Stoebner v. Consumers Energy Co. (In Re LGI Energy Solutions, Inc.), 460 B.R. 720

Trustee in seven related Chapter 7 adversary proceedings seeks to avoid pre-petition transfers LGI Energy made to various utilities.
All payments came from a single bank account ending in 3321 held in LGI Energy's name, with no explicit trust designation.
Trustee alleges LGI Energy commingled customer funds with other income and engaged in a Ponzi/ check-kiting scheme, depleting funds to pay utilities.
Defendants contend the 3321 account was a funnel for customer payments and that LGI Energy had no ownership in those funds, arguing the funds were held in trust for customers.
Bankruptcy Court granted summary judgment for Defendants, finding the payments were not property of the estate; Trustee appeals and this panel reverses and remands for tracing and trust/bailment analysis.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether tracing is required to treat commingled funds as property of the debtor	Trustee argues a trust/agency relationship requires tracing to prove property of the estate	Defendants contend no tracing is needed when funds are held in trust and commingled	Tracing is required; lower court erred and case remanded

Begier v. United States, 496 U.S. 53 (1990) (trust funds in Begier are not property of the debtor; statutory trust creates separate fund)
In re MJK Clearing, Inc., 371 F.3d 397 (2004) (constructive trust requires tracing to specific property; lowest intermediate balance rule applies)
In re Crouthamel Potato Chip Co., 6 B.R. 501 (Bankr.E.D. Pa. 1980) (bailment concepts and traceability clarified in context of commingling)
First Federal of Mich. v. Barrow, 878 F.2d 912 (6th Cir. 1989) (constructive trusts require identifiable property; tracing not waivable by mere commingling)
In re Rine & Rine Auctioneers, Inc., 74 F.3d 854 (8th Cir. 1996) (agency/ownership factors to show money is debtor's property despite contract language)