In re Ford, Bankruptcy No. 88-00168
Citation | 98 BR 669 |
Decision Date | 31 March 1989 |
Docket Number | Adv. No. 88-0043A.,Bankruptcy No. 88-00168 |
Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court —District of Vermont |
Parties | In re John R. FORD, II and Sarah A. Ford, Debtors. Douglas J. WOLINSKY, Trustee of the Estate of John R. Ford, II and Sarah A. Ford, Plaintiff, v. CENTRAL VERMONT TEACHERS CREDIT UNION, Defendant. |
R. Brock, Cheney, Brock & Saudek, P.C., Montpelier, Vermont, for Cent. Vermont Teachers Credit Union (Credit Union).
G. Gebauer, Jr., Saxer, Anderson, Wolinsky & Sunshine, Burlington, Vermont, for trustee of the Estate of John R. Ford, II and Sarah A. Ford (trustee).
R. Obuchowski, Mayer, Berk & Obuchowski, South Royalton, Vt., for debtors.
The Trustee seeks to recover an alleged preferential transfer under 11 U.S.C. § 547(b)2 from the Debtors to the Credit Union. The Credit Union does not dispute that it received a preferential transfer. The Credit Union's concession satisfies the Trustee's burden under 11 U.S.C. § 547(g) "of proving the avoidability of a transfer under subsection (b) of this section," id., and establishes the elements of a preferential transfer under § 547(b) by the prerequisite preponderance of the evidence standard. See, In re Thayer, 38 B.R. 412, 421 (Bkrtcy.D.Vt.1984) (); Meyers v. Vermont National Bank (In re Music House, Inc.), 11 B.R. 139, 140 (Bkrtcy.D.Vt.1980) (). The Credit Union claims it is entitled to an off-set for "new value" under 11 U.S.C. § 547(c)(4)3 that might have arisen but for its admitted unilateral failure to discover the existence of a potential statutory lien under 8 Vt. Stat.Ann. § 2071(d)4 before deposit account sums were withdrawn post-petition by the Debtor and before the Trustee's § 547 preferential transfer complaint. We grant the Trustee's request for summary judgment on its § 547(b) preference action and deny the Credit Union's request for a § 547(c)(4) set-off.
On December 6, 1988, the Trustee filed a "Complaint to Recover A Preferential Transfer" against the Credit Union and requested the return of $3,188.75 as a pre-petition transfer: made within 90 days before the filing of an "involuntary" (sic— voluntary) petition; to an unsecured creditor; on account of an antecedent debt; and, if the transfer had not been made, which enabled the Credit Union to receive more than it would have been entitled to under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 101, et seq.
On December 8, 1988, we issued a "Preliminary Pre-Trial Order With Instructions" (VLBR Form No. 15) and a "Summons and Notice of Pre-Trial Conference," which together with the complaint were served by the Trustee upon the Debtor and the Credit Union.
On January 30, 1989, the Trustee filed a copy of the "Stipulation As To Facts" signed by the Trustee and the Credit Union. The Stipulation provided in pertinent parts:
On January 30, 1989, Debtors' counsel filed a letter with the Court and represented the absence of an objection to the "Stipulation As To Facts," "Except for paragraph 7 which was outside of the Debtors' or their counsel's knowledge." Based on the representations of the parties that no further evidence or hearings were necessary, the matter was taken under advisement.
On January 26, 1989, the Credit Union filed their "Memorandum." They conceded that a preferential payment under 11 U.S.C. § 547 was given by the Debtors to the Credit Union and that the Trustee is entitled to an order for the return of $1,870.58. The $1,870.58 amount, the Credit Union argues, is the appropriate preference amount rather than the $2,378.58 amount the Trustee claims. The difference of $508.00 represents the proverbial "bone of contention" among the parties.
The Credit Union claims:
Credit Union's "Memorandum," pages 2-3 ( ).
In addition to the facts contained in the parties' "Stipulation As To Facts," the Trustee's "Memorandum In Support Of Trustee's Complaint To Recover A Preferential Transfer," filed January 30, 1989, requests that we take judicial notice of the following facts on record:
Id., at pages 1-2 ( ).
The Trustee asserts that the Credit Union's statutory lien requires some form of possession. The Debtors' withdrawal of the funds from their deposit account destroyed any possession the Credit Union had, and thus terminated whatever lien the Credit Union may have had. As to the Credit Union's asserted ignorance, the Trustee argues that not only is causation of the lien's termination irrelevant, "this proposition ignores the fact that Defendant (Credit Union) knew that the payment to it occurred prior to the petition date, thus (it) was clearly a preference." Id., at page 3 ( ).
As to the Credit Union's "new value" argument, the Trustee responds that this "is an inaccurate reading of the statute" and that:
In the case at bar, the Defendant (Credit Union) did not give new value to the Debtors estate. Rather, it allowed the Debtors access to funds which they already owned. The statute (11 U.S.C. § 547(c)(4)), then, will not benefit the defendant in this situation.
Id., at page 3 ( ).
The Debtors' attorney adds by its letter filed January 31, 1989:
The credit union had been listed as a creditor had been listed in the Debtors\' schedules as originally filed on July 15, 1988. As such, the credit union had received notice of the bankruptcy filing, having been listed as creditor, and that their failure to recognize that the payment on July 14, 1988 was in the nature of a preference, was to their own dilemma. That same dilemma occurred upon the withdrawal and closing out of the account by the debtors on September 7, 1988.
Given the circumstance of a creditor's undisputed receipt of notice of a Chapter 7 filing, and its subsequent unilateral failure to assert a post-petition statutory possessory lien on a debtor's deposit account funds prior to its release of these funds to a debtor's possession, may a creditor's negligent forbearance from asserting such a lien constitute "new value" under 11 U.S.C. § 547(c)(4), which, in turn, would entitle the creditor to an offset against the receipt of an admitted pre-petition preferential transfer from the debtor?
The Credit Union correctly acknowledges that it does not have a valid statutory lien on sums it had previously consented to be withdrawn by a depositor under 8 Vt.Stat. Ann. § 2071(d) (footnote 4 supra).
The operative language of 8 Vt.Stat.Ann. § 2071(d) is: Id., (emphasis and footnotes ours).
In Goodwin v. Barre Savings Bank & Trust, 91 Vt. 228, 235-36, 100 A. 34, 37 (1917), a bankruptcy case, the Vermont Supreme Court held a banker had a common law merchant's lien on securities or funds which came into its possession in the regular course of business, and has the right to set off any matured debt against funds deposited without direction from its debtor and over the objections of a trustee in bankruptcy. See, Goggin v. Bank of America Nat. Trust...
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