By Michael Riela
Vedder Price
New York, NY
In Horwitz v.Montroy (In re Select Tree Farms, Inc.), A.P. No. 15-1014, 2015 WL 4594076
(Bankr. W.D.N.Y. July 17, 2015), the United States Bankruptcy Court for the
Western District of New York held that an attorney was not an “initial
transferee” for purposes of Section 550(a) of the Bankruptcy Code with respect
to funds that were deposited into the attorney’s trust account and later used to
pay the debtor’s creditors. However, the
bankruptcy court also held that the attorney was an “initial transferee” with
respect to funds that were deposited into the trust account and later used to
pay the attorney’s own fees.
This case highlights some of the circumstances under which
funds that are deposited into a trust or escrow account may be subject to recovery
claims in a bankruptcy case.
Facts
George A. Schichtel was the president of Select Tree
Farms, Inc. and managed its operations.
Shortly before it commenced its Chapter 11 case on March 7, 2012, Select
Tree Farms issued six checks that were payable to three creditors. Those checks were signed by Mr. Schichtel. The drawee bank dishonored those checks
because of insufficient funds, and the three creditors subsequently filed
complaints that resulted in the prosecution of criminal charges against Mr.
Schichtel under New Jersey law.