Opinion ID: 748623
Heading Depth: 1
Heading Rank: 3

Heading: The Contemporaneous New Value Exchange Exception.

Text: 11 Contemporaneous new value exchanges are not preferential because they encourage creditors to deal with troubled debtors and because other creditors are not adversely affected if the debtor's estate receives new value. See Pine Top Ins. Co. v. Bank of Amer. Nat'l Trust & Sav. Ass'n, 969 F.2d 321, 324 (7th Cir.1992). To qualify for this exception, a creditor must prove that an otherwise preferential transfer was (A) intended by the debtor and the creditor ... to be a contemporaneous exchange for new value given to the debtor; and (B) in fact a substantially contemporaneous exchange. § 547(c)(1). The bankruptcy court and the district court held that § 547(c)(1) does not apply in this case because the Central States benefit funds did not provide new value directly to the debtor. We reject this construction of the statute. 12 A. New Value. New value for § 547(c) purposes includes money or money's worth in goods, services, or new credit. § 547(a)(2). The flaw in the district court's analysis was its search for new value flowing from Central States to Jones. An employer pays wages and benefits in exchange for employee services. That is true even if wages and benefits are collectively bargained, and even if the parties to a collective bargaining agreement designate a third party benefit fund to receive, invest, and pay out benefits on behalf of the employees. The new value Jones received for paying current wages and benefit contributions during the ninety-day preference period were the services its employees continued to provide. 13 Recognizing that the new value came from Jones's employees, not their benefit funds, exposes the flaw in Jones's contention that Central States merely refrained from terminating fund benefits in exchange for the weekly payments. While such forbearance is usually not new value, the question here is not what Central States did, but whether the weekly payments were for current or past-due employee services. To illustrate, assume that an employer fails to pay an employee's salary and benefits when due. The employee complains and threatens to resign, or his union threatens to strike. If the employer responds by paying (or providing collateral for) the past-due salary or benefits, that transfer is not for new value. See In re Elton Trucking, Inc., 1996 WL 261059 (Bankr.N.D.Ill.1996); In re Burner Servs. & Combustion Controls Co., 1989 WL 126487 (Bankr.D.Minn.1989). 3 If the employer also resumes paying the employee's current salary and benefits when due, and the employee keeps working, those current payments are contemporaneous exchanges for new value, the employee's continuing services. In our view, this new value analysis is the same whether the creditor claiming § 547(c)(1) protection is the employee who continued to work in exchange for current wages, or the employee benefit fund to which current benefits were paid on the employee's behalf. 14 Like the bankruptcy court and the district court, Jones sidesteps this reality by relying on cases that have construed the phrase new value given to the debtor in § 547(c)(1)(A) as meaning only new value given directly to the debtor by the creditor, in this case Central States. See In re Bowers-Siemon Chems. Co., 139 B.R. 436, 448-49 (Bankr.N.D.Ill.1992); In re H & S Transp. Co., 80 B.R. 441, 447 (Bankr.M.D.Tenn.1987), rev'd on other grounds, 90 B.R. 309 (M.D.Tenn.1988). But this construction of the statute radically alters its plain meaning by inserting a word, directly, that Congress omitted. There are countless transactions in which a debtor transfers property to a creditor in exchange for contemporaneous new value provided to the debtor by a third party. Jones counters with a textual argument, that § 547(c)(1) refers to new value given to the debtor, whereas the exception in § 547(c)(4) uses a broader phrase, new value to or for the benefit of the debtor. See In re Bellanca Aircraft Corp., 850 F.2d 1275, 1280 (8th Cir.1988), construing § 547(c)(4). This textual argument is unpersuasive. Section 547(c)(1) applies to a contemporaneous exchange for new value, language whose ordinary meaning would include exchanges involving more than two parties. Section 547(c)(4), on the other hand, applies if the creditor gave new value, a phrase to which for the benefit of must be added to clarify that three-party exchanges are included. Thus, we agree with the other circuits that have concluded that a transfer of new value by a third party to the debtor may satisfy the new value requirement of § 547(c)(1)(A). See In re Kumar Bavishi & Assocs., 906 F.2d 942, 945 (3d Cir.1990); In re E.R. Fegert, Inc., 887 F.2d 955, 959 (9th Cir.1989); In re Fuel Oil Supply & Terminaling, Inc., 837 F.2d 224, 228-30 (5th Cir.1988). 4 15 B. Contemporaneous Exchanges. There remain two § 547(c)(1) issues that the bankruptcy court and the district court did not reach, whether the parties intended a contemporaneous exchange, and whether the exchange was in fact substantially contemporaneous. The Jones/Central States Participation Agreement expressly provided that past-due contributions would be reduced to secured promissory notes, and that Jones would continue to pay current contribution obligations on an accelerated weekly basis. Thereafter, weekly estimated payments were made and later adjusted so that they equalled Jones's current contribution obligations. Those payments were in fact paid as contemporaneously as contributions paid before Jones encountered financial difficulty. Jones does not challenge this uncontroverted evidence that the parties intended a contemporaneous exchange, nor does Jones contend that the benefit payments were not in fact substantially contemporaneous with the employee services for which they were exchanged. Although these are issues of fact, see In re Lewellyn & Co., 929 F.2d 424, 427 (8th Cir.1991), we conclude on this record that Central States has established as a matter of law that the transfers were intended to be contemporaneous and were in fact substantially contemporaneous. 16