UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: DENNIS LENNAN, t/a Lennan's

Maytag Home Appliance Center,

Debtor.

TYSONS NATIONAL BANK,

No. 96-1911

Plaintiff-Appellee,

v.

DENNIS LENNAN, t/a Lennan's

Maytag Home Appliance Center,

Defendant-Appellant.

Appeal from the United States District Court

for the Eastern District of Virginia, at Alexandria.

Albert V. Bryan Jr., Senior District Judge.

(CA-96-338-A, BK-95-15345-SSM)

Argued: May 6, 1997

Decided: October 9, 1997

Before WILKINSON, Chief Judge, WILKINS, Circuit Judge,

and TRAXLER, United States District Judge for the

District of South Carolina, sitting by designation.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Konstantinos Alexakis, Alexandria, Virginia, for Appellant. Henry F. Brandenstein, Jr., REES, BROOME & DIAZ, P.C.,
Vienna, Virginia, for Appellee. ON BRIEF: Michael L. O'Reilly,

REES, BROOME & DIAZ, P.C., Vienna, Virginia, for Appellee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

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OPINION

PER CURIAM:

In this bankruptcy suit, Appellant Dennis Lennan, trading as Lennan's Maytag Home Appliance Center ("Lennan"), appeals various

holdings by the district court, but the gravamen of his appeal is that

Tysons National Bank ("Tysons") violated the automatic stay triggered by Lennan's bankruptcy in that Tysons placed an administrative

hold on Lennan's accounts at Tysons. Additionally, Lennan contends

that the district court erred in affirming the bankruptcy court's awarding attorneys' fees to Tysons in excess of Tysons's offset rights and

denying attorneys' fees to Lennan. We affirm.

I.

In connection with operating his appliance repair operations, in

September 1994, Lennan established an irrevocable letter of credit

with Suburban Bank of Virginia ("Suburban") for $15,000 in favor of

Maytag Corporation d/b/a Maytag and Admiral Products ("Maytag").

This letter of credit was valid for one year and automatically renewed

for one year unless Lennan notified Suburban at least sixty days prior

to renewal. Simultaneous with establishing the letter of credit, Lennan

executed a promissory note in favor of Suburban that provided the

terms under which Lennan must satisfy his obligation to Suburban if

Maytag drew on the letter of credit. Also in conjunction with establishing the letter of credit, Lennan purchased a certificate of deposit

for $15,000 from Suburban to secure the indebtedness under the

promissory note were Maytag to draw on the letter of credit; thus, the

certificate of deposit served as collateral for Lennan's indebtedness to

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Suburban. Material for purposes of this appeal, Tysons represents in

its brief, and Lennan does not dispute, that the promissory note and

the certificate of deposit provided that Suburban would recover attorneys' fees and costs in the event of litigation regarding these instruments.

Subsequently, Lennan borrowed an additional $71,000 from Suburban, which loan was guaranteed by the Small Business Administration ("SBA"). To secure this loan, Lennan executed a second deed of

trust on his home and a lien on all other accounts Lennan held at Suburban. Payments on this SBA-guaranteed loan were automatically

withdrawn from Lennan's checking account at Suburban. Following

this loan, Tysons acquired all rights and interests of Suburban;

accordingly, Lennan became indebted to Tysons based on his transactions with Suburban.

On November 29, 1995, confronted with unpaid invoices of

approximately $38,000, Maytag drew $15,000 on the letter of credit,

which Tysons honored on December 1, 1995; hence, Lennan became

indebted to Tysons for $15,000, plus interest, but Tysons continued

to hold the certificate of deposit as collateral for that obligation. On

November 30, 1995, Lennan filed for bankruptcy reorganization

under Chapter 11 of the Bankruptcy Code, see 11 U.S.C.A. §§ 1101-

1146 (West 1993 & Supp. 1997), thereby triggering the automatic

stay of 11 U.S.C.A. § 362(a) (West 1993 & Supp. 1997). Realizing

Lennan's precarious financial health, Tysons unsuccessfully sought to

gain Lennan's permission to liquidate the certificate of deposit to satisfy the $15,000 plus interest. Stymied by Lennan's refusal to liquidate the certificate of deposit, on December 8, 1995, Tysons issued

an administrative hold respecting Lennan's accounts, which, combined with the $15,000 plus interest on the letter of credit, resulted in

Tysons's holding approximately $23,000 of Lennan's funds. As consequences of this administrative hold, six of Lennan's checks were

returned for insufficient funds, resulting in $150 in penalties, and his

SBA-guaranteed loan could not be amortized, resulting in default.

On December 15, 1995, Tysons moved the bankruptcy court to lift

the automatic stay so that Tysons could liquidate the certificate of

deposit and offset against Lennan's accounts debts owed to Tysons in

excess of the amount of the certificate of deposit. Opposing Tysons's

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motion, Lennan moved to have Tysons adjudged in contempt for violating the automatic stay by placing the administrative hold on his

accounts; moreover, Lennan moved the bankruptcy court to order

Tysons to release funds under the administrative hold, including the

certificate of deposit. The bankruptcy court lifted the automatic stay

so that Tysons could offset $16,872, which represented the $15,000

indebtedness and interest under the letter of credit. Concluding that

Tysons violated the automatic stay via the administrative hold, which

applied to funds in excess of Tysons's offset rights, the bankruptcy

court ruled that Tysons reimburse Lennan the $150 in penalties, dissolve the administrative hold, refrain from considering the SBAguaranteed loan in default, and pay Lennan $500 for violating the

automatic stay. In addition, the bankruptcy court granted Tysons

$2703.69 in attorneys' fees, which, likewise, were offset against Lennan's accounts.

Lennan appealed to the district court, which affirmed all of the

bankruptcy court's rulings, save the $500 payment by Tysons to Lennan for allegedly violating the automatic stay. According to the district court, the administrative hold, despite the fact that Tysons

applied it in excess of funds then owed, was proper given that interest

was accruing and Tysons acted in a timely manner in seeking to lift

the automatic stay. The district court, therefore, reversed the ruling

that Tysons pay Lennan $500.

Appealing to us, Lennan challenges the district court's judgment on

a variety of grounds. First, Lennan posits that Tysons violated the

automatic stay by placing the administrative hold on his accounts,

specifically arguing that Tysons possessed no prepetition right to offset the funds in his accounts. Second, Lennan asserts that he is entitled to the $500 in recompense for Tysons's violating the automatic

stay. Third, Lennan contends that Tysons is not entitled to attorneys'

fees in excess of the certificate of deposit. Finally, Lennan maintains

that he is entitled to attorneys' fees.

II.

We first state our standard of review. In the instant appeal, the

bankruptcy court made findings of fact and conclusions of law. In

such a procedural posture, like the district court, we review the bank-

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ruptcy court's method of fact finding for clear error, but we exercise

plenary review over its legal conclusions. See Cooper v. Ashley Communications, Inc. (In re Morris Communications NC, Inc.), 914 F.2d

458, 467 (4th Cir. 1990). Lennan's persuading us that the bankruptcy

court erred in its fact-finding method is a weighty burden indeed

because "[i]n reviewing factual findings, our scope of review is particularly circumscribed, being limited to determining whether the

facts as found by the [trial] court are clearly erroneous." See Jiminez

v. Mary Washington College, 57 F.3d 369, 378 (4th Cir.), cert.

denied, 116 S. Ct. 380 (1995). Thus, "[f]acts are conclusive on appeal

. . . unless they are plainly wrong." Id. at 378-79. Precedent prohibits

our substituting our judgment for that of the bankruptcy court, and the

force of this precept precludes reversal here unless we are "`left with

the definite and firm conviction that a mistake has been committed.'"

Id. at 379 (quoting United States v. United States Gypsum Co., 333

U.S. 364, 395 (1948)). Of course, as a successive court, we freely

review the bankruptcy court's legal conclusions. See Chmil v. Rulisa

Operating Co. (In re Tudor Assocs. II), 20 F.3d 115, 119 (4th Cir.

1994). Guided by this procedural standard, we address Lennan's arguments seriatim.

A.

Lennan first contends that the district court erred in concluding that

Tysons's placing an administrative hold on the certificate of deposit

did not violate the automatic stay of § 362(a), which prohibits institution or continuation of proceedings against the debtor or the bankruptcy estate without first petitioning the bankruptcy court to lift the

automatic stay. Indeed, § 362(a)(7) specifically provides that the automatic stay applies to "setoff of any debt owing to the debtor that arose

before the commencement of the case . . . against any claim against

the debtor[.]" 11 U.S.C.A. § 362(a)(7) (West 1993). Balanced against

the automatic stay provision, however, is 11 U.S.C.A. § 553(a) (West

1993 & Supp. 1997), which preserves the common law right to offset

prepetition mutual debt. We conclude that Citizens Bank of Maryland

v. Strumpf, 116 S. Ct. 286 (1995), forecloses Lennan's first contention.

The Strumpf Court construed the interplay between the automatic

stay of § 362(a) and the right to offset under§ 553(a) and concluded

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that a bank's placing an administrative hold on funds in a debtor's

account pending disposition of the bank's offset right did not violate

the automatic stay. In Strumpf, Strumpf maintained a bank account

with a bank to which he owed approximately $5000 as a result of a

default on a loan. See id. at 288. Subsequent to Strumpf's filing bankruptcy, the bank placed an administrative hold on Strumpf's account

in an amount that the bank asserted it was entitled to as offset; consequently, the bank refused to honor drafts that would diminish the balance in Strumpf's account below the bank's asserted right of offset

and moved the bankruptcy court to lift the automatic stay. See id. Displeased with the bank's administrative hold, Strumpf moved to have

the bank held in contempt for violating the automatic stay. See id. The

bankruptcy court ruled in favor of Strumpf, but the district court

reversed. On further appeal, however, we reversed the district court,

concluding that the administrative hold effectuated a right of offset

thereby violating the automatic stay. See id. 

The Supreme Court concluded that the administrative hold did not

violate the automatic stay. First, the Court explained that § 553(a)

preserved a state-created right of prepetition offset as to mutual debts,

and in so explaining, observed that the bank possessed the right to

offset the defaulted loan vis a vis Strumpf's account. See id. at 289.

Second, the Court held that the bank's placing an administrative hold

on Strumpf's account did not constitute a setoff because the bank had

not permanently refused to honor Strumpf's debts, but only temporarily so refused while it sought relief from the automatic stay. See id.

Given the transitory nature of the bank's refusal, the requisite intent

to constitute an offset was lacking; consequently, the bank's conduct

did not violate the automatic stay. According to the Court, therefore,

§ 553(a) permits a bank the temporary right to refuse to honor a debtor's obligations that were subject to offset as against a debt the debtor

owed the bank. In rendering its judgment, the Court specifically

rejected the contention that the administrative hold violated the automatic stay, concluding that the administrative hold was not a device

for exercising dominion over Strumpf's account, but merely constituted a transient refusal to perform a promise. See id. at 290.

Applying Strumpf, we conclude that Tysons's conduct was permissible. Like the Strumpf bank, Tysons placed an administrative hold on

Lennan's account and expeditiously moved the bankruptcy court for

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relief from the automatic stay to liquidate the certificate of deposit.

Lennan's accounts at Tysons constituted a debt owed by Tysons to

Lennan, see Elsinore Shore Assocs. v. First Fidelity Bank, N.A. (In re

Elsinore Shore Assocs.), 67 B.R. 926, 936 (Bankr. D.N.J. 1986), so

Tysons could appropriate funds in Lennan's accounts by offsetting

them against the balance due on Lennan's debt to Tysons, see

Armstrong v. Dakota Bank & Trust Co. (In re Knudson), 929 F.2d

1280, 1284-85 (8th Cir. 1991). In this respect, Lennan is simply

incorrect in contending that there was no prepetition debt for Tysons

to offset. Specifically, Lennan established the letter of credit and executed a promissory note obligating him for any drafts made against

the letter of credit; moreover, he advanced the certificate of deposit

as collateral, and all of these transactions occurred prepetition. We

hold, therefore, that Lennan's debt was prepetition debt. See

Stephenson v. Salisbury (In re Cordland Corp.), 967 F.2d 1069, 1078

(5th Cir. 1992) (explaining that "debt" is liability on a claim and signing a guaranty on a note results in immediate liability, even if the contingency is unmatured). As a consequence, Tysons could issue an

administrative hold on Lennan's accounts while seeking relief from

the automatic stay to exercise its offset rights.* Our conclusion spares

Tysons a Hobson's choice: The administrative hold preserves Lennan's accounts by freezing them, but simultaneously is not an attempt

to improve the bank's right to distribution of assets. Thus, Tysons is

not caught between the Scylla and Charybdis of desiring to maintain

Lennan's accounts in satisfaction of its debt while risking violating

the automatic stay.

B.

Next, Lennan posits that the district court erred in reversing the

$500 award of compensatory damages that the bankruptcy court

granted him for Tysons's allegedly violating the automatic stay. The

gravamen of this position is that Tysons violated the stay by freezing

funds in excess of its offset. Again, we conclude that Strumpf forecloses this position. As the Strumpf Court made clear, Lennan's

accounts at Tysons did not constitute property of the bankruptcy

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*Like the Strumpf Court, we do not address the issue of whether

Tysons's temporary refusal was otherwise improper. See Strumpf, 116 S.

Ct. at 289.

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estate, but were debts owed to the bankruptcy estate. In this connection, the administrative hold did not "t[ake] something from [Lennan],

or exercise[ ] dominion over property that belonged to [Lennan]." See

Strumpf, 116 S. Ct. at 290. Because Tysons's conduct did not deprive

Lennan of his funds, particularly given the transitory nature of the

administrative hold, he lacks injury requiring recompense. Hence,

Lennan is not entitled to the $500 in compensatory damages. We

therefore affirm the district court's reversing the award of $500 compensatory damages.

C.

Lennan asserts that Tysons is not entitled to attorneys' fees in

excess of the certificate of deposit. We disagree. Respecting attorneys' fees, the Bankruptcy Code provides in pertinent part:

 To the extent that an allowed secured claim is secured by

property the value of which, . . . is greater than the amount

of such claim, there shall be allowed to the holder of such

claim, interest on such claim, and any reasonable fees, costs,

or charges provided for under the agreement under which

such claim arose.

11 U.S.C.A. § 506(b) (West 1993). Thus, the Bankruptcy Code provides that if the value of the collateral Tysons holds exceeds the

amount of Lennan's debt to Tysons at the time the bankruptcy petition was filed, Tysons possesses a secured claim in any postpetition

expenses provided by the contract between the parties, as well as the

original debt.

Although the parties have not favored us with copies of the instruments they wish us to apply, and Tysons wholly failed to respond to

this argument in its brief, as we read the record and Lennan's brief,

we conclude that the promissory note granted to Tysons a lien not

only on the certificate of deposit but also on Lennan's checking and

savings accounts. In this respect, we observe that the bankruptcy

court's order awarding attorneys' fees refers to"cash collateral,"

which we read as referring to the funds in Lennan's checking and savings accounts. The claimed excess that Lennan urges does not exist

because the cash collateral encompasses not only the $15,000 certifi-

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cate of deposit, but also funds in Lennan's checking and savings

accounts at Tysons. Consequently, we conclude that the award of

attorneys' fees was proper. See Unsecured Creditors' Committee 82-

00261c-11A v. Walter E. Heller & Co. Southeast, Inc. (In re K.H. Stephenson Supply Co.), 768 F.2d 580, 585 (4th Cir. 1985) (discussing

oversecured creditor's attorneys' fees award); In re Nordmann, 56

B.R. 634, 636 (Bankr. D.S.D. 1986) (same).

D.

Finally, Lennan maintains that he is entitled to attorneys' fees pursuant to 11 U.S.C.A. § 362(h) (West 1993), which provides that "[a]n

individual injured by any willful violation of a stay provided by this

section shall recover actual damages, including costs and attorneys'

fees, and, in appropriate circumstances, may recover punitive damages." The flaw with this argument is that it presumes there was a

willful violation of the automatic stay of § 362. As we explained,

Strumpf precludes finding a violation, much less a willful one.

Tysons's placing the administrative hold on Lennan's accounts did

not violate the automatic stay. Accordingly, with no violation, Lennan

is not entitled to attorneys' fees. Thus, we affirm the denial of attorneys' fees to Lennan.

III.

We conclude that Tysons's placing the administrative hold on Lennan's accounts was permissible under Strumpf and that Lennan is not

entitled to the $500 in compensatory damages. Moreover, we conclude that Tysons was properly awarded attorneys' fees in excess of

the certificate of deposit and that Lennan was properly denied them.

The judgment of the district court is affirmed.

AFFIRMED

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