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             United States Bankruptcy Appellate Panel
                          FOR THE EIGHTH CIRCUIT

                                        ______

                                    No. 10-6021
                                      ______

In re: Qualia Clinical Service, Inc.,  *
                                       *
      Debtor.                          *
                                       *
Rick D. Lange, Trustee of the Chapter *
7 Bankruptcy Estate of Qualia Clinical *
Service, Inc.,                         * Appeal from the United States
                                       * Bankruptcy Court for the District of
      Plaintiff – Appellee,            * Nebraska
                                       *
             v.                        *
                                       *
Inova Capital Funding, LLC;            *
Inova Capital Funding, Inc.,           *
                                       *
      Defendants – Appellants.         *
                                     ______

                           Submitted: December 3, 2010
                             Filed: January 14, 2010
                                      ______

Before KRESSEL, Chief Judge, SCHERMER and NAIL, Bankruptcy Judges.
                                ______

KRESSEL, Chief Judge.




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      Inova 1 appeals from the bankruptcy court’s 2 order of April 6, 2010 denying
its motion for summary judgment, granting the trustee’s motion for summary
judgment, and avoiding Inova’s security interest as a preferential transfer. We
affirm.

                                                               BACKGROUND

      Qualia Clinical Services, Inc. is a Nevada corporation. Its principal place of
business is in Omaha, Nebraska. Inova Capital Funding, Inc. was incorporated in
California on January 4, 2007. Inova Capital Funding, LLC was formed in
Delaware on September 30, 2008.

       On December 11, 2007, Inova and Qualia entered into a contract referred to
as the “Invoice Purchase Agreement.” The agreement provided that Inova would
purchase “acceptable accounts receivable at a discount below the face value
thereof,” and provided for an ongoing security interest in Qualia’s property such as
accounts, inventory, instruments, records, and general intangibles, in order to
protect Inova from any chargeback of disputed or unpaid invoices or accounts and
any liability resulting from any breach of Qualia’s warranties.

       Inova Capital Funding, Inc. filed a U.C.C. financing statement with the
Nebraska Secretary of State on December 12, 2007. That financing statement
named it as the secured party and Qualia as the debtor and covered accounts,
inventory, instruments, records, and general intangibles. Inova last gave new value
to Qualia on February 5, 2009 when it purchased invoices. Inova Capital Funding,
Inc. filed another U.C.C. financing statement on February 19, 2009 naming itself
                                                            
              1
              For convenience, the parties and the bankruptcy court have referred to
Inova Capital Funding, Inc. and Inova Capital Funding, LLC simply as “Inova.”
We likewise refer to the appellants collectively as Inova except where a distinction
is necessary.
               
              2
              The Honorable Timothy J. Mahoney, United States Bankruptcy Judge
for the District of Nebraska.
                                                                   2 
 
as the secured party and Qualia as the debtor and covering accounts, inventory,
instruments, records, and general intangibles. The second financing statement was
filed with the Nevada Secretary of State on February 19, 2009.

        Qualia filed a chapter 11 bankruptcy petition on March 18, 2009. The case
was converted to one under chapter 7 in October of 2009 on the motion of the
United States Trustee, and Rick D. Lange was appointed trustee. The trustee
initiated this adversary proceeding against Inova Capital Funding, LLC and Inova
Capital Funding, Inc. The trustee alleged that the invoice purchase agreement
between Qualia and Inova was a financing arrangement and not a true sale, and he
sought to avoid as a preference the lien Inova received by filing its February 19,
2009 financing statement within 90 days of Qualia’s bankruptcy filing.

       Inova moved for summary judgment, solely on the basis of 11 U.S.C. §
547(c)(5). Inova argued that it could not have improved its position to the
detriment of Qualia’s unsecured creditors because Inova was fully secured on the
90th day before Qualia’s bankruptcy, on the dates of transfers during the preference
period, and on the date that it filed its U.C.C. financing statement. On March 4,
the trustee moved for “summary judgment or partial summary in his favor and
against Defendants on all of Trustee’s claims.”

      On April 6, 2010, the bankruptcy court denied the Inova’s motion for
summary judgment, granted the trustee’s motion for summary judgment, and
avoided the February 19, 2009 U.C.C. filing as a preferential transfer. The
bankruptcy court found that the invoice purchase agreement was clearly and
unambiguously a financing arrangement. The court made that finding on the terms
of the agreement itself. In particular, the court noted the recourse provisions
contained in section 7.02 of the agreement, which shift all collection risks to
Qualia. The court found that because the agreement was a financing arrangement
and not a sale, Inova’s actions to perfect its security interest could constitute a
preference if the elements were otherwise demonstrated.


                                         3 
 
       The bankruptcy court applied California law because the invoice purchase
agreement designated that as the applicable law and Nebraska courts generally give
effect to the parties’ choice of law. DCS Sanitation Mgmt., Inc. v. Castillo, 435
F.3d 892, 895096 (8th Cir. 2006); Rest. (2d) Conflicts of Laws § 187(1). The
court found that under the California Commercial Code, when the debtor is a
registered organization, the security interest must be perfected by filing a financing
statement where it was organized. Because Qualia was organized in Nevada, the
Nebraska filing was ineffective. The Nevada filing was filed within 90 days
preceding Qualia’s bankruptcy, and the court concluded it was therefore
preferential. The court rejected Inova’s § 547(c)(5) defense, noting that §
547(c)(5) is intended to protect holders of floating liens. The court found that
Inova had improved its position to the detriment of unsecured creditors because its
security interest was unperfected 90 days prior to the bankruptcy filing and on the
date it last gave new value to Qualia.

      The Inova parties appeal from the bankruptcy court’s April 6, 2010 order.

                            STANDARD OF REVIEW

      We review summary judgments and the interpretation of contracts de novo.
Bremer Bank v. John Hancock Life Ins. Co., 601 F.3d 824, 829 (8th Cir. 2010).
“Summary judgment is appropriate if, viewing the evidence in the light most
favorable to the nonmoving party, there is no material factual dispute. Fed.R.Civ.P.
56(c).” Id.

                                   DISCUSSION

      Inova argues that the bankruptcy court should have granted summary
judgment to Inova and not to the trustee because, as a matter of law, § 547(c)(5)
does not require a security interest in receivables to be perfected at the beginning
of the preference period. Inova believes it was entitled to summary judgment


                                          4 
 
because it was oversecured on the 90th day before Qualia’s bankruptcy as well as
on all dates within the preference period.

       In order to prevail in an action under § 547(b), the trustee must demonstrate
the following: “(1) [. . .] a transfer of an interest of the debtor in property, (2) on
account of an antecedent debt, (3) to or for the benefit of a creditor, (4) made while
the debtor was insolvent, (5) within 90 days prior to the commencement of the
bankruptcy case, (6) that left the creditor better off than it would have been if the
transfer had not been made and the creditor asserted its claim in a Chapter 7
liquidation.” Buckley v. Jeld-Wen, Inc. (In re Interior Wood Prods. Co.), 986 F.2d
228, 230 (8th Cir. 1993). The parties only dispute whether there was a transfer of
an interest of the debtor in property, and whether the security interest was
perfected within 90 days prior to the commencement of the case. The bankruptcy
court found that as a matter of law, both elements were satisfied. We agree.

       The resolution of the first issue depends on whether the receivables were
bought or pledged through the December 2007 agreement. If they were bought,
then no interest was transferred when Inova filed its security interest within the
preference period. If they were pledged, then the filing of Inova’s security interest
constituted perfection, and brings it within the scope of § 547(b). See § 547(e)(2).
The bankruptcy court properly looked to the contract to determine whether the
receivables were purchased or pledged. Based on the contract, the bankruptcy
court determined that the original transaction was a loan, not a sale.

       We agree with the bankruptcy court that the invoice purchase agreement is
clearly and unambiguously a financing agreement rather than a true sale. An
unambiguous contract presents legal issues, which are appropriate for summary
judgment. Erker v. Am. Cmty. Mut. Ins. Co., 663 F. Supp. 2d 799, 805 (D. Neb.
2009). “An ambiguity exists when the instrument at issue is susceptible of two or
more reasonable but conflicting interpretations or meanings. Moreover, the fact
that the parties have suggested opposing meanings of the disputed instrument does
not necessarily compel the conclusion that the instrument is ambiguous.” Boyles v.

                                          5 
 
Hausmann, 517 N.W.2d 610, 615 (Neb. 1994). The parties both asserted that the
contract was unambiguous, although they suggest opposing meanings.

      The California Commercial Code offers little guidance, instead leaving to
the courts the determination of whether a transaction was a sale or loan. Cal. Com.
Code § 9109 cmt. 4 (2010) (“Although this Division occasionally distinguishes
between outright sales of receivables and sales that secure an obligation, neither
this Division nor the definition of ‘security interest’ (Section 1201(37)) delineates
how a particular transaction is to be classified. That issue is left to the courts.”).
Therefore, courts have looked to the nature of the transaction in order to determine
whether it is a sale or a loan.

       “The question for the court then is whether the Nature of the recourse, and
the true nature of the transaction, are such that the legal rights and economic
consequences of the agreement bear a greater similarity to a financing transaction
or to a sale.” Major’s Furniture Mart, Inc. v. Castle Credit Corp., Inc., 602 F.2d
538, 544 (3d Cir. 1979). In this case, the bankruptcy court noted the agreement’s
recourse provision, which “completely shifts the risk of the uncollectibility of the
account to Qualia, despite the agreement’s characterization as a ‘sale.’” Qualia
Clinical Service, Inc. v. Lange (In re. Qualia Clinical Service, Inc.), 2010 WL
1441495, *3 (Bankr. D. Neb. Apr. 6, 2010). The provision is as follows:

      7.02 RECOURSE. This is a full recourse agreement. As such, ICF
      may charge back to [Qualia] and [Qualia] shall repurchase from ICF
      (by paying to ICF the full amount owed by the customer on the
      account) any account for any of the following reasons:

      7.02.01. [Qualia] has breached any warranties or promises in this
      agreement with regard to the account or is otherwise in default under
      this Agreement;

      7.02.02 [Qualia] has contributed to, or aggravated a customer Credit
      Problem with respect to the account;


                                          6 
 
      7.02.03 [Qualia] and customer are involved in a dispute of any kind,
      regardless of validity, with respect to the account;

      7.02.04 Customer asserts a claim of loss or offset of any kind against
      [Qualia] or ICF with respect to the account;

      7.02.05. An account is deemed mistaken, incorrect, fraudulent and/or
      erroneous by ICF; or

      7.02.06. [T]he full amount of the account is not paid to ICF within the
      number of “Chargeback Days” from the date of purchase by ICF
      specified in the Rate Schedule.

Invoice Purchase Agreement ¶ 7.02, at 6. The bankruptcy court reasoned that if
the transaction were a true sale, Inova would have accepted the accounts as they
were, whether or not they were collectible. We agree.

       This agreement, which shifts all risk to Qualia, is a disguised loan rather
than a true sale. Where the “seller” retains “virtually all of the risk of
noncollection,” the transaction cannot properly be considered a true sale. Nickey
Gregory Co., LLC v. AgriCap, LLC, 597 F.3d 591, 602 (4th Cir. 2010). See also
Fireman’s Fund Ins. Cos. v. Grover (In re Woodson), 813 F.2d 266 (9th Cir. 1987)
(finding transaction to have been a disguised loan where seller insured buyer
against loss); Bear v. Coben (In re Golden Plan of California, Inc.), 829 F.2d 705,
709-10 (9th Cir. 1986) (finding that there had been a true sale where “investors
received no contractual guarantee of repayment or compensation in case of
foreclosure. Such assumption of risk strongly suggests that the . . . investors were
not in a creditor-debtor relationship”); Major’s Furniture Mart, Inc., 602 F.2d at
545 (“In the instant case the allocation of risks heavily favors Major’s claim to be
considered as an assignor with an interest in the collectibility of its accounts. It
appears that Castle required Major’s to retain all conceivable risks of
uncollectibility of these accounts”); Netbank, FSB v. Kipperman (In re
Commercial Money Center, Inc.), 350 B.R. 465, 484 (B.A.P. 9th Cir. 2006)
(finding transaction to have been a loan where seller “(1) has none of the potential

                                         7 
 
benefits of ownership and (2) is contractually allocated none of the risk of loss”);
CF Motor Freight v. Schwartz (In re De-Pen Line, Inc.), 215 B.R. 947,
951 (Bankr. E.D. Pa. 1997) (finding there had not been a true sale where “the risks
which are characteristic of a true sale are not accepted by DIL in the Agreement”);
Ables v. Major Funding Corp. (In re Major Funding Corp.), 82 B.R. 443,
448 (Bankr. S.D. Tex. 1987) (finding there had not been a true sale where
“investors did not shoulder the normal risks of ownership”).

       Because the transaction was a disguised loan rather than a true sale, the
perfection of the security interest was a transfer of an interest in the debtor’s
property. 3 The only remaining issue is whether the interest was perfected within
the 90-day period. We agree with the bankruptcy court that it was perfected within
the preference period. The California Commercial Code provides that a security
interest is perfected by filing a financing statement in the debtor’s location, which
is where the debtor was organized. Cal. Comm. Code §§9301, 9307(e), 9308,
9310(a) (West 2007). Because Qualia was organized in Nevada, the Nebraska
filing was ineffective. Inova’s interest was perfected when it filed its second
financing statement, which was with the Nevada Secretary of State on February 19,
2009. Because that was within 90 days of Qualia’s bankruptcy filing, as a matter
of law the perfection constituted a preference.

      Inova argues that even if the elements of preference are satisfied, the transfer
cannot be avoided as a preference because 11 U.S.C. § 547(c)(5) is an absolute
defense. Section 547(c)(5) provides:

              (c) The trustee may not avoid under this section a transfer—

                             [. . .]
                                                            
              3
             Even if we were to conclude that the transaction was a true sale,
Inova’s perfection still would constitute a preference under § 547(b). Under the
California Commerical Code § 9318(b), if the buyer has not perfected its interest in
accounts after the sale, the debtor still has the rights and title to the accounts for the
purpose of determining the rights of third parties.  
                                                               8 
 
            (5) that creates a perfected security interest in inventory or a
            receivable or the proceeds of either, except to the extent that the
            aggregate of all such transfers to the transferee caused a
            reduction, as of the date of the filing of the petition and to the
            prejudice of other creditors holding unsecured claims, of any
            amount by which the debt secured by such security interest
            exceeded the value of all security interests for such debt on the
            later of—

                   (A)(i) with respect to a transfer to which subsection
                   (b)(4)(A) of this section applies, 90 days before the date
                   of the filing of the petition; or (ii) with respect to a
                   transfer to which subsection (b)(4)(B) of this section
                   applies, one year before the date of the filing of the
                   petition; or

                   (B) the date on which new value was first given under the
                   security agreement creating such security interest.

11 U.S.C. § 547(c)(5). In support of this argument, Inova asserts that it achieved
no improvement in position because it was oversecured on all relevant dates, and
that it gave new value. The purpose of § 547(c)(5) is to protect holders of floating
liens, and to simplify and make fair the situation they encounter in bankruptcy
when the value of their collateral has gone down and back up. Inova’s arguments
are irrelevant because they assume perfection at the beginning of the preference
period. Although it is true that an oversecured creditor cannot improve its position
for the purposes of this defense, Inova was actually unsecured at all relevant times
because Inova’s interest was unperfected both at the beginning of the preference
period and on the last date it gave new value. Section 547(c)(5) therefore does not
provide a defense to the trustee’s preference action.

      Inova next argues that the bankruptcy court erred in granting the trustee’s
motion for summary judgment because there are genuine issues of material fact
regarding whether the receivables were purchased or pledged as collateral. As
discussed above, the contract is unambiguous, so the question of whether the
                                         9 
 
receivables were purchased or pledged is a legal issue and it was properly resolved
in the trustee’s favor on the parties’ motions for summary judgment.

       Third, Inova argues that there were genuine issues of material fact regarding
defenses other than § 547, and that the bankruptcy court should have provided
Inova with the opportunity to be heard on the additional defenses it raised in its
answer. Inova only sought a ruling on its § 547 defense, although it asked for
summary judgment rather than partial summary judgment. The parties submitted a
joint pretrial statement. In it, under the heading “Defendant’s Objections and
Defenses,” the parties stated the following:

      The Defendant has numerous defenses in this case as enumerated in
      its Answer to the Amended Complaint. (Dkt. No. 23). For the sake of
      time and expense, and given the questionable collectability of the
      outstanding invoices, the Defendant has discussed with the Trustee
      initially filing a motion for summary judgment under 547(c)(5) and
      possibly other defenses for which there do not appear to be genuine
      issues of material fact for trial, or for which the issues of fact
      necessary for the court to make a determination of law are fairly
      straightforward and/or already in the prior affidavits filed with the
      court in the bankruptcy proceedings. If that motion and/or any cross
      motions by the Trustee leave issues for trial, then the remaining issues
      and defenses remain for disposition by the court under a subsequent
      Rule 56 motion or at trial.

Joint Prelim. Trial Statement 3 (emphasis added). Based on this, Inova now argues
that the bankruptcy court should have limited its decision to the § 547 defense.
However, the trustee’s subsequent summary judgment motion clearly stated that
the trustee was seeking summary judgment “in his favor and against Defendants on
all of Trustee’s claims.” That language should have alerted Inova to the fact that
the bankruptcy court could dispose of the entire proceeding. Inova had the
opportunity to raise any of its defenses. It was not improper for the court to decide
the motions before it, regardless of Inova’s intention to receive a ruling only on its
§ 547 defense. Furthermore, we will not ordinarily consider arguments raised for


                                         10 
 
the first time on appeal. Duncan v. LaBarge (In re Duncan), 418 B.R. 278 (B.A.P.
8th Cir. 2009).

      Finally, Inova asks us to reverse the bankruptcy court’s determination that
Inova Capital Funding, LLC was the successor in interest to Inova Capital
Funding, Inc. Inova has not explained how this finding is relevant to the court’s
ultimate determinations, or how it was harmed by it. We therefore decline to
review the bankruptcy court’s determination on this issue.

                                CONCLUSION

    Because we agree with the bankruptcy court that the trustee was entitled to
summary judgment on this preference action, we affirm.
                       __________________________




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