652 F.3d 933
8th Cir.2011Background
- Qualia provided clinical studies for pharma clients and maintained accounts receivable.
- Qualia entered an Invoice Purchase Agreement (IPA) with Inova Capital Funding around Dec 11, 2007, to obtain advances on invoices.
- IPA provided recourse: Qualia remained liable for full face value of sold invoices and Inova held a security interest in Qualia’s assets, including accounts receivable.
- On Feb 19, 2009 Inova filed a UCC-1 financing statement in Nevada; Qualia filed for bankruptcy on Mar 18, 2009.
- Trustee sued to avoid Inova’s lien as a pre-petition preferential transfer under 11 U.S.C. § 547; the bankruptcy court and BAP held the lien avoidable.
- Court of Appeals affirmed, holding that Inova’s perfected security interest during the 90-day period improved its position and fell within 547(c)(5).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 547(c)(5) applies to Inova’s lien | Trustee—lien is avoidable due to improvement | Inova—c(5) provides safe harbor for oversecured over time | Lien avoidable under 547(c)(5)A |
| Whether improvement in position is measured against perfected interests | Trustee—considers perfected vs unperfected; unperfected gains value | Inova—unperfected should count in “all security interests” | Improvement measured with perfected interests; unperfected liens get zero value if unperfected at test start |
| Whether IPA is a true sale or financing arrangement affects result | Treat IPA as financing; falls under 547 | Argues true sale; but analysis still within 547 scope | Classification immaterial; under California law transfer still for/against antecedent debt if not timely perfected |
| Whether 547(c)(5)(B) provides relief | New value within preference period may exempt | February 5 transfer not the first new value; not relief under (B) | 547(c)(5)(B) does not apply; only (A) governs here |
Key Cases Cited
- Barnhill v. Johnson, 503 U.S. 393 (1992) (preference rule purposes and timing guidance cited)
- Braunstein v. Karger (In re Melon Produce, Inc.), 976 F.2d 71 (1st Cir. 1992) (expands 547(c)(5) safe harbor concepts)
- Foxmeyer Corp. (In re Foxmeyer Corp.), 286 B.R. 546 (D. Del. 2002) (discusses 547(c)(5)(B) timing and first new value)
- In re Phillips, 24 B.R. 712 (Bankr.E.D. Cal. 1982) (example of perfected lien before 90 days; importance of perfection timing)
- In re Ken Gardner Ford Sales, Inc., 23 B.R. 743 (E.D. Tenn. 1982) (contrasts pre-90-day perfection against avoidance objectives)
- In re McLean Indus., Inc., 162 B.R. 410 (S.D.N.Y. 1993) (Second circuit context on pre- and during-period perfection)
- Countryman (Vernon Countryman), 38 Vand. L. Rev. 713 (1985) (academic treatise cited regarding 547(c)(5) policy)
- In re American Ambulance Service, Inc., 46 B.R. 658 (Bankr.S.D. Cal. 1985) (limited authority rejected for unperfected interests within 90 days)