In September 1980, Clark Pipe & Supply Company, Inc. (Clark), which operated in the oil industry, entered into an agreement with Associates Commercial Corporation (ACC) (defendant) under which ACC would loan money to Clark on a revolving basis. The loans were secured by Clark’s accounts receivable, which were deposited into an account controlled by ACC, and a mortgage on inventory. Advances by ACC were determined according to a formula based on a percentage of accounts receivable plus a percentage of inventory cost. The contract gave ACC a unilateral, discretionary right to reduce the percentage advance rate at any time. In 1981 the oil industry faltered, and Clark was detrimentally affected. In February 1982, ACC began reducing the percentage advance rate. ACC intentionally reduced the rate to an amount that would allow Clark to keep operating sufficiently to pay back ACC—through the accounts receivable—but without any additional cash on top of that. ACC did not explicitly dictate to Clark which bills it should pay, however. Clark was able to keep the business open, selling inventory in order to pay back ACC. It was unable, however, to pay other creditors. In May 1982, after three such creditors initiated foreclosure proceedings against it, Clark filed for bankruptcy reorganization under Chapter 11. In August 1982, the case was converted to a Chapter 7 liquidation and a trustee (plaintiff) was appointed. The trustee filed an action for equitable subordination of ACC’s claims. The bankruptcy court decided in favor of subordination, and the district court affirmed. A panel of the United States Court of Appeals for the Fifth Circuit affirmed the district court but then granted ACC’s petition for rehearing.