In re Minter-Higgins, 05-63591 JPK.

• Decision Date: 23 March 2007
• Docket Number: No. 05-63591 JPK.,05-63591 JPK.
• Citation: 366 B.R. 880
• Parties: In re Alesia MINTER-HIGGINS, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

366 B.R. 880

In re Alesia MINTER-HIGGINS, Debtor.

No. 05-63591 JPK.

United States Bankruptcy Court, N.D. Indiana, Hammond Division.

March 23, 2007.

Stacia L. Yoon, Esq., Merrillville, IN, for the Chapter 7 Trustee.

Kevin Relphorde, Gary, IN, for the Debtor Alesia Minter-Higgins.

ORDER ON MOTION TO AMEND JUDGMENT AND ORDER PURSUANT TO BANKRUPTCY RULE 9023

J. PHILIP KLINGEBERGER, Bankruptcy Judge.

This order determines the Motion to Amend Judgment and Order Pursuant to Bankruptcy Rule 9023 filed by Stacia L. Yoon, as Trustee of the Chapter 7 bankruptcy estate of Alesia Minter-Higgins in the above-designated case. The motion and an accompanying brief were filed on November 30, 2006. No reply brief was filed by or on behalf of the debtor. A hearing was held on the motion on February 16, 2007, at which both Trustee Yoon and the debtor appeared. At that hearing, the Court stated the determination which would be made on Trustee Yoon's motion, a determination which is now memorialized by this order.

The contested matter which is the subject of this order was commenced on August 23, 2006, by Trustee Yoon's filing of a Motion for Turnover of funds held in the debtor's bank, account on the date of the filing of her Chapter 7 petition on July 5, 2005. On September 7, 2006, the debtor, by counsel, Kevin B. Relphorde, filed an objection to the Trustee's motion. A hearing was held with respect to the motion and the debtor's objection to it on November 21, 2006. Alesia Minter-Higgins testified at that hearing concerning negotiable instruments (checks) which she had drawn on the account, and debit card credits requested, in advance of the filing of her petition, but which checks and debit requests were not honored by the drawee bank until after the filing of the petition. In accordance with her testimony, the items at issue pursuant to her objection were those designated as the following in paragraph 3 of the objection filed in response to the Trustee's motion for turnover:

                checks
                        # 3443   $34.53 to Ultra Foods on 7/1/05
                        # 3447   $4.37 to Ultra Foods on 7/2/05
                        # 3448   $115.00 to Shabach Pentecostal Church
                        Debits   $2.17 and $3.17 to Speedway on 7/1/05
                                 $4.77 to Ulra Foods on 7/2/05
                                 $30.14 to Marathon Ashland on 7/5/05
                        And schedule payments made to creditors
                                 $96.93 to Citibank Cards
                                 $124.46 to Credit Union Card Center
                                   (Inland/Advance FCU Credit Card
                

These items total $415.40, and the debtor contended at the hearing that because these items were outstanding and had not yet been finally charged to her account on the date of the filing of her petition, the amount of her account at Advance Federal Credit Union on the date of the filing of her petition should be diminished by these items, and thus that the Trustee's motion for turnover should be denied.¹

At the conclusion of the hearing, the Court stated oral findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052/Fed.R.Civ.P. 52(a), and orally stated its ruling against the Trustee. That ruling was memorialized by docket record entry # 25, entered on November 22, 2006, which stated the following:

Docket Entry: Hearing held on 11/21/06 RE:(related document(s)[)] 14Motion for Turnover of Property filed by Stacia L. Yoon. APPEARANCES: Alesia Minter-Higgins, Atty. Relphorde on behalf of Debtor and Atty. Yoon on behalf of Trustee. The court finds based upon the evidence submitted at the hearing and the findings of fact and conclusion of law stated on the record the trustee's motion is DENIED.

Trustee Yoon filed a timely motion to alter or amend the judgment entered on November 22, 2006. This matter is now before the Court pursuant to Fed. R.Bankr.P. 9023/Fed.R.Civ.P. 59.

I Determination on the Motion to Alter or Amend

The underlying facts in this contested matter are that on July 5, 2005, the debtor maintained a demand deposit account at Advance Federal Credit Union which had a balance of $383.13 on July 5, 2005. Prior to the date of the filing of the petition, the debtor had issued checks drawn on that account, and had initiated debit transfers drawn on that account, which were not finally honored by Advance Federal Credit Union until after the date of the petition: those items are designated above. Trustee Yoon argues that funds on deposit in the debtor's account on the date of her filing of her petition constituted property of the debtor's Chapter 7 bankruptcy estate and that in accordance with the decision of the United States Court of Appeals for the Seventh Circuit in In re USA Diversified Products, Inc., 100 F.3d 53 (7th Cir.1996), funds subject to outstanding checks or debit requests were not transferred to the payees of those checks until after the date of the filing of the petition and thus remained property of the debtor's Chapter 7 estate subject to turnover by the debtor.

The amount at stake in this contested matter is obviously not large; " however, issues regarding administration of Chapter 7 bankruptcy cases implicated in this contested matter are enormous. The law with respect to those issues is ill-defined and, as will be seen, relatively complicated.

We start with the nature of the motion, by which the Trustee initiated the contested matter subject to this decision, a motion for turnover directed to the debtor. Turnover motions of the nature of those at issue here are provided for by 11 U.S.C. § 542(a), which states as follows:

(a) Except as provided in subsection (c) or (d) of this section, an entity,² other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.³

An apparently little-known decision of the United States Supreme Court has some relevance to the remedy sought by the Trustee under 11 U.S.C. § 542(a). In Maggio v. Zeitz, 333 U.S. 56, 68 S.Ct. 401, 92 L.Ed. 476 (1948), the United States Supreme Court held that the subject of a turnover action must be in the actual possession of the target of that action. In the context of this case, the $383.13 balance of the Advance Federal Credit Union account on the date of the petition was no longer in existence as of the date of the filing of the Trustee's motion for turnover: as the evidence in the case establishes, the honoring of the pre-petition checks/ debit transfers completely transferred the balance as of the date of the petition to transferees within a short time after the filing of the petition. Thus, under Maggio, the Trustee's motion for turnover would not state a cause of action. However, most courts have held that Maggio was rendered ineffective by provisions of 11 U.S.C. § 542(a), which provides that the Trustee may require delivery of "property or the value of such property " (emphasis supplied), thereby allowing the Trustee to utilize a turnover motion to obtain the value of transferred property even if the target of the turnover order is no longer in possession of that property. This Court does not agree with that construction of 11 U.S.C. § 542(a), and does believe that Maggio still retains viability. In this Court's view, the phrase "or the value of such property" refers to a circumstance in which the transferee who is in actual possession of property subject to turnover at the time of the demand for turnover may elect to retain the property and instead pay the trustee the value of the property so retained. However, this Court's view has been precluded by the decision of the United States Court of Appeals for the Seventh Circuit in USA Diversified Products, Inc., 100 F.3d 53, 56 (7th Cir.1996), in which the Seventh Circuit determined that Maggio has been abrogated by the phrase "or the value of such property". Thus, constrained as it is by decisions of the United States Court of Appeals for the Seventh Circuit, the Court must determine that the Trustee's procedural mechanism of a turnover order under 11 U.S.C. § 542(a) is proper.

We next confront the issue of whether the amount in the debtor's demand deposit account on the date of the filing of her bankruptcy petition constituted property of her bankruptcy estate, despite her having issued checks and debit transfer requests against that account which had not yet been finally honored by the drawee financial institution. 11 U.S.C. § 541(a) states that the commencement of a bankruptcy case "creates an estate". The § 541(a) estate is a ravenous creature, akin to Pac-man/Ms. Pac-man gobbling every conceivable interest a debtor could have in property, including those described in 11 U.S.C. § 541(a)(1) as "all legal or equitable interests of the debtor in property as of the commencement of the case". Barnhill, supra., clearly provides that transfer of funds from the debtor's Advance FCU account by final honoring of checks/debit transfers subsequent to the date of the petition did not affect the $383.13 balance of that account on the petition date as property of the estate. Thus, clearly, the $383.13 balance was property of the estate on the date of the filing of the debtor's petition.⁴

Now we come to the crux of the case. As noted previously, the Trustee was precluded by Barnhill from seeking recovery of the amounts of the pre-petition checks/debit transfers from the transferees under 11 U.S.C. § 547(b). Because obviously no actual fraud was involved in these transactions — and even addressing the concept of "constructive" fraud under 11 U.S.C. § 548(B), preclusive because these transfers almost certainly involved the debtor's receipt of equivalent value under § 548(B)(i) — the Trustee could not utilize 11 U.S.C. § 548 against the transferees. As noted above, 11...