### IN THE UNI TED STATES COURT OFAPPEALS FOR THE FIF TH 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. 1 2 PER CURIAM: * U n i te d S ta te s C o u rt o f A p p ea l s F i ft h C i rc u i t 

### F I L E D Janu ary7, 201 3 Lyle W . Cayce Clerk

Pursua nt to 5 T H C IR

. R. 47.5 , the court hasd ete rm inedthat this op inion s houldnot * be publ ish ed and is not pr ece dent excep t unde r the lim ite d cir cum st ance s se t forth in 5 T H C IR

. R. 47.5 .4. Case: 12-60234 Document: 00512103546 Page: 1 Date Filed: 01/07/2013No. 12-60234

Stinson Petroleum Company (“ S tin s o n”) engaged in a check-kiting scheme 3 4 using checking accounts Stinson held with C o m munity B ank (“ C o m munity”) and 5 Bank of Evergreen (“ E v e r green”). Stinson perpetrated the kite by depositing 1 6 worthless checks into its account with Community that were drawn on its 7 account with Evergreen while simultaneously depositing worthless checks into 8 the latter that were drawn on the former. By circulating worthless check s 9 between the two accounts, and by taking advantage of provisional credits that 10 both bank s exte n ded to deposits not yet collected, Stinson created the impression 11 of a positive account balance while substantial debt accrued. 12 As kites are prone to do, the scheme eventually collapsed. Evergreen was 13 the first to uncover the kite, so it did not incur any losses. Community, by 14 contrast, was not so lucky. Community ultimately determined that, because of 15 the kite, Stinson accumulated an overdraft of between $6 and $7 million in its 16 account with Community. Community met with Sti n s o n a nd Evergreen and 17 agreed to receive two wire transfers worth $3.5 million from Stinson’s Evergreen 18 account. 19 Sti nson subsequently filed for bankruptcy under Chapter 11, and a 20 committee of uns e cured creditors (“the Creditors”) commenced an adversary 21 proceeding against Community seeking to avoid the two wire transfers as 22 avoidable preferences under 11 U.S.C. § 5 4 7 (b )

. The bankruptcy was later 23 converted to C h a pter 7, and bankruptcy trustee Derek A. Henderson (“the 24 Trustee”) was substituted as the plaintiff. Ultimately, both th e b ankrup tcy c ourt

“ C h e c k ki ting cons ist s of dr aw ing chec ks on an acc ount in one bank and dep os itin g 1 them in an acc ount in a se condban k wh en neither acc ount has suf fic ient fund s to cover the amo unts draw n. Jus t bef orethe chec ks are ret urnedfor paym ent tothe fir stbank, the kit er cover s them by dep os itin g chec ks dr aw n on the account in the secon d bank

. Du e to the del ay cre ated by the coll ect ion of fund s by one bank fr om the othe r, k n o w n a s t h e ‘ flo at’ tim e, an art ifi cial balanc e is cre ated .” Uni ted States v. Stone , 954 F.2d 1187, 1188 n.1 (6th Cir. 1992)

. 2 Case: 12-60234 Document: 00512103546 Page: 2 Date Filed: 01/07/2013No. 12-60234 25 and the district court concluded that the wire tran s f e r s w ere not avoidable 26 preferences, and the Trustee appealed. 27 At issue is whether Community, because of the wire transfers, improved 28 its posi t i o n, meaning that it fared better than it would have fared under 29 Stinson’s Chapter 7 liquidation. The Bankruptcy C o de p rovides that the Trustee 30 has the burden of dem o n s tr ating that Community would have received less 31 under Chapter 7 than it did via the prepetition transfers. We conclude that the 32 lower courts did not clearly err in determining that the Trustee failed to satisfy 33 this burden and therefore AFFIRM the judgment of the district court. 34 BACKGROUND 35 Evergreen became suspicious of Stinson’s activity sometime around the 36 weekend of July 4, 2009 and froze the company’ s a ccount two days later. 37 Consequently, the kite collapsed. Before Community learned that Evergreen 38 had uncovered the check-kiting scheme and, by returning checks for insufficient 39 funds, taken steps to protect itself, C o m m u nity continued to grant Stinson 40 provisional credit, of which Stinson availed itself. This resulted i n S tinson’s 41 overdraft with Community, which the bank determined to be between $6 and $7 42 million. 43 In light of this debt, Community met with represe n t a t iv e s from Stinson 44 and Evergreen and agreed to receive a direct payment of $3.5 m ill i o n vi a two 45 wire transfers from Stinson’s account with Evergr e e n. The first wire transfer 46 totaled $1,992,863 and included a notation in the written instructions that read, 47 “payment for checks #2226, 2231, 2229,” three checks drawn from Stinson’s 48 Ever gr e e n a c count and deposited in its Community account on June 30, 2009. 49 The second wire transfer totaled $1,507,137 and in c luded a notation in the 50 written instru ctions that read, “payment of returned checks.” According to 51 testimony later heard by the bankruptcy court, the purpose of the wire transfers

3 Case: 12-60234 Document: 00512103546 Page: 3 Date Filed: 01/07/2013No. 12-60234 52 was to reimburse Community for th e e i ghteen checks Evergreen returned to 53 Community after the kite collapsed. 54 Stinson later filed for Chapter 11 bankruptcy, at which point the Creditors 55 commenced their adversary proceeding against Community, the prosecution of 56 which was eventually charged to the Trustee once the bankruptcy was converted 57 from Chapter 11 to Chapter 7. Both the Trustee and Community cross-moved 58 the bankruptcy court for summary judgment, but the court denied both motions. 59 The parties tried the wire-transfer claims before the bankruptcy court over the 60 course of two days. Noteworthy he r e , Community’s senior vice president 61 testified at trial that the bank may have been able to collect the $3.5 million via 62 Chapter 7. 63 The b a n kru p tcy court found that the wire transfers were not avoidable 64 preferences. Specifically, the bankruptcy court found that, because Community 65 granted provisional credit to Stinson and because Stinson took advantage of this 66 credit, C o m m u nity held a perfected, first-priority security interest in the 67 eighteen returned checks and their proceeds and that the Trustee had failed to 68 prove that the transfers were not intended to satisfy Co m m u nity’s security 69 interest. Consequently, the bankruptcy court ruled that the wire transfers did 70 not deplete Stinson’s bankruptcy estate and did not i m p rove Community’s 71 position relative to how the bank would have fared via Chapter 7. The district 72 court affirmed the bankruptcy court’s ruling. The district c o urt observed that 73 the Trustee had the burden of proving that Community would have received less 74 than $3.5 million via Chapter 7 l i qu i d a t i on and concluded that “the record 75 contains scant evidence to that effect.” The Trustee timely appealed. 76 STANDARD OF REVIEW 77 We review a bankruptcy appeal from the district court “applying the same 78 standard to the bankruptcy court’s findings of fact and conclusions of law that 79 the district court applied.” In re Morrison , 555 F.3d 473, 480 (5th Ci r . 2009).

4 Case: 12-60234 Document: 00512103546 Page: 4 Date Filed: 01/07/2013No. 12-60234 80 Namely, we review “findings of fact

. . . for clear error[] and

. . . c o n clusions of 81 law

. . . de novo .” Id. We review mixed questions of law and fact de novo . In re 82 San Patricio Cnty. Cmty. Action Agency , 575 F.3d 553, 557 (5th Cir. 2009). 83 Whether a t r a n s fer constitutes an avoidable preference is a question of law; 84 however, we review the fact question underlying any e l e ment of the Trustee’s 85 preference claim for clear error. See In re Ramba, Inc. , 416 F.3d 394, 401-02 (5th 86 Cir. 2005). 87 “A finding of fact is clearly erroneous only if on the entir e e vi d e nce, the 88 court is left with the definit e a n d f ir m conviction that a mistake has been 89 committed.” In re Duncan , 562 F.3d 688, 694 (5th Cir. 2009) (internal quotation 90 marks omitted). If the bankruptcy court’s view of the evidence “is plausible in 91 light of the record viewed in its entirety, [we] may not revers e it e v e n though 92 convinced that had [we] been sitting as a trier of fact, [we] would have weighed 93 the evidence differently . ” I n re Martin , 963 F.2d 809, 814 (5th Cir. 1992) 94 (quoting Anderson v. City of Bessemer City , 470 U.S. 564, 574 (1985)) (internal 95 quotation marks omitted). In fact, “[if] there are two permissible views of the 96 evidence, the factfinder’s choice between them cannot be clearly erroneous.” Id. 97 (quoting Anderson , 470 U.S. at 574) (internal quotation marks omitted). 98 DISCUSSION 99 A. 100 The Trustee’s preference claim is based on Section 547(b), which provides: 101 (b) E xc ept as provided in subsections (c) and (I) of this secti o n , 102 the trustee may avoid any transfer of an interest of the debtor in 103 property— 104 (1) to or for the benefit of a creditor; 105 (2) for or on account of an antecedent debt owed by the 106 debtor before such transfer was made; 107 (3) made while the debtor was insolvent; 108 (4) made—

5

Case: 12-60234 Document: 00512103546 Page: 5 Date Filed: 01/07/2013No. 12-60234 109 (A) on or within 90 days before the date of the filing 110 of the petition; or 111 (B) between ninety days and one year before the date 112 of the filing of the petition, if such creditor at the 113 time of such transfer was an insider; and 114 (5) that enab l e s s u c h c r editor to receive more than such 115 creditor would receive if— 116 (A) the case were a case under chapter 7 of this title; 117 (B) the transfer had not been made; and 118 (C) such creditor received paym e nt of such debt to 119 the extent provided by the provisions of this title. 120 11 U.S.C. § 547(b). 121 “Section 547(b)

. . . allows a trustee to recover as a preferential payment 122 certain transfers made by a debtor to a creditor withi n th e ninety-day period 123 prior to bankruptcy.” Braniff Airways, Inc. v. Exxon Co., U.S.A. , 814 F.2d 1030, 124 1033 (5th Cir. 1987). Its purpose is twofold: (1) it permits a trustee to avoid pre125 bankruptcy transfers occurring on the eve of bankru p t c y so as to discourage 126 creditors “from racing to the courthouse to dismember the debtor during his slide 127 into bankruptcy”; and (2) it ensures fair distribution among the creditors. Union 128 Bank v. Wolas , 502 U.S. 151, 161 (1991 ) (quoting H.R. R E P

. N O

. 95-595, at 177 129 (1977), reprint ed in 1978 U.S.C.C.A.N. 5963, 6138) (internal quotation marks 130 omitted). 131 In this case, Community conceded at trial that the Trustee could prove the 132 first four elements of § 547(b) and disputed only the Trustee’s claims under § 133 547(b)(5). Accordingly, at issue is “th e requirement that before a trustee in 134 bankruptcy [may] avoid a preferential payment, the trustee must establish that 135 the payment enabled the creditor to receive more than the creditor would have 136 received u p o n l i qu i dation under Chapter 7 of the bankruptcy code.” Braniff 137 Airways , 814 F.2d at 1034 (footnote omitted). This test is often referred to as the

6 Case: 12-60234 Document: 00512103546 Page: 6 Date Filed: 01/07/2013No. 12-60234 138 “greater percentage test” or the “improvement in position” test. See, e.g. , In re 139 El Paso Refinery, LP, 1 7 1 F .3d 249, 253 (5th Cir. 1999); In re Clark Pipe & 140 S u

p ply Co. , 893 F.2d 693, 698 (5th Cir. 1990). Importantly, the Trustee bears 141 the burden on this point. 11 U.S.C. § 547(g); Braniff Airways , 814 F.2d at 1034 142 n.3. 143 Under this test, the bankruptcy court was required “to c o n s t ruct a 144 hypothetical Chapter 7 liquidation [based on the evi d e n c e that the parties 145 presented at trial] and determine what the creditor would have received had the 146 transfers not taken place.” In re N.A. Flash Found. Inc. , 298 F. App’x 355, 359 147 (5th Cir. 2008) (citing In re ML & Assocs., Inc. , 301 B.R. 195, 202 (Bankr. N.D. 148 Tex. 2003)). “If the creditor receives a greater percentage of its debt as a result 149 of the prepetition transfer than it would have in a bankruptcy distribution, the 150 transfer is preferential.” Id. (citing In re El Paso Refinery , 171 F.3d at 253-54). 151 B. 152 In analyzing whether Comm u nity received more via the wire transfers 153 than it would have received under Chapt e r 7 , we must “consider how the debt 154 would have been treated in a Chapter 7 liquidation.” Braniff Airways , 814 F.2d 155 at 1034. Here, Community’s status as Stinson’s creditor is the loc u s o f the 156 inquiry because “a fully secured c r e ditor who receives a prepetition payment 157 does not receive a greater percentage than he w o u l d h ave in a bankruptcy 158 proceeding.” In re El Paso Refinery , 171 F.3d at 254. This is “because as a fully 159 secured creditor, [Community] w ould have recovered 100% payment in a 160 bankruptcy proceeding.” Id. Accordingly, “[p]ayments to a fully secured creditor 161 are not preferential because the creditor does not receive more than he would in 162 a Chapter 7 liquidation.” Braniff Airways , 814 F.2d at 1034 (alteration in 163 original) (quoting In re M ason & Dixon Lines, Inc. , 65 B.R. 973, 977 (Bankr. 164 M.D.N.C. 1986)) (internal quotation marks omitted).

7 Case: 12-60234 Document: 00512103546 Page: 7 Date Filed: 01/07/2013No. 12-60234 165 Relevant here is section 75-4-210(a) of the Mississip p i C o de, which 166 provides: 167 (a) A collecting bank has a security interest in an item and any 168 accompanying documents or the proceeds of either: 169 (1) I n case of an item deposited in an account, to the exte n t t o 170 which credit given for the item has been withdrawn or 171 applied; 172 (2) In case of an item for which it has given credit available f or 173 withdrawal as of right, to the extent o f the credit given, 174 whether or not the credit is drawn upon or there is a right of 175 charge-back; or 176 (3) If it makes an advance on or against the item. 177 M I S S

. C O D E AN N . § 75-4-210(a). The Trustee acknowledges that this provision 178 means that “a bank that extends provisional credit on a deposited check prior to 179 actually collecting funds on that check auto m atic ally ob t ains a perfected security 180 interest in the check and its proceeds” and that this is precisely the situation in 181 which C o m munity f oun d itself. Nonetheless, and despite case law providing that 182 a fully secured creditor who receives a prepetition payment has, as a matter of 183 law, not received a preferential transfer, see In re El Paso Refinery , 171 F.3d at 184 254; Braniff Airway s , 814 F.2d at 1034, the Trustee argues that Community 185 could not guarantee when and whether it would have received any payment and 186 thus faults the district court for improperly assuming that Community would 187 have received $3.5 million from Stinson via Chapter 7. 188 We do not accept the Trustee’s argument. The relevant inquiry is whether 189 Community, because of the $3.5 million wire transfers, improved its position 190 relative to how well it would have fared in a hypothetical Chapter 7 liquidation. 191 Specifically, the Trustee has the burden of showing “that the payment enabled 192 the creditor to receive more than the creditor would have re c e iv e d upon 193 liquidation under Chapter 7 of the bankruptcy code.” BraniffAirways , 814 F.2d 194 at 1034 & n.3. Phrased another way, the Trustee must prove that Community

8 Case: 12-60234 Document: 00512103546 Page: 8 Date Filed: 01/07/2013No. 12-60234 195 would have received less under Chapter 7. Here, th e di strict court did not 196 i m p r o p erly assume that Community would have recouped $3.5 million via 197 Chapter 7; rather, the district c o u rt did not clearly err in concluding that the 198 Trustee failed to satisfy his burden of proving that Community would not have 199 received at least $3.5 million in a Chapter 7 liquidation. 200 Given that the Trustee concedes that Community wa s a f ully secured 201 creditor by operation of section 75-4-210 of the Mississippi Code, the prepetition 202 payment Community received is, as a matter of law, not a preferential transfer 203 avoidable under 11 U.S.C. § 547(b). See In re El Paso Refinery , 171 F.3d at 254; 204 Braniff Airways , 814 F.2d at 1034. Moreover, the district court’s conclusion is 205 supported by the record. Community’s senior vice president testif i e d th a t the 206 bank may have been able to collect the $3.5 million via Chapter 7. Given “two 207 permissible views of the evidence, the [bankruptcy c ourt s] ’ s choice between them 208 cannot be clearly erroneous.” In re Martin , 963 F.2d at 814 (quoting Anderson , 209 470 U.S. at 574) (internal quotation marks omitted). We therefore conclude that 210 the lower courts did not clearly err in determining that the $3.5 million wire 211 transfers were not avoidable preferences under § 547(b). 212 CONCLUSION 213 For these reasons, we AFFIRM the judgment of the district court.

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