Opinion ID: 4420089
Heading Depth: 2
Heading Rank: 1

Heading: standard of review

Text: A district court’s rulings when sitting as an appellate court in a bankruptcy case are subject to plenary review. Denton v. Hyman (In re Hyman), 502 F.3d 61, 65 (2d Cir. 2007). “The factual determinations and legal conclusions of the [b]ankruptcy [c]ourt are, therefore, reviewed independently by this Court.” Id. We review the bankruptcy court’s findings of fact for clear error and its legal conclusions de novo. Id. The bankruptcy court has broad discretion in applying § 549’s postpetition transfer avoidance provision as well as in ordering the return of transferred property or its value pursuant to § 550. See, e.g., Sapir v. C.P.Q. Colorchrome Corp. (In re Photo Promotion Assocs., Inc.), 881 F.2d 6, 8 (2d Cir. 1989) (noting bankruptcy court’s broad discretion in applying § 549(a)); see also Bankr. Receivables Mgmt. v. Lopez (In re Lopez), 345 F.3d 701, 705 (9th Cir. 2003) (“The 13 bankruptcy court’s choice of remedies is reviewed for an abuse of discretion.”); Feltman v. Warmus (In re Am. Way Serv. Corp.), 229 B.R. 496, 531 (Bankr. S.D. Fla. 1999) (“[T]he Code permits the court, in its discretion, to award both a money judgment and recovery of the property in kind, provided that the Trustees are limited to a single satisfaction.”); Hirsch v. Gersten (In re Centennial Textiles, Inc.), 220 B.R. 165, 176–77 (Bankr. S.D.N.Y. 1998) (“[S]ince the Bankruptcy Code does not provide guidance on when the Court should order payment of the value of property rather than order the return of the property itself, it is within the Court’s discretion to make such a determination.”). B. The Trustee’s Recovery of a Portion of the Thompson Loan from Brand Does Not Constitute a Double Recovery in Violation of § 550(d). Because the Thompson Loan transfer was avoided pursuant to § 549, the Trustee was permitted to seek recovery of either the transferred property or its value pursuant to 11 U.S.C. § 550, which states, in relevant part: (a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from -- 14 (1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate or mediate transferee of such initial transferee. The plain language of § 550(a) thus grants the Trustee the right to seek recovery of the Thompson Loan from Brand. On appeal, Brand revives its argument that the Trustee’s recovery of the Thompson Loan under § 550(a) constitutes a double recovery for the Estate in violation of § 550(d), which states that “[t]he trustee is entitled to only a single satisfaction under subsection (a) of this section.” Brand argues that, through the Trustee’s settlement with Thompson, which avoided the Second Mortgage and preserved the lien created by it for the benefit of the Estate, the Trustee had already recovered the Debtor’s equity interest in the Crescent Court Property for the Estate. It contends that the settlement with Thompson restored the Estate to its pre-transfer position and that the Estate suffered no monetary damage as a result of the Second Mortgage. Thus, Brand argues that the bankruptcy court and the district court erred in concluding that the Thompson Loan was an additional recoverable asset of the Debtor’s Estate. 15 We disagree, and conclude that the Trustee’s recovery of a portion of the Thompson Loan from Brand does not violate the single satisfaction rule of § 550(d). At the outset, we note that the bankruptcy court held that the Thompson Loan, which was secured by the Crescent Court Property, was a “proceed[]” of the Estate pursuant to § 541(a)(6). Brand argued before the district court that the Thompson Loan is not a proceed, and the district court disagreed. On appeal, Brand does not argue and, thus, has abandoned any claim that the district court erred in arriving at this conclusion. We therefore assume without deciding that the Thompson Loan is a proceed of the Estate for the purpose of resolving this appeal. See, e.g., Biedeger v. Quinnipiac Univ., 691 F.3d 85, 98–99 & n.6 (2d Cir. 2012); State St. Bank & Tr. Co. v. Inversiones Errazuriz Limitada, 374 F.3d 158, 172 (2d Cir. 2004). Brand’s argument hinges entirely on its reading of the double recovery provision of § 550(d). But Brand misapplies that provision to the facts of this case. Section 550(d) most commonly applies in cases where § 550(a) enables a trustee to recover the value of transferred property from more than one transferee, “possibly allowing the trustee to recover more than the value of the avoided transfer.” See Dobin v. Presidential Fin. Corp. of Del. Valley (In re Cybridge 16 Corp.), 312 B.R. 262, 268 (D.N.J. 2004). For example, had the Trustee here recovered $125,000 from Brand, and then subsequently sought to recover approximately $125,000 in proceeds of the Thompson Loan that was transferred by Brand to Sadaka and Waller, resulting in the collection of $125,000 two times over, § 550(d) would clearly be violated. Brand’s § 550(d) argument is different, however. Brand contends that, when the Trustee successfully avoided the Second Mortgage, the Estate was restored to the position it was in before the avoided transfers, and that, as a result, recovering any amount of the Thompson Loan proceeds from it constitutes a double recovery for the Estate. But Brand misapprehends the nature of bankruptcy law, the language of § 550(d), and the economic realities of this case. At the time the Trustee sought to recover the Thompson Loan from Brand, the Trustee had not realized any part, let alone all, of the value of the Debtor’s equity interest in the Crescent Court Property. The Trustee’s settlement with Thompson gave the Trustee the rights of a lien creditor with respect to the Crescent Court Property. But in itself, a mortgage carries only a right to foreclose on a debtor’s property in the event of default. See DeGiacomo v. Traverse (In re Traverse), 753 F.3d 19, 29 (1st Cir. 2014) (“Just because the preserved mortgage 17 entitles the estate to benefit from the sale of [the debtor’s] property . . . does not mean that the trustee is by that fact empowered to sell the property so as to immediately realize that benefit.”). Here, moreover, the bankruptcy court prohibited the Trustee from forcing a sale of the Crescent Court Property. Because the Trustee was unable to liquidate the Estate’s equity in the Crescent Court Property, preservation of the lien did not create any realized value for the Estate’s creditors. The Trustee’s settlement with Thompson did not provide for any payment to the Estate, let alone payment of the roughly $130,000 equity value of the Debtor’s interest in the Crescent Court Property. Thus, while the lien on the Crescent Court Property was preserved for the benefit of the Estate, the Trustee’s only route to realize any recovery for the Estate from the unlawful transfer of Estate property by the Debtor was by seeking the proceeds of the Thompson Loan. Section 550(a) authorizes the Trustee to pursue recovery from all available sources until the full amount of unlawfully transferred Estate property is fully realized for the Estate’s creditors. See Freeland v. Enodis Corp., 540 F.3d 721, 740 (7th Cir. 2008) (“[T]he trustee can recover from any combination of the entities mentioned [in § 550] subject to the limitation of a single satisfaction.”) (quoting 5 18 COLLIER ON BANKRUPTCY ¶ 550.02[4] at 550–16 (Alan N. Resnick et al. eds., 15th ed. 2007)); Aalfs v. Wirum (In re Straightline Invs., Inc.), 525 F.3d 870, 883 n.3 (9th Cir. 2008) (“Although the statute contains the conjunction ‘or,’ at least one court has held that the remedies of the value of the property or the property itself are not mutually exclusive, and the bankruptcy court may award a judgment that involves both types of recovery, as long as it does not result in double recovery for the estate.”) (citing Feltman, 229 B.R. at 531); Burtrum v. Laughlin (In re Laughlin), 18 B.R. 778, 781 (Bankr. W.D. Mo. 1982) (“[T]he value of the transferred property should be restored to the estate, even if composite elements of that value must come from more than one transferee.”). By recovering a portion of the Thompson Loan proceeds from Brand, the Trustee merely expedited the ultimate satisfaction of the claim for the benefit of the creditors. Brand cites McCord v. Agard (In re Bean), 252 F.3d 113 (2d Cir. 2001), in which we held that the trustee had obtained a double recovery when the bankruptcy court ordered both a turnover of title to real property and a money judgment equal to the fair market value of that property. But even a cursory review of the facts of that case reveals why it is easily distinguishable. In Bean, the debtor sold the title to real property of the estate to the defendants for 19 $165,000. Id. at 115. The debtor then used the proceeds of the sale to pay off two mortgages on the property totaling $87,761.65, a broker’s commission of $9,990, and city and state transfer taxes of $2,310. Id. He then remitted the remaining $59,949.35 proceeds of the sale to the trustee. Id. The trustee brought an action in the bankruptcy court claiming that the sale of the property was an unauthorized post-petition transfer under § 549(a). Id. The bankruptcy court granted summary judgment in favor of the trustee against the defendants ordering both that the purchasers turn over title of the property to the estate, and that the defendants pay a money judgment in the amount of the property’s fair market value. Id. The trustee admitted that since he had recovered the $60,000 net proceeds of the sale and the title to the real property, the further award of the $165,000 fair market value of the property was a windfall to the estate. Id. at 116. On appeal, we explained that the precise question was “whether § 550(a)(1) of the Code requires a bankruptcy court to permit a trustee to recover from the transferee and for the benefit of the estate, the fair market value of property that was the subject of an avoidable transfer, even after that trustee has already recovered the equity value of the property from the transferor.” Id. 20 The issue before us is different from that in Bean precisely because the Trustee here has not recovered the equity value of the Second Mortgage. Unlike the debtor in Bean, the Debtor and Belmonte realized $250,000 in net proceeds by granting a mortgage to Thompson, remitted none of that money to the Estate, and instead transferred the entire proceeds directly to Brand. The Estate realized none of the equity value of the Second Mortgage for the benefit of the creditors and, notably, did not obtain title to real property.4 In Seaver v. Mortg. Elec. Registration Sys., Inc. (In re Schwartz), 383 B.R. 119, 126 (8th Cir. B.A.P. 2008), a Bankruptcy Appellate Panel of the Eighth Circuit explained that “[i]n certain instances avoidance of a transfer is sufficient to undo the preferential transfer and make the estate whole . . . [such as where] the 4 That fact also distinguishes this case from the out-of-circuit cases that Brand cites in which avoidance and preservation of a lien were deemed enough to make the estate whole. See Rodriguez v. Drive Fin. Servs., L.P. (In Re Trout), 609 F.3d 1106, 1109 (10th Cir. 2010) (concluding that where a trustee successfully avoided a preferential vehicle lien under 11 U.S.C. § 547, the trustee was not entitled to a money judgment equal to the value of the avoided liens under § 550(a) on facts before it, even though “there may be circumstances involving nonpossessory liens in which the Trustee is also entitled to permissive recovery under § 550(a)”); Schnittjer v. Linn Area Credit Union (In re Sickels), 392 B.R. 423, 426 (N.D. Iowa 2008) (concluding that “ordering [the transferee] to pay the trustee the value of its secured claim would allow the trustee to collect twice on the secured claim—once from [the transferee] and again by realizing on the preserved mortgage) (emphasis added) (alterations omitted). 21 avoidance results in the value of the avoided lien becoming available for liquidation and distribution to creditors.” However, where (as here) avoidance does not result in the avoided lien becoming available for liquidation and distribution to creditors, § 550(d)’s single satisfaction rule is no obstacle to recovery by the Estate from other sources. The Trustee here freely and correctly concedes that he is entitled to recover the value of the Crescent Court Property only once, whether as a result of his rights as the holder of the Second Mortgage, or from the recovery of the Thompson Loan proceeds. Appellee’s Br. at 8–9. If the Trustee is eventually able to liquidate the Debtor’s equity interest in the Crescent Court Property, his recovery will be the amount of the Debtor’s equity interest less the $59,432 he has already recovered from Brand. But the Trustee’s present recovery of a portion of the Thompson Loan from Brand is not barred by § 550(d).