights. (See Pl.’s exs. 10, 11, 12, 15). But the trustee has not
shown that Winsupply received more than it would have had those general contractors paid the
funds to her. In other words, if the general contractors had paid the trustee, the trustee – standing

in the shoes of the debtor Living Water – would still have had to pay the materialman
Winsupply. See, e.g., In re Johnson Mem’l Hosp., Inc., 470 B.R. 119, 125 (Bankr. D. Conn.
2012) (payment to holder of mechanic’s lien during the preference period not avoidable where,
when payment was made, the lienholder “remained eligible to perfect the lien pursuant to
relevant State law, and . . . such perfection would not otherwise have been avoidable under the
Bankruptcy Code”) (citation and quotation marks omitted); see also In re BFN Operations LLC, 604 B.R. 268, 275 (Bankr. N.D. Tex. 2019) (discussing the majority view that “[i]f the creditor

4 The 90-day analysis on pages 9 and 10 of the trustee’s Post-Trial Brief related to Trojan and
Trojan/Ulta is incorrect.
could perfect the lien under state law at the time payment is made, and the perfection of the lien
is not avoidable under the Bankruptcy Code, then the payments are not recoverable”).
It makes no difference that the subcontractor – not an owner or general contractor – is the
debtor because, again, the trustee stands in the shoes of Living Water with respect to its interest

in the accounts receivable. See In re Romagnoli, 631 B.R. at 814. For example, in Matter of
Bailey, 17 B.R. 50 (Bankr. W.D. Ark. 1981), a trustee sought to recover an alleged preference
against a defendant materialman in a plumbing subcontractor’s bankruptcy. The subcontractor
was indebted to the defendant for materials but advised an officer of the defendant that he was
filing for bankruptcy. The officer then took steps to recover from the contractor – including
obtaining a check from the contractor to be endorsed by the subcontractor – but the contractor
would not pay “until it was presented with the defendant’s written release of [a] mechanic’s lien
on the materials provided by the defendant and installed by the debtor.” See id., at 51. The
bankruptcy court ruled for the materialman on the trustee’s preference action because the
payment from the general contractor to the materialman was “[i]n substance . . . simply a

payment on account of the materials which was owed on account of the materialman’s lien of the
defendant.” The court explained:
. . . The debtor [in endorsing the check] simply acted as a conduit for the
payment, which, under the circumstances detailed above, must be regarded as
paid only on account of the lien and for the express purpose of dissolving it. In
determining whether a transfer has been a preference, a bankruptcy court must
look through form to substance, and treat the transaction according to its real
nature. The court, in so ruling, is mindful of the debtor’s testimony that the check
was issued to him as payee and that he regarded himself as holding it in his own
right in the short period of time which elapsed between its being handed to him
and his endorsing it over to the defendant. But this testimony cannot be viewed in
isolation from the intention objectively manifested by all the parties to the
transaction to the effect that the payment would not have been made except for
the purpose of application against the bill for materials owed to the defendant.
And the bill which was owed by [the subcontractor debtor] to the defendant was
the same as the bill paid by [the general contractor] to [the subcontractor debtor]
on account of the materials against which the lien would otherwise have applied.

Even if the bankruptcy estate could be said to be entitled to recover the
money thus paid, the demands of equity and justice would require that the same
money should be regarded as the proceeds of the material against which the
defendant’s lien was initially asserted and therefore payable to defendant from the
estate in satisfaction of the lien. Therefore, the defendant has not, by virtue of
receiving the challenged payment, received more than it would have been entitled
to receive in distribution under Chapter 7 of the Bankruptcy Code. Id., at 52 (internal citations, quotation marks, and parentheses omitted).
The same analysis applies here. The trustee correctly points out that the Alabama unpaid
balance lien is on the unpaid balance due the contractor from the owner, not due the
subcontractor from the contractor. (See Pl.’s Post-Trial Brief, doc. 126, at pp. 29-30). But had
Winsupply not been paid and had it moved forward with enforcement of its unpaid balance lien
“any unpaid balance in the hands of the owner” would be subject to the lien under Alabama
Code § 35-11-218. And like in Matter of Bailey, the Alabama general contractors and owners
would not have paid the debtor Living Water prepetition – or the chapter 7 trustee postpetition –
without first obtaining lien releases, which lien releases could not have come without assurance
that Winsupply would be paid.
Finally, the fact that two entities – Encompass Health and York-Brawley (see Karin
Garvin Test., Tr., at 64:22-16; Pl.’s ex. 29) paid the trustee is inapposite. There was no evidence
that either of those creditors owed any money to materialman.5

5 This analysis applies equally to all projects, whether in Alabama or Florida.
(b) The Florida projects (Seasound, Town Center, Watercraft, and Tyndall)
• Seasound and Town Center (private projects)
For private (non-government) projects, under Florida Statute § 713.06, “[a] materialman
. . . has a lien on the real property improved for any money that is owned to [it] for . . . materials

furnished . . . .” The “fundamental purpose of [this law] is to protect those who have provided .
. . materials for the improvement of real property.” See WMS Constr., Inc. v. Palm Springs Miles
Assocs., Ltd., 762 So. 2d 973, 974-75 (Fla. Dist. Ct. App. 2000); see also Fla. Stat. § 713.02. It
must be “construed favorably so as to give . . . suppliers the greatest protection compatible with
justice and equity.” See WMS Constr., 762 So. 2d at 975; Trump Endeavor 12 LLC v. Fernich,
Inc., 216 So. 3d 704, 708 (Fla. Dist. Ct. App. 2017). The law “‘was enacted to protect the
interests of subcontractors and materialmen who remain unpaid while the owner pays the
contractor directly.’” See Trump Endeavor, 216 So. 3d at 708 (citation omitted).
Under Florida Statute § 713.06(2)(a), to perfect the lien, a materialman must serve a
notice on the owner and a notice on the general contractor within “45 days after commencing . . .

to furnish . . . materials.” See Lehmann Dev. Corp. v. Nirenblatt, 629 So. 2d 1098, 1099 (Fla.
Dist. Ct. App. 1994). Failure to serve or timely serve these notices “is a complete defense to
enforcement of a lien . . . .” See Fla. Statute § 713.06(2)(a).
But if the notice is timely served, “when any payment becomes due to the contractor on
the direct contract, except the final payment, the owner must pay or cause to be paid . . . the sum
then due to each lienor giving notice prior to the time of the payment.” See 36 FLA. JUR. 2D
MECHANICS LIENS § 105 (citing Fla. Stat. § 713.06 (3)(c)(1)) (emphasis added). Payment can
come from the general contractor or directly from an owner (i.e., an owner may pay
subcontractors and materialmen directly, it does not have to pay a general contractor first). See,
e.g., In re MiScott Corp., 49 B.R. 893, 896 (Bankr. S.D. Fla. 1985). Final payments (which are
not at issue here) have different requirements, but those requirements include an assurance by the
general contractor to the owner that the materialmen have been paid. See 36 FLA. JUR. 2D
MECHANICS LIENS § 103.

The analysis on the two Florida private projects is therefore similar to the analysis on the
Alabama projects. If the notice was timely given (more on that below), Winsupply would have
had perfected liens on the Seasound and Town Center real property and the Florida general
contractors and owners on those projects could have withheld any amounts owed Living Water
from the trustee without assurance that Winsupply would be paid and the subject liens released.
Recognizing this, the trustee contends that Winsupply did not prove that it gave notice
within 45 days to perfect a lien because the testimony of Winsupply’s accounts receivable
employee Ms. Faulkner and Winsupply’s president Mr. Cimino about notice is not credible or
reliable. For example, she argues that the court should not trust these witnesses because they did
not prepare, review, sign, or mail the notices. But the court finds that neither of these witnesses

would prepare, review, sign, or mail notices to owners and contractors because there was ample
and undisputed evidence that Winsupply used a third party to send the notices – at the latest –
within a few days of receiving a job.
While it would have been better if Winsupply had offered the notices themselves into
evidence,6 the court does not find that the failure to do so dooms Winsupply’s case. The court
believes that testimony of Ms. Faulkner and Mr. Cimino and finds that timely notice was given
on the Seasound and Town Center projects (and on the other five projects, as well), that

6 In response to a question from the court, Winsupply’s counsel stated that he “didn’t know that
they were in dispute, so we didn’t use them as exhibits. . . . [W]e did not list them as exhibits
because it wasn’t really something that was in controversy.” (See Tr., at 131:16-132:6).
Winsupply had perfected liens at the time the payments were made on the Seasound and Town
Center projects, and that Winsupply would have still had those liens once the bankruptcy was
filed. See In re Wagner, 115 F.4th 1296, 1303 (11th Cir. 2024) (bankruptcy court’s “findings of
fact that are based on determinations regarding the credibility of witnesses at a bench trial” are

accorded “substantial deference”) (citation and quotation marks omitted); see also Concrete Pipe
& Prods. of Cal., Inc. v. Constr. Laborers Pension Tr. for S. Cal., 508 U.S. 602, 623 (1993).
Winsupply thus did not receive more on the Seasound and Town Center projects than if the
payments had not been made before Living Water filed for bankruptcy and the trustee had
demanded payment from the Seasound and Town Center general contractors and owners.
Finally, although Florida Statute § 713.08 requires that the materialman record a claim of
lien within 90 days of “the final furnishing of . . . materials by the lienor[,]” that deadline had not
yet expired when the payments on the Seasound and Town Center projects were made. Even so,
the court finds that Winsupply timely recorded claims of lien on both projects.
• Watercraft and Tyndall (government projects)

For government projects, Florida Statute § 255.05 “substitute[s] a bond . . . in lieu of lien
rights.” See State of Fla. for Use & Benefit of Westinghouse Elec. Supply Co. v. Wesley Constr.
Co., 316 F. Supp. 490, 498 n.1 (S.D. Fla. 1970). It requires a bond by any entity that contracts
“with the state or its subdivisions for work on a public project . . . .” See Aquatic Plant Mgmt.,
Inc. v. Paramount Eng’g, Inc., 977 So. 2d 600, 603 (Fla. Dist. Ct. App. 2007). Similar to Florida
Statute § 713.06, § 255.05 requires a 45-day notice to contractor as a “condition precedent to the
maintenance of an action” by a materialman against the bond. See D.I.C. Com. Constr. Corp. v.
Knight Erection & Fabrication, Inc., 547 So. 2d 977, 979 (Fla. Dist. Ct. App. 1989); Sharpe, Inc.
v. Neil Spear, Inc., 611 So. 2d 66, 67-68 (Fla. Dist. Ct. App. 1992). Florida Statute § 255.05 also
requires a 90-day notice of nonpayment to the contractor and surety – which must be in
substantially the same form as set forth in the statute – “after the final furnishing of . . . materials
. . . .” “Compliance with the notice provisions is” required to recover “under the bond.” See
Glaze Supply Co. v. Canyon Power Sols., LLC, No. 6:21-CV-1841-ACC-DAB, 2022 WL

18492542, at *4 (M.D. Fla. Oct. 5, 2022); see also Sharpe v. Neil Spear, 611 So. 2d at 67-68. If
the notices are not given, no action may “be instituted against the contractor or the surety . . . .”
See Fla. Stat. § 255.05.
The trustee argues that Winsupply did not give the 45-day notice to contractor and 90-day
notice of nonpayment and would not have been able to recover under the bonds on the
Watercraft and Tyndall projects. The court has already determined that the 45-day notice was
given on all projects but agrees with the trustee in part on the 90-day notice required for the
Watercraft and Tyndall projects.
Winsupply states without citation to evidence that it “noticed the bonding company
(surety) for the two government projects.” (See Def.’s Post-Trial Brief, doc. 125, at p.21). No

copy of any notice of nonpayment is in evidence, and the scant testimony on these notices (as
opposed to the initial notices) is unspecific. But based on the dates of the invoices, the email
correspondence in the record, and the testimony of Ms. Faulkner, the court concludes that timely
notices of nonpayment were sent on the Watercraft project. (See, e.g., Pl.’s exs. 4, 14; Faulkner
Test., Tr., at 86:22-88:18). Winsupply thus could have recovered under the bond even after
Living Water filed for bankruptcy protection. As with the private construction jobs, the trustee
has not shown that Winsupply would have received more than it would have otherwise on the
Watercraft project.
The same is not true for the Tyndall project. The final invoice date is March 9, 2021, the
only mention of any notice of nonpayment is in an email to a general contractor dated Tuesday,
June 8, 2021 (91 days after the final invoice date), and there is no evidence of a notice of
nonpayment to the surety. (See Pl.’s exs. 4, 9). Given the skimpy evidence on this issue, the

court will not infer or assume that the notices of nonpayment were timely given. For the Tyndall
project, the court finds that the trustee has established that Winsupply received more than it
would have received because the general contractor was not obligated to pay Winsupply to avoid
a claim on the bond. The trustee is thus entitled to recover the $10,441.78 direct payment from
the general contractor to Winsupply on that project.

(2) Property of the estate
“A preferential transfer occurs only if the debtor has an interest in the property
transferred.” In re Grabill Corp., 135 B.R. 101, 1018 (Bankr. N.D. Ill. 1991). The Code does
not define the term “interest of the debtor in property,” as used in § 547(b). See id. But this term

is “best understood as property that would have been part of the estate had it not been transferred
before the commencement of bankruptcy proceedings.” See Begier v. I.R.S., 496 U.S. 53, 58 (1990). Courts look to Code § 541 for what is part of the estate. See id., at 58-59.
The scope of § 541 is broad. See United States v. Whiting Pools, Inc., 462 U.S. 198, 204-
05 (1983); see also In re Holywell Corp., 913 F.2d 873, 881 (11th Cir. 1990) (“Section 541 is
construed broadly, so as to effectuate Congressional intent that a wide range of property be
included in the estate.”). It defines “property of the estate” to include “all legal or equitable
interests of the debtor in property as of the commencement of the case” and “wherever located
and by whomever held . . . .” Under this broad definition, the court finds that the accounts
receivable owed to Living Water on the seven projects would have been part of the estate – albeit
subject to the liquidation test above (i.e., the trustee still would have had to pay Winsupply even
if the accounts receivable had come into the estate). See, e.g., In re Climate Control Mech.
Servs., Inc., 570 B.R. 673, 676-77 (Bankr. M.D. Fla. 2017).

Winsupply generally relies on T & B Scottsdale Contractors, Inc. v. United States, 866
F.2d 1372 (11th Cir. 1989) to argue that the accounts receivable never became property of
Living Water’s bankruptcy estate and never would have been property of the estate. In T & B, a
general contractor and the debtor subcontractor had a joint account and a contract that “expressly
stated the funds [in the account] were to be used to pay the materialmen.” See id., at 1376. It
was “undisputed that the parties agreed that the funds were meant solely for the materialmen.”
See id. In that very specific circumstance, the court found that funds in the account did not
belong to the bankruptcy estate and that “[t]he district court erred in holding that the funds
belonged in the estate merely because they had been located in an account bearing [the debtor
subcontractor]’s name.” See id. Here, there was no evidence of a joint account between any

general contractor and the debtor subcontractor Living Water or of a similar agreement
governing such a joint account.7 See In re Spancrete of Fla., LLC, 344 B.R. 164, 167-68 (Bankr.
M.D. Fla. 2005).

7 Winsupply was hampered in its defense because Living Water could not produce any of its
contracts with the general contractors on the seven projects because its office manager had
absconded with its records. The only contract Winsupply obtained via subpoena was a
Subcontractor Agreement (Def.’s exhibit 4E) between Berry Construction Company and Living
Water related to Trojan Town Center in Alabama. The court agrees with the trustee that if this
contract applies at all, it applies to the payment made on the Trojan project only, not Trojan/Ulta,
as the payment related to Trojan/Ulta came from another contractor. And while the court need
not reach this issue because it has already found that the payment made on the Trojan project
was not preferential, the court disagrees with Winsupply – based on the Code’s broad definition
of “property of the estate” – that under this contract, the payment on the Trojan project would
have been held in trust by Living Water if the payment had been made to Living Water and not
directly to Winsupply.
For the government jobs, Winsupply cites Pearlman v. Reliance Insurance Co., 371 U.S.
132 (1962) to argue that the payments one those jobs are not property of the estate under the
doctrine of equitable subrogation. (See Def.’s Post-Trial Brief, doc. 125, at pp.6-7). Pearlman
involved a surety’s subrogation rights after it paid the claims of materialmen, and was decided

before the “enactment of the Bankruptcy Code [which] expanded the definition of property of the
estate.” See In re Climate Control Mech. Servs., 570 B.R. at 677. Even so, in In re Cone
Constructors, Inc., 265 B.R. 302 (Bank. M.D. Fla. 2001), applying Pearlman, the surety paid on
claims made on its bond under Florida Statute § 255.05, implying that the subcontractors there
had complied with the statute. Under Florida case law, any rights (under an equitable
subrogation theory or otherwise) a surety would have had in payments made to Winsupply on a
payment bond would have been entitled to priority only on claims the surety “properly paid
pursuant to the payment bond[,]” which requires notices of nonpayment under Florida Statute §
255.05. See, e.g., Sch. Bd. of Broward Cnty. v. J.V. Constr. Corp., No. 03-60005-CIV-
MOR/GAR, 2004 WL 1304058, at *19-20 (S.D. Fla. Apr. 23, 2004) (surety only entitled to

priority on those funds for which it submitted proof of a filing of notice of nonpayment by the
subcontractors); see also Pinewood Plumbing Supply, Inc. v. Centennial Constr., Inc., 489 So. 2d
216, 217 (Fla. Dist. Ct. App. 1986) (“Section 255.05 provides for an adequate remedy at law. [A
materialman]’s failure to comply with the notice requirements does not make the remedy
inadequate. Thus [the materialman] was not entitled to equitable relief.”).
Winsupply also argues that the accounts receivable are not property of the estate under
the earmarking doctrine, trust theories, and because some of the project payments (Watercraft,
South Baldwin, and Trojan/Ulta) were made by joint check. While some courts recognize “an
exception to section 547(b) when the property is ‘earmarked[,]’” the Eleventh Circuit has
declined to apply the earmarking doctrine in the context of preference actions, and this court
declines to do so. See In re Egidi, 571 F.3d 1156, 1162 (11th Cir. 2009); see also In re ATM Fin.
Servs., LLC, No. 6:08-BK-969-KSJ, 2011 WL 2580763, at *7 (Bankr. M.D. Fla. June 24, 2011)
(the Eleventh Circuit “has not adopted the earmarking doctrine in any context and there is scant

support for it in reported bankruptcy court decisions within this circuit”); In re WB Servs., LLC, 587 B.R. 548, 556 (Bankr. D. Kan. 2018) (earmarking doctrine should be “narrowly construed”);
In re Cox & Schepp, Inc., 523 B.R. 511, 518 (Bankr. W.D.N.C. 2014).
Similarly, the court is unpersuaded by the cases Winsupply cites for its arguments based
on various trust theories and finds that no constructive or other trust existed under Alabama or
Florida law that would take the accounts receivables out of the estate. See In re Witko, 374 F.3d
1040, 1043 (11th Cir. 2004) (property interests determined by state law). For this reason,
pertaining to the Tyndall project, the earmarking doctrine and various trust theories also do not
supplant the specific state statute requiring Winsupply to send a timely notice of nonpayment to
obtain bond rights. See Pinewood, 489 So. 2d at 217.

For the joint check payments, there is case law from at least one bankruptcy court within
the Eleventh Circuit supporting Winsupply’s position. See In re Winsco Builders, Inc., 156 B.R
98, 100-01 (Bankr. M.D. Fla. 1993). While the court in that case discussed the joint checks in
terms of “earmarked funds,” this court considers the issue of joint checks to be separate from the
earmarking doctrine. At any rate, this court is of the opinion that the better analysis is that the
accounts receivable would have been property of the estate but still subject to Florida and
Alabama’s construction lien laws requiring the trustee – standing into the shoes of Living Water
– to pay Winsupply. See In re Witko, 374 F.3d at 1042-43 (estate is construed broadly, but
trustee takes no greater rights than debtor itself has). Put another way, while the money owed by
Watercraft, South Baldwin, and Trojan/Ulta to Living Water (whether paid by joint check or not)
would have become property of the estate, the trustee still would have had to pay Winsupply and
Winsupply did not receive more than it would have received otherwise.

(3) Ordinary course defense
The Code does not define “ordinary course of business” under § 547(c)(2)(A) or
“ordinary business terms” under § 547(c)(2)(B). See In re Globe Mfg. Corp., 567 F.3d 1291,
1298 (11th Cir. 2009). “Courts have interpreted the ‘ordinary course of business’ requirement to
be subjective in nature insofar as it requires courts to consider whether the transfer was ordinary
in relation to the other business dealings between that creditor and that debtor.” Id. (citation and
quotation marks omitted). “The ‘ordinary business terms’ requirement, by contrast, is objective
in nature, requiring proof that the payment is ordinary in relation to prevailing industry
standards.” Id. Winsupply has the burden of proof on the defense. See 11 U.S.C. § 547 (g).
Winsupply appears to have abandoned any argument that the transfers were made in the

ordinary course of business between Living Water and Winsupply. (See Def.’s Post-Trial Brief,
doc. 125, at pp. 21-22). Still, the court finds that Winsupply did not meet its burden under §
547(c)(2)(A) because the evidence (see, e.g., Pl.’s exs. 8-15) shows that Winsupply, through its
accounts receivable employee, undertook aggressive collection action – that it had never taken
before with Living Water – once it learned that Total Fire was taking over Winsupply. See, e.g.,
In re JSL Chem. Corp., 424 B.R. 573, 581-82 (Bankr. S.D. Fla. 2010).
Instead, Winsupply states that just because its “collection efforts were extraordinary as it
pertains to the parties’ business [does] not mean that Winsupply’s collection efforts were
extraordinary under industry standards.” (See Def.’s Post-Trial Brief, doc. 125, at p.22)
(emphasis omitted). It contends that its collection activity in “exercis[ing] its statutory
materialmen lien rights against [Living Water]’s projects . . . is commonplace and standard in the
materialmen construction industry . . . .” (See id.).
Mr. Cimino testified that Winsupply often exercised its liens rights and that Winsupply’s

“collection procedures . . . are . . . commonplace for vendors throughout the construction
industry . . . .” (See Cimino Test., Tr., at 128:25-129:8). While Winsupply’s general collection
procedures – including recording claims of lien – may have been ordinary under industry
standards, the problem is that there was no evidence that the speed and manner at which
Winsupply went about collecting when it was informed about Total Fire is ordinary under those
standards. For example, on one of the projects (Town Center), Winsupply recorded a claim of
lien only 20 days after sending an invoice. (See Pl.’s exs. 4, 7). Having considered all of the
evidence, the court finds that Winsupply has not met its burden under § 547(c)(2)(B), either.8

Conclusion

To the extent the court has not specifically addressed any of the parties’ arguments or
evidence, it has considered them and determined that they would not alter this result. For the
reasons discussed above, the court finds in favor of Winsupply except on the Tyndall project, for
which the court finds that the payment in the amount of $10,441.78 is avoided as a preferential
transfer under Bankruptcy Code § 547(b). The court will enter a separate judgment ordering
Winsupply to turn over said amount to the trustee within 14 days of the entry of this order. The

8 The court would have ruled the same even if it had considered the expert’s testimony.
court declines to award prejudgment interest. See In re Globe Mfg., 567 F.3d at 1300-01; Jn re
JSL Chem., 424 B.R. at 583.
Dated: October 3, 2025

HENRY TFAULAWAY □
U.S. BANKRUPTCY JUDGE

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