[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 08-12462 FEBRUARY 3, 2009
________________________ THOMAS K. KAHN
CLERK
D. C. Docket Nos. 07-02830-CV-TWT-1, 05-83622 BKC-MH
IN RE: TANNER FAMILY, LLC,
Debtor.
__________________________________________________
MIDWEST HOLDING #7, LLC,
Plaintiff-Appellant,
versus
PAUL H. ANDERSON, JR.,
Trustee,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(February 3, 2009)
Before BIRCH and PRYOR, Circuit Judges, and STROM,* District Judge.
BIRCH, Circuit Judge:
Midwest Holding #7, LLC (“Midwest”) appeals from the order of the district
court affirming the bankruptcy court’s denial of its motion for summary judgment
and grant of summary judgment in favor of Appellee Paul H. Anderson
(“Trustee”). Midwest argues that the bankruptcy and district courts erred in
concluding that a lease termination payment made by Tanner Family, LLC
(“Debtor”) to Midwest was “for or on account of an antecedent debt” and thus
avoidable as a preferential transfer under 11 U.S.C. § 547(b)(2). For the reasons
that follow, we AFFIRM.
I. BACKGROUND
The material facts in this case are not in dispute. In December 2002, Debtor
and Midwest entered into a lease agreement whereby Debtor leased retail space
from Midwest for a term of five years, the lease term to expire in March 2008.
Pursuant to the lease, rent was due and payable on the first day of each calendar
month. On 9 August 2005, Debtor and Midwest executed a Lease Termination
Agreement whereby Debtor agreed to pay $87,172.50 in exchange for Midwest
releasing Debtor from any further obligations under the lease. Debtor made the
*
The Honorable Lyle E. Strom, United States District Judge for the District of Nebraska,
sitting by designation.
2
payment on or after 2 August 2005 and vacated the premises at the end of August
2005. Within ninety days of making the payment, Debtor filed a petition for
Chapter 11 bankruptcy and Trustee was appointed.1 On 24 January 2007, Trustee
brought an adversary proceeding in bankruptcy court in the Northern District of
Georgia seeking to avoid and recover the $87,172.50 payment as a preferential
transfer under 11 U.S.C. § 547(b). On cross-motions for summary judgment, the
only issue before the bankruptcy court was whether the lease termination payment
was made for or on account of an antecedent debt under § 547(b)(2). The
bankruptcy court found that it was, and granted summary judgment in favor of
Trustee. The district court affirmed, finding that Debtor’s obligation to make
future rental payments was a debt that was incurred on the date the parties entered
into the lease agreement and thus was antecedent to the lease termination payment.
It concluded that because payment of the $87,172.50 lease termination fee
extinguished Debtor’s preexisting debt under the lease, it was a transfer made “for
or on account of an antecedent debt” within the meaning of § 547(b). See
Midwest Holding #7, LLC v. Anderson, 387 B.R. 892, 895-96 (N.D. Ga. 2008).
This appeal followed.
1
Debtor’s Chapter 11 petition was subsequently converted to a Chapter 7 proceeding on
27 July 2006.
3
II. DISCUSSION
We review de novo the bankruptcy court’s grant of summary judgment,
applying the standards under Federal Rule of Civil Procedure 56, which permits
summary judgment only where there are no genuine issues of material fact and the
moving party is entitled to judgment as a matter of law. See In re Celotex Corp.,
487 F.3d 1320, 1328 (11th Cir. 2007); Fed. R. Civ. P. 56(c). Whether Debtor’s
$87,172.50 transfer to Midwest was for or on account of an antecedent debt under
§ 547(b)(2) is a question of law that we review de novo. See In re A.W. &
Associates, Inc., 136 F.3d 1439, 1441 (11th Cir. 1998) (per curiam); see also In re
Morgan, 182 F.3d 775, 777 (11th Cir. 1999) (per curiam) (interpretation and
application of Bankruptcy Code are questions of law subject to de novo review).
Section 547(b) of the Bankruptcy Code allows a bankruptcy trustee to
“avoid any transfer of an interest of the debtor in property” that: (1) is “to or for the
benefit of a creditor”; (2) is “for or on account of an antecedent debt owed by the
debtor before such transfer was made”; (3) is “made while the debtor was
insolvent”; (4) is made “on or within 90 days before the date of the filing of the
petition”; and (5) “enables such creditor to receive more than such creditor would
receive if the transfer had not been made.” 11 U.S.C. § 547(b). The trustee must
prove each element in order to show that a transfer is avoidable as a preference
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under § 547(b). See id. § 547(g); In re Flooring Am., Inc., 302 B.R. 394, 398
(Bankr. N.D. Ga. 2003). The only dispute in this appeal is whether Trustee met his
burden of proof as to the second element.
A debt is “antecedent” to the transfer sought to be avoided under § 547(b) if
it is pre-existing or is incurred before the transfer. See In re Bridge Information
Sys., Inc., 474 F.3d 1063, 1066-67 (8th Cir. 2007); Matter of Cavalier Homes of
Georgia, Inc., 102 B.R. 878, 886 (Bankr. M.D. Ga. 1989); In re Western World
Funding, Inc., 54 B.R. 470, 476 (Bankr. D. Nev. 1985). Whether a debt is
antecedent to the transfer at issue thus depends upon when the debt is incurred.
See In re MarkAir, Inc., 240 B.R. 581, 590 (Bankr. D. Alaska 1999) (“‘[W]hen the
debt was incurred’ is the central question under § 547(b)(2).”). Midwest contends
that the debt created by a real estate lease is not incurred until it is “legally
collectible,” and rent is not legally collectible under Georgia law until the first day
of the month when rent becomes due. Trustee counters that Debtor’s obligation to
pay rent for the entire lease term was incurred on the date the parties entered into
the lease agreement. The central dispute in this appeal is therefore whether the
debt created by the lease agreement was incurred periodically, as each rental
payment became due, or at the time the lease was signed.
5
The Code does not expressly define when a debtor “incurs” a debt, however,
the definitions of “debt” and “claim” are instructive. Under the Code, a “debt” is a
“liability on a claim.” 11 U.S.C. § 101(12). A “claim,” in turn, is a “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.” Id. § 101(5)(A). By making the terms “debt”
and “claim” coextensive, Congress has “adopt[ed] [ ] the broadest possible
definition of ‘debt.’” Penn. Dep’t of Pub. Welfare v. Davenport, 495 U.S. 552,
558, 564, 110 S. Ct. 2126, 2130, 2133 (1990), superseded on other grounds by
Criminal Victims Protection Act of 1990, Pub.L. No. 101-581, § 3, 104 Stat. 2865
(quotation marks and citation omitted); see also In re Chase & Sanborn Corp., 904
F.2d 588, 595 (11th Cir. 1990) (“It is established that ‘debt’ is to be given a broad
and expansive reading for purposes of the Bankruptcy Code.”). Accordingly, a
debtor incurs a debt to a creditor when the creditor has a claim against the debtor,
even if the claim is unliquidated, unmatured, unfixed, or contingent. See In re
Flooring Am., 302 B.R. at 400; see also In re Mazzeo, 131 F.3d 295, 302 (2d Cir.
1997) (“[T]he term ‘debt’ is sufficiently broad to cover any possible obligation to
make payment.” (quotation marks and citation omitted)).
6
At the moment the lease was signed, Midwest had an unmatured claim
against Debtor to receive monthly rental payments for the duration of the five-year
term and, because a “debt” covers both contingent and unmatured claims or
liabilities, Debtor had at that time a corresponding obligation to make those
payments that equaled a debt. The fact that Debtor’s liability matured only
periodically as each month’s rent became due and payable – or, as Midwest
argues, that Debtor’s obligation to pay rent was contingent upon the nonoccurrence
of certain events, e.g., destruction of the premises or constructive conviction by the
landlord – does not mean that the debt was not incurred upon execution of the
lease. See In re Valles Mech. Indus., Inc., 20 B.R. 350, 352 (Bankr. N.D. Ga.
1982) (“‘Incurred’ does not necessarily imply ‘due.’”). As the definitions of
“debt” and “claim” make clear, a debt need not be matured before the date of the
transfer in question in order for it to be antecedent to that transfer. See id. at 353
(fact that payment is not yet due does not mean obligation has not been created);
see also In re First Jersey Securities, Inc., 180 F.3d 504, 511 (3d Cir. 1999) (debt
incurred when right to payment arises, even if claim is not matured); In re Chase &
Sanborn Corp., 904 F.2d at 595 (corporate debtor/guarantor’s loan payments to
creditor were on account of antecedent debt even though obligation to pay was
contingent on guarantee’s default and had not matured at time payments were
7
made); Matter of Cavalier Homes, 102 B.R. at 886 (debt arises when debtor
borrows money or signs loan agreement “even though repayment may be
postponed or contingent”); In re Western World Funding, 54 B.R. at 477
(creditor’s waiving or postponing of debtor’s obligation to pay “does not mean that
the obligation has not previously been created, but merely that payment is not yet
required”).
We therefore hold that the debt in this case was incurred upon the signing of
the lease and thus was antecedent to the $87,172.50 transfer. See Upstairs Gallery,
Inc. v. Macklowe West Dev. Co., L.P., 167 B.R. 915, 917 (B.A.P. 9th Cir. 1994)
(payment of lease termination fee was on account of antecedent debt under
§ 547(b)(2) because debt was incurred at time lease was signed). To conclude
otherwise would be inconsistent with Congress’s intent, made clear from the
Code’s broad definition of “debt,” that “all legal obligations of the debtor, no
matter how remote or contingent . . . be dealt with in the bankruptcy case.” Matter
of Cavalier Homes, 102 B.R. at 886.1
1
In support of its argument that the debt in this case arose incrementally on the first of
each month, and therefore was not antecedent to the termination payment, appellant relies on
several bankruptcy cases from other circuits in which courts have held that debt pursuant to a
real estate lease is incurred periodically on the due dates prescribed by the lease, and not on the
date the lease is signed. See, e.g., In re White River Corp., 799 F.2d 631, 633 (10th Cir. 1986)
(addressing when debt is incurred under § 547(c)(2)); In re Child World, Inc., 173 B.R. 473, 476
(Bankr. S.D.N.Y. 1994) (relying on In re White River Corp. for proposition that debt is incurred
under § 547(b)(2) when rent is due and not when lease is signed); In re Mindy’s, Inc., 17 B.R.
177, 179 (Bankr. S.D. Ohio 1982) (debt not incurred when lease was signed because “[t]he total
8
III. CONCLUSION
Midwest appeals the district court’s order affirming the bankruptcy court’s
grant of summary judgment in favor of Trustee. We conclude that Debtor’s debt
was incurred at the time the lease was executed in 2002. Inasmuch as the 2005
termination payment discharged Debtor’s obligations arising under the lease
agreement, it constituted a transfer “for or on account of an antecedent debt.”
Accordingly, the bankruptcy and district courts did not err as a matter of law in
determining that the transfer was avoidable under § 547(b).
AFFIRMED.
lease obligation, at that point in time, was not due and payable”). Even if these cases were
binding on this court, and they are not, the general rule they articulate is nevertheless
inapplicable because it is premised upon the reasoning that, in exchange for rental payments
made pursuant to a lease obligation, the lessee continues to possess, or to have an interest in, the
leasehold estate. While the debt at issue in this case also arose under a real estate lease
agreement, Debtor relinquished any interest in future possession of the leasehold estate when it
paid the termination fee. See Upstairs Gallery, 167 B.R. at 918 (general rule that lease
obligations are incurred on a monthly basis as rent becomes due and not when lease is signed did
not apply where trustee sought to recover lease termination payment because such payment “was
not a quid pro quo for concurrent possession”). Accordingly, appellant’s contention that these
cases should compel the result in this appeal is without merit.
9