## United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

________

No. 12

- 6043

________ *

In re: *

*

LGI Energy Solutions, Inc.; LGI Data *

Solutions Company, LLC

, *

*

Debtor s

. *

_________________________________ *

* Appeal from the United States

John R. Stoebner, Trustee

, * Bankruptcy Court for the

* District of Minnesota

Plaintiff

– Appell ee *

*

v. *

*

San Diego Gas & Electric Company

, *

*

Defendant

– Appellant *

________

No. 12

- 6044

________ *

In re: *

*

LGI Energy Solutions, Inc.; LGI Data *

Solutions Company, LLC

, *

*

Debtor s

. *

_________________________________ *

* Appeal from the United States

John R. Stoebner, Trustee

, * Bankruptcy Court for the

* District of Minnesota

Plaintiff

– Appell an t *2 *

v. *

*

Southern California Edison Company

, *

*

Defendant

– Appellee *

________

Submitted: October 23 , 2012

Filed: November 14 , 2012

________

FEDERMAN, VENTERS and SALADINO, Bankruptcy Judges

________

VENTERS, Bankruptcy Judge.

In th ese consolidated appeal s, Defendant s San Diego Gas & Electric

Company ( “ SDG&E ” ) and Southern California Edison Company ( “ SCE ” ) appeal

the bankruptcy court’s judgment s against them under 11 U.S.C. § 547(b) for

payments they received from the Debtor s 1 in the 90 days prior to the bankruptcy

petition date

. After giving credit for certain “new value” transfers, the bankruptcy

court entered judgment against SCE for $131,267.63 and against SDG&E for

$31,242.63

.

T he Defendants assign error to three aspects of the bankruptcy court’s

ruling. The y argue: 1) that the transfers at issue weren’t preferential because the

Defendants weren’t creditors of the Debtors , as required by § 547(b)(1) ; 2) that the

transfers were not on account of antecedent debts , as required by § 547(b)(2) ; and

3) that the bankruptcy court erred in limiting the Defendants ’ new value credits to

1 Because the two Debtor’s estates have been consolidated, for convenience all

references herein will be to the “Debtors,” although a par ticular fact might pertain

to a single Debtor.3

the value of the utility services they provided to the Debtors’ customers in the

preference period.

For the reasons stated below, we affirm the bankr uptcy court’s decision with

regard to its determination that the payments the Defendants received from the

Debtors are avoidable under 11 U.S.C. § 547(b) , but we reverse on the bankruptcy

court’s calculation of the Defendants’ new value credits.

JURISDICTION

The bankruptcy court’s judgment is a final order over which we have

jurisdiction under 28 U.S.C. §158(b).

BACKGROUND

The facts are undisputed. On February 6, 2009, separate involuntary Chapter

7 bankruptcy petitions were filed against the D ebtors. An Order for Relief was

entered in each case on March 3, 2009 , and t he D ebtors’ bankruptcy estates were

substantively consolidated on February 2, 2011.

T he D ebtors ’ business w as to provide utility

- management and bill

- payment

services to restaurants and other businesses

. As originally conceived, the D ebtors’

business worked in the following manner: T he D ebtors would receive invoice s

from a utility provider on behalf of a customer and then periodically report to the

customer regarding thos e invoices. The customer then would transfer funds to the

D ebtors in an amount that corresponded to the amount of the invoice report and,

after receiving those funds from the customer, the D ebtors would send the utility

provider a check drawn on the D ebtor s’ bank account.

All of the transfers at issue in this appeal relate to two of the Debtors’ and

Defendants’ mutual customers: Buffets, Inc. ( and related entities ) and Wendy’s4

International, Inc. 2 The D ebtor s provided bill

- payment services to Buffets pursuant

to an “ Energy Services Agreement ” dated January 5, 2007

. The D ebtors and

Wendy’s were parties to an Energy Services Agreement dated May 1, 2007

.

In the 90 days prior to the petition date of February 6, 2009, the Debtor s

made the following 24 tr ansfers to Defendant SCE totaling $183,512.74 :

Check No. Check Amt. Check Date Rcvd

. by SCE Clear Date

6077932 $4,178.52 10/21/08 11/12/08 11/14/2008

6077954 $4,224.86 10/21/08 11/12/08 11/14/2008

6076652 $5,943.93 10/17/08 11/14/08 11/18/2008

6076653 $8,125.06 10/17/08 11/14/08 11/17/2008

6076654 $9,620.77 10/17/08 11/14/08 11/17/2008

6076656 $9,996.85 10/17/08 11/14/08 11/17/2008

6078508 $7,948.76 10/23/08 11/12/08 11/14/2008

6078516 $8,156.87 10/23/08 11/12/08 11/14/2008

6078532 $8,188.20 10/23/08 11/19/08 11/21/2008

6078537 $7,827.17 10/23/08 11/18/08 11/20/2008

6078554 $7,435.41 10/23/08 11/18/08 11/20/2008

6078566 $7,804.13 10/23/08 11/18/08 11/20/2008

6078617 $7,678.34 10/23/08 11/13/08 11/17/2008

6079360 $7,371.65 10/27/08 11/13/08 11/17/2008

6079362 $10,844.50 10/27/08 11/13/08 11/17/2008

6079363 $9,514.28 10/27/08 11/13/08 11/17/2008

6079379 $7,860.50 10/27/08 11/17/08 11/19/2008

6079380 $6,322.93 10/27/08 11/17/08 11/19/2008

6079381 $6,628.53 10/27/08 11/17/08 11/19/2008

6079382 $7,970.53 10/27/08 11/17/08 11/19/2008

6079943 $8,460.80 10/28/08 11/12/08 11/14/2008

6080543 $6,881.98 10/29/08 11/17/08 11/19/2008

6080554 $7,461.95 10/29/08 11/25/08 11/28/2008

6080946 $7,066.22 10/30/08 11/20/08 11/24/2008

2 Only SCE provide d utility service to Wendy’s.5

All 24 of the transfers were made by checks drawn on a checking account at

U.S. Bank in the name of debto r LGI Energy Solutions, Inc., account no. xxxx

3321. The first two checks, nos. 6077932 and 607954, totaling $ 8,403.38

, related

to Wendy’s ; t he other 22 checks related to Buffets.

In the 90 days prior to the petition date of February 6, 2009, the Debtor s

made eight transfers to Defendant SDG&E totaling $75,053.85

. All eight of the

transfers were made by checks drawn upon account no. 3 321 and related to utility

services provided to Buffets.

Check No. Check Amt. Check Date Rcvd by SDG&E Clear Date

6075058 $5,773.59 10/13/08 11/12/08 11/14/08

6078518 $10,402.58 10/23/08 11/12/08 11/17/08

6078952 $9,093.92 10/24/08 11/18/08 11/20/08

6079349 $10,468.59 10/27/08 11/10/08 11/12/08

6079949 $8,514.01 10/28/08 11/20/08 11/24/08

6080548 $11,097.37 10/29/08 11/17/08 11/19/08

6081120 $10,062.69 10/31/08 11/25/08 11/26/08

6081126 $9,641.10 10/31/08 11/26/08 11/28/08

The 3321 account was a basic, unrestricted business checking account. Both

the monthly statements for the 3321 account and the checks drawn on the 3321

account indicate that LGI Energy Solutions, Inc. was the sole holder of the

account

. Wendy’s and Buffets las t made deposits into the 3321 account on

November 3, 2008

, and November 4, 2008, respectively. Thereafter, Wendy’s and

Buffets made their payments to the debtors via other accounts owned by the

D ebtor s at M & I Marshall & Ilsley Bank. Between November 3, 2008, when

Wendy’s made its last deposit into the 3321 account, and November 28, 2008,

when the last of the 24 checks was debited against the 3321 account, the balance of

the 3321 account was overdrawn or drawn to a nominal amount every business

day

.6

On and after November 10, 2008

, through the petition date, SCE sent 32

Wendy’s invoices to the D ebtor s, which they then reported to Wendy’s. Wendy’s

remitted payment for these invoices, but the Debtors never paid the related

invoices of SCE. The Debtors received a total of $41,426.39 pursuant to these

invoices.

On and after November 10, 2008

, through the petition date, D efendant SCE

sent 32 Buffet s invoices to the D ebtor s , which they then reported to Buffets

. Buffets remitted payment to the Debtor s for these invoices, but the Debtor s never

forward ed those payments on to SCE. The Debtor s received a total of $157,886.99

pursuant to these invoices

.

On and after November 10, 2008

, through the petition date, D efendant

SDG&E sent 21 Buffets invoices to the D ebtor s , which they then reported to

Buffets . Buffet s remitted payment for these invoices, but the Debtor s never

forwarded those payments on to SDG&E. The Debtor s received a total of

$97,475.50 pursuant to these invoices.

The bankruptcy court held a hearing on the Trustee’s preference claims

(Count I ) 3 against Defendants on June 11, 2012

, although the court declined to hear

oral argument ; it took the case on written submissions instead and entered

judgments later that day

– against SCE for $131,267.63 and against SDG&E for

$31,242.63

.

The Defendants timely appealed.

3 On May 3, 2012, the Defendants filed m otions for s ummary j udgment seeking the

dismissal of all c ounts (I, II, and III) of the Amended Complaint ( s ). The Trustee

voluntarily dismissed Counts II and III, and the bankruptcy court denied summary

judgment on Count I.7 STANDARD OF REVIEW

We review the bankruptcy court's legal conclusions de novo and its findings

of fact under a clearly erroneous standard. 4 A finding is clearly erroneous when

there is evidence to support it but the court reviewing the entire evidence is left

with the definite and firm conviction that a mistake has been committed. 5 Whether

the Defendants were creditors of the Debtor and whethe r the transfers were made

in payment of antecedent debts are factual question s which we review for clear

error. The b ankruptcy court’s application of § 547(c) (4) is a mixed question of law

and fact.

D ISCUSSION

As summarized above, the Defendants appeal t hree aspects of the

bankruptcy court’s ruling . They argue : 1) that the Defendants weren’t creditors of

the Debtors

, 2) that the transfers were not on account of antecedent debts

, and 3)

that the bankruptcy court miscalculated the value of the Defendants ’ new value

credit s

. E ach argument is addressed in turn.

A. The Defendant s were creditors of the Debtors

The Bankruptcy Code defines “creditor” as an “entity that has a claim

against a debtor that arose at the time of or before the order for relief concerning

the debtor.” 6 A “claim

, ” in turn, is defined as a:

(A) right to payment, whether or not such right is reduced to

judgment, liquidated, unliquidated, fixed, contingent, matured,

unmatured, disputed, undisputed, legal, equitable, secured, or;

4 See Drewes v. Vote ( In re Vote ), 276 F.3d 1024, 1026 (8th Cir. 2002).

5 See Lovett v. St. Johnsbury Trucking , 9 31 F.2d 494, 500 (8th Cir. 1991).

6 11 U.S.C. §101(10).8

(B ) right to an equitable remedy for breach of performance if such

breach gives rise to a right to payment, whether or not such right to an

equitable remedy is reduce to judgment, fixed, contingent, matured,

unmatured, disputed, und isputed, secured, or unsec ured. 7

The ba nkruptcy court held that the Defendants were creditors of the Debtors

on two grounds. It found that the Defendants were b eneficiaries of a trust created

between the Debtor s and their customers and that the Defendants became creditors

when the Debtors violated th e trust by depleting the customer deposits without

paying the Defendants’ invoices

. Alternatively, the bankruptcy court found that the

Defendants were contractual “third

- party beneficiaries” with direct claims against

the Debtors . Ne ither of these findings is clearly erroneous.

1

. Trust Beneficiary Claims

Minnesota law requires three elements for the creation of a trust : (1) a

trustee; (2) a beneficiary; and (3) a definite trust res

. 8 “No particular form and no

specific words are necessary to create a trust. Even though the settlor’s language be

inept, clumsy, or even unsuitable, it is adequate if it reveals an intent to create the

incid ence of a trust relationship.” 9

The Debtor s ’ ag reements with Wendy’s and Buffets both evince an intent to

create a trust . P aragraph 3b of the agreement between the Debtor s and Buffets

provides that Buffets will provide money to the Debtor s to be used for the specific

purpose of paying the bills of util ity companies and states that “[a]t no time shall

LGI have a legal or equitable interest in the Customers funds and Customer grants

no security interest to LGI.” 10 The Debtors ’ agreement with Wendy’s provides that

7 11 U.S.C. § 101(5).

8 See e.g., In re Bush’s Trust , 81 N.W.2d 615, 620 (Minn. 1957)

. 9 Id . at 619

- 20.

10 Technically, this language would not create a trust, inasmuch as the trustee of a

trust holds legal title to the res while the beneficiaries hold an equitable interest in

the res. See Farmers State Bank of Fosston v. SIG Ellingson & Co. , 16 N.W. 2d9

the funds tendered to the Debtor s are to be used for the specific purpose of paying

Wendy’s utility bills.

The Debtors’ and Buffets’ intent to create the “incidence of a trust” is further

evidenced by t he state

- court complaint attached to Buffets ’ p roof of c laim , which

repeatedly invokes trust language :

 “As a result, [ the Debtor] held Plaintiff Buffets’ funds in trust....” (¶ 3)

 “ D efendant M & I Marshall & Ilsley Bank knew [ the Debtor] did not have

any ownership interest in Plaintiff Buffets’ funds and that [ the Debtor] held

Plaintiff Buffets’ funds in trust subject to fiduciary duties.” (¶ 4)

 “The Contract provided that [ the Debtor] would directly receive the utility

invoices ....to wire transfer or ACH transfer this gross amount to a bank

account [Debtor] designated where Plaintiff Buf fets’ monies were held in

trust for the payment of utility invoices.....” (¶ 30)

Having determined that a trust was created, the bankruptcy court held that

the Debtors’ dissipation of the trust res

, i.e. , the customer deposits, constituted a

breach of the trust

, giving the Defendants general, unsecured claim s against the

Debtors for the amounts the Debtors failed to forward to them pursuant to the

Energy Services Agreements.

T he Sixth Circuit Court of Appeals , in First Fed eral o f Michigan v.

Barrow

, 11 came to the same conclusion under analogous circumstances . In First

Federal , a mortgage broker and servicer of mortgages received payments from

borrowers and

, despite being contractually bound to forward those payments

319, 322 (N.D. 1944). Nevertheless, this language could be interpreted as evidence

of the parties’ intent to preclude the De btors from treating customer funds as their

own money, which in turn could be interpreted as an intent to create a trust, albeit

clumsily expressed.

11 878 F.2d 912, 917

- 918 (6th Cir. 1989).10

(minus its fees) to the investors, taxing authorities, insurers, etc., it dissipated the

payments almost immediately upon receipt and made select payments to certain

creditors with later deposits. The Court of Appeals analyzed the situation as

follows :

Initially, the monthly payments collected i n trust from the mortgagors,

including the pro rata amounts for the superior mortgages, taxes,

hazard insurance and investors which had originally been held in trust

for the mortgagors

. . . and which were deposited into the Salem

Central Account, subsequently lost their identity as a result of

commingling with other unidentified debtor funds derived from

numerous other miscellaneous sources and became the property of the

debtors' estate.

Additionally, for at least ninety days immediately preceding debtors'

declaration of bankruptcy and probably for some time prior thereto

when it became apparent that debtors' exploding expenses hopelessly

exceeded income and the Salem Central Account consistently carried

a five figure negative balance, and when mon ies from that account

were disbursed to honor previously issued checks in satisfaction of

pre

- existing indebtedness, the mortgagors as well as the appellant

taxing authorities and investors were stripped of their status as

beneficiaries of any trust or con structive trust that may have existed

while the mortgage payments were identifiable in segregated escrow

accounts and they became general creditors of the debtors and the

debtors' bankrupt estate because the debtors' conversion of the

mortgage payments had occurred at the moment when the identifiable

funds were deposited into Salem's negative balance Central Account

from which transfers were made to satisfy debtors' pre

- existing

indebtedness to the mortgagors and appellants. Accordingly, the

appellants' cha rge that the transfers here in controversy were not in

payment of pre

- existing indebtedness must fail and the repayments to

the appellants must be declar ed to be voidable preferences

. 12

12 Id. (emphasis added )

.11

Like the appellants in First Federal , the Defendants here became gene ral

, unsecured creditors of the Debtors at the moment the Debtors depleted the

customer deposit s , which the evidence shows happened on a daily basis and, most

importantly, before the Debtors used those deposits for their intended purpose.

In sum, c onsistent with the intent to create a trust

, Wendy’s and Buffets

entrusted the Debtor s with specific, identifiable property that they were to hold in

trust for payment to the Defendants and other utility companies. T he Debtors ’

failure to preserve trust property was a breach of trust which gave the Defendants

unsecured claim s against the Debtors. Thus, the bankruptcy court’s holding that the

Defendants were creditors of the Debtor s for purposes of

§ 547(b)(1) is not clearly err oneous.

2

. Third

- Party Beneficiary Claims

“ It is the prevailing rule in Minnesota and other jurisdictions in the United

States that a third party may sue on a contract made for his direct benefit. ” 13 “If, by

the terms of the contract, performance is directly rendered to a third party, he is

intended by the promisee to be benefited.” And w here a promisor agrees to pay the

debts of another

– as was the case here

– the intended third

- party beneficiary

pos sesses the primary claim against the promisor for the debt. 14

At oral argument, the Defendants conceded that SDG&E and SCE were

third

- party beneficiaries with regard to the transfers received on account of the

utility services provided to Buffets . T hey c ontinue to maintain, however, that the

language in the Energy Service s Agreement with Wendy’s precludes a claim by

13 Buchman Plumbing Co., Inc. v. Regents o f the Univ. of Minnesota , 215 N.W.2d

479, 483 (Minn. 1974)

. 14 In re Maurer , 256 B.R. 495, 502 (B.A.P. 8th Cir. 2000).12

the Defendants as third

- party beneficiaries. 15 Specifically, they point to the

provision in the Agreement stating that LGI “ shall [ not ] b e req uired to incur any

liability in connection therewith.” T he bankruptcy court rejected this interpretation

of the Energy Services Agreement . T hat finding is not clearly erroneous.

First, t he context of the quoted passage suggests that it was intended only to

reinforce the parties ’ agreement that LGI had no duty to extend credit, i.e. , pay a

utility bill for which Wendy’s had not yet forwarded payment. To wit, p age 7 of

the agreement provides in larger part:

LGI shall then be obligated to pay each utility invoice within two

business days of receipt of Wendy’s ACH transfer. LGI shall in no

event be required to advance any of its funds or to utilize LGI’s credit

in connection with or on behalf of Wendy’s, nor shall LGI be

required to incur any liability in co nnection therewith

. Wendy’s shall

indemnify and hold harmless LGI from and against any and all claims,

liabilities, costs and expenses relating to utility invoices that have

been processed in accordance with this Agreement. 16

Second, t he italicized portion can be interpreted as establishing LGI ’s receipt

of funds from Wendy’s as a condition precedent to LGI ’ s obligation to pay utility

providers

.

Finally

, the Energy Service s Agreement ’s statement that LGI was not

required to incur an y liability d oes nothing to actually prevent LGI from incurring

15 Minnesota follows the Restatement (Second) of Contracts , s ee Cretex

Companies, Inc. v. Constr. Leaders, Inc. , 342 N.W.2d 135, 139 (Minn. 1984)

, which permits a promisor and promise to contractually restrict (or eliminate) the

rights of a third

- party beneficiary. “ (1) Unless otherwise agreed between promisor

and promisee , a b eneficiary of a promise is an intended beneficiary if recognition

of a right to performance in the beneficiary is appropriate to effectuate the

intention of the parties . . . .” Restatement (Second) of Contracts § 302.

16 Emphasis added.13

a debt to a utility company as a result of its breach of the agreement by, for

example, using the funds it received from Wendy’s for another purpose. This

interpretation would be more consistent with the subsequent sentence which

specifically contemplates potential claims against LGI by the utilities.

For these reasons, we hold that the bankruptcy court’s finding that the

Defendants were creditors of the Debtors as a consequence of their status as third

party beneficiaries of the Energy Service s Agreements is not clearly erroneous.

B

. The preferential transfers to the Defendants were made in payment of

antecedent debts as required by 11 U.S.C. § 547 (b) (2)

The Defendants argue that the transfers at issue were not preferences

because they weren’t made in payment of antecedent debt s

. According to the

Defendants, the Debtors would not actually owe a debt to the Defendants until the

Debtors breached their agreements with Buffets and Wendy’s by failing to make

timely payments t o the Defendants. Essentially, they argue that a debt created by

contract does not arise until the promisor repudiates or breaches the contract. They

point to the Eighth Circuit c ase, In re Bridge Information System, Inc

., 17 to support

t heir argument

.

The Defendants ’ argument on this point is without merit and their reliance

on In re Bridge Information System s , Inc . is misplaced.

T he Bankruptcy Code does not define when the d ebtor incurs a debt, but it

does define a “debt” as a liability on a claim. 18 Thus, the concept of a debt and a

claim are coextensive under the Code

, 19 and a debtor incurs a debt to a creditor for

purposes of § 547(b)(2) as soon as the creditor would have had a claim against the

17 3 27 B.R. 382 (B.A.P. 8th Cir. 2005), aff’d 474 F.3d 1063 (8th Cir. 2007)

18 11 U.S.C . § 101(12).

19 See In re Energy Co

- op. Inc.

, 832 F.2d 997, 1001 (7th Cir. 1987) (“By defining a

d ebt as a ‘liability on a claim,’ Congress gave debt the same broad meaning it gave

claim.”)

.14

debtor's estate. T he Defendants here had a claim against the Debtors when the

Debtors received funds from Buffets and Wendy’s.

T he rights and duties of a third

- party beneficiary contract “depend upon, and

are measured by, the te rms of the contract.” Under the Buffets Energy Services

Agreement, the Debtors were obligated to the “timely payment of invoices” upon

receipt of the customer funds. Under the Agreement with Wendy’s, the Debtors

were required to “pay each utility invoice w ithin two business day s of receipt of

Wendy’s ACH transfer.”

The fact that the Debtors had a time within which to perform their

obligations before they would be in breach of the contract does not mean that the

obligation did not arise until those deadli nes were upon them or past , just as the

pre payment of a loan before an installment due date or the maturity date constitutes

payment on an antecedent debt. 20 The key to determining whether a transfer “ for or

on account of” a debt owed by a debtor is whether a creditor would be able to

assert a claim against the estate absent payment. H ere

, the Defendants (or the

customers, as the primary promise e s) had (and

, indeed

, did file ) claims for all the

funds paid by a customer that were not paid to the Defend ants for utility services

when the involuntary bankruptcy petitions were filed against the Debtors

.

Furthermore, Bridge Information System s , Inc.

, does not stand for the

proposition the Defendants attribute to it, i.e.

, that a contractual duty to pay d oes

not arise until a party is in breach of that duty. Rather, the question in that case was

whether a payment pursuant to a settlement agreement was in payment of the

lessor’s alleged prior breach of a lease or a contemporaneous “buy out” of the

les se e’s renewal options

. 21 If the payment made by the debtor

- lessor was in

satisfaction of damages caused by its purported prior breach

– as the bankruptcy

20 See, e.g., In re Bennett Funding Group, Inc. , 220 B.R. 739 (B.A.P. 2nd Cir.

1998).

21 In re Bridge Information Systems, Inc. , 327 B.R. at 387

- 89.15

court held

– then the payment would have be en in satisfaction of an antecedent

debt and, therefore, avoidable as a preference. However, if the transfer was

payment for the defendant

- lessee’s option rights

– as the Bankruptcy Appellate

Panel held

– then the transfer was not in payment of an antecedent debt and not a

preference. Quite simply, the holding of Bridge Information System s , Inc.

, is

inapposite here.

For these reasons, we conclude that the bankruptcy court did not err in its

determination that the transfers at issue here were made in payment of antecedent

debts for purposes of 11 U.S.C. § 547(b)(2).

C

. The Defendants ’ new value credit was improperly determined

Section 547(c)(4) of the Bankruptcy Code provides :

T he trustee may not avoid under this section a transfer

–

(4) to or for the benefit of a creditor, to the extent that, after

such transfer, such creditor gave new value to or for the benefit of the

debtor

— (A) not secured by an otherwise unavoidable security

interest; and

(B) on account of which new value the debtor did not

make an otherwise unavoidable transfer to or f or the benefit of such

creditor. . . .”

“N ew value ” is defined as “money or money's worth in goods, services, or

new credit

. . . including proceeds of such property.” 11 U.S.C.§ 547(a)(2).

The bankruptcy court held that the plain language of § 547( c)(4)

–

specifically

, its reference to “such creditor”

– requires that new value be supplied

by the creditor that received the preferential transfer

. Accordingly, it limited the16

Defendants ’ new value credit to the value of the utility services th ey provided to

Buffets and Wendy’s during the preference period

.

T he Defendants contend that under the Eighth Circuit Court of Appeals case,

Jones Truck Lines , Inc. v. Central States, Southeast and Southwest Areas Pension

Fund ( In re Jones Truck Lines, Inc. ), 22 the Defendants’ new value credit should not

be limited to the value of the utility services provided to the Wendy’s and Buffets

customers during the preference period . R ather, they argue, they are entitled to a

credit for all of the payments Wendy’s an d Buffets made to the Debtors subsequent

to each transfer , regardless of when the utility services were provided. We concur

with the Defendants’ interpretation of the holding in Jones Truck Lines

.

In Jones Truck Lines

, a Chapter 11 debtor

- employer sued to recover

, as

preferential transfers

, payments to a “Health and Welfare Fund” and to a “Pension

Fund” made on behalf of its employees. 23 The bankruptcy court and district court

held that under § 547(c)(4), the defendant

- Funds could not offset their prefere nce

liability with the value provided by the debtor’s employees ( in the form of

continued services rendered to the debtor ) ; rather, the Funds themselves had to

provide new value to the debtor. 24 In reversing the lower courts’ decisions, the

Court of Appeals examined the parties’ tripartite relationship and held that the

employee services provided to the debtor during the preference period qualified as

new value which could be applied as an offset against the Funds’ preference

liability. 25 Nota

bly, the Court of Appeals found that the Funds were creditors of the

debtor in their own right but did not limit the Funds’ new value credit to any value

they provided to the current employees. And

, as a practical matter, it is unlikely

that the current em ployees received any contemporaneous benefit from the Pension

22 130 F.3d 323 (8th Cir. 1997).

23 Id . at 325

- 36.

24 Id ; In re Jones Truck Lines, Inc. , 196 B.R. 483, 492 (Bankr. W.D. Ark. 1995.)

25 In re Jones Truck Lines, Inc. , 130 F.3d at 328

- 29.17

F und. Hence, the bankruptcy court’s calculation of new value in this case is not

consistent with the Eighth Circuit’s binding holding in Jones Truck Lines

.

Arguably, because the Defendants w ere found to be creditors in their own

right

, as opposed to just transferees of payments that benefitted a creditor

(Wendy’s or Buffets), the holding of Jones Truck Lines would appear to be

contrary to the plain terms of § 547(c)(4 )

, which requires “such creditor,” i.e. , the

creditor that received the transfer ( or the benefit of the transfer ) to provide the new

value. However, the holding in Jones Truck Lines can be harmonized with the

statute by interpreting it as a recognition that in tripartite relationships where the

transfer to a third party benefits the primary creditor, new value can come from

that creditor, even if the third party is a creditor in its own right. And that is exactly

the nature of the tripartite relationship her e. In fact, as trust beneficiaries and third

party beneficiaries, the Defendants are creditors of the Debtors precisely because

the payments made to them were intended to benefit the creditor(s) that provided

the new value ( i.e. , the Debtors’ customers, We ndy’s and Buffets)

.

G iving the Defendants credit for all of the payments Wendy’s and Buffets

made to the Debtors on account of utility services provided by the Defendants,

SDG&E’s liability is reduced to zero and SCE ’s liability is reduced to $25,625.75

.

The charts below show the calculation of the Defendants’ new value credits based

on the figures contained in the record. 26

SCE

– WENDY’S NEW VALUE ANALYSIS

Transfer

Date Preferential

Transfer Transfer to

Debtor Net

Preference Comment

11/14/2008 $4,178.52 $4,178.52

11/14/2008 $4,224.86 $8,403.38

11/20/2008 $40.00 $8,363.38

26 All of these figures are contained in the Stipulations of Fact filed in the

underlying bankruptcy court c ases

, Stoebner v. SCE , 11

- 4066 (Doc. 39) and

Stoebner v. SDG& E

, 11

- 4065 (Doc. 38).18 Transfer

Date Preferential

Transfer Transfer to

Debtor Net

Preference Comment

11/20/2008 $2,447.73 $5,915.65

11/20/2008 $40.00 $5,875.65

11/20/2008 $2,647.66 $3,227.99

11/21/2008 $40.00 $3,187.99

11/21/2008 $2,604.31 $583.68

11/25/2008 $40.00 $543.68

11/25/2008 $2,848.46 ($2,304.78) Preference Liability

Eliminated

S C E

– BUFFETS NEW VALUE ANALYSIS

Transfer

Date Preferential

Transfer Transfer to

Debtor Net

Preference Comment

11/14/2008 $4,178.52 $4,178.52

11/14/2008 $4,224.86 $8,403.38

11/14/2008 $7,948.76 $16,352.14

11/14/2008 $8,156.87 $24,509.01

11/14/2008 $8,460.80 $32,969.81

11/14/2008 $7,003.12 $25,966.69

11/14/2008 $138.53 $25,828.16

11/17/2008 $8,125.06 $33,953.22

11/17/2008 $9,620.77 $43,573.99

11/17/2008 $9,996.85 $53,570.84

11/17/2008 $7,678.34 $61,249.18

11/17/2008 $7,371.65 $68,620.83

11/17/2008 $10,844.50 $79,465.33

11/17/2008 $9,514.28 $88,979.61

11/18/2008 $5,943.93 $94,923.54

11/19/2008 $6,114.90 $88,808.64

11/19/2008 $864.00 $87,944.64

11/19/2008 $960.11 $86,984.53

11/19/2008 $4,832.03 $82,152.50

11/19/2008 $4,570.59 $77,581.91

11/19/2008 $7,033.00 $70,548.91

11/19/2008 $6,168.70 $64,380.21

11/19/2008 $5,294.10 $59,086.11

11/19/2008 $5,253.98 $53,832.13

11/19/2008 $7,860.50 $61,692.63

11/19/2008 $6,322.93 $68,015.56

11/19/2008 $6,628.53 $74,644.09

11/19/2008 $7,970.53 $82,614.62

11/19/2008 $6,881.98 $89,496.6019

Transfer

Date Preferential

Transfer Transfer to

Debtor Net

Preference Comment

11/20/2008 $21.30 $89,475.30

11/20/2008 $5,283.78 $84,191.52

11/20/2008 $5,410.79 $78,780.73

11/20/2008 $5,728.54 $73,052.19

11/20/2008 $5,280.57 $67,771.62

11/20/2008 $6,118.07 $61,653.55

11/20/2008 $7,827.17 $69,480.72

11/20/2008 $7,435.41 $76,916.13

11/20/2008 $7,804.13 $84,720.26

11/21/2008 $8,188.20 $92,908.46

11/24/2008 $7,066.22 $99,974.68

11/28/2008 $5,470.19 $94,504.49

11/28/2008 $5,058.94 $89,445.55

11/28/2008 $7,803.90 $81,641.65

11/28/2008 $6,438.30 $75,203.35

11/28/2008 $4,826.31 $70,377.04

11/28/2008 $7,461.95 $77,838.99

12/1/2008 $71.29 $77,767.70

12/1/2008 $5,256.98 $72,510.72

12/1/2008 $6,067.03 $66,443.69

12/1/2008 $4,771.92 $61,671.77

12/1/2008 $6,218.99 $55,452.78

12/1/2008 $5,148.72 $50,304.06

12/9/2008 $6,107.77 $44,196.29

12/9/2008 $5,577.87 $38,618.42

12/9/2008 $6,892.98 $31,725.44

12/9/2008 $6,099.69 $25,625.75 Preference Liability

S DG&E

– BUFFETS NEW VALUE ANALYSIS

Transfer

Date Preferential

Transfer Transfer to

Debtor Net

Preference Comment

11/12/2008 $10,468.59 $10,468.59

11/13/2008 $3,126.29 $7,342.30

11/13/2008 $1,747.28 $5,595.02

11/13/2008 $5,255.58 $339.44

11/13/2008 $7,208.34 ($6,868.90) New Value credit

does not carry

forward. 11/13/2008 $2,167.03 $0.00

11/14/2008 $5,773.59 $5,773.5920 Transfer

Date Preferential

Transfer Transfer to

Debtor Net

Preference Comment

11/17/2008 $10,402.58 $16,176.17

11/19/2008 $11,097.37 $27,273.54

11/20/2008 $7,487.70 $19,785.84

11/20/2008 $2,328.80 $17,457.04

11/20/2008 $9,093.92 $26,550.96

11/24/2008 $8,514.01 $35,064.97

11/25/2008 $8,195.65 $26,869.32

11/25/2008 $1,855.14 $25,014.18

11/26/2008 $10,062.69 $35,076.87

11/28/2008 $8,254.95 $26,821.92

11/28/2008 $1,955.21 $24,866.71

11/28/2008 $9,641.10 $34,507.81

12/1/2008 $1,667.01 $32,840.80

12/1/2008 $8,236.52 $24,604.28

12/1/2008 $7,942.75 $16,661.53

12/1/2008 $2,055.03 $14,606.50

12/5/2008 $7,509.62 $7,096.88

12/5/2008 $1,788.17 $5,308.71

12/5/2008 $1,609.64 $3,699.07

12/5/2008 $7,454.17 ($3,755.10) Preference Liability

Extinguished 12/5/2008 $7,880.45 ($11,635.55)

12/5/2008 $1,750.17 ($13,385.72)

C ONCLUSION

For the foregoing reasons, t he portion of the bankruptcy court ’s judgment

determining that the Defendants received preferential transfers is affirmed . The

court’s calculation of the Defendants’ new value credit, however, is r eversed

. SCE

is entitled to a new value credit for all but $25,625.75 of the transfers it received

and SDG&E is entitled to a new value credit to the full extent of the transfers it

received

.

_____________________________