Terry v. Standard Insurance (In Re Terry), 443 B.R. 816

Debtor Joseph Terry was a Missouri state employee with MOSERS long-term disability coverage.
Terry became disabled on Dec 6, 2005; Standard began paying benefits Aug 2006.
In May 2008, Terry received a retroactive Social Security Disability Insurance award of $45,316.54.
Standard reduced its benefits by deductible income and required repayment of any overpayments; Terry repaid $45,316.54 on July 24, 2008.
Terry filed Chapter 7 on July 31, 2008; trustee demanded turnover of the overpayment; Standard refunded and then began deducting from post-petition benefits pending litigation.
The bankruptcy court ruled Standard could not recoup under §502(h); the issue on appeal is whether recoupment may be allowed post-bankruptcy and, if so, on what equities.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether § 502(h) limits Standard to a claim against the estate	Terry contends §502(h) precludes post-petition recoupment	Standard argues §502(h) permits treatment as a general claim	No, §502(h) does not limit recoupment to an estate claim
Whether recoupment is available where both debts arise from the same contract	Terry argues not applicable due to bankruptcy context	Standard asserts same-transaction basis supports recoupment	Yes, debts arise from a single contract and recoupment may apply
Whether equities favor allowing recoupment given debtor’s permanent disability	Recoupment would impose double repayment and undermine fresh start	Equities may permit recoupment if inequitable to allow benefit without obligation	Remand for a balancing of equities; not decided on the merits in this opinion
Impact of the trustee’s preference demand on recoupment rights	Unclear impact on recoupment defense	Standard’s defense could be affected by preference issues	Remand; court did not decide merits in light of preference considerations

Hutchinson v. Otis, Wilcox & Co., 190 U.S. 552 (1903) (recoupment revived when satisfaction is undone)
Reiter v. Cooper, 507 U.S. 258 (1993) (recoupment as a bankruptcy defense arising from same transaction)
Bird v. Carl's Grocery Co. (In re NWFX, Inc.), 864 F.2d 593 (8th Cir. 1989) (recoupment in bankruptcy; not an affirmative action)
In re Laizure, 548 F.3d 693 (9th Cir. 2008) (§502(h) did not create or limit underlying claims)
Dewey Postal Serv. v. Dewey Freight Sys., Inc., 31 F.3d 620 (8th Cir. 1994) (recoupment requires single integrated transaction; equitable limits)
In re Univ. Med. Ctr., 973 F.2d 1065 (3d Cir.1992) (single integrated transaction principle for recoupment)
United States v. Dewey Freight Sys., Inc., NLRB v. Bildisco (1984) (Chapter 11 recoupment guiding purpose)