United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

________

No. 12-6043

________

*

In re: *

*

LGI Energy Solutions, Inc.; LGI Data *

Solutions Company, LLC, *

*

Debtors. *

_________________________________ *

* Appeal from the United States

John R. Stoebner, Trustee, * Bankruptcy Court for the

* District of Minnesota

Plaintiff – Appellee *

*

v. *

*

San Diego Gas & Electric Company, *

*

Defendant – Appellant *

________

No. 12-6044

________

*

In re: *

*

LGI Energy Solutions, Inc.; LGI Data *

Solutions Company, LLC, *

*

Debtors. *

_________________________________ *

* Appeal from the United States

John R. Stoebner, Trustee, * Bankruptcy Court for the 

* District of Minnesota

Plaintiff – Appellant *
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 these consolidated appeals, Defendants San Diego Gas & Electric 

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

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

payments they received from the Debtors

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.

The Defendants assign error to three aspects of the bankruptcy court’s 

ruling. They 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 particular 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 bankruptcy 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 Debtors. An Order for Relief was 

entered in each case on March 3, 2009, and the Debtors’ bankruptcy estates were 

substantively consolidated on February 2, 2011.

The Debtors’ business was to provide utility-management and bill-payment 

services to restaurants and other businesses. As originally conceived, the Debtors’ 

business worked in the following manner: The Debtors would receive invoices

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

customer regarding those invoices. The customer then would transfer funds to the 

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

after receiving those funds from the customer, the Debtors would send the utility 

provider a check drawn on the Debtors’ 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’s 
4

International, Inc.2The Debtors provided bill-payment services to Buffets pursuant 

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

made the following 24 transfers 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 provided 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 debtor LGI Energy Solutions, Inc., account no. xxxx3321. The first two checks, nos. 6077932 and 607954, totaling $8,403.38, related 

to Wendy’s; the other 22 checks related to Buffets.

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

made eight transfers to Defendant SDG&E totaling $75,053.85. All eight of the 

transfers were made by checks drawn upon account no. 3321 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 last 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 

Debtors 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 Debtors, 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, Defendant SCE 

sent 32 Buffets invoices to the Debtors, which they then reported to Buffets. 

Buffets remitted payment to the Debtors for these invoices, but the Debtors never 

forwarded those payments on to SCE. The Debtors received a total of $157,886.99 

pursuant to these invoices.

On and after November 10, 2008, through the petition date, Defendant 

SDG&E sent 21 Buffets invoices to the Debtors, which they then reported to 

Buffets. Buffets remitted payment for these invoices, but the Debtors never 

forwarded those payments on to SDG&E. The Debtors 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 motions for summary judgment seeking the 

dismissal of all counts (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 whether the transfers were made 

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

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

and fact.

DISCUSSION

As summarized above, the Defendants appeal three 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 

credits. Each argument is addressed in turn.

A. The Defendants 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, 931 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, undisputed, secured, or unsecured.7

The bankruptcy court held that the Defendants were creditors of the Debtors 

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

between the Debtors and their customers and that the Defendants became creditors 

when the Debtors violated the 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. Neither 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 

incidence of a trust relationship.”9

The Debtors’ agreements with Wendy’s and Buffets both evince an intent to 

create a trust. Paragraph 3b of the agreement between the Debtors and Buffets 

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

purpose of paying the bills of utility 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. 2d 
9

the funds tendered to the Debtors 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 the state-court complaint attached to Buffets’ proof of claim, which 

repeatedly invokes trust language: 

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

 “Defendant 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 Buffets’ 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 claims against the

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

Energy Services Agreements.

The Sixth Circuit Court of Appeals, in First Federal of 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 Debtors 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 in 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 monies 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 constructive 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' charge that the transfers here in controversy were not in 

payment of pre-existing indebtedness must fail and the repayments to 

the appellants must be declared to be voidable preferences.

12

 

12 Id. (emphasis added).
11

Like the appellants in First Federal, the Defendants here became general,

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

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

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

In sum, consistent with the intent to create a trust, Wendy’s and Buffets 

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

trust for payment to the Defendants and other utility companies. The Debtors’

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

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

Defendants were creditors of the Debtors for purposes of 

§ 547(b)(1) is not clearly erroneous.

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 where a promisor agrees to pay the 

debts of another – as was the case here – the intended third-party beneficiary 

possesses 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. They continue to maintain, however, that the 

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

 

13 Buchman Plumbing Co., Inc. v. Regents of 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] be required to incur any 

liability in connection therewith.” The bankruptcy court rejected this interpretation 

of the Energy Services Agreement. That finding is not clearly erroneous.

First, the 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, page 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 connection 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, the 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 Services Agreement’s statement that LGI was not 

required to incur any liability does nothing to actually prevent LGI from incurring 

 

15 Minnesota follows the Restatement (Second) of Contracts, see 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 beneficiary 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 thirdparty beneficiaries of the Energy Services 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 debts. 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 to 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 case, In re Bridge Information System, Inc.,

17 to support 

their argument. 

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

on In re Bridge Information Systems, Inc. is misplaced.

The Bankruptcy Code does not define when the debtor 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 

 

17 327 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 

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

claim.”).
14

debtor's estate. The Defendants here had a claim against the Debtors when the 

Debtors received funds from Buffets and Wendy’s. 

The rights and duties of a third-party beneficiary contract “depend upon, and 

are measured by, the terms 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 within two business days 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 deadlines were upon them or past, just as the 

prepayment 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. Here, the Defendants (or the 

customers, as the primary promisees) had (and, indeed, did file) claims for all the 

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

when the involuntary bankruptcy petitions were filed against the Debtors. 

Furthermore, Bridge Information Systems, Inc., does not stand for the 

proposition the Defendants attribute to it, i.e., that a contractual duty to pay does 

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 

lessee’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 been 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 Systems, 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:

The 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 for the benefit of such 

creditor. . . .” 

“New 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 the 
16

Defendants’ new value credit to the value of the utility services they provided to 

Buffets and Wendy’s during the preference period.

The 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. Rather, they argue, they are entitled to a 

credit for all of the payments Wendy’s and 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 preference 

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 Notably, 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 employees 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

Fund. 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 were 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 here. In fact, as trust beneficiaries and thirdparty 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, Wendy’s and Buffets). 

Giving 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 cases, 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

SCE – 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 $89,496.60 
19

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

SDG&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 

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

11/14/2008 $5,773.59 $5,773.59 
20

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)

CONCLUSION

For the foregoing reasons, the 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 reversed. 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.

_____________________________