Court Opinion

ID: 2800325
Source: CourtListenerOpinion
Date Created: 2015-05-13 00:01:06.172346+00
Date Added: 2024-06-11T11:29:35.571101
License: Public Domain

Case: 14-10563             Document: 00513040201   Page: 1   Date Filed: 05/12/2015

                                  REVISED MAY 12, 2015

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                        United States Court of Appeals
                                                                                 Fifth Circuit

                                                                               FILED
                                          No. 14-10563                     April 28, 2015
                                                                          Lyle W. Cayce
In the Matter of: AMERICAN HOUSING FOUNDATION,                                 Clerk

                 Debtor

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

ROBERT L. TEMPLETON,

                 Appellant Cross-Appellee

v.

WALTER O'CHESKEY, Trustee

                 Appellee Cross-Appellant

                     Appeals from the United States District Court
                          for the Northern District of Texas

Before KING, DAVIS, and OWEN, Circuit Judges.
KING, Circuit Judge:
        Appellant Robert Templeton invested in certain limited partnerships
formed under the auspices of American Housing Foundation, the debtor, which
was in the business of developing low-income housing projects. American
Housing Foundation, which issued guaranties of Templeton’s investments,
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ultimately filed for Chapter 11 bankruptcy. Templeton asserted claims against
American Housing Foundation in bankruptcy based on the guaranties and
based on various state law causes of action related to his investments. The
bankruptcy court issued a judgment subordinating those claims “pursuant to
the provisions of 11 U.S.C. § 510(b).” The court also voided, as preferential,
transfers made to Templeton within 90 days of the bankruptcy filing.
However, the bankruptcy court refused to void allegedly fraudulent transfers.
      The parties cross-appealed to the district court, which affirmed the
bankruptcy court’s judgment in its entirety. The parties now cross-appeal to
this court. For the following reasons, we AFFIRM in part and REVERSE in
part the judgment below.
                   I.         Factual and Procedural Background
      A. Factual Background
      Steve W. Sterquell, a certified public accountant, was the president and
executive director of debtor American Housing Foundation (“AHF”). Founded
by Sterquell in 1989, AHF is a 501(c)(3) non-profit, tax-exempt entity which
develops low-income housing projects.             By 2009, AHF owned or managed
approximately 14,000 housing units across nine states.                    Many of these
properties were eligible for Low Income Housing Tax Credits (LIHTC) and
other tax exemptions and financial aid.
      AHF used these tax advantages in the financing of its developments.
Among other arrangements, AHF created various single-purpose limited
partnerships (“LPs”) to fund these projects. 1 Either AHF or one of its wholly-
owned subsidiaries served as the general partner for these LPs.                   Private
investors would buy into the LPs and serve as limited partners; AHF

      1   AHF also used, for example, tax-exempt bonds to finance acquisitions.

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guaranteed repayment of those investments, often unconditionally, and
sometimes with interest. AHF purportedly sought investments in these LPs
to cover certain “soft” costs for its projects—e.g., attorney’s fees, architect’s
fees, surveying fees, paint, as well as expenses related to the LIHTC
application process. 2 AHF represented that through the LIHTC program,
investors could “make an equity contribution to the development of rental units
for low-income households” and receive “a dollar-for-dollar reduction of their
tax liability.” 3 This general arrangement is not an uncommon method of
funding low-income housing developments. See Eric Mittereder, Pushing the
Limits: Nonprofit Guarantees in LIHTC Joint Ventures, 22 J. Affordable Hous.
& Cmty. Dev. L. 79, 82–84 (2013); Roberta L. Rubin & Jonathan Klein,
Nonprofit Guaranties in Tax Credit Transactions: A New Era?, 15 J. Affordable
Hous. & Cmty. Dev. L. 314, 315–16 (2006); Jonathan Klein & Roberta Rubin,
Nonprofit Guaranties in Tax Credit Transactions, 9 J. Affordable Hous. &
Cmty. Dev. L. 302, 308–09 (2000) (“During the predevelopment stage of an
affordable housing development, a stage that may take one year, two years, or
even longer, seed money financing is essential. Virtually no predevelopment
lender will provide unsecured funding to a single-purpose limited partnership
for a project that does not have permits, approvals, complete financing, and
sometimes even real estate without an unlimited guaranty of repayment.”). 4
       Appellant Robert Templeton is a trial attorney who has practiced law in
Texas for over fifty years. Templeton became acquainted with Sterquell in the

       2These costs typically could not be financed through banks.
       3LPs are pass-through entities for tax purposes. See 26 U.S.C. § 701.
      4 The IRS has issued guidance for limiting guaranties in LIHTC partnerships “to

ensure that the nonprofit’s obligations to its for-profit partner do not violate its charitable
purpose.” Mittereder, supra, at 84–85.

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1980s. Starting in the late 1990s, Templeton and his wife began investing in
AHF and AHF-related entities through Sterquell—ultimately investing over
$5 million. Most relevant here, from 2006 to 2008, Templeton invested in
various LPs in the manner described above—i.e., either AHF or a wholly-
owned AHF subsidiary served as the general partner (taking a 1% or less
equity interest in the LP), while Templeton served as a limited partner (taking,
along with other limited partners, most of the equity in the LP). Templeton’s
investments in five of these LPs—GOZ No. 1, Ltd. (“GOZ”); LIHTC-M2M No.
2, LP (“M2M-2”); LIHTC-M2M No. 3, LP (“M2M-3”); LIHTC Walden II
Development, Ltd. (“Walden II”); and AHF Gray Ranch, Ltd. (“Gray Ranch”)—
are at issue in the present appeal. 5
      These LPs, in which Templeton invested over $2 million, 6 were formed
for the purposes of developing various residential properties. Because these
investments do not appear to have been well-documented, the details
surrounding the investments are less than clear. For instance, according to
Templeton, some of his later investments consisted of the “rolled over” value of
his earlier investments. In any event, concurrent with each investment, AHF
purported to guaranty repayment of the investment—sometimes with interest.
The guaranty documents, however, are in key respects flawed. For example,
some of the documents state that AHF “agree[d] to pay, when due or declared
due as provided in the Loan Documents, the Guaranteed Investment to
[Templeton]”—even though there do not appear to be any associated “Loan
Documents.”      With respect to another LP, AHF guaranteed the return of

      5  During this time period, Templeton also invested in WI-HURIKE, Ltd. (“Hurike”).
However, Templeton, dropped his claims based on his Hurike investment after the
bankruptcy court disallowed the Hurike-based claim of another creditor. As such, those
claims are not at issue in this appeal.
       6 In 2007, Templeton earned over $8 million through the sale of certain oil and gas

interests.

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Templeton’s “Initial Capital Contribution”—defined as the amount of cash
Templeton invested “prior to the Effective Date”—even though Templeton
made all of his investments after that Effective Date. 7
       Templeton testified that he invested in the LPs to make money, not to
gain tax benefits: “The reason I got into [these investments] is this simple.
This was the safest kind of investment that I had seen with those guarantees,
with the financial condition of this company and the history that I had, and
the return.” However, the record is clear that Templeton sought significant
tax benefits as a result of most of his investments. In addition, Templeton
received quarterly interest payments in relation to his investments in Walden
II.
       It is undisputed that many of the funds Templeton and others invested
in the LPs were not put to their intended purposes. Rather, Sterquell used his
LIHTC investment arrangements to obtain funds and fraudulently divert them
from the LPs, using the funds to benefit himself, AHF, and other associated
entities for purposes other than the purported aims of the LPs. In particular,
the bankruptcy court found that AHF and Sterquell used AHF Development,
Ltd. (“AHFD”)—an LP for which AHF served as general partner—as a conduit
bank account for these activities. The Trustee’s First Amended Disclosure
Statement (“Disclosure Statement”) describes the events leading to AHF’s
bankruptcy:
       Prior to the [bankruptcy], [AHF] pursued an aggressive strategy of
       heavily leveraged acquisitions of properties across the nation. As
       many as 200 satellite entities were created to facilitate multiple
       investments in low-income housing tax-credit properties. During
       this time, [AHF] was focused almost exclusively on deals. There
       was no focus on managing the properties acquired. Over the

       7However, for the reasons discussed below, we need not decide the validity of these
guaranties.

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      course of time, because of tightening financial markets and the
      inability to obtain tax credit allocations, it became more and more
      difficult for [AHF] to obtain sufficient cash from lenders or
      investors to fund all of the various obligations of [AHF]. As a
      result, [AHF] took cash from properties and used that cash to pay
      obligations of [AHF] and its related entities. This cash drain from
      the properties resulted in a deterioration in the condition of the
      properties because no funds were then available for basic upkeep.
Sterquell committed suicide on April 1, 2009, prompting investigation into his
activities and, ultimately, AHF’s bankruptcy. Initially, Templeton led a group
of creditors and investors that attempted to obtain information regarding the
activities of Sterquell and AHF prior to his death. According to the Disclosure
Statement, the creditors and investors concluded that “Sterquell had worked
with a complex web of interrelated entities that apparently received funds from
[AHF] and investors” and “funds invested were not always put in the accounts
of the entities in which the funds were invested.” The group also discovered
that just prior to his death, Sterquell had transferred approximately $24
million in life insurance funds from AHF to trusts controlled by or for the
benefit of the Sterquell family. 8
      B. Procedural Background
      On April 21, 2009, creditors of AHF filed an involuntary petition against
it pursuant to Chapter 11 of the Bankruptcy Code. On June 11, 2009, AHF
filed a voluntary petition pursuant to Chapter 11.              The bankruptcy court
consolidated the two cases and appointed Walter O’Cheskey as the Chapter 11
Trustee. On December 7, 2010, the bankruptcy court approved the Second
Amended Joint Chapter 11 Plan Filed by the Chapter 11 Trustee and the
Official Committee of Unsecured Creditors (the “Plan”).

      8   Ultimately, Templeton, as the initial Chairman of the Creditors Committee in the
AHF Bankruptcy, brought an adversary action and successfully litigated for the return of
those life insurance proceeds to the bankruptcy estate.

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              1.     The Plan and Disclosure Statement
       The Plan elucidates the scope of this bankruptcy—involving claims
totaling more than $100 million.             Under the Plan, creditors’ claims are
prioritized into 19 classes. Most relevant here are the last three classes—Class
17, Class 18, and Class 19. Class 17 applies to “Allowed General Unsecured
Claims.” Under the Plan, claims in that class (estimated at between $70.6 and
$87.2 million) are entitled to receive a pro rata share of distributions from the
trust assets after liquidation and after payment in full of claims in Classes 1
through 14. The Plan further estimates the recovery for claims in this class at
between 20% and 40%. Templeton contends that his claims should fall within
this class.
       The Trustee contends, however, that to the extent Templeton’s claims
are valid, those claims should fall within Class 18—“Allowed Subordinated
Claims.” The Plan estimates that approximately $8 million in claims fall
within this class—for which the estimated recovery is 0%. 9 The Disclosure
Statement sheds light on the Trustee’s original reason for seeking
subordination of certain claims (such as Templeton’s) into Class 18:
              The Chapter 11 Trustee believes that, while AHF and its
       tax-credit limited partners were engaged in the legitimate
       affordable housing business, Sterquell and some, but not all, “soft-
       money” investors were involved in the illegitimate activity of
       manufacturing illegitimate tax basis and therefore taking
       illegitimate tax deductions in return for what were in actuality
       loans.
       ...
            The soft-money structure was sometimes designed by
       Sterquell and participated in by certain “soft-money” investors,
       who knew or should have known that the investment was purely

       9  According to the Plan, claims in Class 18 will not be paid out until payment in full
of the claims in Classes 1 through 17.

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      for illegitimate and improper tax purposes. The Chapter 11
      Trustee believes that the real purpose was to disguise true loans
      as equity investments to take tax deductions through falsely
      manufactured tax basis in amounts several times the actual
      investment. These soft-money claims relate to money invested in
      Affiliates listed on Exhibit F attached hereto. The Chapter 11
      Trustee intends to object to and request subordination of soft-
      money-investor claims arising from or related [to] an abusive tax
      shelter.
            To be clear, some soft-money-investor claims may not arise
      from or relate to an abusive tax shelter and may be legitimate,
      allowable claims. But some, not all, soft-money-investor claims
      appear to arise from or relate to an abusive tax shelter and may,
      therefore, be objected to and/or subject to a request to subordinate
      such claims to other unsecured claims.
      The final class, Class 19, applies to “Allowed Interests in the Debtor.”
The Plan states that because AHF is a tax-exempt 501(c)(3) entity, “there are
no Allowed Interests in [AHF].” Alternatively, the Plan states that “if such
Interests exist, holders of such Interests shall receive no Distributions or retain
any property under this Plan on account of such Interests.”
            2.     Templeton’s Claim and the Trustee’s Complaint
      On October 5, 2009, Templeton filed in the bankruptcy proceeding a
Proof of Claim, which he most recently amended on October 7, 2011 (the
“Claim”). In his Claim, Templeton asserted a “Liquidated Unsecured Claim,”
in which he sought reimbursement and attorney’s fees relating to his
investments in GOZ, M2M-2, M2M-3, Walden II, and Gray Ranch. Templeton
also brought an “Unliquidated Unsecured Claim,” asserting fraud, breach of
fiduciary duties, and money-had-and-received claims in relation to those
investments. Finally, Templeton asserted “a claim of constructive trust and

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equitable lien on all funds and assets of [AHF] that are traceable from
Templeton’s funds and respective Partnership funds received by [AHF].” 10
      On August 31, 2010, the Trustee commenced the present adversary
proceeding by filing a complaint objecting to Templeton’s Claim on various
grounds. The Trustee filed an amended complaint on April 4, 2011, contending
that the guarantees are not valid contractual obligations and, alternatively,
that the entirety of Templeton’s Claim should be subordinated to the claims of
all general unsecured creditors. The Trustee also alleges causes of action for
the avoidance and recovery of various allegedly fraudulent and preferential
transfers.
             3.     Bankruptcy Court Decision
      Over the course of 11 months, the bankruptcy court held a 25-day trial
in this matter, issuing Findings of Fact and Conclusions of Law on March 30,
2013. In its conclusions of law, the bankruptcy court began by noting that
“[t]he Templeton Deals frustrate legal analysis.” The court summarized the
deals as follows:
      In each deal, Templeton was a major investor. For the same
      investment dollars, Templeton received a guaranty from AHF,
      which, according to Templeton, was a guaranty of repayment of
      the amount of the investment. Templeton contends that the
      guaranties are, in effect, unconditional promises to repay by AHF
      the amount of the investments. But a guaranty is part of a three-
      party transaction and is a promise to answer for the repayment of
      a debt. How does a guaranty bootstrap the Templeton investments
      into something more?        Templeton’s construction makes the
      guaranties promissory notes. By the very structure of each of the
      Templeton Deals, AHF received nothing in return for its guaranty.
      In each instance, AHF is, per the deal, nothing more than a
      fractional interest holder in the limited partnership into which

      10Templeton also brought various “Alternative Derivative Claims” on behalf of the
LPs in which he invested. These claims are not at issue in this appeal.

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      Templeton’s investment dollars were to flow. The structure defies
      an interpretation that AHF received any consideration for its
      absolute, unconditional promise to repay Templeton’s investment.
The court also determined that the guaranties “do not actually provide that
AHF guaranteed the amount of Templeton’s investments.” Moreover, the court
determined that there was no evidence that the interests Templeton had
purportedly “rolled over” as part of his investment in Walden II had any real
value.
      The bankruptcy court next determined that, in order to address
Templeton’s Claim and the Trustee’s causes of action, it needed to characterize
Templeton’s deals. The court “look[ed] behind the form of the Templeton Deals
and construe[d] each deal as an integrated whole.” The court deemed the deals
“wildly beneficial to Templeton” and “too good to be true,” and determined that
“[t]he ‘product’ Templeton acquired as a result of his investment was not based
on economic reality.”    The court further found that Templeton was “at
best, . . . willfully blind to the risks” of his investments and “was clearly
complicit with Sterquell at the threshold of each of these deals.” Noting that
the bankruptcy courts have the power to recharacterize debt as equity, the
court looked to Texas law to “determine whether the Templeton Deals are
investments that create . . . an equity claim or debt subject to treatment as an
unsecured claim.” Applying various factors drawn from the caselaw, the court
concluded “that Templeton’s ‘investments’ were indeed equity investments and
must be treated as such.”
      The court then proceeded to address mandatory subordination under
Section 510(b). Noting that the term “security” is defined broadly under the
Bankruptcy Code, the court determined that Templeton’s investments—which
the court had already deemed equity investments—constitute “securities”
under the Code. Therefore, the court concluded that Templeton’s unliquidated

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                                     No. 14-10563
claims (based on fraud and related theories) fell within the requirements of
Section 510(b). The court rejected Templeton’s argument that he did not own
any interest in AHF (only in the LPs), noting that Section 510(b) also applies
to affiliates of the debtor. The court determined that the various LPs constitute
affiliates of AHF, given that AHF fully controlled even the LPs for which it did
not serve as a general partner.
       The court next denied the Trustee’s fraudulent transfer claim,
concluding that Templeton “gave value and did so in good faith for his
investments.” The court rejected the argument that Templeton’s participation
in an illegitimate tax scheme defeated an assertion of good faith, given that
“any complicity by Templeton with Sterquell concerning illegitimate tax deals
did not defraud other creditors of AHF.” The court did, however, void various
preferential transfers made to Templeton within 90 days of AHF’s filing of
bankruptcy, reasoning that the funds came from an account of AHFD which
was “wholly controlled by AHF and, therefore, constitute[d] payments from
AHF.” 11
      In its judgment, the bankruptcy court ordered that:
           • “Templeton’s Claim is subordinated to all allowed general
             unsecured claims pursuant to the provisions of 11 U.S.C. § 510(b);”
           • “The Trustee’s cause of action for the equitable subordination of
             Templeton’s Claim pursuant to 11 U.S.C. § 510(c) is denied;”
           • “The Trustee’s cause of action for the avoidance and recovery of
             fraudulent transfers to Templeton under 11 U.S.C. § 548 is
             denied;” and

      11In its findings of fact, the court found that AHFD was “an entity controlled by AHF
and Sterquell and used by AHF and Sterquell as a conduit bank account.”

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           • “The Trustee’s cause of action for the avoidance and recovery of
             preferential transfers in the amount of $157,500 to Templeton is
             granted under 11 U.S.C. § 547(b).”
             4.    District Court Decision
      On appeal, the district court affirmed the bankruptcy court’s judgment
in full.   The court first adopted the bankruptcy court’s findings of fact,
concluding that the findings were supported by evidence and not clearly
erroneous. The district court also determined that the bankruptcy court did
not err in recharacterizing and subordinating Templeton’s claims, given that
(1) the LPs were affiliates of AHF; and (2) the bankruptcy court “properly relied
upon the evidence and substance of the transactions in finding that the claims
arose from the purchase of equity.” With respect to the affiliate issue, the
district court noted that “Templeton did not object to or appeal the order
confirming the plan, which incorporated as affiliates all the [LPs] at issue.”
The court further held that the bankruptcy court did not err in granting the
Trustee’s claim for preferential transfers, as it found no error in the
bankruptcy court’s findings that AHFD “was nothing more than a pass-
through conduit bank account.” The district court also rejected the argument
that the payments from AHFD to Templeton were made in the ordinary course
of business, as the payments were made in furtherance of fraud. With respect
to the purportedly fraudulent transfers, the district court affirmed the
bankruptcy court’s finding of good faith, as the evidence supported the
bankruptcy court’s findings that (1) Templeton gave value to AHF, and (2)
Templeton gave such value in good faith.
                           II.   Standard of Review
      This court reviews the bankruptcy court’s findings of fact for clear error
and its conclusions of law de novo. Morton v. Yonkers (In re Vallecito Gas,

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L.L.C.), 771 F.3d 929, 932 (5th Cir. 2014). “Under a clear error standard, this
court will reverse only if, on the entire evidence, we are left with the definite
and firm conviction that a mistake has been made.” Morrison v. W. Builders
of Amarillo, Inc. (In re Morrison), 555 F.3d 473, 480 (5th Cir. 2009) (internal
quotation marks omitted).
                                III.   Discussion
      A.    Mandatory Subordination under Section 510(b)
      The Trustee and Templeton primarily dispute the appropriate
prioritization of Templeton’s claims relative to those of other claimants. As
discussed above, the Plan prioritizes claims against AHF into 19 classes.
Templeton argues that his claims should fall within Class 17 as “General
Unsecured Claims”—for which the estimated recovery would be 20% to 40% of
the value of his claims. The Trustee argues that Templeton’s claims should
fall within Class 18—“Allowed Subordinated Claims”—a class for which the
estimated recovery is 0%. The bankruptcy court held in favor of the Trustee,
ordering that Templeton’s entire Claim be “subordinated to all allowed general
unsecured claims.”
      As an initial matter, we note that the bankruptcy court’s reasoning, at
least with respect to Templeton’s claims arising out of AHF’s guaranties,
appears to be premised on a recharacterization of those guaranties as equity
interests in AHF pursuant to 11 U.S.C. § 502(b). See Grossman v. Lothian Oil
Inc. (In re Lothian Oil Inc.), 650 F.3d 539, 543 (5th Cir. 2011) (holding that
recharacterization stems from bankruptcy court’s power to disallow a claim,
but that “recharacterization is appropriate when the claimant has some rights
[vis-à-vis] the bankrupt” (internal quotation marks omitted)). Accordingly,
much of the parties’ briefing is focused on this recharacterization issue.

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Nonetheless, we need not reach that issue, 12 as we conclude for the reasons
discussed below that Section 510(b) mandates the subordination of
Templeton’s entire Claim. Indeed, the bankruptcy court’s judgment does not
mention recharacterization under Section 502(b), but rather states that
“Templeton’s Claim is subordinated pursuant to the provisions of 11 U.S.C.
§ 510(b).”    It is fundamental that we “review[] judgments, not opinions,”
Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842
(1984), and that “this court may affirm a judgment upon any basis supported
by the record,” Davis v. Scott, 157 F.3d 1003, 1005 (5th Cir. 1998).
       It is also worth noting that throughout this action, the primary theory
underlying the Trustee’s objection to Templeton’s Claim has stemmed from the
premise that Templeton’s investments were abusive tax shelters and that
Templeton “knew or should have known that the investment[s] [were] purely
for illegitimate and improper tax purposes.” Even assuming arguendo the
truth of this premise, we need not decide whether such misconduct warrants
subordination under the Bankruptcy Code. Rather, as discussed below, we
affirm the judgment subordinating Templeton’s Claim solely on the basis of
Section 510(b), which is narrowly focused on the nature of the claims and
transactions at issue.
       Section 510(b) states:
       For the purpose of distribution under this title, a claim arising
       from rescission of a purchase or sale of a security of the debtor or
       of an affiliate of the debtor, for damages arising from the purchase
       or sale of such a security, or for reimbursement or contribution
       allowed under section 502 on account of such a claim, shall be

       12 A threshold issue in the bankruptcy court’s recharacterization analysis is whether
Templeton’s equity investments in the LPs can be “recharacterized” as equity investments in
AHF. Most of the recharacterization case law involves recharacterizing transactions in the
same entity. The bankruptcy court’s judgment, relying as it does on Section 510(b), avoids
this issue, as do we.

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      subordinated to all claims or interests that are senior to or equal
      the claim or interest represented by such security, except that if
      such security is common stock, such claim has the same priority as
      common stock.
11 U.S.C. § 510(b). This provision “‘serves to effectuate one of the general
principles of corporate and bankruptcy law: that creditors are entitled to be
paid ahead of shareholders in the distribution of corporate assets.’” SeaQuest
Diving, LP v. S&J Diving, Inc. (In re SeaQuest Diving, LP), 579 F.3d 411, 417
(5th Cir. 2009) (quoting Racusin v. Am. Wagering, Inc. (In re Am. Wagering,
Inc.), 493 F.3d 1067, 1071 (9th Cir. 2007)). “[T]he most important policy
rationale” behind Section 510(b) is that claims “seek[ing] to recover a portion
of claimants’ equity investment[s]” should be subordinated.              Id. at 421.
Moreover, “Section 510(b) applies whether the securities were issued by the
debtor or by an affiliate of the debtor.” Alan N. Resnick & Henry J. Sommer,
Collier on Bankruptcy ¶ 510.04[04] (16th ed. 2014) (emphasis added).
Accordingly, this provision makes clear that claims arising from equity
investments in a debtor’s affiliate should be treated the same as equity
investments in the debtor itself—i.e., both are subordinated to the claims of
general creditors. The Trustee argues, and we agree, that all of Templeton’s
claims are claims “for damages arising from the purchase or sale of” a
“security . . . of an affiliate of [AHF].” We reach this result through a step-by-
step analysis of this provision.
      We first conclude that Templeton’s claims are claims for “damages.”
With respect to the “unliquidated claims”—i.e., those for fraud, breach of
fiduciary duties, and money-had-and-received—Templeton clearly seeks
damages for injuries resulting from these torts. 13 Cf. Baroda Hill Invs., Ltd.

      13Indeed, Templeton asserted in his Claim that he was “damaged as a result of the
fraud.” Moreover, Templeton does not appear to dispute that the unliquidated claims are

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v. Telegroup, Inc. (In re Telegroup, Inc.), 281 F.3d 133, 142 (3d Cir. 2002)
(“Congress enacted § 510(b) to prevent disappointed shareholders from
recovering their investment loss by using fraud and other securities claims to
bootstrap their way to parity with general unsecured creditors in a bankruptcy
proceeding.”).         Whether       Templeton’s       “liquidated     claims”     (seeking
reimbursement under AHF’s guaranties) also constitute claims for damages is
a more difficult question. Several bankruptcy courts have reasoned that “the
concept of ‘damages’” under Section 510(b) “has the connotation of some
recovery other than the simple recovery of an unpaid debt due upon an
instrument.” In re Blondheim Real Estate, Inc., 91 B.R. 639, 640 (Bankr.
D.N.H. 1988) (holding that claim for recovery on debtor’s promissory note
should not be subordinated under 510(b)); see also In re Wyeth Co., 134 B.R.
920, 921–22 (Bankr. W.D. Mo. 1991) (reasoning that “the use of the term
‘damages’ implies more than a simple debt” and holding that debt on
promissory notes should not be subordinated). Yet the situation is different
where, as here, the unpaid debt is itself an equity investment. Templeton is
not merely seeking recovery under independent promissory notes, but rather
under guaranties which the bankruptcy court found to be “intimately
intertwined” with the LP agreements. 14 Although Templeton is suing for the
breach of the guaranties of his LP interests (rather than suing directly for
repayment of his equity investments in the LPs), this is exactly the elevation
of form over substance that Section 510(b) seeks to avoid—by subordinating

claims for damages, but rather argues only that those claims do not arise out of the purchase
of security interests.
        14 The court found that “[a]nalyzing one instrument is pointless without consideration

of the others.” Templeton has given us no reason to conclude that these findings are clearly
erroneous. See Wyle v. C.H. Rider & Family (In re United Energy Corp.), 944 F.2d 589, 596
(9th Cir. 1991) (“[Bankruptcy courts] possess the power to delve behind the form of
transactions and relationships to determine the substance.”).

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                                        No. 14-10563
claims that functionally seek to “recover a portion of claimants’ equity
investment[s].” 15 In re SeaQuest Diving, LP, 579 F.3d at 421. Moreover, as
this court has noted, various circuits “have adopted [a] broad reading of the
damages category” contained in Section 510(b), and “the circuit courts agree
that a claim arising from the purchase or sale of a security can include a claim
predicated on post-issuance conduct”—i.e., conduct after the issuance of the
security—“such as breach of contract.” 16 Id. (citing Am. Broad. Sys., Inc. v.
Nugent (In re Betacom of Phoenix, Inc.), 240 F.3d 823, 831–32 (9th Cir. 2001),
In re Telegroup, Inc., 281 F.3d at 141–42, Allen v. Geneva Steel Co. (In re
Geneva Steel Co.), 281 F.3d 1173, 1180–81 (10th Cir. 2002), and Rombro v.
Dufrayne (In re Med Diversified, Inc.), 461 F.3d 251, 256 (2d Cir. 2006)).
Templeton’s guaranty claims here are essentially breach of contract claims, as
Templeton himself concedes in his opening brief on appeal: “A breach of a
guaranty is a breach of contract . . . .” Accordingly, all of Templeton’s claims
are fairly characterized as claims for “damages.”
       Next, there is no doubt that the LP interests Templeton purchased
constitute “securities” within the meaning of Section 510(b). The Bankruptcy
Code expressly defines the term “security” to “include[] . . . [an] interest of a
limited partner in a limited partnership.” 11 U.S.C. § 101(49)(A)(xiii). 17

       15  As discussed above, we need not decide whether the guaranties themselves
constitute debt rather than equity interests. In any event, “the circuit courts agree that a
claimant need not be an actual shareholder for his claim to be covered by § 510(b).” In re
SeaQuest, 579 F.3d at 422 (internal quotation marks and brackets omitted).
       16 These statements were dicta, as the court was addressing the rescission category,

rather than the damages category, of Section 510(b). See In re SeaQuest, 579 F.3d at 422. In
any event, we find the court’s discussion persuasive.
       17 Templeton argues that the unliquidated claims are not securities, but that

contention is inapposite. Although the claims themselves may not constitute securities
within the meaning of the Bankruptcy Code, those claims nonetheless arise from the sale of
securities of affiliates of AHF, and thus fall within the ambit of Section 510(b), for the reasons
discussed below.

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      We also conclude that Templeton’s claims arise from the purchase of
those securities. “For a claim to ‘arise from’ the purchase or sale of a security,
there must be some nexus or causal relationship between the claim and the
sale.” In re SeaQuest Diving, LP, 579 F.3d at 421. We have little difficulty
finding such a nexus between Templeton’s claims and his purchase of the LP
interests. In his opening brief on appeal, Templeton makes clear that his
unliquidated tort claims stem directly from the LP investments; he asserts
that: (1) AHF breached its fiduciary duties by allowing the funds he invested
in the LPs “to be commingled and misappropriated;” (2) AHF defrauded
Templeton by making “false statements to Templeton about his investments
in the [LPs];” and (3) “monies provided by Templeton for the [LPs] were taken
and used by AHF in a manner outside the scope and intent of the [LP]
transaction documents.” With respect to the guaranty claims, as discussed
above, the bankruptcy court specifically found that the guaranties were
“intimately intertwined” with the LP agreements, and that “the guaranties
cannot be considered apart from the other transactions that arose in
connection with the investments.” These findings are not clearly erroneous;
rather, it is clear from the record that the guaranties, at least in part, induced
Templeton to make these investments. Thus, we conclude that there is at least
“some nexus or causal relationship” between Templeton’s claims and his
purchase of the LP interests.      Id.   And as discussed above, the fact that
Templeton is effectively attempting to recoup his equity investments in the
LPs through his claims supports the application of Section 510(b) here. Id.
(“For a claim to ‘arise from’ the purchase or sale of a security, there must be
some nexus or causal relationship between the claim and the sale. Further,
the fact that the claims in the case seek to recover a portion of claimants’ equity
investment is the most important policy rationale.” (internal citation omitted)).

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       Furthermore, the LP interests here are securities “of an affiliate of
[AHF].”     11 U.S.C. § 510(b).        The Bankruptcy Code defines “affiliate,” in
relevant part, as a “person whose business is operated under a lease or
operating agreement by a debtor, or person substantially all of whose property
is operated under an operating agreement with the debtor.” 18                     11 U.S.C.
§ 101(2)(C). We first note that the Plan, confirmed by the bankruptcy court,
states that all of the LPs at issue here are affiliates of AHF “pursuant to section
101(2) of the Bankruptcy Code.” In any event, setting aside the Plan provision,
we conclude that the LPs are affiliates of AHF.
       First, all of the LPs—GOZ, M2M-2, M2M-3, Walden II, and Gray
Ranch—are “persons” under the Bankruptcy Code.                       11 U.S.C. § 101(41)
(defining the term “person” to “include[] . . . partnership[s]”). Second, each of
the LPs is “operated under a[n] . . . operating agreement,” 11 U.S.C.
§ 101(2)(C)—i.e., the LP agreements.                  Although the term “operating
agreement” is undefined in the Bankruptcy Code, there is little doubt that the
LP agreements qualify. They are quite literally agreements under which the
LPs operate; the agreements define the business and purposes of each LP,
making clear that each LP acts through its general partner to accomplish those
purposes. 19 We also conclude that the LPs were “operated under . . . operating

       18  The Bankruptcy Code includes three other definitions of “affiliate,” none of which
are applicable here.
        19 We are not alone in reaching such a conclusion, see In re Minton Grp., Inc., 27 B.R.
385, 389 (Bankr. S.D.N.Y. 1983) (concluding that LP is affiliate of general partner debtor who
“operates all of the business and manages all of the property of the limited partnership under
a limited partnership agreement”), aff’d, 46 B.R. 222 (S.D.N.Y. 1985); cf. Jenkins v.
Tomlinson (In re Basin Res. Corp.), 190 B.R. 824, 826–27 (Bankr. N.D. Tex. 1996) (concluding
that joint venture agreements constitute operating agreements), and we are aware of no court
that has held that LP agreements do not constitute “operating agreements” under the
Bankruptcy Code, cf. In re Wash. Mut., Inc., 462 B.R. 137, 145–46 (Bankr. D. Del. 2011)
(“Debtors have not adequately proven that the Pooling and Servicing Agreements constitute
an operating agreement under the plain meaning of the statute.”). Templeton relies on In re
SemCrude, L.P., 436 B.R. 317 (Bankr. D. Del. 2010), in arguing that LP agreements are not

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                                      No. 14-10563
agreement[s] by a debtor.” 11 U.S.C. § 101(2)(C) (emphasis added). We first
note that the statute is unclear as to whether the “by a debtor” phrase is meant
to modify the word “operated” or the phrase “operating agreement.” Applying
the former construction, it is clear that all of the LPs were “operated . . . by”
AHF, as Templeton himself concedes: “AHF, as general partner of the [LPs] (or
otherwise in control of the general partner of the [LPs]) had legitimate control
of those entities giving AHF control over whatever revenue or income came to
those entities.” Under the latter construction, for which Templeton advocates,
the operating agreement itself must be “by a debtor”—which may imply that
the debtor must be a party to that agreement.                     But even under that
construction, we conclude that the LP agreements are agreements “by” AHF.
We easily reach this conclusion with respect to the LPs for which AHF served
as a general partner—i.e., GOZ and Walden II—as AHF was a party to those
LP agreements. But even for the LPs in which a wholly-owned subsidiary of
AHF served as a general partner—M2M-2, M2M-3, and Gray Ranch—we
conclude that those LP agreements were agreements “by” AHF within the
meaning of the Bankruptcy Code. Even though AHF was not a direct party to
those agreements, it is undisputed that AHF, through Sterquell, had complete
control over these LPs. The bankruptcy court made the following factual
findings with respect to this issue:
       Even where an AHF subsidiary was the named general partner in
       a partnership agreement with Templeton, AHF (and, really,
       Sterquell) was the party in full control. Any intermediary did not
       affect AHF’s (or Sterquell’s) control. . . . As Templeton himself has
       stated, Sterquell, and by association, AHF, exerted total control
       over all aspects of the Templeton Deals. This control was

operating agreements, but in that case, the court determined that an LP was not an affiliate
under the Bankruptcy Code because “[n]o . . . operating agreement was introduced into
evidence” and the existence of an LP was only “mentioned” in hearings and briefs. Id. at 321.
Here, all of the LP agreements are contained in the record.

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                                 No. 14-10563
      formalized by the partnership agreements and the formalized
      relationship between the partnerships and AHF or a wholly owned
      conduit.
Templeton gives us no reason to question these factual findings. It is therefore
clear that, as a factual matter, AHF was the operator of these LPs despite the
fact that it was not a formal party to the LP agreements. Accordingly, we hold
that these agreements were operating agreements “by” AHF, as the wholly-
owned subsidiaries were only shell entities and, in the words of the Bankruptcy
Court, “conduit[s]” through which AHF acted.
      We recognize that this conclusion is in tension with decisions reached by
several bankruptcy courts. See In re Wash. Mut., Inc., 462 B.R. at 146 (holding
that “because the agreement in question is between two non-debtors, it cannot
provide a basis for subordination under section 101(2)(C),” and rejecting the
argument that “mere ‘control’ of an entity is sufficient to ignore its legal
separateness”); In re SemCrude, L.P., 436 B.R. at 321 (“[E]ven if the Debtors
could show that the partnership agreement is a lease or operating agreement,
the agreement is between two non-debtors.”); In re Sporting Club at Ill. Ctr.,
132 B.R. 792, 797 (Bankr. N.D. Ga. 1991) (determining that entity was not an
affiliate of debtor for purposes of venue statute where the debtors were not
“parties to any lease or operating agreement”); In re Maruki USA Co., 97 B.R.
166, 169 (Bankr. S.D.N.Y. 1988) (rejecting, for purposes of venue statute,
argument that entity was affiliate of debtor where debtor owned 100% of stock
of entity’s general partner). These cases—to which we are not bound—have
applied unduly strict interpretations of the phrase “agreement by a debtor,” 11
U.S.C. § 101(2)(C), ignoring that an agreement may functionally be “by” the
debtor even where the debtor is not a party to the agreement. We see no reason
why the existence of a shell conduit between a debtor and an entity—which in
no way inhibits the debtor’s ability to control and operate that entity—should

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                                     No. 14-10563
preclude a finding of affiliate status. The In re Washington Mutual court relied
in part on the theory underlying Section 510(b), reasoning that the claimant
“should be treated like any other creditor of [the debtor] because [the claimant]
never assumed the risks of a . . . shareholder” of the debtor, but rather assumed
only the risks of a shareholder of a separate entity. In re Wash. Mut., Inc., 462
B.R. at 147. But this line of reasoning would seem to preclude mandatory
subordination of any claim arising from the purchase of an affiliate’s securities
(since the securities of the affiliate are not shares in the debtor)—a result at
odds with the plain language of Section 510(b).              Rather, Congress clearly
intended that claims arising from the purchase of securities of entities over
which the debtor exercised sufficient control—i.e., entities which qualify as
affiliates under the Bankruptcy Code—be treated no differently than claims
arising from the purchase of securities of the debtor itself. See Alan N. Resnick
& Henry J. Sommer, Collier on Bankruptcy ¶ 510.04[04] (16th ed. 2014)
(“Section 510(b) applies whether the securities were issued by the debtor or by
an affiliate of the debtor.”).
      Because each of Templeton’s claims is a claim for damages arising from
the purchase of securities of AHF’s affiliates, we hold that Section 510(b)
mandates the subordination of those claims.              Accordingly, we affirm the
bankruptcy court’s judgment with respect to subordination. 20

      20  Templeton also argues that AHF is liable to Templeton as the general partner of
GOZ and Walden II, correctly noting that, “in a limited partnership, the general partner is
always liable for the debts and obligations of the partnership.” Asshauer v. Wells Fargo
Foothill, 263 S.W.3d 468, 474 (Tex. App.—Dallas 2008, no pet.). However, Templeton fails
to identify what debts or obligations—independent of the liquidated or unliquidated claims—
these LPs directly owed Templeton. Assuming Templeton is referring to the Walden II LP
agreement’s promise to repay Templeton’s initial capital contribution (the GOZ LP
agreement contains no such promise), and assuming the validity of that promise (which the
Trustee challenges), we nonetheless conclude that any claim arising from such a promise
must be subordinated under Section 510(b) for the same reasons as compel subordination of
the guaranty-based, liquidated claims. The fact that the promise is contained in the LP

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                                       No. 14-10563
       B.     Trustee’s Objections to Templeton’s Claim
       The bankruptcy court declined to rule on the Trustee’s various objections
to the validity of Templeton’s Claim in light of its decision to subordinate the
Claim.      The Trustee, perhaps recognizing that the practical effect of
subordinating Templeton’s claim to Class 18 is that Templeton will receive
nothing, cross-appeals as to these issues only “[t]o the extent this Court
reverses the bankruptcy court’s order subordinating the Claim.” Accordingly,
because we affirm with respect to subordination, we need not reach the
Trustee’s objections.
       C.     Preferential Transfers under Section 547
       Templeton also challenges the bankruptcy court’s decision to grant the
Trustee’s cause of action for the avoidance and recovery of preferential
transfers pursuant to Section 547(b) of the Bankruptcy Code. This provision
generally allows trustees to “avoid any transfer of an interest of the debtor in
property” made to creditors “on or within 90 days before the date of the filing
of the petition.” 11 U.S.C. § 547(b). The transfers at issue here amount to
$157,500 Templeton and his wife received from the AHFD account in the
ninety days leading up to AHF’s bankruptcy. 21                 Templeton contends that
avoidance of these transfers was improper because: (1) the funds in the AHFD
account were not funds of AHF, and (2) the payments fall within the ordinary
course of business exception to the avoidance of preferential transfers.
              1.      Property of Debtor
       Templeton first argues that the transferred funds were not “interest[s]
of the debtor in property,” 11 U.S.C. § 547(b), as those funds were held in and

agreement itself, and not in a separate guaranty, only solidifies the conclusion that this claim
“aris[es] from the purchase . . . of . . . a security” of Walden II. 11 U.S.C. § 510(b).
        21 Templeton asserts that these payments were “quarterly preferred return payments

provided for in Templeton’s transaction with Walden II.”

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                                  No. 14-10563
transferred from the AHFD account—of which AHF was not a legal titleholder,
see Southmark Corp. v. Grosz (In re Southmark Corp.), 49 F.3d 1111, 1115 (5th
Cir. 1995) (“A preliminary requisite [under Section 547(b)] is that the transfer
involve property of the debtor’s estate.”). Whether these funds constituted
property of AHF is a question of state law. See Stettner v. Smith (In re IFS
Fin. Corp.), 669 F.3d 255, 261–62 (5th Cir. 2012) (applying Texas law to
determine whether, under Section 544(b) of the Bankruptcy Code, bank
accounts constituted “an interest of the debtor in property”); see also Butner v.
United States, 440 U.S. 48, 54 (1979) (“Congress has generally left the
determination of property rights in the assets of a bankrupt’s estate to state
law.”).
      Although AHF was not the legal titleholder to the AHFD account, “Texas
law counsels that the legal titleholder to a bank account is not always the
owner of its contents.” In re IFS Fin. Corp., 669 F.3d at 262. Rather, an entity
can be a “de facto” owner of a bank account if it has a sufficient level of control
over the account. See id.; see also In re Southmark Corp., 49 F.3d at 1116 n.17
(“[I]t is undisputed that Southmark controlled the funds in the Payroll Account
and that it could have paid them to anyone, including its own creditors. For
the purposes of preference law, therefore, the money in Southmark’s Payroll
Account is treated as part of Southmark’s estate, whether or not Southmark
actually owns it.”). Thus, in In re IFS Financial Corp., this court held that a
debtor had a property interest in bank accounts to which it was not a legal
titleholder where the “record reflect[ed] that [the debtor] exercised such control
over these accounts that it had de facto ownership over these accounts, as well
as the funds they contained.” 669 F.3d at 264 (“[T]he facts support the district
court’s and bankruptcy court’s findings that [the debtor] dominated these
subsidiaries to such an extent that the subsidiaries acted at [the debtor]’s

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                                      No. 14-10563
direction and that the directors and stockholders utilized the corporate entity
as a sham to perpetuate a fraud.”). The court reasoned that “control is decisive,
and that legal title is irrelevant where, as here, a debtor organization has taken
care to mask its activities through fictional divisions.” Id. at 263.
       The present case is materially indistinguishable. The bankruptcy court
found that AHFD “was an entity controlled by AHF and Sterquell and used by
AHF and Sterquell as a conduit bank account,” and that “payments made to
Templeton out of the [AHFD] account within ninety days of the filing of the
Bankruptcy Case were with funds from an account wholly controlled by AHF
and, therefore, constitute payments from AHF.” These findings—with which
Templeton apparently agreed in prior proceedings 22—are not clearly
erroneous. Templeton argues that Sterquell, rather than AHF, controlled the
account. But Templeton concedes that Sterquell made various transfers from
the AHFD account on AHF’s behalf—e.g., to pay AHF’s “ordinary needs and
expenditures.” Accordingly, we find no clear error in the bankruptcy court’s
conclusions regarding AHF’s control (and, consequently, its de facto
ownership) of the AHFD account, at least with respect to the funds at issue. 23
       Templeton also asserts a constructive trust theory on appeal, arguing
that because the AHFD account “was the res of a constructive trust, . . . AHF
never gained title to those funds.”           However, Templeton has waived this
argument by failing to sufficiently raise it before the bankruptcy court.

       22 We need not decide, however, whether Templeton’s arguments as to this issue are
precluded on the basis of issue preclusion or judicial estoppel.
       23 Templeton also argues that a “control theory” should not apply here, given that AHF

served as a general partner in AHFD and a general partner always exercises dominion and
control over an LP’s property. However, the bankruptcy court did not merely find that AHF
controlled the AHFD account funds vis-à-vis its role as general partner. Rather, the
bankruptcy court determined that the AHFD account was a “conduit” wholly controlled by
AHF—and, as Templeton admits, used by AHF for its own purposes.

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Templeton correctly notes that he alleged a constructive trust theory in his
Claim, but, as the bankruptcy court noted, a constructive trust theory “w[as]
not raised at trial.” It does not appear that Templeton mentioned, much less
adequately briefed, a constructive trust theory in either his pre- or post-trial
briefing—thus depriving the bankruptcy court of an adequate opportunity to
rule on the issue. “If an argument is not raised to such a degree that the [trial]
court has an opportunity to rule on it, we will not address it on appeal.” Nasti
v. CIBA Specialty Chems. Corp., 492 F.3d 589, 595 (5th Cir. 2007) (internal
quotation marks omitted); see also Butler Aviation Int’l, Inc. v. Whyte (In re
Fairchild Aircraft Corp.), 6 F.3d 1119, 1128 (5th Cir. 1993) (stating, in the
bankruptcy context, that “the argument must be raised to such a degree that
the trial court may rule on it” to avoid waiver).
              2.     Ordinary Course of Business Defense
       Templeton next argues that the ordinary course of business defense
applies to these transfers. 24 Under that defense, a trustee may not avoid a
transfer under Section 547:
       to the extent that such transfer was in payment of a debt incurred
       by the debtor in the ordinary course of business or financial affairs
       of the debtor and the transferee, and such transfer was—
              (A) made in the ordinary course of business or financial
              affairs of the debtor and the transferee; or
              (B) made according to ordinary business terms . . . .
11 U.S.C. § 547(c)(2). “[T]he ordinary course of business defense provides a
safe haven for a creditor who continues to conduct normal business on normal
terms.” Gulf City Seafoods, Inc. v. Ludwig Shrimp Co., Inc. (In re Gulf City

       24 Although the ordinary course of business defense was raised by Templeton in the
joint pretrial order and in his post-trial briefing, the bankruptcy court did not address that
defense in its order.

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Seafoods, Inc.), 296 F.3d 363, 367 (5th Cir. 2002). This court has explained
that, “[w]ithout this defense, the moment that a debtor faced financial
difficulties, creditors would have an incentive to discontinue all dealings with
that debtor and refuse to extend new credit.” Id. Thus, “[l]acking credit, the
debtor would face almost insurmountable odds in its attempt to make its way
back from the edge of bankruptcy.” Id.
       Templeton argues that the payments at issue here—interest payments
on his Walden II investments—were regularly made for over a year before
Section 547(b)’s preference period began, and were therefore made in the
ordinary course of business. The Trustee does not dispute this history of
payments, but rather asserts that the transfers could not have been made in
the ordinary course of business because they “were made in furtherance of the
Ponzi scheme and Sterquell’s fraud.” 25 The Trustee relies on a line of cases
narrowly holding that “a Ponzi scheme is not a business, and that transfers
related to the scheme are not within the ‘ordinary course of business.’”
Henderson v. Buchanan, 985 F.2d 1021, 1025 (9th Cir. 1993); see Danning v.
Bozek (In re Bullion Reserve of N. Am.), 836 F.2d 1214, 1219 (9th Cir. 1988);
Graulty v. Brooks (In re Bishop, Baldwin, Rewald, Dillingham & Wong, Inc.),
819 F.2d 214, 216–17 (9th Cir. 1987); see also Sender v. Nancy Elizabeth R.
Heggland Family Trust (In re Hedged-Invs. Assocs., Inc.), 48 F.3d 470, 475–76
(10th Cir. 1995) (rejecting rule that would “prohibit[] application of the
ordinary course of business defense for all transfers made in the course of a
Ponzi scheme” and instead adopting the “narrower proposition that transfers
to investors [in the course of a Ponzi scheme] are not entitled to the ordinary

       25 Although we hesitate to be absolute about the contents of a 20,000+ page record,
the Ponzi scheme argument does not appear to have been raised in the bankruptcy court. We
address the issue because the district court ruled on this basis and it has been fully briefed
in our court.

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                                     No. 14-10563
course of business exception.”). The Fifth Circuit has similarly held, in the
context of another ordinary course of business exception within the
Bankruptcy Code (Section 546(e)), 26 that “‘[t]ransfers made in a ‘Ponzi’ scheme
are not made in the ordinary course of business.’” Wider v. Wootton, 907 F.2d
570, 572 (5th Cir. 1990) (quoting In re Bullion Reserve of N. Am., 985 F.2d at
1219). Notably, these cases all involved true Ponzi schemes—i.e., operations
built on the collection of funds from new investments to pay off prior investors.
See Henderson, 985 F.2d at 1023 (“[T]he whole operation amounted to a Ponzi
scheme.”); In re Bullion Reserve of N. Am., 836 F.2d at 1219 n.8 (“The record
indicates that BRNA was conducting such a [Ponzi] scheme when it used newly
acquired funds, from its comingled accounts, to buy bullion for customers who
demanded their metal.”); In re Bishop, Baldwin, Rewald, Dillingham & Wong,
Inc., 819 F.2d at 216 (“Brooks does not dispute that the debtor was operating
a Ponzi scheme . . . .”); In re Hedged-Invs. Assocs., Inc., 48 F.3d at 471 (“The
essence of the scheme was to attract investors by guaranteeing substantial
returns from stock options trading.          Mr. Donahue paid ‘profits’ to earlier
investors with the investment capital of later investors, publicly reporting false
earnings as ‘proof’ of his success.”); Wider, 907 F.2d at 572 (“Cohen satisfied
outstanding debts with older clients—including the debt owed Wider on the
bounced checks—from the funds he acquired from later clients. In common
industry parlance, Cohen operated a ‘Ponzi’ scheme.”).
       AHF’s business does not constitute a Ponzi scheme for purposes of this
exception. The Trustee points to some evidence in the record that there was

      26   In Wider, we suggested that the analysis of the exception under Section 546(e)
should be the same as that under 547(c)(2). See Wider, 907 F.2d at 572 n.1 (“[T]his Court
fails to see how a Ponzi scheme could be in the ordinary course of business for purposes of
the stockholder defense, but not in the ordinary course of business for purposes of the
preference provisions.”).

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                                 No. 14-10563
“an element of a Ponzi scheme” in the business, but that evidence shows that
only a portion of the funds collected by AHF (Templeton estimates 9%) was
used to pay Ponzi-like returns to investors. In any event, the record is clear
that AHF engaged in substantial legitimate business—owning or controlling
approximately 14,000 housing units.         Indeed, the Trustee asserted in the
Disclosure Statement that “AHF and its tax-credit limited partners were
engaged in the legitimate affordable housing business.”           Although that
business appears to have deteriorated over time—leading to Sterquell’s and
AHF’s later misuse of funds—this does not render the business a Ponzi scheme.
The theory underlying the Ponzi exception to the ordinary course of business
defense is that “Ponzi schemes simply are not legitimate business enterprises
which Congress intended to protect with section 547(c)(2).”        In re Bishop,
Baldwin, Rewald, Dillingham & Wong, Inc., 819 F.2d at 217; see also
Henderson, 985 F.2d at 1025 (“[A] Ponzi scheme is not a business . . . .”); In re
Bullion Reserve of N. Am., 836 F.2d at 1219 (“Congress intended the ordinary
course of business exception to apply only to transfers by legitimate business
enterprises.”). Expanding this exception—as no other court, apparently, has
done—to cover legitimate businesses in which there were some fraudulent or
Ponzi-like transactions is inconsistent with this theory. Accordingly, because
the business at issue here is not a true Ponzi scheme, the transfers do not fall
within the narrow Ponzi scheme exception to the ordinary course of business
defense.
      Therefore, we reverse the judgment granting the avoidance and recovery
of the $157,500 in purportedly preferential transfers and remand for further
proceedings addressing, inter alia, the ordinary course of business defense
raised by Templeton. We intimate no view on the outcome.

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       D.     Fraudulent Transfers under Section 548
       The Trustee also seeks the avoidance and recovery of approximately $1
million in purportedly fraudulent transfers made from the AHFD account to
Templeton and his wife between May 1, 2005, and February 2, 2009. The
fraudulent transfer provision of the Bankruptcy Code states, in relevant part:
       The trustee may avoid any transfer . . . of an interest of the debtor
       in property . . . that was made or incurred on or within 2 years
       before the date of the filing of the petition, if the debtor voluntarily
       or involuntarily—
              (A) made such transfer or incurred such obligation with
              actual intent to hinder, delay, or defraud any entity to which
              the debtor was or became, on or after the date that such
              transfer was made or such obligation was incurred,
              indebted; or
              (B)(i) received less than a reasonably equivalent value in
              exchange for such transfer or obligation; and
              (ii)(I) was insolvent on the date that such transfer was made
              or such obligation was incurred, or became insolvent as a
              result of such transfer or obligation . . . .
11 U.S.C. § 548(a)(1). 27 Subsection (A) is referred to as the “actual fraud”
provision, while subsection (B) is referred to as the “constructive fraud”
provision. Jimmy Swaggart Ministries v. Hayes (In re Hannover Corp.), 310
F.3d 796, 799 (5th Cir. 2002).
       The bankruptcy court did not address whether the transfers were
fraudulent, instead concluding that Templeton is entitled to the good faith
defense under Section 548(c). That provision states:

       27 The Trustee asserts in his reply brief that “[w]hile the bankruptcy [court] only
discussed section 548 [in its order], the Trustee asserts claims under section 544 and [the
Texas Uniform Fraudulent Transfer Act (“TUFTA”)], as well.” However, the Trustee—who
is cross-appealing as to this issue—failed to raise either Section 544 or TUFTA in his opening
brief on appeal. Accordingly, those claims are waived. See Flex Frac Logistics, L.L.C. v.
N.L.R.B., 746 F.3d 205, 208 (5th Cir. 2014) (“Ordinarily, arguments raised for the first time
in a reply brief are waived.”).

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                                  No. 14-10563
      Except to the extent that a transfer or obligation voidable under
      this section is voidable under section 544, 545, or 547 of this title,
      a transferee or obligee of such a transfer or obligation that takes
      for value and in good faith has a lien on or may retain any interest
      transferred or may enforce any obligation incurred, as the case
      may be, to the extent that such transferee or obligee gave value to
      the debtor in exchange for such transfer or obligation.
11 U.S.C. § 548(c). The bankruptcy court concluded that Templeton “no doubt
gave value in the amount of each of his investments,” finding that “Templeton’s
investments well exceed the transfers.” The court also disagreed with the
Trustee’s assertion that “Templeton’s participation in Sterquell’s illegitimate
tax schemes defeats his good faith claim,” given that “any complicity by
Templeton with Sterquell concerning illegitimate tax deals did not defraud
other creditors of AHF.” The Trustee contends that the bankruptcy court’s
conclusion as to good faith was in error because: (1) Templeton did not give
value to AHF, and (2) Templeton did not do so in good faith.
      First, Templeton may be entitled to the good faith defense only “to the
extent [he] gave value to [AHF] in exchange for” the transfers at issue. 11
U.S.C. § 548(c). Under Section 548, “‘value’ means property, or satisfaction or
securing of a present or antecedent debt of the debtor, but does not include an
unperformed promise to furnish support to the debtor or to a relative of the
debtor.” 11 U.S.C. § 548(d)(2)(A). A finding of value is reviewed for clear error,
as that determination is “largely a question of fact, as to which considerable
latitude must be allowed to the trier of the facts.” In re Hannover Corp., 310
F.3d at 801 (internal quotation marks omitted). However, “we review de novo
the methodology employed by the bankruptcy court in assigning values to the
property transferred and the consideration received.” Id. (internal quotation
marks omitted).      Moreover, “for purposes of § 548 the value of an
investment . . . is to be determined at the time of purchase.” Id. at 802. Courts

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                                       No. 14-10563
generally construe the term “value” broadly for purposes of the Bankruptcy
Code.        See In re Fairchild Aircraft Corp., 6 F.3d at 1127 (“Courts have
considered such indirect financial effects as, for example, the synergy realized
from joining two enterprises, the increase in a credit line, and the increased
monetary ‘float’ resulting from guarantying the loans of another, as
constituting value received under § 548.” (footnotes omitted)); see also Pension
Transfer Corp. v. Beneficiaries Under the Third Amendment to Fruehauf
Trailer Corp. Ret. Plan No. 003 (In re Fruehauf Trailer Corp.), 444 F.3d 203,
212 (3d        Cir.   2006)   (“We    have    interpreted     ‘value’    to   include    any
benefit, . . . whether direct or indirect. . . . [T]he mere opportunity to receive an
economic benefit in the future constitutes ‘value’ under the Bankruptcy Code.”
(internal citation, quotation marks, and brackets omitted)).
        The Trustee argues that Templeton did not give value to the debtor,
AHF, in view of the facts that he made investments in the LPs and, “[a]t the
time of the transaction[s], Templeton did not believe that he was giving value
to AHF.” 28      The Trustee relies heavily on the following statement in the
bankruptcy court’s order: “By the very structure of each of the Templeton
Deals, AHF received nothing in return for its guaranty. In each instance, AHF
is, per the deal, nothing more than a fractional interest holder in the limited
partnership into which Templeton’s investment dollars were to flow.”
However, as discussed above, the bankruptcy court also stated that Templeton

         We note that the Trustee’s focus on Templeton’s belief at the time of the investments
        28

appears misplaced. Rather, “the recognized test is whether the investment conferred an
economic benefit on the debtor; which benefit is appropriately valued as of the time the
investment was made.” In re Fairchild Aircraft Corp., 6 F.3d at 1127 (footnote omitted).
Although the In re Fairchild Aircraft Corp. court was interpreting the term “reasonably
equivalent value” under Section 548(a)(2), id. at 1125–27, this court has suggested that the
same analysis applies to the interpretation of value under Section 548(c), In re Hannover
Corp., 310 F.3d at 801.

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                                      No. 14-10563
“no doubt gave value in the amount of each of his investments,” and
“Templeton’s investments well exceed the transfers.” These factual findings
are difficult to reconcile. Moreover, although the bankruptcy court concluded
that “AHF . . . was the party in full control” of the LPs, the bankruptcy court
made no factual findings regarding when, how, and to what degree Sterquell
and AHF diverted Templeton’s investments to AHF for its own use. 29 Thus,
we are not in a position to determine whether, at the time of each of his
investments, Templeton gave value to AHF. 30
       With respect to whether Templeton entered into the transactions at
issue in good faith, we agree with the Trustee that the bankruptcy court
applied the wrong standard. In finding good faith, the bankruptcy court relied
exclusively on its determination that Templeton’s actions did not defraud other
creditors of AHF. That is not the test for good faith. Although this court has
not announced a definitive definition of good faith under Section 548(c) in a
published case, see In re Hannover Corp., 310 F.3d at 800–01 (noting that
“there is little agreement among courts regarding the appropriate legal
standard for this defense” and declining to “propound a broad rule concerning

       29  For example, there are no findings regarding what portion of Templeton’s
investments was used for the LPs’ legitimate business, compared to the portion of those funds
used by AHF for its own benefit. Nor are there any findings as to when AHF, through
Sterquell, took action to divert the funds.
        30 The Trustee argues that we can reverse and render judgment in its favor on this

issue based on the present record, relying on another case arising from similar claims in
AHF’s bankruptcy proceedings, Horton v. O’Cheskey (In re Am. Hous. Found.), 544 F. App’x
516 (5th Cir. 2013) (unpublished). In Horton, which involved similar LP investments, we
held that “the bankruptcy court’s finding that AHF did not receive any value in exchange for
its guaranty [of the LP investment] was not clearly erroneous” where “AHF had a 0.01%
partnership interest in [the LP] at the time of the exchange.” Id. at 520. This holding may
be in some tension with the broad construction given to “value” under the Bankruptcy Code.
See In re Fairchild Aircraft Corp., 6 F.3d at 1127; In re Fruehauf Trailer Corp., 444 F.3d at
212. In any event, given the conflicting factual findings of the bankruptcy court here, we
deem it appropriate to remand with respect to this issue.

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                                 No. 14-10563
‘good faith’”), we have stated in an unpublished case that we must “look to
whether the claimant was on notice of the debtor’s insolvency or the fraudulent
nature of the transaction.” Horton, 544 F. App’x at 520. We further stated:
      The good faith test under Section 548(c) is generally presented as
      a two-step inquiry. The first question typically posed is whether
      the transferee had information that put it on inquiry notice that
      the transferor was insolvent or that the transfer might be made
      with a fraudulent purpose. While the cases frequently cite either
      fraud or insolvency, these two elements are consistently identified
      as the triggers for inquiry notice. The fraud or insolvency
      predicate is set forth in countless cases . . . .
      . . . The weight of the authority . . . indicates that a court should
      focus on the circumstances specific to the transfer at issue—that
      is, whether a transferee reasonably should have known . . . of the
      fraudulent intent underlying the transfer.
      Once a transferee has been put on inquiry notice of either the
      transferor’s possible insolvency or of the possibly fraudulent
      purpose of the transfer, the transferee must satisfy a “diligent
      investigation” requirement.
Id. (quoting Christian Bros. High Sch. Endowment v. Bayou No Leverage Fund,
LLC (In re Bayou Grp., LLC), 439 B.R. 284, 310–12 (S.D.N.Y. 2010)). The
parties do not dispute that this is the appropriate test for determining good
faith under Section 548(c).
      The bankruptcy court did not apply this test below. Even assuming the
bankruptcy court was correct in determining that Templeton’s actions did not
defraud creditors, this does not answer the question of whether Templeton was
aware (or on inquiry notice) of AHF’s insolvency or fraud. Given that this
determination may hinge in part on questions of credibility and Templeton’s
state of mind with respect to various transactions, see In re Hannover Corp.,
310 F.3d at 800 (“The most important set of questions [in the good faith
inquiry] concerns the transferee’s state of mind.”), it would be prudent for the
bankruptcy court to apply this test in the first instance.

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                                     No. 14-10563
      We therefore reverse and remand so that the bankruptcy court may
address both issues underlying the applicability of the good faith defense—
whether Templeton gave value in exchange for the transfers and whether he
did so in good faith—in a manner consistent with this opinion. 31
                                    IV.    Conclusion
      For the foregoing reasons, we AFFIRM the subordination of Templeton’s
claim and REVERSE the bankruptcy court’s rulings on the alleged preferential
and fraudulent transfers and REMAND for further proceedings consistent
with this opinion.

      31 In addition, if the bankruptcy court deems the good faith defense inapplicable, it
must determine in the first instance whether the transfers were either actually or
constructively fraudulent.

                                            35