In Schoenmann v. Bank of the West (In re Tenderloin Health), No. 14-17090, D.C. No. 4:13-cv-03992-JSW, the Ninth Circuit Court of Appeals reversed the district court's order affirming the bankruptcy court's summary judgment in favor of Bank of the West ("BOTW") in an adversary proceeding for avoidance of a preferential transfer brought by a Chapter 7 trustee ("Trustee"). Specifically, the Ninth Circuit held "that courts may entertain hypothetical preference actions within section 547(b)(5)'s hypothetical liquidation when such an inquiry is factually warranted, supported by appropriate evidence, and so long as the hypothetical preference action would not result in a direct conflict with another section of the Bankruptcy Code."
In 2009 and 2011, Tenderloin Health ("Debtor") obtained a $300,000 loan from BOTW, secured in part by the Debtor's deposit accounts with BOTW. In late 2011 or early 2012, the Debtor wound up its affairs and sold its only real property. From the sale proceeds, the Debtor paid BOTW $190,595.50 ("Transfer") to fully satisfy its outstanding loan obligation and the Debtor deposited the remaining sale proceeds of $526,402.05 in its BOTW deposit account. On July 20, 2012, the Debtor filed for Chapter 7 bankruptcy ("Petition Date"). As of the Petition Date, the Debtor's BOTW deposit account contained $564,115.92.