               ELECTRONIC CITATION: 2009 FED App. 0001P (6th Cir.)
                            File Name: 09b0001p.06

            BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: OMEGA DOOR COMPANY, INC.,                 )
                                                 )
                  Debtor.                        )
_____________________________________            )
                                                 )
KATHRYN A. BELFANCE,                             )
Trustee of the Omega Door Company                )
Reorganization Trust,                            )
                                                 )
                    Plaintiff-Appellant/         )
                    Cross-Appellee,              )
                                                 )
       v.                                        )       Nos. 07-8047 and 07-8048
                                                 )
RICHARD BUONPANE and                             )
GEORGEANNE BUONPANE,                             )
                                                 )
                  Defendants-Appellees/          )
                  Cross-Appellants.              )
_____________________________________            )

                      Appeal from the United States Bankruptcy Court
             for the Northern District of Ohio, Eastern Division at Youngstown.
                                        No. 03-42905

                                 Argued: August 12, 2008

                           Decided and Filed: January 13, 2009

      Before: GREGG, PARSONS, and RHODES, Bankruptcy Appellate Panel Judges.

                                  ____________________

                                           COUNSEL

ARGUED: Jessica E. Price, BROUSE McDOWELL, Akron, Ohio, for Appellant. Kenneth L.
Gibson, GIBSON & LOWRY, Cuyahoga Falls, Ohio, for Appellees. ON BRIEF: Jessica E. Price,
Marc B. Merklin, Kate M. Bradley, BROUSE McDOWELL, Akron, Ohio, for Appellant. Michael
J. Moran, GIBSON & LOWRY, Cuyahoga Falls, Ohio, for Appellees.
                                      ____________________

                                            OPINION
                                      ____________________

       STEVEN RHODES, Bankruptcy Appellate Panel Judge. John and Tina Thompson (“the
Thompsons”) purchased the stock of the debtor, Omega Door Company, Inc. (“Omega”), from
Richard Buonpane (“Buonpane”) and gave him an installment note for part of the purchase price.
However, Omega, not the Thompsons, made all of the payments on that note. Kathryn A. Belfance,
the trustee of the Omega Door Reorganization Trust, filed this adversary proceeding against Richard
and Georgeanne Buonpane (collectively “the Buonpanes”) asserting four claims. In the first two
claims, the trustee seeks to recover the note payments that Omega made to the Buonpanes during the
one and four years preceding Omega’s bankruptcy filing as fraudulent transfers under applicable
federal and state law. The trustee’s third claim is that Omega’s payments were an illegal stock
redemption under applicable state law. Finally, the trustee claims that Omega’s payments during the
90 days preceding the filing of the petition for relief were preferential transfers.

       In the bankruptcy court, the parties filed cross-motions for partial summary judgment on the
fraudulent transfer and illegal stock redemption claims. Because the note was given more than four
years before Omega filed its bankruptcy case, the bankruptcy court held that the trustee’s fraudulent
transfer claims were barred by the applicable statutes of limitations and dismissed those claims. The
bankruptcy court also held that the transaction was not an illegal stock redemption and dismissed that
claim. The trustee appeals those rulings.

       After a trial on the preference claim, the bankruptcy court found that Richard Buonpane had
a valid security interest in Omega’s assets, but that the security interest was voidable because it was
not perfected. Therefore, the bankruptcy court held that the trustee could recover $20,142.50 in
payments that Omega made to the Buonpanes during the 90 day preference period. The trustee’s
appeal contends that Buonpane did not have a valid security interest. The Buonpanes’ appeal
contends that the security interest was valid and that therefore the payments were not preferential.

       For the reasons stated below, the dismissal of the trustee’s two fraudulent transfer claims is
vacated. The dismissal of the illegal stock redemption claim is affirmed. The judgment on the
trustee’s preference claim is also affirmed.

                                                  -2-
                                    I. ISSUES ON APPEAL

       There are three issues on appeal. The first is whether the applicable statutes of limitations
barred the trustee’s state and federal fraudulent transfer claims. That issue turns on whether
Omega’s payments to the Buonpanes were separate transfers.

       The second issue is whether Buonpane’s stock purchase was an illegal stock redemption or
dividend by Omega.

       The third is whether Omega’s payments to the Buonpanes in the 90 days prior to bankruptcy
were preferential transfers. This issue turns upon whether Buonpane had a valid, perfected security
interest in Omega’s assets. The Panel notes that initially, the Buonpanes had also asserted that the
payments were not “on account of an antecedent debt.” However, they abandoned that argument
during the oral argument.

                    II. JURISDICTION AND STANDARD OF REVIEW

       The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal.
The United States District Court for the Northern District of Ohio has authorized appeals to the Panel
and a final order of the bankruptcy court may be appealed as of right. 28 U.S.C. § 158(a)(1). For
purposes of appeal, a final order “ends the litigation on the merits and leaves nothing for the court
to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109
S. Ct. 1494, 1497 (1989) (citations omitted). An order granting summary judgment is a final order.
Menninger v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (B.A.P. 6th Cir. 2007).

       The bankruptcy court’s final order granting the Buonpanes’ motion for summary judgment
is reviewed de novo. Gold v. FedEx Freight East, Inc. (In re Rodriguez), 487 F.3d 1001, 1007 (6th
Cir. 2007). “Under a de novo standard of review, the reviewing court decides an issue independently
of, and without deference to, the trial court’s determination.” In re Morgeson, 371 B.R. at 800.

       The judgment of the bankruptcy court holding that the note payments made in the 90 days
preceding the filing of the petition constituted avoidable preferential transfers under 11 U.S.C.
§ 547(b) is a final order. Corzin v. Decker, Vonau, Sybert & Lackey, Co. (In re Simms Constr. Servs.




                                                 -3-
Co., Inc.), 311 B.R. 479, 481 (B.A.P. 6th Cir. 2004) (citing Marlow v. Rollins Cotton Co. (In re
Julien Co.), 146 F.3d 420, 422 (6th Cir. 1998)).

        The bankruptcy court’s conclusions of law, including those relating to the validity and
perfection of the security interest, are reviewed de novo. Riverview Trenton R.R. Co. v. DSC, Ltd.
(In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir. 2007); see also In re Simms Constr. Servs. Co, Inc.,
311 B.R. at 481.

        The court’s findings of fact are reviewed under the clearly erroneous standard. In re DSC,
Ltd., 486 F.3d at 944. “A finding of fact is clearly erroneous ‘when although there is evidence to
support it, the reviewing court on the entire evidence is left with the definite and firm conviction that
a mistake has been committed.’” Id. (quoting Anderson v. City of Bessemer City, N.C., 470 U.S.
564, 573, 105 S. Ct. 1504, 1511 (1985)).

                                            III.   FACTS

        Prior to January 1, 1999, Richard Buonpane was the sole shareholder of Omega Door
Company, Inc. and its affiliates. On January 1, 1999, pursuant to a purchase agreement dated
December 14, 1998, Buonpane sold his stock in Omega and two of its affiliate companies to the
Thompsons for $1,550,000. Buonpane received the first $550,000 of the purchase price in cash. The
Thompsons executed and delivered to Buonpane a Commercial Secured Promissory Note dated
January 1, 1999, in the principal amount of $1 million for the remainder of the purchase price. On
the same day, Omega executed and delivered a guaranty of the Thompsons’ obligations to Buonpane.
At the time of the sale, Buonpane executed a non-compete agreement that the parties valued at
$50,000.

        In pertinent part, the purchase agreement between the Thompsons and Buonpane provides:

        [Buonpane] shall have a security interest in all of the assets of [Omega and its
        affiliates] and all of the stock certificates being sold and conveyed herein as further
        security for the performance of all obligations contained herein and for any amounts
        owed to [Buonpane] under the terms of any leases associated with this transaction.
        [The Thompsons] shall execute and deliver to [Buonpane] a duly executed UCC
        financing statement for the security interest held in all inventory, supplies, accounts
        receivable, office furnishings, equipment and personal property to perfect this
        security interest . . . .


                                                   -4-
(J.A. at Tab 12, Exh. I, p. 5.) The note also states that it is secured by a security agreement. (J.A.
at Tab 12, Exh. II, p.2.)

        Additionally, Omega and Buonpane signed a Uniform Commercial Code Financing
Statement - UCC 1, which covers all inventory, supplies, accounts receivable, office furniture,
equipment, personal property and proceeds from the sale of any of the foregoing. The financing
statement was filed in the State of Ohio, Mahoning County Records’ Office. (J.A. at Tab 12, Exh.
V.) The financing statement was not, however, filed with the Ohio Secretary of State.

        As a result of Buonpane’s sale of the stock to the Thompsons, they owned all of the stock of
Omega and its affiliates. However, the Thompsons made none of the subsequent payments on the
note. Instead, Omega made all of the payments on the note. Omega issued the checks in payment
on the note to either Buonpane or his wife.1

        Omega filed a petition for relief under chapter 11 on June 10, 2003.2 On February 6, 2004,
Buonpane filed a proof of secured claim in the amount of $743,389.90, based upon the guaranty of
Omega. On April 10, 2005, Omega filed an objection to this claim and a motion to subordinate the
claim. Omega asserted that Buonpane’s claim was unsecured because it was unperfected and that
Buonpane’s claim should be subordinated to the claims of unsecured creditors pursuant to 11 U.S.C.
§ 510(a). On August 16, 2005, Omega filed its First Amended and Restated Plan of Reorganization.
The objection to Buonpane’s claim was resolved through a settlement agreement that treated
Buonpane’s claim in a separate class as a disputed secured claim that was to receive the same
distribution as unsecured creditors under the plan.




        1
         Omega made some of the payments on the note to Buonpane’s wife even though she was
not a party to the 1999 transaction. Upon remand, the bankruptcy court may consider whether this
impacts the trustee’s claims and any appropriate relief.
        2
         Because Omega’s bankruptcy case was filed before the effective date of the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005, October 17, 2005, all references to the
Bankruptcy Code are to the pre-BAPCPA version. See Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, Pub. L. No. 109-8, § 1501(b)(1), 119 Stat. 23, 216 (stating that, unless
otherwise provided, the amendments do not apply to cases commenced under title 11 before the
effective date of the Act).

                                                 -5-
       On December 7, 2005, the trustee filed this adversary proceeding asserting four claims for
relief. First, the trustee claims that the note payments that Omega made in the four years preceding
the petition date were fraudulent transfers recoverable under 11 U.S.C. § 544(b) and Ohio Revised
Code § 1336.04. Second, the trustee claims that the note payments in the one year preceding the
petition date were fraudulent transfers under 11 U.S.C. § 548. Third, the trustee claims that the
payments were illegal corporate dividends in violation of Ohio Revised Code §§ 1701.33 and
1701.35 because Omega made the payments. Fourth, the trustee claims that the payments made
within the 90 days prior to the petition date are preferences.

       The Buonpanes and the trustee filed cross-motions for partial summary judgment on
November 13, 2006. In their motion, the Buonpanes asserted that the trustee’s fraudulent transfer
claims were barred by the applicable state and federal statutes of limitations because the period of
limitations began to run on the date of the stock sale, January 1, 1999, rather than on the date that
each installment payment was made. In the alternative, they argued that Omega received reasonably
equivalent value for the payments through the reduction in its guarantor liability.

       The trustee argued that each installment payment was a separate fraudulent transfer and that
at the time of each payment: (a) the period of limitations would then begin; (b) Omega had to receive
reasonably equivalent value; and (c) Omega’s solvency should be determined. The trustee contended
that Omega was insolvent at the time of each payment and did not receive reasonably equivalent
value in exchange for the payments. Rather, in exchange for total payments of $493,712.61 in the
four years preceding the petition date, Omega received only a non-compete agreement valued at
$50,000, as well as new management and new debt.

       Regarding the illegal stock redemption claim, the trustee argued that the court should look
beyond the form of the stock transaction and view the stock purchase for “what it really was– a
purchase by the debtor of its own stock” and find that it was an illegal stock redemption. (J.A. at
Tab 4, p. 19.)

       On February 1, 2007, the bankruptcy court issued a memorandum opinion and order granting
the Buonpanes’ motion for partial summary judgment and denying the trustee’s motion. In its
memorandum opinion, the court noted that neither the parties nor the court had found case law
addressing how installment payments should be treated under state or federal fraudulent transfer law.

                                                 -6-
However, the court concluded that the “installment payments represent an obligation ‘incurred’ by
the Thompsons and debtor on the Purchase Date, and, therefore, the respective statutes of limitations
bar the state and federal fraudulent transfer actions.” (J.A. at Tab 10, p.12.)

       The bankruptcy court rejected the trustee’s contention that because all of the payments on
the note were made by Omega, the stock purchase was actually an illegal stock redemption. The
trustee argued that the stock sale was made with the understanding that Omega would ultimately
make all the payments. The bankruptcy court rejected the trustee’s arguments because (1) the
Thompsons acquired ownership and control of Omega, (2) Omega did not purchase or redeem its
stock, and (3) the payments that Omega made were for the benefit of the Thompsons.

       The bankruptcy court conducted a trial on the fourth count of the trustee’s complaint which
asserted that payments totaling $20,142.50 made to the Buonpanes by Omega in the 90 days
preceding the petition date were voidable preferential payments under 11 U.S.C. § 547(b). On this
claim, the parties stipulated that Omega was insolvent during those 90 days, that the claims of
creditors will not be paid in full, that payments totaling $20,142.50 were made during those 90 days,
that the payments were to and for the benefit of Buonpane, and that those payments were for an
antecedent debt.

       Following the trial, the bankruptcy court issued a detailed memorandum opinion concluding
that Buonpane held a valid security interest in the assets of Omega, but because the security interest
was not perfected and was therefore voidable, Buonpane gave no new value for the payments he
received on the note under § 547(c)(1). Therefore, the court held that Buonpane received voidable
preferential payments totaling $20,142.50.

       The trustee timely appealed the bankruptcy court’s February 1, 2007 order granting the
Buonpanes’ motion for partial summary judgment and the July 30, 2007 order to the extent that it
found that Buonpane held a valid security interest. Buonpane timely appealed the July 30, 2007
order to the extent that it found he received voidable preferential payments totaling $20,142.50.




                                                 -7-
                                       IV.    DISCUSSION

       A. Whether each installment payment on the note is a separate transfer under the
fraudulent transfer statutes.

       The trustee’s complaint asserts a claim for constructive fraud under Ohio Revised Code
§ 1336.04, pursuant to her powers under 11 U.S.C. § 544(b)(1), which permits the trustee to “avoid
any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is
voidable under applicable law by a creditor holding an unsecured claim that is allowable under
section 502.” In pertinent part, Ohio Revised Code Ann. §1336.04 provides:

       1336.04 Intent to defraud; property depletion; debts incurred beyond ability to
       pay
       (A) A transfer made or an obligation incurred by a debtor is fraudulent as to a
       creditor, whether the claim of the creditor arose before or after the transfer was made
       or the obligation was incurred, if the debtor made the transfer or incurred the
       obligation in either of the following ways:
       ....
       (2) Without receiving a reasonably equivalent value in exchange for the transfer or
       obligation, and if either of the following applies:
       (a) The debtor was engaged or was about to engage in a business or a transaction for
       which the remaining assets of the debtor were unreasonably small in relation to the
       business or transaction;
       (b) The debtor intended to incur, or believed or reasonably should have believed that
       he would incur, debts beyond his ability to pay as they became due.

       The statute of limitations for a claim brought under Ohio Revised Code § 1336.04 is four
years after the transfer was made or the obligation was incurred. Ohio Rev. Code § 1336.09(B).

       The trustee also asserted a claim under 11 U.S.C. § 548(a) to avoid Omega’s payments made
during the one year before the bankruptcy was filed. Section 548 provides in pertinent part:

       (a)(1) The trustee may avoid any transfer of an interest of the debtor in property, or
       any obligation incurred by the debtor, that was made or incurred on or within one
       year before the date of the filing of the petition, if the debtor voluntarily or
       involuntarily–
       ....


                                                 -8-
       (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;
               (II) was engaged in business or a transaction, or was about to engage
               in business or a transaction, for which any property remaining with
               the debtor was an unreasonably small capital; or
               (III) intended to incur, or believed that the debtor would incur, debts
               that would be beyond the debtor’s ability to pay as such debts
               matured[.]

       For the payments that Omega made in the one year period before bankruptcy, these claims
appear to be redundant. In any event, the trustee asserts that each installment payment that Omega
made to the Buonpanes constituted a separate transfer. On the other hand, the Buonpanes contend
that Omega made only one transfer– its guaranty of the note as part of the sale of stock to the
Thompsons on January 1, 1999.

       The bankruptcy court found in favor of the Buonpanes on this issue. Specifically, the
bankruptcy court held:

               Neither party cited, nor did this Court independently find, any case law
       addressing the treatment of installment payments under a promissory note under state
       or federal fraudulent transfer law. However, . . . the Court finds that the installment
       payments represent an obligation “incurred” by the Thompsons and Debtor on the
       Purchase Date, and, therefore, the respective statutes of limitations bar the state and
       federal fraudulent transfer actions.
               R.C. § 1336.06(B)(2) states that an obligation is incurred, if evidenced by a
       writing, when the writing executed by the obligor is delivered to or for the benefit of
       the obligee. Ohio Rev. Code Ann. § 1336.06 (West 2006). Likewise, federal courts
       interpreting 11 U.S.C. § 547(c)(2) have concluded that an obligation is incurred when
       the debtor becomes legally obligated to pay. Sandoz v. Fred Wilson Drilling Co. (In
       re Emerald Oil Co.), 695 F.2d 833, 837 (5th Cir. 1983); see also Belfance v.
       BancOhio/National Bank (In re McCormick), 5 B.R. 726, 731 (Bankr. N.D. Ohio
       1980) (debt not “incurred” anew every month when installment payment becomes
       due).
               More pointedly, the bankruptcy court for the Southern District of New York
       acknowledged that, “While the Bankruptcy Code is silent on the question of when
       a debt or obligation is ‘incurred,’ courts have not questioned that an ‘obligation’ to
       pay principal indebtedness under a promissory note is ‘incurred’ on the date the note


                                                 -9-
       is executed and delivered.” Federal Communications Commission v. NextWave
       Personal Communication (In re NextWave Personal Communications, Inc.), 235
       B.R. 277, 289 (Bankr. S.D.N.Y. 1999) (citing In re Iowa Premium Service., 695 F.2d
       1109, 1111-12 (8th Cir. 1982); In re Smith-Douglass, Inc., 842 F.2d 729, 730 (4th
       Cir. 1988); In re Pippin, 46 B.R. 281, 283-84 (Bankr. W.D. La. 1984) (holding that,
       for preference purposes, debtor becomes legally obligated to pay under installment
       payment contract when contract is executed)).
              Based upon the state statute and the rationale articulated in the foregoing case
       law, this Court finds that Debtor incurred its guarantor liability on the Note on
       January 1, 1999. As a consequence, both the state and federal statutes of limitations
       bar Trustee from pursuing the [fraudulent transfer claims.]

(J.A. at Tab 10, pp. 12-14.)3

       It is a “settled rule that a statute must, if possible, be construed in such fashion that every
word has some operative effect.” United States v. Nordic Village, Inc., 503 U.S. 30, 36, 112 S. Ct.
1011, 1015 (1992). The Panel must therefore give “operative effect” to the word “or” in the
applicable statutes. The bankruptcy court focused on the obligation that Omega incurred in 1999.
However, Ohio Revised Code § 1336.04 states that “[a] transfer made or an obligation incurred by
a debtor is fraudulent . . . .” (Emphasis added.) The Ohio statute is not restricted only to an
obligation incurred. Likewise, 11 U.S.C. § 548(a)(1) is not restricted to an obligation incurred; it
also allows the trustee to avoid transfers or obligations. “Although sections 544 and 548 of the
Bankruptcy Code authorize the trustee to avoid a transfer or an obligation, section 102(5) negates
any implication that the trustee may not avoid both a transfer that secures or is otherwise related to
an obligation and the obligation itself.” Gerald K. Smith & Frank R. Kennedy, Symposium on
Bankruptcy: The Trustee’s Avoiding Powers: Fraudulent Transfers and Obligations: Issues of
Current Interest, 43 S.C. L. Rev. 709, 717 (1992). The word “or” is not exclusive when used in the
Bankruptcy Code. 11 U.S.C. § 102(5).

       A “transfer” under Ohio law is defined as “every direct or indirect, absolute or conditional,
and voluntary or involuntary method of disposing of or parting with an asset or an interest in an




       3
        Subsequent to the bankruptcy court’s decision, the court in Wells v. Sleep (In re Michigan
Machine Tool Control Corp.), 381 B.R. 657 (Bankr. E.D. Mich. 2008), issued an opinion reaching
the same result. However, the Panel does not find that case persuasive for the reasons stated herein.

                                                 -10-
asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance.”
Ohio Rev. Code Ann. § 1336.01(L).

        Similarly, the Bankruptcy Code defines “transfer” as “every mode, direct or indirect, absolute
or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest
in property, including retention of title as a security interest and foreclosure of the debtor’s equity
of redemption . . . .” 11 U.S.C. § 101(54).

        The definitions of “transfer” under the state law and the Bankruptcy Code are very broad.
The meaning of “transfer” is not limited to incurring an obligation, as the bankruptcy court’s
decision suggests. Ohio law broadly defines “transfer” as “every direct or indirect . . . method of
disposing of or parting with an asset or an interest in an asset, and includes payment of money . . . . ”
Ohio Rev. Code Ann. § 1336.01(L) (emphasis added). Under that definition, without question,
“transfer” includes both incurring an obligation and any payments on any obligation. The
Bankruptcy Code also defines “transfer” broadly, even if it does not specifically state that it includes
the payment of money. See 11 U.S.C. § 101(54).

        In Advanced Telecommunication Network, Inc. v. Allen (In re Advanced Telecommunication
Network, Inc.), 490 F.3d 1325, 1331-32 (11th Cir. 2007), the Eleventh Circuit reached a similar
conclusion, holding that a statute of limitations for fraudulent transfers did not bar the recovery of
installment payments even though the underlying obligation that gave rise to the payments would
be barred from avoidance. The court noted that the applicable New Jersey statute for avoiding
constructively fraudulent transfers allows the avoidance of both a “transfer” and an “obligation.”

        Because the same is true for Ohio Revised Code § 1336.04 and 11 U.S.C. § 548(a), the Panel
concludes that the bankruptcy court erred in its conclusion “that the installments payments represent
an obligation ‘incurred’ by the . . . debtor on the Purchase Date [of the stock], and, therefore, the
respective statutes of limitations bar the state and federal fraudulent transfer actions.” (J.A. at Tab
10, p. 12.) Similarly, although the court’s finding that the “Debtor incurred its guarantor liability on
the Note on January 1, 1999,” is factually correct, the court’s conclusion that “[a]s a consequence,
both the state and federal statutes of limitations bar trustee from pursuing the First and Second
Claims for Relief” is erroneous. (J.A. at Tab 10, p. 13-14.) Therefore, the February 1, 2007 order
awarding the Buonpanes summary judgment on the trustee’s fraudulent transfer claims is vacated.

                                                  -11-
       On the other hand, the bankruptcy court did not err in denying the trustee’s motion for
summary judgment. Because the bankruptcy court concluded that the trustee’s claims were barred
by the statutes of limitations, the court did not determine the merits of those claims. Moreover, the
record establishes that there are genuine issues of material fact concerning (1) whether Omega
received reasonably equivalent value in exchange for the transfers; and (2) Omega’s insolvency or
inability to meet its obligations as they came due. Regarding the latter issue, the parties disagree on
whether the guaranty should have been recorded as a direct obligation on Omega’s balance sheet,
an issue that the court has yet to decide. The Panel also notes that although a motion to strike the
affidavit of Karl Schroedel that put some of these facts at issue was before the court, that motion was
deemed moot as the court did not consider the affidavit in its ruling on the summary judgment
motions. (J.A. at Tab 10, p.5 n.4.) Additionally, the bankruptcy court needs to make a factual
finding whether the payments at issue were made on account of the guaranty to determine whether
they were on account of an antecedent debt. As a result, the February 1, 2007 order denying the
trustee’s summary judgment motion is affirmed.

       B. Whether the sale of Omega’s stock constituted an illegal stock redemption.

       The trustee asserts that the stock purchase constituted a purchase or redemption by Omega
of its own stock while insolvent in violation of Ohio Revised Code § 1701.35(B), which provides:

       A corporation shall not purchase its own shares except as provided in this section,
       nor shall a corporation purchase or redeem its own shares if immediately thereafter
       its assets would be less than its liabilities plus its stated capital, if any, or if the
       corporation is insolvent, or if there is reasonable ground to believe that by such
       purchase or redemption it would be rendered insolvent.

       If a corporation redeems its stock in violation of § 1701.35(B), Ohio Revised Code
§ 1701.95(D) imposes liability upon a shareholder who knowingly receives any dividend,
distribution or payment under certain circumstances.

       A shareholder who knowingly receives any dividend, distribution, or payment made
       contrary to law or the articles shall be liable to the corporation for the amount
       received by that shareholder that is in excess of the amount that could have been paid
       or distributed without violation of law or the articles.

Ohio Rev. Code § 1701.95(D).


                                                 -12-
          The bankruptcy court concluded that there was no illegal stock redemption under Ohio law,
because the Thompsons acquired ownership and control of Omega as a result of the stock sale in
1999, and that the payments made on the note by Omega, as guarantor, were made for the benefit
of the Thompsons. The bankruptcy court further found that even assuming that there was a stock
redemption, the trustee did not carry her burden of demonstrating that there is no genuine issue of
material fact that the Buonpanes knowingly received dividends, a distribution or payments, as
required by Ohio Revised Code § 1701.95(D), because she had not established that the Buonpanes
knew the note would be paid by Omega. Therefore, the court granted the Buonpanes’ motion for
partial summary judgment on the trustee’s claim under Ohio Revised Code §§ 1701.35(B) and
1701.95(D).

          On appeal, the trustee argues that the bankruptcy court erred in finding that the stock sale was
not an illegal stock redemption because the court “focused merely on the form of the transaction,
rather than its substance.” (Appellant’s Br. at 28.) According to the trustee, the transaction was a
stock sale in form only, but in substance was a stock redemption by Omega because Omega made
all of the payments on the note. As a result, she asserts, the transaction was no different than a
purchase or redemption by Omega of its own stock.

          The trustee is correct that as a court of equity, the bankruptcy court may look beyond the
form of the transaction. See Yoder v. T.E.L. Leasing, Inc. (In re Suburban Motor Freight, Inc.), 124
B.R. 984, 998 (Bankr. S.D. Ohio 1990). Nevertheless, the record establishes that even though
Omega made the payments on the note, Omega did not purchase or redeem its own stock; rather, the
Thompsons purchased the stock. As the trustee herself says, “the debtor made all the payments
under the Note on behalf of and for the benefit of Thompson . . . .” (Appellant’s Br. at 28) (emphasis
added.)

          The trustee next asserts that the bankruptcy court erred in finding that, even if the stock sale
constituted a stock redemption, the trustee failed to establish that there was no genuine issue of
material fact that Buonpane knowingly received a dividend, distribution or payment. The only
evidence on this issue is contained in the deposition of John Thompson. He testified that he did not
have independent means to make the payments on the note and that Buonpane was aware of his
financial position. However, when asked whether Buonpane knew that Omega would make the


                                                    -13-
payments, John Thompson testified that he believed it was understood but did not recall specifically
discussing it. (J.A. at Tab 19, p. 48.) As the bankruptcy court found, Thompson’s testimony
establishes only that Thompson knew Omega would make all the payments, not that Buonpane knew.

          Accordingly, the Panel holds that the bankruptcy court did not err by granting partial
summary judgment to Buonpane on this issue. The bankruptcy court’s order is affirmed in this
regard.

          C. Whether the trustee can recover $20,142.50 as preferential transfers.

          Following a trial on the merits, the bankruptcy court held that payments made on the note in
the 90 days prior to the petition filing date were recoverable by the trustee as preferential transfers
pursuant to § 547(b) and accordingly entered a judgment against Buonpane.4 During the oral
argument, Buonpane conceded that all the elements of § 547(b) are met. The only remaining issue
is whether Buonpane is entitled to the “new value” defense. Based on the definition of “new value”
under 11 U.S.C. § 547(a)(2), the bankruptcy court held that because the security interest was
voidable on the petition date, no new value was given.

          Buonpane argues that the payments that Omega made in the 90 days preceding the petition
date are not avoidable because they fall under § 547(c)(1). That exception applies to transfers that
are intended as and resulted in a contemporaneous exchange for new value. Buonpane asserts that
the exchange here was the release of collateral subject to the security interest. The trustee responds
that no new value was exchanged because either Buonpane did not have a valid security interest or
the failure to perfect the security interest makes it avoidable.

          The bankruptcy court applied the “composite documents approach,” which considers all of
the documents “executed between a debtor and creditor” to determine whether a security interest has
been granted. Bavely v Wandstrat (In re Harbour Lights Marina, Inc.), 146 B.R. 963, 968 (Bankr.
S.D. Ohio 1992), aff’d, 153 B.R. 781 (S.D. Ohio 1993). This approach examines all the documents
executed between a debtor and a creditor to determine, if taken together, whether the “writing or



          4
         The Panel questioned the parties regarding whether the same payment could be recoverable
as both a fraudulent conveyance and a preference. Given the Panel’s remand of the fraudulent
conveyance claims, this question is properly first left for the bankruptcy court to decide.

                                                  -14-
writings, regardless of label, . . . adequately describes the collateral, carries the signature of the
debtor, and establishes that in fact a security interest was agreed upon, [that] would satisfy both the
formal requirements of the statute [requiring a formal security agreement] and the policies behind
it.” In re Numeric Corp., 485 F.2d 1328, 1331 (1st Cir. 1973).

        Under Ohio law, when the only document executed by a debtor is a standard form UCC-1
financing statement, an enforceable security agreement does not exist. Silver Creek Supply v.
Powell, 521 N.E.2d 828, 834 (Ohio App. 1987); see also Yoppolo v. Trombley (In re DeVincent),
238 B.R. 722, 727 (Bankr. N.D. Ohio 1999) (“[U]nder Ohio law a financing statement, in and of
itself, does not exhibit the requisite intent to create security interest.”).

        The only documents that Omega executed were the financing statement and the guaranty;
Omega was not a party to the stock purchase agreement. Nothing in the guaranty establishes the
requisite intent to create a security interest. Whatever intent the Thompsons and Buonpane may have
had concerning the possible creation of the security agreement, nothing signed by Omega or to which
it is a party evidences its intent to grant Buonpane a security interest in its property. Accordingly,
the bankruptcy court’s finding that Buonpane held a valid security interest in the assets of Omega
is without basis in the record. Because Buonpane did not hold a security interest in Omega’s assets,
Buonpane’s corollary argument that his proportional release of his security interest constituted
contemporaneous exchange for new value under § 547(c)(1) must be rejected.

        Moreover, even if Buonpane had a security interest, its partial release would not constitute
new value if, as Buonpane concedes, that security interest was unperfected. “[N]ew value” is
“money or money’s worth in goods, services, or new credit, or release by a transferee of property
previously transferred to such transferee in a transaction that is neither void nor voidable by the
debtor or the trustee under any applicable law . . . .” 11 U.S.C. § 547(a)(2) (emphasis added).
“Under Ohio law, a lien creditor has priority over an unperfected secured creditor.” In re Hurst, 308
B.R. 298, 301 (Bankr. S.D. Ohio 2004). Therefore, even if Buonpane had a security interest, because
that security interest was unperfected, it was voidable on the petition date. As a result, under the
plain language of § 547(a)(2), Buonpane gave no new value in exchange for the payments that he
received. The bankruptcy court correctly determined this result.




                                                   -15-
       Ford Motor Credit Co. v. Ken Gardner Ford Sales, Inc. (In re Ken Gardner Ford Sales,
Inc.), 10 B.R. 632 (Bankr. E.D. Tenn. 1981), aff’d, 23 B.R. 743 (E.D. Tenn. 1982), cited by the
bankruptcy court, reached the same conclusion. That court rejected Ford Motor Company’s
argument that “new value” was given pursuant to 11 U.S.C. § 547(c) due to the release of collateral
subject to an unperfected security agreement. The court found that because the debt was secured by
an avoidable security interest, all that was released was an avoidable security interest and no new
value was given. Id. at 646.

       Accordingly, the bankruptcy court’s conclusion that $20,142.50 is recoverable by the trustee
under 11 U.S.C. § 547(b) is affirmed.

                                        V. CONCLUSION

       The bankruptcy court’s order granting summary judgment to the Buonpanes and dismissing
the federal and state fraudulent transfer claims is vacated, and these claims are remanded to the
bankruptcy court for further proceedings.

       The bankruptcy court’s order granting summary judgment to the Buonpanes, determining that
the transaction was not an illegal stock redemption, is affirmed.

       The bankruptcy court’s order holding $20,142.50 recoverable by the trustee as preferential
transfers is affirmed.




                                                -16-
