Setoff Recoupment

SETOFF & RECOUPMENT

In re Gould, 401 B.R. 415 (9th Cir. BAP 2009)

IRS had a valid right of setoff under 11 U.S.C. § 553 and IRC § 6402(a) as to chapter 13 debtors’ tax refunds, even though the debtor claimed them as exempt and no objection to the exemption was filed. Bankruptcy court should have granted the IRS relief from the automatic stay for cause to allow it to exercise its setoff rights.

In re Straightline Investments, Inc,. 525 F.3d 870 (9th Cir. 2008)

Postpetition transfer by debtor of accounts receivable to a factor without bankruptcy court approval were avoidable under § 549(a). This is true regardless of whether they diminished the estate, the court declining to extend the diminution of the estate doctrine of § § 547 and 548 to §549. They were not sales in the ordinary course of business, since they failed to meet both the vertical and horizontal dimension tests of § 363(c).The earmarking doctrine did not apply, because the money received by the debtor was not designated for a specific creditor. Recoupment did not apply, because it is an equitable doctrine, and the factor engaged in inequitable conduct.

In re Wade Cook Financial Corp., 375 B.R. 580 (9th Cir. BAP 2007)

Section 553 governs the IRS’s right to setoff in bankruptcy, not the Internal Revenue Code. Whether the obligation to remit a refund was a prepetition debt, and whether there was a mutuality of debts, were genuine issues of material fact that required a remand.

In re Brown & Cole Stores, LLC, 375 B.R. 873 (9th Cir. BAP 2007)

Secured creditors are entitled to the administrative expense priority allowed by § 503(b)(9). Because such claims arise prepetition, they may be subject to setoff under § 553(a) if all of the requirement of the statute are met.

In re Madigan, 270 B.R. 749 (9th Cir. B.A.P. 2001)

Insurer’s overpayment of prepetition disability benefits and insured’s right to postpetition benefits for separate disability were not logically related so as to entitle insurer to equitable recoupment.

In re TLC Hospitals, Inc., 224 F.3d 1008 (9th Cir. 2000)

HHS’s overpayments for TLC’s nursing services in one fiscal year arise from the same transaction as its underpayments to TLC in a later fiscal year, thus allowing them to recoup the overpayments.

In re United Marine Shipbuilding, Inc., 146 F.3d 739 (9th Cir. 1998), amended and superseded on denial of reh’g, 158 F.3d 997 (9th Cir. 1998)

Governments’ setoff rights are not waived when I.R.S. mistakenly disburses bankruptcy debtor’s tax refund to debtor’s trustee

In re Luz Int’l, Ltd., 219 B.R. 837 (9th Cir. B.A.P. 1998)

Elements of a set-off under 553

1. Pre-petition debt owed to debtor

2. Debts are mutual and pre-petition and owing between same parties

3. Parties stand in same capacity

In re Bakersfield Westar Ambulance, Inc., 123 F.3d 1243 (9th Cir. 1997)

Bank improved position under § 553(b), thus setoff.

Newbery Corp. v. Fireman’s Fund Insur. Co., 95 F.3d 1392 (9th Cir. 1996)

Recoupment does not violate ratable distribution

In re HAL, Inc., 196 B.R. 159 (9th Cir. B.A.P. 1996), aff’d. 122 F.3d 851 (9th Cir. 1997)

Federal government agencies constitute single entity for purposes of mutuality requirement of setoff except for agencies acting in distinct private capacity

In re Harmon, 188 B.R. 421 (9th Cir. B.A.P. 1995)

Excess temporary workers’ compensation payments may be deducted from debtor’s permanent disability award under either recoupment or setoff

In re Cascade Roads, Inc., 34 F.3d 756 (9th Cir. 1994)

U.S. government’s right of setoff deemed due to its inequitable conduct, notwithstanding setoff right found in 31 U.S.C. 3728

In re Newbery Corp., 145 B.R. 998 (9th Cir. B.A.P. 1992), op withdrawn 161 B.R. 999 (9th Cir. B.A.P. 1994)

Claim for prepetition damages for abandoning work on a project and a claim for rental of equipment postpetition arise out of the same transaction, this recoupment appropriate

In re De Laurentiis Entertainment Group, Inc., 963 F.2d 1269 (9th Cir. 1992), cert. denied, 506 U.S. 918 (1992)

Setoff available even after plan confirmed – 553 takes precedence over 1141.

In re Buckenmaier, 127 B.R. 233 (9th Cir. B.A.P. 1991)

Error to prohibit creditor’s setoff claim against discharged debtor

In re Holford, 896 F.2d 176 (5th Cir. 1990)

Recoupment not barred by automatic stay

In re Davidovich, 901 F.2d 1533 (10th Cir. 1990)

Setoff v. Recoupment

Lewis Industries v. Barham Constr. Inc., 878 F.2d 1230 (9th Cir. 1989)

Failure to raise setoff at time of assumption by debtor of executory contract = estoppel

In re Pieri, 86 B.R. 208 (9th Cir. B.A.P. 1988)

Creditor may assert setoff in cross-complaint against a debtor’s complaint seeking money which would be exempt.