Stoebner v. Consumers Energy Company, et al., No. 11-6045 (8th Cir. 2011)
Annotate this CasePlaintiff, in these related appeals, was the Trustee in the Chapter 7 bankruptcy cases of LGI Energy Solutions, Inc. and LGI Data Solutions Company, LLC, which were in the business of providing utility-management and billing services to restaurants and other customers. These consolidated appeals involved seven adversary proceedings by the Trustee to avoid payments made by LGI Energy to defendant utilities prior to the bankruptcy. The Trustee contended that such payments were preferential and/or fraudulent transfers under the Bankruptcy Code and applicable state law. The Bankruptcy Court granted summary judgment in favor of defendants based on its conclusion that the payments they received for the utilities were not an asset of either debtor. The court held that the bankruptcy court's ruling was inconsistent with Minnesota law and Eighth Circuit precedent. If a trust or agency relationship was intended to be created by the agreements between LGI Energy and its customers, then defendants were nevertheless required to prove that LGI Energy honored that relationship and treated the funds accordingly. Therefore, the court reversed and remanded.
Court Description: Bankruptcy Appellate Panel. If a trust or agency relationship was intended to be created by the agreements between debtor and its customers, then defendants were required to prove that debtor honored that relationship and treated the funds accordingly; in other words, the defendants had to be able to trace the money in order to show that the transfers were not preferential and/or fraudulent transfers which the trustee could avoid; as the bankruptcy court did not hold defendants to this standard, the matter must be reversed and remanded for further proceedings; on remand, the bankruptcy court should determine whether the contracts between debtor and its customers created a trust relationship or a bailment and whether debtor honored that relationship in its treatment of its customers' funds.
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