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Click here for the full text of this decision FACTS:As bankruptcy trustee for Ramba Inc.’s Chapter 7 bankruptcy, Lowell Cage sued 10 vendors who received transfers from Ramba in their businesses selling materials, equipment and services. The suits were consolidated into one action. All but one of the transfers in controversy resulted from the sale of Ramba’s drilling division to a subsidiary of Patterson Energy Inc. The remaining transaction involved a “direct” payment of $28.396 to GeoResources on Sept. 8, 2000, a little more than two months prior to the bankruptcy filing. As to the sale of the drilling division, the “Asset Purchase Agreement” signed Sept. 30, 2000, by Ramba and Patterson required Ramba to sell all of its drilling division assets to Patterson in exchange for Patterson’s assumption of some of Ramba’s liabilities, including debts owed to the defendants in Cage’s suit. Before the sale to Patterson, Ramba owed Citibank more than $25 million, and Citibank held liens on all Ramba assets, including some of those sold to Patterson. As part of the Patterson sale, Citibank agreed to release its security interests and to allow some of Patterson’s purchase price to go toward paying Ramba’s debts. Patterson thus received the assets “free and clear” of all liens and paid Citibank $15.6 million to satisfy the remaining debt. The rest of the purchase price � $10 million � went to Ramba’s creditors, such as the ones named in Cage’s suit. Cage sought to set aside the transfers to the defendants, saying the indirect transfers were voidable preferences. The district court ruled for the defendants, ruling that the transfers were not voidable preferences, and that the transfers were made in the ordinary course of business, from property in which the debtor (Ramba) had no interest. HOLDING:Affirmed in part; vacated and remanded in part. The court analyzes the transfers under Bankruptcy Code �547(b), which sets out the six elements of any preference action. The first requirement is that there be “a transfer of an interest of the debtor in property.” This occurs if that property would have been part of the debtor’s bankruptcy estate had the transfer not occurred. Fully encumbered property is not property in a bankruptcy estate. Therefore, the court says, there can be no preference when a debtor transfers property in which the debtor has no equitable interest. The court finds it undisputed that at the time of the sale of the drilling division, Ramba’s assets were fully encumbered by Citibank’s liens; Ramba had no equity in the proceeds of the sale, therefore, the funds would not have been available to the general creditors in the bankruptcy proceeding. Further, there is no evidence that Citibank agreed to create equity for Ramba’s benefit: “The consideration from the sale of Citibank’s collateral belonged to Citibank, the secured lender.” The court finds evidence that the sale to Patterson was designed so tat the drilling division would continue to operate without interruption before and after the sale. For instance, the court notes, Patterson began using the same name Ramba used for the drilling division: Ambar Inc. Ramba had no interest in the transferred property other than bare legal title. This is insufficient for avoiding the transfers to the defendants, the court rules. And because the district court’s ruling can be affirmed on this ground, the court does not address the lower court’s other holding that the transfers occurred in the ordinary course of business. The court then discusses the transfer to GeoResources, which the record shows was for payment of invoices, but which the parties disagree over whether the payment was made in the ordinary course of business, as contemplated by �547(c)(2)(C). The record shows the payments were for invoices more than 180 days old; the district court found the industry standard for payment of invoices was 120 days, but that the history between GeoResources and Ramba (via Ambar). The court relies on In re Gulf City Seafoods Inc., 296 F.3d 363 (5th Cir. 2002), for guidance on the timing of the payment, and what that timing says about the ordinary course of business. The Gulf City Seafoods test was an objective one, the court finds, requiring resolution through consideration of the industry standard, not the parties individual dealings with each other. Consequently, the district court erred in considering what the regular practice on payment of invoices was between GeoResources and Ambar. Whether 120 days was the correct industry standard or whether a shorter standard applied, as Cage argues, both are less than the 180 days it took Ambar to pay GeoResources. The delay in payment cannot be deemed ordinary, and so the transfer creates a voidable preference. OPINION:Benavides, J.; Reavley, Garza and Benavides, JJ.

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