463 B.R. 796
Bankr. N.D. Tex.2011Background
- Whittle Development, Inc. (Debtor) is a Dallas real estate corporation with a development loan from Colonial Bank, N.A. (later BB&T).
- BB&T acquired Colonial Bank and declared a default in 2010, accelerating payments and foreclosing on the Debtor's property on September 7, 2010.
- The foreclosure sale, conducted in compliance with Texas law, conveyed the property to Eagle TX I SPE, LLC (an BB&T subsidiary) for $1,220,000.
- The Debtor filed a Chapter 11 petition on October 4, 2010; BB&T filed a proof of claim on February 7, 2011 for $2,855,243.29, asserting a $1,181,513.27 deficiency.
- The Debtor contends the property's value was about $3,300,000 and BB&T was oversecured by roughly $1,100,000 at foreclosure.
- The issue presented is whether the pre-petition foreclosure can be avoided as a preferential transfer under 11 U.S.C. § 547(b) despite state-law compliance and non-collusive conduct.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether pre-petition foreclosure is a avoidable preferential transfer under §547(b). | Debtor contends foreclosure enabled more than Chapter 7 recovery. | BB&T asserts no §547(b)(5) windfall since value equals or exceeds sale price. | Yes; foreclosure can be avoided if it enabled more than Chapter 7 recovery. |
| Whether §547(b)(5) requires a creditor to receive more than it would under Chapter 7, given the foreclosure price and collateral value. | Debtor argues oversecured timing yields windfall to BB&T. | BB&T argues BFP controls, foreclosures yield reasonably equivalent value. | Foreclosure can yield more than Chapter 7 so §547(b)(5) can be satisfied. |
| Whether BFP v. RTC restricts applying §547(b) to foreclosures compliant with state law. | Debtor disputes applicability of BFP to preference actions. | BB&T relies on BFP to limit valuing foreclosures as reasonably equivalent value. | Plain-language interpretation of §547(b) governs; BFP distinctions do not bar avoidance here. |
| Whether federalism concerns from BFP apply to §547 preference actions in this context. | Debtor urges policy to avoid windfalls despite state-law foreclosure. | Defendant cites BFP and state interests in title security. | Not controlling in this §547 context; concerns are inapplicable here. |
| Whether the debtor-in-possession may proceed with avoidance in a Chapter 11 case. | Debtor seeks avoidance to recover estate assets. | Creditors seek to retain foreclosed property value. | Yes; the Debtor's claim is facially plausible and the motion to dismiss is denied as to Count 1. |
Key Cases Cited
- Howard Delivery Service v. Zurich American Ins. Co., 547 U.S. 651 (U.S. 2006) (central bankruptcy preference principles; equality of distribution)
- In re Villarreal, 413 B.R. 633 (Bankr.S.D.Tex.2009) (windfall analysis under §547(b)(5) turn on hypothetical Chapter 7 outcome)
- In re Rambo, 297 B.R. 418 (Bankr.E.D.Pa.2003) (foreclosure windfall versus Chapter 7 potential)
- In re Pulcini (Ch. 11/Bankr. W.D. Pa.), 261 B.R. 836 (Bankr.W.D.Pa.2001) (BFP-related reasoning cited in preference context)
- FIBSA Forwarding, Inc., 230 B.R. 334 (Bankr.S.D.Tex.1999) (discussed BFP implications and windfall timing)