18 BK 09130, 19 AP 00626
Post-petition after being notified of the Debtor’s Chapter 11 case (later converted to Chapter 7), Byline Bank paid $352,166.35 to Bank of America for 36 cashier’s checks the Debtor purchased pre-petition but did not disclose in his bankruptcy schedules.  Most of the checks were payable to the Debtor; two checks were payable to a title company.  Only one check was endorsed by the payee.  Byline Bank recorded its cashier’s checks in a manual log, not electronically.  Byline Bank did not disclose the existence of the cashier’s checks to the Trustee.

The Trustee commenced an adversary proceeding against Byline for violation of the stay, conversion, and turnover of property of the estate. The court ruled in favor of the Defendant, Byline, on count I (violation of the stay) due to the exception to the imposition of the stay under 11 U.S.C. § 362(b)(11). The court ruled in favor of the Trustee on count II (conversion), finding Byline was liable for conversion because the Trustee had an unconditional right to the cashier’s checks under Bankruptcy Code § 541, which makes a debtor’s property at filing property of the bankruptcy estate; the Trustee’s letter to Byline Bank was a demand for possession of all the Debtor’s interests held by Byline; and Byline wrongfully failed to examine its records leading it to transfer the cashier’s checks’ value. The court ruled in favor of the Byline on count III (turnover of property of the estate) because Bankruptcy Code § 550 only provides a remedy against transferees, not transferors like Byline, for voided transfers.