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

1 Before BARKSDALE, DENNIS, and GRAVES, Circuit Judges.

2 PER CURIAM:*

United States Court of Appeals

Fifth Circuit

F I L E D

January 7, 2013

Lyle W. Cayce

Clerk

 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.

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

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

5 Bank of Evergreen (“Evergreen”). 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 checks

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

10 both banks extended 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 Stinson and Evergreen and

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

18 account.

19 Stinson subsequently filed for bankruptcy under Chapter 11, and a

20 committee of unsecured 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. § 547(b). The bankruptcy was later

23 converted to Chapter 7, and bankruptcy trustee Derek A. Henderson (“the

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

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

1

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).

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

26 preferences, and the Trustee appealed.

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

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

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

30 has the burden of demonstrating 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 account 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, Community continued to grant Stinson

40 provisional credit, of which Stinson availed itself. This resulted in Stinson’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 representatives from Stinson

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

45 wire transfers from Stinson’s account with Evergreen. 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 Evergreen account and deposited in its Community account on June 30, 2009. 

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

50 written instructions that read, “payment of returned checks.” According to

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

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52 was to reimburse Community for the eighteen 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 here, 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 bankruptcy 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, Community 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 Community’s security

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

70 not deplete Stinson’s bankruptcy estate and did not improve 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 court observed that

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

74 than $3.5 million via Chapter 7 liquidation 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 Cir. 2009). 

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80 Namely, we review “findings of fact . . . for clear error[] and . . . conclusions 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 transfer constitutes an avoidable preference is a question of law;

84 however, we review the fact question underlying any element 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 entire evidence, the

88 court is left with the definite and firm 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 reverse it even though

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

93 the evidence differently.” In 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) Except as provided in subsections (c) and (I) of this section,

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—

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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 enables such creditor 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 payment 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 within the 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 bankruptcy 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. REP. NO. 95-595, at 177

129 (1977), reprinted 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 “the 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 upon liquidation 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

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

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

140 Supply 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 construct a

144 hypothetical Chapter 7 liquidation [based on the evidence 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 Community received more via the wire transfers

153 than it would have received under Chapter 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 locus of the

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

157 does not receive a greater percentage than he would have 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] would 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 Mason & Dixon Lines, Inc., 65 B.R. 973, 977 (Bankr.

164 M.D.N.C. 1986)) (internal quotation marks omitted).

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165 Relevant here is section 75-4-210(a) of the Mississippi Code, 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) In case of an item deposited in an account, to the extent to

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 for

173 withdrawal as of right, to the extent of 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 MISS. CODE ANN. § 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 automatically obtains a perfected security

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

181 which Community found 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 Airways, 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 received upon

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

194 at 1034 & n.3. Phrased another way, the Trustee must prove that Community

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

196 improperly assume that Community would have recouped $3.5 million via

197 Chapter 7; rather, the district court 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 was a fully 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 testified that 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 courts]’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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