In The Matter Of Clark Pipe And Supply Co., Inc.

893 F.2d 693 (1990)


Clark Pipe and Supply Company, Inc. (P) bought and sold steel pipe used in offshore drilling platforms. D and P executed various agreements where D made revolving loans secured by an assignment of accounts receivable and an inventory mortgage. P was required to deposit all collections from the accounts receivable in a bank account belonging to D. D made advances as per a formula, and the agreements provided that D could reduce the percentage advance rates at any time at its discretion. P's business went south in 1981, and D reduced the percentage advance, wherein P would have just enough cash to pay its direct operating expenses. P keep its doors open and sold inventory, and the proceeds were used to pay off the past advances from D. D never dictated how P should run its business or who should get paid nor did D ever threaten to cut-off advances if P did pay vendors. A vendor initiated foreclosure proceedings and seized the pipe it had sold P. When a third unpaid creditor initiated foreclosure proceedings P sought protection from creditors under Chapter 11, and the case was converted to a Chapter 7.  The Trustee (P) sought the recovery of alleged preferences and equitable subordination of D's claims. The court required D to turn over $370,505 of payments found to be preferential and subordinated D's claims. The district court affirmed. This appeal eventually resulted.