Banking law mavens should read a March 15 decision by Chief District Judge Linda R. Reade of Cedar Rapids, Iowa, in the liquidation of Agriprocessors Inc.
The appeal from the bankruptcy court involved a maddeningly complex preference analysis arising from “intraday overdrafts” followed by “true overdrafts” that do not occur until after the midnight deadline on the second day of a banking transaction. The issue was whether routine advances against uncollected funds represented “antecedent debt” when the advances, or intraday overdrafts, occurred before the midnight deadline on the second day.
Judge Reade followed Eleventh and Ninth Circuit precedents holding that intraday overdrafts do not create debt. She interpreted the Eighth Circuit’s 1996 decision in Laws to mean that a debt arises only after a bank honors a check that creates an overdraft after the midnight deadline.
Although Judge Reade ruled in favor of the bank on intraday overdrafts, she sided with the trustee in rejecting the bank’s ordinary course, contemporaneous exchange and “mere conduit” defenses.
Judge Reade upheld an opinion from April 2015 by Chief Bankruptcy Judge Thad J. Collins of Cedar Rapids.