     United States Court of Appeals
                For the Eighth Circuit
            ___________________________

                    No. 16-1856
            ___________________________

                In re: AgriProcessors, Inc.

                  lllllllllllllllllllllDebtor

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

 Joseph E. Sarachek, in his capacity as Chapter 7 Trustee

                 lllllllllllllllllllllAppellee

                              v.

                   Luana Savings Bank

                 lllllllllllllllllllllAppellant

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

American Bankers Association; Iowa Bankers Association

     lllllllllllllllllllllAmici on Behalf of Appellant(s)
              ___________________________

                    No. 16-1955
            ___________________________

                In re: AgriProcessors, Inc.

                  lllllllllllllllllllllDebtor

                 ------------------------------
             Joseph E. Sarachek, in his capacity as Chapter 7 Trustee

                              lllllllllllllllllllllAppellant

                                            v.

                                Luana Savings Bank

                               lllllllllllllllllllllAppellee

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

            American Bankers Association; Iowa Bankers Association

                   lllllllllllllllllllllAmici on Behalf of Appellee(s)
                                        ____________

                    Appeals from United States District Court
                   for the Northern District of Iowa - Dubuque
                                 ____________

                            Submitted: January 12, 2017
                               Filed: June 15, 2017
                                 ____________

Before LOKEN, BEAM, and BENTON, Circuit Judges.
                           ____________

BENTON, Circuit Judge.

      In the 90 days before filing for bankruptcy, Agriprocessors, Inc., wired funds
covering overdrafts at Luana Savings Bank. The bankruptcy trustee, Joseph E.
Sarachek, argues those overdraft-covering deposits are avoidable transfers



                                           -2-
recoverable from Luana. The bankruptcy court1 found Sarachek could recover some
deposits but not others. Sarachek and Luana cross-appealed. The district court2
affirmed. The parties again cross-appeal. Having jurisdiction under 28 U.S.C.
§§ 158(d)(1) and 1291, this court affirms.

                                         I.

        Agriprocessors had two accounts with Luana relevant here—account 1430 (a
checking account) and account 367788 (whose purpose the parties dispute). This
appeal is about overdrafts of these accounts. Luana’s policy was to provisionally
settle all checks on Agriprocessors’ checking account and debit that account. When
provisional settlement/debiting caused or contributed to a negative account balance,
an “intraday overdraft” occurred. By Iowa law,3 Luana’s provisional settlement did
not become final until midnight the next business day. Iowa Code §§ 554.4104(1)(j),
554.4301. Luana generally let provisional settlements become final at the midnight
deadline, even if they caused or contributed to a negative balance. When Luana
allowed provisional settlements causing or contributing to a negative balance to
become final at the midnight deadline, a “true overdraft” occurred. Throughout the
90 days before Agriprocessors petitioned for bankruptcy, it deposited funds to cover
both intraday and true overdrafts.

     During the 90-day preference period—August 6, 2008, to November 4,
2008—the checking account’s balance fluctuated but was always negative. For most

      1
        The Honorable Thad J. Collins, Chief Judge, United States Bankruptcy Court
for the Northern District of Iowa.
      2
        The Honorable Linda R. Reade, then Chief Judge, United States District Court
for the Northern District of Iowa.
      3
      The district court applied Iowa law to Agriprocessors’ banking with Luana.
The parties do not challenge that application.

                                        -3-
of the period, account 367788 had $1.4 million in it. Luana says it “netted” the two
accounts, considering the 367788 funds when determining whether the checking
account was overdrawn. Put another way, Luana says that so long as the checking
account had more than negative $1.4 million, it treated Agriprocessors as having a
positive balance (and thus treated Agriprocessors as if no overdrafts occurred).
Sarachek disputes that Luana properly “netted” the two accounts.

     Near the end of the preference period, Luana transferred the $1.4 million from
account 367788 to the checking account.

       Agriprocessors petitioned for Chapter 7 bankruptcy. Sarachek filed to recover
deposits covering both intraday and true overdrafts, as well as the $1.4 million Luana
transferred the checking account. Luana argued none of the deposits were
recoverable, raised affirmative defenses, and contended the $1.4 million was not
recoverable because it was a protected setoff. The bankruptcy court found Sarachek
could recover the true overdrafts but not the intraday overdrafts. It rejected Luana’s
affirmative defenses. And it found that setoff was improper but did not affect
Sarachek’s recovery. On cross-appeals, the district court affirmed the bankruptcy
court. It held that the bankruptcy court erred in finding the setoff improper, but
concluded that error did not affect Sarachek’s recovery. The parties again cross-
appeal.

                                         II.

       “This court sits as a second court of review in bankruptcy matters, reviewing
interpretations of law de novo and factual findings for clear error.” In re Peet, 819
F.3d 1067, 1069 (8th Cir. 2016) (internal quotation marks omitted). Under clear error
review, this court will “overturn a factual finding only if it is not supported by
substantial evidence in the record, if it is based on an erroneous view of the law, or



                                         -4-
if we are left with the definite and firm conviction that an error was made.” Lincoln
Provision, Inc. v. Puretz, 775 F.3d 1011, 1014 (8th Cir. 2015).

                                           III.

       A bankruptcy trustee may “avoid” a debtor’s transfer of a property interest (1)
“to or for the benefit of a creditor”; (2) “for or on account of an antecedent debt owed
by the debtor before such transfer was made”; (3) “made while the debtor was
insolvent”; (4) “made . . . within 90 days before the date of the filing of the petition”;
and (5) “that enables [the] creditor to receive more” than it would receive under
Chapter 7 if the transfer had not been made. 11 U.S.C. § 547(b). The trustee has the
burden to prove a transfer is avoidable. § 547(g). The trustee may not avoid a
transfer if a creditor proves an exception applies. § 547(c), (g).

       If a transfer is avoidable, the trustee may recover it from “(1) the initial
transferee of such transfer or the entity for whose benefit such transfer was made; or
(2) any immediate or mediate transferee of such initial transferee.” § 550(a). The
trustee may not recover from a “mere conduit for an avoidable transfer.” In re
Reeves, 65 F.3d 670, 676 (8th Cir. 1995).

                                           IV.

       The district court found Sarachek could not recover Agriprocessors’ intraday-
overdraft-covering deposits from Luana for two independent reasons. First, it found
that Agriprocessors’ “intraday overdrafts do not give rise to antecedent debt.” See
§ 547(b)(2); Laws v. United Mo. Bank of Kansas City, N.A., 98 F.3d 1047, 1051 (8th
Cir. 1996) (“[R]outine advances against uncollected deposits do not create a ‘debt’
to the bank.”). Second, “with respect to the intraday overdrafts, the Bank . . . was
functioning as a mere conduit.” See § 550(a); In re Reeves, 65 F.3d at 676. On
appeal, Sarachek argues the intraday overdrafts are antecedent debt. But he does not

                                           -5-
argue that Luana was more than a “mere conduit” when it received intraday-
overdraft-covering deposits. Even if this court decided that the intraday overdrafts
were antecedent debts, the district court’s “mere conduit” finding would stand,
preventing Sarachek from recovering intraday-overdraft-covering deposits from
Luana. This court declines to consider Sarachek’s antecedent-debt argument because
it would not affect the outcome of this case. See In re Railworks Corp., 760 F.3d
398, 403 (4th Cir. 2014) (“Of course, if the funds are not recoverable under § 550,
then it matters not whether they are avoidable under § 547.”). See also In re Willaert,
944 F.2d 463, 464 (8th Cir. 1991) (“The fundamental purpose of section 547(b)’s
avoidable preference provision is to restore the bankruptcy estate to its
pre-preferential transfer condition. Section 550(a) is the vehicle that allows the
trustee to accomplish this.”).4

                                          V.

      The district court found Sarachek could recover Agriprocessors’ true-overdraft-
covering deposits from Luana. Luana argues the district court erred because (A) true
overdrafts did not create debts, see § 547(b)(2), and (B) even if the deposits were
avoidable, Sarachek cannot recover them from Luana.

                                          A.

      Luana asks this court to hold, on policy grounds, that Agriprocessors’ true
overdrafts are not debt. But this issue is controlled by the Bankruptcy Code and this

      4
       Sometimes, trustees can recover avoided transfers without the § 550 remedy.
See Cent. Va. Cmty. Coll. v. Katz, 546 U.S. 356, 371-72 (2006) (explaining that a
“mere declaration of avoidance” is sometimes sufficient to recover a transfer); In re
Burns, 322 F.3d 421, 427 (6th Cir. 2003) (“The trustee’s remedy of recovery is
necessary only when the remedy of avoidance is inadequate.”). Here, however,
Sarachek does need the § 550 remedy to get what he seeks—return of Agriprocessors’
intraday-overdraft-covering deposits.

                                         -6-
court’s precedent. “The test for when a debt is incurred is whether the debtor is
legally obligated to pay.” Laws, 98 F.3d at 1051. See also 11 U.S.C. § 101(12)
(“The term ‘debt’ means liability on a claim.”). Under Iowa law, “payment by a bank
of an overdraft is considered an unsecured loan . . . and/or an extension of credit to
a customer.” Clinton Nat. Bank v. Saucier, 580 N.W.2d 717, 720 (Iowa 1998)
(citation omitted). See also Midland Funding, LLC v. Johnson, 137 S. Ct. 1407,
1411 (2017) (“State law usually determines whether a person has [a right to
payment].”). When Luana allowed provisional settlements of checks to become final,
even though those settlements contributed to a true overdraft, Luana paid overdrafts
for Agriprocessors. Luana thus made an unsecured loan and/or extension of credit
to Agriprocessors. As a result, Agriprocessors was legally obligated to Luana for the
amount of the overdrafts. The true overdrafts were debt.

                                           B.

      Luana contends it was not an initial transferee liable under § 550, but rather a
non-liable “mere conduit.” “[T]o be an initial transferee, a party must have dominion
and control over the transferred funds.” In re Reeves, 65 F.3d at 676. Dominion over
funds is “legal title to them and the ability to use them as [the party] sees fit.” In re
Incomnet, Inc., 463 F.3d 1064, 1071 (9th Cir. 2006). Control is real control of the
funds in question. Id.

      The district court correctly found Luana had both dominion and control. When
Luana allowed a true-overdraft-causing provisional settlement to become final, Luana
irrevocably paid a third party in the amount of the true overdraft. Luana was not a
“conduit” between Agriprocessors and the third party: Luana itself paid the third
party. In exchange for Luana paying the overdraft, Agriprocessors owed Luana a
debt. Therefore, when Agriprocessors made deposits covering true overdrafts,
Agriprocessors made payments on debt to Luana. Luana had full control over the
true-overdraft-covering deposits and could use the funds for any purpose.


                                          -7-
       Challenging this determination, Luana says Agriprocessors’ account was
“fluid” and overdrafts are different from “traditional loans.” These arguments do not
address Luana’s dominion and control over the true-overdraft-covering deposits. The
district court correctly found that Sarachek may recover Agriprocessors’ true-
overdraft-covering deposits from Luana.

                                          VI.

       A trustee cannot recover an otherwise avoidable transfer if the creditor proves
a § 547(c) exception. Luana argues that the bankruptcy court and district court erred
in rejecting three exceptions: contemporaneous exchanges for new value, debts and
transfers in the ordinary course of business, and transfers creating security interests.

                                          A.

       The first exception: for a transfer that was “(A) intended by the debtor and the
creditor to or for whose benefit such transfer was made to be a contemporaneous
exchange for new value given to the debtor; and (B) in fact a substantially
contemporaneous exchange.” § 547(c)(1). Luana asserts that it and Agriprocessors
intended the overdraft-covering deposits to be in exchange for new provisional credit
(in the form of overdraft protection).

      “The critical inquiry in determining whether there has been a contemporaneous
exchange for new value is whether the parties intended such an exchange.” In re
Genmar Holdings, Inc., 776 F.3d 961, 964 (8th Cir. 2015). The bankruptcy court
found this intent missing:

      The Bank entirely fails to show, however, that the parties intended this
      to be new value and that they intended it to be linked to paying ‘true
      overdrafts’ contemporaneously. Quite to the contrary, the Bank never
      communicated such an intent to Debtor and Debtor never indicated any

                                          -8-
      such understanding. The Bank sought to avoid intraday overdrafts
      whenever it could and to avoid more true overdrafts entirely. All
      ‘overdrafts’—in the words of [Luana’s president]—were ‘unexpected’
      or ‘unplanned.’ The Bank entirely fails to demonstrate it took the
      payments on the ‘true overdrafts’ in exchange for an agreement to
      provide anything new at all—let alone provide it contemporaneously.

(emphasis in original). Since intent is a question of fact, review is for clear error. In
re Gateway Pac. Corp., 153 F.3d 915, 918 (8th Cir. 1998).

      Luana argues it did show that the parties intended Agriprocessors’ deposits to
be in exchange for new provisional credit. It points to evidence that it waived
overdraft charges on Agriprocessors’ accounts, had discretion to cover overdrafts,
and regularly covered them. This evidence does not show a clear error. Luana’s
evidence does not speak directly to the parties’ intent. It is compatible with the
bankruptcy court’s finding that Luana allowed overdrafts because it believed
Agriprocessors would cover them, not because it had agreed to do so in exchange for
receiving past deposits. The bankruptcy court did not clearly err in rejecting this
exception.

                                           B.

       The second exception: for a transfer made “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 either “(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.” § 547(c)(2). The bankruptcy court found that Agriprocessors did not incur
the debts—the true overdrafts—in the ordinary course of business with Luana.

       This court has rarely addressed whether a debt was “incurred by the debtor in
the ordinary course of business or financial affairs of the debtor and the transferee.”
This court has said that “no precise legal test” applies to any of the § 547(c)(2)

                                          -9-
elements, requiring the bankruptcy court to “engage in a peculiarly factual analysis.”
In re Armstrong, 291 F.3d 517, 527 (8th Cir. 2002) (internal quotation marks
omitted). The court’s “analysis turns upon whether” the debts were incurred in the
ordinary course of business of Luana and Agriprocessors. See id.

       Many of this court’s precedents address whether a transfer was made in the
ordinary course of business. “[T]he cornerstone of the inquiry is that the creditor
must demonstrate some consistency with other business transactions between the
debtor and the creditor.” In re Affiliated Foods Sw. Inc., 750 F.3d 714, 719 (8th Cir.
2014) (internal quotation marks omitted). “Other factors may be relevant in a
particular case, such as whether the preferential transfer involved an unusual payment
method or resulted from atypical pressure to pay.” Id. Because of the similar
wording of § 547(c)(2)(A)’s transfer requirement (“made in the ordinary course of
business or financial affairs of the debtor and the transferee”) and § 547(c)(2)’s debt
requirement (“debt incurred by the debtor in the ordinary course of business or
financial affairs of the debtor and the transferee”), analogous standards should apply
when analyzing whether a debt occurred in the ordinary course of business. The
cornerstone of debt inquiry is “the creditor must demonstrate some consistency with
other business transactions between the debtor and the creditor.” Other factors may
be relevant, such as whether the debt was created by “unusual” means or resulted
from “atypical” pressure. See In re Armstrong, 291 F.3d at 527 (declining “to hold
that a desperate debtor’s irresponsible accumulation of gambling debts in an ill-fated
attempt to cover fraud and embezzlement losses qualifies as the ordinary course of
his business or financial affairs”).

      The bankruptcy court compared Agriprocessors’ true overdrafts during the 90-
day preference period to the nine months before the preference period. In the
preceding nine months, Agriprocessors had four days of true overdrafts: just one
during the first seven months (a $31,680 overdraft), then three in the two months
preceding the preference period. The frequency of overdrafts then increased, with
nine days of true overdrafts during the preference period. The amount of the

                                         -10-
overdrafts during the earlier nine-month period were lower—both on average and in
total—than the overdrafts during the preference period, which totaled $1,556,782.89.
Luana argues these numbers overstate the increase in overdrafts because it became
Agriprocessors’ primary bank one month before the preference period, and
Agriprocessors wrote more (and higher value) checks during the preference period.
But, even considering Agriprocessors’ increased activity, the number of overdrafts
increased significantly compared to the previous nine months. There was an extreme
increase compared to the first seven months. The bankruptcy court found that “the
overdrafts were very unusual, not ordinary course debts, and started to happen only
as [Agriprocessors] slid toward bankruptcy.”

       The bankruptcy court appropriately compared the transactions during the
preference period to transactions during an earlier “look-back” period. In re
Affiliated Foods Sw. Inc., 750 F.3d at 720. The appropriate period for comparison
depends on the facts of the case. “To make a sound comparison, numerous decisions
support the view that the historical baseline should be based on a time frame when
the debtor was financially healthy.” Id. (internal quotation marks omitted). Here, the
bankruptcy court noted the increase in overdrafts relative to the preceding nine
months and the first seven of those nine months. It found overdrafts “started to
happen only as [Agriprocessors] slid toward bankruptcy.” Under the facts found by
the district court, Agriprocessors’ overdrafts during the preference period were not
consistent with its activity when financially healthy.

      The bankruptcy court also found that the overdrafts were “unplanned” and that
Luana “discouraged” them. Luana and Agriprocessors, it determined, “designed” a
“system” to “avoid” true overdrafts. It concluded “true overdrafts were simply not
normal or an ordinary part of their relationship.” Luana argues that intraday
overdrafts were common before the preference period and the bankruptcy court
should not have distinguished between intraday and true overdrafts. But the
bankruptcy court found that the parties treated intraday and true overdrafts


                                        -11-
differently: “The ordinary system between the parties allowed for intraday overdrafts
with a full covering wire transfer from [Luana] before the end of the banking day.”
Luana asserts that the parties did not distinguish between intraday and true overdrafts,
but it cites no supporting evidence. Luana further emphasizes consistencies during
the nine-month and preference periods: Luana always operated a checking account
for Agriprocessors, always allowed intraday overdrafting, and allowed some true
overdrafts; Agriprocessors always cured the true overdrafts with wire transfers. But
the existence of “other consistencies within the relationship” does not mean that
Agriprocessors incurred the $1,556,782.89 of true-overdraft debt in the ordinary
course of business. See In re Gateway Pac. Corp., 153 F.3d at 918.

       Luana does not show that the bankruptcy court clearly erred in finding that the
true overdrafts were not debts incurred in the ordinary course of business. The
bankruptcy court’s finding that the true overdrafts lacked consistency with earlier
transactions was supported by substantial evidence of Luana and Agriprocessors’
practice. Its determination was bolstered by its findings that the parties took steps to
avoid true overdrafts and that true overdrafts were not a normal part of their
relationship. The bankruptcy court did not clearly err in rejecting this exception.

                                           C.

        The third exception: for transfers that create certain security interests. See
§ 547(c)(3). Neither the bankruptcy court nor the district court addressed this
exception. The bankruptcy court did footnote that Luana made “a passing argument
that it had an automatic perfected security interest,” but it said so discussing setoff.
In its district court reply brief, Luana stated it had a security interest in account
367788, again discussing setoff. Its district court briefs did not discuss the security-
interest exception or cite § 547(c)(3). Because Luana did not raise this exception
below and gives no reason to address it for the first time on appeal, this court declines
to consider it. See Gap, Inc. v. GK Dev., Inc., 843 F.3d 744, 748-49 (8th Cir. 2016).


                                          -12-
                                         VII.

      Sarachek challenges the bankruptcy court’s calculation of the transfers it can
recover from Luana.

                                          A.

        Luana made several posting errors in Agriprocessors’ checking account,
making the balance appear higher than it really was during the preference period.
After Agriprocessors filed its bankruptcy petition, Luana issued an account statement
correcting those errors, indicating almost $800,000 owing. The bankruptcy court
calculated Luana’s liability using the uncorrected balances. Sarachek argues Luana’s
liability should be based on the corrected balances. Under Sarachek’s proposal,
Agriprocessors would have more true overdrafts, meaning more of its deposits would
have covered true overdrafts and, therefore, more of its transfers would be avoidable.

       The bankruptcy court gave two reasons for using uncorrected balances. First,
it determined it would be inequitable to use the corrected balances. Second, Luana’s
claim to the debt reflected in the corrected statements did not arise until it corrected
the statements (after Agriprocessors filed for bankruptcy).

      Before the district court, Sarachek challenged the equitable basis for the
bankruptcy court’s decision. The district court affirmed insofar as the decision rested
on equitable grounds. But the legal ground for the bankruptcy court’s decision
stands. If Agriprocessors did not owe the posting-error amounts until Luana
corrected the statements, then no debt arose within the meaning of § 547. See Laws,
98 F.3d at 1051 (“The test for when a debt is incurred is whether the debtor is legally
obligated to pay.”). Sarachek’s only argument against the bankruptcy court’s legal
determination is that “claim” has a broad definition in the Bankruptcy Code. That
does not address whether the bankruptcy court erred in finding Luana had no claim


                                         -13-
giving rise to a debt. Because the bankruptcy court’s legal conclusion stands, this
court declines to address Sarachek’s challenge to the equitable ground. The
bankruptcy court’s decision to base Luana’s liability on the uncorrected balances is
affirmed.

                                         B.

      The bankruptcy court found that Luana and Agriprocessors agreed to “net” the
checking account and account 367788 when determining whether Agriprocessors
overdrew. As found by the bankruptcy court, this netting agreement meant that if the
checking account had a balance of negative $1,399,999 and account 367788 had
balance of $1,400,000, Agriprocessors did not overdraw. The bankruptcy court
calculated Luana’s liability based on the netted accounts.

       Sarachek says the bankruptcy court erred three ways. First, he says, the
bankruptcy court erred in finding a netting agreement. The parties agree the existence
of the agreement is a question of fact reviewed for clear error. The bankruptcy court
based its finding on testimony from Agriprocessors’ controller, Luana’s president,
and Luana’s chief financial officer. Sarachek says the bankruptcy court clearly erred
because (a) it struck part of the CFO’s testimony and (b) experts testified that a
netting arrangement would be improper and there was no written agreement. The
bankruptcy court did not clearly err because its finding was supported by
testimony—from the controller, president, and CFO—that Luana and Agriprocessors
treated the accounts as netted. Experts’ views of the propriety of the arrangement and
the lack of written agreement do not show that the bankruptcy court erred in finding
an agreement.

      Second, Sarachek contends that every overdraft of the checking account
created a debt, even if Luana and Agriprocessors agreed to net the accounts and there
were enough 367788 funds to cover the checking-account overdraft. He says the


                                        -14-
bankruptcy court made a legal error when it failed to recognize this, citing expert
testimony that Luana could sue Agriprocessors to recover checking overdrafts even
if account 367788 had a sufficiently positive balance. This theory contradicts the
facts found by the bankruptcy court: Luana and Agriprocessors “actually did net the
accounts or consider them as one.” Agriprocessors did not incur debt to Luana unless
the “one” account was overdrawn.

      Third, Sarachek argues that even if netting was proper, a $250,000 deposit that
Agriprocessors made into account 367788 during the preference period was a
preferential transfer. The district court did not address this argument, nor does it
appear in Sarachek’s briefs in the district court. Sarachek waived this argument. This
court declines to consider it.

                                         VIII.

       On October 24, 2008, Luana transferred the $1.4 million from account 367788
into the checking account. Sarachek argues this is an avoidable transfer. Luana
argues that it is not an avoidable transfer because it is was a valid setoff protected by
11 U.S.C. § 553(a).

       The bankruptcy court found that its netting-agreement finding determined
whether the $1.4 million transfer was avoidable. Because Luana and Agriprocessors
agreed to treat the accounts as one, Agriprocessors incurred debt to Luana only when
true overdrafts of the “one” account occurred. So long as Agriprocessors had $1.4
million in account 367788, it did not incur a debt to Luana until the balance of the
checking account fell below negative $1.4 million. The bankruptcy court correctly
found that the negative balance wiped out by the $1.4 million transfer was not a debt
at all. The transfer was not “for or on account of an antecedent debt owed by the
debtor before such transfer was made,” and thus not avoidable. See § 547(b)(2).



                                          -15-
       The bankruptcy court stated that if it were wrong about the netting agreement,
it would need to address the setoff, and would determine it was improper. On appeal,
the district court considered whether the bankruptcy court erred in finding the setoff
improper. The district court concluded that the bankruptcy court was incorrect that
the setoff was improper, but affirmed because the bankruptcy court did not
incorporate the $1.4 million in calculating damages.

      Both Sarachek and Luana urge this court to rule on the merits of the setoff.
This court declines to do so because the bankruptcy court correctly found that setoff
does not apply to this transfer of funds between the two “netted” accounts.

                                    *******

      The district court is affirmed.
                       ______________________________




                                        -16-
