In re: AgriProcessors, Inc. Debtor
Luana Savings Bank Appellant Joseph E. Sarachek, in his capacity as Chapter 7 Trustee Appellee American Bankers Association; Iowa Bankers Association Amid on Behalf of Appellant(s) In re: AgriProcessors, Inc. Debtor Joseph E. Sarachek, in his capacity as Chapter 7 Trustee Appellant
Luana Savings Bank Appellee American Bankers Association; Iowa Bankers Association Amid on Behalf of Appellee(s)
Submitted: January 12, 2017
from United States District Court for the Northern District
of Iowa - Dubuque
LOKEN, BEAM, and BENTON, Circuit Judges.
BENTON, Circuit Judge.
90 days before filing for bankruptcy, Agriprocessors, Inc.,
wired funds covering overdrafts at Luana Savings Bank. The
bankruptcy trustee, Joseph E. Sarachek, argues those
overdraft-covering deposits are avoidable transfers
recoverable from Luana. The bankruptcy court found Sarachek
could recover some deposits but not others. Sarachek and
Luana cross-appealed. The district courtaffirmed. The
parties again cross-appeal. Having jurisdiction under 28
U.S.C. §§ 158(d)(1) and 1291, this court affirms.
had two accounts with Luana relevant here-account 1430 (a
checking account) and account 367788 (whose purpose the
parties dispute). This appeal is about overdrafts of these
accounts. Luana's policy was to provisionally settle all
checks on Agriprocessors' checking account and debit that
account. When provisional settlement/debiting caused or
contributed to a negative account balance, an "intraday
overdraft" occurred. By Iowa law,  Luana's
provisional settlement did not become final until midnight
the next business day. Iowa Code §§ 554.4104(1)(j),
554.4301. Luana generally let provisional settlements become
final at the midnight deadline, even if they caused or
contributed to a negative balance. When Luana allowed
provisional settlements causing or contributing to a negative
balance to become final at the midnight deadline, a
"true overdraft" occurred. Throughout the 90 days
before Agriprocessors petitioned for bankruptcy, it deposited
funds to cover both intraday and true overdrafts.
the 90-day preference period-August 6, 2008, to November 4,
2008-the checking account's balance fluctuated but was
always negative. For most of the period, account 367788 had
$1.4 million in it. Luana says it "netted" the two
accounts, considering the 367788 funds when determining
whether the checking account was overdrawn. Put another way,
Luana says that so long as the checking account had more than
negative $1.4 million, it treated Agriprocessors as
having a positive balance (and thus treated Agriprocessors as
if no overdrafts occurred). Sarachek disputes that Luana
properly "netted" the two accounts.
the end of the preference period, Luana transferred the $1.4
million from account 367788 to the checking account.
petitioned for Chapter 7 bankruptcy. Sarachek filed to
recover deposits covering both intraday and true overdrafts,
as well as the $1.4 million Luana transferred the checking
account. Luana argued none of the deposits were recoverable,
raised affirmative defenses, and contended the $1.4 million
was not recoverable because it was a protected setoff. The
bankruptcy court found Sarachek could recover the true
overdrafts but not the intraday overdrafts. It rejected
Luana's affirmative defenses. And it found that setoff
was improper but did not affect Sarachek's recovery. On
cross-appeals, the district court affirmed the bankruptcy
court. It held that the bankruptcy court erred in finding the
setoff improper, but concluded that error did not affect
Sarachek's recovery. The parties again cross-appeal.
court sits as a second court of review in bankruptcy matters,
reviewing interpretations of law de novo and factual findings
for clear error." In re Peet, 819 F.3d 1067,
1069 (8th Cir. 2016) (internal quotation marks omitted).
Under clear error review, this court will "overturn a
factual finding only if it is not supported by substantial
evidence in the record, if it is based on an erroneous view
of the law, or if we are left with the definite and firm
conviction that an error was made." Lincoln
Provision, Inc. v. Puretz, 775 F.3d 1011, 1014 (8th Cir.
bankruptcy trustee may "avoid" a debtor's
transfer of a property interest (1) "to or for the
benefit of a creditor"; (2) "for or on account of
an antecedent debt owed by the debtor before such transfer
was made"; (3) "made while the debtor was
insolvent"; (4) "made . . . within 90 days before
the date of the filing of the petition"; and
(5) "that enables [the] creditor to receive more"
than it would receive under Chapter 7 if the transfer had not
been made. 11 U.S.C. § 547(b). The
trustee has the burden to prove a transfer is avoidable.
§ 547(g). The trustee may not avoid a
transfer if a creditor proves an exception applies.
§ 547(c), (g).
transfer is avoidable, the trustee may recover it from
"(1) the initial transferee of such transfer or the
entity for whose benefit such transfer was made; or (2) any
immediate or mediate transferee of such initial
transferee." § 550(a). The trustee
may not recover from a "mere conduit for an avoidable
transfer." In re Reeves, 65 F.3d 670, 676 (8th
district court found Sarachek could not recover
Agriprocessors' intraday-overdraft-covering deposits from
Luana for two independent reasons. First, it found that
Agriprocessors' "intraday overdrafts do not give
rise to antecedent debt." See §
547(b)(2); Laws v. United Mo. Bank of Kansas
City, N.A., 98 F.3d 1047, 1051 (8th Cir. 1996)
("[R]outine advances against uncollected deposits do not
create a 'debt' to the bank."). Second,
"with respect to the intraday overdrafts, the Bank . . .
was functioning as a mere conduit." See
§ 550(a); In re Reeves, 65
F.3d at 676. On appeal, Sarachek argues the intraday
overdrafts are antecedent debt. But he does not argue that
Luana was more than a "mere conduit" when it
received intraday-overdraft-covering deposits. Even if this
court decided that the intraday overdrafts were antecedent
debts, the district court's "mere conduit"
finding would stand, preventing Sarachek from recovering
intraday-overdraft-covering deposits from Luana. This court
declines to consider Sarachek's antecedent-debt argument
because it would not affect the outcome of this case. See
In re Railworks Corp., 760 F.3d 398, 403 (4th Cir. 2014)
("Of course, if the funds are not recoverable under
§ 550, then it matters not whether they are avoidable
under § 547."). See also In re Willaert,
944 F.2d 463, 464 (8th Cir. 1991) ("The fundamental
purpose of section 547(b)'s avoidable preference
provision is to restore the bankruptcy estate to its
pre-preferential transfer condition. Section 550(a) is the
vehicle that allows the trustee to accomplish
district court found Sarachek could recover
Agriprocessors' true-overdraft-covering deposits from
Luana. Luana argues the district court erred because (A) true
overdrafts did not create debts, see§
547(b)(2), and (B) even ...