                    REVISED NOVEMBER 13, 2002

                 UNITED STATES COURT OF APPEALS
                      FOR THE FIFTH CIRCUIT
                     _______________________

                           No. 01-30454
                     _______________________

 In the matter of: Hannover Corporation; Redwood Raevine Corp.;
Rubicon XI Corp.; Place Vendome, Inc.; Place Vendome Corporation
       of America; Penzance, Inc.; and ATG, Inc., Debtors

                   JIMMY SWAGGART MINISTRIES,

                                                          Appellant,
                             versus


                      WILLIAM G. HAYS, JR.,

                                                          Appellee.


                      WILLIAM G. HAYS, JR.,

                                                          Appellee,

                             versus


                   JIMMY SWAGGART MINISTRIES,
                                                          Appellant.

_________________________________________________________________

          Appeals from the United States District Court
               for the Middle District of Louisiana

_________________________________________________________________


                     _______________________

                           No. 01-30455
                     _______________________
 In the matter of: Hannover Corporation; Redwood Raevine Corp.;
Rubicon XI Corp.; Place Vendome, Inc.; Place Vendome Corporation
       of America; Penzance, Inc.; and ATG, Inc., Debtors

                      WILLIAM G. HAYS, JR.,

                                                          Appellee,

                              versus


          GEORGE M. RUSSELL; JIMMY SWAGGART MINISTRIES,

                                                       Appellants.


                    JIMMY SWAGGART MINISTRIES,

                                                          Appellant,

                              versus


                      WILLIAM G. HAYS, JR.,

                                                          Appellee.


_________________________________________________________________

          Appeals from the United States District Court
               for the Middle District of Louisiana

_________________________________________________________________
                         October 29, 2002

Before DAVIS, JONES and SMITH, Circuit Judges.

EDITH H. JONES, Circuit Judge:

          This is an adversary proceeding brought by William G.

Hays, Jr. (“Hays”), trustee of the debtors’ bankruptcy estate, to

recover $2,472,500 paid by the debtors to Jimmy Swaggart Ministries

                                 2
(“JSM”) from July 1990 to July 1992.       Hays argues — and JSM

contests — that these transfers can be avoided as actual and/or

constructive fraudulent conveyances under 11 U.S.C. § 548(a).   JSM

additionally claims the “good faith” defense of 11 U.S.C. § 548(c).

For the reasons that follow, this court finds that JSM met the

requirements of § 548(c) and the criteria for a comparable defense

under Louisiana law.      Accordingly, we need not reach the other

issues raised on appeal. The district court’s 1999 reversal of the

bankruptcy court’s 1995 judgment must be reversed, and judgment

must be entered in favor of JSM.

                                FACTS

          The debtors in this case are a number of corporations

created and controlled by Sam J. Recile (“Recile”) for the purpose

of developing a shopping mall in Baton Rouge, Louisiana.   Critical

to the success of this project was Recile’s acquisition of a tract

of land owned by JSM.   In July 1990, one of Recile’s corporations

entered into an option agreement for purchase of a 68-acre tract of

JSM’s land in Baton Rouge, Louisiana.      The stipulated purchase

price was $11,250,000. For the next two years Recile made payments

totaling $2,435,000 on this and subsequently renegotiated agree-

ments as he sought to obtain financing for the project.         No

purchase ever occurred.

          Although call option contracts on real estate are common

enough, Recile’s behavior was not.      He offered to prospective

                                   3
investors short-term double-your-money-back promissory notes to

finance his project.       The nominal party on Recile’s side of the

option arrangement changed frequently.          Payments to JSM were, in

later stages of the relationship, made on a weekly or daily basis

— sometimes in cash, sometimes with counter-signed third-party

checks.   Most notably, Recile came under SEC investigation, a

complaint being filed in April 1991 in the United States District

Court for the Eastern District of Louisiana.         JSM was not a party

to this action.

          Over the next fifteen months the supervising district

judge issued a variety of orders, each of which allowed the debtor

corporations to continue making payments on this and other options.

Eventually, in July 1992, the court entered an order granting the

SEC broad injunctive relief that, among other things, appointed

Hays as receiver for the debtors.         See SEC v. Recile, 10 F.3d 1093

(5th Cir. 1993) (affirming district court’s grant of SEC’s motion

for summary judgment).       In September 1992, Hays filed voluntary

Chapter 11 bankruptcy petitions on behalf of the debtors.

          In February 1994, Hays filed this action in bankruptcy

court, seeking to avoid a total of $2,472,500 in pre-petition

payments made by the debtors to JSM.        Following an extensive bench

trial with multiple witnesses, Judge Jerry A. Brown, the bankruptcy

judge, ruled in favor of JSM on all of Hays’s claims in this

action.   The     court   concluded   that,   although   there   was   ample

                                      4
evidence that Recile had engaged in illegal activities, there was

“no substantial evidence that JSM was a party to, knew of, or was

put on notice of sufficient facts, that it should have known of

such illegal activities when it accepted the numerous transfers of

money and agreed to allow the debtors to tie up valuable real

estate for the lengthy amount of time here involved.”

           Hays appealed to the district court.        Three and a half

years later, that court reversed and remanded the bankruptcy

court’s decision.    On remand, the bankruptcy court granted Hays’s

motion for judgment in his favor, but declined to award pre-

judgment interest.       On appeal, the district court reversed the

bankruptcy court’s denial of pre-judgment interest.           JSM filed

notices of appeal to this court, the district court entered an

amended judgment, and JSM filed a third notice of appeal.            The

appeals have been consolidated.1

                               DISCUSSION

I.    The district court erred in reversing the bankruptcy court’s
      conclusion that JSM had satisfied the elements of the good
      faith defense under 11 U.S.C. § 548(c).

           With 11 U.S.C. § 548(c), Congress provided to transferees

a    defense   against    a   trustee’s     (or   debtor’s)   successful

demonstration of an actual or constructive fraudulent transfer




      1
      The judgments of the district court are final for purpose of
appeal.

                                   5
under, respectively, § 548(a)(1)(A) and § 548(a)(1)(B) of the

Bankruptcy Code.     11 U.S.C. § 548(c) states in pertinent part:

     [A] transferee or obligee of such a transfer or
     obligation that takes for value and in good faith has a
     lien on or may retain any interest transferred . . . to
     the extent that such transferee or obligee gave value to
     the debtor in exchange for such transfer or obligation.

The burden of proof is on the defendant transferee.           See In re M.

& L. Bus. Mach. Co., Inc., 84 F.3d 1330 (10th Cir. 1996); In re

Agric. Research & Tech. Group, 916 F.2d 528 (9th Cir. 1990).                To

avail himself of this defense, the transferee must demonstrate that

he “[took] value in good faith.”         To keep what he received, he must

subsequently demonstrate that he “gave value.”

          Hays argues that Recile’s corporations made actual and/or

constructive fraudulent transfers to JSM under § 548(a).                JSM

argues that these payments were not fraudulent.        It also argues, in

the alternative, that it is protected by the defense provision

found in § 548(c).    Because this court holds that JSM satisfied the

terms of § 548(c), we need not undertake an evaluation of Hays’s

assertion that the transfers were actually and/or constructively

fraudulent under § 548(a).

     A.   Good Faith

          In   an    appeal   from   a   district   court   reversal   of    a

bankruptcy court judgment, this court should “perform the same

appellate review as did the district court: [the appellate court]

examine[s] the bankruptcy court’s findings of fact under the

                                     6
clearly erroneous standard, and [the appellate court] examine[s]

that court’s legal determinations under the de novo standard.”                       In

re Sewell, 180 F.3d 707, 710 (5th Cir. 1999).

            The dispute regarding JSM’s “good faith” under § 548(c)

comes to this court as a question of first impression.                          In the

absence of clear factual error or controlling legal precedent, we

decline the invitation to overturn the trial court’s finding that

JSM received Recile’s payments in “good faith.”

            As      courts    and    commentators        frequently       note,     the

bankruptcy code does not define “good faith” and the statute’s

legislative       history     is    quite       thin.    5    COLLIER    ON   BANKRUPTCY

¶548.07[2][a] (2002).          Moreover, there is little agreement among

courts as to what conditions ought to allow a transferee this

defense.      Id.     This is not surprising, as the variables are

manifold.

            The     most     important      set    of   questions       concerns    the

transferee’s state of mind.               First, what level of knowledge —

knowledge itself or some form of notice — vitiates a claim of “good

faith”?       Second,       need    the     knowledge    be    actual     or    merely

constructive?       Third, what duty of inquiry does notice impose?

            The first set of questions begs the second: Knowledge of

what?     Of the transferor’s insolvency, fraudulence, or both?                      If

insolvency, then of what degree — actual, imminent, or potential?



                                            7
If fraudulence, then regarding what transactions — the enterprise

involving the transferee or any of the transferor’s dealings?

          Regarding the second set of questions — the debtor

corporations’ insolvency and fraudulence — there is no reason to

disagree with the bankruptcy court.       The debtor corporations were

insolvent ab initio.    They also made fraudulent representations to

investors,   though   not   necessarily   at   the   outset.   Moreover,

Recile’s fraudulence pertained to the JSM land deal itself, not to

some unrelated transaction.       Without an option on JSM’s land,

Recile could not have perpetrated his fraud upon his investors.

The transferor was engaged in a crooked scheme.

          The heart of the bankruptcy court’s conclusion lies,

then, in the first set of questions — the transferee’s state of

mind.     Once   again,     the   bankruptcy    court’s    findings   are

comprehensive, cogent, and entitled to the respect due them under

the clear error standard.     We point here only to the most telling

out of a voluminous list of findings.            With regard to JSM’s

knowledge of the debtor corporations’ insolvency, the bankruptcy

court found that “[a]t the time the transfers occurred, JSM had no

way of knowing that the debtors were insolvent.”          With regard to

JSM’s knowledge of the debtor corporations’ fraudulent activities,

Judge Brown found that JSM had read newspaper accounts of the SEC’s

suit against Recile.        Finally, with regard to JSM’s duty of

inquiry, Judge Brown found that JSM, upon reading — and being duly

                                    8
alarmed    by    —    these    newspaper       stories,   undertook        its    own

investigation, contacting the SEC and the federal district court,

eventually receiving assurances from the district court that JSM

could     continue      to    receive     option     payments    from      Recile’s

corporations.

            Based on its findings, the bankruptcy court’s resultant

legal conclusion is unproblematic. As noted above, there is little

agreement among courts regarding the appropriate legal standard for

this defense, because “[t]he unpredictable circumstances in which

the courts may find its presence or absence render any definition

of “good faith” inadequate, if not unwise.”               5 COLLIER   ON   BANKRUPTCY

¶548.07[2][a].       Compare In re Little Creek Dev. Co., 779 F.2d 1068

(5th Cir. 1986) (interpreting good faith in context of Chapter 11's

availability).          This    court   has     lacked    either    occasion       or

disposition to attempt to formulate such a definition for purposes

of § 548(c).         Moreover, the atypical posture of the fraudulent

conveyance      claim    here,    i.e.,       the   debtor’s    payments     to    an

unaffiliated third party in an arms-length transaction, counsels

caution in attempting to propound a broad rule concerning “good

faith” for § 548(c).         It is enough for present purposes to rely on

the bankruptcy court’s conscientious findings and conclusion.

     B.     Value

            This court has not yet had occasion to articulate the

standard for appellate review of trial court determinations of

                                          9
“value” under § 548(c).    As the parties to this case do not dispute

this point, we adopt for present purposes this court’s approach to

the review of trial court determinations of “reasonably equivalent

value” under § 548(a)(2).       See In re Wes Dor, Inc., 996 F.2d 237,

242 (10th Cir. 1993).     The question of valuation under § 548(a) is

“largely a question of fact, as to which considerable latitude must

be allowed to the trier of the facts.”       In re Dunham, 110 F.3d 286,

290 (5th Cir. 1997) (internal quotations omitted).             That being

said, “we review de novo the methodology employed by the bankruptcy

court in assigning values to the property transferred and the

consideration received.”        Id. at 290 n.11.

           Section 548(c) allows a transferee who “takes for value”

to retain this transfer to the extent that he “gave value to the

debtor in exchange.” It is undisputed that JSM “[took] for value”;

Hays contends, however, that JSM “gave” no “value” in return.           The

bankruptcy court disagreed with Hays but the district court did

not. Because the bankruptcy court’s findings of fact are supported

by the record and its conclusions of law are consistent with the

text of the Bankruptcy Code, the Code’s interpretation by this and

other   courts,   and   sound   commercial   practice,   we   reverse   the

district court’s reversal.

           This court is presented with two questions, one of law,

the other of fact.       Of Law: Did the bankruptcy court correctly

conclude that the transferee’s sale of short-term call options to

                                     10
a party unable to exercise them have “value” under § 548(c)?                       Of

Fact: Did the bankruptcy court correctly conclude that this was an

equitable exchange?        We answer both in the affirmative.

           The arc of § 548 easily encompasses as “value” the

present exchange of cash for a right to buy or sell property at a

future   point   in    time.      Courts      are    understandably      chary     of

interpreting     §   548   to   regard    promises     of    future    support     as

“valuable.”      Without     consideration,         courts   suspect    gratuitous

transfer rather than contractual exchange. See 5 COLLIER               ON   BANKRUPTCY

¶548.05[1][b].       This court is not, however, willing to regard as

without “value” all transactions in which present cash is exchanged

for a right of future exercise.               See In re Fairchild Aircraft

Corp., 6 F.3d 1119 (5th Cir. 1993).            To do otherwise would require

rejection of our caselaw as well as the economic realities of

options markets.

           Hays, nonetheless, requests something of the sort.                    Hays

has argued that these options had no “value” because there was no

possibility that Recile would ever exercise them.                     To determine

whether the debtor received “value,” the district court held that

courts

     must consider the circumstances that existed at the time
     and determine if “there was any chance that the
     investment would generate a positive return.” If there
     was no such chance at the time of the transfers that the
     payments would generate a positive return, then no value
     was conferred.


                                         11
District Court Opinion at 12 (quoting In re R.M.L., Inc., 92 F.3d

139, 152 (3d Cir. 1996)).            Hays asserts that, because of the

fraudulent character of Recile’s project, there was no chance that

he would ever exercise this option. This option, therefore, had no

“value.”

              Hays’s legal argument is flawed for three reasons.

              First, it contradicts the bankruptcy court’s finding that

Recile’s development project began as a legitimate real estate

venture, turning into a Ponzi scheme only in its subsequent stages.

              Second, its adoption would, by permitting the exercise of

judgment in hindsight, conflict with basic economics and with Fifth

Circuit caselaw.        Like all speculative financial instruments, the

value of an option can change over time, depending upon the value

of the underlying property.           This is their nature; options are

bought and sold precisely to speculate on or hedge against market

fluctuation.        Without more, the fact that an option has become

worthless in no way proves that it was worthless at an earlier

date.       Thus, consistent with economic reality, this and other

circuits unequivocally hold that for purposes of § 548 the value of

an investment, even a risky one, such as we have before us now, is

to be determined at the time of purchase.         See Fairchild, 6 F.3d

1126-27; In re Chomakos, 69 F.3d 769, 770 (6th Cir. 1995); see also

5 COLLIER   ON   BANKRUPTCY ¶548.02[2].



                                          12
             Third, and critically, Hays’s position would subvert the

defensive character of § 548(c), a clause specifically designed to

protect transferees, not transferors. 5 COLLIER          ON   BANKRUPTCY ¶548.07.

We   fully   appreciate   the    problem     that   appears    to   trouble   the

district court: Under the guise of a negotiated contract, a debtor

anticipating    bankruptcy      can    transfer     valuable    properties    for

consideration of lesser worth.          The problem is even more acute in

the case at bar, where the consideration is alleged to be wholly

without value.

             Although we share this concern, § 548(c) is not the test

that Congress has established to extirpate this form of fraud.                The

Bankruptcy Code looks, rather, to the “reasonable equivalency” test

found at § 548(a)(1)(B)(i).           In order to establish a prima facie

case for avoiding a transfer as constructively fraudulent, the

trustee must demonstrate that the debtor “received less than a

reasonably equivalent value in exchange for such transfer or

obligation.”     Id.   This provision ensures that there is no great

disparity between the value of the goods exchanged.                 But it does

so, most importantly, from the perspective of the transferor: Did

the transferor “receive[]” enough?           See Fairchild, 6 F.3d at 1127

(“the recognized test is whether the investment conferred an

economic benefit on the debtor”).

             Compare this with the provision at § 548(c).            Instead of

inquiring into the possibility and extent of the debtor’s loss, it

                                        13
provides a means by which the unwitting trading partner can protect

himself.   Received property can be retained “to the extent” that

the “transferee . . . gave value to the debtor.”             The provision

looks at value from the perspective of the transferee: How much did

the transferee “give”?     The concern here, quite properly, is for

the transferee’s side of the exchange, not the transferor’s gain.

           Read in combination, §§ 548(a) and (c) are perfectly

complementary.    The first section affords creditors a remedy for

the   debtor’s   fraudulence    or,    as   the    case   might   be,    mere

improvidence;    the   second   protects     the    transferee    from   his

unfortunate selection of business partners.         See Fairchild, 6 F.3d

at 1126-27 (rejecting the proposition that “anyone who provides,

deals with, or invests in an entity in financial straits would be

doing so at his or her peril under § 548”).         Each party can make a

claim for cure, but only to the extent it was harmed.             On account

of the allegedly thoroughgoing fraudulent character of Recile’s

development project, Hays asks this court to reject JSM’s § 548(c)

defense. We decline to do so, however, because (1) call options do

indeed have value, (2) their values are to be determined at the

time of origination, and (3) a transferor’s practical inability to

exercise his option is irrelevant to its valuation under § 548(c).2


      2
           Hays also argues that these options — at least those of
a days or weeks term — had no value on account of their exceedingly
short duration.     We find this argument without merit, both
theoretically and practically. Although an option of a day's

                                      14
          The crucial fact question for our analysis is thus

whether the bankruptcy court clearly erred in finding that JSM

“gave value” under § 548(c).          After a careful review of the

evidence presented to the bankruptcy court, this court concludes

that it did not so err.

          On   the   basis   of   testimony   offered   by   JSM’s   expert

witness, Dr. Rodolfo Aguilar, the bankruptcy court found that JSM

was “reasonabl[y] compensat[ed]” for the option it sold to Recile:

     The transfers to JSM were made for good and valuable
     consideration — in exchange for the transfers, the
     debtors received the option to buy the property, a very
     valuable asset. JSM owned valuable commercial property
     and wished to sell it to the debtors. The debtors were
     attempting to construct a shopping mall complex and
     desired to purchase the property. The debtors paid JSM
     reasonable compensation for the options and rights to
     property which resulted in the property being “tied up”
     for over two years.

Bankruptcy Court Opinion at 46-47; see also id. at 50 & 59.

          Hays argues that the court erred in accepting conclusions

based upon a flawed methodology, to wit, taking the sales price as

recorded in the option contracts and the moneys received by JSM,



duration seems unusually short in light of the relatively greater
time required to execute a real estate sale, a short life does not
ipso facto negate the value of a financial instrument.        More
convincing to this court is the practical context from which this
unusual practice emerged. The bankruptcy court found that daily
payments emerged not from JSMs desire to create day-to-day option
contracts but, rather, from Reciles lack of adequate financing.
Instead of turning away this prospective purchaser, JSMs indulged
Reciles request for daily payments.      This court respectfully
rejects Hays insistence that no good deed go unpunished.

                                    15
determining the rate of return, and comparing this rate with those

yielded by financial instruments of similar qualities.                     On the

basis of the contract price of $11,250,000 and totaled receipts of

$2,435,000, Dr. Aguilar concluded that JSM’s rate of return was

8.64%, a rate which, he testified, was below that which could have

been garnered     by   other   similar     investments.        If   anybody    was

disadvantaged in its deal, it was JSM, not Recile.

            If this were the sum total of Dr. Aguilar’s testimony,

this court would be inclined to agree with Hays, for, as he

correctly notes, the validity of Dr. Aguilar’s conclusion rests

upon the fairness of the underlying contract price.                       Absent a

finding of the fairness of its value, it is impossible to determine

the fairness of the option payments.             The record demonstrates,

however, that the bankruptcy court fully understood the method-

ological    problem    that    Hays   presents    and     that      it    obtained

satisfactory evidence to assuage any concerns.

            After hearing Dr. Aguilar’s opinion that the rate of

return was indeed inferior to similar investment vehicles, Judge

Brown pointedly articulated the missing element of Dr. Aguilar’s

calculation, and encouraged the attorneys to produce evidence

regarding   the   fairness     of   the    contract   price.        Dr.    Aguilar

thereupon testified that he believed that the contract prices set

forth in the purchase agreements were reasonable, and presented

extensive details upon which he based his conclusion, including,

                                      16
but not limited to, JSM’s subsequent sale of an option to another

developer.

           Hays produced no expert testimony, either to prove that

Recile “received less than a reasonably equivalent value” under §

548(a) or rebut JSM’s claim that it “gave value” under § 548(c).

           Absent contrary evidence regarding the valuation of JSM’s

property, the bankruptcy court was justified in finding that JSM

did not part with a right worth less than what Recile had paid for

it.

II.   JSM satisfied the “regular course of . . . business” defense
      under LA. CIV. CODE art. 2040 (West 2001) to a revocatory
      action under art. 2036.

           In a manner similar, but not identical, to § 548 of the

federal Bankruptcy Code, the Louisiana Civil Code provides trustees

with a tool for avoiding fraudulent conveyances from debtors. To

avoid such a transfer, the trustee must demonstrate (1) that the

transfer was “made or effected after the right of the obligee

[trustee] arose” and (2) that the transfer “causes or increases the

obligor’s [debtor’s] insolvency.”     LA. CIV. CODE art. 2036 (West

2001).   The Code also provides trading partners with an absolute

defense: “An obligee [trustee] may not annul a contract made by the

obligor [debtor] in the regular course of his business.” Id., art.

2040 (West 2001).

           The bankruptcy court concluded that Hays had satisfied

the second prong of art. 2036 but said nothing regarding the first.

                                 17
It also concluded that JSM satisfied the “ordinary course of

business” defense under art. 2040 and, accordingly, rejected Hays’s

claim.   The district court affirmed the bankruptcy court’s holding

regarding the second prong of art. 2036 and concluded, further,

that Hays     had   satisfied   the    first    prong.    Additionally,     the

district court held, on the basis of its own findings regarding

Recile’s fraudulence and JSM’s bad faith, that it could not find

that “Recile and the debtors were acting in the ordinary course of

business.”

             Because this court upholds the bankruptcy court’s finding

that Recile’s transfers to JSM were made “in the regular course of

his business,” we need not undertake an evaluation of Hays’s art.

2036 claim.     Furthermore, because this court rejects the district

court’s de novo finding of bad faith on the part of JSM, the only

remaining question is whether Recile’s fraudulence vis-a-vis his

investors deprives JSM of his art. 2040 defense.

             This court reads art. 2040 to encompass within the terms

“regular course of his business” Recile’s corporations’ payments to

JSM.   The   Louisiana   Supreme      Court    has   consistently   let   stand

transactions between debtors and their trading partners, provided

that the partners are not also creditors. In the most proximate

case — factually and chronologically — the Louisiana Supreme Court

held that “‘[a] sale made to one not a creditor must be considered

as one made in the ordinary course of business, if made for an

                                       18
adequate consideration in cash.’”              Hirsch v. Fudickar, 9 So. 742,

744, 43 La. Ann. 886, 891, 1891 LEXIS 424, 6 (1891), reh’g denied

and holding clarified to encompass credit transactions, 9 So. 742,

744, 43 La. Ann. 886, 893, 1891 LEXIS 425, 4 (1891) (emphasis in

original) (quoting Pochelu v. Catonnet, 4 So. 74, 76, 40 La. Ann.

327, 330 (1888)).          Because Recile formed this contract in the role

of    real   estate        developer,   because      Recile    received   adequate

consideration for his payments, and, finally, because JSM was not

a    creditor   to    any    of   Recile’s    many   corporations,      this   court

declines to find this transaction outside of the scope of art.

2040.

                                     CONCLUSION

             For     the    foregoing   reasons,     this     court   reverses   the

district court’s 1999 reversal of the bankruptcy court’s 1995

judgment and orders the entry of judgment in favor of JSM.

             Judgment REVERSED.




                                         19
