Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-07-02073/USCOURTS-ca8-07-02073-0/pdf.json

Parties Involved:
Flywheel Grain, LLP
Appellee
Bill Hess
Appellee
David G. Velde
Appellant

Document Text:

1

The Honorable Ralph R. Erickson, United States District Judge for the District

of North Dakota, sitting by designation.

2

The Honorable Richard H. Kyle, United States District Judge for the District

of Minnesota.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

Nos. 07-2070, 07-2073

___________

David G. Velde, *

*

Appellant, *

* Appeal from the United States

v. * District Court for the 

* District of Minnesota. 

Hans Reinhardt, Flywheel Grain, LLP *

and Bill Hess, * [UNPUBLISHED]

*

Appellees. * 

___________

Submitted: January 16, 2008

Filed: September 24, 2008

___________

Before COLLOTON and SHEPHERD, Circuit Judges, and ERICKSON,1

 District

Judge.

___________

ERICKSON, District Judge.

David G. Velde, a bankruptcy trustee for the District of Minnesota, appeals the

decision of the district court2

 reversing and vacating prior decisions of the bankruptcy

court in three adversary proceedings. The trustee contends that four bank checks

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-2-

received by Hans Reinhardt, Flywheel Grain, LLP and Howard Steinmetz in

replacement of four dishonored checks were payments made within the ninety-day

period prior to the filing a bankruptcy and were thus prohibited preferences under the

Bankruptcy Code § 547(b). Because we conclude the replacement checks resulted in

the release of banks’ security interest in collateral, each bank check constitutes a

contemporaneous exchange for new value falling within an exception to the trustee’s

avoidance powers as set forth in Velde v. Kirsch, 07-2017, issued contemporaneously

with this opinion, we affirm.

I.

On February 3, 2004, an involuntary Chapter 7 bankruptcy petition was filed

against Daniel Miller, the owner of Danielson Grain, a crop storage elevator in East

Grand Forks, Minnesota. Miller converted the involuntary case to a Chapter 11

proceeding. On September 29, 2004, the Bankruptcy Court converted Miller’s

petition back to a Chapter 7 case and appointed David Velde as trustee of Miller’s

bankruptcy. The trustee commenced several adversary proceedings, including these

cases, to recover the value of checks that Miller issued during the ninety-day period

prior to the bankruptcy filing. The facts in each case are similar. In December 2003,

Miller issued checks payable to Reinhardt, Steinmetz, and Flywheel Grain. A check

in the amount of $100,332.75 payable to Reinhardt and his bank in payment for canola

that Reinhardt had delivered to Miller was issued and dishonored by Miller’s bank.

It was later partially replaced with a $50,000 bank check which came from funds in

Miller’s bank account. Miller had also issued a check in the amount of $12,000

payable to Steinmetz and his bank to pay for wheat that Steinmetz had previously

delivered to Miller. When that check was dishonored by Miller’s bank Miller

replaced it with a bank check that was drawn on funds paid to the bank by Miller.

Miller issued two checks to Flywheel Grain and its bank to pay for grain and soybeans

that Flywheel Grain had previously delivered to Miller. These checks were also

dishonored and were ultimately replaced with two bank checks totaling $300,000 from

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funds that were in Miller’s account. The replacement check issued to Reinhardt

omitted his bank as a payee but Reinhardt endorsed the check and delivered it to his

bank. All the replacement checks were delivered to the payees’ banks and resulted in

the extinguishment of valid crop liens held by the various banks. Reinhardt, Steinmetz

and Flywheel Grain all contend that the release of their banks’ security interests upon

receipt of the replacement bank checks constitute contemporaneous exchanges for new

value taking the transactions out of the bankruptcy trustee’s avoidance powers. The

District Court reversed the Bankruptcy Court which had found the payments to be an

avoidable preference. This appeal followed. 

II.

 The issue presented is whether a trustee may avoid a pre-bankruptcy transaction

pursuant to 11 U.S.C § 547 (1993) where a debtor issues a replacement check jointly

payable to a creditor and his bank for one previously issued and dishonored or whether

a contemporaneous exchange for value occurs when the bank releases a perfected

security interest in the debtor’s property only after receipt of payment from the second

check. For the reasons set forth in our opinion issued today in Velde v. Kirsch, 07-

2017, the judgment of the district court is affirmed.

 ______________________________

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