In re: Mwangi, No. 12-16087 (9th Cir. 2014)
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The Debtors were account holders at Wells Fargo. When Wells Fargo discovered that the Debtors had filed a voluntary Chapter 7 bankruptcy petition, it placed a “temporary administrative pledge” on their accounts and requested instructions from the Chapter 7 trustee regarding the distribution of account funds, a portion of which the Debtors claimed as exempt under Nevada Revised Statutes 21.090(1)(g). The Debtors brought an adversary proceeding, which the bankruptcy court dismissed. The district court affirmed, holding that they did not state a claim for a willful violation of 11 U.S.C. 362(a)(3), which prohibits “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.” Before the account funds revested in the Debtors, they remained estate property, and the Debtors had no right to possess or control them. The administrative pledge could cause the Debtors no injury before the account funds revested. After the account funds revested in the Debtors, they lost their status as estate property and thus were no longer subject to section 362(a)(3).
Court Description: Bankruptcy. The panel affirmed the district court’s affirmance of the bankruptcy court’s dismissal of two chapter 7 debtors’ adversary proceeding against a bank that placed a “temporary administrative pledge” on their accounts after it discovered that they had filed a bankruptcy petition. The panel held that the debtors could not state a claim for willful violation of the automatic stay provision of 11 U.S.C. § 362(a)(3), which proscribes “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.” The panel concluded that before the account funds revested in the debtors, they remained estate property, and the debtors had no right to possess or control them. Accordingly, the operation of the administrative pledge could cause the debtors no injury before the account funds revested. The panel concluded that after the account funds revested in the debtors, they lost their status as estate property and thus were no longer subject to § 362(a)(3).
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