A subcontractor (Kice) received a joint payee check from the project owner made out to both the general contractor (WB Services) and the subcontractor within 90 days before the GC filed bankruptcy. The bankruptcy trustee sued to recover the payment as a preferential transfer. The court ruled that joint payee checks do constitute a transfer of the contractor's property interest, rejecting the subcontractor's argument that the earmarking doctrine protected the payment. The case was remanded for trial on whether the subcontractor's new value defense (work performed) would shield it from repayment.
Joint payee checks from owners to both GC and subcontractor can be clawed back by a bankruptcy trustee as preferential transfers—don't assume receiving your name on the check protects you.
The earmarking doctrine (which protects payments intended for a specific creditor) does not apply in GC-subcontractor relationships; it only works with guarantors or lenders.
Your best defense if sued for preference recovery is proving you provided new value (labor, materials, services) after receiving the payment—document all work performed after payment dates.