Joseph Sarachek v. Luana Savings Bank
859 F.3d 599
| 8th Cir. | 2017Background
- Agriprocessors had two Luana Savings Bank accounts: checking (1430) and a second account (367788) with about $1.4 million; Luana treated them as netted for overdraft purposes.
- Luana provisionally settled checks intraday; under Iowa law provisional settlements became final at midnight next business day, producing either "intraday overdrafts" (temporary) or "true overdrafts" (settled and thus loans).
- In the 90 days before Agriprocessors’ Chapter 7 filing, Agriprocessors made deposits to cover both intraday and true overdrafts; the trustee sued to avoid and recover those deposits under 11 U.S.C. § 547 and § 550.
- Bankruptcy court held trustee could recover deposits that covered true overdrafts but not intraday overdrafts; it also found a netting agreement between the accounts and declined to treat a $1.4 million internal transfer as avoidable.
- District court affirmed the recovery of true-overdraft deposits, agreed intraday-overdraft deposits were not recoverable (mere conduit), and concluded the setoff issue was resolved in Luana’s favor but that conclusion did not change recoverable amounts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Recoverability of intraday-overdraft-covering deposits under §547/§550 | Trustee: intraday-overdraft deposits are avoidable transfers for antecedent debt | Bank: intraday overdrafts are not antecedent debt and bank was a mere conduit | Held: Intraday-overdraft deposits not recoverable because bank was a mere conduit (no §550 liability) |
| Recoverability of true-overdraft-covering deposits | Trustee: true overdrafts created antecedent debt and deposits are avoidable | Bank: true overdrafts not debt or bank lacked dominion (mere conduit) | Held: True overdrafts are debts (bank made unsecured loans); bank had dominion and control; deposits recoverable |
| §547(c)(1) contemporaneous exchange/new value defense | Bank: deposits were contemporaneous exchange for provisional credit/overdraft protection | Trustee: no evidence parties intended contemporaneous exchange | Held: Defense rejected—bank failed to prove intent for contemporaneous exchange |
| §547(c)(2) ordinary-course-of-business defense | Bank: overdraft payments were ordinary course between parties | Trustee: true overdrafts were unusual and increased as bankruptcy approached | Held: Defense rejected—true overdrafts not incurred in the ordinary course (lack of historical consistency) |
Key Cases Cited
- Laws v. United Mo. Bank of Kansas City, N.A., 98 F.3d 1047 (8th Cir. 1996) (routine advances against uncollected deposits do not necessarily create a debt)
- In re Reeves, 65 F.3d 670 (8th Cir. 1995) (initial-transferee liability requires dominion and control over funds)
- In re Armstrong, 291 F.3d 517 (8th Cir. 2002) (§547(c)(2) inquiries are fact-intensive; compare debts to historical baseline)
- In re Affiliated Foods Sw. Inc., 750 F.3d 714 (8th Cir. 2014) (use of a historical period when debtor was financially healthy for ordinary-course comparisons)
- Midland Funding, LLC v. Johnson, 137 S. Ct. 1407 (2017) (state law determines existence of a right to payment/debt)