Mwangi v. Wells Fargo Bank (In the Matter of Mwangi)

Case No. 12-16087
The Ninth Circuit panel determined, as a matter of law, that Wells Fargo Bank was not liable for sanctions for intentional violation of stay for placing a "temporary administrative pledge" on four bank accounts held by Debtor. The panel determined that the funds did not become exempt until they revested in the Debtors after expiration of the period set forth in Bankruptcy Rule 4003(b)(1), which is the later of 30 days after the 341 meeting of creditors, or 30 days after amendment to the exemption list or supplemental schedules are filed. In this case, the 341 hearing was held on September 18, 2009. So, from the petition date until October 19, 2009, the funds remained estate property. The panel held during this period "the Debtors had no right to possess or control the account funds"--thus, Debtors could not assert a plausible injury based on the administrative hold. The panel then determined the Debtors could not allege plausible injury based on the hold from October 19, 2009 moving forward because "the account funds passed out of the bankruptcy estate and revested in the Debtors on October 19, 2009." Thus, the funds were no longer estate property and not subject to the automatic stay.
Procedural context:
Ninth Circuit affirmed District Court affirmance of Bankruptcy Court's dismissal of class action adversary proceeding claiming Wells Fargo's routine administrative account hold in a Chapter 7 constituted willful violation of the automatic stay.
Debtors filed a Chapter 7 petition on August 3, 2009. On the petition date, Debtors had four Wells Fargo accounts with a combined balance of approximately $17,000. While Wells Fargo held an unsecured claim of $52,000, it did not assert any setoff rights. Nevertheless, the bank placed a "temporary administrative pledge" (or hold) on the account funds after a routine computerized comparison of Chapter 7 filings against revealed the Debtor's Chapter 7 filing. Three days after the petition date, Wells Fargo sent a letter to the Chapter 7 trustee seeking instructions as to how Wells Fargo should handle the Funds, informing the trustee it believed the funds were estate property and it would maintain a hold on the account funds until it received instructions from the trustee, or until 31 days after the 341 meeting of creditors. On August 11, 2009, Debtors filed Amended Schedules listing the four accounts and claiming an exemption in 75% of the value of the funds under Nevada Revised Statute 21.090(1)(g), which provides an exemption for 75% of a debtor's disposable earnings. No party filed an objection to the exemption within the time frame set forth in Bankruptcy Rule 4003(b)(1). Relying on the exemption, Debtors' counsel contacted Wells Fargo and requested the hold be lifted because the Debtor claimed an exemption. Wells Fargo refused, prompting Debtors' counsel to move for sanctions under Sections 362(a)(3),(6) and (k), even before the 341 hearing. The bankruptcy court denied the motion and the Debtors appealed to the BAP, which reversed and remanded for a determination of whether Wells Fargo's retention of the account funds was reasonable and if Debtors suffered damages. On remand the bankruptcy court denied the motion (which was never appealed). The Debtors then filed an adversary class action asserting violations of Section 362(a)(3), which prohibits "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." The bankruptcy court granted Wells Fargo's motion to dismiss for failure to state a claim and the Debtors appealed to the District Court, which affirmed.
Silverman, B.; Fletcher, W.; Bybee, J. Opinion by Judge Bybee.

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