United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
July 7, 2005
FOR THE FIFTH CIRCUIT
_____________________ Charles R. Fulbruge III
Clerk
No. 04-20807
_____________________
In The Matter Of: RAMBA, INC.,
Debtor.
-----------------------------------
BAKER HUGHES OILFIELD OPERATIONS, INC.,
Appellee,
versus
LOWELL T. CAGE,
Appellant.
__________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
_________________________________________________________________
Before JOLLY, SMITH, and DeMOSS, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
In this bankruptcy case, the trustee of debtor Ramba, Inc.
seeks to avoid a transfer of $85,654.85 made by Ramba to the
appellee, Baker Hughes Oilfield Operations, Inc. The trustee
contends that the transfer was a preferential payment of a pre-
existing debt, and thus avoidable under 11 U.S.C. § 547(b). Baker
Hughes responds that, inter alia, the transfer was not a
preferential payment, but instead a contemporaneous exchange for
new value. The bankruptcy court granted summary judgment for the
trustee and avoided the transfer. The district court, however,
reversed and granted summary judgment for Baker Hughes. For the
reasons set forth below, we reverse the judgment of the district
court and render judgment for the trustee.
I
Ramba, Inc.1 (“Ramba”) was in the oilfield services business.
It purchased supplies, including drilling mud, from the appellee,
Baker Hughes Oilfield Operations, Inc. (“Baker Hughes”), and resold
the products to its customers. In August 2000, various creditors
brought an involuntary bankruptcy proceeding against Ramba in the
Bankruptcy Court for the Southern District of Texas. On September
8, 2000, Baker Hughes joined the case as a petitioning creditor.
Shortly thereafter, the petitioning creditors reached an
agreement with Ramba, under which Ramba would pay off its debts and
the creditors would move to dismiss the bankruptcy petition. Ramba
issued checks to all three petitioning creditors, including one to
Baker Hughes in the amount of $85,654.85. The proposed settlement
was then submitted to the bankruptcy court.
In reviewing the agreement, the bankruptcy court noted that
Ramba was engaged in an effort to sell its Drilling Fluids
Division, and that the pending petition was preventing Ramba from
attracting a buyer. The bankruptcy court found that the sale would
be in the best interest of unsecured creditors, approved the
1
At the time of the transfer to Baker Hughes, the debtor did
business under the name “Ambar, Inc.”. It subsequently sold the
rights to the name “Ambar” and filed the underlying voluntary
bankruptcy petition under the name “Ramba, Inc.”
2
proposed settlement, and dismissed the petition on September 12,
2000. Soon thereafter, Ramba sold its Drilling Fluids Division
for, among other things, the assumption of $12 million in trade
debt.
Unfortunately, the sale and accompanying removal of debt were
not enough to stave off insolvency. In November 2000, Ramba filed
a voluntary Chapter 7 bankruptcy petition. Lowell T. Cage was
appointed as Ramba’s bankruptcy trustee.
In April 2002, the trustee brought this action to avoid
various pre-petition transfers -- including the $85,654.85 payment
to Baker Hughes -- pursuant to § 547 of the Bankruptcy Code.
Before the bankruptcy court, the trustee contended that the payment
was a preferential transfer, and thus avoidable under 11 U.S.C. §
547(b). Baker Hughes responded that, in fact, the payment was a
“contemporaneous exchange for new value” –- the new value being the
dismissal of the involuntary petition, resulting in the sale of the
Drilling Fluids Division –- and was therefore not avoidable. See 11
U.S.C. § 547(c)(1).
The bankruptcy court granted summary judgment for the trustee
and avoided the transfer. The district court reversed and ordered
that the trustee take nothing. The trustee now appeals.
II
The trustee contends that all three reasons given by the
district court for its reversal of the bankruptcy court were in
error. Specifically, he contends that the district court erred in
3
holding that (1) Ramba’s transfer was a “contemporaneous exchange
for new value” –- and thus, not avoidable under § 547 –- as opposed
to an avoidable payment of an antecedent debt; (2) Baker Hughes
held a statutory lien on Ramba’s property, so as to bar the
avoidance of the transfer; and (3) questions of material fact exist
as to whether Ramba was insolvent at the time of the transfer,
precluding summary judgment for the trustee.
We review the decision of the district court by applying the
same standard to the bankruptcy court's findings of fact and
conclusions of law that the district court applied. A bankruptcy
court's findings of fact are subject to review for clear error, and
its conclusions of law are reviewed de novo. See In re Jack/Wade
Drilling, Inc., 258 F.3d 385, 387 (5th Cir. 2001).
A
First, we consider the proper classification of Ramba’s pre-
petition transfer for purposes of avoidability under § 547. The
bankruptcy court held that the transfer was payment of an
antecedent debt, and thus avoidable under § 547(b). As noted, the
district court reversed, holding that the transfer was instead a
“contemporaneous exchange for new value”, which, under § 547(c)(1),
may not be avoided.
Section 547(b) of the Bankruptcy Code permits a bankruptcy
trustee to avoid a debtor’s preferential transfers to creditors.
A transfer may be avoided if it (1) benefits the creditor; (2) is
made in payment of a debt that is antecedent to the transfer; (3)
4
is made while the debtor is insolvent; (4) is made within ninety
days before the filing of the bankruptcy petition; and (5) enables
the creditor to receive more that it would under Chapter 7
bankruptcy proceedings.
Section 547(c) lists eight exceptions to the general rule of
avoidability under § 547(b). In particular, § 547(c)(1) provides
that a trustee “may not avoid under this section a transfer (1) to
the extent such transfer was (A) intended by the debtor and the
creditor to or for whose benefit such transfer was made to be a
contemporaneous exchange for new value given to the debtor; and (B)
in fact a substantially contemporaneous exchange”.
As a preliminary matter, we note that the “antecedent debt”
requirement of § 547(b)(2) and the “contemporaneous exchange”
exception of § 547(c)(1) –- although often treated as opposite
sides of the same coin –- present two analytically separate
inquiries. See, e.g., In re Armstrong, 291 F.3d 517, 522-26 (8th
Cir. 2002). The former is an element of avoidability; the latter
is an exception –- that is, an affirmative defense –- to
avoidability. It is therefore possible that a given transaction
might be one or the other, neither, or both. As such, we consider
the two issues separately.
1
First, we inquire as to whether the transfer in this case was
made in payment of an antecedent debt. We begin, as always, with
the text of the statute. The Bankruptcy Code defines a “debt” as
5
a “liability on a claim”. 11 U.S.C. § 101(12). A “claim”, in
turn, is defined broadly as the “right to payment, whether or not
such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured or unsecured”. 11 U.S.C. § 101(5). A debt is
“antecedent” for purposes of § 547(b) if it was incurred before the
alleged preferential transfer. See Southmark Corp. v. Schulte
Rothe & Zabel, 88 F.3d 311, 316 (5th Cir. 1996).
Baker Hughes does not dispute that Ramba’s transfer was made
in satisfaction of a pre-existing debt owed on goods –- i.e.,
drilling mud -- Ramba had already received. Instead, Baker Hughes
contends that, upon joining the involuntary bankruptcy proceeding,
its claim, “although originally based on the underlying debt for
drilling mud, became something different”. In other words,
although Ramba’s transfer was payment of an antecedent debt within
the meaning of § 547(b)(2), it served the additional purpose of
securing a discrete present benefit –- that is, the release of the
involuntary bankruptcy petition.
Baker Hughes’s argument conflates the “antecedent debt”
requirement of § 547(b)(2) with the “contemporaneous exchange”
exception of § 547(c)(1). The possibility that the latter might
apply in this case does not affect our analysis of the former.2
2
Baker Hughes cites Lewis v. Diethorn for the general
proposition that, when a debtor pays a creditor in exchange for the
creditor’s dismissal of a lawsuit, said payment is not made “for or
on account of an antecedent debt”. 893 F.2d 648, 650 (3d Cir.
6
Whatever else Ramba’s transfer might be, it was unquestionably made
“on account of an antecedent debt”, and that is all that §
547(b)(2) requires.
2
As explained supra, the real thrust of Baker Hughes’s argument
is that, although Ramba’s transfer was made in payment of an
antecedent debt, it was also a “contemporaneous exchange for new
value”, and thus subject to the exception to avoidability set forth
in § 547(c)(1).
Section 547(c)(1) provides that a transfer may not be avoided
if it is a “contemporaneous exchange for new value given to the
debtor”. The controlling question in this case is whether the
benefit Ramba received in exchange for its payment to Baker Hughes
–- i.e., dismissal of the involuntary bankruptcy proceeding –- fits
within the statutory definition of “new value”.
Section 547(a)(2) defines “new value” as “money or money's
worth in goods, services, or new credit, or release by a transferee
of property previously transferred to such transferee ... including
proceeds of such property”. Baker Hughes contends that its
agreement to dismiss the involuntary bankruptcy proceeding enabled
1990). The Third Circuit’s opinion in Lewis, however, has been
criticized for its assumption, without analysis, that a transfer
that serves to secure a present benefit cannot also serve as
payment of an antecedent debt. See, e.g., In re Bioplasty, Inc.,
155 B.R. 495, 499 (Bankr. D. Minn. 1993) (“The [Lewis] opinion
contains no analysis whatsoever, and simply makes the conclusory
statement that the payments were made for one reason rather than
another.”). Thus, we decline to follow the Lewis holding.
7
Ramba to sell its Drilling Fluids Division, which in turn yielded
“money or money’s worth”. This argument reflects a misreading of
the statute –- subtle, perhaps, but significant.
Certainly, Baker Hughes’s dismissal of the petition began a
chain of events that ultimately permitted Ramba to acquire money
through the sale of its Drilling Fluids Division. The “new value”
described in § 547(c)(1), however, must be “given to the debtor”
by the creditor as part of a “contemporaneous exchange”. Thus, it
is the precise benefit received from the creditor, and not the
secondary or tertiary effects thereof, that must fit within one of
the five categories of “new value” –- i.e., money, goods, services,
new credit, or the release of property –- enumerated in §
547(a)(2).3 The controlling question, then, is whether the benefit
Ramba received from Baker Hughes –- that is, dismissal of the
involuntary bankruptcy petition –- fits within the statutory
definition of “new value”.
Baker Hughes concedes that, of the five categories of “new
value” set forth in § 547(a)(2), there is only one possible fit:
“release by a transferee of property previously transferred to such
transferee”. Baker Hughes contends that, because the commencement
of an involuntary bankruptcy proceeding “creates an estate and thus
3
To hold otherwise would render the enumerated categories of
“new value” in § 547(a)(2) essentially superfluous, since virtually
any transaction between a creditor and debtor –- including the act
of paying an antecedent debt –- can ultimately be traced to some
subsequent financial benefit to the debtor.
8
is a transfer of property”, the dismissal of a bankruptcy
proceeding amounts to a release of previously transferred property,
within the meaning of § 547(a)(2). Even accepting the validity of
the underlying assumptions of this argument, it is unavailing to
Baker Hughes.
Baker Hughes’s release of property is meaningless for purposes
of § 547(a)(2), unless the released property had been “previously
transferred” to Baker Hughes. Although it is certainly true that
commencement of an involuntary bankruptcy proceeding “creates an
estate” consisting of most of the debtor’s assets, see 11 U.S.C. §
541(a), the accompanying transfer of the property of the debtor
(Ramba) is to the estate itself, not to the debtor’s creditor
(Baker Hughes). See, e.g., In re Perry, 345 F.3d 303, 315 n.15
(5th Cir. 2003). Thus, because the property in the bankruptcy
estate had never been transferred to Baker Hughes, Baker Hughes is
not a “transferee”, and accordingly, its agreement to dismiss the
petition was not a “release ... of property”, as described in §
547(a)(2).
In sum, the benefit Ramba received in exchange for its payment
to Baker Hughes fails to meet the Bankruptcy Code’s definition of
“new value”. We therefore conclude that the district court erred
in holding that Baker Hughes was entitled to summary judgment based
on the § 547(c)(1) exception to avoidability.
B
9
As an alternative basis for its judgment, the district court
also held that Baker Hughes was entitled to summary judgment
because it held a statutory lien on Ramba’s property at the time of
the transfer. Although neither the district court’s opinion nor
Baker Hughes’s brief is entirely clear on this point, it appears
that the basis for this holding is 11 U.S.C. § 547(c)(6), which
prevents a trustee from avoiding any transfer “that is the fixing
of a statutory lien”. The trustee contends that this holding was
in error.
1
First, we note that the fact that a creditor holds a statutory
lien on the property of a debtor is not, in itself, sufficient to
trigger the exception to avoidability found in § 547(c)(6). For
the exception to apply, the transfer must be the “fixing” of such
a lien. The term “fixing” is not defined in § 547 or, for that
matter, anywhere else in the Bankruptcy Code. We have previously
held, however, that a lien is said to be “fixed” when a creditor
has perfected his security interest and “fasten[s] liability”
against the debtor’s property. See Matter of Henderson, 18 F.3d
1305, 1308-09 (5th Cir. 1994). The transfer in this case was made
to settle litigation; it involved neither the perfection of a
security interest under Louisiana law nor the fastening of
liability upon Ramba’s property. Thus, the transfer was not “the
fixing of a statutory lien”.
10
Baker Hughes, however, contends that § 547(c)(6) should be
construed liberally, so as to include, not only the actual “fixing”
of a lien, but also any transfer made in satisfaction of a debt
that, in turn, prevents a creditor who might otherwise fix a lien
from doing so. Specifically, Baker Hughes argues, based on
language from Cimmaron Oil Co., Inc. v. Cameron Consultants, Inc.,
that the legislative history of § 547(c)(6) mandates that we exempt
from the trustee’s avoiding power all “transfers in satisfaction of
... liens”. 71 B.R. 1005, 1010 (N.D. Tex. 1987).4
Inferences drawn from a statute’s legislative history,
however, cannot justify an interpretation that departs from the
plain language of the statute itself. Moreover, the legislative
comments cited by the court in Cimmaron do not refer to the final
enacted version of § 547(c)(6). Instead, they refer to a pre-
enactment version that included two additional subsections,
including one exempting “transfer[s] ... in satisfaction of ... a
lien”. These subsections were ultimately deleted from the final
bill.5 Thus, even if the language of § 547(c)(6) were ambiguous,
4
See S. Rep. No. 989, 95th Cong., 2d Sess. 88, reprinted in
1978 U.S. Code Cong. & Ad. News 5787, 5874; H.R. Rep. No. 595, 95th
Cong., 1st Sess. 374, reprinted in 1978 U.S. Code Cong. & Ad. News
5963, 6330.
5
See 124 CONG. REC. H11089 (“Section 547(c)(6) represents a
modification of a similar provision contained in the House bill and
Senate Amendment. The exception relating to satisfaction of a
statutory lien is deleted.”)
11
the legislative comments cited in Cimmaron have no bearing on its
interpretation.
We therefore reject the expansive interpretation of §
547(c)(6) that Baker Hughes proposes, as it runs contrary to the
plain language of the statute, which applies only to transfers that
are “the fixing of a statutory lien”. Because the transfer in this
case did not involve the fastening of liability pursuant to a
perfected security interest –- i.e., fixing of a lien -- the
district court erred in holding that the exception to avoidability
found in § 547(c)(6) applies.
2
Baker Hughes further contends that, even if § 547(c)(6) does
not apply, the district court’s finding that it held a statutory
lien on Ramba’s property nonetheless entitles it to summary
judgment. Baker Hughes argues that, as a statutory lien holder, it
was a secured creditor under the Bankruptcy Code, see 11 U.S.C. §
506(a), and its claims therefore took priority over those of
unsecured creditors. Thus, Baker Hughes contends, had the case
proceeded to Chapter 7 liquidation, it likely would have received
the same amount from Ramba’s estate as it received from the
allegedly preferential transfer. Thus, the trustee cannot show
that it satisfied § 547(b)(5)’s requirement that the transfer
“enable [the] creditor to receive more than it would receive if”
Ramba’s estate were distributed under Chapter 7.
12
A prerequisite to Baker Hughes’s argument is a showing that,
as of the date of Ramba’s transfer, Baker Hughes actually held a
statutory lien on Ramba’s property. Under Louisiana law, the
burden of establishing a statutory lien falls to the original
vendor –- that is, to Baker Hughes. See In re Exclusive Industries
Corp., 41 B.R. 493, 496-97 (Bankr. W.D. La. 1984). The provisions
governing liens on movable goods -- such as the drilling mud Baker
Hughes sold to Ramba -- are found in articles 3227 and 3228 of the
Louisiana Civil Code. Article 3227 provides:
He who has sold to another any movable
property, which is not paid for, has a
preference on the price of his property, over
the other creditors of the purchaser whether
the sale was made on a credit or without if
the property still remains in the possession
of the purchaser.
(emphasis supplied). Article 3228, entitled “Loss of privilege by
sale with other property of purchaser”, provides:
But if he allows the things to be sold,
confusedly with a mass of other things
belonging to the purchaser, without making his
claim, he shall lose the privilege, because it
will not be possible in such a case to
ascertain what price they brought.
Thus, in order to show that § 547(b)(5) is not satisfied, Baker
Hughes must meet the “rather exacting burden” of “identifying the
property [that it sold to Ramba] with a great deal of specificity”,
In re Exclusive Industries Corp., 41 B.R. at 497, and proving that
said property had not been sold to a third party, but instead
remained in Ramba’s possession as of the date of the transfer.
13
Our review of the record has revealed no evidence to show
that, at the time of the transfer, the drilling mud sold by Baker
Hughes had not already been sold by Ramba. The issue is not
addressed in Baker Hughes’s brief to the district court, in its
brief to this court, or in the district court’s opinion. The only
evidence on point comes from the affidavit of former Ramba
president Tony Caridi, who stated that:
It was the practice of [Ramba] during this
time period to only order goods from its
vendors, including Baker Hughes, if such goods
were required to satisfy an outstanding order
from one of [Ramba’s] customers. During this
time period, [Ramba] typically did not
maintain stores of inventory for any length of
time. Normally, all inventory on hand would
be “turned over” within a month.
As the trustee points out, the transfer in this case occurred more
than four months after Ramba’s purchase of the drilling mud.
As noted supra, we review a bankruptcy court’s findings of
fact for clear error. A factual finding is not clearly erroneous
if it is plausible in the light of the record read as a whole.
See, e.g., United States v. Villanueva, 408 F.3d 193, 203 (5th Cir.
2005). In this case, however, there is simply no evidence to
support a finding that Ramba retained possession of the drilling
mud as of the transfer date. The only evidence in the record
supports the opposite inference –- i.e., that Baker Hughes had lost
any lien it held when Ramba sold the drilling mud to a third party.
In sum, the district court clearly erred in finding that Baker
Hughes held a statutory lien on Ramba’s property. Thus, Baker
14
Hughes’s contention that the trustee has failed to satisfy the
avoidability requirement of § 547(b)(5) is without merit. We
therefore hold that the district court’s grant of summary judgment
for Baker Hughes was in error.
C
Finally, Baker Hughes reminds us that unless Ramba was
insolvent at the time of the transfer, the transfer is not
avoidable under § 547(b). It therefore contends that, even if it
is not entitled to summary judgment based on either of the
exceptions to avoidability discussed above, the district court was
nonetheless correct in reversing the bankruptcy court’s grant of
summary judgment for the trustee because there is a factual dispute
as to whether Ramba was insolvent. Summary judgment is appropriate
where there are no genuine issues as to any material fact and the
moving party is entitled to judgment as a matter of law. See FED.
R. CIV. P. 56(c); FED. R. BANKR. P. 7056; Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). The district court agreed with Baker
Hughes and held that a genuine issue of material fact remained as
to whether Ramba was insolvent at the time of the transfer.
As noted supra, 11 U.S.C. § 547(b)(3) requires that a debtor
be insolvent at the time of an allegedly preferential transfer in
order for that transfer to be avoided by the bankruptcy trustee.
The Bankruptcy Code, however, creates a rebuttable presumption of
insolvency during the 90 days immediately prior to the filing of a
15
bankruptcy petition. See 11 U.S.C. § 547(f). The effect of this
presumption is to shift the burden to the transferee, here Baker
Hughes, to produce evidence of the debtor’s solvency as of the
transfer date. See Gasmark Ltd. Liquidating Trust v. Louis Dreyfus
Natural Gas Corp., 158 F.3d 312, 315 (5th Cir. 1998) (citing FED.
R. EVID. 301).
Baker Hughes presented three documents to rebut the
presumption of insolvency: (1) a balance sheet for Ramba dated
March 31, 1999, showing assets of $116 million and liabilities of
$92 million; (2) an income statement for the nine-month period
ending September 30, 2000, showing a positive operating income of
$3.7 million; and (3) a “revenues and expenditures summary” for
January through August 2000, showing a net loss of $5,283.00.
The Bankruptcy Code defines insolvency as the financial
condition in which “the sum of [an] entity's debts is greater than
all of such entity's property”. 11 U.S.C. § 101(32)(A). Two of
the documents proffered by Baker Hughes –- the income statement
from September 2000 and the “revenues and expenditures summary”
from August 2000 –- show only that Ramba had a small net operating
loss over the first nine months of 2000. They do not address
Ramba’s overall balance of debts and assets, and thus, do not raise
genuine questions of fact as to Ramba’s solvency.
The one remaining document –- i.e., the March 1999 balance
sheet –- does address the overall balance of debts and assets. The
obvious weakness of this evidence, however, is that it reflects a
16
balance achieved seventeen months prior to Ramba’s transfer. As we
explained in Gasmark, the relevant question for purposes of §
547(b)(3) is whether the debtor was insolvent as of “the date of
the payment at issue”. 158 F.3d at 316. Evidence of solvency
nearly one and a half years prior to a given transfer does not
create a genuine question of fact as to whether a debtor was
insolvent as of the transfer date.
In sum, the district court erred in holding that questions of
material fact were raised by Baker Hughes regarding the insolvency
requirement of § 547(b)(3). As such, reversal of the bankruptcy
court’s grant of summary judgment for the trustee was in error.
III
For the foregoing reasons, we REVERSE the judgment of the
district court and REMAND the case to the district court for entry
of judgment in favor of the trustee.
REVERSED and REMANDED.
17