The HONORABLE RICHARD H. KYLE, United States District Judge for the * District of Minnesota, sitting by designation.

United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ Nos. 96-3224/3305

___________ In Re: Jones Truck Lines, Inc., * * Debtor. * ------------------------------------------------ * * Jones Truck Lines, Inc., * * Plaintiff - Appellee/ * Cross - Appellant, * Appeals from the United States * District Court for the v. * Western District of Arkansas. * Central States, Southeast and Southwest * Areas Pension Fund; Central States, * Southeast and Southwest Areas Health * and Welfare Fund, * * Defendants - Appellants/ * Cross - Appellees. *

___________ Submitted: May 19, 1997 Filed: November 25, 1997

___________ Before BEAM and LOKEN, Circuit Judges, and KYLE, District Judge. *

___________-2-

LOKEN, Circuit Judge.

The Bankr uptcy Code allows the trustee in bankruptcy to enhance a debtor' s estate by "avoiding" pre-bankruptcy transfers of t he debtor's property that conferred an unfair preference on one

creditor. Though the concept is quite simple, it is difficult to implement, and the end result is a lengthy, complex statute, 11 U.S.C. § 547. In this case, Jones Truck Lines (“Jones”) filed a Chapter 11 liquidating bankruptcy petitio n and sued to recover as preferential payments nearly $6 million in employee benefi t contributio ns made during the ninety days prior to bankruptcy. After a four-day trial, the bankr uptcy court held that the payments were avoidable preferences, the distric t court affirmed, and the benefit f unds appeal. We conclude that the contributions were not avoidable preferences because Jones received contemporaneous new value fo r them, namely, employee services. Accordingly, we reverse and remand.
I. Background.

Before its demise, Jones was a large interstate trucking company. Collectiv e bargaining agreements with the International Brotherhood of Teamsters obligated Jones to m ake pension and health and welfare benefit contributions on behalf of its 230 0 union em ployees to the agreed employee benefit funds, Central States, Southeast and Southwest Areas Health and Welfare Fund, and Central States, Southeast an d Southwe stAreas Pension Fund (collectively, “Central States”). The funds are non

profit employee benefit trusts, managed by tr ustees selected by contributing employers and their unions, and governed by ERISA. In early 1991, the time in question, th e col lective bargaining agreement obligated Jones to contribute $104.70 per covere d employee per week to the Health and Welfare Fund, an d $16.60 per covered employee per day to the Pension Fund. Jones calculated the amount of contributions owing on a weekly basis, typically by Tuesday of the following week. It sent this information to Central States and paid its contribution obligations once a month. A contribution was considered delinquent if not paid by the fifteenth day of the following month.See generally Schneider Moving & Storage Co. v. Robbins , 466 U.S. 36 4 1 (198 4); Lewis v. Benedict Coal Corp. , 361 U.S. 459 (1960); Central States, S.E. & S.W. Areas Pension Fund v . Gerber Truck Serv., Inc. , 870 F.2d 1148 (7th Cir. 1989). Jo nes also made interest payments on the Fund Notes during this period

. 2 Central States concedes that those payments were avoidable preferences. -3- Jones f ailed to make its December 1990 contributions in mid-January 1991

. Emp loyee benefit funds have an independent right to enforce the employer' s contribution obligations. Exercising that right, Central States threatened Jones with 1
a collectio n action. The parties negotiated and reached an agreement in principle i n early February that was reduced to writing in a May 7, 1991, Participation Agreement. The relevant portion of that agreement was summarized in Recital C:

As of Februar

y 15, 1991, [Jones] owed (i) $1,427,040.68 to the Pension Fund

. . . and (ii) $1,458,724.80 to the Welfare Fund for unpaid an d accrued h ealth and welfare contributions. [Jones] has agreed to execute and d eliver promissory notes (one to each Fund) to evidence the tw o abov e-mentioneddelinquent contribution accounts (the "Fund Notes")

. In additio n, [Jones] has agreed to pay, on a current basis, weekl y contributions to the Funds in such amounts (which currently approximate $425,000) so that as of the 15th day of each mont h [Jones] will have fully paidto the Funds [Jones's] contributions under the above-mentione d collective bargaining agreements for the preceding month.

Jones made

its first $425,000 payment under this arrangement on February 25, 1991. Weekly payments followed. Jones termin ated all union employees and filed for Chapter 11 protection on July 9, 1991. Betwe en April 12 and July 9 -- the ninety days prior to bankruptcy when transfers are presumptively preferential, see § 547(b)(4)(A) -- Jones made thirteen weekly payments totaling $5,684,838.80. Eleven of thos e 2 payments were for $425,000; two were somewhat larger to cover accumulate d shortfalls between the weekly estimates and the actual prior month's contributio n obligations. No part of those payments was applied to the Fund Notes, which-4-

represented Jones's past-due contribution obligations as of February 15. Th e bankruptcy court and the district court nonetheless concluded that Jones may avoid and recover all of the weekly payments under § 547 of the Bankruptcy Code.

II. A Brief Overview.

Sect ion547 is intended to discourage creditors from racing to dismember a debtor sli ding into bankruptcy and to promote equality of distribution to creditors i n bankruptcy. S ee 5 C OLLIER ON B ANKRUPTCY ¶ 547.01 at p. 547-9 (15th ed. rev

. 1997). In gen eral, an avoidable preference is a transfer of the debtor's property, to or for the benefit of a creditor, on accoun t of the debtor's antecedent debt, made less than ninety days before bankruptcy while the debtor is insolvent, that enables the creditor to receive more than it would in a Chapter 7 liquidation. See § 547(b). If a transfer is avoidable under § 5 47(b), the creditor may escape preference liability by proving that it falls within one of the e xceptions set forth in § 547(c). Two of those exceptions are at issue in this case, the contem poraneous new value exception in § 547(c)(1), and the subsequent new value exception in § 547(c)(4). Their purpose is to encoura ge creditors to con tinue doing business with troubled debtors who may then be able to avoi d bankruptcy altogether.
In February

1991, Jones owed Central States roughly $2.9 million for past-due fund contributions. Central States agreed to defer that debt by converting it to secured promisso ry notes and

to continue doing business with Jones if Jones accelerated it s curr ent contributions by making estimated weekly payments, rather than paying once
a mon th. Under the bankruptcy court and district court rulings, Central States mus t now return

thirteen weekly payments to Jones's bankruptcy estate. Thus, its decision to continue doing business with a troubled debtor, which § 547 is designed t o encourage, ha s increased Central States's unsecured bankruptcy claim by almost $5.7 mill ion. This outcome is inconsistent with the policies underlying § 547. With tha t preamble, we turn to the specific statutory provisions at issue.-5-

III. The Contemporaneous New Value Exchange Exception.

Con temporaneous new value exchanges are not preferential because the y encoura ge creditors to deal with troubled debtors and because other creditors are not adversel y affected if the debtor's estate receives new value. See Pine Top Ins. Co. v. Bank of Amer. Nat'l Trust & Sav. Ass'n , 969 F.2d 321, 324 (7th C ir. 1992). To qualify for this exception, a creditor must prove that an otherwise preferential transfer was "(A) intended by the debtor and the creditor . . . to be a contemporaneous exchange for new value given to the

debtor; and (B) in fact a substantially contemporaneous exchange." § 547(c)(1). The bankruptcy court and the district court held that § 547(c)(1) does not apply in this case because the Central States benefit funds did not provide new value "directly to the debtor." We reject this construction of the statute.

A. New Value. "New value" for § 547(c) purposes includes “money o r money’s worth in goods, services, or new credit.” § 547(a )(2). The flaw in the district court's analysis was its search for n ew value flowing from Central States to Jones. An employ er pays wages and benefits in exchange for employee services. That is tru e even if wa ges and benefits are collectively bargained, and even if the parties to a collective bargaining agreement designate a third party benefit fund to receive, invest, and pay out ben efits on behalf of the employees. The "new value" Jones received for paying current wages and benefit contributions duringthe ninety-day preference period were the services its employees continued to provide.
Recognizing th at the new value came from Jones's employees, not their benefit funds, exposes the flaw in Jones's co ntention that Central States merely refrained from term inating fund benefits in exchange for the weekly payments. While suc h forbearance is usuallynot new value, the question here is not what Central States did, but whether the weekly payment s were for current or past-due employee services. To illustrate, assume that an employer fails to pay an employee's salary and benefits when due. The employee complains an d threatens to resign, or his union threatens to strike.On this ground, we agree with the decision in In re Broderick Co. , 177 B.R

. 3 430, 436 (Bankr. D. Mass. 1995). We disagree with the court's alternative ground that debtor did not receive new value from the employee benefit trust . -6- If the employer resp onds by paying (or providing collateral for) the past-due salary or benefits, that transfer is not for new value. See In re Elton Trucking, Inc. , 1996 WL 261059 (Bankr. N.D. Ill. 1996); In re Burner Servs. & Combustion Controls Co. , 1989 WL 126487 (B ankr. D. Minn. 1989). If the employer also resumes paying th e 3 employee's current salary and benefits when due, and the employee keeps working , those current payments are contemporaneous exchanges for "new value," th e employee 's continuing services. In our view, this new value analysis is the sam e whether the creditor claiming § 547(c)( 1) protection is the employee who continued to
wor k in exchange for current wages, or the employee benefit fund to which curren t benefits were paid on the employee's behalf.

Like the bankruptcy court and the district court, Jones sidesteps this reality by relying o n cases that have construed the phrase "new value given to the debtor" i n § 547(c)(1)(A) as meaning only new value given directly to the debtor by the creditor, in this case Central States. See In re Bow ers-Siemon Chems. Co. , 139 B.R. 436, 448- 4 9 (Bankr. N.D. Ill. 1992); In re H & S Transp. Co. , 80 B.R. 441, 447 (Bankr. M.D. Tenn. 198 7), rev’d on other grounds , 90 B.R. 309 (M.D. Tenn. 1988). But thi s constructio n

of the statute radically alters its plain meaning by inserting a word , "dire ctly," that Congress omitted. There are countless transactions in which a debtor transfers p roperty to a creditor in exchange for contemporaneous new value provided "to t he debtor" by a third party. Jones counters with a textual argument, tha t § 547(c )(1) refers to "new value given to the debtor," whereas the exception i n § 547(c)(4) uses a broader phrase, "new value to or for the benefit of the debtor." See In re Bellanca Aircraft Corp , 850 F.2d 1275, 1280 (8th Cir. 1988), construin g § 547(c)(4) . This textual argument is unpersuasive. Section 547(c)(1) applies to " a contemporaneous e

xchange for new value ," language whose ordinary meaning wouldJones als o argues that Central States failed to quantify the “new value” tha t 4 Jones received, relying on cases such as In re Southern Technical College , 89 F.3 d 1381, 1385 (8th Cir. 1996). We disagree. Absent contrary evidence, the value o f employee services is presumed to equal the wages and benefits the employer contracted to pay. See In re Pulaski Highway Express, Inc. , 57 B.R. 502, 510 (Bankr. M.D. Tenn. 1986). It w ould not encourage employees to stick with a troubled business if thei r current wages and benefits could later be attacked as preferential on the ground tha t their labor was not worth what the employer agreed to pay. -7- inclu de exchanges involving more than two parties. Section 547(c)(4), on the othe r hand, applies if the " creditor gave new value ," a phrase to which "for the benefit of" must be added to clarify that three-pa rty exchanges are included. Thus, we agree with the other circuits that have concluded that a transfer of new value by a third party to the debtor may satisfy the "new value" requirement of § 547(c)(1)(A). See In re Kumar Bavishi & Assocs. , 906 F.2d 942, 945 (3d Cir. 1990); In re E.R. Fegert, Inc. , 887 F.2d 955, 959 (9th Cir. 1989); In re Fuel Oil Supply & Terminaling, Inc. , 837 F. 2d 224, 228- 30 (5th Cir. 1988). 4

B. Contemporaneous Exchanges. There remain two § 547(c)(1) issues that the bankruptc y court and the district court did not reach, whether the parties intended
a cont emporaneous exchange, and whether the exchange was in fact substantiall y co ntemporaneous. The Jones/Central States Participation Agreement expressl y provid ed that past-due contributions would be reduced to secured promissory notes , and that Jones would continue to pay current contribution ob ligations on an accelerated
wee kly basis. Thereafter, weekly estimated payments were made and later adjuste d
so that they equalled Jones's current contribution obligations. Those payments wer e in fact p aid as contemporaneously as contributions paid before Jones encountere d finan cial difficulty. Jones does not challenge this uncontroverted evidence that th e parties intended a contemporaneous e xchange, nor does Jones contend that the benefit payments were not in fact substantially contemporaneous with the employee services for which they were e xchanged. Although these are issues of fact, see In re Lewellyn-8-

& Co. , 929 F.2d 424, 427 (8th Cir. 1991), we conclude on this record that Centra l States has es tablished as a matter of law that the transfers were intended to b e contemporaneous and were in fact substantially contemporaneous.

IV. Other Issues.

For the foregoing reasons, we conclude that Jones may not avoid the thirtee n weekly payments in ques tion because they were contemporaneous exchanges for new value within the meaning of § 547(c)(1). As we understand the record, this decision effec tively resolves the matters contested on appeal, so that the bankruptcy court o n remand must simply reduce Central States's preference liab ility to uncontested amounts such as interest paid on the Fund Notes during the ninety-day preference period

. However, bec ause the case may be more complex than we realize, and because th e other i ssues presented on appeal may well have significance in future cases, we wil l comment briefly on those issues.

A. The Subsequent New Value Exception. Central States argues that th e weekly payments also escape preference liability under the “subsequent new value ” exception, § 547(c)(4), which provides that a trustee may not avoid a transfer (4) to or for the benefit of a creditor, to the extent that, after such a transfer, such creditor gave new value to or for th e benefit of the debtor -- (A) not secured by an other wise unavoidable security interest; and (B) on account of which new value the debtor did not make a n otherwise unavoidable transfer to or for the benefit of such creditor.
Like § 547(c)(1), § 547(c)(4) "seeks to encourage creditors to deal with trouble d businesses in the hope of rehabilitation." In re Kroh Bros. Dev. Co. , 930 F.2d 648, 651 (8th Cir. 1991).-9-

For Central States to need the § 547(c)(4) exception, we must assume (contrary to our decision in Part III) that the § 547(c)(1) contemporaneous new value exception does not ap ply. If Jones received no contemporaneous new value for the weekl y payments, then it necessarily received subsequent new value for each payment (except th e last one) because its employees continued working. In Kroh Brothers , w e observed that "section 547(c)( 4) is not available to a creditor to the extent the creditor has received payment from the debtor for the goods or services constituti ng new value." 930 F.2d a t 653. Applying that principle, the district court concluded that an y subse quent

new value Central States provided was in turn fully paid by Jones' s subseq uent

weekly payments. But the court also concluded that those offsettin g payments to Central States were themselves avoidable preference s. On appeal, Central States argues that the court misconstrued § 547(c)(4) because subsequent new valu e cannot be offset or nullified by payments that are themselves avoidable preferences.

Section 5 47(c)(4)(B) defines subsequent new value as value not offset by "a n otherwise unavoidable transfer " to the creditor. Here, Central States received weekly p ayments made after employees provided subsequent new value, but those payments were "otherwise avoidable " and therefore can not deprive Central States of § 547(c)(4) protection. As the court said in In re Maxwell Newspapers, Inc. , 192 B.R. 633, 639 (Bankr. S.D.N.Y. 199 6), "There is no logical reason to distinguish between a creditor th atwas paid by an avoidable transfer and one that was never paid at all." Accor d Countryman, The Concept of a Voidable Preference in Bankruptcy , 38 Vand.L.Rev. 713, 788 (1985).
Conceding that its ruling was contrary to the language o f § 547(c)(4), the district court nonetheless considered itself bound by Kroh Brothers . However, the issue i n KrohBrothers was whether pre-petition payments to the creditor by another creditor shouldoffset subsequent new value to the debtor. We held that such payments must be counted in the § 547(c)(4) new value equation; otherwise, the creditor would be in a better position than if the original pref erence had not occurred. See 930 F.2d at 653.-10-

Th us, Kroh Brothers did not involve the timing question in this case -- whether pre

petitio n payments to a creditor that are avoided after bankruptcy commences shoul d offset that creditor's subsequent new value. Given the context of our decision in Kroh Brothers , we agree with courts that have construed our reference to "remaining unpaid"
as "an adequate shorthand description of § 547(c)(4)(B)." In re Toyota of Jefferson, Inc. , 14 F.3d 1088, 1093 n.2 (5th Cir. 1994); see In re IRFM, Inc. , 52 F.3d 228, 231 (9th Ci r. 1995). Under the plain language of § 547(c)(4)(B), Jones's "otherwis e avoidable" payments did not deprive Central States of § 547(c)(4) protection.

B. Antecedent Debt. A t

ransfer is not an avoidable preference unless it is "for
or on acc ount of an antecedent debt." § 547(b)(2). A debt is “antecedent” if it wa s incurred before the allegedly preferential transfer. A debt is incurred "on the date upon which the debtor first becomes legally bound to pay.” In re Iowa Premium Service Co. , 695 F.2d 1109, 1111 (8th Cir. 1982) (en banc) (" IPSCO ").
Applying this standard, the bankruptcy court and the district court c oncluded that each wee kly contribution payment was for an antecedent debt because Jones became
o b ligated to pay pension and welfare benefits on a weekly basis under the applicable collect ive bargaining agreements, and the payments were made thereafter. Centra l States -- supp orted by the National Coordinating Committee for Multiemployer Plans
as amicus curiae -- argues that this applicatio n of § 547(b)(2) threatens ERISA benefit plans with unfair p reference liability. Because these employee benefit obligations are
co ntinuously accruing and can only as a practical matter be calculated and paid on a per iodic basis, Central States argues that they are not for antecedent debts if they are paid within a commercially reasonable time after the employees' services.

This is a diffi cult issue, and there is precedent on both sides. On the one hand, In re Emerald Oil Co. , 695 F.2d 833, 837 (5th Cir. 1983), and our decision in IPSCO , 695 F.2d at 1112, support the district court's analysis and rest on the logical premise that a debtor first becomes liable when a res ource is consumed or a service performed,-11-

not when th e creditor chooses to bill the debtor. Accord In re Cybermech, Inc. , 1 3 F.3d 818, 822 (4th Cir. 1 994). But in IPSCO , the result was to delay when bank debt
was incurred, which gave the bank creditor the benefit of the "ordinary course o f busi ness" exception in § 547(c)(2). In a case such as this, on the other hand, litera l applicati on of the IPSCO standard accelerates the date that a continuously accruin g debt is incurred. The result is that some debts will be labelled "antecedent" eve n though they were paid as quickly as the obligations could be calculated. For thi s reason, other courts have concluded that continuously accruing obligations such as rent and insurance premiu ms are not incurred until they are owing under the contract. See In re White Ri ver Corp. , 799 F.2d 631, 633 (10th Cir. 1986); In re Advance Glov e Mfg. Co. , 761 F.2d 249, 252 (6th Cir. 1985).
This § 547(b)(2) issue will not be as important as Central States suggests if the
ex ceptions in § 547(c) protect employee benefit plans that should avoid preferenc e liability. Because Central States prevails under the § 547(c)(1) exception, we wil l leave the antecedent debt question unresolved.

C. The § 1113(f) Issue. NLRB v. Bildisco & Bildisco , 465 U.S. 513 (1984), held that a co llective bargaining agreement is an executory contract that a Chapter 11 debtor -in-possession may reject under § 365(a) of the Code. Congress promptl y overruled this decision by enacting 11 U.S.C. § 1113(f), which provides:

(f) No provision of this title shall be construed to permit a trustee to unilaterally terminat

e or alter any provisions of a collective bargaining agreement prior to compliance with the provisions of this title.

Central States argues that the district court violated § 1113(f) by permitting Jones t o unilat erally alter its collective bargaining agreement by recovering as a preferenc e mon ey paid to Central States for work performed before bankruptcy. Like th e bankruptcy court and the district court, we disagree.-12-

Section 1113(f) was designed to prevent employers "from using bankruptcy as
an offensive weapon to rid themselves of burdensome collective bargainin g agreeme nts.” In re Ionosphere Clubs, Inc. , 22 F.3d 403, 408 (2d Cir. 1994). Tha t refers to post-petition conduct by the debtor in a Chapter 11 reorganization. B y contrast, the trustee for a liquidating debtor who sues to recover avoidable preferences is not attempting "to unilaterally terminate or alter" the debtor's collective bargaining agreement. It is attemp ting to marshall the debtor's assets for equitable distribution to all credito rs in accordance with the Bankruptcy Code. Other circuits have concluded that § 1113 (f) does not supersede the claims priority provisions contained in § 507 of the Code. See Ionosphere Clubs , 22 F.3d at 407-08; In re Roth American, Inc. , 975 F.2d 949, 954-58 (3d Cir. 1992). Similarly , "there is nothing to indicate that Congress intended to exempt employer obligations under a collective bargaining agreement from potential pr eference liability." In re Sterling Die Casting Co. , 118 B.R. 205, 20 8 (Bankr. E.D.N.Y. 1990). We conclude that § 1113(f) does not supers ede the avoidable preference provisions of § 547.

The judgment of the district court is reversed and the case is remanded with instructi ons to remand to the bankruptcy court for recalculation of Central States’ s preference liability in accordance with this opinion.
A true copy.

Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.