Mwangi v. Wells Fargo Bank, N.A. (In Re Mwangi)
764 F.3d 1168
| 9th Cir. | 2014Background
- Debtors Mwangi and Mwicharo filed a voluntary Chapter 7 petition on August 3, 2009 with Wells Fargo accounts totaling $17,075.06.
- Wells Fargo placed a temporary administrative pledge on all four accounts after discovering the bankruptcy filing and sought trustee instructions on disposition of funds.
- Debtors claimed 75% exemption under Nevada law, Nev. Rev. Stat. § 21.090(1)(g), but initially did not have objections from any party.
- Wells Fargo advised the trustee that the funds became estate property and would be held until trustee direction or 31 days after the 341 meeting.
- Exemption was filed August 11, 2009; 341 meeting occurred September 18, 2009; 30-day objection period followed, ending October 18, 2009; funds revested in Debtors on October 19, 2009.
- Bankruptcy court and district court dismissed the § 362(a)(3) claim for lack of injury; the Ninth Circuit affirmed, holding revesting and lack of injury sequentially foreclose § 362(a)(3) liability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When do exempt funds revest in debtor? | Mwangi argues exemption revests only after objections period ends. | Wells Fargo argues revesting occurs only when exempt property is actually withdrawn from estate. | Exemption revests when property becomes exempt; here revesting occurred Oct. 19, 2009. |
| Did Wells Fargo's administrative pledge injure the Debtors under § 362(a)(3)? | Debtors contend pledge injured them before and after revesting. | Wells Fargo contends no injury occurred since funds were estate property before revesting and not estate property after revesting. | No injury under § 362(a)(3) occurred; claim dismissed. |
| Does § 542(b) or § 542(a) govern the creditor's turnover obligations in this context? | Debtors rely on § 542 to show automatic turnover to trustee and potential stay violation. | Wells Fargo complied with § 542(b) by seeking trustee instructions rather than failing to turnover. | § 542(b) applies; creditor sought trustee guidance, satisfying turnover requirement. |
| Can Debtors state a § 105(a) equitable claim? | Debtors rely on § 105(a) to compel equitable relief for stay violation. | No standalone equitable authority; § 362(a)(3) dismissal precludes § 105(a) claim. | No § 105(a) claim; affirmed dismissal. |
Key Cases Cited
- Schwab v. Reilly, 560 U.S. 770 (2010) (controls revesting when exempted property is an asset or an interest under Schwab's framework)
- In re Gebhart, 621 F.3d 1206 (9th Cir. 2010) (limits Schwab exception to exemptions of an interest valued up to a dollar amount)
- In re Del Mission Ltd., 98 F.3d 1147 (9th Cir. 1996) (differentiates turnover under § 542(a) vs § 542(b) and debtor's equitable remedies)
- In re Smith, 235 F.3d 472 (9th Cir. 2000) (exemption revesting principles for asset withdrawal from estate)
- In re Bell, 225 F.3d 203 (2d Cir. 2000) (general rule that exempt property revests in debtor)