Lange v. Inova Capital Funding, LLC (In Re Qualia Clinical Service, Inc.), 441 B.R. 325

Qualia Clinical Services filed a Chapter 11 petition that was converted to Chapter 7; Rick Lange was appointed trustee.
Inova Capital Funding, LLC and Inova Capital Funding, Inc. had a December 2007 invoice purchase agreement with Qualia granting a security interest in accounts, inventory, instruments, records, and general intangibles.
Inova filed two U.C.C. financing statements (Dec. 12, 2007 and Feb. 19, 2009) naming Qualia as debtor and covering similar collateral; the later Nevada filing occurred within 90 days of Qualia’s bankruptcy petition.
The trustee alleged the agreement was a financing arrangement, not a true sale, and sought avoidance of Inova’s February 19, 2009 filing as a preferential transfer under §547(b).
The bankruptcy court held the arrangement was a financing agreement (not a true sale), found the Nevada filing ineffective under California law, and concluded Inova’s security interest was perfected within the 90-day preference period, making the transfer avoidable; the court denied Inova’s summary judgment and granted the trustee’s summary judgment.
On appeal, the panel affirms the bankruptcy court’s ruling against Inova.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the transfer is a preferred transfer under §547(b).	Lange argues Inova’s security interest was a preference because perfection occurred within 90 days.	Inova asserts §547(c)(5) defense since it was oversecured and value was added.	Transfer was a preference; perfection within 90 days makes it avoidable.
Whether the receivables were purchased or pledged (sale vs financing).	Trustee contends the arrangement is a financing agreement; risk shifts to Qualia.	Inova argues the contract is a sale.	Contract is a financing arrangement (disguised loan), not a true sale.
Whether perfection occurred within the 90-day period given choice-of-law issues.	Perfection under California law governs due to contract’s choice of law.	Nevada filing should be effective per California analysis; Neb. filing ineffective.	Nevada filing of Feb. 19, 2009 perfected within 90 days; it constitutes a preference.
Whether §547(c)(5) provides a defense to avoidance.	Oversecured status and new value would bar avoidance under §547(c)(5).	Defense applies to oversecured, but here security interest was perfected only within the period.	§547(c)(5) does not apply because Inova’s interest was unsecured during the relevant period.

Major's Furniture Mart, Inc. v. Castle Credit Corp., 602 F.2d 538, 602 F.2d 538 (3d Cir. 1979) (nature of the recourse and risk allocation in financing vs. sale analysis)
Nickey Gregory Co., LLC v. AgriCap, LLC, 597 F.3d 591 (4th Cir. 2010) (disguised loan where seller remains at risk of noncollection)
Fireman’s Fund Ins. Co. v. Grover (In re Woodson), 813 F.2d 266 (9th Cir. 1987) (recognizes disguised loan where risk allocation indicates financing)
Duncan v. LaBarge (In re Duncan), 418 B.R. 278 (8th Cir. BAP 2009) (arguments raised for the first time on appeal are generally not considered)
DCS Sanitation Mgmt., Inc. v. Castillo, 435 F.3d 892 (8th Cir. 2006) (conflicts of law—courts give effect to choice-of-law provisions)