Opinion ID: 3051920
Heading Depth: 3
Heading Rank: 2

Heading: Depletion or Diminution of the Estate

Text: Of the three cases cited by Aalfs in support of his estate depletion argument, only one of them tends to help him, and that is the In re Cassis decision from the Northern District of Iowa, in which the court stated: “There must be a depletion of the estate for there to be an avoidable transfer under § 548 or § 549.” Cambridge Tempositions, Inc. v. Cassis (In re Cassis), 220 B.R. 979, 983 (Bankr. N.D. Iowa 1998) (citing In re Jarax Int’l, Inc., 164 B.R. at 185). But neither In re Cassis nor In re Jarax applied the depletion of the estate proposition to a claim of an avoidable postpetition transfer under § 549. Instead, In re Cassis dealt with a complaint to avoid a fraudulent transfer under § 548, and the court in In re Jarax only discussed depletion of the estate in the context of prepetition preferential transfers under § 547 and fraudulent transfers under § 548, not postpetition transfers under § 549. In re Cassis, 220 B.R. at 982; In re Jarax Int’l, Inc., 164 B.R. at 18587; see also Adams v. Anderson (In re Superior Stamp & Coin Co., Inc.), 223 F.3d 1004, 1007 (9th Cir. 2000) (applying the “diminution of estate” doctrine to determine whether transferred property belongs to the debtor for purposes of § 547). The third case cited by Aalfs — In re Bame — simply held that the trustee was not entitled to a money judgment for an avoidable postpetition transfer because there was no proof that the estate suffered damages on account of the defendant’s actions. Ramette v. Al & Alma’s Supper Club Corp. (In re Bame), 252 B.R. 148, 162 (Bankr. D. Minn. 2000). [5] The question whether depletion of the estate is a requirement for finding a transfer avoidable under § 549 is an IN RE STRAIGHTLINE INVESTMENTS, INC. 5071 open question in this circuit. Although the diminution of estate theory is commonly viewed as a prerequisite for avoidability of prepetition preferential transfers under 11 U.S.C. § 547 and fraudulent transfers under 11 U.S.C. § 548, see In re Superior Stamp & Coin Co., Inc., 223 F.3d at 1007; In re Smith, 966 F.2d 1527, 1535-36 (7th Cir. 1992); Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177, 1181 (11th Cir. 1987); Deel Rent-A-Car, Inc. v. Levine, 721 F.2d 750, 755-56 (11th Cir. 1983); In re Cassis, 220 B.R. at 982; In re Jarax, 164 B.R. at 185-87, only the Sixth Circuit has considered the diminution of estate doctrine in a case involving the avoidance of a post-petition transfer under § 549. See Peoples Bank & Trust Co. v. Burns (In re Shelton); 244 F. App’x 634 (6th Cir. 2007). In that case, the Sixth Circuit stated that the doctrine of “earmarking” was inapplicable. However, in an earlier decision in the same case the appellate panel had indicated that “earmarking” might apply if the transaction in question did “not result in a diminution of the estate’s value.” Id. at 637 (citing the panel’s earlier decision, Peoples Bank & Trust Co. v. Burns (In re Shelton) 95 F. App’x 801, 804 (6th Cir. 2004)). When the case came back after remand, the court stated the question was whether it should reconsider its earlier decision. Id. at 638. The court decided it had no basis to do so because the parties had stipulated there had been no diminution of the bankruptcy estate and thus there would be no “manifest injustice” by letting the earlier decision stand, even though it contained an erroneous resolution of the “earmarking” question. Id. at 639. [6] We decline to expand the diminution of estate doctrine, from its established application in § 547 and § 548 cases, to this § 549 case. Although the primary purpose of 11 U.S.C. § 549 is to allow the trustee to avoid post-petition transfers of property which deplete the estate, see 5 Lawrence P. King, Collier on Bankruptcy § 549.02 (15th ed. 2005), the plaintiff’s failure to demonstrate a measurable depletion of the estate is not enough to allow a transfer to stand when it is otherwise 5072 IN RE STRAIGHTLINE INVESTMENTS, INC. avoidable under § 549 because it satisfies all of the explicit requirements of an avoidable postpetition transfer.2