By: Derek Hawkins//January 13, 2016//
7th Circuit Court of Appeals
Case Name: Frederick Grede v. Bank of New York
Case No.:15-1039
Officials: POSNER, EASTERBROOK, and ROVNER, Circuit Judges.
Practice Area: Bankruptcy
Bank remains as creditor, but will be an unsecured creditor due to it being put on inquiry notice of assets.
“Section 550(d), the basis of the bank’s second defense, limits a trustee in bankruptcy to a single satisfaction of a debt owed the bankrupt estate. The district judge thought that granting the trustee the requested relief would result in “a windfall recovery of the millions loaned to Sentinel by BNYM plus the entire collateral that secured these loans,” because the trustee would have both the value of the loans that remained and the collateral (the customers’ assets that Sentinel pledged to the bank). No. The bank is still owed Sentinel’s debt to it. It has just lost its security interest. This does not give the trustee a double recovery. See In re Skywalkers, Inc., 49 F.3d 546, 549 (9th Cir. 1995). The bank remains a creditor in the bankruptcy proceeding, but is an unsecured creditor because it was on inquiry notice that the assets that Sentinel had used to secure the bank’s loans had been fraudulently conveyed to the bank.”
Affirmed in part and reversed in part. Remanded