In re Homan, Bankruptcy No. 3-88-02192

• Decision Date: 22 June 1990
• Docket Number: Adv. No. 3-89-0002.,Bankruptcy No. 3-88-02192
• Citation: 116 BR 595
• Parties: In re Helen Virginia HOMAN, Debtor. Helen Virginia HOMAN, Plaintiff, v. KEMBA CINCINNATI CREDIT UNION, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

116 B.R. 595 (1990)

In re Helen Virginia HOMAN, Debtor Helen Virginia HOMAN, Plaintiff, v. KEMBA CINCINNATI CREDIT UNION, Defendant.

Bankruptcy No. 3-88-02192, Adv. No. 3-89-0002.

United States Bankruptcy Court, S.D. Ohio, W.D.

June 22, 1990.

Michael G. Weller, Centerville, Ohio, for debtor/plaintiff.

Stephen D. Miles, Dayton, Ohio, for defendant.

DECISION ON ORDER:

(1) GRANTING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT,

(2) GRANTING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT,

(3) SETTING PRETRIAL CONFERENCE AND

(4) REQUIRING FILINGS

THOMAS F. WALDRON, Bankruptcy Judge.

This proceeding, which arises under 28 U.S.C. Section 1334(b) in a case referred to this court by the Standing Order of Reference entered in this district on July 30, 1984, is determined to be a core proceeding pursuant to 28 U.S.C. Section 157(b)(2)(A) matters concerning the administration of the estate, (E) orders to turn over property of the estate, (K) determinations of the validity, extent, or priority of liens, and (O) other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor relationship.

PROCEDURAL AND FACTUAL BACKGROUND

The debtor, Helen Virginia Homan filed a petition under Chapter 13 of the Bankruptcy Code on July 7, 1988. The debtor listed two debts owed to the defendant—an outstanding loan balance of five thousand, two hundred fifty-nine dollars ($5,259.00), which was secured by a lien on her automobile, and an outstanding loan balance of one thousand, five hundred dollars ($1,500), which was unsecured.

The defendant, Kemba Cincinnati Credit Union (Kemba), initially filed two proofs of claim on July 28, 1988—one for a secured claim of five thousand, eighty-two dollars and seventy-three cents ($5,082.73), which is not in issue in this proceeding, and another for an unsecured claim of one thousand, four hundred and fifty-eight dollars and ninety-seven cents ($1,458.97). Kemba filed an amended proof of claim on September 8, 1988 in which it designated the previously unsecured claim of one thousand, four hundred and fifty-eight dollars and ninety-seven cents ($1,458.97) as a claim secured by a "share pledge account". The debtor filed a Motion Objecting To Allowance Of Claim (Doc. 14 Case No. 3-88-02192), which was dismissed without prejudice to refiling for noncompliance with Local Bankruptcy Rule 5.6(b).¹ Debtor refiled her Motion Objecting To The Allowance of Claim (Doc. 18 Case No. 3-88-02192) objecting to Kemba's designation of the one thousand, four hundred and fifty-eight dollars and ninety-seven cents ($1,458.97) claim as secured. Kemba, in Creditor's Memorandum Contra To Debtor's Motion Objecting To Allowance Of Claim, stated that the one thousand, four hundred and fifty-eight dollars and ninety-seven cents ($1458.97) debt is partially secured to the extent of the debtor's funds on deposit because, pursuant to a standard provision contained in Kemba's loan agreement, the debtor pledged all deposits as security for the loan. The Debtor filed a Complaint For Contempt Sanctions For Violation Of Automatic Stay (Doc. 1) alleging that the defendant "froze" four hundred twenty-four dollars and ninety-nine cents ($424.99) that the debtor had on deposit with Kemba in her Christmas club account, thereby denying the debtor access to the funds. The parties filed an agreed statement of facts (Doc. 14). Defendant filed a Motion For Summary Judgment (Doc. 15) and the debtor filed Plaintiff's Motion For Summary Judgment (Doc. 16). Debtor also filed Plaintiff's Response To Defendant's Motion For Summary Judgment (Doc. 17). In ruling on these motions the court considered the above filings as well as Defendant's Exhibits Pursuant to Court Order (Doc. 20) and Citation of Authorities (Doc. 22).

MOTIONS FOR SUMMARY JUDGMENT

Both the plaintiff and the defendant, in separate motions, pursuant to Fed.R.Civ.P. 56(c), made applicable to this proceeding by Bankruptcy Rule 7056, request an order granting summary judgment. Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Material facts are those which "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); A.I. Root Co. v. Computer Dynamics, Inc., 806 F.2d 673, 675 (6th Cir.1986). The standard for granting summary judgment is essentially the same as the standard for granting a directed verdict: The court must decide "whether the evidence presents a sufficient disagreement . . . or whether it is so onesided that one party must prevail as a matter of law." Anderson, 477 U.S. at 250, 106 S.Ct. at 2512. The Sixth Circuit in Street v. J.C. Bradford & Co., 886 F.2d 1472, 1478 (6th Cir.1989) noted the following:

Read together, Liberty Lobby and Celotex stand for the proposition that a party may move for summary judgment asserting that the opposing party will not be able to produce sufficient evidence at trial to withstand a directed verdict motion. If, after a sufficient time for discovery, the opposing party is unable to demonstrate that he or she can do so under the Liberty Lobby criteria, summary judgment is appropriate.

The facts in this case are few, uncomplicated, and the parties have stipulated to them in their joint statement of facts (Doc. 14). The dispute centers around the legal principles to be applied to, and the legal conclusions to be drawn from, these facts. Summary judgment is appropriate in this proceeding.

ARGUMENT OF THE PARTIES

The essence of the plaintiff's argument is that the freeze imposed on the debtor's Christmas club account is tantamount to a setoff, and, because the defendant did not first seek relief from the automatic stay to setoff the funds, its actions violated 11 U.S.C. § 362(a)(7). The defendant argues that the debtor, under the doctrine of a common law pledge, granted the credit union a lien on all her funds on deposit with the credit union, and the defendant perfected this common law pledge by "retaining possession of the funds." Kemba further argues that it did not setoff the funds, but, in good faith compliance with 11 U.S.C. § 362, and on the belief that the defendant had a valid lien on the funds, froze the account in order to maintain the status quo and prevent the dissipation of the funds. Pursuant to an Order Setting Oral Arguments (Doc. 23), the court heard further amplification of both parties' positions.

INTRODUCTION

Although the facts in this proceeding are few and uncomplicated, this proceeding presents difficult and complicated issues concerning an administrative freeze. The seemingly simple issues in this proceeding are surrounded by a thicket of competing, and frequently conflicting, Code provisions presenting no obvious path to a satisfactory resolution. An administrative freeze, as the term frequently appears in connection with bankruptcy cases, occurs when a financial institution, usually a bank or a credit union, upon receiving notice of a debtor's bankruptcy filing, prevents withdrawals from accounts that a debtor has at that institution. Typically, the debtor both owes the financial institution a debt and also has funds on deposit in a checking or savings account at the financial institution.

This issue has generated an abundance of case law with varied analyses. A number of courts have held that such a freeze is tantamount to an unauthorized setoff in violation of 11 U.S.C. § 362(a)(7). United States v. Reynolds, 764 F.2d 1004 (4th Cir. 1985); United States v. Norton, 717 F.2d 767 (3rd Cir.1983); In re New York City Shoes, 78 B.R. 426 (Bankr.E.D.Pa.1987); Crispell v. Landmark Bank (In re Crispell), 73 B.R. 375 (Bankr.E.D.Mo.1987); In re Wildcat Construction Co. Inc. 57 B.R. 981 (Bankr.D.Vt.1986); LHG Resources, Inc. v. First National Bank of Midland (In re LHG Resources, Inc.), 34 B.R. 202 (Bankr.W.D.Texas 1983); Cusanno v. Fidelity Bank, 29 B.R. 810 (D.E.D.Pa.1983) vacated and remanded without op. 734 F.2d 3 (3rd Cir.1984).² Other decisions reflect the view that the administrative freeze promotes, rather than violates, the objective of the automatic stay by maintaining the status quo and preserving the assets of the estate until the court can determine the respective rights of the debtor and the bank. In re Learn, 95 B.R. 495 (Bankr.N.D.Ohio 1989); Heckathorn Construction Company, Inc. v. Bass Mechanical Contractors, Inc., (In re Bass Mechanical Contractors, Inc.), 84 B.R. 1009 (Bankr.W.D.Ark.1988); Rio v. Army Aviation Center Federal Credit Union, 82 B.R. 138 (D.M.D.Ala.1986); Air Atlanta v. National Bank of Georgia, 74 B.R. 426 (Bankr.N.D.Ga.1987), aff'd, 81 B.R. 724 (D.N.D.Ga.1987); Williams v. American Bank of Mid-Cities (In re Williams), 61 B.R. 567 (Bankr.N.D.Tex.1986); Hoffman v. Portland Bank (In re Hoffman), 51 B.R. 42 (Bankr.W.D.Ark.1985); Bank of America National Trust and Savings Associations v. Edgins (In re Edgins), 36 B.R. 480 (Bankr. 9th Cir.1984); Teamsters Credit Union v. Lee (In re Lee), 40 B.R. 123 (Bankr.E.D.Mich.1984); Georgia Federal Bank v. Owens-Peterson (In re Owens-Peterson), 39 B.R. 186 (Bankr.N.D.Ga. 1984); Stann v. Mid American Credit Union, 39 B.R. 246 (D.D.Kan.1984); Kenney's Franchise Corp. v. Central Fidelity Bank, 22 B.R. 747 (D.W.D.Va.1982). The split in authority results from differing interpretations of the interplay among the various provisions of the Code which impact on this issue: 11 U.S.C. § 362-the automatic stay, § 363-cash collateral, § 506-secured claims, § 542-turnover and § 553-setoff.

DECISION

This court employs the following fivepart analysis in its discussion: 1) In a chapter 13 case, are a debtor's...