Proceeds of Cattle Sales By Bankrupt Feedlot Might Be Recoverable By Trustee.

A third party bought cattle and shipped them to a feedyard for feeding and care until they were sold on the third party's behalf to various buyers.  The feedyard deposited the sale proceeds with a creditor for application against its line of credit.  The feedyard would then pay the third party an amount equal to the sales proceeds less the feed cost.  Several payments to the third party occurred during the year immediately preceding the feedyard's bankruptcy filing during which time the feedyard was insolvent.  The bankruptcy trustee motioned to recover the payments made to the third party within a year of the bankruptcy filing, and the bankruptcy court ruled in the trustee's favor.  On appeal, the third party claimed that the proceeds were not a "transfer of an interest of the debtor in property" as required by 11 U.S.C. Sec. 547(b) because the funds were not the debtor's property but were held in trust by the feedyard as bailee for the third party.  In addition, the third party claimed that the proceeds were not traceable to the funds transferred to the third party because the feedyard used the proceeds to pay its debts and, as such the state (NE) "swollen assets" doctrine imposed a constructive trust on the funds.  On appeal, the court determined that the third party was purportedly a bailor whose bailment property was misused by the debtor-bailee which led to the inability of the third party to recover under the bailment agreement alone.  Accordingly, the court determined that genuine issues of material fact remained with respect to the existence of a bailment under NE law that would extend to the proceeds of the cattle sales and, thus, whether the proceeds were the debtor's property.  In re Big Drive Cattle, L.L.C. v. Overcash, No. 4:14CV3064, 2014 U.S. Dist. LEXIS 80853 (D. Neb. Jun. 13, 2014). 

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