An unauthorized post-petition transfer occurs when an ordinary check is honored by the bank, not when the check is delivered, the Ninth Circuit Bankruptcy Appellate Panel said in the course of overruling its own precedent in view of later Supreme Court authority.
In Barnhill v. Johnson, 503 U.S. 393 (1992), the Supreme Court ruled that the date of honor of an ordinary check is the date of transfer with regard to preferences under Section 547. In the April 6 opinion by Bankruptcy Judge Julia W. Brand, the three-judge BAP ruled that the high court’s “rationale . . . applies with equal force to postpetition transfers under Section 549.”
The case involved a lawyer who was either a loyal corporate employee or a chump, or both. A company was on the cusp of filing a chapter 7 petition. The company’s bankruptcy lawyer refused to accept a $10,000 ordinary check for his retainer. The company’s in-house lawyer therefore gave the bankruptcy lawyer a $10,000 cashier’s check drawn on his personal account.
The next day, the company attempted to reimburse inside counsel by giving him an ordinary $10,000 check drawn on a company account. The company filed its chapter 7 petition the same day. The check to inside counsel was not honored until four days after the company’s bankruptcy.
The chapter 7 trustee sued in-house counsel for a $10,000 unauthorized post-petition transfer under Section 549. The bankruptcy court granted summary judgment to the trustee. The lawyer appealed but lost in the BAP.
The lawyer argued that the transaction should be analyzed as a preference under Section 547, so he could raise the defense of a contemporaneous exchange under Section 547(c). Were it applicable, the defense might have worked because the Ninth Circuit continues to hold, Judge Brand said, that the date of delivery pertains to the contemporaneous exchange defense.
However, Judge Brand said that the transaction and any defenses must be analyzed under Section 549, applicable to postpetition transfers. The Sixth Circuit and “several courts,” she said, have invoked Barnhill and held that the date of honor controls under Section 549 when a check was delivered before filing but honored afterwards. The judge said she could find no authority to the contrary.
In ruling that the date of honor governs, Judge Brand said that the Ninth Circuit BAP’s own authority had been “effectively overruled” by Barnhill. In 1987, the BAP had held that the date of honor was the date of transfer under Section 549. Tarver v. Trois Etoiles Inc. (In re Trois Etoiles Inc.), 78 B.R. 237, 239 (B.A.P. 9th Cir. 1987).