Stalnaker v. Allison, et al. (In re Tri-State Financial, LLC)

B.A.P. 8th Cir. (February 5, 2014)
Reverse and remand by the Bankruptcy Appellate Panel to the bankruptcy court to consider creditors and trustee's arguments.
Procedural context:
Appeal by the trustee and creditor from a judgement entered by the bankruptcy court finding certain funds were not property of the bankruptcy estate. Additional appeal by various parties on the same judgement to the extent the trustee was awarded certain fees, expenses, and surcharges against the funds the bankruptcy court determined were not property of the estate.
In 2003, a group of investors transferred $2,000.000.00 to Tri-State Financial, LLC. Thereafter, Tri-State Financial, LLC. transferred a two substantial portions of those funds to Tri-State Ethanol Company, LLC, which was in chapter 11 bankruptcy in the District of South Dakota and Tri-State Ethanol's vendors. In 2004, the case was converted to chapter 7, and Tri-State Financial filed a request for an administrative claim for both transferred portions. In 2006, the trustee paid Tri-State Financial one of the two portions, which Tri-State Financial distributed to the initial group of investors. In 2008, Tri-State Financial filed a petition for relief under chapter 11 of the bankruptcy code and a separate trustee was appointed. Sometime thereafter, the chapter 7 trustee transferred the remaining portion to the chapter 11 trustee. In 2010, the chapter 11 trustee filed an adversary proceeding to determine ownership of the funds he received. On February 13, 2013, the bankruptcy court ordered (1) the funds were not property of the bankruptcy estate, (2) the bankruptcy estate was entitled for reimbursement of legal fees and expenses, and (3) procedure for the trustee to request reimbursement and costs.
Kressel, Schermer, and Nail.

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