                                                               NOT PRECEDENTIAL

        UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT


                                       No. 09-1554


                    IN RE: EBC I, INC., f/k/a eTOYS, INC., et al.,
                                                       Debtors

                          EBC I INC., f/k/a/ eTOYS, INC.,
                                                      Appellant
                                         v.

                             AMERICA ONLINE, INC.


                   On Appeal from the United States District Court
                             for the District of Delaware
                           (D.C. Civil No. 1-08-cv-00100)
                      District Judge: Hon. Joseph J. Farnan, Jr.


                              Argued February 12, 2010

             Before: SLOVITER, ROTH and TASHIMA * , Circuit Judges

                                (Filed: June 1, 2010)




Richard D. Allen    (Argued)
Gregory W. Werkheiser
Thomas W. Briggs, Jr.
Morris, Nichols, Arsht & Tunnell LLP
1201 North Market Street



*Hon. A. Wallace Tashima, Senior Judge, United States Court of Appeals for the Ninth
Circuit, sitting by designation.
P.O. Box 1347
Suite 1800
Wilmington, DE 19899-1347

      Attorneys for Appellant

Marc J. Phillips
Karen C. Bifferato
Connolly, Bove, Lodge & Hutz
1007 North Orange Street
P.O. Box 2207
Wilmington, DE 19899-0000

Craig Goldblatt
Danielle M. Spinelli (Argued)
Wilmer Cutler Pickering Hale and Dorr LLP
1875 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

      Attorneys for Appellee




                                       OPINION


SLOVITER, Circuit Judge.

      Appellant EBC I, Inc., f/k/a eToys, Inc. (“eToys”), appeals the District Court’s

affirmance of the Bankruptcy Court’s judgment in favor of Appellee America Online, Inc.

(“AOL”). We will affirm.1




                  1
                    The Bankruptcy Court had jurisdiction under 28 U.S.C. §§
            157(b)(2) and 1334. The District Court had jurisdiction under 28
            U.S.C. § 158(a). We have jurisdiction under 28 U.S.C. §§
            158(d)(1) and 1291.

                                            2
                                             I.

       eToys was an online retailer that sold toys and children’s products. In 1999, eToys

entered into an Interactive Marketing Services Agreement (the “Agreement”) with AOL,

an Internet service provider. The Agreement required AOL to provide advertisements for

eToys in the shopping area of AOL’s website. Section 5.6 of the Agreement provided

that “[AOL] may terminate this Agreement immediately . . . if [eToys] . . . becomes or is

declared insolvent,” a provision which AOL believed was important to protect its

members and brand. App. at 851. In a 2000 amendment, eToys paid $750,000 to AOL

(in addition to the $7.5 million that it had previously paid), and in exchange AOL agreed

to provide advertisements for the following two years without any further payments by

eToys. In effect, eToys pre-paid for two years of advertisements on AOL’s website.

eToys agreed that the payments were “non-refundable.” App. at 848. About three

months after the amendment, eToys announced that it was insolvent and would cease

operations. As a result, AOL terminated the Agreement pursuant to Section 5.6. eToys

thereafter filed for Chapter 11 bankruptcy protection.

       On January 3, 2003, eToys filed a complaint against AOL in the Bankruptcy Court

seeking, inter alia, to recover the payments it made to AOL as a fraudulent transfer under

§ 548 of the Bankruptcy Code. eToys filed a motion for partial summary judgment,

which the Bankruptcy Court granted in part. In re EBC I, Inc., 356 B.R. 631, 642 (Bankr.

D. Del. 2006). The Bankruptcy Court held that AOL’s termination of the Agreement was



                                             3
a transfer of an interest of eToys property under § 548, namely, “the advertising services

for which [eToys] had pre-paid,” and set for trial the question of the value of that transfer.

Id. at 637. After a trial, the court concluded that eToys was entitled to no recovery on its

fraudulent transfer claim because it “failed to meet its burden of proving that it lost

anything of value by the termination of the [Agreement].” In re EBC I, Inc., 380 B.R.

348, 366 (Bankr. D. Del. 2008). In the alternative, the court credited the uncontested

testimony of AOL’s expert that any value eToys could have received from an assignment

would have been de minimis. Id. at 364. The District Court affirmed.2 In re EBC I, Inc.,

400 B.R. 13, 17 (D. Del. 2009).

                                              II.

       Section 548 provides that a bankruptcy trustee or debtor-in-possession “may avoid

any transfer . . . of an interest of the debtor in property” made less than a year before the

bankruptcy filing, if the debtor was insolvent on the date of the transfer and did not

receive “reasonably equivalent value” for the property transferred. 11 U.S.C. § 548(a)(1)




                    2
                      We exercise plenary review over the District Court’s
             appellate review of the Bankruptcy Court’s decision and exercise
             the same standard of review as the District Court in reviewing the
             Bankruptcy Court’s determinations. In re Winstar Commc’ns, Inc.,
             554 F.3d 382, 389 n.3 (3d Cir. 2009). Thus, we review the
             Bankruptcy Court’s findings for clear error; its conclusions of law
             are subject to plenary review. In re Handel, 570 F.3d 140, 141 (3d
             Cir. 2009).

                                               4
(2004).3 Such a transfer “operate[s] as a fraud against the debtor’s creditors because the

debtor’s estate [is] depleted without exchanging property of similar value from which the

creditors’ claims [can] be satisfied.” Mellon Bank, N.A. v. Metro Commc’ns, Inc., 945

F.2d 635, 645 (3d Cir. 1991). Because “the fraudulent conveyance laws are intended to

protect the debtor’s creditors, . . . the question whether the debtor received reasonable

value must be determined from the standpoint of the creditors.” Id. at 646 (emphasis

omitted); see also In re PWS Holding Corp., 303 F.3d 308, 313 (3d Cir. 2002) (noting

that “[f]raudulent conveyance law aims to make available to creditors those assets of the

debtor that are rightfully a part of the bankruptcy estate, even if they have been

transferred away”) (citation and quotation omitted).

       To the extent that AOL’s termination of the Agreement was a “transfer” of an

interest of eToys property under § 548,4 eToys and its creditors were no worse off

because of it. The Bankruptcy Court found that if AOL had not terminated the

Agreement, eToys could not have realized any value for its rights because the Agreement

“was not assumable or assignable under section 365(c) of the Bankruptcy Code.” In re



                    3
                       Section 548 was amended in 2005 to encompass
            fraudulent transfers made within two years of the bankruptcy filing.
            That amendment does not apply to cases, like this one, commenced
            before the effective date of the amendment. See Pub. L. No. 109-8,
            § 1501(a), 119 Stat. 23 (2005).
                    4
                     The “transfer” to which the Bankruptcy Court referred
            was, of course, not a transfer in fact but a reversion to AOL of
            eToys’ rights under the contract.

                                              5
EBC I, 380 B.R. at 364. eToys does not appeal the Bankruptcy Court’s factual finding

that it could not have realized any value for its rights. Instead, eToys presents the legal

challenge that the Bankruptcy Court “failed to value the actual property transferred,”

Appellant’s Br. at 21, because it “look[ed] only at the value of the contract to eToys,”

Appellant’s Br. at 15, and thus “fail[ed] to apply the totality of circumstances test” as

described in In re R.M.L., Inc., 92 F.3d 139, 154 (3d Cir. 1996), Appellant’s Br. at 21.

       The Bankruptcy Court did not err in its analysis. eToys could not have realized

any commercial value for its rights under the Agreement because it could not have

assigned or otherwise sold its rights in the marketplace. Accordingly, eToys did not

receive less than “reasonably equivalent value” when those rights reverted to AOL upon

termination of the contract. 11 U.S.C. § 548(a)(1)(B)(i). Although AOL might have

realized value by terminating the Agreement, it does not necessarily follow that eToys

and its creditors lost value. Indeed, it appears that eToys lost nothing of value that could

have become a part of its estate. Any recovery under § 548 would result in a windfall to

the eToys creditors.

                                             III.

       For the above-stated reasons, we will affirm the judgment of the District Court

affirming the judgment of the Bankruptcy Court.




                                              6
