Desmond v. Am. Express Centurion Bank, Inc. (In re Callas)

• Citation: 557 B.R. 647
• Decision Date: 27 September 2016
• Docket Number: Adversary Case No. 15 A 00140,Bankruptcy Case No. 13 B 43900
• Parties: In re: Sam Callas, Debtor. Michael K. Desmond, not individually but as chapter 7 trustee for the bankruptcy estate of Sam Callas, Plaintiff, v. American Express Centurion Bank, Inc., Defendant.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

557 B.R. 647

In re: Sam Callas, Debtor.

Michael K. Desmond, not individually but as chapter 7 trustee for the bankruptcy estate of Sam Callas, Plaintiff,
v.
American Express Centurion Bank, Inc., Defendant.

Bankruptcy Case No. 13 B 43900
Adversary Case No. 15 A 00140

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed September 27, 2016

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Michael K. Desmond, pro se.

David L. Freidberg, Law Office of David L. Freidberg, PC, Highland Park, IL, for Defendant.

MEMORANDUM OPINION

Janet S. Baer, United States Bankruptcy Judge

Michael K. Desmond (the “Trustee”), as chapter 7 trustee for the bankruptcy estate of Sam Callas (the “Debtor”), filed a six-count adversary complaint against American Express Centurion Bank, Inc. (“American Express”), seeking to avoid and recover from American Express allegedly preferential or fraudulent transfers made by Katina Callas, the Debtor's non-filing spouse (“Katina”), to American Express pursuant to 11 U.S.C. §§ 547(b), 548(a)(1), and 550(a) of the Bankruptcy Code.¹ The Trustee also seeks disallowance of American Express's claims against the bankruptcy estate under §§ 502(d) and (j) until American Express pays to the estate the amount of the avoidable transfers for which it is purportedly liable. This matter is now before the Court on American Express's motion for partial summary judgment on Counts II and V, the recovery claims of the complaint. For the reasons set forth below, the Court finds that there are no genuine issues of material fact and American Express is entitled to judgment as a matter of law on the recovery claims. As such, American Express's motion will be granted, and judgment will be entered on Counts II and V in favor of American Express.

JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and

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Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (F), (H), and (O).

BACKGROUND

The material facts in this case are few and undisputed. Those facts, gleaned from the docket and the relevant pleadings, are as follows.

The Debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code on November 12, 2013 (the “Petition Date”). About a year later, on November 4, 2014, the Debtor's case was converted to a case under chapter 7. The following day, the United States Trustee appointed Michael K. Desmond as chapter 7 trustee of the Debtor's bankruptcy estate.

On October 23, 2013, prior to the Petition Date, the Debtor's non-filing spouse Katina opened a checking account (“Katina's Account”) at Heartland Bank & Trust Company (“Heartland Bank”). (Pl.'s L.R. 7056-2 Resp. ¶ 2.) That account was solely owned by Katina, and no one else was authorized to make withdrawals from the account. (Id. ¶¶ 3 & 4.)

On October 24, 2013, one day after Katina opened the account, the Debtor received $266,000 from the Department of Veterans Affairs (the “VA Funds”) in connection with a build-out for a commercial property that he owned in Evanston, Illinois. (Id . ¶¶ 1(a)-(d) & 6.) The VA Funds were electronically deposited into a checking account owned jointly by the Debtor and Katina at Heartland Bank (the “Joint Account”). (Id. ¶ 1(e).) That same day, the Debtor transferred $265,000 of the VA Funds from the Joint Account to Katina's Account. (Id. ¶¶ 1(f) & 8.)

On October 25, 2013, two more transfers were made.² First, Katina transferred $39,800 from her account to American Express to pay down antecedent credit card debt owed by the Debtor to American Express. (Id. ¶¶ 9-11 & Ex. 2 at 4.) Although the balance on the Debtor's American Express credit card account had not exceeded $7,000 between January 1, 2013 and July 13, 2013 (Def.'s Reply to Pl.'s Stmt. of Additional Facts ¶ 32),³ he had incurred new charges of $78,187.17 on the account between July 14, 2013 and August 13, 2013 (id. ¶ 33).⁴ After the receipt and posting of the payment made by Katina on October 25, 2013, the remaining balance due to American Express on the Debtor's credit card account was $29,937.75.⁵ (Pl.'s

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L.R. 7056-2 Resp., Ex 2 at 3.) Katina also transferred $1,546.27 from her account to American Express to pay antecedent credit card debt that she owed to American Express. (Id. ¶¶ 16-18.)

On May 12, 2015, the Trustee filed the instant six-count adversary complaint, seeking to avoid and recover from American Express the purported preferential or fraudulent transfers made by Katina to American Express pursuant to §§ 547(b), 548(a)(1), and 550(a).⁶ In Counts I and II of the complaint, the Trustee seeks avoidance of the transfers as preferential under § 547(b) and recovery of those transfers pursuant to § 550(a), respectively. In the alternative, in Counts III and IV, the Trustee seeks avoidance of the transfers as actually and constructively fraudulent under § 548(a)(1)(A) and (B), respectively; in Count V, he seeks recovery of those transfers, again pursuant to § 550(a). Finally, in Count VI, the Trustee asks the Court to disallow any and all claims of American Express against the bankruptcy estate under §§ 502(d) and (j) until American Express pays to the estate the aggregate amount of all avoidable transfers for which it is allegedly liable.⁷

On March 29, 2016, American Express filed the instant motion for summary judgment. Subsequent to that filing, counsel for American Express explained that he is not challenging the avoidability of the Transfer under either § 547(b) or § 548(a)(1). (Oral Arg. Tr. 3:24-4:18, July 6, 2016.) According to counsel, even if the Transfer is avoidable, it may not be recovered from American Express as an immediate or subsequent transferee of Katina. (Id. ) Accordingly, American Express seeks only partial summary judgment on the recovery claims in Counts II and V of the complaint. (Id. )

The Court heard oral argument on July 6, 2016 and then took the matter under advisement. After a review of all of the relevant pleadings, exhibits, arguments, and applicable case law, the Court is now ready to rule.

SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate when there is no genuine issue of material fact and the movant is entitled to judgment as

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a matter of law. Fed. R. Civ. P. 56(a) (made applicable to adversary proceedings by Fed. R. Bankr. P. 7056 ). The primary purpose of the summary judgment procedure is to avoid unnecessary trials where no genuine issues of material fact are in dispute. See Trautvetter v. Quick , 916 F.2d 1140, 1147 (7th Cir.1990) ; Farries v. Stanadyne/Chi. Div. , 832 F.2d 374, 378 (7th Cir.1987) (quoting Wainwright Bank & Trust Co. v. Railroadmens Fed. Sav. & Loan Ass'n of Indianapolis , 806 F.2d 146, 149 (7th Cir.1986) ). Thus, on a motion for summary judgment, the Court must decide, based on the evidence, whether there is a material disputed fact that requires a trial. Kodish v. Oakbrook Terrace Fire Prot. Dist., 604 F.3d 490, 507 (7th Cir.2010) ; Payne v. Pauley , 337 F.3d 767, 770 (7th Cir.2003). A genuine issue of material fact exists when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Where the material facts are not in dispute, the only issue is whether the moving party is entitled to judgment as a matter of law. ANR Advance Transp. Co. v. Int'l Bhd. of Teamsters, Local 710 , 153 F.3d 774, 777 (7th Cir.1998).

The party seeking summary judgment always bears the burden of establishing that there are no genuine issues of material fact in dispute. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In determining whether the movant has met its burden, the Court must view all reasonable inferences drawn from the underlying facts in a light most favorable to the nonmoving party. Anderson , 477 U.S. at 248, 106 S.Ct. 2505 ; Smeigh v. Johns Manville, Inc. , 643 F.3d 554, 560 (7th Cir.2011). Once the moving party satisfies its initial burden of production, the party opposing the motion may not rest on the mere allegations or denials in his pleadings; rather, his response must set forth specific facts showing that there is a genuine issue for trial. See Celotex , 477 U.S. at 324, 106 S.Ct. 2548 ; Anderson , 477 U.S. at 248, 106 S.Ct. 2505 ; Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ; Outlaw v. Newkirk , 259 F.3d 833, 837 (7th Cir.2001).

When a defendant is the party moving for summary judgment, the plaintiff must submit evidence to satisfy each element of his claim on which he has the burden of proof. Celotex , 477 U.S. at 322, 106 S.Ct. 2548. When a defendant is the party moving for summary judgment on an affirmative defense, however, it bears the burden of proof and thus must provide evidence demonstrating each element of the defense. CLC Creditors' Grantor Trust v. Howard Sav. Bank (In re Commercial Loan Corp.) , 396 B.R. 730, 741 (Bankr.N.D.Ill.2008) (citing Zenith Elec. Corp. v. Panalpina, Inc., 68 F.3d 197, 201 (7th Cir.1995) ). Failing that,...