In re Ramba, Inc.

• Decision Date: 07 July 2005
• Docket Number: No. 04-20807.,04-20807.
• Citation: 416 F.3d 394
• Parties: In the Matter of: RAMBA, INC., Debtor. Baker Hughes Oilfield Operations, Inc., Appellee, v. Lowell T. Cage, Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

416 F.3d 394

In the Matter of: RAMBA, INC., Debtor Baker Hughes Oilfield Operations, Inc., Appellee, v. Lowell T. Cage, Appellant.

No. 04-20807.

United States Court of Appeals, Fifth Circuit.

July 7, 2005.

COPYRIGHT MATERIAL OMITTED

Stewart F. Peck (argued), Jennifer M. Stierman, Lugenbuhl, Wheaton, Peck, Rankin & Hubbard, New Orleans, LA, for Appellee.

Timothy L. Wentworth (argued), Cage, Hill & Niehaus, Houston, TX, for 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 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 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) 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.

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 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 Roth & 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 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.

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 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...