PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED RENTALS, INCORPORATED,
Plaintiff-Appellant,
v. No. 09-1209
JAMES BIGELOW ANGELL,
Trustee-Appellee.
Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
Terrence W. Boyle, District Judge.
(7:08-cv-00097-BO)
Argued: December 2, 2009
Decided: January 22, 2010
Before TRAXLER, Chief Judge, and SHEDD and DAVIS,
Circuit Judges.
Affirmed by published opinion. Chief Judge Traxler wrote the
opinion, in which Judge Shedd and Judge Davis joined.
COUNSEL
ARGUED: James Durling Fullerton, FULLERTON &
KNOWLES, PC, Clifton, Virginia, for Appellant. James
Bigelow Angell, HOWARD, STALLINGS, FROM & HUT-
SON, PA, Raleigh, North Carolina, for Appellee. ON
2 UNITED RENTALS v. ANGELL
BRIEF: Philip W. Paine, HOWARD, STALLINGS, FROM
& HUTSON, PA, Raleigh, North Carolina, for Appellee.
OPINION
TRAXLER, Chief Judge:
United Rentals, Inc. ("United") appeals a district court
order affirming a bankruptcy court judgment allowing the
bankruptcy trustee to avoid and recover certain payments
made to United during the 90 days prior to the bankruptcy
petition. We affirm.
I.
Partitions Plus of Wilmington, Inc. ("the Debtor") filed a
Chapter 11 bankruptcy petition on September 1, 2004. The
case was subsequently converted to a Chapter 7 proceeding.
Prior to its bankruptcy filing, the Debtor had subcontracted in
several construction projects, and United had subcontracted
with the Debtor to supply rental equipment. The Debtor exe-
cuted payment and performance bonds with United States Fire
Insurance Company ("the Surety"), for the construction of
several of these projects.
In the 90-day period prior to the Debtor’s bankruptcy filing,
the Debtor made three payments to United totaling
$75,849.40 for amounts owed for United’s prior provision of
rental equipment and parts ("the transfers"), $67,470.60 of
which was for bonded projects. The bankruptcy trustee ("the
Trustee") filed this action seeking to avoid and recover the
transfers as preferential payments. See 11 U.S.C.A. § 547(b)
(West 2004 & Supp. 2009). United denied that the transfers
were avoidable and asserted defenses under 11 U.S.C.A.
§ 547(c)(1), (3), and (4) (West 2004 & Supp. 2009).
UNITED RENTALS v. ANGELL 3
The Bankruptcy Code’s preference section serves two
goals. First, it prevents companies from "racing to the court-
house to dismember the debtor during his slide into bank-
ruptcy." Harman v. First Am. Bank of Md. (In re Jeffrey
Bigelow Design Group, Inc.), 956 F.2d 479, 487 (4th Cir.
1992) (internal quotation marks omitted). And second, it pro-
tects "equality of distribution among creditors of the debtor."
Id. (internal quotation marks omitted). Except as specified in
the Bankruptcy Code, a bankruptcy trustee may avoid as a
preference a transfer made by an insolvent debtor to a creditor
on account of an antecedent debt within 90 days before the
date of the filing of the bankruptcy petition if a certain condi-
tion is satisfied.1 See 11 U.S.C.A. § 547(b). That condition is
that the transfer to be avoided must have enabled the creditor
to receive more than it would have received from the debtor’s
Chapter 7 bankruptcy on the debt the transfer extinguished if
the payment sought to be avoided had never been made. See
11 U.S.C.A. § 547(b)(5).
Section 547(c) provides exceptions for certain preferential
transfers, the avoidance of which would not further the pur-
poses of § 547(b). Section 547(c)(1) provides that a transfer
cannot be avoided "to the extent [it] was . . . intended by the
debtor and the creditor to or for whose benefit [it] was made
to be a contemporaneous exchange for new value given to the
debtor; and [it] in fact [was] a substantially contemporaneous
exchange." 11 U.S.C.A. § 547(c)(1). The purpose of the
§ 547(c)(1) exception is "to encourage creditors to continue to
deal with troubled debtors without fear that they will have to
disgorge payments received for value given." Collier on
Bankruptcy ¶ 547.04 (Alan N. Resnick & Henry J. Sommer
eds., 16th ed. 2009). As its legislative history demonstrates,
§ 547(c)(1) was designed to address the "generic problem
[that] those on the verge of bankruptcy still need to buy things
. . . and the fact that checks are used (with a brief gap between
1
Unsecured creditors may then share in any avoided payments on a pro
rata basis.
4 UNITED RENTALS v. ANGELL
purchase and payment) ought not render the payment avoid-
able as one made for an antecedent debt." Collins v. Greater
Atl. Mortgage Corp. (In re Lazarus), 478 F.3d 12, 18 (1st Cir.
2007) (citing H.R. Rep. No. 95-595, at 373 (1977)); see
Batlan v. TransAmerica Commercial Fin. Corp. (In re Smith’s
Home Furnishings, Inc.), 265 F.3d 959, 965 n.4 (9th Cir.
2001) (explaining that § 547(c)(1) "was designed to prevent
trustees from avoiding payments that were clearly intended to
support a new transaction, instead of an antecedent debt, even
though the actual payment was not recorded until after the
transaction"). Protecting contemporaneous exchanges for new
value from avoidance does not harm the preference section’s
goal of protecting the equality of distribution among the debt-
ors because such exchanges do not diminish the size of the
debtor’s estate. See Jones Truck Lines, Inc. v. Cent. States, Se.
& Sw. Areas Pension Fund (In re Jones Truck Lines), 130
F.3d 323, 326 (8th Cir. 1997).
The Trustee moved for partial summary judgment on the
issue of whether the transfers satisfied the § 547(b) require-
ments, and United moved for summary judgment. The Trustee
argued that it had established all of the § 547(b) elements as
a matter of law. As is relevant here, United responded that the
Trustee could not establish that the transfers were preferences
under § 547(b) because the transferred funds were not prop-
erty of the estate. United also argued that the Trustee could
not satisfy § 547(b)(5) with regard to the transfers because
United would have received full payment from the Surety by
enforcing its bond rights had the Debtor not made the trans-
fers.
United further contended that the § 547(c)(1) defense
applied because the transfers had the effect of discharging
United’s right to file and enforce a mechanic’s lien. United
finally maintained that certain payments from the Debtor to
United were in exchange for new value in the form of credit
extended to the Debtor after the transferred funds were
received.
UNITED RENTALS v. ANGELL 5
Considering the parties’ cross-motions, the bankruptcy
court ruled as a matter of law that the Trustee met its burden
of establishing that the transfers were preferences under
§ 547(b). Regarding United’s argument that had the chal-
lenged transfers not been made, United still would have
received full payment from the bond, the court reasoned that
the critical question with regard to § 547(b)(5) was not
whether the creditor would have received payment from
another source had the challenged transfer not been made, but
rather, whether it would have received payment from the
Chapter 7 bankruptcy estate. As for United’s new-value
defense, the bankruptcy court noted that the Trustee did not
dispute United’s assertion that some payments made to the
Debtor were in exchange for credit that United extended to
the Debtor after the transferred funds were received. The
bankruptcy court thus ruled that United was "entitled to a
minimum credit of $8885.66 based on new value, and it has
the right to try to increase that amount upon an appropriate
showing at trial." J.A. 179.
The case then proceeded to trial regarding United’s
§ 547(c)(1) defense. United sought to prove that the transfers
were substantially contemporaneous exchanges for new value
because they extinguished United’s rights to file and enforce
a lien as well as its rights to obtain payment through the bond.
The bankruptcy court found that the § 547(c)(1) defense was
not established because the discharge of United’s inchoate
lien rights and bond rights did not constitute new value. The
court noted that United had not perfected any lien or security
interest in property to secure the Debtor’s debt and thus had
no interest to release in exchange for the transfers. The court
ruled that to establish the § 547(c)(1) defense with regard to
its inchoate lien and bond rights, United would have to prove
that it would have timely enforced these rights and been paid
in full had the challenged transfers not been made, and that at
that time the Debtor was still owed funds by the general con-
tractor on which the Surety could have asserted a lien. Con-
cluding that United failed to establish the former point, the
6 UNITED RENTALS v. ANGELL
court ruled that the Trustee was entitled to recover the remain-
der of the challenged transfers—$66,963.74—for the benefit
of the bankruptcy estate. United then appealed to the district
court, which affirmed the bankruptcy court judgment.
II.
United argues that the bankruptcy court erred in granting
partial summary judgment against it regarding whether the
transfers were preferences under § 547(b). We find no revers-
ible error.
We review a grant of partial summary judgment by the
bankruptcy court and the affirmance thereof by the district
court de novo. See Bank of N.Y. v. Treco (In re Treco), 240
F.3d 148, 155 (2d Cir. 2001). Summary judgment in bank-
ruptcy is governed by Federal Rule of Bankruptcy Procedure
7056, which incorporates the standards of Federal Rule of
Civil Procedure 56 into bankruptcy proceedings. See Fed. R.
Bankr. P. 7056; Fed. R. Civ. P. 56. Thus, in reviewing a grant
of partial summary judgment, we view the facts and the rea-
sonable inferences drawn therefrom in the light most favor-
able to the nonmoving party. See EEOC v. Navy Fed. Credit
Union, 424 F.3d 397, 405 (4th Cir. 2005). Partial summary
judgment is appropriate "if there is no genuine issue of mate-
rial fact and the moving party is entitled to a judgment as a
matter of law." Cline v. Wal-Mart Stores, Inc., 144 F.3d 294,
300 (4th Cir. 1998).
Section 547(b) states:
Except as provided in [11 U.S.C.A. § 547(c) and (i)],
the trustee may avoid any 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;
UNITED RENTALS v. ANGELL 7
(3) made while the debtor was insolvent;
(4) made-
(A) on or within 90 days before the date of the fil-
ing of the petition; or
(B) between ninety days and one year before the
date of the filing of the petition, if such creditor at
the time of such transfer was an insider; 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.
11 U.S.C.A. § 547(b) (emphasis added); see Morrison v.
Champion Credit Corp. (In re Barefoot), 952 F.2d 795, 798
(4th Cir. 1991). The bankruptcy trustee bears the burden of
proving that a transfer is avoidable under § 547(b). See 11
U.S.C.A. § 547(g) (West 2004).
United contends that the bankruptcy court erred in conclud-
ing at the summary judgment stage that the Trustee had estab-
lished the fifth § 547(b) requirement as a matter of law. This
is so, United argues, because had the transfers not been made,
United could have received full payment from the Surety by
enforcing its bond rights.2 The bankruptcy court properly
2
United similarly argues that the court’s resolution of the § 547(b) issue
at the summary judgment stage was improper because the Trustee failed
to show as a matter of law that, had the transfers not been made, United
8 UNITED RENTALS v. ANGELL
rejected this argument, however. The § 547(b)(5) inquiry
focuses "not on whether a creditor may have recovered all of
the monies owed by the debtor from any source whatsoever,
but instead upon whether the creditor would have received
less than a 100% payout" from the bankruptcy estate. Smith
v. Creative-Financial Mgmt., Inc., (In re Virginia-Carolina
Fin. Corp.), 954 F.2d 193, 199 (4th Cir. 1992).
III.
United next argues that the district court erred in finding
that it did not establish a § 547(c)(1) defense at trial.3 We dis-
agree.
A.
We review the district court decision de novo, "effectively
standing in its shoes to consider directly the findings of fact
and conclusions of law by the bankruptcy court." Cypher Chi-
ropractic Ctr. v. Runski (In re Runski), 102 F.3d 744, 745 (4th
Cir. 1996). "[W]e review legal conclusions by the bankruptcy
court de novo and may overturn its factual determinations
only upon a showing of clear error." Id.
The party against whom recovery or avoidance is sought
bears the burden of proving a § 547(c) defense. See 11
U.S.C.A. § 547(g). As we have explained, § 547(c)(1) pre-
vents a bankruptcy trustee from avoiding a transfer "to the
would not have obtained full payment from the hypothetical Chapter 7
estate by enforcing its lien rights and thereby attaining secured-creditor
status. Because this argument is raised for the first time on appeal, we do
not address it. See Williams v. Prof’l Transp. Inc., 294 F.3d 607, 614 (4th
Cir. 2002) ("Issues raised for the first time on appeal are generally not
considered absent exceptional circumstances.").
3
United also argues that it established a defense under 11 U.S.C.A.
§ 547(c)(6). Because this argument is raised for the first time on appeal,
we do not consider it. See Williams, 294 F.3d at 614.
UNITED RENTALS v. ANGELL 9
extent [it] was . . . intended by the debtor and the creditor to
or for whose benefit [it] was made to be a contemporaneous
exchange for new value given to the debtor; and [it] in fact
[was] a substantially contemporaneous exchange." 11
U.S.C.A. § 547(c)(1). The Bankruptcy Code defines "new
value" to mean
money or money’s worth in goods, services, or new
credit, or release by a transferee of property previ-
ously transferred to such transferee in a transaction
that is neither void nor voidable by the debtor or the
trustee under any applicable law, including proceeds
of such property.
11 U.S.C.A. § 547(a)(2) (West 2004). "New value," however,
"does not include an obligation substituted for an existing
obligation." Id.
B.
United argues that it established a § 547(c)(1) defense
under the "indirect transfer theory." In this regard, United first
contends that had the Debtor not made the transfers, United
nonetheless could have obtained full payment by enforcing its
bond rights. United maintains that had the Surety paid such a
claim under the bond, the Surety would have automatically
received an equitable lien by subrogation against the funds the
general contractor owed the Debtor. Relying on O’Rourke v.
Seaboard Surety Co. (In re E.R. Fegert, Inc.), 887 F.2d 955
(9th Cir. 1989) ("Fegert"), United argues that the money that
the Debtor was eventually paid (that the Surety could have
obtained directly from the general contractor had United
enforced its bond rights) constituted new value to the Debtor
for purposes of § 547(c)(1).
In Fegert, a general contractor ("the debtor") defaulted on
its payments to two subcontractors. See Fegert, 887 F.2d at
956. The subcontractors, in turn, sued the debtor and the
10 UNITED RENTALS v. ANGELL
surety that had issued a payment and performance bond on the
debtor’s behalf. See Fegert, 887 F.2d at 956. Prior to trial, the
debtor and the surety made payments to the subcontractors
that, when combined, satisfied the debt and resulted in dis-
missal of the suit. See id. Within 90 days of these payments,
the debtor filed a Chapter 11 bankruptcy petition that was
later converted to a Chapter 7 proceeding. See id. In a subse-
quent adversary proceeding, the bankruptcy trustee sought to
avoid the payments from the debtor as preferential. See id.
The bankruptcy court granted summary judgment against the
trustee, and the Bankruptcy Appellate Panel and the Ninth
Circuit affirmed. See id. at 956-57. The Ninth Circuit rea-
soned that if the debtor had not paid the debt in full, the sub-
contractors would have been paid by the surety, which then
would have had an equitable lien against the funds owed the
debtor by the owner. See id. at 958-59. The court noted that
"[t]wo circuits have held that payments by a debtor in
exchange for a secured creditor’s release of its security inter-
est falls within the exception of section 547(c)(1)." Id. at 959
(citing Gulf Oil Corp. v. Fuel Oil Supply & Terminaling, Inc.
(In re Fuel Oil Supply & Terminaling, Inc.), 837 F.2d 224,
229-30 (5th Cir. 1988), and Kenan v. Fort Worth Pipe Co. (In
re George Rodman, Inc.), 792 F.2d 125, 127 (10th Cir.
1986)). The court therefore held that "[t]he security interest
constitutes the ‘new value’ that is ‘contemporaneously
exchanged’" and noted that "the value of the debtor’s estate
is not diminished." Id.
Without deciding the correctness of the Fegert court’s con-
clusion that the release of the surety’s security interest in that
case constituted "new value" contemporaneously received by
the debtor, we conclude that that was not the case on the facts
before us. Since United never even attempted to make any
claim on the bond here, the Surety never obtained any lien
that it could release. It is therefore not surprising that United
does not even argue to us that the Debtor received new value
by virtue of the removal of the possibility that any such lien
would ever be created.
UNITED RENTALS v. ANGELL 11
What United does argue is that new value was given to the
Debtor in the form of the money that it eventually received
from the general contractors that might have instead been paid
to the Surety had the Surety paid a bond claim. This argument
does not work. Even if the money the Debtor paid to United
in the transfers was eventually offset by the Debtor’s later
receipt of funds that the Surety might otherwise have claimed,
United has not shown when the Debtor received this "new
value." Accordingly, regardless of whether the transfers set in
motion a chain of events that resulted in the Debtor’s recoup-
ment of the amounts paid, United did not show that such new
value was "‘given to the debtor’ . . . as part of a ‘contempora-
neous exchange.’" Baker Hughes Oilfield Operations, Inc. v.
Cage (In re Ramba, Inc.), 416 F.3d 394, 399-400 (5th Cir.
2005) ("[I]t is the precise benefit received . . ., and not the
secondary or tertiary effects thereof, that must fit within one
of the five categories of ‘new value’ . . . enumerated in
§ 547(a)(2)."). In this case, the only benefit that United
showed the Debtor was given as part of the contemporaneous
exchange for the transfers was the extinguishment of its debt,
which does not fit within any of the five new-value catego-
ries.
Furthermore, even assuming arguendo that the transfers
were part of a contemporaneous exchange for new value,
United produced no evidence that the Debtor and United
intended that would be the case. United failed to produce evi-
dence that the parties viewed this transaction as anything
more than the payment of the debt of an as-yet unsecured
creditor; no evidence demonstrated when the parties believed
the Debtor might recoup some of the transferred funds or even
that they believed any funds would be recouped.
C.
Similar to its argument that it could have pursued payment
from the Surety, United contends that had the transfers not
been made, it also could have pursued its right to file a North
12 UNITED RENTALS v. ANGELL
Carolina mechanic’s lien on the real property improved by
one of the construction projects. To the extent that United
maintains that the new value given to the Debtor was
money—the money it retained by not having to face offset
claims that the property owner would have gained from Unit-
ed’s enforcement of its lien rights—the argument fails for the
same reasons we have discussed regarding its bond argument.
United argues, however, that the discharge of United’s incho-
ate lien rights themselves constitutes new value, independent
of any financial benefit the Debtor received from the dis-
charge. In particular, United claims that it held a security
interest in the owners’ properties at the time of the transfers
(and thus "had property previously transferred," 11 U.S.C.A.
§ 547(a)(2)) because the mechanic’s lien statutes immediately
grant a security interest to a supplier who furnishes labor or
material to improve the property. The Code’s definition of
"transfer" indeed includes "the creation of a lien." 11 U.S.C.
§ 101(54)(A) (West Supp. 2009). However, just as the Surety
did not have an equitable lien to release since it had not paid
a claim on the bond, United did not have a security interest
to release because it never filed the mechanic’s lien claim
necessary to obtain such an interest.
Under North Carolina law, a person who improves real
property, including by providing rental equipment pursuant to
a contract with the owner, "shall, upon complying with the
provisions of this Article, have a right to file a claim of lien
on real property [also known as a mechanic’s lien] on the real
property to secure payment of all debts owing for" rented
equipment. N.C. Gen. Stat. § 44A-8 (2009); see also N.C.
Gen. Stat. § 44A-12 (2009) (providing the place, time, and
contents of the filing required for a mechanic’s lien). Such a
lien "shall relate to and take effect from the time of the first
furnishing of labor or materials at the site of the improvement
by the person claiming the claim of lien on real property."
N.C. Gen. Stat. § 44A-10 (2009).
A first-, second-, or third-tier subcontractor who has fur-
nished rental equipment in the improvement of real property,
UNITED RENTALS v. ANGELL 13
upon compliance with certain requirements, may also enforce
the contractor’s lien on real property. See N.C. Gen. Stat.
§ 44A-23 (2009). Once a subcontractor has filed a lien, it may
enforce the lien within 180 days after the last furnishing of
labor or materials to the real property by filing a lawsuit. See
N.C. Gen. Stat. § 44A-13 (2009). A mechanic’s lien is dis-
charged by failure to enforce the claim of lien within the pre-
scribed time. See N.C. Gen. Stat. § 44A-16(3) (2009).
As we have explained, United claims that it held a security
interest in the owners’ properties at the time of the transfers
because the mechanic’s lien statutes immediately grant a
security interest to a supplier who furnishes labor or material
to improve the property. United bases this argument on the
notion that a mechanic’s lien, once filed, is retroactively
effective to the time the material or labor were furnished.
United’s conclusion does not follow from its premise, how-
ever. North Carolina’s mechanic’s lien statutes grant a sup-
plier of labor or material only the right to file a mechanic’s
lien, which United did not do here. See N.C. Gen. Stat. § 44A-
8 ("Any person who . . . furnishes rental equipment . . . shall,
upon complying with the provisions of this Article, have a
right to file a claim of lien on real property." (emphasis
added)). Only upon the filing of a claim for a mechanic’s lien
is the owner’s property encumbered. See N.C. Gen. Stat.
§ 44A-10 ("A claim of lien on real property granted by this
Article shall relate to and take effect from the time of the first
furnishing of labor or materials at the site of the improvement
by the person claiming the claim of lien on real property"
(emphasis added)). Because United had not filed such a claim
when the transfers were made, no interest had been trans-
ferred to United and United had no such interest to release.4
4
United argues that McCoy v. Wood, 70 N.C. 125 (1874), is to the con-
trary. However, as United concedes, McCoy did not interpret the mechan-
ic’s lien statutes at issue here. Indeed, the mechanic’s lien statutes
considered in McCoy did not have comparable wording to those before us
now.
14 UNITED RENTALS v. ANGELL
United argues that it would not make sense from a policy
standpoint to force a subcontractor in United’s position to
refuse tendered payments and file a mechanic’s lien. But it
does not necessarily follow from our holding that subcontrac-
tors would need to take that course. Indeed, United argues in
this very appeal that the Trustee, in order to prove that the
transfers were even preferences under § 547(b), should have
been required to show that had the transfers not been made,
United would not have promptly filed lien claims and thereby
attained secured-creditor status such that it could have
obtained full payment in a hypothetical Chapter 7 bankruptcy.
Whether United’s argument is correct is an issue that will
have to wait for another case in which the issue is properly
preserved. See supra, at 7 n.2 (explaining that we do not
address this argument because United raised it for the first
time on appeal).
Our holding today is limited to the conclusion that United
did not establish the § 547(c)(1) defense beyond the amounts
determined by the bankruptcy court at the summary judgment
stage. This holding makes perfect sense when viewed in the
context of § 547(c)(1)’s purpose, to accommodate the need of
financially unsteady companies to use checks to pay for new
transactions. See In re Lazarus, 478 F.3d at 18; In re Smith’s
Home Furnishings, Inc., 265 F.3d at 965 n.4. The facts of this
case, wherein the transfers were not made substantially con-
temporaneously with United’s supplying of the equipment
and parts that generated the debt, present a completely differ-
ent scenario.
IV.
For the foregoing reasons, we affirm the district court order
affirming the bankruptcy court judgment in favor of the
Trustee.
AFFIRMED