                                                                                                                           Opinions of the United
1998 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


1-20-1998

In Re: Trans World
Precedential or Non-Precedential:

Docket 97-7037,97-7082




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Recommended Citation
"In Re: Trans World" (1998). 1998 Decisions. Paper 14.
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Filed January 20, 1998

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 97-7037 and 97-7082

IN RE: TRANS WORLD AIRLINES, INCORPORATED,

       Debtor

TRAVELLERS INTERNATIONAL AG,

       Appellant/Cross-Appellee
       in Appeal No. 97-7037

v.

TRANS WORLD AIRLINES, INCORPORATED; OFFICIAL
COMMITTEE OF UNSECURED CREDITORS FOR
TRANS WORLD AIRLINES

Trans World Airlines, Incorporated

       Appellant/Cross-Appellee
       in Appeal No. 97-7082

On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 95-cv-00031)

Argued Friday, September 12, 1997

BEFORE: MANSMANN, NYGAARD and GARTH, Circuit Judges

(Opinion filed January 20, 1998)
       Michael Joseph
       Richard A. Kirby (Argued)
       Joseph O. Click
       Dyer, Ellis, Joseph
        & Mills
       600 New Hampshire Avenue, N.W.
       Washington, D.C. 20037

       Laurie S. Silverstein
       Potter, Anderson & Corroon
       350 Delaware Trust Building
       P.O. Box 951
       Wilmington, DE 19899

       Attorneys for Travellers
       International AG

       William H. Sudell, Jr. (Argued)
       Derek C. Abbott
       Morris, Nichols, Arsht & Tunnell
       1201 North Market Street
       P.O. Box 1347
       Wilmington, DE 19899

       Michael J. Templeton
       Jones, Day, Reavis & Pogue
       599 Lexington Avenue
       New York, New York 10022

       Attorneys for Trans World Airlines,
       Incorporated

OPINION OF THE COURT

GARTH, Circuit Judge:

The sole issue we must resolve in this appeal is whether
TWA was insolvent on November 4, 1991 so that the
transfer of certain monies to a judgment creditor within 90
days of TWA's petition for bankruptcy constituted a
preference. Our analysis of TWA's insolvency depends on
how TWA's assets and liabilities should be valued.

We conclude that TWA's assets must be valued at fair
market value in the context of a "going concern" and that

                                  2
its liabilities should be measured at face value. Inasmuch
as we agree with the bankruptcy court's calculations, albeit
with minor qualifications, we hold that on the date in
question, TWA was insolvent. Accordingly, any transfer of
TWA's monies to Travellers falls within the preference
statute, 11 U.S.C. S 547(b).

We will reverse the district court's order, which had
reversed the insolvency holding of the bankruptcy court,
and direct the district court to remand this case to the
bankruptcy court for proceedings consistent with our
opinion.

I.

On October 12, 1991, the United States District Court for
the Southern District of New York entered a judgment in
the amount of $12.3 million in favor of Travellers
International AG ("Travellers") against Trans World Airlines,
Inc. ("TWA"). On November 4, 1991, TWA obtained a stay of
enforcement of the judgment by depositing $13.7 million in
cash with the clerk of the court. Eighty-eight days after the
deposit was made, on January 31, 1992, TWA filed a
petition for reorganization in the United States Bankruptcy
Court for the District of Delaware under Chapter 11 (11
U.S.C. S 101 et seq.). Subsequently, TWA filed a complaint
against Travellers in the United States Bankruptcy Court
for the District of Delaware, seeking a declaration that the
$13.7 million deposit was a preferential transfer which was
voidable under 11 U.S.C. S 547(b).1 See Travellers Int'l AG v.
Robinson, 982 F.2d 96, 97 (3d Cir. 1992).
_________________________________________________________________

1. 11 U.S.C. S 547(b) (1993) states:

       Except as provided in subsection (c) of this section, the trustee
may
       avoid any transfer of an interest of the debtor in property--

        (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--

                               3
A. The Bankruptcy Court Proceedings

The bankruptcy court held a four day bench trial in
February 1994 to determine whether the deposit was
indeed a preferential transfer. See In Re Trans World
Airlines, Inc., 180 B.R. 389 (Bankr. D. Del. 1994). In
particular, the court focused its attention on the statutory
requirement that TWA was insolvent on the day of the
transfer. See 11 U.S.C. S 547(b)(3). Following the code's
guidance that a corporation is insolvent when "the sum of
such entity's debts is greater than all of such entity's
property, at a fair valuation," 11 U.S.C. S 101(32)(A),2 the
bankruptcy court heard evidence by experts hired by both
TWA and Travellers on the value of TWA's assets and
liabilities.
_________________________________________________________________

         (A) on or within 90 days before the date of the filing of the
       petition;
       or
         (B) between ninety days and one year before the date of the
       filing of the petition, if such creditor at the time of such
       transfer was an insider; and

        (5) that enables such creditor to receive more th an such creditor
       would receive if--

         (A) the case were a case under chapter 7 of this title;
         (B) the transfer had not been made; and
         (C) such creditor received payment of such debt to the extent
         provided by the provisions of this title.

2. 11 U.S.C. S 101(32)(A) (1993) states in full:

       "insolvent" means--

        (A) with reference to an entity other than a part nership and a
       municipality, financial condition such that the sum of such
       entity's debts is greater than all of such entity's property, at a
fair
       valuation, exclusive of--

        (i) property transferred, concealed, or removed w ith intent to
       hinder, delay, or defraud such entity's creditors; and

        (ii) property that may be exempted from property of the estate
       under section 522 of this title[.]

                               4
1. Travellers' Arguments

Travellers, together with its expert Global Aviation
Associates, Ltd. ("Global"), offered testimony that TWA's
assets exceeded its liabilities by almost two billion dollars,
and thus that the company was solvent. Global based its
"fair valuation" of TWA's assets on their market value
assuming that TWA was not compelled to sell the assets
under any time constraint. Applying this methodology,
Global valued TWA's operating assets at $4,162,273,000.
See 180 B.R. at 421. Combining this with the cash, cash
equivalents, accounts receivable, and other investments
owned by the company, Travellers argued that the value of
the company's assets totaled $5,298,373,000.

Turning to TWA's liabilities, Travellers contended that
S 101(32)(A) called for a "fair valuation" of TWA's liabilities,
which Travellers insisted translated into a fair market
valuation of TWA's publicly traded debt. As a result,
Travellers' expert testified that TWA's debt obligations
amounted to $662,898,000.3 With respect to TWA's
additional liabilities, Travellers' expert testified that the
value of TWA's aircraft lease obligations was $813,604,000;
pension plan liabilities, $219 million; taxes, $949.7 million;
and other liabilities, $947.4 million. Travellers calculated
the sum of TWA's liabilities to be $3,593,000,000.

Inasmuch as TWA's assets, if valued at $5,298,373,000
exceeded its liabilities at $3,593,000,000, Travellers urged
the bankruptcy court to find that TWA was solvent.

2. TWA's Arguments

TWA and its experts, Avmark Inc. ("Avmark"), offered very
different valuations of both assets and liabilities. According
to TWA's calculations, TWA was insolvent on November 4,
1991, the date of the transfer to the escrow account,
because TWA's liabilities exceeded assets by as much as
three billion dollars. Avmark based its "fair valuation" of
TWA's assets on the amount realizable from the assets
_________________________________________________________________

3. This figure is far less than the "face" value of TWA's public debts,
$1,776,752,000, which we assume represented the net present value of
TWA's debts as of the date of the transfer.

                               5
following a hypothetical sale of the assets within a
reasonable time period. Referring to 12-18 months as a
reasonable time period, Avmark concluded that the overall
value of TWA's assets was $2,561,366,000. See 180 B.R. at
404.

As to the company's liabilities, TWA contended that the
fair valuation prescription in 11 U.S.C. S 101(32)(A) did not
apply to liabilities. TWA thus asked the court to consider
the face value of the company's debt, rather than the much
lower market value urged by Travellers, in determining the
company's insolvency. TWA's calculation of the company's
liabilities also included an extra $634,814,000 of what it
termed contingent liabilities, as well as up to $576,000,000
of pension plan liabilities. These additional liabilities
represented costs to which TWA would be subject if it had
ceased operating soon after November 4, 1991: they
included $138.8 million payable to two of TWA's unions,
$214.8 million for severance payments pursuant to
contractual obligations, and $248.2 million in wind down
expenses. TWA urged the court to consider these liabilities
in light of the high likelihood as of November 4, 1991 that
TWA would soon cease operations. Combined with $370
million in tax liability, medical/dental benefits totaling
$400 million, and almost one billion dollars of other
liabilities, the liability figure urged by TWA totaled between
five and five and a half billion dollars.

Because this figure exceeded the asset valuation of
$2,561,366,000, TWA urged that the company was
insolvent.

3. The Bankruptcy Court's Rulings

In an extensive opinion, the bankruptcy court agreed
with TWA's conclusion that the company was insolvent.
Addressing the valuation of assets, the court agreed with
TWA that a "fair valuation" of assets would be found by
calculating the amount that would be realized by converting
non-cash assets into cash over a reasonable time frame.
See 180 B.R. at 411. The court found Travellers' position
that asset valuations exist independently of an actually
realizable amount to be unrealistic. As such, the court

                               6
largely adopted Avmark's asset valuations. Altogether, the
bankruptcy court disagreed with TWA's asset valuations in
only three relatively minor categories: the company's
investment in affiliates, the value of the company's gates
outside of St. Louis and JFK, and the measure of the
company's accounts and other receivables. In these three
areas, the court found that for various factual reasons,
TWA's figures were too low, and substituted Travellers'
figures. The court concluded that the proper valuation of
TWA's assets was $3,125,811,000.

Turning to the company's liabilities, the bankruptcy court
first considered whether TWA's public debt should be
measured at market value or at face value. The court
concluded that face value was the proper guide for two
reasons. First, the text of 11 U.S.C. S 101(32)(A) suggested
that the "fair valuation" requirement did not apply to debts.
Second, the court opined that valuing debts at market
value would, among other things, create an unprincipled
distinction between the treatment of private and public
debt. See 180 B.R. at 423-24. The court thus adopted the
face value figure of the company's debts urged by TWA,
$1,776,752,000.

As to the liabilities incurred by the company's aircraft
leases, the court accepted TWA's figure of $595 million
because it appeared to be the only probative evidence put
forward by the two parties. TWA's view that the medical
and dental benefits obligations amounted to $400 million
was also accepted. Travellers had argued that this liability
should be zero because TWA's benefits program had created
an offsetting good will asset among its employees. This
argument was rejected on the ground that the good will was
not a saleable asset and had no market value. Having
largely accepted TWA's asset figures, the bankruptcy court
in turn adopted TWA's estimate of its tax liability, $370
million, and also adopted Travellers' largely uncontested
figure for `other' liabilities, $947,381,000.

The final liabilities to be determined were TWA's pension
plan obligations and what TWA termed `contingent'
liabilities. The court adopted TWA's view that these
liabilities were to be assessed in light of the likelihood that
TWA was on the verge of going out of business on

                                7
November 4, 1991. As a result, the court calculated the
liabilities that TWA would incur if the company ceased its
operations. This added $634,814,000 of contingent
liabilities arising from the hypothetical liquidation to the
overall liability figure, and also raised the pension plan
liability from $219.4 million to $401 million. Altogether, the
bankruptcy court decided that TWA's liabilities totaled
$5,124,947,000, which exceeded the asset figure of
$3,125,811,000 by two billion dollars. Thus, the
bankruptcy court held that TWA was insolvent, and that
the transfer of $13.7 million was voidable as a preference.

B. The District Court Proceedings

On appeal, the United States District Court for the
District of Delaware affirmed in part, reversed in part, and
remanded to the bankruptcy court. See Travellers Int'l AG
v. Trans World Airlines, Inc. (In re Trans World Airlines, Inc.),
203 B.R. 890 (D. Del. 1996). The district court agreed with
the bankruptcy court's position that the proper legal test
for a fair valuation of the company's assets should be based
on the amount that could be obtained if the assets were
sold in a reasonable time. See id. at 895. Concluding that
the bankruptcy court's adoption of a 12 to 18 month period
as a reasonable time frame was a factual matter, and that
none of the bankruptcy court's factual determinations
relating to assets was clearly erroneous, the court affirmed
the bankruptcy court's determination that the company's
liabilities were $3,125,811,000.

On the liability side, however, the district court disagreed
with the bankruptcy court's legal conclusion that the "fair
valuation" requirement of 11 U.S.C. S 101(32)(A) did not
apply to the company's debts. Relying largely on Mellon
Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635,
648 (3d Cir. 1991), the district court held that both assets
and liabilities were subject to the fair valuation
requirement. Accordingly, the court concluded that the
bankruptcy court's decision to value the public debt at face
value was error. See 203 B.R. at 897-98. In all other
respects, the court agreed with the bankruptcy court's legal
analysis, and found that the bankruptcy court's factual
conclusions were not clearly erroneous. Thus, the district

                               8
court reversed the portion of the bankruptcy court's
decision relating to liabilities, and remanded with
instructions to conduct a fair valuation of TWA's liabilities.

The instant appeal and cross-appeal followed.

II.

We exercise jurisdiction to review this appeal pursuant to
28 U.S.C. SS 1291 and 158(d). See Porter v. Mid-Penn
Consumer Discount Co. (In re Porter), 961 F.2d 1066, 1072
(3d Cir. 1992). Whether a company is insolvent under the
Bankruptcy Code is considered a mixed question of law and
fact. See Moody v. Security Pacific Business Credit, 971
F.2d 1056, 1063 (3d Cir. 1992). While factual findings are
reviewed only for clear error, our review of "the trial court's
choice and interpretation of legal precepts and its
application of those precepts to the historical facts" is
plenary. Universal Minerals, Inc. v. C.A. Hughes & Co., 669
F.2d 98, 103 (3d Cir. 1981).

III.

A. Asset Valuations

The first question we must answer is how to measure
properly a "fair valuation" of TWA's assets according to 11
U.S.C. S 101(32)(A). Because liquidation in bankruptcy was
not clearly imminent on the date of the challenged transfer,
we concern ourselves with how to achieve a fair valuation
of TWA's assets on a "going concern" basis. See Moody, 971
F.2d at 1067.

In the century that has passed since the enactment of
the Bankruptcy Act of 1898, the courts have offered various
statements describing how to achieve a fair valuation of
assets for a going concern. The cases generally direct us to
look at "market value" rather than "distress value," but
then also caution that the valuation must be analyzed "in
a realistic framework" considering amounts that can be
realized "in a reasonable time" assuming a "willing seller"
and a "willing buyer." See, e.g., BFP v. Resolution Trust
Corp., 511 U.S. 531, 537, 114 S. Ct. 1757, 1761 (1994);

                               9
Syracuse Engineering Co. v. Haight, 110 F.2d 468, 471-72
(2d Cir. 1940). Although these statements are helpful in
many cases, they fail to resolve squarely the question of law
that is before us. That question centers around a
disagreement about the appropriate time frame under
which a hypothetical sale of assets must take place to
achieve a valuation that is "fair" for a going concern.

Logic and common sense inform us that the amount that
can be realized from the sale of an asset varies as a
function of the time period over which the asset must be
sold. If a company must sell its assets in a short time
period, it may be forced to accept a relatively low price; if
it can sell the assets over a longer period, it will be able to
hold out for the possibility of a higher price. TWA's position,
accepted by both the bankruptcy court and the district
court, is that a "fair valuation" is best achieved by a
hypothetical sale over 12-18 months (TWA's definition of a
"reasonable" time period). That is, the value of the assets is
to be measured by the sales price that could be attained if
there were a period of 12-18 months to sell off the assets.
Travellers, however, argues that the proper time period is
substantially longer: so long, in fact, that the assets should
be valued without regard to the pressures of time. In other
words, Travellers maintains that the value of the assets is
to be measured by the price that could be attained if TWA
could hold out for as long a period as necessary to receive
a `full' price on its assets.

The parties enlist a substantial body of case law in
support of their respective positions. TWA bases its position
on a voluminous line of cases stating that fair valuation
involves a value that can be made available for payments of
debts within a reasonable period of time. See, e.g., Syracuse
Engineering Co., 110 F.2d at 471; Briden v. Foley, 776 F.2d
379, 382 (1st Cir. 1985); American Nat'l Bank & Trust Co.
v. Bone, 333 F.2d 984, 987 (8th Cir. 1964). TWA argues
that 12-18 months is a reasonable period of time, such that
the use of a 12-18 month sale scenario by the bankruptcy
court was proper.

Travellers, on the other hand, relies on cases stating that
fair valuation of a going concern implicates a fair market
valuation. See Lawson v. Ford Motor Co. (In re Roblin

                               10
Indus.), 78 F.3d 30, 36 (2d Cir. 1996); Briden, 776 F.2d at
382. Travellers then argues that a fair market valuation is
achieved by a sale without regard to the pressures of time.
See BFP, 511 U.S. at 537-38, 114 S. Ct. at 1761-62;
Duncan v. Landis, 106 F. 839, 858-59 (3d Cir. 1901).
Accordingly, Travellers construes the 12-18 month sale
scenario used by the bankruptcy court and district court as
a forced sale, which undervalued TWA's assets and led to
an improper conclusion that TWA was insolvent on the date
of the transfer.

We begin our analysis by recognizing the overwhelming
body of authority that makes clear that a fair valuation of
assets contemplates a conversion of assets into cash during
a reasonable period of time. See, e.g., In re Roblin Indus., 78
F.3d at 35-36; Moody, 971 F.2d at 1068; Briden, 776 F.2d
at 382; American Nat'l Bank & Trust Co., 333 F.2d at 987;
Syracuse Engineering Co., 110 F.2d at 471; 2 Collier on
Bankruptcy P 101.32[4] at 101-116 (15th ed. Rev. 1997).4
The question then becomes how to construe whether a
given time period is reasonable. As previously indicated,
TWA maintains that a reasonable time is the period of time
that a company such as TWA might reasonably require to
sell off its assets in order to pay off its debts and attempt
to satisfy its creditors. Travellers disagrees with TWA's
_________________________________________________________________

4. This interpretation of the fair valuation requirement followed
naturally
from the text of the insolvency definition in effect from 1898 until 1978.
During that period, the Act stated that a "person shall be deemed
insolvent . . . whenever the aggregate of his property . . . shall not at
fair
valuation be sufficient in amount to pay his debts." 11 U.S.C. S 1(19)
(repealed 1978). This text suggests a conversion-to-cash valuation.

In contrast, the current version states only that insolvency is a
"financial condition such that the sum of such entity's debts is greater
than all of such entity's property, at a fair valuation." 11 U.S.C.
S 101(32)(A) (1993). Although the conversion-to-cash methodology is less
obvious from the current text, courts have uniformly treated the current
version of the statute as being identical in relevant part to the earlier
version, and we will do the same. See S. Rep. No. 95-989, 85th Cong.,
2d Sess. (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5811 ("The
definition of `insolvent' in paragraph [(32)] is adopted from section
1(19)
of current law. . . . It is the traditional bankruptcy balance sheet test
of
insolvency.").

                               11
approach, and asserts that a reasonable period is the time
that an active company might reasonably take to sell its
assets in the typical course of business at the highest
available price.

We believe that the proper point of reference for
determining a "reasonable" time period in the case of
S 101(32)(A) should begin with the financial interests of the
creditors. See Syracuse Engineering Co., 110 F.2d at 471.
The reasonable time should be an estimate of the time that
a typical creditor would find optimal: not so short a period
that the value of the goods is substantially impaired via a
forced sale, but not so long a time that a typical creditor
would receive less satisfaction of its claim, as a result of the
time value of money and typical business needs, by waiting
for the possibility of a higher price. Cf. id. This test satisfies
the requirement of a fair valuation because it identifies,
as best it can, the equilibrium point between the two
competing concerns of creditors: the desire to maximize the
dollar figure from the assets to be sold, and the desire to
have the assets sold off quickly to satisfy creditors' claims
sooner rather than later. The competing view that fair
valuation contemplates a hypothetical sale without regard
to the pressures of time fails in light of contrary authority.
See Briden, 776 F.2d at 382 ("Asset valuation. . . should
be reduced by the value of the assets not readily
susceptible to liquidation and the payment of debts"); Stern
v. Paper, 183 F. 228, 230-31 (D.N.D. 1910) ("[F]air
valuation . . . means a value that can be made promptly
effective by the owner of property to pay his debts.")
(quotations omitted).

Contrary to the assertions of Travellers, Duncan v.
Landis, 106 F. 839 (3d Cir. 1901), does not support
Travellers' position that the hypothetical sale must take
place absent time pressures. In Landis, this court evaluated
a set of jury instructions concerning how to achieve a fair
valuation of a debtor's assets. The district court had
instructed the jury using the traditional equity test for
insolvency, that a debtor was solvent only if the debtor was
able to meet all obligations when they became due. This
court reversed, holding that a fair valuation of assets was
not achieved when a debtor was forced to sell assets "at
once" on the date the debt matured. Id. at 859.

                                12
We disagree with Travellers' view that Landis holds that
a fair valuation implicates a hypothetical sale absent time
pressures. As we read Landis, it presages the view we have
espoused: that fair valuation does not preclude a
continuing business from valuing its assets in
contemplation of a reasonable time for their liquidation.
Thus, whereas the district court in Landis required
insolvency to be measured by the value of those assets
available at the time the debt became due, the court of
appeals found that formula to be in error. As our court
instructed then, the application of such a formula to
measure the value of the debtor's assets would permit
creditors "to take advantage of the necessities and
embarrassments of the [debtor] in order to procure" the
assets at a price less than their fair value. Id. at 858.

We are satisfied that the bankruptcy court applied the
appropriate legal standard in determining the fair valuation
of TWA's assets. See In re Trans World Airlines, 180 B.R. at
412, 412 n.30. In light of the size and nature of Trans
World Airlines, the bankruptcy court's determination that
12 to 18 months was a "reasonable time" to value TWA's
assets is not clearly erroneous. Such a span of time reflects
the period in which a diligent administrator, concerned
with the interests of TWA's creditors, could inventory,
prepare, and sell TWA's considerable assets in a reasonable
fashion. Further, we agree with the district court that none
of the remaining factual findings by the bankruptcy court
relating to assets were clearly erroneous. Consistent with
the district court's holding that affirmed the bankruptcy
court's asset valuation, we hold that TWA's assets as of
November 4, 1991 were worth $3,125,811,000.

B. Liability Valuations

Next we must decide how to value TWA's liabilities under
11 U.S.C. S 101(32)(A). To decide this issue we must
address the extent to which the valuation of liabilities
under the Bankruptcy Code should be based upon actual
market conditions faced by the debtor. In particular, we
must resolve two legal questions: first, whether TWA's
publicly traded debt should be measured at face value or
market value, and second, whether liquidation costs should

                               13
be included as contingent liabilities. Then, we must review
one factual question: whether the bankruptcy court was
correct in finding that TWA's debt was not reduced by one
billion dollars under an agreement between TWA and its
creditors.

1.

The first question is whether TWA's publicly traded debt
should be measured at its face value of $1,776,752,000, or
its market value of $662,898,000. Both TWA and Travellers
assume, as did the bankruptcy court and district court,
that the question of whether to use face value or market
value hinges upon a question of statutory interpretation. 11
U.S.C. S 101(32)(A) states that insolvency is the "financial
condition such that the sum of such entity's debts is
greater than all of such entity's property, at a fair
valuation." The parties indicate that if we agree with the
district court that "fair valuation" in S 101(32)(A) modifies
both "property" and "debts," then we should adopt the
market value figure for TWA's debt. If, on the other hand,
we agree with the bankruptcy court that "fair valuation" as
found in the statute modifies only "property," then our
insolvency calculations should utilize the face value of
TWA's publicly traded obligations.

Travellers argues that S 101(32)(A) demands a market
valuation because the phrase "fair valuation" in S 101(32)(A)
modifies both "property" and "debts," such that the fair
market valuation used for assets should apply equally to
liabilities. For support, Travellers points to statements
made by this court and others suggesting that the fair
valuation requirement of S 101(32)(A) applies to TWA's
debts. See, e.g., Mellon Bank, N.A. v. Metro Communications,
Inc., 945 F.2d 635, 648 (3d Cir. 1991) ("The debtor's assets
and liabilities are tallied at fair valuation to determine
whether the corporation's debts exceed its assets."); Briden,
776 F.2d at 382 (noting that the insolvency definition
"focuses on the fair market value of the debtor's assets and
liabilities").

However, TWA maintains that the appropriate valuation
of TWA's public debt is its face value rather than its market

                               14
value because the requirement of a "fair valuation" in
S 101(32)(A) does not apply to debts and should not be
construed to do so. For support, TWA points to the text of
the insolvency definition that was in effect until 1978.5
According to TWA, the pre-1978 statute makes clear that
the fair valuation requirement applies to properties but not
to debts. Second, TWA points to the insolvency definition
that applies to partnerships, codified at 11 U.S.C.
S 101(32)(B).6 Because this definition applies the fair
valuation standard only to property (assets), and there is no
reason to think that partnerships and corporations should
be treated differently in this respect, TWA argues that its
debt is not subject to a fair valuation requirement.
Accordingly, TWA argues that its debt should be considered
at its face value.

We agree with TWA that we must consider the face value
of TWA's publicly traded debt rather than the market value.
This follows from our determination that we must treat
TWA as a "going concern." See Moody, 971 F.2d at 1067.
Because we treat TWA as a going concern, we cannot
consider the market's devaluation of TWA's debt resulting
from the possibility as of the date of the transfer that TWA
would cease operations and be unable to satisfy its
promises. It is this devaluation that creates the difference
between the face value figure urged by TWA and the market
value figure Travellers would have us adopt: the former
represents the net present value of TWA's obligations, while
the latter represents the net present value of TWA's
_________________________________________________________________

5. See note 4, supra.

6. 11 U.S.C. S 101(32)(B) (1993) states that "insolvent" means:

        (B) with reference to a partnership, financial condition such that
       the sum of such partnership's debts is greater than the aggregate
of,
       at a fair valuation--

        (i) all of such partnership's property, exclusive of property of
the
       kind specified in subparagraph (A)(i) of this paragraph; and

        (ii) the sum of the excess of the value of each general partner's
       nonpartnership property, exclusive of property of the kind
specified
       in subparagraph (A) of this paragraph, over such partner's
       nonpartnership debts[.]

                               15
obligations but discounted by the likelihood that TWA will
be unable to pay its debts in full.

Thus, even accepting the dictum in Metro
Communications stating that we must fairly value liabilities,
see 945 F.2d at 648, in this context we do not interpret the
term "fair valuation" to mean fair market valuation.
Because our going concern methodology precludes us from
devaluing TWA's debt based on creditors' perceptions of
TWA's viability, a fair valuation of TWA's public debt is the
face value of that debt. See Covey v. Commercial Nat'l Bank,
960 F.2d 657, 660 (7th Cir. 1992) (holding that valuation of
debt must be made from the perspective of the debtor,
rather than the perspective of a third party creditor).7
Accordingly, we hold that the proper figure for TWA's
publicly traded debt is the debt's face value of
$1,776,752,000.

2.

We proceed to consider whether the bankruptcy court
erred in including amongst TWA's liabilities various costs
that TWA would incur if TWA were to cease operations
within 12-18 months of the date of the transfer. The
bankruptcy court deemed it proper to consider the costs
that TWA would suffer if it were to cease operations
because courts must consider "contingent liabilities" in
their calculations of liability in an amount discounted by
_________________________________________________________________

7. As the bankruptcy court noted, anomalous results would occur if we
allowed liabilities to be valued based on the debtor's financial position:

        If holders of claims are fully informed of the debtor's affairs and
the
        asset values are less than the face amount of the claims, they
would
        never value their claims at more than the value of the assets.
        Likewise, the fully informed debtor would never be willing to pay
        claimants more than claimants would be willing to take. Thus, the
        value of the claims would never exceed the value of the assets and
        insolvency could never occur.

180 B.R. at 424. See also Covey, 960 F.2d at 660 ("The beneficiary of a
guarantee never values that obligation at more than the issuer's gross
assets, and if other claims (say, secured debts) stand ahead of this one,
the beneficiary does not value the guarantee at more than the issuer's
net assets.").

                                16
the probability that the contingency will occur. See In re
Trans World Airlines, 180 B.R. at 426-27. The bankruptcy
court reasoned that under the 12-18 month sale scenario it
used to value TWA's assets, the liabilities contingent upon
TWA's projected dissolution would become fixed. The
bankruptcy court was also influenced by the probability as
of the date of the transfer that TWA would soon be forced
to cease operations. Accordingly, the bankruptcy court held
that it was proper to include the full costs of TWA's
dissolution as liabilities, even though TWA was not
liquidating on November 4, 1991. These liabilities totaled
$816.4 million, and consisted of $248.2 million in wind
down expenses, $214.8 million for severance payments,
$181.6 million in additional pension plan liabilities, $138.8
million payable to TWA's unions, and $33.1 million of
COBRA obligations.8

We agree with the bankruptcy court that it is proper to
consider contingent liabilities when evaluating the
insolvency of a corporation pursuant to 11 U.S.C.
S 101(32)(A). See Mellon Bank, N.A. v. Official Comm. of
Unsecured Creditors (In re R.M.L., Inc.), 92 F.3d 139, 156
(3d Cir. 1996); In re Xonics Photochemical, Inc., 841 F.2d
198, 200 (7th Cir. 1988); Syracuse Engineering Co. v.
Haight, 97 F.2d 573, 576 (2d Cir. 1938) (L. Hand, J.).
However, we cannot agree that costs associated with the
dissolution of the debtor can be included under that rubric.
Indeed, it is the antithesis of a "going concern" valuation to
include such costs. See 2 Collier on Bankruptcy P 101.32[4]
at 101-116 (15th ed. Rev. 1997) ("There is overwhelming
authority to the effect that . . . subsequent dismemberment
. . . should not enter into the picture.") (citing cases).
Rather, contingent liabilities must be limited to costs
arising from foreseeable events that might occur while the
debtor remains a going concern. See FDIC v. Bell, 106 F.3d
258, 264 (8th Cir. 1997). Because we treat TWA as a going
concern, we will not include in the insolvency calculation
_________________________________________________________________

8. COBRA obligations require employers to provide certain employees
with continued health care coverage following job loss. See Consolidated
Omnibus Budget Reconciliation Act, 29 U.S.C. SS 1161-1168 (West Supp.
1997).

                               17
the $816.4 million in liabilities associated with TWA's
dissolution that was included by the bankruptcy court.

3.

The final issue we address is whether the bankruptcy
court's factual finding that TWA had not reached an
agreement with its creditors to reduce its public debt by $1
billion was clearly erroneous. Travellers maintains that
prior to November 4, 1991, TWA had entered into a pre-
petition agreement with its public debt holders in which the
creditors had agreed to reduce TWA's debt burden by $1
billion in exchange for certain concessions from TWA.
Travellers points primarily to press releases and SEC filings
authored by TWA, which indicate that TWA was attempting
to restructure its debts in anticipation of reorganization
under Chapter 11.

The bankruptcy court found that these efforts had not
yet come to fruition as of the date of the transfer, such that
the value of TWA's public debt could not be reduced by the
$1 billion proposed in the debt restructuring plan.
According to Travellers, the bankruptcy court clearly erred
in concluding that TWA and its creditors had not reached
a binding agreement, which would have reduced the face
value of TWA's debt (and thus TWA's liability) by $1 billion.

On review of the record, we hold that the bankruptcy
court's finding was not clearly erroneous. Although the
record is clear that TWA and its creditors had entered into
negotiations, there is little support for the view that the
agreement had been finalized as of November 4, 1991. All
of the documents relied upon by Travellers that are dated
prior to November 4, 1991 are either marked as drafts, or
else indicate that the terms of the proposed agreement had
not been finalized. Further, only certain elements of the
alleged agreement were finalized in the plan that was
ultimately approved on August 11, 1993. Accordingly, we
cannot conclude that the bankruptcy court's finding that
no agreement existed as of the date of the transfer was
clearly erroneous. See Haines v. Liggett Group, Inc., 975
F.2d 81, 92 (3d Cir. 1992) ("[T]he appellate court must
accept the factual determination of the fact finder unless

                               18
that determination either (1) is completely devoid of
minimum evidentiary support displaying some hue of
credibility, or (2) bears no rational relationship to the
supportive evidentiary data.") (quotations omitted).

IV.

The holding of the bankruptcy court in this case was that
TWA was insolvent on November 4, 1991 because the value
of TWA's liabilities exceeded that of its assets. According
to the bankruptcy court, TWA's liabilities totaled
$5,124,947,000, which exceeded its asset valuation of
$3,125,811,000 by two billion dollars. On review of the
legal and factual issues in this case, we have concluded
that the bankruptcy court's calculations were correct except
insofar as the bankruptcy court included $816.4 million in
liabilities associated with TWA's dissolution. Subtracting
this sum from the bankruptcy court's liability figure, we
conclude that the proper valuation of TWA's liabilities on
the date of the transfer was $4,308,547,000. Because this
figure still exceeds the $3,125,811,000 valuation of TWA's
assets, we conclude that the bankruptcy court was correct
in holding that TWA was insolvent as of November 4, 1991,
and that the deposit of $13.7 million on that date to stay
the enforcement of the judgment against TWA in favor of
Travellers was a voidable preferential transfer pursuant to
11 U.S.C. S 547(b).

Accordingly, we will reverse the district court's order
dated December 30, 1996, which had reversed the
insolvency holding of the bankruptcy court, and we will
direct the district court to remand this case to the
bankruptcy court for further proceedings consistent with
this opinion.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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