475 B.R. 762
Bankr. N.D. Tex.2012Background
- Dan Lain, as liquidating trustee, seeks avoidance/recovery of two pre-petition transfers totaling $48,285 to V3 Construction as preferences or fraudulent transfers.
- Erickson Construction, LLC was the debtor and general contractor on the Lincolnshire property; V3 was a subcontractor on that project.
- Transfers occurred July 17, 2009 (43,456.50) and July 17, 2009 (4,828.50), totaling 48,285, and cleared July 23, 2009.
- The debtor later filed for Chapter 11; a lien release was recorded by V3 on July 22, 2009, with payments used as consideration for lien release.
- Illinois Mechanics Lien Act (IMLA) purportedly imposes a trust on funds paid in exchange for lien releases; funds here were allegedly held in trust for V3.
- The court grants summary judgment, finding no genuine issue that the transfers were held in trust and not property of the debtor, precluding avoidance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the transfers transfers of debtor property for §547(b)? | Lain asserts transfers were debtor property and avoidable. | IMLA trust renders funds non-debtor property. | No; transfers were held in trust under IMLA, not debtor property. |
| Does IMLA create a trust immunizing the transfers from avoidance? | Transfers may still be traced to debtor funds and avoided. | IMLA creates a statutory trust on funds paid for lien releases, immunizing them from avoidance. | Yes; IMLA trust created; funds deemed trust funds not subject to avoidance. |
| Is tracing required to prove trust funds were the transfers? | Defendant must trace to trust funds to avoid; issue fact-bound. | Under Illinois law, the trust attaches to the funds paid for lien release; tracing not required here. | Not required; the transfers are deemed held in trust under IMLA from outset. |
| Does IMLA §30 affect the 'receives more' element of preference? | Section 30 pro rata distribution could affect 'receives more'. | Section 30 not applicable to a paid transfer; does not create issue here. | Irrelevant; Section 547(b)(5) not triggered where funds are trust funds, not debtor property. |
Key Cases Cited
- Butner v. United States, 440 U.S. 48 (Supreme Court 1979) (property interests defined by state law)
- Weather-Tite, Inc. v. Univ. of St. Francis, 233 Ill.2d 385; 909 N.E.2d 830 (Illinois Supreme Court 2009) (IMLA trust provisions protect subcontractors in lien-release transactions)
- Begier v. IRS, 496 U.S. 53 (Supreme Court 1990) (prepayment tax trust funds not subject to avoidance)
- Stern v. Marshall, - U.S. -; 131 S. Ct. 2594 (Supreme Court 2011) (bankruptcy court authority to issue final judgments in core matters)