Rushton v. Bank of Utah (In re C.W. Mining Co.)

Kenneth A. Rushton v. Bank of Utah, BAP No. UT-11-098 (B.A.P. 10th Cir. Sept. 5, 2012).
The 10th Circuit BAP affirmed the bankruptcy court's denial of the Chapter 7 Trustee's Motion for Summary Judgment. The bankruptcy court properly denied the Trustee's avoidance claim under 11 U.S.C. § 549 because it was pointless to avoid a post-petition transfer, only to restore the bank's security interest in an asset the bank liquidated following entry of the order for relief. Furthermore, 11 U.S.C. § 550 only allows recovery to benefit the estate, and the Trustee was the only party that would gain by recouping the certificate of deposit (subject to the bank's security interest). Although the post-petition transfer violated 11 U.S.C. § 362, the bankruptcy court correctly rejected the Trustee's claim under this section because the only available remedy is to restore the status quo. Thus, the bank's security would still have to be restored. Pursuant to 11 U.S.C. § 542(a), the bank had a valid defense to the Trustee's claims under 11 U.S.C. § 362 because the restoration of the bank’s security interest would leave the estate with no equity or interest in the certificate of deposit. The fact that the bank sold the loan after liquidating the certificate of deposit did not warrant lien stripping under either of the Trustee’s claims.
Procedural context:
Appeal from summary judgment order entered by the United States Bankruptcy Court for the District of Utah.
The bank made a series of secured loans to the debtor. And the bank's security interest included a certificate of deposit. After the debtor entered bankruptcy, the bank liquidated the certificate of deposit and applied the proceeds to the outstanding balance owed by the debtor. The bank, however, did not seek stay relief before liquidating the certificate of deposit. The bank then sold its loans to a third party. Following conversion of the debtor’s bankruptcy case to Chapter 7, the appointed Trustee brought an avoidance action against the bank under 11 U.S.C. § 549. In addition, the Trustee claimed that the transaction was void because it was made in violation of 11 U.S.C. § 362.
Nugent, Karlin and Hall

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