Hartford Accident and Indemnity Company v. Capital Credit Union
- Case Type:
- Business
- Case Status:
- Reversed and Remanded
- Citation:
- No. 24-6008 (8th Circuit, Oct 20,2025) Published
- Tag(s):
-
- Ruling:
- In a dispute between two secured creditors over which has priority in the proceeds of encumbered accounts, courts must look to any intercreditor or similar agreements between the secured creditors to determine priority. Thus, even though the financial institution held a perfected security interest in funds in the debtor's deposit accounts, the other creditor had priority over those funds under the intercreditor agreement.
- Procedural context:
- In a dispute between two secured creditors regarding which had priority in assets of the debtor's bankruptcy estate, the bankruptcy court found that the financial institution in which the debtor's funds were deposited had perfected its interest in the funds and thus had priority over another secured creditor, regardless of what the creditors had agreed between themselves.
The losing secured party appealed.
- Facts:
- Pro-Mark Services, Inc., the Chapter 7 debtor, was a general contractor that bid and worked on federal contracts. To do so, Pro-Mark had to ensure its work was covered by payment and performance bonds it obtained from appellant Hartford Accident and Indemnity Company. To secure its obligations to Hartford, Pro-Mark and others entered into a General Indemnity Agreement ("GIA") with Hartford. Under the GIA, Hartford irrevocably assigned all of Pro-Mark's rights in, arising from, or related to the bonds.
Pro-Mark then entered into two business loan agreements with Capital Credit Union ("CCU"), whereby Pro-Mark borrowed more than $15 million from CCU. Pro-Mark's obligations were secured by a perfected security interest in most of its assets, including the two deposit accounts it maintained at CCU.
Hartford and CCU entered into an Intercreditor Collateral Agreement ("ICA"). In the ICA, the parties agreed that Hartford's interests were superior to CCU's in, among other things, Pro-Mark's bonded contracts, receivables, and the proceeds thereof. The ICA broadly defined "proceeds" and "liens," so that (i) Hartford's interests in Pro-Mark's receivables, and their proceeds, for the projects bonded by Hartford were senior to CCU's interests but (ii) CCU's interests in the "Bank Priority Collateral" were senior to Hartford's liens and interests unless such proceeds arose from bonded project contracts and associated receivables.
CCU also agreed that the proceeds of any Hartford collateral would be remitted to Hartford and applied against Pro-Mark's obligations to Hartford, so long as the Hartford debt had not been paid in full.
The ICA also included two "waterfall" provisions. The CCU waterfall provision stated that "all proceeds of the [CCU] Priority Collateral shall be applied first to the [CCU] Priority Debt, until paid in full, [and] next to the Surety [Hartford] Debt." The Hartford waterfall provision mirrored the CCU waterfall provision, with Hartford being paid first from Hartford's "Priority Collateral."
When Pro-Mark filed its bankruptcy petition, it owed CCU more than $12 million and had about $3.3 million on deposit with CCU. CCU immediately froze Pro-Mark's accounts and filed a motion seeking relief from the automatic stay so that CCU could offset funds in the frozen accounts against Pro-Mark's debt to CCU.
Hartford objected to CCU's motion, and argued that the GIA and the ICA governed the relative rights of CCU and Hartford. The bankruptcy court disagreed, and granted CCU's motion for relief from the automatic stay.
.
- Judge(s):
- NORTON, CONSTANTINE, and JONES, Bankruptcy Judges
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