In bankruptcy proceeding, Dist. Ct. did not err in denying Trustee’s renewed request to avoid debtor’s $297 million transfer to group of debtor’s customers under 11 USC section 549 that was made few days after debtor had filed for bankruptcy protection. Ct. of Appeals, in prior appeal regarding same issue, found that: (1) section 549 relief was not available because Bankruptcy Ct. had authorized said transfer; and (2) Bankruptcy Ct.’s subsequent order indicating that it had not intended to foreclose section 549 avoidance action did not defeat language of its prior order authorizing said transfer. As such, under mandate rule and law of case doctrine, Dist. Ct. could not revisit instant section 549 issue, even though Trustee had argued that creditors were collaterally estopped from arguing that instant post-petition transfer was authorized. Dist. Ct. erred, though, in treating $25 million held in reserve/trust under confirmed bankruptcy plan was property belonging to bankruptcy estate that was subject to pro-rata distribution to all of debtor’s creditors instead of to creditors/customers identified in instant trust, since: (1) under confirmed plan, identified creditors/customers of debtor preserved their right to recover their trust property; and (2) unrebutted evidence indicated that instant customer was able to trace portion of reserve funds back to its investment with debtor.
Federal 7th Circuit Court
Civil Court
Bankruptcy