                                                      United States Court of Appeals
                                                               Fifth Circuit
                                                            F I L E D
                     REVISED FEBRUARY 16, 2006
                  UNITED STATES COURT OF APPEALS            January 23, 2006

                       FOR THE FIFTH CIRCUIT            Charles R. Fulbruge III
                                                                Clerk


                            No. 04-20752



                   In The Matter Of: RAMBA INC.
                              Debtor

     LOWELL T. CAGE,

                                        Appellant,

                                 v.

     WYO-BEN, INC.; GEORESOURCES, INC.; TRANS-CAPITAL,INC.;
     M-I, LLC, doing business as Federal Wholesale Drilling
     Mud; SCHLUMBERGER TECHNOLOGY CORP., doing business as
     Dowell Schlumberger; AMCHEM, INC.; ENTERPRISE FLEET
     SERVICES; DANOS & CUROLE MARINE CONTRACTORS, INC.;
     MILWHITE, INC.; EXCALIBAR MINERALS, INC.

                                        Appellees.



           Appeal from the United States District Court
                 for the Southern District of Texas



Before REAVLEY, GARZA, and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

     This case involves a trustee’s attempt to avoid transfers to

creditors in a Chapter 7 bankruptcy.    The district court granted

summary judgment to the Appellees, holding that indirect transfers

to ten creditors did not constitute voidable preferences.             It

reached this conclusion after holding that the transfers were in the
ordinary course of business and that the transfers were made from

property in which the debtor had no interest.            We AFFIRM on the

grounds of the second holding and therefore do not reach the first.

The district court also considered one direct transfer.             It erred

when it found that the transfer was in the ordinary course of

business.     Therefore, we AFFIRM in part and VACATE and REMAND in

part.



                 I.    FACTUAL AND PROCEDURAL BACKGROUND

       On   November   21,   2000,   Ramba,   Inc.   filed   for   Chapter   7

bankruptcy.     The Trustee, Lowell Cage, filed numerous proceedings

against entities who received transfers from Ramba, including

actions against the Appellees.        The Appellees are ten vendors who

provided materials, equipment, and services to Ramba’s drilling

division.1    After a request for a jury trial, the proceedings were

removed to the district court and consolidated into one case.

       All but one of the transfers at issue resulted from the sale

of Ramba’s drilling division to a subsidiary of Patterson Energy,

Inc.    Ramba and Patterson entered an “Asset Purchase Agreement” on

September 30, 2000, two months prior to the bankruptcy filing, while

Ramba was doing business as Ambar, Inc.          The transaction required

Ramba to sell all the assets of its drilling division, and, as part

        1
     The Appellees are: M-I, L.L.C.; Danos & Curole Marine
Contractors, Inc.; GeoResources, Inc.; Milwhite, Inc.; Excalibar
Minerals, Inc.; Amchem, Inc.; Schlumberger Technology Corp.; Wyo-
Ben, Inc.; Trans-Capital, Inc.; and Enterprise Fleet Services.

                                      2
of the consideration, Patterson assumed some of Ramba’s liabilities.

Those liabilities included debts owed to the Appellees.       Ramba also

sold Patterson the rights to the name “Ambar.”               A Patterson

subsidiary later began doing business as “Ambar Drilling.”

      Prior to the selling of the division, Ramba owed Citibank more

than $25 million under a credit agreement dated August 14, 1997.

Pursuant to that agreement, Ramba granted Citibank liens on all its

assets, including the assets ultimately sold to Patterson.           The

result was that Citibank’s security interests wholly encumbered

Ramba’s assets, exceeding their fair market value.      As part of and

essential to the sale to Patterson, Citibank agreed to release its

security interests in the assets of the drilling division and to

allow some of the purchase price to go toward paying Ramba’s debts.

The result of the deal was that Patterson received the assets “free

and clear” of all liens and paid Citibank $15.6 million in full and

final satisfaction of its liens.    Patterson then paid the remainder

of   the   consideration,   approximately   $10   million,   to   Ramba’s

creditors, the Appellees.

      The Trustee attempts to set aside as preferential the transfers

to the Appellees that resulted from the sale to Patterson and one

“direct” transfer made by Ramba to Appellee GeoResources.             The

district court held that these transfers did not constitute voidable

preferences. The decision constituted an appealable final judgment.

See Zink v. United States, 929 F.2d 1015, 1020 (5th Cir. 1991) (“A



                                   3
judgment is final when it terminates litigation on the merits and

leaves the court with nothing to do except execute the judgment.”)




                       II.    STANDARD OF REVIEW

      This Court reviews a district court’s grant of a summary

judgment de novo, applying the same standards as the district court.

Hirras v. Nat’l R.R. Passenger Corp., 95 F.3d 396, 399 (5th Cir.

1996).    The evidence should be viewed in the light most favorable

to the nonmoving party, and the record should not indicate a genuine

issue as to any material fact.        Am. Home Assurance Co. v. United

Space Alliance, 378 F.3d 482, 486 (5th Cir. 2004).          This Court

reviews factual findings for clear error.        In re Mercer, 246 F.3d

391, 402 (5th Cir. 2001).



                             III.   DISCUSSION

A.    Indirect Transfers to Appellees

      Section 547(b) of the Bankruptcy Code establishes the six

elements of any preference action.        To be a preference there must

be:

         (1) “a transfer of an interest of the debtor in
         property; ”
         (2) “to or for the benefit of a creditor;”
         (3) “for or on account of an antecedent debt owed by
         the debtor before such a transfer was made;”
         (4) “made while the debtor was insolvent;”
         (5) “made on or within 90 days before the date of the
         filing of the petition” (or one year if an insider);

                                      4
         and
         (6) one “that enables such creditor to receive more
         than such creditor would receive” if (A) the debtor
         filed under Chapter 7, and (B) the transfer had not
         been made.

11 U.S.C. § 547(b) (2000).   The transfers at issue fail to meet the

first element.

     A debtor has an interest in property if that property would

have been part of the debtor’s bankruptcy estate had the transfer

not occurred.    See In re Criswell, 102 F.3d 1411, 1416 (5th Cir.

1997).    A trustee cannot avoid transfers of property unless the

property would have been in the estate and therefore available to

the debtor’s general creditors.         Warsco v. Preferred Technical

Group, 258 F.3d 557, 564 (7th Cir. 2001).      Essentially, a voidable

preference must have depleted the estate.       Gulf Oil Corp. v. Fuel

Oil Supply & Terminaling, Inc., 837 F.2d 224, 230–31 (5th Cir.

1988).    A trustee bears the burden of proving that the debtor had

an interest in the transferred property.      Warsco, 258 F.3d at 564.

     The Bankruptcy Code offers further explanation of what assets

fall within a bankruptcy estate.       Section 541 of the Code states:

     Property in which the debtor holds, as of the
     commencement of the case, only legal title and not an
     equitable interest . . . becomes property of the estate
     . . . only to the extent of the debtor’s legal title to
     such property, but not to the extent of any equitable
     interest in such property that the debtor does not hold.

11 U.S.C. § 541(d).     There can be no preference when a debtor

transfers property in which the debtor has no equitable interest.

See In re Bean, 252 F.3d 113, 117 (2d Cir. 2001); In re Parham, 72

                                   5
B.R. 604, 605 (Bankr. M.D. Fla. 1987); In re Central States Press,

57 B.R. 418, 422 (Bankr. W.D. Mo. 1985) (“Even the most liberal

rules permitting recovery under § 547 . . . apply only to the extent

that       the   value    of   the   collateral   transferred   exceeds   the

indebtedness of the debtor on the security interest.”).

       In In re Maple Mortgage, Inc., 81 F.3d 592, 595 (5th Cir.

1996), we held that funds at issue in a preference dispute must have

been available for distribution to general creditors.            “[I]f funds

cannot be used to pay the debtor’s creditors, then they generally

are not deemed an asset of the debtor’s estate for preference

purposes.”       Id.     While Maple Mortgage did not specifically address

whether a debtor’s bankruptcy estate includes fully encumbered

property, it recognized the common sense reasoning that funds must

be available to pay creditors.           Other courts have reached similar

results, holding that a bankruptcy estate is made up of equity, as

opposed to legal title alone.          See, e.g., In re Mahendra, 131 F.3d

750, 755 (8th Cir. 1997) (holding that “[a]ny portion of a debtor’s

property that is unencumbered by mortgage—the equity—is part of the

bankrupt’s estate.”); U.S. v. Rauer, 963 F.2d 1332 (10th Cir. 1992)

(same).2



       2
     When a debtor holds only legal title to fully encumbered
property during a Chapter 7 bankruptcy, the trustee typically
abandons the property because the estate cannot benefit from its
sale. For that reason, few cases exist that involve a dispute as
to whether fully encumbered property can be property of an
estate.

                                         6
     At the time of the drilling division sale, it is undisputed

that Ramba’s assets were fully encumbered by Citibank’s liens.3

Ramba had no equity in the proceeds of the sale, and, therefore, the

funds never would have been available to general creditors in the

bankruptcy.    The Trustee argues that upon Citibank’s acceptance of

$15.6 million from Patterson, the “assumed liability” portion of the

purchase    price   was   converted   into   unencumbered    funds,   which

presumably Ramba could then distribute to creditors as it wished in

the resulting bankruptcy.      This theory fails because there is no

evidence that Citibank agreed to create equity for the benefit of

Ramba.     The consideration from the sale of Citibank’s collateral

belonged to Citibank, the secured lender.

     The problem with Ramba’s lack of equity is illustrated by the

remedy the Trustee is requesting. The Trustee wants a refund of the

$10 million paid to the Appellees by Patterson.           By doing so, he

essentially is asking for the benefit of the deal with Patterson

while cancelling one of the underlying terms of the bargain.            The

district    court   points   out   that   without   the   debt   assumption

provision, it is likely that there would never have been a deal with

Patterson. The court opined, “A drilling outfit that has difficulty

getting basic materials like mud and care is not an attractive


     3
      During oral argument, the attorney for the Trustee admitted
that “the debt and the assets are roughly equivalent,” describing
the assets as “fully encumbered.” Indeed, the record shows that
the Trustee stipulated to the fact that “Citibank was owed in
excess of the fair market value of the Debtor’s total assets.”

                                      7
asset.”        The Patterson transaction was structured so that the

drilling division would operate without interruption, as seen by

Patterson’s choice in adopting the “Ambar” name. The district court

found that only one of the Appellees even knew the division had a

new owner.         The Trustee’s request threatens to undo the entire

Patterson transaction. Such an undoing would leave Citibank holding

liens on the drilling division and the Trustee having an asset that

would not benefit general creditors.

     The Trustee’s reliance on In re Conard Corporation, 806 F.2d

610 (5th Cir. 1986), is misplaced. In Conard, the debtor sold pizza

restaurants to a third party. As part of the transaction, the buyer

agreed to assume and be bound by eighty-four installments on an

unpaid promissory note.            Id. at 611.     This Court held that those

payments were voidable preferences because the assumption of debt

provision prevented the debtor’s estate from benefitting from a

higher       selling      price.     Id.        Conard,   however,      is   easily

distinguished. The restaurants were unencumbered at the time of the

sale, giving the debtor an equitable interest in the asset.                  Here,

Ramba       only   held    legal   title   at   the   time   of   the    Patterson

transaction.        Had Patterson been willing to pay a higher price for

the assets rather than assuming the debt, the increase in funds

would have gone to Citibank, not the estate.4


        4
     The Trustee also fails in his argument that the district
court and the Appellees misinterpret section 541(d). He says
“equitable” as used in section 541(d) only applies to secondary

                                           8
     Ramba had no interest in the transferred property other than

bare legal title.    This is insufficient for avoiding the transfers

to the Appellees.     Because we affirm on this ground, we need not

address the district court’s holding that the transfers occurred in

the ordinary course of business.         Similarly, we need not address

alternative arguments presented by the Appellees.5

B.   Direct Transfer to Appellee GeoResources

     The   Trustee   attempts   to   recover   one   “direct”   payment   to

GeoResources in the amount of $28,396.83 paid on September 8, 2000.6

The September payment totaled $31,899.03, but only $28,396.83 is at




mortgage situations where a real estate purchaser has paid the
full amount due but has not yet received a deed. Id. He
concludes that section 541(d) does not apply to Ramba and relies
on section 541(a)(1), which provides that the bankruptcy estate
is comprised of “all legal and equitable interests.” 11 U.S.C. §
541(a)(1) (emphasis added). The United States Supreme Court and
this Court, however, have applied section 541(d) outside the
equitable mortgage context. See, e.g., Begier v. IRS, 496 U.S.
53, 59 (1990) (examining trust funds paid to the IRS under
section 541(d)); In re Haber Oil Co., Inc., 12 F.3d 426 (5th Cir.
1994) (examining constructive trusts under section 541(d)). In
addition, this Court reads section 541(d) in conjunction with
section 541(a)(1) rather than as two distinct, inconsistent
provisions. In re Maple Mortgage, 81 F.3d at 595 (explaining
that section 541(d) “further explains” section 541(a)(1)).
      5
     Appellees argue that the payments are not voidable
preferences because Ramba contemporaneously received new value in
exchange for the transfers. Appellees also argue that they did
not receive more than they would have under a liquidation, a
requirement under section 547(b).
      6
      The briefs varied in their descriptions of the direct
transfer payments at issue. At oral argument, the attorney for
the Trustee clarified the discrepancies, stating that the Trustee
only sought to avoid $28,396.83 of the September payment.

                                     9
issue.       This payment came directly from Ramba as opposed to being

paid by Patterson.

     The parties disagree as to whether the GeoResources payment

satisfies the Bankruptcy Code’s exception for payments made in the

ordinary course of business. The disagreement centers on the timing

of the payments and whether the timing met the requirement that the

payment be “made according to ordinary business terms.”                      11 U.S.C.

§ 547(c)(2)(C). The record shows that this payment was for invoices

more than 180 days old.           The district court found that the industry

standard for payment of invoices was 120 days.7                    Therefore, this

issue       turns   on   the    sixty-day    difference      between   the   industry

standard and the actual payment date.

     In In re Gulf City Seafoods, Inc., this Court adopted an

“objective test” for determining when a credit arrangement is within

the ordinary course of business.                 296 F.3d 363, 367–68 (5th Cir.

2002).       “[T]he question must be resolved by consideration of the

practices in the industry—not by the parties dealings with each

other.” Id. at 369.            This Court was careful to ensure that the test

did not “place businessmen in a straightjacket” by enforcing “strict

conformity”         to   a     standard     or   requiring     “identical”     credit


        7
      The court stated that the parties “admitted” that this was
the correct standard. The Trustee, however, disputes this
standard and asserts that he never made such an admission.
Whether or not the Trustee ever admitted the standard was 120
days is not significant here. No fact issue was created as the
only summary judgment evidence presented with respect to this
issue was that the standard was 120 days.

                                            10
arrangements.      Id. at 368.       Instead, the ordinary business term

“sets an outer boundary to the parties’ practices” presenting the

question of “whether a particular arrangement is so out of line with

what others do that it fails” to be ordinary.           Id. at 369.

       The district court found that although the GeoResources payment

was “outside the industry standard, [it] reflected historical

relations between GeoResources and Ambar.”          The district court’s

analysis contradicts the test outlined in Gulf City Seafoods.

According to the teachings of Gulf City Seafoods, the “historical

relations” between GeoResources and Ambar should not be the focus

of an objective inquiry. The Appellees argue that the payment still

satisfies the “ordinary business” requirement, pointing to cases

that have held that late payments are not per se “unordinary.”            See

In re Grand Chevrolet, Inc., 25 F.3d 728, 732 (9th Cir. 1994);

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

In re Yurika Foods Corp., 888 F.2d 42, 44 (6th Cir. 1989).

       The Gulf City Seafoods test allows for some late payments, as

seen    by   its   language   that    warns   against   enforcing     “strict

conformity” or requiring “identical” transactions.               Gulf City

Seafoods, 296 F.3d at 368.       The question under Gulf City Seafoods

becomes whether the sixty-day delay fails to be in the ordinary

course of business because it is “so out of line with what others

do.”   Id. at 369.    The GeoResources payment was approximately sixty

days late according to its own witnesses.         The 180 days it took to

                                       11
pay GeoResources is 150 percent of the industry standard.                 The

Trustee challenges the accuracy of the “120 day” figure, suggesting

that in practice it is much shorter.               Even under the “120 day”

standard, the payment to GeoResources is significantly out of line

with what others do.       The delay in payment here cannot be deemed

ordinary.   For these reasons, it fails to be in the ordinary course

of business and therefore is a voidable preference.



                              VI.     CONCLUSION

      The district court did not err in its holding that Ramba had

no   interest   in   the   property    transferred    during   the   Patterson

transaction.     For that reason, the court’s judgment that the

indirect transfers did not constitute voidable preferences is

AFFIRMED.   The district court did err in its determination that a

direct transfer to GeoResources was made in the ordinary course of

business.   For that reason, we VACATE the court’s judgment that the

direct transfer did not constitute a voidable preference and REMAND

for a decision consistent with this opinion.




                                       12
