C.W. Mining Co. v. Bank of Utah
- Summarized by Brendan Gage , Goulston & Storrs PC
- 10 years 9 months ago
- Citation:
- No. 12–4174 (10th Cir. Apr. 15, 2014)
- Tag(s):
-
- Ruling:
- Affirming the Bankruptcy Appellate Panel (“BAP”), the United States Court of Appeals for the Tenth Circuit held that the unauthorized liquidation of a certificate of deposit postpetition by a fully secured creditor could not be avoided pursuant to 11 U.S.C. § 549. When a transfer is avoided, the trustee may recover the transferred property, or the value of the transferred property, for the benefit of the estate under § 550(a). However, under § 502(h), a claim by a creditor arising after the return of property pursuant to § 550 is allowed or disallowed “the same as if such claim had arisen [prepetition].” Reading these three provisions together, the Tenth Circuit concluded that permitting avoidance under § 549 and recovery under § 550 would revive the creditor-bank’s lien because it was a fully secured prepetition. Therefore, avoidance and recovery by the trustee would be “futile” because the estate would be required to pay the bank’s secured claim in full, resulting in no benefit to the estate. Additionally, even if the bank violated the automatic stay under § 362(a), the trustee was not entitled to the value of the property transferred because “[a]ny transfer made in violation of the stay is void and the parties are returned to the status quo as it existed before the violation occurred.” Finally, the trustee could not use § 542(a) to compel the bank to turn over the value of the certificate of deposit because the property was of inconsequential benefit to the estate. Turning over the property would require the trustee to pay the bank an amount equal to the value of the certificate of deposit.
- Procedural context:
- The trustee commenced an adversary proceeding seeking to recover the value of the liquidated certificate of deposit from the bank. Both parties moved for summary judgment. The bankruptcy court granted summary judgment in favor of the bank and the trustee appealed. The BAP affirmed.
- Facts:
- The debtor deposited $362,000 with a bank, and the bank issued a certificate of deposit to the debtor in the same amount. Subsequently, the debtor’s creditors filed an involuntary Chapter 11 bankruptcy petition against the debtor. After the case was converted to a Chapter 7 proceeding and a trustee was appointed, the bank liquidated its certificate of deposit. At the time it was worth $383,099. The bank utilized its right of offset and applied the proceeds to the balance owing on two of three promissory notes executed by the debtor in favor of the bank. Although the bank knew of the pending bankruptcy case when it liquidated the certificate of deposit, it did not inform the trustee. The trustee became aware of the transfer after the bank assigned its remaining secured interest in the promissory notes to a third party, and the third party sought payment from the estate.
- Judge(s):
- Mkovich, Brorby, and Murphy, Circuit Judges.
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