In re Mississippi Valley Livestock, Inc.
745 F.3d 299
7th Cir.2014Background
- Mississippi Valley Livestock held J&R’s cattle for sale to Swift and did not disclose ownership to Swift.
- Mississippi Valley deposited cattle sale proceeds into its general account and later paid J&R the sale proceeds.
- J&R sought to recover seven payments totaling $862,747.31 as preferential transfers under 11 U.S.C. §547(b).
- J&R claimed Mississippi Valley held cattle proceeds in trust for J&R, so funds were not in the debtor’s property.
- Trustee argued commingling allowed tracing to the estate and imposition of a constructive trust on the funds; district and bankruptcy courts rejected this.
- On appeal, the merits turn on bailment characterization, construct ive trust viability, and tracing of funds to cattle proceeds, with remand due to incomplete proof of tracing and defenses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether payments were transfers of the debtor’s property | Trustee: funds traceable to property in estate via constructive trust | J&R: funds were held in bailment; no debtor property interest | Remand for tracing and state-law defenses to determine property interest |
| Is a constructive trust permissible in bankruptcy here | Trustee: constructive trust may remedy restitution against estate | J&R/estate defenses may bar restitution | Remand to apply Illinois law and defenses; not decided on record |
| Whether tracing to proceeds supports a constructive trust | Trustee: tracing shows funds linked to cattle proceeds | J&R: no clear tracing due to commingling | Remand to determine lowest intermediate balance and proportional interests |
| What defenses affect restitution claim against the estate | Trustee: defenses like unclean hands may apply | Estate may raise equitable defenses | Remand to evaluate defenses under Illinois law |
| How to apply lowest-intermediate-balance tracing rule here | Trustee: rule governs extent of trust in commingled funds | Estate: rule limits claimant’s recovery | Remand to assess balance history and proportional shares |
Key Cases Cited
- In re Galt, 120 F. 64 (7th Cir.1903) (bailment versus sale distinction governs ownership in bailed property)
- Nassar v. Smith, 315 N.E.2d 692 (Ill.App.3d 1974) (illustrates bailment versus sale in Illinois law)
- Belisle v. Plunkett, 877 F.2d 512 (7th Cir.1989) (constructive trusts insulated from debtor’s creditors in some contexts)
- Omegas Group, 16 F.3d 1443 (6th Cir.1994) (constructive trusts in bankruptcy criticized; need careful limits)
- Pearlman v. Reliance Ins. Co., 371 U.S. 132 (1962) (bankruptcy not permit distribution of others’ property to creditors)
- Cunningham v. Brown, 265 U.S. 1 (1924) (tracing required to claim money as property of defendant)