Opinion ID: 748192
Heading Depth: 2
Heading Rank: 1

Heading: The Transfer of the Soybean Seed as an Avoidable Transfer

Text: 18 First, the Trustee argues that the transfer of the soybean seed to Golden Seed is an avoidable transfer under § 548 and that the issue on appeal is whether OMI received reasonably equivalent value in exchange for the transfer of the soybean seed. Section 548 states: 19 The trustee may avoid any transfer ... that was made or incurred on or within one year before the date of the filing of the petition, if the debtor ... received less than a reasonably equivalent value in exchange for such transfer or obligation. 20 § 548(a)(2). To prevail in a fraudulent conveyance action under § 548, the Trustee must prove that the debtor received less than reasonably equivalent value. In re Bundles, 856 F.2d 815, 816-17 (7th Cir.1988). The test used to determine reasonably equivalent value in the context of a fraudulent conveyance requires the court to determine the value of what was transferred and to compare it to what was received. Matter of Vitreous Steel Products Co., 911 F.2d 1223, 1234-35 (7th Cir.1990). 21 The burden of proving lack of reasonably equivalent value under § 548 rests on the Trustee. In re Rodriguez (General Electric Credit Corp. of Tennessee v. Murphy), 895 F.2d 725, 726 (11th Cir.1990). We have held that the formula for determining reasonably equivalent value is not a fixed mathematical formula; rather, the standard for [r]easonable equivalence should depend on all the facts of each case, an important element of which is fair market value. In re Bundles, 856 F.2d at 824. Another important factor in assessing reasonably equivalent value is whether the sale was an arm's length transaction between a willing buyer and a willing seller. Id. at 824. Additionally, other courts have held that the debtor need not collect a dollar-for-dollar equivalent to receive reasonably equivalent value. See Matter of Fairchild Aircraft Corp., 6 F.3d 1119, 1125-26 (5th Cir.1993) (footnote omitted).
22 Specifically, the Trustee claims that OMI transferred 60,022 bags 2 of bean seed worth $850,000.00 and received only $240,000.00. Initially, it is important to examine the figures the Trustee asserts are valid and which he uses in his calculations. Golden Seed made four payments to OMI: (1) $69,683.88 in August of 1991; (2) $75,000.00 in December 1991 which included a $22,394.00 credit for the $.40 payments Golden Seed made to the growers; (3) $95,512.16 and $69,688.88 on January 13 and 21, 1992 for the seed delivered between October 1991 and January 1992. These payments total $309,883.92 which Golden Seed paid OMI. 23 The Trustee, however, uses the figure $240,000.00, which accurately is $240,201.04, because he does not include the first progress payment of $69,683.88 in the total amount received by OMI. The Trustee contends that the initial payment was not a progress payment but rather a final payment, or an even-steven payment, which should not be included in the calculations for payments ultimately received by OMI. The bankruptcy court, however, rejected this argument and classified the $69,683.88 payment as a progress payment to be included in the total amount paid by Golden Seed. In re Ostrom-Martin, Inc., 191 B.R. at 134 n. 11. The bankruptcy court concluded that the even-steven payment was a progress payment intended to compensate OMI for the value of its services to date, with GOLDEN and OMI expecting to make more payments and deliveries until they both performed under the oral contract. Id. at 126, 134 n. 11. The district court agreed with the classification of the $69,683.88 payment as a progress payment. In re Ostrom-Martin, Inc., No. 96-1118, Slip Op. at p. 3 (C.D.Ill. Feb. 6, 1997).
24 The Trustee then argues that the value of the seed was worth in excess of the $4.00 per bag which OMI received. However, this $4.00 per bag figure was calculated by using $240,201.04 and not $309,884.92. The bankruptcy court concluded that the posted market price plus the $1.20 premium was a reasonable payment to expect for the transaction. In re Ostrom-Martin, 191 B.R. at 131. The district court recognized that the bankruptcy court did not place a numerical value on the beans Golden Seed received, but stated that it was comfortable equating the Bankruptcy Court's approval of this formula for the contract price with approval of the payments received. In re Ostrom-Martin, Inc., No. 96-1118, Slip Op. at 9-10. Accordingly, the district court interpreted the bankruptcy court's decision as approving of $309,884.92 as payment for 60,022 bags of beans, or $5.16 per bag. Id. at 9-10 (footnote omitted). 25 In further support of his argument, the Trustee asserts that the grain value of the soybean seed alone is $4.87 per bag and that the cleaning and bagging of the seed increased the value by $.80 for a total minimum value of $5.67. The Trustee continues to argue that the seed had a retail value of $13.75 per bag and further explains that his expert testified that the seed was worth between $9.00 and $11.00 on the wholesale market. 26 However, the Trustee's discussion of what the soybean seed would have been worth on the retail or wholesale market is useless because the only value which matters in this case is the basic market value of the soybeans as determined by the contract between Golden Seed and OMI. Neither the wholesale nor the retail market was available to OMI. The bankruptcy court stated that [t]his case cannot be determined based on what might have occurred, but on what occurred. In re Ostrom-Martin, 191 B.R. at 130. The district court similarly rejected the Trustee's attempt to argue that the soybean seeds would have had a greater value on either the retail or wholesale market. 27
28 Next, the Trustee challenges the validity of the oral contract between OMI and Golden Seed, contending that the bankruptcy court and the district court erred in their conclusion that the oral contract between OMI and Golden Seed is valid and enforceable. The Trustee argues that the oral seed contract is illegal and unenforceable because it violates the Illinois Seed Law. See 505 ILCS 110/11.1. The Illinois Seed Law states in pertinent part: 29 Any seed permit holder who acquires agricultural seed for resale and conditioning from Illinois producers thereof shall document acquisitions through their use of a seed contract. 30 505 ILCS 110/11.1. Under this provision, the Trustee contends that an oral contract for soybean seed is not valid. The bankruptcy court, however, rejected this argument. The bankruptcy court found that because Golden Seed was acquiring seed for resale and not resale and conditioning, the statute did not apply. In re Ostrom-Martin, 191 B.R. at 130 n. 8. The bankruptcy court alternatively held that even if the statute did apply and required a written contract, the statute does not provide that a contract which does not comply with the statutory requirements is unenforceable and void. Id. at 131. It concluded that [t]here was not a shred of evidence that the contract between Golden Seed and OMI was a bad deal. Id. 31 The bankruptcy court also recognized that even a contract which is unenforceable because it fails to comply with a statutory writing requirement is enforceable if one side has fully performed. Id. See also City of Chicago v. Reliable Truck Parts Co., Inc., 822 F.Supp. 1288 (N.D.Ill.1993). Accordingly, the bankruptcy court concluded the contract between OMI and Golden Seed is valid, and the subsequent delivery of the seed pursuant to contract provisions was proper and price determined by market value plus the premium was consistent with the terms of the contract. The district court agreed with the bankruptcy court and rejected the Trustee's contention that the bankruptcy court made an error of law. In re Ostrom-Martin, Inc., No. 96-1118, Slip Op. at p. 12. The district court also agreed that Illinois Seed Law did not apply and that the oral contract between OMI and Golden Seed is valid and enforceable. Id.
32 Finally, the Trustee argues that Golden Seed's payment of $127,563.00 to Baird also qualifies as an avoidable transfer under § 548. As discussed above, OMI was unable to fulfill its obligation under the contract with Golden Seed to satisfy Golden Seed's capacity requirements for seed production. Consequently, OMI subcontracted with Baird to produce soybean seed on 230 acres. The bankruptcy court recognized that there is nothing unusual for a company to subcontract with a third party to satisfy its contractual obligations. In re Ostrom-Martin, 191 B.R. at 133-34. The bankruptcy court recognized that once OMI contracted out its duties under the contract to Baird, it also relinquished any benefit it would have enjoyed under the contract. Id. 33 Baird shipped directly to Golden Seed 11,597 bags of soybean seed at a price of $11.00 per bag, and Golden Seed paid Baird the sum of $127,563.00. OMI received nothing from this transaction between Baird and Golden Seed. The bankruptcy court concluded that the subcontract between OMI and Baird was within industry standards, and Golden Seed's payment to Baird for the delivery of the bean seed was consistent with ordinary business practice. Id. The bankruptcy court concluded that OMI: 34 [P]rovided nothing under the oral contract with Golden as to those acres [contracted out to Baird]. So [OMI] is entitled to receive nothing. It was a wash transaction from OMI's perspective. If it is entitled to nothing, equivalent value is nothing. 35 Id. at 133. The district court agreed that when OMI contracted its duties to Baird, it also contracted out any benefits it would be entitled to under the contract. In re Ostrom-Martin, Inc., No. 96-1118, Slip Op. at 11. 36 The findings of the bankruptcy court as discussed above--the $69,683.88 progress payment, the value of the soybean seed, the validity of the oral contract, and the subcontract between Baird and OMI--support its conclusion that there was not a fraudulent transfer under § 548 which the Trustee could avoid. As we have recognized before, a bankruptcy court's findings on the fact-intensive issue of whether the debtor received reasonably equivalent value receives great deference. In re Bundles, 856 F.2d at 825. 37 We find absolutely no reason to substitute our judgment for that of the district court and the bankruptcy court, and we are certainly in no position to question how much weight the bankruptcy court gave to the testimony. In short, we too conclude that the bankruptcy court did not err in finding that the transfer of the soybean seed from OMI to Golden Seed is not an avoidable transfer under § 548 of the Bankruptcy Code. Accordingly, the district court did not err in its conclusion to affirm the bankruptcy court's decision that OMI received reasonably equivalent value in exchange for the transfer of the soybean seeds.