IN THE UNITED STATES COURT OF APPEALS

                       FOR THE FIFTH CIRCUIT

                       _____________________

                            No. 99-11401
                       _____________________



     IN THE MATTER OF SOUTHMARK CORPORATION,


                                               Debtor

     SOUTHMARK CORPORATION,

                                               Appellee
          v.

     SCHULTE ROTH & ZABEL,

                                               Appellant

_________________________________________________________________

           Appeal from the United States District Court
                for the Northern District of Texas
                         (3:97-CV-2332-L)
_________________________________________________________________

                         November 7, 2000

Before KING, Chief Judge, and REYNALDO G. GARZA and PARKER,

Circuit Judges.

PER CURIAM:*

     Appellant Schulte Roth & Zabel (“Schulte”) appeals the

district court’s judgment finding Schulte liable for $1 million

     *
        Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
of a $3.3 million preferential transfer from Appellee Southmark

Corporation (“Southmark”) to the Parks Group.    For the following

reasons, we AFFIRM in part and REVERSE in part.

                 I. FACTUAL AND PROCEDURAL HISTORY

     At the center of this case is a Settlement Agreement by

which two entities resolved a proxy fight and several lawsuits.

In March 1989, the Parks Group, consisting of R&P Ventures

(“R&P”), Garson L. Rice, Sr., Herbert B. Parks, and Byron

Investments (“Byron”), disclosed to the Securities and Exchange

Commission its intention to propose nominees for election to

Southmark’s board of directors.   On April 20, 1989, the Parks

Group publicly disclosed its plan to wage a proxy contest for

control of Southmark.   Several lawsuits between the parties were

commenced around this time.

     On May 24, 1989, the Parks Group and Southmark reached a

settlement of both the proxy contest and the lawsuits and

executed the Settlement Agreement.    The Settlement Agreement

provided, inter alia, that (1) the proxy contest would be

terminated; (2) minority shareholders, including the Parks Group,

would have a voice on the Southmark board of directors; (3) three

Parks Group nominees would be appointed to the Southmark board of

directors; (4) the Parks Group would not engage in further proxy

solicitation against Southmark; and (5) the lawsuits would be

settled.   Moreover, the Settlement Agreement provided for the



                                  2
reimbursement of all of the Parks Group’s expenses, including

attorney’s fees, that had been incurred with respect to the proxy

contest and the lawsuits.   This reimbursement totaled $3.3

million, $1 million of which was earmarked for legal expenses.

From the time of the proxy contest to the execution of the

Settlement Agreement, the law firm of Schulte Roth & Zabel was

the Parks Group legal representative.

     Also on May 24, and roughly four hours prior to the

Settlement Agreement’s execution, Southmark transferred $3.3

million to Schulte’s Citibank account by wire, where it was held

in escrow until the following morning.   On May 25, the entire

$3.3 million was transferred by Citibank, at the request of

Schulte, to R&P.    R&P then transferred $1 million to Byron, who,

in turn, issued a check payable to Schulte for $1 million for the

legal services it had rendered.

     On July 14, 1989, Southmark filed a petition in Chapter 11

bankruptcy.   Southmark then filed a complaint on June 19, 1991,

seeking to avoid the $3.3 million transfer to the Parks Group as

preferential under 11 U.S.C. § 547(b) and also sought recovery

from Schulte of the $1 million it received in legal fees.     On

April 5, 1993, the bankruptcy court granted summary judgment in

favor of Schulte.   However, in an opinion dated July 2, 1996, a

panel of this court, while recognizing that the case “presents a

rare if not unique fact situation,” held that the $3.3 million

transfer from Southmark to R&P was “for or on account of an

                                  3
antecedent debt owed by [Southmark] before such transfer was

made,” declared it an avoidable preference under 11 U.S.C.

§ 547(b), and remanded the case to the bankruptcy court.      See

Southmark Corp. v. Schulte Roth & Zabel (In re Southmark Corp.),

, 318 (5th Cir. 1996).

     Upon remand, the bankruptcy court, in its March 24, 1997

Memorandum Opinion, granted partial summary judgment in favor of

Southmark, finding that Schulte could not avail itself of the

preference defense contained in 11 U.S.C. § 547(c)--that the $3.3

million transfer was a “contemporaneous exchange for new value.”

However, in its August 13, 1997 Memorandum Opinion, the

bankruptcy court found that Schulte was not liable to Southmark

as a subsequent transferee under 11 U.S.C. § 550(a) because

according to the “date of delivery” rule, Schulte had not

actually received any funds from the $3.3 million transfer.     The

bankruptcy court also held that had Schulte been liable as a

subsequent transferee, it would have been unable to rely upon the

defense contained in 11 U.S.C. § 550(b)(1)--that it took for

value, in good faith, and without knowledge of the voidability of

the transfer.   Finally, the bankruptcy court found that if

Southmark had succeeded in recovering the $1 million transfer

from Schulte, Schulte could assert a claim under 11 U.S.C.

§ 502(h) as an intended beneficiary of the Settlement Agreement

and could also have a claim under the doctrine of subrogation.



                                 4
       In a November 17, 1999 opinion, the district court reversed

the bankruptcy court’s determination that Schulte was not liable

under § 550(a) as a subsequent transferee.      Moreover, the

district court affirmed the bankruptcy court’s determination that

Schulte could not avail itself of the § 550(b) defense.      The

district court determined, however, that even though Schulte was

required to return the $1 million to Southmark, it was unable to

assert a claim under § 502(h).

       Schulte timely appealed the district court’s judgment.



                       II. STANDARD OF REVIEW

       When a decision by a bankruptcy court has been appealed to,

and reviewed by, a district court, and the case is then appealed

to us, we perform the same appellate review as the district

court.    See Traina v. Sewell (In re Sewell), 

, 710

(5th Cir. 1999).    Therefore, this court reviews a bankruptcy

court’s findings of fact for clear error and its conclusions of

law de novo.    See id.; Young v. Nat’l Union Fire Ins. Co. (In re

Young), 

, 548 (5th Cir. 1993); see also FED. R. BANKR.

P. 8013.    Under the clearly erroneous standard of review, the

bankruptcy court’s findings will be reversed only if, considering

all of the evidence, “we are left with the definite and firm

conviction that a mistake has been made.”    

.    Finally, this court reviews a bankruptcy court’s grant of



                                  5
summary judgment de novo.     See Century Indem. Co. v. Nat’l Gypsum

Co. Settlement Trust (In re Nat’l Gypsum Co.), 

, 503

(5th Cir.), cert. denied, --- S. Ct. ----, 

(2000).

                III. THE $3.3 MILLION TRANSFER WAS

                          NOT FOR “NEW VALUE”

     As a preliminary matter, we believe that the prior panel’s

decision in this case, that the $3.3 million transfer from

Southmark to the Parks Group was an avoidable preference, drives

the outcome of the instant appeal, even though it may not

technically control it.    We therefore set aside our own views

about a proper outcome.    First, we must determine whether Schulte

may avail itself of the preference defense contained in

§ 547(c)(1), which prevents a preferential transfer from being

avoided if the transfer was intended as, and in fact was, a

“contemporaneous exchange for new value given to the debtor.”     11

U.S.C. § 547(c)(1).

     The bankruptcy court found that Schulte did not establish

the affirmative defense that the $3.3 million was a

contemporaneous exchange for new value because the execution of

the Settlement Agreement did not result in “new value” for

Southmark.   The district court found that this conclusion was not

clearly erroneous.

      To defend itself under § 547(c)(1), Schulte must

demonstrate “intent, contemporaneousness and new value.”     Tyler


                                   6
v. Swiss Am. Sec. (In re Lewellyn & Co.), 

, 427 (8th

Cir. 1991); Cimmaron Oil Co. v. Cameron Consultants, Inc., 

, 1008 (Bankr. N.D. Tex. 1987).    Whether intent,

contemporaneousness, and new value exist are questions of fact.

See 

; Creditors’ Comm. v. Spada (In re

Spada), 

, 975 (3d Cir. 1990).    However, because the

question of new value was decided on summary judgment, the

bankruptcy court’s decision must be reviewed de novo.      See Nat’l

Gypsum 

.

     Section 547(a) defines “new value” as

     money or money’s worth in goods, services, or new
     credit, or release by a transferee of property
     previously transferred to such transferee in a
     transaction that is neither void nor voidable by the
     debtor or the trustee under any applicable law,
     including proceeds of such property, but does not
     include an obligation substituted for an existing
     obligation[.]

11 U.S.C. § 547(a)(2).   This definition of new value is

exclusive.   See Energy Coop., Inc. v. SOCAP Int’l, Ltd. (In re

Energy Coop., Inc.), 

, 1003 (7th Cir. 1987); Cimmaron

Oil 

(“Congress could have allowed courts to

expand upon the doctrine of new value by legislating that new

value includes certain transactions.   Instead, Congress stated

what new value means, which should retard case law expansion.”).

Furthermore, because the avoidable transfer is set off only to

the extent that new value is given, the creditor is required to

demonstrate the “specific measure” of the new value received by


                                 7
the debtor.   See In re 

; Jet Fla. Sys.,

Inc. v. Am. Airlines, Inc. (In re Jet Fla. Sys., Inc.), 

, 1558 (11th Cir. 1988).

     Schulte argues that by executing the Settlement Agreement,

the Parks Group furnished “new value” to Southmark in the form of

the termination of the proxy contest and the pending litigation,

support for Southmark’s board of director nominees, and an

agreement to refrain from nominating additional Parks Group

representatives.   Based upon our review of the above authority,

however, we find that the bankruptcy court was correct in

concluding that no new value was exchanged for the $3.3 million.

The alleged “value” transferred to Southmark does not rise to the

level of “goods, services, or new credit” as required by the

exclusive definition of “new value.”   There is no evidence in the

record that these acts added tangible value to the bankruptcy

estate so as to further the policy underlying this defense.1

Instead, these were, at most, intangible benefits that did not

enhance the worth of Southmark’s estate in real terms “‘so as to

offset the reduction in the estate that the transfer caused.’”

Miller v. Bodek & Rhodes, Inc. (In re Adelphia Automatic

     1
        The defense under § 547(c)(1) “‘is grounded in the
principle that the transfer of new value to the debtor will
offset the payments, and the debtor’s estate will not be depleted
to the detriment of other creditors.’” Gulf Oil Corp. v. Fuel Oil
Supply & Terminaling, Inc. (In re Fuel Oil Supply & Terminaling,
Inc.), 

, 228 (5th Cir. 1988) (quoting A.I. Credit
Corp. v. Drabkin (In re Auto-Train Corp.), 

, 612
(Bankr. D.C. 1985).

                                 8
Sprinkler Co.), 

, 228 (Bankr. E.D. Pa. 1995) (quoting

In re Aero-Fastener, Inc., 

, 138 (Bankr. D. Mass.

1994)).   Furthermore, Schulte has failed to provide a specific

measure of the value Southmark allegedly received.2       Accordingly,

we uphold the district court’s decision affirming the bankruptcy

court’s grant of partial summary judgment in favor of Southmark.

                IV. SCHULTE WAS A SUBSEQUENT TRANSFEREE

                         LIABLE UNDER § 550(a)

     Section 550(a) of the Bankruptcy Code provides that to the

extent a transfer is avoided, a trustee may recover the property

transferred, or if the court so orders, the value of such

property, from the initial transferee or any subsequent

transferee.     See 11 U.S.C. § 550(a)(1), (2).   Moreover,

§ 550(b)(1) provides that a subsequent transferee of a

preferential transfer cannot be liable to the debtor’s estate for

the return of such transfer to the extent the transferee took for

value, in good faith, and without knowledge of the voidability of

the transfer.     See 

  In this case, we find that

the district court was correct in concluding that Schulte was a


     2
        Schulte contends that the minutes of an October 5, 1989
Southmark board meeting establish that “[t]o Southmark, damages
for [an alleged breach] of the Settlement Agreement [by the Parks
Group] were valued at in excess of $3.3 million.” We conclude
that this evidence falls far short of demonstrating a specific
measure of value. The subjective opinion of value to the debtor
does not satisfy the requirement that Schulte introduce specific
evidence that Southmark received $3.3 million in “goods,
services, or new credit.”

                                   9
subsequent transferee of a portion of the $3.3 million transfer

between Southmark and the Parks Group.   We also agree with the

district court that the bankruptcy court did not clearly err in

concluding that Schulte had sufficient knowledge of the

voidability of the $3.3 million transfer so as to lose the

protection of the § 550(b)(1) defense to liability.

        A. Subsequent Transferee Liability Under § 550(a)

     The district court declined to apply the “date of delivery”

rule employed by the bankruptcy court in its determination of

whether Schulte was a subsequent transferee of a portion of the

$3.3 million transfer.   Instead, the district court chose to

apply the “date of honor” rule and to consider the several

interbank transfers as a whole to find that Schulte was a

subsequent transferee.

     The Bankruptcy Code does not define “transferee.”      See

Bonded Fin. Servs. Inc. v. European Am. Bank, 

, 893

(7th Cir. 1988); see also Danning v. Miller (Bullion Reserve of

N. Am.), 

, 548 (9th Cir. 1991).   However, in

determining whether a person or entity is a subsequent transferee

under bankruptcy law, we agree with the district court that the

alleged “transferee” must have had dominion and control over the

funds in question.   Cf. Sec. First Nat’l Bank v. Brunson (In re

Coutee), 

, 140 (5th Cir. 1993) (adopting the

dominion-and-control test to determine whether a party was an

initial transferee for purposes of § 550(b)(1)).   In making this

                                10
determination, courts are required to “‘step back and evaluate a

transaction in its entirety to make sure that their conclusions

are logical and equitable.’”   

(quoting

Nordberg v. Societe Generale (In re Chase & Sanborn Corp.), 

, 1199 (11th Cir. 1988)); see also In re Smith, 

, 1532 (7th Cir. 1992) (“We think that some answers to these

difficult questions may lie in considering the economic substance

of the transaction at issue.”).

     Schulte contends that Southmark failed to demonstrate that

the $1 million that Schulte received from Byron in payment of its

legal fees could be traced to the $3.3 million as was required.

On May 30, 1989, Schulte’s bank, Citibank, presented Schulte’s $1

million check from Byron to Byron’s bank, Branch Bank and Trust

(BB&T).   That same day, BB&T presented R&P’s check to R&P’s bank,

First Union.   Schulte insists that the district court erred by

failing to determine which check cleared first and that Southmark

failed in its burden of proof to trace the funds in question to

establish Schulte’s subsequent transferee status.   To do this,

Schulte wishes this court to ascertain the precise moment the

checks were honored in order to determine which entity is the

subsequent transferee of the funds.    Schulte argues that because

Byron’s account was overdrawn when BB&T honored the Schulte

check, it was BB&T’s funds, not Southmark’s, that were used to

honor the check.   Therefore, Schulte contends that it was



                                  11
possible that Southmark’s money was expended to repay BB&T, not

Schulte, thus placing BB&T in the subsequent transferee position.

     We find that our task here is to “‘look beyond the

particular transfers in question to the entire circumstance of

the transactions.’”     

(quoting In re

Chase & Sanborn Corp.), 

, 1181-82 (11th Cir. 1987).

The stipulated facts establish that Schulte received the $1

million check from Byron on May 26 and deposited it into its

Citibank account on that same day.     Two substantial deposits were

placed in Byron’s BB&T account during the period from May 26 to

29--one deposit was the R&P check for $1 million, and the other

was a second R&P check for $975,000.    The bankruptcy court found

that there were no other substantial deposits made to Byron’s

BB&T account between May 26 and 30.    We agree with the district

court that the only funds credited to Byron’s BB&T account were

those from R&P, which came from Southmark.    Moreover, we agree

that Byron intended to pay Schulte’s legal fees out of the funds

it received from R&P.    Accordingly, the district court correctly

decided that Schulte was a subsequent transferee for the purpose

of § 550(a) liability.

      B. Both Courts Correctly Determined that Schulte Had

               Knowledge of the Voidability of the

         $3.3 Million Transfer When It Received Payment

     A subsequent transferee of an avoided transfer may defend

itself against § 550(a) liability if it demonstrates that it took

                                  12
the transfer for value, in good faith, and without knowledge of

the voidability of the transfer avoided.           See 11 U.S.C.

§ 550(b)(1).   “Knowledge” means that “‘the transferee knew facts

that would lead a reasonable person to believe that the property

[transferred] was recoverable.’”           CCEC Asset Mgmt. Corp. v.

Chemical Bank (In re Consol. Capital Equities Corp.), 

, 638 (Bankr. N.D. Tex. 1994) (alteration in original)

(quoting 4 COLLIER   ON   BANKRUPTCY ¶ 550.03, at 550-17 (15th ed.

1992)).   The bankruptcy court found that, although the “facts

present a close question,” Schulte “knew facts that would lead a

reasonable person to believe that the $3,000,000 transfer to the

Parks Group was recoverable”; therefore, Schulte did not take

“without knowledge.”        The district court concluded that this

finding was not clearly erroneous.          We agree.

     Whether a defendant had knowledge of the voidability of a

transfer is a question of fact.        See Leonard v. Mountainwest Fin.

Corp. (In re Whaley), 

, 776 (Bankr. D. Minn. 1999)

(citing Brown v. Third Nat’l Bank (In re Sherman), 

,

1357 (8th Cir. 1995)).        The record is replete with evidence

indicating knowledge on the part of Schulte that Southmark was on

the brink of bankruptcy.        Although Schulte argues that the

Settlement Agreement between the Parks Group and Southmark placed

Southmark on the “road to financial recovery,” this is not enough

to offset the additional evidence in the record establishing that

Schulte had “reasonable cause to believe that a petition may be

                                      13
filed.”   Grove Peacock Plaza, Ltd. v. Resolution Trust Corp. (In

re Grove Peacock Plaza, Ltd.), 

, 520 (Bankr. S.D.

Fla. 1992) (quoting 4 COLLIER   ON   BANKRUPTCY ¶ 550.03, at 550-10).

     In the early days of May 1989, Schulte knew that Southmark

had issued a March 31, 1989 10-Q report showing that Southmark

was insolvent by $428 million.        Moreover, media reports existed

prior to May 1989 discussing the potential for a Southmark

bankruptcy filing.    We conclude that these and other findings by

the bankruptcy court were sufficient to support its decision that

Schulte had knowledge of the impending bankruptcy of Southmark.

Therefore, the district court was correct in finding that the

bankruptcy court did not clearly err in holding that Schulte

could not avail itself of the defense contained in § 550(b)(1).

           V. SCHULTE MAY ASSERT A CLAIM UNDER § 502(h)

     Section 502(h) provides:

     A claim arising from the recovery of property under
     section 522, 550, or 553 of this title shall be
     determined, and shall be allowed under subsection (a),
     (b), or (c) of this section, or disallowed under
     subsection (d) or (e) of this section, the same as if
     such claim had arisen before the date of the filing of
     the petition.

11 U.S.C. § 502(h).   The bankruptcy court found that it was

“axiomatic” that Schulte had a claim against Southmark’s estate.

Having a claim, however, does not of itself entitle Schulte to

share in the distribution of the assets of Southmark’s estate;

the claim must also be allowed.        If the debtor objects to the



                                     14
claim, such claim is “allowable” only to the extent that it is

enforceable against the debtor.    See 

     Southmark argues that Schulte does not have an enforceable

claim against the estate.   Schulte contends that it was a third-

party beneficiary to the Settlement Agreement.     Moreover, Schulte

asserts that it may “stand in the shoes” of the Parks Group and

recover under equitable subrogation.   Under the theories of

intended beneficiary and equitable subrogation,3 the bankruptcy

court found that Schulte had an independent claim against the

Southmark estate.   The district court reversed.

     State law is applied to determine what claims are valid

under § 502.   See Vanston Bondholders Protective Comm. v. Green,

, 161 (1946); Kellogg v. United States (In re W. Tex.

Mktg. Corp.), 

, 1196 (5th Cir. 1995).     The Settlement

Agreement is governed by and construed according to New York

state law.   After our review of New York state law and the

relevant evidence, we agree with the bankruptcy court’s

determination that Schulte was an intended beneficiary of the

Settlement Agreement.

     Although a person is not a party to a contract, he or she

may sue for breach of that contract if he or she is an intended

beneficiary.   Under New York state law, a third party may assert

     3
        We need not address whether Schulte has an independent
claim against Southmark under the doctrine of equitable
subrogation because our examination of whether Schulte was an
intended beneficiary is the dispositive inquiry.

                                  15
a claim as an intended beneficiary if “(1) ‘no one other than the

third party can recover if the promisor breaches the contract’ or

(2) ‘the language of the contract otherwise clearly evidences an

intent to permit enforcement by the third party.’”    Piccoli A/S

v. Calvin Klein Jeanswear Co., 

, 162 (S.D.N.Y.

1998) (quoting Fourth Ocean Putnam Corp. v. Interstate Wrecking

Co., 

, 212 (N.Y. 1985)).    Regarding the second

alternative, the third party need not be mentioned by name in the

agreement; however, the intent to benefit that party must be

shown on the face of the agreement.    See id.; Cauff, Lippman &

Co. v. Apogee Fin. Group, Inc., 

, 1020 (S.D.N.Y.

1992) (“[T]he parties’ intention to benefit the third party must

be gleaned from the face of the contract[.]”).    We agree with the

bankruptcy court that the parties to the Settlement Agreement

intended to benefit Schulte when executing the Agreement.

     Schulte was specifically mentioned by name as the escrow

agent for the $3.3 million transfer.   In addition, the bankruptcy

court found it was undisputed that Southmark was aware that

Schulte was the Parks Group’s legal counsel.    Furthermore, the

Settlement Agreement stated that a portion of the $3.3 million

was to go to the payment of legal fees.    Therefore, we agree that

this is sufficient evidence to provide Schulte with an allowable

claim against Southmark’s estate as an intended beneficiary.       Cf.

Cauff, 

(“New York courts have held

that where a broker is expressly identified in a contract which

                               16
references an obligation to pay a broker its commission, the

broker is entitled to recover as a third party beneficiary.”).

     Accordingly, we conclude that the bankruptcy court was

correct in finding that Schulte has an enforceable claim against

Southmark’s bankruptcy estate as an intended beneficiary of the

Settlement Agreement.   We reverse the district court on this

issue.

                          VI. CONCLUSION

     For the foregoing reasons, the district court’s decision is

AFFIRMED in part and REVERSED in part, and the case is REMANDED

to the district court and thence to the bankruptcy court for a

determination of the exact amount of the allowable claim to

offset the recovery to Southmark.    Each party shall bear its own

costs.




                                17