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In Re v. Aea Federal Credit Union

February 2, 2012

IN RE:
TUSCAN RANCH, INC.,
DEBTOR. TUSCAN RANCH, INC., APPELLANT,
v.
AEA FEDERAL CREDIT UNION, APPELLEE.



Appeal from the United States Bankruptcy Court for the District of Arizona Honorable James M. Marlar, Chief Bankruptcy Judge, Presiding Bk. No. 0:10-14417-JMM

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

MEMORANDUM*fn1

Argued and Submitted on January 18, 2012

Filed - February 2, 2012

Before: Clarkson*fn2 ,Jury and Kirscher, Bankruptcy Judges.

Chapter 11*fn3 Debtor in Possession and appellant Tuscan Ranch, Inc. ("Tuscan Ranch", "Debtor" or "Appellant") appeals the bankruptcy court's order (the "Order") granting the Motion for Relief from the Automatic Stay to Exercise Set-Off Rights Against Tuscan Ranch's Accounts Held by AEA Federal Credit Union (the "Motion for Relief"). The Appellant identifies three general challenges to the bankruptcy court's order:

(1) Whether the bankruptcy court erred in granting at a preliminary hearing the Motion for Relief;

(2) Whether the Bankruptcy Court erred in denying Tuscan Ranch's Motion for Reconsideration of the Motion for Relief Order ("Motion for Reconsideration"); and

(3) Whether the Bankruptcy Court erred in failing to conduct an evidentiary final hearing relative to the Motion for Relief*fn4

For the reasons discussed below, we AFFIRM the bankruptcy court's Order.

I. FACTS

Tuscan Ranch filed its voluntary chapter 11 petition on May 11, 2010, (the "Petition Date") in the District of Arizona, Yuma Division. On the Petition Date, the Debtor had in its bank deposit accounts with AEA Federal Credit Union ("AEA") approximately $122,000.00. On that same date, AEA placed an "administrative freeze" on the deposit accounts.

On July 26, 2010, approximately 75 days following the Petition Date, AEA filed its "Motion for Relief from the Automatic Stay to Exercise Set-Off Rights Against Tuscan Ranch's Accounts Held by AEA," asserting that (a) on January 31, 2008, the Debtor and AEA entered into a "Commercial Loan Agreement for Loan 536" (the "Loan Agreement"), and other related loans; (b) that at the time of the Petition Date, the Debtor was in default on these loans*fn5 , and (c) that the Loan Agreement, and other related loans, authorized AEA to "set-off any amounts due and payable under the terms of the Loan against any rights the Debtor had to receive money from AEA, which included any deposit accounts that the Debtor had with AEA."*fn6

On August 17, 2010, the Debtor filed its Response and Objection to the Motion for Relief from the Automatic Stay, stating that AEA had no setoff rights, but provided no factual specifics to the bankruptcy court regarding this assertion, and that AEA improperly imposed an "administrative freeze". The Debtor further asserted that the "administrative freeze" by AEA constituted a violation of § 362(a)(3) ("any act...to exercise control over property of the estate"), and requested that the Motion for Relief be denied.

On August 30, 2010, AEA replied to the Debtor's Response and Objection, arguing that there was no dispute that the Debtor's accounts were subject to setoff rights under § 553, that § 553 allows setoff "if the debt was not incurred during the 90 days before bankruptcy, while the debtor was insolvent, or for the purposes of obtaining a set-off right." AEA further discussed and refuted the Debtor's arguments that AEA's administrative freeze was improper, arguing that the Debtor's reliance on the Ninth Circuit's BAP decision of In re Mwangi, 432 B.R. 812 (9th Cir. BAP 2010), was ...


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