Opinion ID: 3173155
Heading Depth: 1
Heading Rank: 2

Heading: the exception under 547(c)(5)

Text: We would normally stop here without addressing the exception to avoidance under § 547(c)(5). However, the district court went on to consider that exception and to hold that Knoll had established it. As we shall explain, we disagree. In pertinent part, § 547(c)(5) states that “[t]he trustee may not avoid under [§ 547] a transfer . . . that creates a perfected security interest in 47The trustee herself states that “tracing is not possible under these circumstances,” which seems to be an acknowledgment that, if that burden is hers, she cannot meet it. 48 TEX. BUS. & COMM. CODE. ANN. § 9.102(65). 20 Case: 15-10274 Document: 00513359812 Page: 21 Date Filed: 01/28/2016 inventory or a receivable or the proceeds of either . . . .” 49 As she did in the bankruptcy court and in the district court, the Trustee again argues that the exception under § 547(c)(5) does not apply to the disputed transfers from Tusa Office to Knoll because those transfers did not create any security interest. She also notes that neither the bankruptcy court nor the district court considered whether the transfers created such a security interest. The Trustee properly distinguishes the Eleventh Circuit’s decisions on which the district court relied. In Galloway v. First Alabama Bank (In re Wesley Industries Inc.), the Eleventh Circuit applied § 547(c)(5) to determine that a debtor’s transfer of a perfected security interest in its accounts receivable under a ‘floating lien’ was not avoidable because the creditor’s position had not improved as a result. 50 This allowed that court to use § 547(b)(5) to conclude that a debtor’s transfer of the proceeds of the accounts receivable themselves was not a preference because the creditor merely received its own collateral. 51 Although the decision is admittedly vague in its analysis, it did not hold that § 547(c)(5) applies to transfers of accounts receivable themselves. Instead, it expressly states that § 547(c)(5) “protects the transfer of a security interest in after-acquired property . . . .” 52 In Roemelmeyer v. Walter E. Heller & Co., Southeast, Inc. (In re Lackow Brothers, Inc.), the Eleventh Circuit determined the appropriate method of valuation of under § 547, but it did not consider whether § 547(c)(5) applies to transfers of accounts receivable. 53 Further, § 547(c)(5) could not have applied 49 11 U.S.C. § 547(c). 50 30 F.3d 1438, 14-38-42 (11th Cir. 1994). 51 Id. 52 Id. at 1442 (emphasis added). 53 752 F.2d 1529 (11th Cir. 1985). 21 Case: 15-10274 Document: 00513359812 Page: 22 Date Filed: 01/28/2016 to the transfers there because the creditor was fully secured. As this court has held, “[i]t is . . . commonplace that preference law exempts fully secured creditors from its grasp.” 54 We agree with the Trustee that, even if these opinions were binding on us, they are nonetheless inapplicable here. In response, Knoll relies primarily on this court’s decision in Wilson v. Huffman (In re Missionary Baptist Foundation of America, Inc.) for the proposition that the exception to § 547(c)(5) applies here. 55 In that decision, we discussed the exception under § 547(c)(5) at some length, but remanded without deciding whether it applied to transfers of funds because the district court’s analysis was so “conclusory and unilluminating” that we had “no basis for meaningful review at all.” 56 Despite this, Knoll advances that Missionary Baptist nonetheless held that if, on remand, the district court were to conclude that the creditor had not improved its position, then the transfers would be unavoidable pursuant to the exception under § 547(c)(5). Regardless, this court’s 1986 decision in Missionary Baptist and the Eleventh Circuit’s 1985 decision in Lackow are inapplicable for another, more significant reason. In reciting § 547(c)(5), both courts stated that it applies to a transfer “of a perfected security interest in inventory or a receivable or the proceeds of either.” 57 Yet, as explained above, § 547(c)(5), as it now exists, applies only to a transfer “that creates a perfected security interest in inventory or a receivable or the proceeds of either.” 58 The amendment that replaced “of” 54 796 F.2d at 759. 55 796 F.2d at 760-61. 56 Id. 57 Id. at 759 (emphasis added) (quoting 11 U.S.C. § 547(c)(5)); Lackow, 752 F.2d at 1530 n.2 (emphasis added) (quoting 11 U.S.C. § 547(c)(5)). 58 11 U.S.C. § 547(c)(5) (emphasis added). 22 Case: 15-10274 Document: 00513359812 Page: 23 Date Filed: 01/28/2016 with “that creates” was enacted in 1984 and codified in 1985. 59 Missionary Baptist and Lackow might very well have interpreted the exception under § 547(c)(5) as it then existed to apply to a transfer of accounts receivable themselves and any proceeds thereof. But, as it now exists, the exception under § 547(c)(5) only applies to a transfer that creates a perfected security interest in such things. As we recently held, “the Bankruptcy Code must be read literally . . . .” 60 Read literally—as it must be—the exception under § 547(c)(5) does not apply to the transfers at issue here. This does not, however, affect our outcome, which is grounded in the requirement of § 547(b)(5) and the attendant El Paso Refinery analysis.