In re: Pro-Mark Services, Inc

Summarized by Amir Shachmurove , Brown Rudnick LLP
4 months 5 days ago

Case Type:

Business

Case Status:

Reversed and Remanded

Citation:

24-6008 (8th Circuit, Oct 20,2025) Published

Tag(s):

Ruling:

The U.S. Bankruptcy Appellate Panel for the Eighth Circuit (BAP) reversed the order of the U.S. Bankruptcy Court for the District of North Dakota (BC) granting Capital Credit Union (CCU) relief from stay to exercise its purported setoff right in the face of opposition (and in an appeal by) Hartford Accident & Indemnity Company (Hartford), the prepetition provider of payment and performance bonds (Bonds) required by the federal Miller Act to Pro Mark Services, Inc. (DR), a chapter 7 debtor, based on the contract between CCU and Hartford that the BC did not consider-but would have to on remand.

Procedural context:

Upon being notified of the DR's bankruptcy, CCU, with which the DR had entered into two business loan transactions after his bond agreement with Hartford, placed an administrative freeze on the DR's deposit accounts. CCU then filed a motion requesting relief from the automatic stay to allow it to set off the $3,306,470.14 held in the DR's deposit accounts (Motion) based on the terms of CCU’s business account agreements entered into by the DR when it opened the deposit accounts as well as the setoff provisions of the business loan agreements executed by the DR in connection with the loans. Hartford objected to CCU’s Motion, claiming an interest in the funds pursuant to that certain General Indemnity Agreement (GIA) between Hartford and the DR and that certain Intercreditor Collateral Agreement (ICA) between Hartford and CCU. After motion practice and a hearing, the BC granted the Motion. Hartford appealed.

Facts:

To induce Hartford to underwrite bonds on the DR's behalf the DR and other indemnitors entered into the GIA with Hartford on July 14, 2020. Pursuant to its provisions, the DR irrevocably assigned, transferred, and conveyed to Hartford all the DR's rights in, arising from, or related to Bonds, as defined in the GIA, whether such Bonds were issued prior to, simultaneously with, or subsequent to the execution of the GIA. More than one year later, on December 31, 2021, the DR entered into two business loan agreements with CCU. Recognizing the potential for overlapping interests in the DR's assets, Hartford and CCU entered into the ICA on July 14, 2022. On April 22, 2024, the DR filed a chapter 7 bankruptcy petition in BC, its loans in default and its debt to CCU totaling more than $12 million.

Judge(s):

Phyllis M. Jones; Cynthia A. Norton; and Katherine A. Constantine

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