In re Egidi, No. 08-15958.

• Decision Date: 18 June 2009
• Docket Number: No. 08-15958.
• Citation: 571 F.3d 1156
• Parties: In re: Gisela EGIDI, Debtor. Bank of America, N.A., Plaintiff-Appellant, v. Barry E. Mukamai, Trustee, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

571 F.3d 1156

In re: Gisela EGIDI, Debtor Bank of America, N.A., Plaintiff-Appellant, v. Barry E. Mukamai, Trustee, Defendant-Appellee.

No. 08-15958.

United States Court of Appeals, Eleventh Circuit.

June 18, 2009.

Lawrence Gary Reinhold, Weinstein & Riley, P.S., Huntington Woods, MI, for Plaintiff-Appellant.

James Brian Miller, Miami, FL, for Defendant-Appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before MARCUS and PRYOR, Circuit Judges, and SCHLESINGER,^* District Judge.

SCHLESINGER, District Judge:

This matter arises from an appeal of the District Court's Final Judgment affirming the Judgment of the United States Bankruptcy Court for the Southern District of Florida. This appeal presents the question of whether the payment of a credit card debt using balance transfers and credit card advances, drawn on other credit cards, constitutes property of a debtor so that the transfers are avoidable preferences under the Bankruptcy Code.

I.

Around August of 2006, Gisela Egidi decided to consolidate her debt into one credit card. Using cash advances made on a line of credit from a credit card account and a type of cash advance on a credit card through a convenience check¹ from Capital One, Egidi made the following payments to MBNA: a) August 8, 2006—$4,000.00; b) August 10, 2006—$10,065.00; and c) August 12, 2006—$2,000.00.² Egidi subsequently filed bankruptcy on October 28, 2006.

The permanent Chapter 7 Trustee, Barry Mukamai, brought suit against Bank of America ("BOA"), as the successor to MBNA,³ to recover the $16,065.00, alleging that the payments were avoidable as transfers under 11 U.S.C. § 547(b). BOA admitted the total of $16,065.00 was paid to Egidi's MBNA account by payments made on August 8, 10, and 12, 2006, but MBNA, now BOA, did not know the source of the payments and believed they may have been bank-to-bank transfers.

The Trustee moved for summary judgment arguing that MBNA, now BOA, received a preferential transfer. The Bankruptcy Court held that the transfers were preferences that could be avoided by the trustee and granted summary judgment in favor of the trustee. The Bankruptcy Court entered judgment against BOA in the total amount of the transfers, $16,065.00. BOA appealed to the District Court, which affirmed the Bankruptcy Court's decision in September 2009. BOA now appeals to this Court challenging the legal conclusions of the Bankruptcy Court that were affirmed by the District Court.

II.

"In the [B]ankruptcy context, this [C]ourt sits as a `second court of review' and thus `examines independently the factual and legal determinations of the [B]ankruptcy [C]ourt and employs the same standards of review as the [D]istrict [C]ourt.'" Finova Capital Corp. v. Larson Pharmacy, Inc. (In re Optical Tech., Inc.), 425 F.3d 1294, 1299-1300 (11th Cir. 2005) (quoting Barrett Dodge Chrysler Plymouth, Inc. v. Cranshaw (In re Issac Leaseco, Inc.), 389 F.3d 1205, 1209 (11th Cir.2004)). This Court "review[s] de novo a grant of summary judgment." Dzikowski v. Northern Trust Bank of Fla., N.A. (In re Prudential of Fla. Leasing, Inc.), 478 F.3d 1291, 1296 (11th Cir.2007). This Court also "reviews de novo the question of law whether a debtor's interest is property of the bankruptcy estate." Witko v. Menotte (In re Witko), 374 F.3d 1040, 1042 (11th Cir.2004).

III.

"A preference is `a transfer that enables a creditor to receive payment of a greater percentage of his claim against the debtor than he would have received if the transfer had not been made and he had participated in the distribution of the assets of the bankruptcy estate.'" In re Issac Leaseco, Inc., 389 F.3d 1205, 1209 (11th Cir.2004) (quoting Union Bank v. Wolas, 502 U.S. 151, 160-61, 112 S.Ct. 527, 533, 116 L.Ed.2d 514 (1991)). The trustee of the bankruptcy estate is authorized to recover certain transfers made within 90 days of the petition date if the trustee can demonstrate the transfer is an avoidable preference pursuant to the provisions of 11 U.S.C. § 547(b). 11 U.S.C. § 547(b) of the Bankruptcy Code provides,

Except as provided in subsections (c) and (i) of this section, the trustee may avoid any transfer of an interest of the debtor in property—

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made—

(A) on or within 90 days before the date of the filing of the petition; or

(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and

(5) that enables such creditor to receive more than such creditor would receive if—

(A) the case were a case under chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

"Equality of distribution among creditors is a central policy of the Bankruptcy Code. According to that policy, creditors of equal priority should receive pro rata shares of the debtor's property." Begier v. IRS, 496 U.S. 53, 58, 110 S.Ct. 2258, 2262-63, 110 L.Ed.2d 46 (1990). This policy is furthered by § 547(b), which permits "a trustee in bankruptcy to avoid certain preferential payments made before the debtor files for bankruptcy. This mechanism prevents the debtor from favoring one creditor over others by transferring property shortly before filing for bankruptcy." Id. at 58, 110 S.Ct. at 2263.

To avoid a preferential transfer, the trustee bears the burden of proving all five elements listed in § 547(b). Warsco v. Preferred Technical Group, 258 F.3d 557, 564 (7th Cir.2001). The parties do not dispute that the trustee has met his burden and proved the five elements listed. The sole issue contested by the parties is the "threshold requirement" in the statute: whether the payments made to Egidi's MBNA credit card account from her other credit card accounts constitute "transfer[s] of an interest of the debtor in property." 11 U.S.C. § 547(b); Parks v. FIA Card Services, N.A. (In re Marshall), 550 F.3d 1251, 1254 (10th Cir.2008).

Section 547(b)'s avoidance power is limited to transfers of "property of the debtor," which the Supreme Court has defined as "that property that would have been part of the estate had it not been transferred before the commencement of bankruptcy proceedings." Begier, 496 U.S. at 58, 110 S.Ct. at 2263. "[P]roperty that would not have been available for distribution to his creditors in a bankruptcy proceeding" is not "property of the debtor" under § 547(b). Id. The 1984 amendments to the Bankruptcy Code changed the term "property of the debtor" to "an interest of the debtor in property," but the Supreme Court stated that, because this alteration was a "clarifying change," the older language and the newer language are "coextensive." Id. at 59 n. 3, 110 S.Ct. at 2263 n. 3.

In Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177, 1181 (11th Cir.1987), which involved fraudulent transfers, we discussed "[t]he rules established in the avoidable preference cases" and explained that "any funds under the control of the debtor, regardless of the source, are properly deemed to be the debtor's property, and any transfers that diminish that property are subject to avoidance." See Andreini & Co. v. Pony Express Delivery Services, Inc. (In re Pony Express Delivery Servs., Inc.), 440 F.3d 1296, 1300 (11th Cir.2006) (holding that a transferee is an "initial transferee" under the Bankruptcy Code "if they exercise legal control over the assets received"); Walker v. Wilkinson, 296 F. 850, 852 (5th Cir.1924) (under the previous bankruptcy statute, "[t]he transfer or payment must be one that diminishes the fund to which creditors of the same class can legally resort for the payment of their debts, and to an extent that makes it impossible for such other creditors to obtain as great a percentage as the favored one, in order that the transaction constitute a preference.").

The Bankruptcy Court concluded that Egidi had sufficient control over the funds provided by the credit card companies, that the funds constituted "property of the debtor," and that the transfer of those funds to MBNA within the 90-day window before the bankruptcy petition was filed resulted in an avoidable preference. The District Court reached the same conclusion and affirmed "the Bankruptcy Court's determination that the transferred funds were property of the debtor" because Egidi "was in full control of the disposition of the funds."

On appeal, BOA argues that the Bankruptcy Court erred because the transfer was a bank to bank transfer that was a mere substitution of creditors and was not an avoidable preference. BOA asserts that the funds from the other credit card companies were not controlled by Egidi and were not the property of Egidi, the debtor. This argument fails.

The evidence established that Egidi directed other credit card companies to pay MBNA and had control of the lines of credit from other credit card companies. There is no evidence that any credit card company decided to direct the funds to MBNA on its own accord or specifically instructed Egidi to pay MBNA with the funds. "The payments were a debtor's discretionary use of borrowed funds to pay another debt. Such transactions are generally considered preferential transfers." In re Marshall, 550 F.3d at 1257.

BOA argues that the funds were not in the control of the debtor because they were never in Egidi's bank account. This argument must also fail. The inquiry is whether Egidi controlled the disposition of the funds, not whether she mechanically made the payment to MBNA. That the "possession [by Egidi] took place electronically rather than mechanically (through deposit slips and checks) is of no moment." Id. The other credit card companies "extension of credit to [Egidi] that permitted her...