McFeeley Maryland Opinions et al v. Rubenstein et al

No. 95-5-4254 ESD (Chapter 7) LILLIE JENNIFER JOHNSON C.E.O. ANNA MAE
ROBERTS and MATCOM FEDERAL CREDIT UNION,
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
In re: 	*
LILLIE JENNIFER JOHNSON, 	* 	Case No. 95-5-4254 ESD
(Chapter 7)
Debtor/Plaintiff 	*
v.
C.E.O. ANNA MAE ROBERTS 	*
and
MATCOM FEDERAL CREDIT UNION, 	*
Respondents. 	*
* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	*
MEMORANDUM OPINION
THIS MATTER came before the Court upon the debtor's motion for an order
of contempt against MATCOM Federal Credit Union and its chief executive
officer, Anna Mae Roberts. The Court having heard the arguments of counsel,
examined the pleadings and being otherwise fully advised, grants the motion.
FACTS
The pleadings establish the following undisputed facts:
1. Debtor filed a Chapter 7 bankruptcy petition on June 14, 1995.
2. Respondents received notice of the filing of the bankruptcy shortly after
June 14, 1995.
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3. Subsequent to receiving the notice of debtor's bankruptcy,
respondents placed a freeze on the debtor's account.
4. Debtor's attorney made numerous demands for respondents to release
the funds in the account to debtor, but respondents refused to do so.
5. Respondents' freeze on debtor's account continued for more than six
weeks.
6. On August 1, 1995, respondents received notification from the trustee
that the freeze should be lifted from the account. Respondents mailed to the
trustee a check for the balance of the account. This check was never received.
7. Upon receipt of debtor's motion for contempt, respondents stopped
payment on the initial check and drafted another check which was mailed to
the trustee on August 24, 1995. Because the trustee had been discharged, this
check was returned to respondents.
8. Debtor received from respondents a certified check for the balance of
the account on September 19, 1995.
9. Respondents claimed no offset against the funds which were in the
debtor's account.
DISCUSSION
The United States Supreme Court decision in Citizens Bank of Maryland v.
Strumpf, 116 S.Ct. 286, 1995 WL 633458 (U.S. Md.), is almost directly on point and
was decided October 31, 1995, soon after the hearing in this case. In Strumpf,
the debtor had filed a motion to hold the Citizens Bank of Maryland in contempt
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for placing an "administrative hold" on a portion of the debtor's checking
account in order to insure sufficient funds for a claimed setoff against an unpaid
loan balance. Justice Scalia's opinion for the unanimous Court concentrates
upon the sections of the Bankruptcy Code (11 U.S.C. §542(b) and 11 U.S.C.
§553(a)) which specifically allow a right of setoff, reconciling those sections with
the restrictive language of 11 U.S.C. §362(a)(7), which makes setoff rights subject
to the automatic stay.
In the instant case, the financial institution which placed a freeze upon a
debtor's account asserts no right of setoff. This Court need not analyze the
respondents' actions to determine whether a setoff was claimed, which is
permissible under Strumpf, or actually taken, which is not. The respondents,
likewise, cannot rely on the setoff portion of the Strumpf ruling for authority that
the freeze on debtor's account was permissible under the Bankruptcy Code.
Debtor maintains that the freezing of his bank account was contrary to
and in violation of 11 U.S.C. §362. Section 362(a)(3) stays "any act to obtain
possession of property of the estate or of property from the estate or to exercise
control over property of the estate." "Property of the estate" is defined at §541
as being, among other things, all "legal or equitable interests of the debtor" in
property. 	It is well established that a debtor's bank account is property of the
estate. Deposits in a bank to the credit of a debtor become property of the
estate under section 541(a)(1). 4 Collier on Bankruptcy §541.11 (1995). Property
of the estate includes funds held in a checking or savings account. Sousa v.
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Bank of Newport, 170 B.R. 492 (Bankr. D. R.I. 1994). A chapter 7 debtor's credit
union account is estate property. In re Laux, 181 B.R. 60 (Bankr. S.D. Ill. 1995).
See also, In re Figueira, 163 B.R. 192 (Bankr. D. Kan. 1993) (Debtors' bank account
and any balance in it became property of the estate upon the filing of their
petition); In re Debmar Corp., 21 B.R. 858 (Bankr. S.D. Fla. 1982) (Debts due
debtor in form of a bank account are "property of the estate"); Matter of William
H. Vaughan & Co., Inc., 63 B.R. 438 (Bankr. E.D. Pa. 1986) (Funds in bank account
opened by debtor were "property of the estate"). The respondents' freezing of
debtor's account exercised control over property of the estate.
Respondents take the position that the freezing of the account was not in
violation of the Bankruptcy Code but rather in compliance with §542(a) which
requires the turnover of property to the trustee. Respondents froze the account
for over six weeks, however, without asserting any claim of offset and without
taking any steps to turn the balance in the account over to the trustee or to
seek a judicial determination of ownership. It is undisputed that Debtor's
attorney made repeated demand for release of the funds in the account.
Based upon the evidence and testimony presented at the hearing, it seems
clear that respondents' actions were not motivated by any legitimate concern
for adherence to the Bankruptcy Code nor by any legal claim, but rather by
spite.
The Supreme Court in the Strumpf opinion rejects argument that an
administrative hold placed on the debtor's account pursuant to a claim of setoff
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was prohibited by §362(a)(3). The Court points out the subtle distinction
between actual cash being held for the debtor and a bank account, which is
"nothing more or less than a promise to pay." 	Strumpf at 5. The Court goes on
to say that the bank's administrative hold did not constitute the "taking of
possession of respondent's property nor the exercising of control over it"
forbidden by §362(a)(3) but was "simply a refusal to perform its promise." Id.
This single sentence from the Strumpf opinion cannot be construed as the
wholesale exclusion of bank accounts from the property of estate and from
adherence to those sections of the Bankruptcy Code which apply to property of
the estate. If the paragraph is interpreted to mean financial institutions are now
at liberty to freeze the accounts of debtors, willy-nilly, because bank accounts
are now considered "promises to pay" rather than debtor's property, the Strumpf
case would have the effect of reversing the long line of cases which have
established the proper inclusion of bank accounts within the property of a
debtor's estate. If the Supreme Court had intended to effect such a
fundamental change in bankruptcy law, it would have done so with clarity
rather than by implication. Such a reading also flies in the face of the
unambiguous language of §541(a)(1) which provides that "all legal or equitable
interest of the debtor" is property of the estate. A bank account may not be
actual cash; it is an equitable interest of the debtor. Furthermore, Justice Scalia
concludes the paragraph by saying, " In any event, we will not give §§362(a)(3) .
. . an interpretation that would proscribe" [the sections of the Code which
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clearly provide for a claim of setoff]. The Court's comments on the nature of a
bank account are made within the limited context of the claim of setoff and
apply only to that situation, a situation which does not exist in the present case.
CONCLUSION
For the foregoing reasons, the debtor's motion for contempt is granted.
Debtor is entitled to recover as damages her expenses for attorney's fees and
costs incurred as a result of respondents' unlawful violation of the automatic
stay. Pursuant to this Court's direction, debtor's attorney has submitted a Fee
Petition reflecting the fees and costs associated with his efforts in recovering the
funds in Ms. Johnson's bank account and with his representation in this
contempt proceeding. No objection to the reasonableness of these fees was
filed prior to the expiration of the 15-day period allowed by the Court; however,
the Court finds Mr. Marts' four hours of research on violations of the automatic
stay to be excessive for an established bankruptcy attorney, and his fees are
accordingly reduced by $240.00. The Court awards debtor damages in the
amount of $834.72 against respondents, jointly and severally, as sanctions for
violation of the automatic stay.
This opinion constitutes the Court's findings of fact and conclusions of law
pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure. An Order
shall be entered accordingly.
_________________________________
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MARK B. McFEELEY
United States Bankruptcy Judge
Sitting by Designation
I certify that on the above stamped date I mailed a copy of the above to:
Matthew C. Emery
8808 Centre Park Drive - Suite 207
Columbia, MD 21045
(401) 715-5255
Christopher M. Marts
15 North Main Street
Bel Air, MD 21014
(410) 879-9736
_______________________________
Case Administrator
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