North American Banking Co. v. Leonard (In re WEB2B Payment Solutions, Inc.), 488 B.R. 387

NABC and Debtor WEB2B Payment Solutions entered a Remote Deposit Capture Service Agreement granting NABC security interests and setoff rights in Debtor deposits.
Debtor deposited funds with NABC; NABC credited Debtor and managed reclamation/chargeback claims, including Treasury checks.
Debtor petitioned for bankruptcy (Chapter 11, converted to Chapter 7); NABC froze Debtor accounts, then turned over $883,120.46 to Trustee after holding back $50,000 as Holdback Funds.
NABC did not seek court-ordered adequate protection for its possessory lien before turnover; Trustee retained funds and later faced ongoing reclamation claims.
NABC sought to preserve its lien post-turnover through theories from Whiting Pools and Strumpf, but the Bankruptcy Court held possession relinquishment destroyed the possessory lien.
On appeal, the court affirmed, ruling NABC lost its possessory lien upon turnover absent an adequate protection order.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether turnover destroyed NABC's possessory lien	NABC argued Whiting Pools preserved lien with adequate protection after turnover.	Trustee contends lien extinguished by relinquishment of possession absent protection order.	Lien extinguished upon turnover without adequate protection order.
Whether Whiting Pools governs possession-based liens post-turnover	Whiting Pools supports continuing lien with adequate protection after turnover.	Whiting Pools involved different lien (tax) and does not apply to possessory lien here.	Whiting Pools not controlling for possessory lien; lien lost upon relinquishment.
Whether Strumpf permits retention of funds to preserve lien	Strumpf allows temporary freezing/adequate protection proceedings to preserve setoff rights.	Strumpf addresses setoff, not possessory lien; not applicable to NABC's lien	Strumpf supports only setoff context; does not save possessory lien here.

Whiting Pools, Inc. v. U.S., 462 U.S. 198 (1983) (adequate protection replaces possession for secured creditors after turnover)
Citizens Bank of Md. v. Strumpf, 516 U.S. 16 (1995) (setoff rights are lost when possession is relinquished; can seek relief under stay/adequate protection)
In re Cumberland Molded Prods., LLC, 431 B.R. 718 (6th Cir. BAP 2010) (creditor's security interests perfected by filing differ from possessory liens upon turnover)
In re Chaseley’s Foods, Inc., 726 F.2d 303 (7th Cir. 1983) (continuation of security interests and turnover effects on liens)
In re Hanson, 132 B.R. 406 (Bankr. E.D. Mo. 1991) (pre-petition liens survive bankruptcy generally; context for lien in turnover)
Isaacs v. Hobbs Tie & Timber Co., 282 U.S. 734 (1931) (valid liens existing at petition start are preserved)
General Elec. Credit Corp. v. Nardulli & Sons, Inc., 836 F.2d 184 (3rd Cir. 1988) (properly perfected liens prepetition have priority over trustee as hypothetical lienholder)