Opinion ID: 1458245
Heading Depth: 3
Heading Rank: 1

Heading: The fraudulent conveyance claim's status as a trustee defense

Text: In its February 15, 2005, order, the district court held that Imperial could not exercise its powers as a trustee without first curing its deficit to the FDIC under § 365( o ). The district court held that Imperial's fraudulent conveyance claim was a trustee defense made on behalf of its creditors, and that Imperial, therefore, could not litigate that defense until it cured its obligation to the FDIC. However, the court did not dismiss the fraudulent conveyance claim for that reason, as it had already dismissed the claim as barred by § 1828(u). The FDIC urges the panel to affirm the district court's dismissal of the fraudulent conveyance claim because Imperial was barred from bringing it in the first place as a trustee defense. We decline to affirm on that basis. Section 365( o ) requires immediate cure of a deficit to a federal depository institution under a performance guaranty only when the debtor is in Chapter 11. A Chapter 7 debtor is under no obligation to immediately cure such a deficit. Accordingly, the district court's holding that Imperial could not bring trustee defenses until it cured its deficit under § 365( o ) necessarily applies only to debtors in Chapter 11, not debtors in Chapter 7 like Imperial. Although the district court need not have reached the question whether the fraudulent conveyance claim survived dismissal in the Chapter 11 proceeding, it did in fact dismiss the claim as barred by § 1828(u). Now that Imperial is in Chapter 7, we cannot affirm its dismissal of the fraudulent conveyance claim on the separate ground that it was a barred trustee defense in Chapter 11. That question is moot, and Imperial's fraudulent conveyance defense is viable now, unless precluded by § 1828(u).