            United States Bankruptcy Appellate Panel
                           FOR THE EIGHTH CIRCUIT


                              No. 97-6015EMSL

In re:                                   *
                                         *
GATEWAY PACIFIC CORP.                    *
                                         *
            Debtor                       *
                                         *
OFFICIAL PLAN COMMITTEE, ET AL.          *
                                         *   Appeal from the United
            Appellee                     *   States Bankruptcy Court
                                         *   for the Eastern District
     -v.-                                *   of Missouri
                                         *
EXPEDITORS INTERNATIONAL OF              *
WASHINGTON, INC.                         *
                                         *
            Appellant                    *
                                         *


                        Submitted: October 9, 1997

                           Filed: December 5, 1997


Before KRESSEL, WILLIAM A. HILL, and DREHER, Bankruptcy Judges.


DREHER, Bankruptcy Judge

     This is an appeal from the bankruptcy court's1 decision that certain

payments made by Gateway Pacific Corp. (Debtor) to




1
     The Honorable Barry S. Schermer, United States Bankruptcy
Judge, Eastern District of Missouri.

                                     1
Expeditors International of Washington, Inc. (Expeditors) were avoidable

under § 547 of the Bankruptcy Code.       The parties stipulated that the

payments were preferential under Bankruptcy Code § 547(b).    On appeal is

the bankruptcy court's determination that Expeditors had not established

either the contemporaneous exchange for new value or the ordinary course

of business defenses under §§ 547(c)(1) or (c)(2), respectively.

                           I.   FACTUAL BACKGROUND

     Debtor was engaged in the business of selling tools under the name

of Buffalo Tool.     Although Debtor's business was located in St. Louis,

Debtor imported most of its inventory from Asia.     Debtor contracted with

Expeditors to act as its freight forwarder and customs broker.   Expeditors

arranged for the shipping of Debtor's imports by finding a carrier and

purchasing space on air and ship lines and it advanced custom duties for

Debtor's imported shipments and secured their clearance through customs.

     Debtor and Expeditors began doing business in the summer of 1993.

On October 5, 1993, Debtor submitted a credit application to Expeditors.

Expeditors approved the application and provided Debtor with a $25,000 line

of credit, which was later increased to $60,000.      The credit agreement

provided that Debtor would make payment to Expeditors within fifteen days

of the date of any




                                      2
invoice.   Paragraph 15 of the agreement further provided that, to the

extent of sums due, Expeditors would have a "general lien on any and all

property (and documents relating thereto) of the Customer [the Debtor], in

its possession, custody or control or en route. . . ."

     Expeditors generally made two to three shipments a week to Debtor.

Expeditors' fees and charges were typically $2-3,000 per shipment.              These

shipments were always accompanied by an invoice which provided that

payments for Expeditors' services were due within fifteen days of the date

of the invoice.    The invoices also included language similar to that found

in Paragraph 15 of the Credit Agreement.       Notwithstanding these provisions,

Debtor almost never made payments on time and it regularly exceeded its

credit limit.    As with virtually all of its other customers who were slow

in making payments, Expeditors regularly made telephone calls, usually

weekly, to Debtor, asking for payment.          However, Expeditors imposed no

interest or late charges, started no collection actions, and made no

threats to withhold goods.       Although Debtor routinely paid the invoices

late, it always paid each invoice in full.           Expeditors viewed Debtor as a

"[l]ate,   but    dependable"   and   "slow   pay,    but   steady   pay"   customer.

Eventually, a practice developed between the parties whereby Expeditors

would release goods to




                                         3
Debtor soon after payment of a prior invoice.              The amount of the goods

released by Expeditors generally exceeded the amount of Debtor's payment

on the earlier invoice.        There was no evidence that the parties had ever

agreed to such a practice, nor discussed its implicit terms.

        On August 31, 1995, Debtor filed a petition for relief under Chapter

11 of the United States Bankruptcy Code.            At the time of filing, Debtor

still owed Expeditors over $40,000, a sum Expeditors admits was unsecured.

Pursuant to authority provided in the plan, the unsecured creditors'

committee (Committee) filed this action against Expeditors seeking to avoid

as preferences $96,797.30 that Debtor had paid to Expeditors during the

ninety days prior to filing.           In response, Expeditors asserted three

defenses: contemporaneous exchange (§ 547(c)(1)); ordinary course of

business    (§   547(c)(2));    and   new   value   (§   547(c)(4)).   The   parties

stipulated that the Committee had made a showing that all payments were

preferential under § 547(b) of the Bankruptcy Code and that Expeditors was

the "initial transferee" under § 550(a); that $42,661.71 of that amount was

protected from avoidance by the new value defense under § 547(c)(4); and,

that,    with respect to the ordinary course of business defense, the

requirement of § 547(c)(2)(A) had been met.               This left for trial the

following two




                                            4
questions: whether 1) twenty-eight payments made during the ninety days

prior to filing amounting to $54,135.592 were made in the ordinary course

of business or financial affairs of the parties and according to ordinary

business terms under § 547(c)(2)(B) and (c)(2)(C), respectively; and, if

not, whether 2) the payments were intended as, and were in fact, a

contemporaneous exchange for new value under § 547(c)(1).

     The bankruptcy court determined that Expeditors had satisfied its

burden of proving that the payments were made according to ordinary

business terms within the meaning of § 547(c)(2)(C).   The bankruptcy court

went on to hold, however, that twenty-four of the twenty-eight payments

made to Expeditors within ninety days prior to the filing but more than

fifty days after the date of invoice were not made in the ordinary course

of business and financial dealings between the parties.     It further held

that Expeditors had failed to show that such payments to Expeditors were

intended by both the Debtor and Expeditors to be a contemporaneous exchange

for new value.   Accordingly, the bankruptcy court entered judgment against

Expeditors for $40,577.31.   This figure represented twenty-




2
     This figure represents the difference between the amount
originally sought by the Committee ($96,797.30) and the amount
the Committee subsequently conceded was protected from avoidance
by the new value defense ($42,661.70).

                                     5
four payments made by Debtor to Expeditors within the ninety days preceding

bankruptcy on invoices which were more than fifty days old.

                               II.   ISSUES PRESENTED

     Expeditors makes two arguments on appeal.          First, it asserts that the

bankruptcy court erred in finding that payments made on invoices which were

more than fifty days old were not made in the ordinary course of business.

Second,   it asserts that the bankruptcy court erred in finding that

Expeditors had failed to show that both Debtor and Expeditors intended the

payments be made in contemporaneous exchange for a release by Expeditors

of the lien which was referenced in the credit agreement.3

                                  III.   DISCUSSION

A.   STANDARD   OF   REVIEW

     Whether payments are made in the ordinary course of business between

the parties or intended as a contemporaneous exchange for new value are

questions of fact.        Accordingly, the bankruptcy




3
     The parties also briefed and argued the issue of whether the
exchanges were contemporaneous and whether Expeditors actually
had a lien on the goods in transit which could serve as "new
value". Because we uphold the bankruptcy court's finding that
Expeditors failed to prove a mutual intention for its
contemporaneous exchange for new value, we need not address these
arguments.

                                          6
court's factual findings on these two questions will not be reversed unless

they are clearly erroneous.    Jones v. United Savings and Loan Assoc. (In

re U.S.A. Inns of Eureka Springs, Ark., Inc.), 9 F.3d 680, 682-83 (8th Cir.

1993); Lovett v. St. Johnsbury Trucking, 931 F.2d 494, 497 (8th Cir. 1991);

Tyler v. Swiss Am. Securities, Inc. (In re Lewellyn & Co., Inc.), 929 F.2d

424, 427-28 (8th Cir. 1991).      "A finding 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."   Anderson v. City of Bessemer, 470 U.S. 564, 573 (1985)

(quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948));

Martin v. Cox (In re Martin), 212 B.R. 316, 319 (B.A.P. 8th Cir. 1997);

Tri-County Credit Union v. Leuang (In re Leuang), 211 B.R. 908, 909 (B.A.P.

8th Cir. 1997); Bayer v. Hill (In re Bayer), 210 B.R. 794, 795 (B.A.P. 8th

Cir. 1997).    Under the clearly erroneous standard, a reviewing court may

not reverse the trier of fact simply because it would have decided the case

differently.   Handeen v. LeMaire (In re LeMaire), 898 F.2d 1346, 1349 (8th

Cir. 1990) (citing Anderson, 470 U.S. at 573).     Indeed, "when there are two

permissible views of the evidence, we may not hold that the choice made by

the trier of fact was clearly erroneous."    Id.




                                     7
B.    SECTION 547(C)(2): ORDINARY COURSE          OF   BUSINESS

      Section 547(c)(2) of the Bankruptcy Code renders unavoidable an

otherwise preferential transfer:

             (2)   to the extent that such transfer was--
                   (A)   in payment of a debt incurred by the debtor in
             the ordinary course of business or financial affairs of
             the debtor and the transferee;
                   (B)   made in the ordinary course of business or
             financial affairs of the debtor and the transferee;
                   (C)   made according to ordinary business terms . .
             . .

11 U.S.C. § 547(c)(2) (1994) (emphasis added).                    This provision is intended

"to protect recurring, customary credit transactions which are incurred and

paid in the ordinary course of business of the debtor and the transferee."

LAWRENCE P. KING   ET AL.,   COLLIER   ON   BANKRUPTCY ¶ 547.04[2], at 547-47 (15th rev.

ed. 1997).    See also S. REP. NO. 95-989, at 88 (1978), reprinted in 1978

U.S.C.C.A.N. 5787, 5874; H.R. REP. NO. 95-545, at 373 (1977), reprinted in

1978 U.S.C.C.A.N. 5963, 6329 ("The purpose of this exception is to leave

undisturbed normal financial relations, because it does not detract from

the general policy of the preference section to discourage unusual action

by either the debtor or his creditors during the slide into bankruptcy.").

In order to fall within the protection of § 547(c)(2), a transferee must

prove, by a preponderance of the evidence, that all three statutory

elements of § 547(c)(2) are met.




                                                  8
11 U.S.C. § 547(g) (1994); Eureka Springs, 9 F.3d at 682. In this case, the

parties stipulated to the existence of the first statutory element and

there is no challenge to the bankruptcy court's finding on the third

element.     This leaves for decision only § 547(c)(2)(B), proof that the

payments were made in the ordinary course of business or financial affairs

of the parties.

      Section 547(c)(2)(B) is the subjective component of the statute,

requiring proof that the debt and its payment are ordinary in relation to

other business dealings between the creditor and the debtor.               Eureka

Springs, 9 F.3d at 684 (citing Logan v. Basic Distrib. Corp. (In re Fred

Hawes Org., Inc.), 957 F.2d 239 (6th Cir. 1992)).          "[T]he cornerstone of

[§   547(c)(2)(B)]   is   that   the   creditor   needs   [to]   demonstrate   some

consistency with other business transactions between the debtor and the

creditor."   Lovett, 931 F.2d at 497.        In reviewing the bankruptcy court's

decision on this question, we must keep in mind that "there is no precise

legal test which can be applied in determining whether payments by the

debtor during the 90-day period were made in the ordinary course of

business; rather, th[e] court must engage in a 'peculiarly factual'

analysis."   Eureka Springs, 9 F.3d at 682-83 (quoting Lovett, 931 F.3d at

497 (quoting In re Fulghum Constr. Corp., 872 F.2d 739, 743 (6th Cir.

1989))).




                                         9
        In this case, the parties agreed to use the nine months preceding the

preference period to establish the ordinary course of business between

them.     Stipulated evidence demonstrated that, during the nine months

preceding the preference period, the median time elapsed between the date

of invoice and the date of payment was thirty-five days; during the

preference period, however, this number increased to fifty-four days.     The

court noted that this was an increase of fifty-four percent, rendering the

payments made during the preference period significantly later than those

made during the preceding nine months.     Specifically, the court noted that,

during the nine months preceding the preference period, only nine of

approximately 155 payments were more than fifty days old; twenty-four of

the twenty-eight challenged payments were at least fifty or more days old.

In other words, the bankruptcy court found that, during the preference

period, Debtor's pattern of late payment changed significantly in that

Debtor began paying invoices substantially later than during the preceding

nine months' time.     Thus, even though there had always been a pattern of

late payments between the parties, the bankruptcy court found that payments

made on invoices which were more than fifty days old were much later than

payments made during the nine months preceding the preference




                                      10
period so as to fall outside of the ordinary course of the parties'

business relationship.

     Expeditors makes two basic arguments on appeal.      First, it asserts

that it was ordinary for Debtor to make payments beyond the fifteen-day

time limit and normal for Expeditors to make calls asking for payment.   It

further urges that the pattern of late payments was fairly consistent,

pointing to the fact that during the nine months prior to the preference

period Debtor paid invoices anywhere between fourteen and sixty-one days

after invoice, while during the preference period these figures were

twenty-five and eighty-one.   According to Expeditors' more general view of

the statistical evidence, the pattern of payment and the type of collection

activity did not change significantly, with the result that it should have

prevailed on this defense.    Second, Expeditors asserts that the bankruptcy

court's finding that the pattern of payment changed during the preference

period, with Debtor paying invoices significantly later than during the

pre-preference period, was without evidentiary support.   It further argues

that the court's "inconsiderate devotion to statistical analysis" misled

it to select an arbitrary fifty-day benchmark, which was without support

in the record.




                                      11
        In   response   to   this   argument,   the   Committee   argues    that   the

bankruptcy court applied the proper legal standard when it focused on

whether the pattern of payments was significantly different during the

preference period and that there was ample evidence to sustain the court's

finding that it did.     The Committee further asserts that the fifty-day cut-

off selected by the court was not arbitrary, but rather was amply supported

by the agreed upon exhibits which showed that most payments made during the

nine months preceding the preference period were paid in fifty days or

less.

        The bankruptcy court correctly viewed the Eighth Circuit opinion in

Lovett v. St. Johnsbury Trucking, 931 F.2d 494, 497 (8th Cir. 1991) as

controlling.      In Lovett, the lower courts had focused on the terms of a

written contract between the parties to determine that late payments made

during the preference period were not made in the ordinary course of the

parties' business under § 547(c)(2)(B).         The Eighth Circuit reversed.        In

reversing, the court emphasized that the analysis should focus, instead,

on "the time within which the debtor ordinarily paid the creditor's

invoices, and whether the timing of the payments during the 90-day period

reflected 'some consistency' with the practice."          Id. at 498.      The Lovett

court stated that the record showed not only that




                                          12
payments were late during both the pre-preference and preference periods,

but also that the length of delay between invoicing and payment remained

fairly constant in both time periods (sixty-two versus fifty-two days).

Thus,    the    court   concluded    that   "[a]lthough    it    appears   that     payment

generally was made somewhat sooner in the 90-day [preference] period than

during the preceding 12 months, the difference was not sufficiently

significant to show that the payments during the 90-day period did not

follow the ordinary course of business reflected in the prior 12 months."

Id.

        In this case, the bankruptcy court did precisely what the Lovett

court instructed.        It recognized that a pattern of late payments can be

ordinary even if made in contradiction to stated contract terms requiring

earlier payment.        It then looked to whether the pattern of late payments

had altered significantly during the preference period.                Its finding that

Debtor    had    significantly      changed    its   pattern    of   payment   by   making

substantially later payments during the preference period was supported by

stipulated exhibits.       The bankruptcy court did not, as Expeditors urges,

establish a fifty-day "bright line" test; the fifty-day time frame was

based on documentary evidence showing that payments made during the nine

months preceding the preference period had consistently been made prior to

fifty days after the




                                              13
date   of    the invoice.    Thus, contrary to Expeditors' arguments, the

bankruptcy court applied the correct legal standard and made a factual

finding which was amply supported by the evidence.        The bankruptcy court's

determination that Expeditors had not met its burden of establishing this

defense was not clearly erroneous.

B.     SECTION 547(C)(1): CONTEMPORANEOUS EXCHANGE FOR NEW VALUE

       Section 547(c)(1) provides:

       (c)    The trustee may not avoid under this section a transfer--
              (1)   to the extent the transfer 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.

11 U.S.C. § 547(c)(1) (1994).       To establish a defense under § 547(c)(1),

Expeditors had the burden of showing, by a preponderance of the evidence,

that: (1) both parties intended the Debtor's payments during the preference

period to be a contemporaneous exchange for new value; (2) that the

exchange was in fact contemporaneous; and (3) that the Debtor received new

value in exchange for the transfers.          Id. § 547(g); Lewellyn, 929 F.2d at

427.    The existence of intent, contemporaneousness, and new value are

questions of fact.    Lewellyn, 929 F.2d at 427 (citing Creditors' Committee

v. Spada (In re Spada), 903 F.2d 971, 975 (3d Cir. 1990)).




                                         14
     Expeditors' theory of recovery on this issue was based on the course

of conduct which had developed between the parties whereby Expeditors would

carefully watch the Debtor's account (one of its largest) and delay the

release of goods until it received payment from Debtor on prior, overdue

invoices.   Expeditors asserted that its invoices, the credit agreement, and

applicable law gave it a security interest in all goods in its possession,

and that when it released goods in its possession upon receipt of the

Debtor's payment of prior invoices, it provided a contemporaneous exchange

for new value.    The issue of whether such a security interest actually

existed was hotly contested at trial, and even now on appeal.           The

bankruptcy court decision focused elsewhere.

     The bankruptcy court held that Expeditors had not met its burden of

proving that Debtor intended the payments to constitute a contemporaneous

exchange for new value.    This conclusion was founded on the testimony of

a witness who had served as President, CEO, and CFO of the Debtor who

testified that Expeditors had never discussed any such claimed security

interest with him and that, even when he met with Expeditors to discuss the

account, Expeditors made no mention of such a claim.   The bankruptcy court

further pointed out that no cross examination of this witness was conducted

to establish either that the Debtor knew of the existence of such




                                     15
a security agreement or that the Debtor intended such an exchange.      The

bankruptcy court reasoned:    "[a] party cannot intend an exchange when one

does not know of the existence of the matter to be exchanged.   In light of

this unrebutted testimony, Expeditors cannot prevail on this element of the

contemporaneous exchange defense . . . ."

     Expeditors urges that it met its burden of proving that Debtor

intended to release Expeditors' security interest for payment on earlier

invoices.   In support of this assertion, Expeditors points to two types of

evidence.   First, it asserts that the Credit Agreement and several hundred

invoices which the parties exchanged contained language giving Expeditors

a possessory lien, under certain conditions, and that knowledge of the

content of these documents should be imputed to the Debtor corporation.

Second, it asserts that Debtor's intent to accept the release of a security

interest in return for payments on old invoices should be inferred from the

parties' course of conduct.   Expeditors also urges that the witness called

by the Committee, while an officer of the Debtor, was not the Debtor's

employee closest to the transactions on a day to day basis.




                                     16
     All of this amounts to reargument of the evidence and the reasonable

inferences to be drawn therefrom; an argument that the bankruptcy court

should have accepted Expeditors' view of the record rather than that urged

by the Committee and adopted by the court.      In this case the bankruptcy

court was free to credit the testimony of a responsible officer of the

company that the Debtor had not discussed a release of security arrangement

with Expeditors.   From this the bankruptcy court could draw the reasonable

inference that the Debtor did not know of such release and that the Debtor

did not intend to make a contemporaneous exchange.        The fact that the

parties spent considerable time at trial disputing whether Expeditors even

had such a lien belies such an intent.       Moreover, Expeditors failed to

produce any evidence that both parties understood that Expeditors had such

a security interest, tried to enforce it, or withheld goods in order to

preserve its possessory lien, much less evidence that such an agreement

existed.

     "The critical inquiry in determining whether there has been a

contemporaneous exchange for new value is whether the parties intended such

an exchange."   Lewellyn, 929 F.2d at 428.   Although the parties' course of

conduct is evidence of this intent, see id., such evidence is not the only

evidence in this case.   In this case,




                                     17
there was contrary evidence, from a knowledgeable witness, upon which the

court could reasonably find a lack of such intent on behalf of the Debtor.

"When a trial judge's finding is based on his decision to credit the

testimony of one of two or more witnesses, each of whom has told a coherent

and   facially   plausible   story   that    is   not    contradicted   by   extrinsic

evidence, that finding, if not internally inconsistent, can virtually never

be clear error."   Anderson, 470 U.S. at 575.           Accordingly, we conclude that

the bankruptcy court's decision with respect to this element of the defense

was not clearly erroneous.

      Based on the foregoing, the decision of the bankruptcy court is

AFFIRMED.



A true copy.

Attest:



      CLERK, U.S. BANKRUPTCY APPELLATE PANEL
      FOR THE EIGHTH CIRCUIT




                                        18
