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Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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PUBLISH 

FILED UNITED STATES COURT OF APPEALSlTnltedStatesCourtotAppeals 

Tentla Circuit 

FOR THE TENTH CIRCUIT 

In Re: CuRTIS LAWA YNE TURNER 

and RITA GAIL TURNER, 

Debtors, 

CURTIS LA WAYNE TURNER and 

RITA GAIL TURNER, 

Appellees/Cross-Appellants, 

v. 

SMALL BUSINESS 

ADMINISTRATION, The Administrator 

of the Small Business Administration, an 

Agency of the Government of the United 

States of America, 

Appellant/Cross-Appellee. 

Nos. 94-6191 

94-6208 

SEP 1 G 1996 

PATRICK FISHER 

Clerk 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.C. No. CIV-93-1848-C) 

ON REMAND FROM EN BANC CONSIDERATION 

Appellate Case: 94-6191 Document: 01019279750 Date Filed: 09/16/1996 Page: 1 
Before HENRY and McKAY, Circuit Judges, and VRA TIL; District Judge. 

McKAY, Circuit Judge. 

This case involves the United States' setoff of Agricultural Stabilization and 

Conservation Service ("ASCS") payments due the Debtors Curtis and Rita Turner against 

the Turners' delinquent debt to the Small Business Administration. 1 The Turners, after 

filing bankruptcy, attempted to recover the offset amounts under either 11 U.S.C. § 547 or 

11 U.S.C. § 553. The bankruptcy court, affirmed by the district court, held that the setoff 

was avoidable under 11 U.S.C. § 553(b) because it occurred within ninety days before the 

Turners filed their bankruptcy petition. On appeal, the SBA argued that the bankruptcy 

court improperly applied§ 553. This court held that§ 553 did not apply .. Instead, the 

court reasoned that the transaction in question was avoidable under 11 U.S.C. § 547. In 

reTurner, 59 F.3d 1041 (lOth Cir. 199~) ("Turner 1''). The Tenth Circuit Court of 

• The Honorable Kathryn H. Vratil, United District Judge for the District of 

Kansas, sitting by designation. 

1 Subsequent to the filing of this petition, the Department of Agriculture was 

reorganized. As a result, the ASCS was abolished and the new Consolidated Farm 

Service Agency ("CFSA") assumed the previously performed functions of the former 

ASCS. See 60 Fed. Reg. 1710 (1995). The CFSA was later renamed the Farm Service 

Agency. See 60 Fed. Reg. 64297 (1995). We continue to refer to the ASCS in this 

opinion for ease of reference and because it was in existence at all relevant times. 

2 

Appellate Case: 94-6191 Document: 01019279750 Date Filed: 09/16/1996 Page: 2 
Appeals then considered the case en bane and held that§ 553 rather than§ 547 should 

have been applied. The en bane court remanded the case to this panel for consideration of 

§ 553. In reTurner, 84 F.3d 1294 (lOth Cir. 1996) ("Turner II"). The relevant facts are 

set out in full in Turner I and Turner II and need not be repeated here. 

The SBA argues that the bankruptcy court misapplied§ 553(b).2 Under§ 553(b), 

the bankruptcy trustee may recover part of the amount which was offset if ( 1) the setoff 

occurred within ninety days of the filing of the bankruptcy petition and (2) the creditor 

"improved its position" as a result of the setoff.3 See Braniff Airways. Inc. v. Exxon Co., 

USA, 814 F.2d 1030, 1040 (5th Cir. 1987). To determine whether a creditor has 

improved its position, it is necessary to determine the "insufficiency" both when the 

2 To the extent the parties raise issues under 11 U.S.C. § 553(a), those issues were 

addressed by the court in Turner II. 

3 Section 553(b )(1) provides: 

[I]f a creditor offsets a mutual debt owing to the debtor against a claim 

against the debtor on or within 90 days before the date of the filing of the 

petition, then the trustee may recover from such creditor the amount so 

offset to the extent that any insufficiency on the date of such setoff is less 

than the insufficiency on the later of--

(A) 90 days before the date of the filing of the petition; and 

(B) the first date during the 90 days immediately preceding the date 

of the filing of the petition on which there is an insufficiency. 

3 

Appellate Case: 94-6191 Document: 01019279750 Date Filed: 09/16/1996 Page: 3 
setoff occurred and at the point in time ninety days before the bankruptcy petition was 

filed. See id. The insufficiency is the amount by which the debtor's debt to the creditor 

exceeds the amount which the creditor owes the debtor. 11 U.S.C. § 553(b)(2).4 If the 

setoff occurs within the ninety-day prepetition period and it results in a smaller 

insufficiency than existed before the ninety-day period, then the creditor has improved its 

position. The debtor may then recover the setoff amount to the extent that it improved the 

creditor's position. In other words, the statute prevents the creditor from using a setoff to 

put itself in a better position than it was in prior to the ninety-day prepetition period. The 

purpose of§ 553(b) is to keep creditors from using setoffs within the applicable ninetyday period to defeat the rights of other creditors. See Lee v. Schweiker, 739 F.2d 870, 

877 (3rd Cir. 1984). In this respect, it mirrors the voidable preference policies expressed 

in 11 U.S.C. § 547. 

The SBA contends both that the setoff occurred 132 days before the petition filing 

and that it did not improve its position as a result of the setoff. We choose not to address 

the issue of when the setoff occurred because we hold that even had it occurred within 

ninety days of the petition filing, the SBA did not improve its position as a result. Ninety 

days before the petition was filed the Turners owed the SBA $199, 551.58. On the same 

4 Section 553(b )(2) defines insufficiency as the "amount, if any, by which a claim 

against the debtor exceeds a mutual debt owing to the debtor by the holder of such 

claim." 

4 

Appellate Case: 94-6191 Document: 01019279750 Date Filed: 09/16/1996 Page: 4 
day the United States owed the Turners $24,599.35 for ASCS payments.5 Thus, the 

insufficiency at this time was $17 4,952.23. According to the Turners' argument, the first 

setoff occurred forty-two days before the petition was filed in the amount of$2,788.00. 

After this alleged setoff, the Turners would have owed the SBA $196,763.58, and the 

ASCS would have owed the Turners $21, 811.35. Thus, after the first alleged setoff the 

insufficiency would still have been $174,952.23. The Turners further allege that setoffs 

occurred on two other dates within the ninety-day prepetition period. Even were we to 

assume this to be true, no improvement in position occurred. As with the first setoff, the 

amount of insufficiency would not have changed because the ASCS payments would 

have reduced the amount owed to the Turners by the same amount that the debt owed to 

5 It is not clear from the record whether the amounts due to the Turners from the 

ASCS were liquidated or fixed as of ninety days prior to the filing of the petition. An 

insufficiency can exist, however, even if a claim or debt is unliquidated or contingent. 

Section 553(b)(2) defines insufficiency as the "amount, if any, by which a claim against 

the debtor exceeds a mutual debt owing to the debtor by the holder of such claim." 

"Debt" is defined as "liability on a claim" and "claim" is defined as a "right to payment, 

whether or not such right is ... liquidated, unliquidated, fixed, contingent, matured, [or] 

unmatured .... " 11 U.S.C. § 101(5)(A) (claim) & (12) (debt). 

Here, the ASCS had a contractual duty prior to the ninety-day prepetition period to 

pay the Turners for withholding farmland from production and for maintaining soil 

conservation practices. Ninety days before the petition was filed this duty to pay may 

have been unliquidated, or even contingent, but it still represented a right to payment 

from which an insufficiency could later be calculated. See. e.g. In re Hecht, 41 B.R. 701, 

705 (Bankr. S.D.N.Y. 1984) (insufficiency calculable for date on which loan had not yet 

matured); United States through Agric. Stabilization and Conservation Serv. v. Gerth, 991 

F.2d 1428, 1433-34 (8th Cir. 1993) (holding that right of payment from ASCS arose 

prepetition for purposes of 11 U.S.C. § 553(a) even though the right of payment was 

contingent and unliquidated at the relevant time). 

5 

Appellate Case: 94-6191 Document: 01019279750 Date Filed: 09/16/1996 Page: 5 
.. 

the SBA would have been reduced. Because the insufficiency would not have changed, 

the SBA could not have improved its position. As a result, the Turners are not entitled to 

recover under§ 553(b) any of the setoff amounts even were we to assume that the setoffs 

occurred within the ninety-day prepetition period. 

Finally, the Turners argue that the State National Bank of Marlow (the "Bank"), a 

Turner creditor, had a security interest in the ASCS payments. They reason that allowing 

the SBA to set off the ASCS payments would in effect allow the SBA's claim to take 

priority over the Bank's secured claim. They base this argument on a security agreement 

between the Bank and the Turners in which the Turners agreed to assign all their rights in 

ASCS payments to the Bank as security for a loan. Appellant's App. at 6. The Bank and 

the Turners, however, failed to comply with 7 C.P.R. part 1404, which sets forth the 

conditions under which an assignment of ASCS payments may occur when another 

governmental agency has setoff rights. The Turners' statement that there are no "special 

procedures in the ASCS ... requiring :(ilings other than those required by state law" is 

plainly incorrect. Appellees' Brief at 27. Thus, any claim which the Bank may have does 

not defeat the SBA's right to set off the ASCS payments. 

We REVERSE and REMAND for proceedings consistent with this opinion. 

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