United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT 

______ 

No. 10-6021 

______

In re: Qualia Clinical Service, Inc., * 

 * 

Debtor. * 

 * 

Rick D. Lange, Trustee of the Chapter * 

7 Bankruptcy Estate of Qualia Clinical * 

Service, Inc., * Appeal from the United States 

 * Bankruptcy Court for the District of 

Plaintiff – Appellee, * Nebraska 

 * 

v. * 

 * 

Inova Capital Funding, LLC; * 

Inova Capital Funding, Inc., * 

 * 

Defendants – Appellants. * 

______ 

Submitted: December 3, 2010 

Filed: January 14, 2010 

______ 

Before KRESSEL, Chief Judge, SCHERMER and NAIL, Bankruptcy Judges. 

______ 

KRESSEL, Chief Judge. 

1
Inova1

 appeals from the bankruptcy court’s2 order of April 6, 2010 denying 

its motion for summary judgment, granting the trustee’s motion for summary 

judgment, and avoiding Inova’s security interest as a preferential transfer. We 

affirm. 

BACKGROUND 

Qualia Clinical Services, Inc. is a Nevada corporation. Its principal place of 

business is in Omaha, Nebraska. Inova Capital Funding, Inc. was incorporated in 

California on January 4, 2007. Inova Capital Funding, LLC was formed in 

Delaware on September 30, 2008. 

On December 11, 2007, Inova and Qualia entered into a contract referred to 

as the “Invoice Purchase Agreement.” The agreement provided that Inova would 

purchase “acceptable accounts receivable at a discount below the face value 

thereof,” and provided for an ongoing security interest in Qualia’s property such as 

accounts, inventory, instruments, records, and general intangibles, in order to 

protect Inova from any chargeback of disputed or unpaid invoices or accounts and 

any liability resulting from any breach of Qualia’s warranties. 

Inova Capital Funding, Inc. filed a U.C.C. financing statement with the 

Nebraska Secretary of State on December 12, 2007. That financing statement 

named it as the secured party and Qualia as the debtor and covered accounts, 

inventory, instruments, records, and general intangibles. Inova last gave new value 

to Qualia on February 5, 2009 when it purchased invoices. Inova Capital Funding, 

Inc. filed another U.C.C. financing statement on February 19, 2009 naming itself 

                                                            1

 For convenience, the parties and the bankruptcy court have referred to 

Inova Capital Funding, Inc. and Inova Capital Funding, LLC simply as “Inova.” 

We likewise refer to the appellants collectively as Inova except where a distinction 

is necessary. 

2

 The Honorable Timothy J. Mahoney, United States Bankruptcy Judge 

for the District of Nebraska.

2
as the secured party and Qualia as the debtor and covering accounts, inventory, 

instruments, records, and general intangibles. The second financing statement was 

filed with the Nevada Secretary of State on February 19, 2009. 

Qualia filed a chapter 11 bankruptcy petition on March 18, 2009. The case 

was converted to one under chapter 7 in October of 2009 on the motion of the 

United States Trustee, and Rick D. Lange was appointed trustee. The trustee 

initiated this adversary proceeding against Inova Capital Funding, LLC and Inova 

Capital Funding, Inc. The trustee alleged that the invoice purchase agreement 

between Qualia and Inova was a financing arrangement and not a true sale, and he 

sought to avoid as a preference the lien Inova received by filing its February 19, 

2009 financing statement within 90 days of Qualia’s bankruptcy filing. 

Inova moved for summary judgment, solely on the basis of 11 U.S.C. § 

547(c)(5). Inova argued that it could not have improved its position to the 

detriment of Qualia’s unsecured creditors because Inova was fully secured on the 

90th day before Qualia’s bankruptcy, on the dates of transfers during the preference 

period, and on the date that it filed its U.C.C. financing statement. On March 4, 

the trustee moved for “summary judgment or partial summary in his favor and 

against Defendants on all of Trustee’s claims.” 

 On April 6, 2010, the bankruptcy court denied the Inova’s motion for 

summary judgment, granted the trustee’s motion for summary judgment, and 

avoided the February 19, 2009 U.C.C. filing as a preferential transfer. The 

bankruptcy court found that the invoice purchase agreement was clearly and 

unambiguously a financing arrangement. The court made that finding on the terms 

of the agreement itself. In particular, the court noted the recourse provisions 

contained in section 7.02 of the agreement, which shift all collection risks to 

Qualia. The court found that because the agreement was a financing arrangement 

and not a sale, Inova’s actions to perfect its security interest could constitute a 

preference if the elements were otherwise demonstrated. 

3
 The bankruptcy court applied California law because the invoice purchase 

agreement designated that as the applicable law and Nebraska courts generally give 

effect to the parties’ choice of law. DCS Sanitation Mgmt., Inc. v. Castillo, 435 

F.3d 892, 895096 (8th Cir. 2006); Rest. (2d) Conflicts of Laws § 187(1). The 

court found that under the California Commercial Code, when the debtor is a 

registered organization, the security interest must be perfected by filing a financing 

statement where it was organized. Because Qualia was organized in Nevada, the 

Nebraska filing was ineffective. The Nevada filing was filed within 90 days 

preceding Qualia’s bankruptcy, and the court concluded it was therefore 

preferential. The court rejected Inova’s § 547(c)(5) defense, noting that § 

547(c)(5) is intended to protect holders of floating liens. The court found that 

Inova had improved its position to the detriment of unsecured creditors because its 

security interest was unperfected 90 days prior to the bankruptcy filing and on the 

date it last gave new value to Qualia. 

 The Inova parties appeal from the bankruptcy court’s April 6, 2010 order. 

STANDARD OF REVIEW

We review summary judgments and the interpretation of contracts de novo. 

Bremer Bank v. John Hancock Life Ins. Co., 601 F.3d 824, 829 (8th Cir. 2010). 

“Summary judgment is appropriate if, viewing the evidence in the light most 

favorable to the nonmoving party, there is no material factual dispute. Fed.R.Civ.P. 

56(c).” Id.

DISCUSSION 

 

Inova argues that the bankruptcy court should have granted summary 

judgment to Inova and not to the trustee because, as a matter of law, § 547(c)(5) 

does not require a security interest in receivables to be perfected at the beginning 

of the preference period. Inova believes it was entitled to summary judgment 

4
because it was oversecured on the 90th day before Qualia’s bankruptcy as well as 

on all dates within the preference period. 

In order to prevail in an action under § 547(b), the trustee must demonstrate 

the following: “(1) [. . .] a transfer of an interest of the debtor in property, (2) on 

account of an antecedent debt, (3) to or for the benefit of a creditor, (4) made while 

the debtor was insolvent, (5) within 90 days prior to the commencement of the 

bankruptcy case, (6) that left the creditor better off than it would have been if the 

transfer had not been made and the creditor asserted its claim in a Chapter 7 

liquidation.” Buckley v. Jeld-Wen, Inc. (In re Interior Wood Prods. Co.), 986 F.2d 

228, 230 (8th Cir. 1993). The parties only dispute whether there was a transfer of 

an interest of the debtor in property, and whether the security interest was 

perfected within 90 days prior to the commencement of the case. The bankruptcy 

court found that as a matter of law, both elements were satisfied. We agree. 

The resolution of the first issue depends on whether the receivables were 

bought or pledged through the December 2007 agreement. If they were bought, 

then no interest was transferred when Inova filed its security interest within the 

preference period. If they were pledged, then the filing of Inova’s security interest 

constituted perfection, and brings it within the scope of § 547(b). See § 547(e)(2). 

The bankruptcy court properly looked to the contract to determine whether the 

receivables were purchased or pledged. Based on the contract, the bankruptcy 

court determined that the original transaction was a loan, not a sale. 

We agree with the bankruptcy court that the invoice purchase agreement is 

clearly and unambiguously a financing agreement rather than a true sale. An 

unambiguous contract presents legal issues, which are appropriate for summary 

judgment. Erker v. Am. Cmty. Mut. Ins. Co., 663 F. Supp. 2d 799, 805 (D. Neb. 

2009). “An ambiguity exists when the instrument at issue is susceptible of two or 

more reasonable but conflicting interpretations or meanings. Moreover, the fact 

that the parties have suggested opposing meanings of the disputed instrument does 

not necessarily compel the conclusion that the instrument is ambiguous.” Boyles v. 

5
Hausmann, 517 N.W.2d 610, 615 (Neb. 1994). The parties both asserted that the 

contract was unambiguous, although they suggest opposing meanings. 

 The California Commercial Code offers little guidance, instead leaving to 

the courts the determination of whether a transaction was a sale or loan. Cal. Com. 

Code § 9109 cmt. 4 (2010) (“Although this Division occasionally distinguishes 

between outright sales of receivables and sales that secure an obligation, neither 

this Division nor the definition of ‘security interest’ (Section 1201(37)) delineates 

how a particular transaction is to be classified. That issue is left to the courts.”). 

Therefore, courts have looked to the nature of the transaction in order to determine 

whether it is a sale or a loan. 

 “The question for the court then is whether the Nature of the recourse, and 

the true nature of the transaction, are such that the legal rights and economic 

consequences of the agreement bear a greater similarity to a financing transaction 

or to a sale.” Major’s Furniture Mart, Inc. v. Castle Credit Corp., Inc., 602 F.2d 

538, 544 (3d Cir. 1979). In this case, the bankruptcy court noted the agreement’s 

recourse provision, which “completely shifts the risk of the uncollectibility of the 

account to Qualia, despite the agreement’s characterization as a ‘sale.’” Qualia 

Clinical Service, Inc. v. Lange (In re. Qualia Clinical Service, Inc.), 2010 WL 

1441495, *3 (Bankr. D. Neb. Apr. 6, 2010). The provision is as follows: 

7.02 RECOURSE. This is a full recourse agreement. As such, ICF 

may charge back to [Qualia] and [Qualia] shall repurchase from ICF 

(by paying to ICF the full amount owed by the customer on the 

account) any account for any of the following reasons: 

7.02.01. [Qualia] has breached any warranties or promises in this 

agreement with regard to the account or is otherwise in default under 

this Agreement; 

7.02.02 [Qualia] has contributed to, or aggravated a customer Credit 

Problem with respect to the account; 

6
7.02.03 [Qualia] and customer are involved in a dispute of any kind, 

regardless of validity, with respect to the account; 

7.02.04 Customer asserts a claim of loss or offset of any kind against 

[Qualia] or ICF with respect to the account; 

7.02.05. An account is deemed mistaken, incorrect, fraudulent and/or 

erroneous by ICF; or 

7.02.06. [T]he full amount of the account is not paid to ICF within the 

number of “Chargeback Days” from the date of purchase by ICF 

specified in the Rate Schedule. 

Invoice Purchase Agreement ¶ 7.02, at 6. The bankruptcy court reasoned that if 

the transaction were a true sale, Inova would have accepted the accounts as they 

were, whether or not they were collectible. We agree. 

 

This agreement, which shifts all risk to Qualia, is a disguised loan rather 

than a true sale. Where the “seller” retains “virtually all of the risk of 

noncollection,” the transaction cannot properly be considered a true sale. Nickey 

Gregory Co., LLC v. AgriCap, LLC, 597 F.3d 591, 602 (4th Cir. 2010). See also 

Fireman’s Fund Ins. Cos. v. Grover (In re Woodson), 813 F.2d 266 (9th Cir. 1987) 

(finding transaction to have been a disguised loan where seller insured buyer 

against loss); Bear v. Coben (In re Golden Plan of California, Inc.), 829 F.2d 705, 

709-10 (9th Cir. 1986) (finding that there had been a true sale where “investors 

received no contractual guarantee of repayment or compensation in case of 

foreclosure. Such assumption of risk strongly suggests that the . . . investors were 

not in a creditor-debtor relationship”); Major’s Furniture Mart, Inc., 602 F.2d at 

545 (“In the instant case the allocation of risks heavily favors Major’s claim to be 

considered as an assignor with an interest in the collectibility of its accounts. It 

appears that Castle required Major’s to retain all conceivable risks of 

uncollectibility of these accounts”); Netbank, FSB v. Kipperman (In re 

Commercial Money Center, Inc.), 350 B.R. 465, 484 (B.A.P. 9th Cir. 2006) 

(finding transaction to have been a loan where seller “(1) has none of the potential 

7
benefits of ownership and (2) is contractually allocated none of the risk of loss”);

CF Motor Freight v. Schwartz (In re De-Pen Line, Inc.), 215 B.R. 947, 

951 (Bankr. E.D. Pa. 1997) (finding there had not been a true sale where “the risks 

which are characteristic of a true sale are not accepted by DIL in the Agreement”); 

Ables v. Major Funding Corp. (In re Major Funding Corp.), 82 B.R. 443, 

448 (Bankr. S.D. Tex. 1987) (finding there had not been a true sale where 

“investors did not shoulder the normal risks of ownership”). 

Because the transaction was a disguised loan rather than a true sale, the 

perfection of the security interest was a transfer of an interest in the debtor’s 

property.3

 The only remaining issue is whether the interest was perfected within 

the 90-day period. We agree with the bankruptcy court that it was perfected within 

the preference period. The California Commercial Code provides that a security 

interest is perfected by filing a financing statement in the debtor’s location, which 

is where the debtor was organized. Cal. Comm. Code §§9301, 9307(e), 9308, 

9310(a) (West 2007). Because Qualia was organized in Nevada, the Nebraska 

filing was ineffective. Inova’s interest was perfected when it filed its second 

financing statement, which was with the Nevada Secretary of State on February 19, 

2009. Because that was within 90 days of Qualia’s bankruptcy filing, as a matter 

of law the perfection constituted a preference. 

 

Inova argues that even if the elements of preference are satisfied, the transfer 

cannot be avoided as a preference because 11 U.S.C. § 547(c)(5) is an absolute 

defense. Section 547(c)(5) provides: 

(c) The trustee may not avoid under this section a transfer— 

[. . .] 

                                                            3

 Even if we were to conclude that the transaction was a true sale, 

Inova’s perfection still would constitute a preference under § 547(b). Under the 

California Commerical Code § 9318(b), if the buyer has not perfected its interest in 

accounts after the sale, the debtor still has the rights and title to the accounts for the 

purpose of determining the rights of third parties. 

8
(5) that creates a perfected security interest in inventory or a 

receivable or the proceeds of either, except to the extent that the 

aggregate of all such transfers to the transferee caused a 

reduction, as of the date of the filing of the petition and to the 

prejudice of other creditors holding unsecured claims, of any 

amount by which the debt secured by such security interest 

exceeded the value of all security interests for such debt on the 

later of— 

(A)(i) with respect to a transfer to which subsection 

(b)(4)(A) of this section applies, 90 days before the date 

of the filing of the petition; or (ii) with respect to a 

transfer to which subsection (b)(4)(B) of this section 

applies, one year before the date of the filing of the 

petition; or 

(B) the date on which new value was first given under the 

security agreement creating such security interest. 

11 U.S.C. § 547(c)(5). In support of this argument, Inova asserts that it achieved 

no improvement in position because it was oversecured on all relevant dates, and 

that it gave new value. The purpose of § 547(c)(5) is to protect holders of floating 

liens, and to simplify and make fair the situation they encounter in bankruptcy 

when the value of their collateral has gone down and back up. Inova’s arguments 

are irrelevant because they assume perfection at the beginning of the preference 

period. Although it is true that an oversecured creditor cannot improve its position 

for the purposes of this defense, Inova was actually unsecured at all relevant times 

because Inova’s interest was unperfected both at the beginning of the preference 

period and on the last date it gave new value. Section 547(c)(5) therefore does not 

provide a defense to the trustee’s preference action. 

Inova next argues that the bankruptcy court erred in granting the trustee’s 

motion for summary judgment because there are genuine issues of material fact 

regarding whether the receivables were purchased or pledged as collateral. As 

discussed above, the contract is unambiguous, so the question of whether the 

9
receivables were purchased or pledged is a legal issue and it was properly resolved 

in the trustee’s favor on the parties’ motions for summary judgment. 

Third, Inova argues that there were genuine issues of material fact regarding 

defenses other than § 547, and that the bankruptcy court should have provided 

Inova with the opportunity to be heard on the additional defenses it raised in its 

answer. Inova only sought a ruling on its § 547 defense, although it asked for 

summary judgment rather than partial summary judgment. The parties submitted a 

joint pretrial statement. In it, under the heading “Defendant’s Objections and 

Defenses,” the parties stated the following: 

The Defendant has numerous defenses in this case as enumerated in 

its Answer to the Amended Complaint. (Dkt. No. 23). For the sake of 

time and expense, and given the questionable collectability of the 

outstanding invoices, the Defendant has discussed with the Trustee 

initially filing a motion for summary judgment under 547(c)(5) and 

possibly other defenses for which there do not appear to be genuine 

issues of material fact for trial, or for which the issues of fact 

necessary for the court to make a determination of law are fairly 

straightforward and/or already in the prior affidavits filed with the 

court in the bankruptcy proceedings. If that motion and/or any cross 

motions by the Trustee leave issues for trial, then the remaining issues 

and defenses remain for disposition by the court under a subsequent 

Rule 56 motion or at trial.

Joint Prelim. Trial Statement 3 (emphasis added). Based on this, Inova now argues 

that the bankruptcy court should have limited its decision to the § 547 defense. 

However, the trustee’s subsequent summary judgment motion clearly stated that 

the trustee was seeking summary judgment “in his favor and against Defendants on 

all of Trustee’s claims.” That language should have alerted Inova to the fact that 

the bankruptcy court could dispose of the entire proceeding. Inova had the 

opportunity to raise any of its defenses. It was not improper for the court to decide 

the motions before it, regardless of Inova’s intention to receive a ruling only on its 

§ 547 defense. Furthermore, we will not ordinarily consider arguments raised for 

10
the first time on appeal. Duncan v. LaBarge (In re Duncan), 418 B.R. 278 (B.A.P. 

8th Cir. 2009). 

Finally, Inova asks us to reverse the bankruptcy court’s determination that 

Inova Capital Funding, LLC was the successor in interest to Inova Capital 

Funding, Inc. Inova has not explained how this finding is relevant to the court’s 

ultimate determinations, or how it was harmed by it. We therefore decline to 

review the bankruptcy court’s determination on this issue. 

CONCLUSION

 Because we agree with the bankruptcy court that the trustee was entitled to 

summary judgment on this preference action, we affirm. 

__________________________ 

11