## United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 98-1154

___________ In re: Gateway Pacific Corp., * * Debtor. *

_____________________ * * Official Plan Committee, formerly * known as Official Unsecured Creditors * Committee, * * Appeal from the United States Appellee, * Bankruptcy Appellate Panel. * Gateway Pacific Corp., doing business * as Buffalo Tool, * * v. * * Expeditors International of Washington, * Inc., * * Appellant. *

___________ Submitted: June 8, 1998 Filed: September 1, 1998

___________The HONORABLE GARY A. FENNER, United States District Judge for the 1 Western District of Missouri, sitting by designation. The Hon orable Barry S. Schermer, United States Bankruptcy Judge for th e 2 Eastern District of Missouri. -2- Before WOLLMAN and MURPHY, Circuit Judges, and FENNER, District Judge. 1

___________ WOLLMAN, Circuit Judge. Ex peditors International of Washington, Inc. (Expeditors) appeals from th e decision of the Bankruptcy Appel late Panel affirming the bankruptcy court’s decision 2 tha t certain payments made by Gateway Pacific Corporation (Debtor) to Expeditor s were avoidable under the Bankruptcy Code, 11 U.S.C. § 547. We affirm.
I.
Deb tor was engaged in the business of selling tools, most of which wer e importe d from Asia. Expeditors contracted to act as Debtor’s freight forwarder an d customs broker. As part of these ser vices, Expeditors procured shipment of the goods throughair and shipping lines, advanced customs duties for Debtor’s shipments, and secured customs clearance for the goods. Debtor and Expeditors began their bu siness relationship in the summer of 1993. Expedi tors extended Debtor a $25,000 credit line, which was later increased t o $60,000. On October 5, 1993, Debtor submitted a credit ap plication to Expeditors that included the following provision: “[Expeditor s] shall have a general lien on any and all property . . . of [Debtor] in its possession, custody or control or en route, for all claims for charges, expenses or advances incurred by [Expeditors] in connection with an y sh ipments of [Debtor].” The agreement further provided that Debtor would mak e payment to Expeditors within fifteen days of the date of any invoice.-3-

E x peditors and Debtor continued their business relationship for approximately two years. During that time, Expeditors generally made two to three shipments t o Debtor per week. Each shipment was accompan ied by an invoice containing a fifteenday payment term and a lien provision similar to the conditio ns of the credit agreement. Nevertheless , Debtor almost never paid within these terms. As it did with all of it s slow-p aying customers, Expeditors made regular telephone calls to Debtor seekin g pa yment. In seeking payment, however, Expeditors assessed no interest or lat e charges , started no collection actions, and made no threats to withhold goods

. Eventually, the par

ties developed a practice whereby Expeditors would release goods to Debto r after payment of a prior invoice. The amount of goods released generall y exceeded the amount of payment.
On A ugust 30, 1995, Debtor filed a petition seeking Chapter 11 bankruptc y protection. At the time of the filing, Debtor still owed Expeditors more than $40,000, a sum that Ex peditors sought as an unsecured claim in the bankruptcy. The Unite d States Trustee appointed an unsecured cre ditor’s committee, which brought this action p u rsuant to 11 U.S.C. § 547(b) to recover $96,797.30 in transfers made from Debtor to Expeditors during the ninety-day period preceding the bankruptcy filing. In response, Expeditors asserted t hree defenses: (1) ordinary course of business (11 U.S.C. § 547(c)( 2)); (2) contemporaneous exchange (11 U.S.C. § 547(c)(1)); and (3) new v alue (11 U.S.C. 547(c)(4)). The parties stipulated that all of the payment s were p referential under 11 U.S.C. § 547(b) and that $42,661.71 was protected fro m avoidance by the new value defense. That left the ordinary course of business an d contemporaneous exchange defenses for trial. The bankruptcy court

rejected Expeditors’ contemporaneous exchange defense and found that four of the twenty-eight preferent ial transfers were made in the ordinary course of b usiness. See Official Unsecured Creditors Comm. v. Expeditors Int’l o f Wash. Inc. (In re Gateway Pacific Corp.) , 205 B.R. 164, 167-69 (Bankr. E.D. Mo.-4-

1997). Accordingly, the court entered judgment agains t Expeditors for $40,577.31. As indicatedabove, the judgment was affirmed by the Bankruptcy Appellate Panel. See Official Plan Comm. v. Expeditors Int’l of Wash. Inc. (In re Gateway Pacific Corp.) , 214 B.R. 870, 877 (B.A.P. 8th Cir. 1997).

II. Ordinary Course of Business Applying the sa

me standards as the Bankruptcy Appellate Panel, we review the bankruptcy court’s findings of fact for clear error and its conclusions of law de novo. See Hartford Underwriters Ins. Co ., v. Magna Bank, N.A. (In re Hen House Interstate, Inc.) , No. 97-3859, slip op. at 4 (8th Cir. July 27, 1998).
Section 547(b) of the Bankruptcy Code provides that transfers made by th e debtor during the ninety-day period preceding the filing of a petiti on for bankruptcy may be avoided in bankruptcy as a “preference.” See 11 U.S.C. § 547(b). Avoidance may be prevented, however, if the transfer was: (A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee; ( B) made in the ordinary course of business or financial affairs of th e debtor and the transferee; and (C) made according to ordinary business terms[.]
11 U.S.C. § 547(c)(2). To prevail on this issue, Expeditors must prove the existence of the three statutory elements by a preponderance of the evidence. See 11 U.S.C. § 547(g); Jones v. United Sav. & Loan Ass’n (In re U.S.A. Inns of Eureka Springs , Arkansas, I nc.) , 9 F.3d 680, 682 (8th Cir. 1993). Because the parties agree tha t Expeditors has met the first and third requirements o f this defense, we need decide only-5-

whether th e bankruptcy court erred in finding that the transfers were not made in th e ordinary course of business.
“‘Th ere is no precise legal test which can be applied’ in determining whethe r payments by the debtor d

uring the 90-day period were ‘made in the ordinary course of bus iness’; ‘rather, the court must engage in a ‘peculiarly factual’ analysis.’” Lovett v. St. Johnsbury Trucking , 931 F.2d 494, 497 (8th Cir. 1991) (quoting In re Fulghu m Constr. Corp. , 872 F.2d 739, 743 (6th Cir. 1989)). The controlling factor is whether the transactions between the debtor and the creditor, both before and during the ninety-day p e riod, were consistent. See Lovett , 931 F.2d at 497. “[T]he analysis focuses on the tim e within which the debtor ordinarily paid the creditor’s invoices, and whether th e timing of the payments during the 90- day period reflected ‘some consistency’ with that practice.” Id. at 498. The record reflects that during the time p receding the preferential period, as well as during the preferential period itself, Debtor consistently made tardy payments with company checks, paid the invoices in full, and was not penalized for its slow payments. When late payments were the standard course of dealing between the parties, they are also the ordinary course o f business during the preference period. See id. at 498; In re of Tolona Pizza Prods. Corp. , 3 F.3d 1029, 1032 (7th Cir. 1993) (“[A] ‘late’ payment really isn’t late if the parties have established a practice that deviates from the stric t terms of their written contract”). After a detailed examination of Debtor’s paymen t history, however, the bankruptcy court concluded that a major portion of the transfers made during the ninety-day period were not within the ordinary course of business. The stipul ated evidence established that during the nine months preceding the preferenc e period, the m edian time that elapsed between the date of invoice and the date o f payment was thirty-five days. During the preference period this number increased to fifty-four days, or a 54% increase.-6-

The bankruptcy court noted that during the nine months preceding the preference period, only nine of approximately 155 payments were more than fifty days old, while twenty-four of the twenty eight payments during the preference peri od were at least fifty or more days old. The court concluded from this fact that any payments made during the preference period that were at least fifty days old were not made within the ordinary course of business. Expe ditors contends that the other consistencies within the relationship ar e suff icient to overcome the inconsistent payment intervals. We do not agree. Th e bankruptcy court did n ot, as Expeditors argues, arbitrarily create a “bright line” test of fifty days. Rather, carefull y following the analytical framework set forth in Lovett , the bank ruptcy court noted the significant change in the Debtor’s payment pattern an d concluded that the irregu lar payments were not within the section 547(c)(2) exception. We find no error in the bankruptcy court’s decision.

III. Contemporaneous Exchange Expeditors also maintains that the transfers are protected by the contemporaneous exc hange exception found in 11 U.S.C. § 547(c)(1). As noted above, Expeditor s eventually began the practice of delaying the release of Debtor’s shipments until i t received payment on prior invoices. Expeditors contends that this practice, the general lien provisions of bo th the credit agreement and the invoices, and general principles of co mmercial law created a security interest in the goods. Arguing that it released th e security interest in exchange for payment, Expeditors maintains that the transaction was a contemporaneous exchange for value. Section 547(c)(1) provides: The trustee may not avoid under this section a transfer ---7-

(1) to the extent that such transfer was -- (A) intended by the debto r and the creditor to or for whose benefit such transfer was made to be a contemporaneous excha nge for new value given to the debtor; and (B) in fact a substantially contemporaneous exchange[.]
Id.
To establish its contemporaneous exchange defense, Expeditors mus t dem onstrate that: (1) both Debtor and Expeditors intended the release of the allege d sec urity interest to be a contemporaneous exchange; (2) the exchange was in fac t contempor aneous; and (3) the exchange was for new value. See Tyler v. Swiss Am

. Sec., Inc. (In re Lewellyn & Co., Inc.) , 929 F.2d 424, 427 (8th Cir. 1991). “‘The critical inquiry i n determining whether there has been a contemporaneous exchange for new value is whether the parties intended such an exchange.’” Id. at 428 (quoting In re Spada , 903 F.2d 971, 975 (3d Cir. 1990)). The existence o f contemporaneous intent is a ques tion of fact, the determination of which we review for clear error. See In re Lewellyn & Co., Inc. , 929 F.2d at 428.
The c ourt rejected Expeditor’s section 547(c)(1) defense after crediting th e testimo nyof Robert Lawson, Debtor’s former president, chief operating officer, an d chief financial officer, who testified that Expeditors had not discussed any claime d security interest with him.
Cha racterizing Lawson’s testimony as “irrelevant,” Expeditors argues that th e bankruptcy court erroneously credited his testimony and disregarded the documents and the conduct of the parties. We do not agree. Lawson’s lack of knowledge regarding a contemporaneous exchange shows the absence of any intent on the parties’ part to-8-

createa contemporaneous exchange. Moreover, Expeditors made a weak showing of its ow n intent. It did not assert the alleged security interest in the bankruptc y procee dings, but rather sought to establish its claim as an unsecured creditor

. Accordingly we conclude that the bankruptcy court did not err in findi ng that Expeditors failed to demonstrate contemporaneous intent. The judgment is affirmed. A true copy.
Attest: CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.