Court Opinion

ID: 9651775
Source: CourtListenerOpinion
Date Created: 2023-08-23 16:43:48.293684+00
Date Added: 2024-06-11T13:30:19.617295
License: Public Domain

SCHERMER, Bankruptcy Appellate Panel Judge,
dissenting.
I respectfully dissent. I believe the majority’s use of a case-by-case approach to define “substantially contemporaneous” under section 547(c)(1) ignores the importance of section 547(e) as well as the type of transaction involved in the preferential transfer. I believe that to give meaning to the word “substantially,” one must consider the type of transfer involved, and with respect to the type of transfers addressed in section 547(e)(2), Congress has unambiguously spoken. I believe a more clear reading of section 547 recognizes Congress’s pronouncement that the ten day grace period within which security interests must be perfected if such transfers are to be “in fact” “substantially contemporaneous” provides the flexible approach the majority desires. Such a reading adds clarity to this area of preference law and gives meaning to section 547 in its entirety. In contrast, the majority’s position disregards section 547(e) and its role in defining when a transfer “in fact” occurs; it overly emphasizes the intent of the parties and eviscerates the certainty afforded by section 547(e)(2)(A)’s ten day grace period.
The Bankruptcy Code defines a “transfer” in section 101(54). For purposes of preference avoidability, however, certain transfers are not necessarily made at the time the debtor effects the transfer between himself and his creditor. Instead, section 547(e) tells us that transfers of interests in real estate or in personal property occur at the time the transfer is perfected against third parties. 5 Lawrence P. King, et al., Collier on Bankruptcy ¶ 547.05, at 547-69 (15th ed. rev.1999). Section 547(e)(1) provides that a transfer of real estate “is perfected when a bona fide purchaser ... cannot acquire an interest that is superior to the interest of the transferee.” 11 U.S.C. § 547(e)(1)(A). Section 547(e)(1)(B) addresses transfers of interests in fixtures or property other than real property which are perfected “when a creditor on a simple contract cannot acquire a judicial lien that is superior .... ” Finally, section 547(e)(2) addresses perfection of security interests in personal property and states, in part, that a transfer is made—
(A) at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 10 days after, such time, except as provided in subsection (c)(3)(B); [or]
(B) at the time such transfer is perfected, if such transfer is perfected after such 10 days ....
11 U.S.C. § 547(e)(2)(A) and (B).
In this case, we are asked whether perfection of a security interest in personal property occurring sixteen days after the transfer of a security interest is a “substantially contemporaneous” exchange under section 547(c)(1) or whether the ten-day relation back period of section 547(e)(2) limits its contemporaneity. Generally, a transfer is “substantially contemporaneous” if it is both intended by the debtor and the creditor to be a contemporaneous exchange, and in fact, is a substantially contemporaneous exchange. 11 U.S.C. § 547(c)(1)(A) and (B). The Bankruptcy Code does not define “substantially contemporaneous,” but the history of the defense reveals that the exception was intended to protect exchanges of property (primarily cash transactions) that might be considered credit transactions even though the transfers were intended to be contem*527poraneous. Collier on Bankruptcy ¶ 547.04[1], at 547-44.
Section 547(c)(1) was added in the Bankruptcy Reform Act of 1978. Professor Countryman explains the exception as “a simple one, excepting a transfer that is really not on account of an antecedent debt ....” Countryman, The Concept of a Voidable Preference in Bankruptcy, 38 Vand.L.Rev. 713, 759 (1985). Comments in the legislative history focused on its impact upon transactions by check.
The first exception is for a transfer that was intended by all parties to be a contemporaneous exchange for new value, and was in fact substantially contemporaneous. Normally, a check is a credit transaction. However, for the purposes of this paragraph, a transfer involving a check is considered to be ‘intended to be contemporaneous’, and if the check is presented for payment in the normal course of affairs, which the uniform commercial code specifies as 30 days, U.C.C. § 3-503(2)(a), that will amount to a transfer that is ‘in fact substantially contemporaneous.’
S.Rep. No. 95-989, at 88 (1978) U.S.Code Cong. & Admin.News 1978, pp. 5787, 5874, reprinted in Arnold & Porter Legislative History (Westlaw 1999). See Ray v. Security Mut. Fin. Corp. (In re Arnett), 731 F.2d 358, 361 (6th Cir.1984) (exception designed to allow use of checks where cash transaction intended without having a delay in presentment change the character of transaction from cash to credit sale).
The majority looks to the thirty-day period in the legislative history as a standard of contemporaneity for all transfers and criticizes as ironic that Arnett and its prodigy, (including this dissent) acknowledge the legislative history but continue to find security interests perfected outside the ten-day grace period of section 547(e)(2) not to be substantially contemporaneous. This criticism reveals what I believe to be the error in the majority’s approach — that is, it applies the standards of contemporaneity pertinent to transfers by check to all types of transfers. Arnett recognized this problem, stating “commercial practices appropriate to the transfer of negotiable instruments are not necessarily commensurate with those involving security interests.” Arnett, 731 F.2d at 362.
The Uniform Commercial Code’s thirty-day provision for giving notice of dishonor of a check explains customary time limits for transfers by check. Provisions governing perfection of a security interest, however, provide other time limits. For example, section 9-304(4)(b) provides that a security interest in instruments and documents will be temporarily perfected for twenty-one days without delivery and without the filing of a financing statement. Thus, one might argue that a security interest is “substantially contemporaneous” if perfected within twenty-one days. In fact, the provisions of section 60(a)(7) of the Bankruptcy Act (which were analogous to section 547(e) of the Bankruptcy Code) provided a twenty-one-day grace period for perfection of security interests. Collier, ¶ 547.05[1], at 547-70, n. 2.
The court’s purpose, however, is not to invent approaches that make accommodations to the parties’ intent, but to construe legislation to effect legislative intent. Philbrook v. Glodgett, 421 U.S. 707, 713, 95 S.Ct. 1893, 1898, 44 L.Ed.2d 525 (1975), quoted in Arnett, 731 F.2d at 360. Such intent should be gleaned from the statute itself, or if the statute is ambiguous, by reference to available legislative materials that clearly reveal the intent. Arnett, 731 F.2d at 361, see Toibb v. Radloff, 501 U.S. 157, 162, 111 S.Ct. 2197, 2200, 115 L.Ed.2d 145 (1991) (appeals to statutory history should be taken only to resolve ambiguities). Finally, in construing a statute, courts are to consider provisions in the context of the entire statute, and are to avoid a construction of one part or provision that renders another part redundant or superfluous. Jarecki v. Searle & Co., 367 U.S. 303, 307-308, 81 S.Ct. 1579, 1582-1583, 6 L.Ed.2d 859 (1961).
*528Unlike cash or check transactions, to which section 547(e) does not apply, section 547(e) specifically addresses transfers of interests in real estate, personal property, and transfers that perfect security interests. With respect to real estate and personal property, section 547(e)(1) accomplishes one task: it declares when a transfer occurs for purposes of section 547. With respect to security interests, however, section 547(e)(2) accomplishes two purposes: it specifies when perfection occurs; and it provides a grace period that permits the date of perfection to relate back to the date of the original transfer if perfection occurs within ten days. I find the different treatment reveals Congress’s intent to pronounce the amount of delay Congress considered tolerable for perfection of a security interest.
Although there is virtually no legislative history for section 547(e) to explain why the section provides a grace period for perfection of security interests but not for perfection of other transfers, it is clear that Congress has long afforded special treatment to the perfection of security interests in the area of preferential transfers. As noted, provisions analogous to section 547(e)(2) existed under the Bankruptcy Act of 1898 which provided a grace period of twenty-one days. In 1978, Congress codified the contemporaneous exchange exception originating in Dean v. Davis, 242 U.S. 438, 37 S.Ct. 130, 61 L.Ed. 419 (1917), and in so doing, specifically chose to reduce the grace period of section 547(e)(2) to ten days. At the same time, Congress added section 547(c)(3), which created an exception for perfection of purchase money security interests or “enabling loans,” provided the interest was perfected before ten days after the security interest attached. In the 1994 Amendments, Congress increased to twenty days the time period in which a purchase money security interest may be perfected for purposes of the section 547(c)(3) defense, but left section 547(e)(2)’s ten-day limit unchanged. This history demonstrates that Congress has repeatedly given specialized treatment to perfection of security interests in preference law and has specifically limited the relation back period for perfection of non-purchase money security interests to a period of ten days.
Admittedly, nothing expressly mandates courts to read the grace period of section 547(e)(2) as the period of substantial contemporaneity for perfection of a security interest. However, to ignore the ten-day limit of 547(e)(2) and afford the defense to transfers outside that period depending on the facts of any giving transaction reads section 547(e)(2) out of the statute and renders it superfluous. Courts have routinely rejected giving section 547(c)(1) an expansive reading in the context of “enabling loans” and at least four courts of appeals have held that section 547(c)(1) does not apply to shield purchase money security interests perfected outside of the limits of section 547(c)(3)(B). See In re Tressler, 771 F.2d 791 (3rd Cir.1985); In re Davis, 734 F.2d 604 (11th Cir.1984); Arnett, 731 F.2d 358 (6th Cir.1984); In re Vance, 721 F.2d 259 (9th Cir.1983). To permit section 547(c)(1) to overlay the ten-day grace period of section 547(e)(2) similarly renders section 547(e)(2) superfluous. Moreover, if we permit the “substantially contemporaneous” defense of section 547(c)(1) to protect from avoidance non-purchase money security interests perfected after the. limits in section 547(e)(2), we create an anomalous situation in which non-purchase money security interests are handled more favorably in bankruptcy than purchase money security interests when generally the latter are favored over the former. W.T. Vick Lumber Co., Inc. v. Chadwick, 179 B.R. 283, 289 (Bankr.N.D.Ala.1995) (citing David G. Epstein, et al., Bankruptcy, § 6-26, pp. 604-05 (1992)). As a rule of statutory construction, I believe we must read section 547 so that the general terms of section 547(c)(1) yield to the specific protections embodied in the ten-day grace period of section 547(e)(2). Id. at 289 (citing 3 William L. Norton, III, Norton on Bankruptcy Law *529and Practice 2d, § 57:13, pp. 57-64, 57-65 (1994)).
Finally, by focusing on the parties’ intention and the reasons for the delay in perfection, the majority gives only slight recognition to the second element of 547(c)(1) which requires that the transfer must also be “in fact” “substantially contemporaneous.” Section 547(e) defines the time of a transfer of a perfected security interest and states when “in fact” the transfer occurred. Use of a totality of circumstances or case-by-case standard creates difficulty for courts in determining intent and fixing time limits for contemporaneous perfection. It provides no clear standard to determine whether perfection is “substantially contemporaneous” if it occurs sixteen, thirty, thirty-three or even seven days after the transfer. I observe that although the majority’s methodology following Pine Top Insur. Co. v. Bank of America Nat’l Trust Sav. Ass’n, 969 F.2d 321 (7th Cir.1992), requires courts to inquire into the relevant circumstances of the transfer on a case-by-case basis, including the length of delay, the reason for the delay, the nature of the transactions, the intention of the parties, and the possible risk of fraud, the majority provides no analysis of these criteria to the delay in this case. Rather, the majority only states that “substantially contemporaneous” should not be limited to the grace period provided in section 547(e)(2). The opinion provides nothing more. A rule that instead requires perfection of security interests within the ten-day grace period of section 547(e)(2) adds certainty, clarity and uniformity to the law of preferential transfers and is the better rule which I would adopt. Accordingly, because the transfer occurred outside the ten-day grace period, I would affirm the decision of the bankruptcy court and set aside the transfer as preferential.