Schaumburg Bank &Trust Company v. Richard S. Alsterda
815 F.3d 306
| 7th Cir. | 2016Background
- Hartford & Sons LLC filed Chapter 11 in Aug 2013; case converted to Chapter 7 and R. Scott Alsterda was appointed trustee. Schaumburg Bank holds a valid first‑priority security interest in the debtor’s assets including accounts receivable.
- Two checks totaling $36,389.89 payable to the debtor were deposited into Thomas Hartford Jr.’s personal account postpetition; the trustee concluded those transfers were avoidable (preferences/fraudulent transfer and unauthorized postpetition transfer) and negotiated a settlement with Hartford Jr. for the full amount.
- The bankruptcy court approved the trustee’s settlement with Hartford Jr. after hearing; the trustee’s proposed order overruled Schaumburg Bank’s objection to settlement but continued the matter for status to address tracing/priority issues.
- Schaumburg Bank earlier obtained relief from the automatic stay to pursue its state‑law remedies and then sued Hartford Jr. in state court, obtaining a judgment for the check amounts before the trustee’s settlement was approved.
- At the bankruptcy hearing the court ruled on the record that the stay relief did not clearly authorize the Bank to pursue fraudulent‑transfer claims in state court and that the Bank bore the burden to trace proceeds under Illinois UCC §9‑315; the court suggested the Bank’s recoverable amount might be limited (possibly around $3,300) and set a status/hearing to address tracing.
- The Bank appealed the bankruptcy court’s October 30, 2014 order overruling its objection; the district court affirmed, and the Bank appealed to the Seventh Circuit, which dismissed for lack of appellate jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court’s October 30, 2014 order was a final, appealable order under 28 U.S.C. §158(d) (finality/jurisdiction) | Bank: order conclusively resolved its right to pursue transferred checks and its security interest, so appealable as a discrete dispute | Trustee/District Ct: order merely approved settlement and left distribution/priority unresolved; not a stand‑alone dispute | Held: Not final; appeal dismissed for want of jurisdiction (order resolved a discrete issue within a larger dispute) |
| Whether the earlier stay‑relief order allowed the Bank to pursue fraudulent‑transfer claims in state court (ability to litigate avoidance actions) | Bank: stay modification authorized it to exercise state‑law remedies and pursue fraudulent transfer claims against Hartford Jr. | Trustee/Bankruptcy Ct: stay motion did not identify collateral or give notice of intent to bring avoidance actions; trustee retains sole right unless estate abandons or court grants derivative standing | Held: Bankruptcy court concluded stay relief did not permit the Bank to pursue avoidance actions in state court absent proper notice/derivative standing |
| Whether the Bank retained a security interest in proceeds after the checks were deposited and commingled (tracing/proceeds) | Bank: retains first‑priority security interest in the transferred check proceeds | Trustee/Bankruptcy Ct: proceeds were commingled; Bank must trace to identify proceeds under §9‑315(a)(2), burden on Bank; no tracing evidence presented | Held: Bank must prove traceability; absent tracing evidence, Bank cannot show identifiable proceeds and recoveries are limited; court allowed hearing if Bank could prove tracing |
| Whether statements made on the record at hearing constitute a final decision beyond the written order | Bank: court’s on‑the‑record reasons show it decided Bank’s security interest and thus the matter is final | Trustee/District Ct: written order only approved the settlement and continued the matter for further proceedings; oral statements do not expand the written decision to finality | Held: Only the written order matters for finality; oral remarks did not render the order final and appealable |
Key Cases Cited
- Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015) (stand‑alone test and limits of finality in bankruptcy appeals)
- Zedan v. Habash, 529 F.3d 398 (7th Cir.) (2008) (order rebuffing one objection to another litigant’s request is not final)
- In re McKinney, 610 F.3d 399 (7th Cir. 2010) (flexible finality; appealability requires final decision resolving a separable dispute)
- In re Comdisco, 538 F.3d 647 (7th Cir. 2008) (distinguishing discrete issues from discrete disputes)
- In re XMH Corp., 647 F.3d 690 (7th Cir. 2011) (ministerial tasks exception to finality)
- National Tax Credit Partners, L.P. v. Havlik, 20 F.3d 705 (7th Cir. 1994) (limits on third‑party pursuit of trustee’s avoidance actions)
- In re Xonics Photochemical, Inc., 841 F.2d 198 (7th Cir. 1988) (same)