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Parties Involved:
Harold B. Lowrey
Appellee
Richardson Rig & Construction, Inc.
Appellant
Robinson Brothers Drilling Company
Not Party
Robinson Brothers Drilling, Inc.
Not Party
U.P.G., Inc.
Appellant

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

In re ROBINSON BROTHERS DRILLING, 

INC. and ROBINSON BROTHERS 

DRILLING COMPANY, 

Debtors, 

FILED 

United States Court of Appeals Tenth Circuit, 

JUN 131989 

ROBERT L. HOECKER 

Clerk 

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No. 87-2680 

HAROLD B. LOWREY, Chapter 11 Trustee 

for the Estate of the Debtors, 

Appellee, 

v. 

U.P.G., INC. and RICHARDSON 

RIG AND CONSTRUCTION, INC., 

Appellants .. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.C. No, 87-1016-R) 

Tony M. Davis (Andrew R. Turner on the brief), of Conner & 

Winters, Tulsa, Oklahoma, for appellee. 

Gray Byron Jolink of Law Office of Gray Byron Jolink, Austin, 

Texas, for appellants. 

Before SEYMOUR, BARRETT, and BALDOCK, Circuit Judges. 

PER CURIAM. 

Appellate Case: 87-2680 Document: 01019784748 Date Filed: 06/13/1989 Page: 1 
( Harold B. Lowrey (Trustee), the trustee in bankruptcy for the 

consolidated estates of Robinson Brothers Drilling, Inc. and 

Robinson Brothers Drilling Company (collectively, Robinson 

Brothers), brought this action to recover certain sums paid by 

Robinson Brothers to J. T. Richardson Rig & Construction, Inc. 

(Richardson) as a preference under 11 U.S.C. § 547(b) (1982). 

Richardson was subsequently purchased by U.P.G., Inc., which has 

assumed the liability of Richardson for the purposes of this 

action. The district court, sitting as an appellate court in 

bankruptcy, ruled that, except as to the amount of two mechanic's 

liens filed against property of the bankrupt estate, a certain 

payment made by Robinson Brothers to Richardson was an avoidable 

preference, reversing in part the bankruptcy court's holding that 

the entire payment was a contemporaneous exchange for new value 

under§ 547(c)(l) ~f the Bankruptcy Code. Richardson and U.P.G. 

now appeal, arguing that the bankruptcy court's original 

disposition was correct. We affirm. 

The essential facts of this case were stipulated by the 

parties in the pretrial order. On May 2, 1983, within the 

ninety-day preference period prior to 

Brothers transferred to Richardson the 

bankruptcy, Robinson 

sum of $40,000.00 in 

payment of invoices totalling $49,108.33. The invoices related to 

Richardson's provision of roustabout services on several of 

Robinson Brothers' wells. In 

Richardson released valid 

property totalling $7,884.97. 

consideration for this transfer, 

liens against Robinson Brothers' 

It also agreed that the $40,000.00 

sum would represent payment in full for the above invoices. 

2 

Appellate Case: 87-2680 Document: 01019784748 Date Filed: 06/13/1989 Page: 2 
Shortly thereafter, Robinson Brothers filed for bankruptcy. 

The trustee commenced the instant preference action, seeking to 

recover $32,115.03, representing the difference between the amount 

of the transfer by Robinson Brothers and the amount of the liens 

released by Richardson. The bankruptcy court then joined this 

action with several other preference actions by the Trustee 

against other creditors of the estate. In the pretrial order, the 

parties stipulated that the transfer by Robinson Brothers to 

Richardson met each element of a preferential transfer under 

§ 547(b). The primary issue before the bankruptcy court was thus 

reduced to whether Richardson had a complete defense to the 

preference action under§ 547(c)(l) of the Bankruptcy Code, which 

provides that a transfer which is a contemporaneous exchange for 

new value is not avoidable as a pre!erence. 

After a hearing on the issue, the bankruptcy court ruled 

that, under this court's holding in Kenan v. Fort Worth Pipe Co. 

(In re George Rodman, Inc.), 792 F.2d 125 (10th Cir. 1986), it 

could not 

Richardson 

Brothers. 

inquire into 

in exchange 

It therefore 

the value of the consideration given by 

for the $40,000 payment by Robinson 

held that since Richardson indisputably 

gave some consideration in exchange for the transfer, in the form 

of the lien releases, the total amount of the transfer was 

insulated from the preference action. Consequently, it dismissed 

the Trustee's action against Richardson and U.P.G., Inc. 

The Trustee then appealed to the district court. The sole 

issue reserved for the court was whether the bankruptcy court 

erred in holding that under In re George Rodman, Inc., Richardson 

3 

Appellate Case: 87-2680 Document: 01019784748 Date Filed: 06/13/1989 Page: 3 
was entitled to a complete defense to the Trustee's preference 

action. The district court found In re George Rodman, Inc. to be 

inapplicable, concluding that Richardson was entitled to a defense 

only to the extent that it had released liens on estate property. 

With respect to the remaining amount, the court found that the 

parties intended to negotiate a reduced payment for Robinson 

Brothers' antecedent debt to Richardson and not to make a 

contemporaneous exchange for new value. Accordingly, it awarded 

judgment in the amount of $32,115.03 to the Trustee. Richardson 

and U.P.G. contend that the district court's reversal of the 

bankruptcy court's original ruling in this action was improper. 1 

The sole issue before us is the correct interpretation of our 

decision in In re George Rodman, Inc. That case dealt with a 

preferential transfer by the debtor to a creditor in the amount of 

$238,842 and a corresponding release by the creditor of a lien on 

an oil well in the amount of $238,842. We held that the creditor 

was protected by the terms of § 547(c)(l), reversing the 

1 In addition, the defendants assert that the district court 

erred in considering the parties' intent in making the transfer 

and that joinder of Trustee's preference claims against the other 

creditor-defendants was improper. Since the parties' intent to 

make a contemporaneous transfer is an essential element of the 

defendants' § 547(c)(l) defense, see In re Fasano/Harriss Pie Co., 

71 Bankr. 287, 289 (W.D. Mich. 1987), the district court did not 

err in considering relevant evidence to determine such intent. If 

anything, the district court's consideration of the parties' 

intent was beneficial to the appellants, since they chose to rely 

solely on their argument that In re George Rodman, Inc. provided a 

complete defense and submitted no other evidence relevant to this 

issue. We do not address the appellants' argument regarding 

improper joinder, as it was not properly preserved in the pretrial 

order and not considered by either the bankruptcy or the district 

coutt. See Farmers Ins. Co., Inc. v. Hubbard, 869 F.2d 565, 569, 

570 (10th Cir. 1989). 

4 

Appellate Case: 87-2680 Document: 01019784748 Date Filed: 06/13/1989 Page: 4 
bankruptcy court's determination that this section was 

inapplicable because the well was a dry hole and the liens had no 

value at the time of the hearing. Specifically, we ruled that 

valuation of the transfer from creditor to debtor, in the case of 

the release of a valid lien, was not required at the time of the 

adversary hearing under the plain terms of § 547(c)(l). 

Consequently, that the lien on the well may have had no value at 

the time of the adversary hearing was of no importance, so long as 

it had value at the time of the transfer. See also Jet Florida, 

Inc. v. American Airlines, Inc. (In re Jet Florida Sys., Inc.), 

861 F.2d 1555, 1559 n.5 (11th Cir. 1988). 

Although not explicitly stated in the opinion, it is 

elementary that the creditor in In re George Rodman, Inc. was 

entitled to the§ 547(c)(l) defense because it released a lien 

equivalent to the full amount of the transfer by the debtor. 

Thus, the estate was not diminished by the transfer because the 

creditor was secured by a valid lien to the full extent of 

transfer by the debtor, and the goals of the § 547(c)(l) defense 

were met. Conversely, in this action, Richardson released liens 

covering only a small portion of the debt owed by Robinson 

Brothers; the remaining $32,115.03 represented Richardson's 

recovery on unsecured claims in excess of what it could have 

recovered under Chapter 7 had the transfer not taken place. See 4 

Collier on Bankruptcy ,1 547.08 at 547-38 to -39 (L. King 15th ed. 

1988). This is precisely the type of preferential arrangement 

between debtors and creditors that § 547(b) is intended to 

prevent. 

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Appellate Case: 87-2680 Document: 01019784748 Date Filed: 06/13/1989 Page: 5 
Richardson argues, however, that the fact that the amount of 

the liens released did not equal the amount of the preferential 

transfer is irrelevant, so long as the parties intended to make a 

contemporaneous exchange. This same argument was raised in In re. 

Jet Florida Systems, Inc. and rejected. There the court stated, 

Under American's view, a court conducting an inquiry 

under section 547(c)(l) would focus exclusively on the 

subjective intentions of the creditor and debtor. 

Construing the whole of· section 547, however, we 

conclude that Congress was clear in requiring that a 

party seeking the shelter of section 547(c)(l) must 

prove the specific measure of the new value given to the 

debtor in the exchange. 

Section 547(c)(l) protects transfers only "to the 

extent" the transfer was a contemporaneous exchange for 

new value. A court must measure the value given to the 

creditor and the new value given to the debtor in 

determining the extent to which the trustee may void a 

contemporaneous exchange. 

861 F.2d at 1558-59; see also In re Finelli Jewelry Co., 79 Bankr. 

521, 522 (Bankr. D. R.I. 1987)(value in a contemporaneous exchange 

under § 547(c)(l) must approximate worth of asset transferred in 

order to qualify as an exception to preference provision); In re 

Louisiana Indus. Coatings, Inc., 31 Bankr. 688, 695 (Bankr. E.D. 

La. 1983)(the requirement of new value "implies at a minimum some 

reasonable equivalence of value in the considerations flowing from 

the debtor to the creditor and vice versa"). Moreover, the 

Bankruptcy Code's definition of the term ''new value" implies that 

the creditor must prove the specific valuation in "money or 

money's worth in goods, services, or new credit." See In re Jet 

Florida sys., Inc., 861 F.2d 1555; 11 u.s.c. § 547(a)(2). Were we 

to hold otherwise, nearly any transfer for or on account of an 

antecedent debt would be insulated from recovery as a preference 

under§ 547(c)(l). 

6 

Appellate Case: 87-2680 Document: 01019784748 Date Filed: 06/13/1989 Page: 6 
While under In re George Rodman, Inc. the court will not 

inquire into the value of the liens released by Richardsonj 

stipulated in this case to be in the amount of $7,884.97, it is 

the defendants' burden to prove with specificity that Richardson 

gave new value equivalent to the remainder of the debt not secured 

by these liens. In re Jet Florida Sys., Inc., 861 F.2d at 1559. 

The defendants argue that, in addition to the release of valid 

liens, Richardson transferred new value in the form of new credit 

and forgiveness of debt. However, the record is devoid of any 

evidence of new credit extended to Robinson Brothers, and the fact 

that Richardson may have promised to continue to do business with 

Robinson Brothers if it paid its bills is not new credit or new 

value to the estate. See Mcclendon v. Cal-Wood Door (In re 

Wadsworth Bldg. Components, Inc.), 711 F.2d 122, 124 (9th Cir. 

1983): In re Circleville Distrib. Co., 84 Bankr. 502, 505 (Bankr. 

S.D. Ohio 1988): In re Family Home Sales Center, Inc., 65 Bankr. 

176, 177 (Bankr. N.D. Ga. 1986): In re Olympic Foundry Co., 51 

Bankr. 428, 430 (Bankr. W.D. Wash. 1985). Having failed to 

establish that the value given by Richardson in the 

contemporaneous transfer substantially approximated that 

transferred by the debtor, the defendants are entitled to 

§ 547(c)(l) protection only to the extent of the liens, and the 

remaining $32,115.03 must be treated as a preference. 

The judgment of the United States District Court for the 

Western District of Oklahoma is AFFIRMED. 

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Appellate Case: 87-2680 Document: 01019784748 Date Filed: 06/13/1989 Page: 7