UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 97-20699

GASMARK LIMITED LIQUIDATING TRUST

Plaintiff

VERSUS

LOUIS DREYFUS NATURAL GAS CORPORATION

Defendant - Appellee-Cross-Appellant

VERSUS

BRENDA HEROD, Trustee for Gasmark Limited Liquidating Trust

Trustee - Appellant-Cross-Appellee

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In The Matter Of: GASMARK LTD

Debtor

------------------------------

BRENDA HEROD, Trustee for Gasmark Limited Liquidating Trust

Plaintiff - Appellant

VERSUS

DEKALB ENERGY COMPANY

Defendant - Appellee

Appeals from the United States District Court

for the Southern District of Texas
2

October 30, 1998

Before REAVLEY, DAVIS, and DUHÉ, Circuit Judges.

JOHN M. DUHÉ JR., Circuit Judge:

This case involves questions of proof of insolvency and the

affirmative defense of payment in the ordinary course of business

in the context of a bankruptcy trustee’s effort to avoid payments

made by the debtor shortly before filing for bankruptcy. The

district court found that insolvency was established and that the

ordinary course of business defense prevailed. We affirm in part

and reverse and remand in part.

I

FACTUAL BACKGROUND

GasMark, Ltd. purchased natural gas and resold it to

consumers. Louis Dreyfus Natural Gas Corporation (“LDNG”) and

DeKalb Energy Company (“DeKalb”) delivered gas to GasMark in

October of 1992. DeKalb sent an invoice to GasMark on November 9,

1992 that was due on November 30, 1992. GasMark paid the invoice

on December 8, 1992. GasMark paid LDNG on February 28, 1993.

GasMark filed for bankruptcy on March 2, 1993. GasMark’s

bankruptcy trustee (“trustee”) sued under 11 U.S.C. § 547(b) to

avoid both payments as preferential transfers. DeKalb asserted the

ordinary course of business defense to preferential transfers under

11 U.S.C. § 547(c)(2), and requested a jury trial. The suits

against DeKalb and LDNG were consolidated.
3

The trustee moved for summary judgment against LDNG, and for

partial summary judgment on DeKalb’s ordinary course of business

defense. The trial judge determined that the trustee had proven

GasMark’s insolvency at the time of the payments, but had not shown

that the payment to DeKalb was outside the ordinary course. The

court ordered LDNG to repay the preference amount plus interest.

The trustee moved to clarify, alter, or amend, asserting that

DeKalb had not moved for summary judgment, that the trustee had not

presented all evidence in opposition to the ordinary course

defense, and that the burden rested on DeKalb to prove that the

payment was in the ordinary course of business. In response, the

judge allowed DeKalb 30 days to move for summary judgment on the

ordinary course defense. DeKalb timely filed the motion.

Following consideration of the summary judgment motions without

oral argument, the judge issued a second opinion mirroring the

findings of the first, and granting summary judgment to the trustee

against LDNG, and granting summary judgment to DeKalb against the

trustee.

II

ANALYSIS

We review a grant of summary judgment de novo, viewing the

facts and inferences in the light most favorable to the nonmovant.

See Hall v. Gillman Inc., 81 F.3d 35, 36-37 (5th Cir. 1996).

Summary judgment is appropriate if the record discloses “that there

is no genuine issue as to any material fact and the moving party is
4

entitled to judgment as a matter of law.” R. Bankr. P. 7056

(stating that Fed. R. Civ. P. 56(c) applies in adversary

proceedings); Fed. R. Civ. P. 56(c); accord Celotex Corp. v.

Catrett, 477 U.S. 317, 322 (1986). A genuine issue of material

fact exists only if “there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the

evidence is merely colorable, or is not significantly probative,

summary judgment may be granted.” Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 249-50 (1986) (citations omitted). The moving party

bears the burden of establishing that there is no genuine issue of

material fact. See id. at 256. The moving party may also

establish its entitlement to summary judgment by showing an absence

of evidence supporting the nonmoving party’s case. See Celotex

Corp. v. Catrett, 477 U.S. 317, 322 (1986). 

A

CLAIM AGAINST LDNG

Under §547(b),

the trustee may avoid any transfer . . .-

(1) to or for the benefit of a creditor; 

(2) for or on account of an antecedent debt owed by the

debtor . . . ; 

(3) made while the debtor was insolvent;

(4) made-

(A) on or within 90 days before the date of the 

filing of the petition; . . .

(5) that enable such creditor to receive more than such

creditor would receive if-

(A) the case were a case under chapter 7 of this

title . . . .

The only elements at issue between the trustee and LDNG are whether
5

GasMark was insolvent on the date of GasMark’s payment to LDNG, and

whether LDNG received more that it would have if the case were

under Chapter 7. We conclude that the district judge did not err

in granting the trustee summary judgment.

Insolvency is a “financial condition such that the sum of

[the] entity’s debts is greater than all of [its] property, at a

fair valuation . . . .” 11 U.S.C.A. § 101(32)(1993). A debtor is

presumed insolvent on and during the 90 days before filing for

bankruptcy. See 11 U.S.C.A. § 547(f) (1993). “[A] presumption

imposes on the party against whom it is directed the burden of

going forward with evidence to rebut or meet the presumption, but

does not shift to such party the burden of proof in the sense of

the risk of nonpersuasion . . . .” Fed. R. Evid. 301. The party

seeking to rebut the presumption must introduce some evidence to

show that the debtor was solvent at the time of the transfer; mere

speculative evidence of solvency is not enough. See Sandoz v. Fred

Wilson Drilling Co. (In the Matter of Emerald Oil Co.), 695 F.2d

833, 839 (5th Cir. 1983) (emphasis added). Summary judgment in

favor of the trustee is appropriate when the party seeking to rebut

the presumption fails, see id. at 834-39 (affirming summary

judgment in an avoidance of preference case based solely on the

presumption), or when there is no genuine issue of material fact

concerning insolvency and the trustee is entitled to judgment as a

matter of law, see R. Bankr. P. 7056; Celotex Corp. v. Catrett, 477
1Gene Stoever, a CPA and LDNG’s expert witness, testified that

assets not typically reported on a broker’s balance sheet include

“the company’s contracts, contractual relationships and strategic

alignments, its market position, its competitive ability, its

internal operating systems, its computer system and programs, the

management and personnel of the enterprise, their contacts and

other similar attributes . . . .”

6

U.S. 317, 322 (1986). To avoid summary judgment in this case, LDNG

must raise a genuine issue of material fact concerning whether it

rebutted the presumption. Also, since the trustee provided

affirmative evidence of insolvency and did not rely only on the

presumption, LDNG must raise a genuine issue of material fact

concerning GasMark’s insolvency. 

The trustee submitted affirmative evidence of insolvency.

Certified Public Accountant (“CPA”) Loretta Cross affirmed that on

the date of GasMark’s payment to LDNG, GasMark’s balance sheet, at

fair valuation, showed $24,514,000 in assets and $41,528,000 in

liabilities, creating a $17,014,000 deficit. 

LDNG objects to the trustee’s reliance on the balance sheet

method of valuation. LDNG argues that, because GasMark is a

broker, many of its assets are soft assets that do not appear on a

balance sheet.1 Therefore, the fair valuation should be based on

a going concern value. We need not resolve the issue of the proper

method of valuation, since we find that even LDNG’s going concern

value evidence does not raise a genuine issue of material fact

concerning whether LDNG rebutted the presumption of GasMark’s

insolvency, or GasMark’s insolvency in fact.
7

To establish a genuine issue of material fact LDNG offers

three items of evidence. First, CPA and expert witness Gene

Stoever affirmed that based on GasMark’s December 1992 Business

Overview, “a potential purchaser . . . would have attributed value

to the company in excess of the net partner’s equity as stated on

GasMark’s balance sheet.” Second, a New York State Electric & Gas

Co. (“NYSEG”) interoffice memo dated February 25, 1993 states that

“[b]ased on the numbers available at this time, GasMark produces a

16% return on a $22 million investment.” LDNG argues that because

GasMark’s deficit was approximately $17 million, this translates to

a going concern value of $5 million. However, the memo also states

that this result is based on projections provided to NYSEG

(presumably by GasMark), and expresses concern about the integrity

of the projections. Third, a letter from John Barr, the Managing

Director of an investment bank retained by NYSEG to undertake a

financial and strategic analysis of GasMark as a potential

investment opportunity, states that “in or about February 1993,

GasMark’s equity had a positive value in the merger market as of

that time.” However, Barr qualifies this statement by claiming

that the letter does not constitute or reflect an opinion or

valuation analysis, and by emphasizing that Barr performed only a

very preliminary analysis and ceased when NYSEG decided not to

pursue any potential investment in GasMark.

 This evidence does not create a genuine issue of material

fact since it is speculative and does not address GasMark’s
8

insolvency on February 28, the date of the payment at issue. See

Sandoz v. Fred Wilson Drilling Co. (In the Matter of Emerald Oil

Co.), 695 F.2d 833, 839 (5th Cir. 1983) (noting that the evidence

must show insolvency at the time of transfer, and that speculative

evidence is not sufficient to rebut the presumption of insolvency).

The trustee relied on the 23% Chapter 7 liquidation estimate

for unsecured creditors contained in GasMark’s Chapter 11

reorganization plan to prove that LDNG received more than it would

have received in a Chapter 7 proceeding. LDNG claims that the

trustee did not carry her burden. First, LDNG argues that the

liquidation estimate is hearsay. We find this argument

unpersuasive. See, e.g., Maloney-Crawford, Inc. v. Huntco Steel,

Inc. (In re Maloney-Crawford, Inc.), 144 B.R. 531, 535 (Bankr. N.D.

Okla. 1992) (using the estimated Chapter 7 liquidation analysis in

the debtor’s disclosure statement to determine if the creditor

received more than under Chapter 7); Knapp v. Applewhite (In re

Knapp), 119 B.R. 285, 288 (Bankr. M.D. Fla. 1990) (same); Chemold

Sys., Inc. v. Powers (In re Chemold Sys., Inc.), 124 B.R. 573, 577

(Bankr. D. Kan. 1991), aff’d, 137 B.R. 971, 975 (D. Kan.

1992)(same); Billings v. Key Bank of Utah (In re Granada, Inc.),

115 B.R. 702, 708 (Bankr. D. Utah), rev’d on other grounds, 156

B.R. 303 (D. Utah 1990) (same). Second, LDNG argues that there is

a fact issue concerning whether GasMark’s February 28 payment to

LDNG constituted 100% of the money owed to LDNG by GasMark. This

argument is irrelevant, since even if the payment was only a
9

portion of the total amount owed, LDNG received a preference as to

that portion. See Palmer Clay Prods. v. Brown, 297 U.S. 227, 229

(1936) (noting that part payment can be a preference because “where

the creditor’s claim is $10,000, the payment on account $1000, and

the distribution in bankruptcy 50 per cent., the creditor to whom

the payment on account is made receives $5,500, while another

creditor to whom the same amount was owing and no payment on

account was made will receive only $5,000."). The trustee did not

fail to carry her burden, and there is no genuine issue of material

fact that LDNG received more than Chapter 7 liquidation value.

We affirm summary judgment for the trustee because LDNG did

not raise a genuine issue of material fact concerning GasMark’s

insolvency or concerning whether LDNG received more than Chapter 7

liquidation value. 

B

CLAIM AGAINST DEKALB

A creditor can defend against avoidance of an alleged

preference payment by proving that the debtor made the payment in

the ordinary course of business between the debtor and creditor and

according to ordinary business terms, for a debt incurred in the

ordinary course between the debtor and creditor. See 11 U.S.C.A.

§ 547(c)(2)(B)-(C) (1993). The parties do not dispute that the

debt repaid was incurred in the ordinary course between GasMark and

DeKalb.

There is no “precise legal test” for whether payments are in
10

the ordinary course of business. Lovett v. St. Johnsbury Trucking,

931 F.2d 494, 497 (8th Cir. 1991) (quoting In re Fulghum Const.

Corp., 872 F.2d 739, 743 (6th Cir. 1989)). Rather, “the analysis

focuses on the time within which the debtor ordinarily paid the

creditor[] . . . and whether the timing of the payments during the

90-day period reflected ‘some consistency’ with that practice.”

Id. 

All of the Circuits that have grappled with the meaning of

ordinary business terms, except for the Eleventh Circuit, look to

“customary terms and conditions used by other parties in the same

industry facing the same or similar problems.” Lawson v. Ford

Motor Co. (In re Roblin Indus., Inc.), 78 F.3d 30, 39 (2d Cir.

1996). Only the Eleventh Circuit finds that the conduct of the

debtor and creditor in question is sufficient to establish ordinary

business terms. See id.

GasMark contracted with DeKalb for the purchase of natural

gas. Their 1990 contract required GasMark to pay DeKalb “by the

last day of the month following deliveries, or fifteen (15) days

from date of invoicing, whichever comes later, by wire transfer.”

The parties stipulated to the history of GasMark’s payments to

DeKalb:

Production

Month

Invoice

Date

Check/Wire

Amount

Check

Date

Check

Deposited

Check/Wire

Cleared

7/90 $23,127.80 8/31/90 9/4/90

(Tue)

9/6/90
2According to the terms of the contract, GasMark should have paid

for the July 1990 gas by the 8/31/90. GasMark’s check was dated

8/31/91, and was received on or before Tuesday, 9/4/90, the date

DeKalb deposited it. The trustee argues that the payment was not

late or only one day late because of the intervening weekend. [The

trustee mistakenly argues that the check was received Monday,

9/4/90. The stipulations and the calendar agree that September 4,

1990 was actually a Tuesday. This error does not affect the

trustee’s argument, since 9/3 was a holiday]. Similarly, according

to the terms of the contract, GasMark should have paid for the June

1991 gas by July 31, 1991. GasMark’s check was dated 7/29/91, and

was received on or before Monday, 9/5/91, the date DeKalb deposited

it. The trustee argues that the payment was not late, or only

three days late because of the intervening weekend.

11

8/90 9/20 &

9/21/90

$228,673.22 9/28/90 10/1/90

(Mon.)

10/3/90

9/90 10/19/90 $128,699.30 11/5/90

11/90 12/18/90 $102,381.46 12/31/90*

6/91 7/11/91 $38,484.84^ 7/29/91 8/5/91

(Mon)

8/7/91

10/92 11/9/92 $492,950.92 12/8/92

*$80,727.21 of the 12/31/90 wire was for July 1990 gas; neither

DeKalb nor the trustee have produced an invoice for this gas.

^ DeKalb Denver $22,164.84; DeKalb Canada $16,320.00.

The trustee claims that it was not in the ordinary course of

business for GasMark to pay DeKalb eight days late: at most, over

the course of the relationship, GasMark paid only one or three days

late.2 DeKalb makes two arguments for the payment being in the

ordinary course. First, GasMark’s payment history shows that

deviation from the 1990 contract was the ordinary course between

the parties: in addition to payments made later than the

contractually mandated time, GasMark made several payments by check

when the contract specifically required payment by wire. Second,
12

since the contract required payment by wire and the recipient gains

control over the cash when the wire is received, the relevant date

for considering whether payment by check is on time is the date

that the check clears the bank, the time at which the recipient

gains control over the cash. Under this interpretation of the

contract, GasMark paid six, three, five, on time, and seven days

late, in addition to the eight day late December 8, 1992 payment at

issue. 

This evidence creates genuine issues of material fact

concerning whether the December 8, 1992 payment was in the ordinary

course of business between GasMark and DeKalb, requiring reversal

of the grant of summary judgment in DeKalb’s favor. 

Since the trustee moved for partial summary judgment on the

ordinary course defense, and is entitled to summary judgment if she

can establish that DeKalb can not prove an element of its defense,

we must also examine the ordinary business terms prong of the

ordinary course defense. The trustee argues that the ordinary

business terms prong is objective, looking to the industry in

general, while DeKalb argues that the prong is subjective, looking

only to the conduct between the debtor and creditor. We need not

resolve this conflict, since there exists a genuine issue of

material fact concerning whether the December 8 payment was in

accordance with ordinary business terms, whether the standard is

objective or subjective. If the standard is subjective, the

evidence of conduct between the parties raises a genuine issue of
13

material fact for the same reasons we found a fact issue in

relation to the ordinary course prong. If the standard is

objective, the record contains conflicting evidence concerning the

general practice of the industry. The trustee testified that,

based on her long experience in the gas marketing industry, “the

standard practice in the industry is for purchasers . . . to pay

timely according to the payment terms and conditions of the

contracts with their suppliers . . . .” In an affidavit submitted

in opposition to the trustee’s motion for partial summary judgment,

attorney Nora Sams stated:

It is quite common for payments to be made by the gas

purchaser and accepted by the seller on dates later than

the dates provided in the contracts between the

purchasers and sellers. Purchasers generally base their

payments, in part, upon information received from the

pipeline companies charged with moving the natural gas.

Sellers of natural gas are generally not overly concerned

if payments are received from the purchaser after the

time period provided in the contract, so long as payments

are received within a reasonable time after the gas is

delivered to the pipeline.

This conflicting evidence concerning ordinary business practice

creates an issue of fact precluding partial summary judgment in

favor of the trustee.

 AFFIRMED in part, REVERSED in part, and REMANDED.