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

Heading: the various analyses

Text: The Trustee complains that the bankruptcy court erred in holding that the transfers from Tusa Office to Knoll were not preferences under § 547(b) of the Bankruptcy Code. Section 547(b) specifies, in the conjunctive: [T]he trustee may avoid any transfer of an interest of the debtor in property— (1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; (3) made while the debtor was insolvent; (4) made . . . on or within 90 days before the date of the filing of the petition [viz., the preference period] . . . ; and (5) that enables such creditor to receive more than such creditor would receive if— (A) the case were a case under chapter 7 of this title; (B) the transfer had not been made; and (C) such creditor received payment of such debt to the extent provided by the [Bankruptcy Code]. 5 3Morrison v. W. Builders of Amarillo, Inc. (In re Morrison), 555 F.3d 473, 480 (5th Cir.2009) (internal quotation marks omitted). 4 Wilson v. Huffman (In re Missionary Baptist Found. of Am., Inc.), 712 F.2d 206, 209 (5th Cir. 1983). 5 11 U.S.C. § 547(b). 6 Case: 15-10274 Document: 00513359812 Page: 7 Date Filed: 01/28/2016 If a trustee establishes each of the requirements of § 547(b), the transfer is a preference, which must be returned to the bankruptcy estate unless the creditor establishes an exception to avoidance under § 547(c). 6 The instant dispute concerns the last of the § 547(b) requirements, namely, subsection (b)(5). “This is the requirement that before a trustee in bankruptcy can [sic] avoid a preferential [transfer], the trustee must establish that the [transfer] enabled the creditor to receive more than the creditor would have received upon liquidation under Chapter 7 of the [B]ankruptcy [C]ode.” 7 To determine whether a trustee has established this requirement, a court typically uses the so-called “hypothetical Chapter 7 liquidation analysis” inherent in § 547(b)(5) itself. To do so, the court (1) constructs a hypothetical Chapter 7 liquidation in which the creditor retains the disputed transfers, viz., the transfers-retained hypothetical, and (2) constructs another in which the creditor returns those transfers, viz., the transfers-returned hypothetical. To establish the requirement of § 547(b)(5) under this analysis, the sum of (1) the disputed transfers and (2) the creditor’s distribution in the transfers-retained hypothetical must be “more” than the creditor’s distribution in the transfersreturned hypothetical. 6 Krafsur v. Scurlock Permian Corp. (In re El Paso Refinery), 171 F.3d 249, 253 (5th Cir. 1999); see 11 U.S.C. § 547(g) (“For the purposes of [§ 547], the trustee has the burden of proving the avoidability of a transfer under [§ 547(b)], and the creditor or party in interest against whom recovery or avoidance is sought has the burden of proving the nonavoidability of a transfer under [§ 547(c)].”). In addition to the requirements enumerated in § 547(b)(1) through § 547(b)(5), there is an unenumerated requirement in § 547(b) itself that such a transfer must have been made from “an interest of the debtor in property.” That is, to be avoidable, the transfer must have diminished the debtor’s estate. Because we hold that the trustee has not established another of the requirements of § 547(b), we do not consider the unenumerated requirment. 7Braniff Airways, Inc. v. Exxon Co., U.S.A., 814 F.2d 1030, 1034 (5th Cir. 1987); see 11 U.S.C. § 547(b)(5). 7 Case: 15-10274 Document: 00513359812 Page: 8 Date Filed: 01/28/2016 But a court may occasionally circumvent the often arduous hypothetical Chapter 7 liquidation analysis by employing the abbreviated El Paso Refinery analysis. 8 This analysis considers only the disputed transfer itself. It is premised on the truism that, if a creditor receives a transfer which, by its very nature, would not have been available to any of the other secured or unsecured creditors, it could never receive “more” under the hypothetical Chapter 7 liquidation analysis. 9 Specifically, the El Paso Refinery analysis states: To determine whether an undersecured creditor received a greater percentage recovery [read: “more”] on its debt than it would have under [C]hapter 7 the following two issues must first be resolved: (1) to what claim the [transfer] is applied and (2) from what source the [transfer] comes. Both aspects must be examined before the issue of greater percentage recovery can be decided. 10 These are referred to as the application aspect and the source aspect, respectively. If the disputed transfer (1) reduced the creditor’s collateral under the application aspect of the El Paso Refinery analysis or (2) was made from the debtor’s collateral under the source aspect of that analysis, the trustee could never establish that the creditor received “more” under the hypothetical Chapter 7 liquidation analysis. But only in such an instance is the El Paso Refinery analysis dispositive. If, conversely, the disputed transfer (1) did not reduce the creditor’s collateral under the application aspect and (2) was not made from the debtor’s collateral under the source aspect, the trustee might 8 El Paso Refinery, 171 F.3d at 253. 9See, e.g., Missionary Baptist, 796 F.2d at 759 (“It is a commonplace that preference law exempts fully secured creditors from its grasp.”). 10 El Paso Refinery, 171 F.3d at 254 (citation omitted). 8 Case: 15-10274 Document: 00513359812 Page: 9 Date Filed: 01/28/2016 still be able to establish that the creditor received “more” under the hypothetical Chapter 7 liquidation analysis. Simply put, the El Paso Refinery analysis provides a threshold. It is intended to aid the hypothetical Chapter 7 liquidation analysis under § 547(b)(5), not to replace it. Nor could it. As the hypothetical Chapter 7 liquidation analysis is embodied in § 547(b)(5), it must control. Here, in a belt-and-suspenders approach, the bankruptcy court undertook both the El Paso Refinery analysis and the hypothetical Chapter 7 liquidation analysis. It began by determining that the Trustee had failed to establish the requirement of § 547(b)(5) under the El Paso Refinery analysis because she had not satisfied the source aspect. 11 Although it did not need to have done so, the bankruptcy court went on to determine that the Trustee had also failed to establish the requirement of § 547(b)(5) under the hypothetical Chapter 7 liquidation analysis: Even if the transfers had not been made from Knoll’s collateral, Knoll still did not receive “more.” The district court did not use either analysis, however. Instead it determined that, even if the Trustee had established all of the requirements of § 547(b), Knoll itself had established an exception to avoidance under § 547(c)(5).