521 B.R. 259
Bankr. N.D. Ohio2014Background
- Medcorp assigned Huntington a broad security interest in its business assets (including deposit accounts) via a Credit and Security Agreement (Aug. 28, 2009).
- Medcorp's receiver (appointed Aug. 6, 2010) received a $750,000 settlement check (Sept. 16, 2010) deposited into Medcorp’s Huntington account; Huntington received $685,678.46 drawn from that account later in September 2010.
- Trustee filed an adversary complaint (May 2, 2013) to avoid/recover the transfer as a preference under 11 U.S.C. §§ 547, 550, alleging the transfer occurred within one year of the Chapter 11 petition (filed June 20, 2011) and that Huntington was an "insider."
- Huntington moved for summary judgment arguing (1) it had a perfected security interest that attached to the settlement proceeds (so it did not receive more than in a hypothetical Chapter 7), and (2) it was not an "insider" because its conduct was within typical creditor-debtor bounds and the receiver answered to the state court.
- Trustee relied on voluminous discovery (emails, time records) to argue Huntington controlled the receiver and that the attachment/payment of the settlement proceeds should be treated as the preferential transfer; he did not amend the complaint to change the precise transfer date.
- Court treated disputed facts in Trustee’s favor where appropriate but found no genuine issue of material fact as to insider status and ultimately granted summary judgment for Huntington.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Huntington received more than it would in a hypothetical Chapter 7 (§547(b)(5)) | The Reminger settlement proceeds were unsecured and Huntington never had a lien on those specific proceeds, so the bank got an avoidable preference. | Huntington had a perfected security interest in Medcorp deposits; its lien attached on deposit (Sept. 16, 2010), so payment later did not improve its Chapter 7 outcome. | Court declined to grant summary judgment on pleading-timing grounds but denied Trustee relief overall; timing amendment issue did not preclude consideration of attachment theory. |
| Whether Huntington was an "insider" under §101(31)(B) / §547(b)(4) (control via receiver) | Emails/time records show frequent contact and alleged direction of the receiver by Huntington, implying control sufficient to be an insider. | Communications reflect ordinary creditor oversight; receiver answered to state court and no evidence Huntington unqualifiedly dictated operations. | Court held Trustee’s evidence insufficient to create a genuine issue: Huntington was not an insider as a matter of law on summary judgment. |
| Whether Trustee could rely on amended timing/theory raised in opposition to summary judgment (pleading adequacy) | Discovery clarified mechanics of the transfer; the core preference claim remained the same and the briefing provided adequate notice to Huntington. | Trustee improperly tried to change the pleaded transfer date/theory without seeking leave to amend, causing potential unfair surprise. | Court applied Sixth Circuit notice cases and found no unfair surprise; treated Trustee’s timing clarification as adequate notice. |
| Whether attachment of a security interest can constitute a preferential transfer | Attachment converting an unsecured claim into a secured claim can be a preference that enables greater recovery. | Huntington argued it was already secured when the funds were transferred, so no preferential recovery exists. | Court recognized attachment can be a preference but concluded evidence did not support insider/control required for extended-period preference; summary judgment for Huntington granted. |
Key Cases Cited
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (U.S. 1986) (summary judgment inference standard)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (party moving for summary judgment bears initial burden)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (genuine issue for trial standard)
- In re Fulghum Constr. Corp., 706 F.2d 171 (6th Cir. 1983) (all §547(b) elements required)
- In re Southern Air Transp., Inc., 511 F.3d 526 (6th Cir. 2007) (trustee bears burden on preference elements)
- In re Dickson, 655 F.3d 585 (6th Cir. 2011) (attachment of security interest can be a transfer)
- In re Lewis, 398 F.3d 735 (6th Cir. 2005) (treatment of secured creditor in preference analysis)
- Tucker v. Union of Needletrades, Indus. & Textile Employees, 407 F.3d 784 (6th Cir. 2005) (limits on asserting unpleaded theories at summary judgment)
- Moore v. City of Harriman, 272 F.3d 769 (6th Cir. 2001) (response to summary judgment may clarify complaint)
- Carter v. Ford Motor Co., 561 F.3d 562 (6th Cir. 2009) (notice inquiry for new claims raised at summary judgment)
- In re Armstrong, 231 B.R. 746 (Bankr. E.D. Ark. 1999) (factors for finding creditor an insider)