CORRECTED

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 12-60234

STINSON PETROLEUM COMPANY, INCORPORATED

Debtor

THE UNSECURED CREDITORS COMMITTEE

Plaintiff

v.

COMMUNITY BANK, ELLISVILLE MISSISSIPPI, a/k/a Community Bank

Defendant - Appellee

v.

DEREK A. HENDERSON,

Trustee - Appellant

Appeal from the United States District Court

for the Southern District of Mississippi

Before BARKSDALE, DENNIS, and GRAVES, Circuit Judges.

United States Court of Appeals

Fifth Circuit

F I L E D

January 7, 2013

Lyle W. Cayce

Clerk
No. 12-60234

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not

be published and is not precedent except under the limited circumstances set forth in 5TH CIR.

R. 47.5.4.

1

“Check kiting consists of drawing checks on an account in one bank and depositing

them in an account in a second bank when neither account has sufficient funds to cover the

amounts drawn. Just before the checks are returned for payment to the first bank, the kiter

covers them by depositing checks drawn on the account in the second bank. Due to the delay

created by the collection of funds by one bank from the other, known as the ‘float’ time, an

artificial balance is created.” United States v. Stone, 954 F.2d 1187, 1188 n.1 (6th Cir. 1992).

2

PER CURIAM:*

StinsonPetroleum Company (“Stinson”) engaged in a check-kiting scheme

using checking accounts Stinson held with Community Bank (“Community”) and

Bank of Evergreen (“Evergreen”).1 Stinson perpetrated the kite by depositing

worthless checks into its account with Community that were drawn on its

account with Evergreen while simultaneously depositing worthless checks into

the latter that were drawn on the former. By circulating worthless checks

between the two accounts, and by taking advantage of provisional credits that

both banks extended to deposits not yet collected, Stinson created the impression

of a positive account balance while substantial debt accrued.

As kites are prone to do, the scheme eventually collapsed. Evergreen was

the first to uncover the kite, so it did not incur any losses. Community, by

contrast, was not so lucky. Community ultimately determined that, because of

the kite, Stinson accumulated an overdraft of between $6 and $7 million in its

account with Community. Community met with Stinson and Evergreen and

agreed to receive two wire transfers worth $3.5 million from Stinson’s Evergreen

account.

Stinson subsequently filed for bankruptcy under Chapter 11, and a

committee of unsecured creditors (“the Creditors”) commenced an adversary

proceeding against Community seeking to avoid the two wire transfers as

avoidable preferences under 11 U.S.C. § 547(b). The bankruptcy was later
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converted to Chapter 7, and bankruptcy trustee Derek A. Henderson (“the

Trustee”) was substituted as the plaintiff. Ultimately, both the bankruptcy court

and the district court concluded that the wire transfers were not avoidable

preferences, and the Trustee appealed.

At issue is whether Community, because of the wire transfers, improved

its position, meaning that it fared better than it would have fared under

Stinson’s Chapter 7 liquidation. The Bankruptcy Code provides that the Trustee

has the burden of demonstrating that Community would have received less

under Chapter 7 than it did via the prepetition transfers. We conclude that the

lower courts did not clearly err in determining that the Trustee failed to satisfy

this burden and therefore AFFIRM the judgment of the district court.

BACKGROUND

Evergreen became suspicious of Stinson’s activity sometime around the

weekend of July 4, 2009 and froze the company’s account two days later.

Consequently, the kite collapsed. Before Community learned that Evergreen

had uncovered the check-kiting scheme and, by returning checks for insufficient

funds, taken steps to protect itself, Community continued to grant Stinson

provisional credit, of which Stinson availed itself. This resulted in Stinson’s

overdraft with Community, which the bank determined to be between $6 and $7

million.

In light of this debt, Community met with representatives from Stinson

and Evergreen and agreed to receive a direct payment of $3.5 million via two

wire transfers from Stinson’s account with Evergreen. The first wire transfer

totaled $1,992,863 and included a notation in the written instructions that read,

“payment for checks #2226, 2231, 2229,” three checks drawn from Stinson’s

Evergreen account and deposited in its Community account on June 30, 2009.

The second wire transfer totaled $1,507,137 and included a notation in the

written instructions that read, “payment of returned checks.” According to
No. 12-60234

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testimony later heard by the bankruptcy court,the purpose of the wire transfers

was to reimburse Community for the eighteen checks Evergreen returned to

Community after the kite collapsed.

Stinson later filed for Chapter 11 bankruptcy, at which pointthe Creditors

commenced their adversary proceeding against Community, the prosecution of

which was eventually charged to the Trustee once the bankruptcy was converted

from Chapter 11 to Chapter 7. Both the Trustee and Community cross-moved

the bankruptcy courtfor summary judgment, butthe court denied both motions.

The parties tried the wire-transfer claims before the bankruptcy court over the

course of two days. Noteworthy here, Community’s senior vice president

testified at trial that the bank may have been able to collect the $3.5 million via

Chapter 7. 

The bankruptcy court found that the wire transfers were not avoidable

preferences. Specifically, the bankruptcy court found that, because Community

granted provisional creditto Stinson and because Stinson took advantage ofthis

credit, Community held a perfected, first-priority security interest in the

eighteen returned checks and their proceeds and that the Trustee had failed to

prove that the transfers were not intended to satisfy Community’s security

interest. Consequently, the bankruptcy court ruled that the wire transfers did

not deplete Stinson’s bankruptcy estate and did not improve Community’s

position relative to how the bank would have fared via Chapter 7. The district

court affirmed the bankruptcy court’s ruling. The district court observed that

the Trustee had the burden of proving that Community would have received less

than $3.5 million via Chapter 7 liquidation and concluded that “the record

contains scant evidence to that effect.” The Trustee timely appealed.

STANDARD OF REVIEW

We review a bankruptcy appeal from the district court “applying the same

standard to the bankruptcy court’s findings of fact and conclusions of law that
No. 12-60234

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the district court applied.” In re Morrison, 555 F.3d 473, 480 (5th Cir. 2009).

Namely, we review “findings of fact . . . for clear error[] and . . . conclusions of

law . . . de novo.” Id. We review mixed questions of law and fact de novo. In re

San Patricio Cnty. Cmty. Action Agency, 575 F.3d 553, 557 (5th Cir. 2009).

Whether a transfer constitutes an avoidable preference is a question of law;

however, we review the fact question underlying any element of the Trustee’s

preference claim for clear error. See In re Ramba, Inc., 416 F.3d 394, 401-02 (5th

Cir. 2005).

“A finding of fact is clearly erroneous only if on the entire evidence, the

court is left with the definite and firm conviction that a mistake has been

committed.” In re Duncan, 562 F.3d 688, 694 (5th Cir. 2009) (internal quotation

marks omitted). If the bankruptcy court’s view of the evidence “is plausible in

light of the record viewed in its entirety, [we] may not reverse it even though

convinced that had [we] been sitting as a trier of fact, [we] would have weighed

the evidence differently.” In re Martin, 963 F.2d 809, 814 (5th Cir. 1992)

(quoting Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985)) (internal

quotation marks omitted). In fact, “[if] there are two permissible views of the

evidence, the factfinder’s choice between them cannot be clearly erroneous.” Id.

(quoting Anderson, 470 U.S. at 574) (internal quotation marks omitted).

DISCUSSION

A.

The Trustee’s preference claim is based on Section 547(b), which provides:

(b) Except as provided in subsections (c) and (I) of this section,

the trustee may avoid any transfer of an interest of the debtor in

property—

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the

debtor before such transfer was made;

(3) made while the debtor was insolvent;
No. 12-60234

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(4) made—

(A) on or within 90 days before the date of the filing

of the petition; or 

(B) between ninety days and one year before the date

of the filing of the petition, if such creditor at the

time of such transfer was an insider; and

(5) that enables such creditor to receive more than such

creditor would receive if—

(A) the case were a case under chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to

the extent provided by the provisions of this title.

11 U.S.C. § 547(b).

“Section 547(b) . . . allows a trustee to recover as a preferential payment

certain transfers made by a debtor to a creditor within the ninety-day period

prior to bankruptcy.” Braniff Airways, Inc. v. Exxon Co., U.S.A., 814 F.2d 1030,

1033 (5th Cir. 1987). Its purpose is twofold: (1) it permits a trustee to avoid prebankruptcy transfers occurring on the eve of bankruptcy so as to discourage

creditors “from racing to the courthouse to dismember the debtor during his slide

into bankruptcy”; and (2) it ensures fair distribution among the creditors. Union

Bank v. Wolas, 502 U.S. 151, 161 (1991) (quoting H.R. REP. NO. 95-595, at 177

(1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6138) (internal quotation marks

omitted).

In this case, Community conceded attrialthatthe Trustee could prove the

first four elements of § 547(b) and disputed only the Trustee’s claims under §

547(b)(5). Accordingly, at issue is “the requirement that before a trustee in

bankruptcy [may] avoid a preferential payment, the trustee must establish that

the payment enabled the creditor to receive more than the creditor would have

received upon liquidation under Chapter 7 of the bankruptcy code.” Braniff

Airways, 814 F.2d at 1034 (footnote omitted). This test is often referred to as the
No. 12-60234

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“greater percentage test” or the “improvement in position” test. See, e.g., In re

El Paso Refinery, LP, 171 F.3d 249, 253 (5th Cir. 1999); In re Clark Pipe &

Supply Co., 893 F.2d 693, 698 (5th Cir. 1990). Importantly, the Trustee bears

the burden on this point. 11 U.S.C. § 547(g); Braniff Airways, 814 F.2d at 1034

n.3. 

Under this test, the bankruptcy court was required “to construct a

hypothetical Chapter 7 liquidation [based on the evidence that the parties

presented attrial] and determine whatthe creditor would have received had the

transfers not taken place.” In re N.A. Flash Found. Inc., 298 F. App’x 355, 359

(5th Cir. 2008) (citing In re ML & Assocs., Inc., 301 B.R. 195, 202 (Bankr. N.D.

Tex. 2003)). “If the creditor receives a greater percentage of its debt as a result

of the prepetition transfer than it would have in a bankruptcy distribution, the

transfer is preferential.” Id. (citing In re El Paso Refinery, 171 F.3d at 253-54).

B.

In analyzing whether Community received more via the wire transfers

than it would have received under Chapter 7, we must “consider how the debt

would have been treated in a Chapter 7 liquidation.” Braniff Airways, 814 F.2d

at 1034. Here, Community’s status as Stinson’s creditor is the locus of the

inquiry because “a fully secured creditor who receives a prepetition payment

does not receive a greater percentage than he would have in a bankruptcy

proceeding.” In re El Paso Refinery, 171 F.3d at 254. This is “because as a fully

secured creditor, [Community] would have recovered 100% payment in a

bankruptcy proceeding.” Id. Accordingly,“[p]ayments to a fully secured creditor

are not preferential because the creditor does not receive more than he would in

a Chapter 7 liquidation.” Braniff Airways, 814 F.2d at 1034 (alteration in

original) (quoting In re Mason & Dixon Lines, Inc., 65 B.R. 973, 977 (Bankr.

M.D.N.C. 1986)) (internal quotation marks omitted).
No. 12-60234

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Relevant here is section 75-4-210(a) of the Mississippi Code, which

provides:

(a) A collecting bank has a security interest in an item and any

accompanying documents or the proceeds of either:

(1) In case of an item deposited in an account, to the extent to

which credit given for the item has been withdrawn or

applied; 

(2) In case of an item for which it has given credit available for

withdrawal as of right, to the extent of the credit given,

whether or not the credit is drawn upon or there is a right of

charge-back; or 

(3) If it makes an advance on or against the item.

MISS. CODE ANN. § 75-4-210(a). The Trustee acknowledges that this provision

means that “a bank that extends provisional credit on a deposited check prior to

actually collecting funds on that check automatically obtains a perfected security

interest in the check and its proceeds” and that this is precisely the situation in

which Community found itself. Nonetheless, and despite case law providing that

a fully secured creditor who receives a prepetition payment has, as a matter of

law, not received a preferential transfer, see In re El Paso Refinery, 171 F.3d at

254; Braniff Airways, 814 F.2d at 1034, the Trustee argues that Community

could not guarantee when and whether it would have received any payment and

thus faults the district court for improperly assuming that Community would

have received $3.5 million from Stinson via Chapter 7.

We do not acceptthe Trustee’s argument. The relevant inquiry is whether

Community, because of the $3.5 million wire transfers, improved its position

relative to how well it would have fared in a hypothetical Chapter 7 liquidation.

Specifically, the Trustee has the burden of showing “that the payment enabled

the creditor to receive more than the creditor would have received upon

liquidation under Chapter 7 of the bankruptcy code.” Braniff Airways, 814 F.2d

at 1034 & n.3. Phrased another way, the Trustee must prove that Community
No. 12-60234

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would have received less under Chapter 7. Here, the district court did not

improperly assume that Community would have recouped $3.5 million via

Chapter 7; rather, the district court did not clearly err in concluding that the

Trustee failed to satisfy his burden of proving that Community would not have

received at least $3.5 million in a Chapter 7 liquidation.

Given that the Trustee concedes that Community was a fully secured

creditor by operation of section 75-4-210 of the Mississippi Code, the prepetition

payment Community received is, as a matter of law, not a preferential transfer

avoidable under 11 U.S.C. § 547(b). See In re El Paso Refinery, 171 F.3d at 254;

Braniff Airways, 814 F.2d at 1034. Moreover, the district court’s conclusion is

supported by the record. Community’s senior vice president testified that the

bank may have been able to collect the $3.5 million via Chapter 7. Given “two

permissible views ofthe evidence,the [bankruptcy courts]’s choice between them

cannot be clearly erroneous.” In re Martin, 963 F.2d at 814 (quoting Anderson,

470 U.S. at 574) (internal quotation marks omitted). We therefore conclude that

the lower courts did not clearly err in determining that the $3.5 million wire

transfers were not avoidable preferences under § 547(b).

CONCLUSION

For these reasons, we AFFIRM the judgment of the district court.