                      United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                     ___________

                                     No. 99-3829
                                     ___________

In Re: Dorholt, Inc.,                             *
                                                  *
                Debtor.                           *
------------------------------------------------- *
Dwight R.J. Lindquist, Trustee,                   *
                                                  * Appeal from the Eighth Circuit
                Appellant,                        * Bankruptcy Appellate Panel.
                                                  *
        v.                                        *
                                                  *
Marjorie Dorholt,                                 *
                                                  *
                Appellee.                         *
                                           ___________

                               Submitted: June 13, 2000

                                    Filed: August 29, 2000
                                     ___________

Before LOKEN and BRIGHT, Circuit Judges, and HAND,* District Judge.
                             ___________

LOKEN, Circuit Judge.

       In March 1998, Marjorie Dorholt loaned $100,950 to Dorholt, Inc., a family
printing business founded by her late husband. In exchange, the company granted her
a lien on its inventory, accounts receivable, fixtures, and equipment. Due to a service

      *
       The HONORABLE WILLIAM BREVARD HAND, United States District
Judge for the Southern District of Alabama, sitting by designation.
bureau’s mistake, Marjorie’s security interest was not perfected by filing until sixteen
days later. In April 1998, the company went into bankruptcy. Trustee Dwight
Lindquist commenced this adversary proceeding to avoid the security interest as a
preferential transfer. The bankruptcy court agreed, but a divided Bankruptcy Appellate
Panel reversed, concluding that Marjorie’s security interest may not be avoided
because it falls within the contemporaneous new value exception in § 547(c)(1) of the
Bankruptcy Code, 11 U.S.C. § 547(c)(1). The trustee appeals, arguing the loan and the
security interest were not “substantially contemporaneous” as a matter of law because
the security interest was not perfected within ten days. We agree with the majority of
circuits that have rejected this construction of the statute and therefore affirm.

       The Bankruptcy Code allows the trustee to avoid (set aside) pre-bankruptcy
transfers of the debtor’s property that would result in preferential treatment of favored
creditors. In general, an avoidable preference is a transfer of the debtor’s property to
or for the benefit of a creditor, on account of the debtor’s antecedent debt, made less
than ninety days before bankruptcy while the debtor was insolvent, that enables the
creditor to receive more than she would in a Chapter 7 liquidation. See 11 U.S.C. §
547(b). This rule “is intended to discourage creditors from racing to dismember a
debtor sliding into bankruptcy and to promote equality of distribution to creditors in
bankruptcy.” In re Jones Truck Lines, Inc., 130 F.3d 323, 326 (8th Cir.1997).
Consistent with this purpose, § 547(c)(1) provides that a transaction is not a
preferential transfer, even if made on the eve of bankruptcy, if the creditor provides
new value in exchange for the debtor’s contemporaneous transfer of, for example, a
security interest. Other creditors are not adversely affected by such an exchange
because the debtor’s estate has received new value. Moreover, this exception
encourages creditors to continue dealing with a troubled company, which may allow
the company to escape bankruptcy altogether. See In re Jones, 130 F.3d at 326.

      In this case, Marjorie concedes that her security interest meets the criteria for
avoidance under § 547(b). This concession is correct even though it is not self-evident

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that Dorholt, Inc., granted the security interest “on account of an antecedent debt.”
Although Marjorie loaned the company $100,950 on the same day it executed the
security agreement, in order to discourage debtors from granting secret liens the Code
expressly provides that the transfer of a security interest is deemed to be “at the time
such transfer is perfected” unless the security interest is perfected within ten days. See
11 U.S.C. § 547(e)(2)(B). Marjorie’s security interest was not perfected until sixteen
days after it was granted. Thus, her loan was “antecedent” to the company’s transfer
of the security interest. See 5 LAWRENCE P. KING, ET AL., COLLIER ON BANKRUPTCY
¶ 547.05[5][a] (15th ed. rev. 2000).

      As Marjorie’s security interest is admittedly avoidable under § 547(b), the issue
on appeal is whether it falls within the § 547(c)(1) exception for contemporaneous new
value exchanges. That section provides that the trustee may not avoid a transfer:

      (1) to the extent that such 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.

The trustee concedes that Marjorie and the debtor intended a contemporaneous
exchange of a loan for a security interest, satisfying § 547(c)(1)(A). The issue is
whether the exchange was in fact “substantially contemporaneous.” The statute does
not define that term.

      The trustee argues that the transfer of a security interest is not substantially
contemporaneous as a matter of law unless the security interest is perfected within the
ten-day period set forth in §§ 547(e)(2)(A) and (B). Relying on In re Arnett, 731 F.2d
358 (6th Cir. 1984), the trustee argues there are two reasons for adopting this bright-


                                           -3-
line rule in construing the term substantially contemporaneous. First, the trustee notes
that another preferential transfer exception, § 547(c)(3), provides that a purchase
money security interest is avoidable unless it is perfected within twenty days. See
generally Fidelity Fin. Servs., Inc. v. Fink, 522 U.S. 211 (1998). Purchase money
security interests are generally favored in the law, the trustee argues, so other security
interests that are governed by § 547(c)(1) should be given less time in which to qualify
for a preferential transfer exception. Second, the trustee argues that not incorporating
§ 547(e)(2)’s ten-day time limit into § 547(c)(1) would render § 547(e)(2) superfluous.

       Like the Seventh Circuit and the Ninth Circuit, we disagree. See In re Marino,
193 B.R. 907, 912-16 (B.A.P. 9th Cir. 1996), aff’d, 117 F.3d 1425 (9th Cir. 1997);
Pine Top Ins. Co. v. Bank of Am. Nat’l Trust & Sav. Ass’n, 969 F.2d 321, 328-29 (7th
Cir. 1992). Most importantly, the plain language of the statute is at odds with the
trustee’s bright-line test. The statute uses a more elastic term, substantially
contemporaneous. “The modifier ‘substantial’ makes clear that contemporaneity is a
flexible concept which requires a case-by-case inquiry into all relevant circumstances.”
Pine Top, 969 F.2d at 328. Congress knew how to adopt a specific time limit; it did
so in the purchase money security interest exception, § 547(c)(3). It chose a less rigid
standard for § 547(c)(1), no doubt because that provision governs a wider variety of
loans and credit transactions. We must construe the statute accordingly.

       We also reject the trustee’ contention that § 547(e)(2)’s ten-day rule must be
read into § 547(c)(1) or § 547(e)(2) becomes mere surplusage. Section 547(e)(2)
defines when a transfer is made for purposes of § 547. If a security interest is perfected
within ten days, the transfer is deemed made on the date of the transfer. If the security
interest remains unperfected for more than ten days, the transfer is deemed made on the
date of perfection. A transfer is not preferential under § 547 unless it is made within
ninety days prior to bankruptcy (in the case of transfers to insiders, within one year).
See 11 U.S.C. § 547(b)(4). Thus, § 547(e)(2) serves an essential purpose in



                                           -4-
determining whether a transfer is avoidable, whether or not its ten-day limit is also read
into the § 547(c)(1) exception.

       For these reasons, we reject the trustee’s rigid construction of substantially
contemporaneous and adopt the case-by-case approach of the Seventh and Ninth
circuits. That resolves the appeal but potentially leaves open the question whether
Marjorie Dorholt’s security interest was in fact substantially contemporaneous when
it was perfected sixteen days after her loan. We conclude the trustee has waived this
issue. On appeal, the trustee argued only that Marjorie’s security interest was not
substantially contemporaneous with her loan as a matter of law.1 The trustee’s
concession seems appropriate -- it is undisputed that Marjorie injected $100,950 of new
capital into the struggling debtor on March 2, 1998, and that her security interest would
have been perfected more quickly but for a service bureau’s filing error. Thus, her loan
appears to be precisely the type of transaction that the § 547(c)(1) exception was
intended to protect.

      The judgment of the Bankruptcy Appellate Panel is affirmed.

      A true copy.

             Attest:

                 CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.




      1
        The Bankruptcy Appellate Panel reversed the bankruptcy court; it did not
remand for further fact-based inquiry. If the Bankruptcy Appellate Panel had remanded
for “further judicial activity that is likely to affect the merits of the controversy,” we
would not have jurisdiction over this appeal under 28 U.S.C. § 158(d). In re Woods
Farmers Coop. Elevator Co., 983 F.2d 125, 127 (8th Cir. 1993).

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