30.2 Use the IRAC Method to breifly identify the Issue, the Legal Rule (Legal Te

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30.2 Use the IRAC Method to breifly identify the Issue, the Legal Rule (Legal Test), the Facts Applied to the Test (Analysis), and the Conclusion/ Holding of the case.

In re Tusa-Expo Holdings, Inc. United States Court of Appeals, Fifth Circuit, 811 F.3d 786 (2016) nc., was Background and Facts Tusa Ofice Solutions, Inc., a subsidiary of Tusa-Expo Holdings, the largest retail dealer in new furniture made by Knoll, Inc. A customer or Tusa Office, which ordered it from Knoll and delivered it to the customer. The customer paid Office, which then paid Knoll. Knoll set a limit on the amount of ordered Knoll furniture from Tusa the payments that could be outstand ng before it would stop filling new orders. As part of the deal, Tusa Office granted Knoll a first-priority security interest in specified accounts receivable. I and Textron agreed separately that Textron would have a first-priority security interest in all of Tusa Office's assets except Knoll's collateral The terms of the loan required Tusa Office to establish a bank account-called the lockbox- int which its customers made payments directly. Textron could withdraw funds from the lockbox and use them to increase the credit available to Tusa Office on its loan. Tusa Office used the increased credit to pay Knoll. By paying Knoll, Tusa Office kept its debt to Knoll below the furniture maker's limit, which enabled Tusa Office to fill new orders for its customers. Ultimately, Tusa Office filed a bankruptcy petition in a federal bankruptcy court. Marilyn Garner the bankruptcy trustee, sought to recapture some of the funds that Knoll had received through the lockbox.a To do this, Garner had to establish that Knoll had received more by these transfers than it would receive on Tusa Office's bankruptcy. The court issued a ruling against the trustee, who appealed. In the Language of the Court WIENER, Circuit Judge: A creditor who merely recovers its own collateral receives no more than it would have received anyuay: [Emphasis added.] The Trustee asserts that the transfers from Tusa Office to Knoll were not made from the proceeds of Knoll's collateral. The Trustee does not dispute that the payments Tusa Office's customers deposited into the lockbox were proceeds ofTusa Offices accounts receivable. She argues *·' that . * * interest in the payments was stripped by operation of [Texas Business and Commerce Code] Section 9.332(a) [Texas's version of UCC 9-332(a)]: "A transferee of money takes the money free of a security interest Section 9.332(a) does not apply if such a transfer of money was made to the debtor. The Trustee therefore insists that Textron, not Tusa Office, was the transferee. In so doing, the Trustec tends that the lockbox was "owned *by Textron Knoll's first-priority security con *. The Loan Agreement is clear. It specifies that"Tusa Office shall have established a lockbox * * * for its collections and the transfer thereof to Textron ." The Loan Agreement also states that "Tusa Office shall have possession of Textron's Collateral. Because Tusa Office, not Textron, owned the lockbox, Section 9.332(a) does not Knoll's first-priority security interest in the proceeds of Tusa Ofice's accounts receivable survived th deposit into the lockbox re, The Trustee next contends that Section 9.332(b) [Texas's version of UCC 9-332(b)] stripped Knoll' first-priority security interest when they were transferred from the lockbox to Textron

Explanation / Answer

30.2 Use the IRAC Method to briefly identify the Issue, the Legal Rule (Legal Test), the Facts Applied to the Test (Analysis), and the Conclusion/ Holding of the case.

IRAC-Issue, Rule, Analysis, and Conclusion

Issue: Tusa expo holding largest retail dealer of Knoll furniture would book orders for Knoll furniture and supply to the customer. The customer would then pay Tusa office. Tusa office had an account outstanding limit with Knoll. Tusa office had to ensure filling the limits to have continued supplies. Tusa office further opened a lockbox where customers could directly make payments. Knoll could recover its outstanding from the Lockbox. Knoll was given first priority on specified accounts receivable. Further Tusa office took finance from Textron and separately Textron and Knoll agreed that Textron would have first priority security interest in all of Tusa’s assets except in case of Knoll's collateral. Tusa office kept paying from the increased credit limit to ensure staying within limits and ensuring regular supplies. When Tusa filed bankruptcy the trustee tried to recover funds from Knoll saying that they have received more amount than they would on the filing of Tusa’s bankruptcy. The court ruled against the trustee.

Rule: Knoll has recovered its own collateral from the lockbox, which was opened by Tusa office where knoll has the first priority security interest as agreed by Tusa to cover Knolls outstanding according to section 9.332 (b)

Analysis: A fully secured creditor will always receive 100% of its claim in a chapter 7 proceeding. The payment to creditors holding liens and security interests cannot be defeated any under of the trustees avoiding powers and such payments cannot be recovered by the trustees. It is trustees burden of proof to provide evidence that the creditor was not fully secured.

Conclusion: The US court of appeals of the fifth circuit affirmed the ruling of the lower court. The trustee could not recover the funds that were transferred to knoll by the Tusa office through the lockbox as it was the proceeds of knolls own collateral.

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