Court Opinion

ID: 3045314
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:16:10.839744+00
Date Added: 2024-06-11T08:40:28.100706
License: Public Domain

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and Bill Hess,                        * [UNPUBLISHED]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

      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.
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

                                         -2-
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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