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Home New Cases A Montana Court Rules on Disagreement About the Legal Classification of Pre-Petition Transactions & Trustee’s Preference Claim

A Montana Court Rules on Disagreement About the Legal Classification of Pre-Petition Transactions & Trustee’s Preference Claim


September 10, 2021, District of Montana – Debtor Shoot the Moon, LLC operated sixteen restaurants located throughout the three states. Debtor restaurants encountered various financial pressures and sought additional financing from various sources including merchant cash advance companies as Defendant CapCall. Debtor and CapCall consummated eighteen transactions under various written merchant agreements. Eventually, the Debtor filed for bankruptcy and the Trustee was appointed. The Trustee sold substantially all of the bankruptcy estate’s business assets via Bankruptcy Code section 363(b). After the petition date, credit card payments continued to be processed from business operations. CapCall asserted ownership of the funds based on its purported purchase of the receivables. The Trustee received and utilized a portion of those funds, and the balance was held in the segregated account. CapCall sought a monetary judgment against the Trustee for conversion of the portion of the funds the Trustee received and a declaratory judgment that the remaining balance held in the segregated account belonged to CapCall.

The Court disposed of these claims upon determining that CapCall did not purchase the receivables but extended loans collateralized by the assets loans that were ultimately unsecured. The Court concluded that since CapCall lacked ownership or enforceable security interest in the receivables, these claims were nonstarters and the Trustee is entitled to the remaining segregated account.

The Trustee also asserted a preference claim against Capcall, alleging that the transfers in the aggregate of $1,129,071.00 were avoidable and recoverable under Bankruptcy Code sections 547 and 550. The Court found that the alleged transfer satisfied all the elements of a preferential transfer under Sec. 547 (b), i.e. the transfer was made of the debtor’s property; to or for the benefit of the creditor; for or on account of an antecedent debt; while the debtor was insolvent; and within 90 days of the filing of the petition in bankruptcy. The Court also concluded that CapCall only had a general unsecured claim, which would generate a limited, if any, distribution from the Chapter 7 estate, and the pre-petition transfers to CapCall enabled CapCall to recover significantly more than CapCall would have received in a hypothetical chapter 7 liquidation.

The Court finally ruled that since CapCall was obligated to the bankruptcy estate on the preference claim, CapCall was not entitled to payment on its proof of claim until it has satisfied the current judgment. The Court disallowed CapCall’s proof of claim with leave to file an amended proof of claim, within 30 days after satisfying the judgment related to the preference claim, detailing any additional amounts that CapCall asserts under the Bankruptcy Code section 502(h).

CapCall, LLC v. Foster (In re Shoot the Moon, LLC), Nos. 2:15-bk-60979-WLH, 2:17-ap-00028-WLH, 2021 Bankr. LEXIS 2482 (Bankr. D. Mont. Sep. 10, 2021)


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