Continuing to follow its own authority from 40 years before adoption of the Bankruptcy Code, the Fourth Circuit held that a deposit into someone’s own bank account is not a “transfer” within the meaning of Section 101(54), despite legislative history to the contrary.
In two cases in the 1930s, the Fourth Circuit held that an ordinary deposit into one’s own bank account is not a “transfer” in the bankruptcy sense because the depositor receives “a corresponding credit with the bank” in substitution for cash or “other bankable items.”
In his opinion on Jan. 31, Chief Judge Roger L. Gregory conceded that the definition given by Congress to “transfer” in Section 101(54) was intended to be “as broad as possible.” He also cited the Senate Report as saying that a transfer includes a “deposit in a bank account or similar account.”
Judge Gregory said that cases decided since the adoption of the Code are split. While several lower courts have held that a bank deposit is a transfer, he cited the Seventh and Second Circuits for holding that a deposit into an unrestricted bank account in the ordinary course of business is not a transfer.
As long as the “debtor is still free to access those funds at will,” Judge Gregory held that no transfer has occurred under Section 101(54)(D) because there is no “parting with” or “disposing of” property.
Finding no transfer, Judge Gregory upheld decisions by the bankruptcy and district courts in granting summary judgment and dismissing an “actual intent” fraudulent transfer suit against a bank under Section 548(a)(1)(A). The two lower courts both found no fraudulent transfer because the debtor’s estate had not been diminished by the deposits.
In finding no transfers, Judge Gregory did not reach the issue decided in the lower courts. He thereby avoided the controversy epitomized by the Fifth Circuit and the Texas Supreme Court in their differing opinions in Janvey v. Golf Channel Inc., where the trustee had sued a cable television channel to recover $5.8 million paid for advertising a business that was later shown to be a Ponzi scheme.
On a certified question, the Texas Supreme Court held there was reasonably equivalent value under Texas’ non-uniform version of the Uniform Fraudulent Transfer Act. Although compelled to follow the state court in the case before it, the Fifth Circuit stood by its guns in saying that its prior opinions finding fraudulent transfer liability still have binding effect with respect to Section 548 and the laws of other states. To read ABI’s discussion of the Fifth Circuit’s August 2016 opinion, click here.