922 F.

2d 742
59 USLW 2484, 24 Collier Bankr.Cas.2d 1216,
21 Bankr.Ct.Dec. 432, Bankr. L. Rep. P 73,807

In re Susan HAGEN, a/k/a S.D. Hagen, a/k/a Susan Dianne

Hagen, Debtor.
Charles W. GRANT, Trustee, Plaintiff-Appellee,
v.
Mark Jay KAUFMAN, P.A., Defendant-Appellant.
No. 90-3239.

United States Court of Appeals,

Eleventh Circuit.
Jan. 29, 1991.

Lisa C. Cohen, Law Office of Lansing J. Roy, Keystone Heights, Fla., for
defendant-appellant.
Ronald Bergwerk, Jacksonville, Fla., for plaintiff-appellee.
Appeal from the United States District Court for the Middle District of
Florida.
Before JOHNSON and HATCHETT, Circuit Judges, and DYER, Senior
Circuit Judge.
DYER, Senior Circuit Judge:

This appeal involves the recovery by a bankruptcy trustee of $7,500 paid to

appellant 47 days before the filing of the debtor's bankruptcy petition.
Appellant is an attorney who represented the debtor prior to bankruptcy in a
personal injury action and was paid in accordance with a contingent fee
contract. The appellee is the bankruptcy trustee who filed the action to avoid
the alleged preference under 11 U.S.C. Sec. 547, and prevailed in the
bankruptcy court and on appeal to the district court. The attorney appeals the
district court's judgment affirming the decision of the bankruptcy court to
authorize the trustee's recovery of the payment. The bankruptcy court ruled

against the trustee on two separate issues, an alleged fraudulent transfer under
11 U.S.C. Sec. 548, and examination of a fee paid in connection with the
bankruptcy case under 11 U.S.C. Sec. 329, both relating to the same $7,500
payment. The district court affirmed. The trustee has not appealed that decision,
but uses the arguments relative to those issues to assert that the only disputed
element of Sec. 547(b)(5) has been satisfied, i.e., that the attorney received
more than he would have received if the payment had not been made and he
would have been paid by a distribution from the estate of this chapter 7
bankruptcy. The debtor entered into the contract with appellant on March 20,
1984, and the attorney claims to be a secured creditor based on a charging lien
that relates back to the commencement of this representation. The bankruptcy
court concluded that the fixing of the lien on the settlement proceeds, even
though it relates back to the date the contingent fee contract was entered into,
was a transfer that occurred within the 90-day period preceding bankruptcy,
and is, therefore, avoidable pursuant to Section 547(b). We disagree and
reverse.
FACTS
2

Susan Hagen was injured when she was hit by an automobile on March 19,
1984. She was released from the hospital the next day, and called appellant
Kaufman after seeing his television commercial for legal services. Appellant
went to Hagen's home on March 20, told her she could expect to recover
approximately $60,000, explained the terms of the contract, and after he
unbandaged her hand, she signed a 50% contingent fee contract for his services.
A settlement on May 14, 1985 resulted in payment of $7,500 to appellant. The
settlement was the amount covered by insurance. Appellant did not pursue a
greater amount through litigation. During the period of his representation of
Hagen, appellant was generally unavailable when she tried to contact him about
her case. Hagen received nothing from the settlement proceeds. It was
appellant who recommended that Hagen file bankruptcy to discharge the
medical expenses which were not paid due to insufficient remaining proceeds
of the settlement. In fact, the bankruptcy attorney was selected by appellant,
and the filing fees were paid out of a portion of the settlement proceeds.1

Hagen filed her chapter 7 petition on July 1, 1985, and the bankruptcy trustee
filed an adversary complaint to recover the fee paid to appellant under 11
U.S.C. Sec. 547 (preference within 90 days of bankruptcy) and Section 548
(fraudulent transfer), and sought examination of the reasonableness of the fee
under Section 329. The bankruptcy judge found that the payment was a
preferential transfer under Section 547(b), and ruled against the trustee on the
other two theories of recovery. The attorney appealed and the trustee cross-

appealed to the district court, which affirmed the bankruptcy judge's decision
on all three issues.
DISCUSSION
4

The sole issue is whether the payment to an attorney 47 days before bankruptcy
is a preference under 11 U.S.C. Sec. 547(b), where the attorney claims a
charging lien under a contingent fee contract entered into outside the 90-day
preference period, and it is acknowledged as a matter of law2 that the charging
lien relates back to the commencement of the attorney's representation.

Appellant contends that the transfer of $7,500 in settlement proceeds 47 days

prior to filing of the debtor's bankruptcy petition did not constitute a preference
because the charging lien put him in the position of a secured creditor relating
back prior to the 90-day period. Appellee contends that the payment satisfies all
of the statutory elements of a preference 3 including the only disputed element,
that if the transfer had not been made and the appellant had received
distribution from the bankruptcy estate, that payment would have been less than
the $7,500 received by appellant, because the bankruptcy court would exercise
its authority to determine the reasonableness of the attorney's fee paid in
connection with the charging lien. Appellee assumes that the court would have
reduced appellant's fee as unreasonable and excessive. Appellee's reliance on
the bankruptcy court's authority to examine the reasonableness of the fee paid
in connection with a charging lien cannot be considered in light of the trustee's
failure to cross-appeal the adverse ruling of the district court on that issue.

The fundamental issue is whether appellant was a secured or unsecured creditor

when the transfer was made. Appellant's argument relies on the relation back
feature of an attorney's charging lien. If appellant would have received the same
amount under a distribution of the estate's assets as he actually received
prepetition, his position was not improved.4 The authority for the relation back
of the lien and its taking effect from the date of the creation of the attorneyclient relationship and the attorney's commencement of services is the common
law, as there is no statutory provision in Florida relative to attorneys' liens.
Randall v. Archer, 5 Fla. 438 (1854); Matter of TLC of Lake Wales, Inc., 13
B.R. 593, 595 (Bankr.M.D.Fla.1981); 4 Fla.Jur.2d, Attorneys At Law Secs.
156-162. Appellant distinguishes the decision in In re Herman's Tops 'N
Bottoms, Inc., 88 B.R. 442 (Bankr.S.D.Fla.1988), where the lien arose five
days before bankruptcy when the attorney recovered a client's rent deposit, as it
pertains to a retaining lien under Florida law, that has no relation back feature.
See In re Banks, 94 B.R. 772, 773-74 (M.D.Fla.1989) (lien valid in bankruptcy
for services and costs in connection with lawsuit from which funds were

recovered).
7

Appellant argues that the charging lien is contractual in nature and is based
upon the amount agreed upon with the client, not an amount to be determined
as reasonable by the court. That issue was decided in appellant's favor when the
bankruptcy court ruled against the trustee on the Section 548 and Section 329
issues, which was affirmed by the district court.

Appellee argues that the "more than would receive" element under Section
547(b)(5) was satisfied because the personal injury settlement was effective
within the 90-day period, and the language of Section 547(e)(3) states that a
transfer is not made until a debtor has acquired rights to the property
transferred. Under 11 U.S.C. Sec. 101(50),5 the creation of a lien in favor of a
previously unsecured creditor is a transfer for purposes of Section 547. A
transfer to an unsecured creditor during the 90-day preference period satisfies
the fifth element of Section 547(b).

The bankruptcy court found that the fixing of the lien when the settlement
proceeds became available, and payment made to appellant from those
proceeds, was a transfer and constituted an avoidable preference. The error of
the bankruptcy court was, in effect, aiming its arrow at the wrong target by
analyzing when the transfer took place, rather than whether the appellant
received, by means of the transfer, more than he would have received if the
transfer had not been made and he had received payment as a creditor in the
bankruptcy case to the extent provided by the provisions of title 11 [11
U.S.C.S. Secs. 101 et seq.] for distribution of the estate.6 A transfer to a
secured creditor in the amount of its lien during the preference period does not
constitute an avoidable preference. See Deel Rent-A-Car, Inc. v. Levine, 721
F.2d 750, 756 (11th Cir.1983) (citing Walker v. Wilkinson, 296 F. 850 (5th
Cir.1924) and Azar v. Morgan, 301 F.2d 78 (5th Cir.1962)). This matter is
resolved by establishing when appellant achieved its secured status. The
language of Section 547(e)(3) pertains to when a transfer is made, not when the
creditor attained secured status if the lien has a relation back element. The
bankruptcy court erred in not correctly applying the principle that by relation
back, the appellant was a secured creditor prior to the time of the transfer and
prior to the 90-day period under the statute. Matter of Pacific Far East Line,
Inc., 654 F.2d 664, 669-70 (9th Cir.1981). The situation where an unsecured
creditor becomes secured by the creation of a lien during the preference period
is not identical to the facts here. The court's erroneous conclusion does not
address this distinction which is critical under Section 547(b)(5). The
affirmance by the district court of the bankruptcy court's decision does not
address this point.

10

We conclude that the law was not properly applied to the facts and,
accordingly, the judgment of the district court affirming the decision of the
bankruptcy court must be REVERSED. The case is remanded to vacate the
judgment entered in favor of the trustee and to deny relief under 11 U.S.C. Sec.
547(b).

11

REVERSED and REMANDED with directions.

12

JOHNSON, Circuit Judge, dissenting.

13

The fundamental issue in this case is whether the security interest was made
within the 90-day preference period. I agree with the majority's holding that the
creation of a security agreement can be a voidable preference. If the lien was
made before the start of the 90-day preference period, the majority would be
correct in reversing the court below. Furthermore, the panel is correct in
holding that a debtor does not make a voidable preference payment when the
debtor pays a secured creditor within the preference period. The majority,
however, holds that due to a state relation back provision the security interest
was created before the start of the 90-day preference period and is therefore not
a voidable preference. For the following reasons, I disagree.

14

Section 547(b) of the Bankruptcy Code requires us to void all transfers made
within 90 days prior to the filing of the petition. The creation of a security
interest by Ms. Hagen in favor of Attorney Kaufman was a transfer. The issue
we must determine is when was this transfer made? Was it the date the attorney
commenced services, i.e., the date the security interest was created and
perfected? Or, was it the date the debtor obtained possession of the award from
the insurance company?

15

Section 547(e) governs the timing, for preference purposes, when a transfer is
made and when a transfer is perfected. This case presents the panel with a
dispute over the former event. Section 547(e)(2) and (3) governs this dispute.

16

Section 547(e)(2) determines the date that the transfer was made by comparing
the date of perfection and the date that the transfer took effect. It is therefore
necessary first to determine when the transfer was perfected. Section 547(e)(1)
(B) defines perfection as occurring "when a creditor on a simple contract cannot
acquire a judicial lien that is superior to the interest of the transferee." Section
547(e)(1)(B) requires us to ask when, under state law, any creditor can obtain a
lien superior to transferee-Kaufman's interest. See Askin Marine Co. v. Conner
(In re Conner), 733 F.2d 1560, 1562 (11th Cir.1984). Florida state law is clear;

the date of perfection is March 20, 1984, when Mr. Kaufman began
representing Ms. Hagen. See Randall v. Archer, 5 Fla. 438 (1854).
17

With the date of perfection in mind, we then must determine when the transfer
took effect for Section 547(e)(2). The language "transfer takes effect" is not
defined either in the Bankruptcy Code or in the Uniform Commercial Code.
However, the language becomes clearer when we recall that at least three
transfers actually occur in most secured transactions: one transfer between the
debtor and the creditor creating the debt, a second one between the debtor and
the creditor creating a security interest, and a third one between the debtor and
the creditor paying off the debt. But Section 547 is concerned only with the
second and third transfers. See Section 547(b)(1) ("transfers to or for the benefit
of a creditor"). The dispute before this panel regards the second transfer, which
created the security interest.1

18

When determining which date a security interest transferred, we have two

possible dates: either the date of perfection or the date that the security interest
was signed. It seems most logical that the date that the transfer takes effect is
not the date of perfection. It would make little sense for Section 547(e)(2) to
compare the date of perfection to the date of perfection. Therefore, under
Section 547(e)(2) this panel should compare the date that the security
agreement was entered into with the date of perfection. In this case, the date the
security interest was entered into was March 20, 1984, the day that Ms. Hagen
hired Attorney Kaufman. This date also happens to be the date of perfection
under state law.

19

With these two dates in mind it is possible to turn to Section 547(e)(2) and
determine when, for preference purposes, a transfer was made. Section 547(e)
(2) divides transfers into three categories. The first category governs those
transfers which are perfected "at or within ten days" of the date that the transfer
"takes effect between the transferor and the transferee." 11 U.S.C.A. Sec.
547(e)(2)(A). The second category governs those transfers which are perfected
after ten days of the effective date of the transfer. 11 U.S.C.A. Sec. 547(e)(2)
(B). And, the third category governs those transfers which are never perfected.
11 U.S.C.A. Sec. 547(e)(2)(C). It is clear that, if we ignore for the moment
Section 547(e)(3), the date the transfer is made is March 20, 1984, which is
outside the 90-day preference period.2

20

However, Section 547(e)(3) prohibits setting the date of transfer before the
date that the debtor "has acquired rights in the property transferred." Therefore,
irrespective of which date Section 547(e)(2) would ordinarily set as the date the
transfer was made, the earliest the transfer could occur under Section 547(e)(3)

is the date that Ms. Hagen acquired rights in the property. Under Florida law,
Ms. Hagen did not acquire rights in the property until she settled with the
insurance company. See Scott v. Kirtley, 113 Fla. 637, 152 So. 721 (1933)
(holding that attorney's lien does not attach until the client has possession of the
res). The settlement date was May 14, 1985, which is within the 90-day
preference period.3 Therefore, the transfer is a preference and must be voided.
21

I therefore dissent.

Here we have facts that make lawyers squirm and members of the public
scream. But we cannot twist the principle of law for the sake of righting wrongs
unrelated to that principle, which is solely the recovery of a preferential
payment under 11 U.S.C. Sec. 547(b), if all statutory elements are satisfied.
The asserted lack of value and "reprehensible conduct" are not relevant to the
issue, nor is the asserted link to the bankruptcy filing, which was not a basis for
the court's finding that the payment was a preference

It is agreed that state law applies in determining the creation of a lien and the
consequences and rights attributable to the lien, other than the bankruptcy
statutory issues. See Matter of Fitterer Engineering Associates, Inc., 27 B.R.
878, 880 (Bankr.E.D.Mich.1983)

Section 547(b) provides that:

(b) Except as provided in subsection (c) of this section, the trustee may avoid
any transfer of an interest of the debtor in property-(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such
transfer was made;
(3) made while the debtor was insolvent;
(4) made-(A) on or within 90 days before the date of the filing of the petition; ... and
(5) that enables such creditor to receive more than such creditor would receive
if-(A) the case were a case under chapter 7 of this title [11 USCS Secs. 701 et

seq.];
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the
provisions of this title [11 USCS Secs. 101 et seq.].
There is no dispute that four of the five statutory elements of a preference are
present in this case.
4

A charging lien survives bankruptcy if the fund to which it would attach has not
come into existence prior to or in the course of the bankruptcy proceeding.
Matter of TLC of Lake Wales, Inc., 13 B.R. 593, 595 (Bankr.M.D.Fla.1981)
(citing 4B Collier on Bankruptcy, at 1003 (14th ed.) and In re Browy, 527 F.2d
799 (7th Cir.1976)); see also Matter of Fitterer Engineering Associates, Inc.,
supra note 2

This provision defining "transfer" under title 11, states in part:

" 'transfer' means every mode, direct or indirect, absolute or conditional,
voluntary or involuntary, of disposing of or parting with property or with an
interest in property...."

If the bankruptcy court's view of appellant's ethics clouded the proceedings to

divert its attention away from the legal point at issue, this court, in its review,
has focused only on the relevant point. The target is the disputed statutory
element, Section 547(b)(5)

The third transfer clearly occurred during the preference period; however, the
majority is correct in noting that "[a] transfer to a secured creditor in the
amount of its lien during the preference period does not constitute an avoidable
preference."

Since the date the transfer took effect was March 20, 1984, and the date of
perfection was March 20, 1984, it is clear that the day of perfection was at or
within ten days of the date that the debtor signed the security interest

The majority claims that Section 547(e)(3) is inapplicable because it "pertains

to when a transfer is made, not when the creditor attained secured status if the
lien has a relation back element." (emphasis in the original). The majority is
mistaken because attaining a security interest is a transfer as it concedes on
page 746 of its opinion. Since attaining a security interest is a transfer, Section
547(e)(3) forbids the use of a relation back provision for setting the date of the
transfer