Harold Jones v. The Brand Law Firm (In re: Alice Belmonte)

Case Type:
Consumer
Case Status:
Affirmed
Citation:
No. 18-2098 (2nd Circuit, Jul 25,2019) Published
Tag(s):
Ruling:
The Second Circuit Court of Appeals affirmed the bankruptcy court’s decision, finding that the trustee’s recovery of a portion of the proceeds from the debtor’s unauthorized post-petition transfer of property of the estate did not violate the single satisfaction rule of Section 550(d).
Procedural context:
An involuntary bankruptcy petition was filed against the debtor. Post-petition, the debtor executed a second mortgage on property of the estate in exchange for a $250,000 loan, and the loan proceeds were transferred to her attorneys. Thereafter, pursuant to Sections 549 and 550 of the Bankruptcy Code, the trustee commenced fraudulent avoidance actions against different parties, including the debtor and her counsel, Craig Brand of the Brand Law Firm (“Brand”). Brand objected, asserting that the trustee’s request for recovery amounted to a “double recovery” in violation of Section 550(d). The bankruptcy court avoided both post-petition transfers and ordered Brand to remit $59,432 of the loan proceeds to the trustee. Brand appealed, and the district court affirmed. Brand appealed, and the Second Circuit affirmed.
Facts:
An involuntary bankruptcy petition was filed against the debtor. The debtor co-owned a home with her husband, which was subject to a first mortgage in favor of People’s United Bank. During the bankruptcy case, the debtor executed a second mortgage on her home in exchange for a $250,000 loan to pay Brand, her bankruptcy counsel, and two other attorneys, Sadaka and Walker, to represent her in a separate criminal proceeding. The trustee commenced a series of adversary proceedings against different parties, moving, in pertinent part, (i) to avoid the second mortgage and the $250,000 transfer as fraudulent post-petition transfers under Section 549, and (ii) to recover the loan proceeds that were transferred to Brand, Sadaka and Walker post-petition pursuant to Section 550. The trustee settled one of the avoidance actions whereby pursuant to the settlement, the second mortgage was avoided, and the lien created by the second mortgage was preserved for the bankruptcy estate pursuant to Section 551. Thereafter, the bankruptcy court avoided both post-petition transfers - the second mortgage and transfer of the loan proceeds - and ordered Brand to remit $59,432 of the loan proceeds to the trustee. Brand appealed, and the district court affirmed. On appeal, Brand argued that the trustee’s request for recovery of the loan proceeds amounted to a “double recovery” in violation of Section 550(d) because the bankruptcy estate was purportedly restored to a pre-transfer position when the trustee avoided the second mortgage. The Second Circuit affirmed, finding, among other things, that the trustee’s recovery of a portion of the loan proceeds from Brand did not violate the single satisfaction rule of Section 550(d).
Judge(s):
Calabresi, Lynch and Lohier, Circuit Judges

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