Lewis v. Kaelin (In re Cresta Tech. Corp.)

Decision Date06 April 2018
Docket NumberBk. No. 16–50808–MEH,Adv. No. 17–05030–MEH,BAP No. NC–17–1186–BSTa
Citation583 B.R. 224
Parties IN RE: CRESTA TECHNOLOGY CORPORATION, Debtor. Matthew Lewis, Appellant, v. Doris A. Kaelin, Chapter 7 Trustee, Appellee.
CourtU.S. Bankruptcy Appellate Panel, Ninth Circuit

Appellant Matthew Lewis, pro se on brief; Gregg S. Kleiner of Rincon Law LLP on brief for appellee, Doris A. Kaelin, Chapter 7 Trustee.

Before: BRAND, SPRAKER and TAYLOR, Bankruptcy Judges.

BRAND, Bankruptcy Judge:

This case brings to mind the adage: "No good deed goes unpunished." Appellant Matthew Lewis appeals a judgment under §§ 549(a)1 and 550(a)(1) avoiding a postpetition transfer of $10,000 as reimbursement for payment of the debtor's legal fees and ordering recovery of the funds from Lewis. The issue before the bankruptcy court was whether an ordinary check delivered to the creditor prepetition, but honored postpetition, was transferred on the date of delivery or honor for purposes of § 549(a). Relying on Barnhill v. Johnson, 503 U.S. 393, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992), the bankruptcy court determined that the payment was transferred when the check was honored by the debtor's bank.

This is an issue of first impression before any appellate court in the Ninth Circuit since Barnhill. We agree with the bankruptcy court, and we AFFIRM.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
A. The check

On March 16, 2016, Lewis, in his role as Chief Financial Officer of the debtor, Cresta Technology Corp. ("Cresta"), issued a check from Cresta's bank account to Patrick Castello, Cresta's bankruptcy attorney, as payment for representing Cresta in its bankruptcy case. Castello refused the check in favor of a cashier's check.

On March 17, 2016, Lewis delivered to Castello a cashier's check drawn on Lewis's personal bank account for Cresta's legal fees, with the agreement that Cresta would reimburse Lewis.

On March 18, 2016, Cresta (via Lewis as CFO) issued a check for $10,000 ("Check") to Lewis from Cresta's bank account. Later that same day, Cresta filed its chapter 7 bankruptcy petition, signed by Lewis. Doris Kaelin was appointed as the chapter 7 trustee.

The Check cleared Cresta's bank account on March 22, 2016, four days after the petition date.

B. The adversary proceeding against Lewis

Trustee filed a complaint against Lewis, seeking to avoid the $10,000 payment as a postpetition transfer under § 549(a) and to recover the funds for the benefit of the estate under § 550(a)(1).

On summary judgment, Trustee argued that a "transfer" by an ordinary check for purposes of § 549 occurs when the check clears the debtor's bank account, not when it is delivered to the creditor. She relied on Barnhill, 503 U.S. at 394–95, 112 S.Ct. 1386 and Mora v. Vasquez (In re Mora), 199 F.3d 1024, 1027 (9th Cir. 1999).2 In contrast, Lewis argued that § 547 applied here, not § 549. In cases of check payments for purposes of § 547(c)(1), Lewis argued, the "date of delivery" governs when a transfer occurs. Because he received the Check prepetition and it was a contemporaneous exchange of new value between him and Cresta, Lewis asserted that the Check was not an avoidable postpetition transfer under § 549(a) but rather a non-avoidable preference under § 547(c)(1).

After a hearing, the bankruptcy court granted Trustee summary judgment, determining that the "transfer" to Lewis occurred on March 22, 2016—the date the Check was honored by Cresta's bank. Therefore, because the Check was transferred postpetition without authorization from the court or the Code, it was an avoidable postpetition transfer under § 549(a) recoverable by the estate. The court entered a money judgment against Lewis and in favor of Trustee for $10,000 plus costs. Lewis timely appealed.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(H). Because the judgment resolved all claims asserted in the complaint, it was a final appealable order. Therefore, we have jurisdiction under 28 U.S.C. § 158.

III. ISSUES

1. Did the bankruptcy court err in determining that § 549 applied to the Check and not § 547? And did it err in determining that the "date of honor" rule applied?

2. Did the bankruptcy court err in granting Trustee summary judgment?

IV. STANDARDS OF REVIEW

We review de novo the bankruptcy court's summary judgment ruling. Ulrich v. Schian Walker, P.L.C. (In re Boates), 551 B.R. 428, 433 (9th Cir. BAP 2016). The determination of when an avoidable postpetition transfer of estate property occurs is a question of law also reviewed de novo. In re Mora, 199 F.3d at 1026 (citing Barnhill, 503 U.S. at 397, 112 S.Ct. 1386 ).

When we review a matter de novo, we give no deference to the bankruptcy court's ruling. In re Boates, 551 B.R. at 433.

V. DISCUSSION
A. The bankruptcy court did not err by applying § 549(a) to the Check and determining that the date of honor rule applied.

Lewis contends that the bankruptcy court committed reversible error because it applied § 549 and not § 547. Precisely, he argues that, because the Check was delivered prepetition, § 549(a)3 is inapplicable, and the court should have applied the affirmative defenses available for a preferential transfer under § 547(c).

Section 547(b) permits a bankruptcy trustee to recover preferential payments from a debtor to a creditor made within the ninety days preceding the filing of the bankruptcy. Section 547(c) establishes various exceptions, or affirmative defenses, to § 547(b)'s general rule. For example, § 547(c)(1) provides an exception for transfers that are part of a contemporaneous exchange for new value between a debtor and creditor. Section 547(c)(1) provides that the trustee may not avoid a transfer to the extent the transfer was: (A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and (B) in fact was a substantially contemporaneous exchange. This is the defense Lewis asks us to apply here.4

In Barnhill, the United States Supreme Court held that under § 547(b) the "transfer" of an ordinary check does not occur until the check is honored by the debtor's bank. 503 U.S. at 394–95, 112 S.Ct. 1386. Barnhill overruled Ninth Circuit law, which held that for purposes of § 547(b) a "transfer" occurs at the time an ordinary check is delivered to the creditor, not on the date the check is honored. See Robert K. Morrow, Inc. v. Agri–Beef Co. (In re Kenitra, Inc.), 797 F.2d 790, 791 (9th Cir. 1986), abrogated by Barnhill, supra. The Ninth Circuit has since followed the holding of Barnhill. See MBNA Am. v. Locke (In re Greene), 223 F.3d 1064, 1067 n.3 (9th Cir. 2000) (a "transfer" for purposes of § 547(b) occurs when the check is honored by the debtor's bank).

Without deciding the issue, Barnhill expressly noted that, in the context of the affirmative defenses available under § 547(c), the Courts of Appeals that have considered the issue were unanimous in concluding that a "date of delivery" rule should apply to ordinary check payments for purposes of § 547(c). 503 U.S. at 402 n.9, 112 S.Ct. 1386. That was, and still appears to be, the rule in the Ninth Circuit. See Kupetz v. Elaine Monroe Assocs., Inc. (In re Wolf & Vine), 825 F.2d 197, 200–202 (9th Cir. 1987) (for purposes of determining a contemporaneous exchange, a transfer made by check is deemed to occur at the time of delivery as long as it is presented for payment within a reasonable time); Shamrock Golf Co. v. Richcraft, Inc., 680 F.2d 645, 646 (9th Cir. 1982) ; Gold Coast Seed Co. v. Spokane Seed Co. (In re Gold Coast Seed Co.), 30 B.R. 551, 553 (9th Cir. BAP 1983).

Lewis improperly conflates the affirmative defenses available under § 547(c) with § 549(a), which has its own exceptions for postpetition transfers. See § 549(b), (c). In preference cases under § 547, the events constituting the transfer between the debtor and creditor were completed prior to the bankruptcy filing. In other words, as relevant here, both the delivery and honoring of the check occurred prepetition . The only question remaining in such a case is whether the ordinary check was honored within the 90–day (or in the case of an insider, one year) reach-back period. That is not this case.

Here, the transaction between Cresta and Lewis straddles the date of the commencement of the case. Lewis received the Check prepetition, but it was honored postpetition. See In re Plaza Hotel Corp., 111 B.R. 882, 887 (Bankr. E.D. Cal. 1990) (noting that a bankruptcy filing before a check is honored is very different from a transaction in which the payment was actually completed prepetition; in the former case, the transaction is incomplete for not having been paid due to the account now belonging to the estate). Thus, neither § 547(b) nor the affirmative defenses available under § 547(c) apply.

Section 549(a) permits the trustee to avoid a postpetition transfer of estate property, and § 550(a)(1) permits the trustee to recover the amount of the avoidable transfer from the initial transferee. To recover under § 549, the trustee must show that the postpetition transfer occurred after the filing of the bankruptcy petition and that the transfer was not authorized by either the bankruptcy court or the Code. § 549(a); In re Mora, 199 F.3d at 1026.

The question, then, is whether the transfer from Cresta to Lewis occurred before or after the bankruptcy petition was filed. That answer turns on whether the "transfer" of an ordinary check occurs on the "date of delivery" or "date of honor" for purposes of § 549(a).

In cases where an ordinary check was delivered prepetition but honored by debtor's bank postpetition, several courts, post- Barnhill, have determined that the pertinent date for "transfer" is the date the check was honored. See Guinn v. Oakwood Props., Inc. (In re Oakwood Mkts., Inc.), 203 F.3d 406, 409 (6th Cir. 2000) (the only circuit court to address...

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