JPMorgan Chase Bank, N.A. v. Smith, 13-03064

Chase seeks a declaratory judgment that its interest in certain cash proceeds is superior to the chapter 7 trustee's claim.
The Settlement Payment arose from a 2006 asset sale of restaurant assets to SMFG and related promissory note financing; the note was payable to the Lender and included direct payments to Chase for the benefit of the Lender.
At the time of corporate affiliate filings, the SMFG Note had not been paid in full, perfection of Chase’s security had lapsed, and ARMC, Harlon’s Bar & Grill, and Alfreddie had not perfected liens on the purchased assets.
The Trustee, after appointment, perfected the lien on the assets and pursued collection against SMFG, ultimately compromising for $350,000 in November 2012.
Chase argued several theories: payee/ownership under the Note, assignment, third-party beneficiary, and security interest; the court rejected each theory as dispositive of ownership by Chase.
The court held that the Settlement Payment constitutes estate property and that Chase has no interest in the proceeds beyond potential unsecured creditor status.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Is the Settlement Payment estate property?	Chase asserts it is the payee and thus owns the proceeds.	Trustee argues proceeds are property of the estate.	Yes; proceeds are estate property.
Is Chase entitled to the Settlement Payment as assignee of the SMFG Note?	SMFG Note/Forbearance evidence shows an assignment to Chase.	No valid indorsement or assignment exists; Note cannot be negotiated/enforced by Chase.	No; no valid assignment; Chase cannot enforce.
Is Chase a third-party beneficiary entitled to the Settlement Payment?	SMFG Note/Forbearance creates direct benefit to Chase.	Contract shows no clear intent to directly benefit Chase; Chase is incidental.	No; no direct third-party beneficiary rights.
Does the Trustee's security interest extend to Chase's benefit beyond the Note amounts due by SMFG?	Trustee’s perfection/continuing security should secure all obligations.	Post-petition perfection cannot revive pre-petition interests; would conflict with 11 U.S.C. § 544.	No; security interest does not enlarge Chase’s rights.
Are attorney’s fees warranted for Chase under the circumstances?	Fees should be awarded if Chase prevails.	No basis shown; Chase’s actions were improper.	No; fees denied.

MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647 (Tex. 1999) (intent to confer direct third-party beneficiary status must be clear)
Seagull Energy E&P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342 (Tex. 2006) (interpret contract considering whole instrument)
Stine v. Stewart, 80 S.W.3d 586 (Tex. 2002) (interpretation against unintended third-party rights)
Coker v. Coker, 650 S.W.2d 391 (Tex. 1983) (whole instrument should guide interpretation)
Corpus Christi Chase & Trust v. Smith, 525 S.W.2d 501 (Tex. 1975) (presumption against third-party beneficiaries)
Acceptance Corp. v. York Universal Premium Bank & Trust Co., 69 F.3d 695 (3d Cir. 1995) (pay to order language creates negotiability)
Mechanical & Elec. Concepts, Inc. v. Caltex Holdings LP, 2010 WL 1190304 (Bankr. S.D. Tex. 2010) (unsecured claim considerations for third-party breach)