Texas Research, Inc., Matter of, 88-5540

• Decision Date: 09 January 1989
• Docket Number: No. 88-5540,88-5540
• Citation: 862 F.2d 1161
• Parties: , Bankr. L. Rep. P 72,581, 8 UCC Rep.Serv.2d 532 In the Matter of TEXAS RESEARCH, INC., Debtor. OFFICIAL COMMITTEE OF CREDITORS, Appellant, v. UNION BANK, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1161

862 F.2d 1161

18 Bankr.Ct.Dec. 1241, Bankr. L. Rep. P 72,581,

8 UCC Rep.Serv.2d 532

In the Matter of TEXAS RESEARCH, INC., Debtor.

OFFICIAL COMMITTEE OF CREDITORS, Appellant, v. UNION BANK, Appellee.

No. 88-5540.

United States Court of Appeals, Fifth Circuit.

Jan. 9, 1989.

Lawrence Alan Beck, Helen G. Schwartz, San Antonio, Tex., for appellant.

David W. Elmquist, Dallas, Tex., Robert Michael Kunczt, San Antonio, Tex., for appellee.

Appeal from the United States District Court for the Western District of Texas.

Before GEE, SNEED, ^* and WILLIAMS, Circuit Judges.

SNEED, Circuit Judge:

The Official Committee of Creditors of the debtor, Texas Research, Inc., appeals the decision of a district court in a bankruptcy case. The Committee seeks to avoid a post-petition security interest that the debtor gave to one of its creditors, Union Bank. The bankruptcy court denied relief on grounds that Union Bank had surrendered an equivalent value in exchange for the security interest. The district court upheld the denial and we affirm.

I. FACTS AND PROCEEDINGS BELOW

Texas Research licensed Healthdyne, Inc., to use its technology in exchange for a $300,000 promissory note. Texas Research then pledged the promissory note to Union Bank as security for a $200,000 loan. When Healthdyne, on May 1, 1984, did not make its first payment on the note, Texas Research, on May 2, 1984, notified Healthdyne that it was rescinding the license. Healthdyne then tendered a $100,000 check to Union Bank, representing the payment that it had missed. Healthdyne made the check payable to Union Bank and Texas Research, but Texas Research refused to indorse it.

Creditors filed an involuntary bankruptcy petition against Texas Research on May 29, 1984. In the bankruptcy court, Texas Research moved to establish either that Healthdyne's failure to make a timely payment on the promissory note had given Texas Research the right to terminate the license or, alternatively, that Texas Research could reject the license as an executory contract. When Union Bank quite understandably objected to the motion, the parties settled the dispute.

Their settlement agreement provided that Union Bank would receive a so-called "replacement lien" on any consideration that Texas Research obtained by reselling the technology that it had licensed to Healthdyne. Union Bank, in exchange, made three promises. First, Union Bank promised to drop its objection to Texas Research's motion and thus forego its interest in the Healthdyne note. Second, Union Bank promised to return Healthdyne's check. Third, Union Bank promised to lend an additional $50,000 to Texas Research.

After the settlement agreement took effect, Texas Research resold its technology. Banner Electric, Inc., a member of the Creditors' Committee, then brought an adversary proceeding pursuant to Bankr.R. 7001(2) to determine the extent, the validity, and the priority of Union Bank's replacement lien. The Creditor's Committee intervened, seeking to avoid the lien pursuant to 11 U.S.C. Secs. 544, 547, & 548 (1982 & Supp. IV 1986). Finding that 11 U.S.C. Sec. 549(b) (1982) governed the transaction, the bankruptcy court ruled that the replacement lien was valid because Union Bank had given a "fair and reasonably equivalent value" in exchange for it. Excerpts of Record at 131.

The district court agreed. Although the district court found that Union Bank's promise to return the $100,000 check was worthless because Union Bank could not negotiate the check without Texas Research's indorsement, the court agreed that Union Bank had given an equivalent value in exchange for the replacement lien by dropping its objection to Texas Research's motion and by offering the $50,000 line of credit to Texas Research. The Committee appealed to this court.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. Secs. 157 & 1471. The district court had jurisdiction under Sec. 158. This court has jurisdiction under Sec. 1291.

III. STANDARD OF REVIEW

This court accepts a bankruptcy court's findings of fact unless they are clearly erroneous, but decides issues of law de novo. See Pierson & Gaylen v. Creel & Atwool (In re Consolidated Bancshares, Inc.), 785 F.2d 1249, 1252 (5th Cir.1986).

IV. EQUIVALENT VALUES

We agree with the district court that Sec. 549(b) of the Bankruptcy Code governs the principal issue in this dispute. It provides that a post-petition transfer is valid to the extent of any value given in exchange for it after the commencement of the case. 11 U.S.C. Sec. 549(b) (Supp. IV 1986). The parties in this proceeding disagree both about the value of Union Bank's replacement lien and the value of the consideration that Union Bank gave in exchange for it. We conclude, contrary to the Committee's position, that both values were speculative at the time of the settlement and that the bankruptcy court could have found them to be equal.

A. Time of Measuring Value of Replacement Lien

To determine the value of the replacement lien for the purposes of Sec. 549(b), we must fix the appropriate time for measuring it. Although neither party has offered authority for its position, each has suggested a time that would further its interests. Union Bank wishes to measure the lien's value at the time of the settlement. It argues that the value of the lien was entirely speculative at that time because Texas Research had not yet resold its technology. The Committee, by contrast, wishes to measure the value of the lien at the time of this proceeding. Using this point in time enables the Committee to argue that the value is $272,723.46, the amount of the debt owed to the Bank that the replacement lien eventually came to secure.

Although none of the few cases under Sec. 549(b) has addressed the issue, we hold that the value of post-petition transfers should be measured at the time they occur. Measuring a transfer's value at this time will encourage settlements and other transactions with debtors by reducing the risk that a court will strike them down when further information becomes available. Cf. Nadel v. Fruitville Pike Assocs. (In re Burke), 60 B.R. 665, 670 (Bankr.D.Conn.1986) (stating Sec. 549's policy of protecting transferees); Countryman, The Concept of a Voidable Preference in Bankruptcy, 38 Vand.L.Rev. 713, 740-41 (1985) (discussing the comparable problem of valuing collateral transferred to a secured party during the prepetition preference period). We thus agree with Union Bank that the replacement lien had a speculative value.

B. Value of Consideration Given by Union Bank

To determine the value of the consideration that Union Bank gave in exchange for the replacement lien, each of Union Bank's promises must be considered. The parties agree, as indeed they should, that Union Bank's promise to provide a $50,000 line of credit to Texas Research was worth $50,000. They also agree that Union Bank's promise to return Healthdyne's check was worthless because Union Bank could not negotiate the check without the Texas Research's signature. This leaves only the value of Union Bank's promise to drop its objection to Texas Research's motion to terminate its Healthdyne's license subject to dispute.

The Committee argues that Union Bank's promise not to object had no value because Texas Research unilaterally had the right under Tex.Bus. & Comm.Code...