Houston
Filing
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OPINION and ORDER reversing Bankruptcy Court's Order re 1 Bankruptcy Appeal Signed by District Judge Bernard A. Friedman. (CMul)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
IN RE: GREGORY GERALD HOUSTON,
Bankr. No. 11-60934
HON. MARCI B. MCIVOR
Debtor.
__________________________________/
LAKE TRUST CREDIT UNION,
Appellant,
vs.
Civil Action No. 12-CV-10534
HON. BERNARD A. FRIEDMAN
GREGORY GERALD HOUSTON,
Appellee.
__________________________________/
OPINION AND ORDER REVERSING BANKRUPTCY COURT’S ORDER
DENYING APPELLANT’S MOTION FOR RELIEF FROM AUTOMATIC STAY
This matter is presently before the court on an appeal by Lake Trust Credit Union
(“credit union”) from a order of the bankruptcy court denying its motion for relief from the
automatic stay. The issues having been fully briefed, the court shall dispense with oral argument
and decide the appeal without a hearing pursuant to E.D. Mich. LR 7.1(f)(2).
The facts of the case are not disputed. The debtor owes approximately $42,087 on
two credit cards issued to him by the credit union in 2000 and 2005. The debtor’s mother, Kathryn,
opened a “survivorship account” with the credit union in 1993; from that time to the present, debtor
has been a “joint member” on that account. The survivorship account currently has a balance of
approximately $61,400. Shortly after the debtor filed his bankruptcy petition, the credit union froze
those funds. The credit union sought relief from the automatic stay so that it may apply those funds
against debtor’s credit card balance.
The bankruptcy court denied the credit union’s motion. The bankruptcy judge
reasoned that (1) under Mich. Comp. Laws § 490.51(d) the survivorship account is a multiple-party
account, (2) under Mich. Comp. Laws § 490.361(4) the credit union has a lien on the survivorship
account because debtor is a party to that account and a credit union member, and (3) under Mich.
Comp. Laws § 490.64, a credit union may enforce its lien against “the entire amount of the account,”
but subject to the right of the parties to the account to prove their actual ownership in the funds
pursuant to the presumption codified in Mich. Comp. Laws § 490.53 that the funds in a multipleparty account “belong to the parties in proportion to the net contributions by each to the sums on
deposit.” The bankruptcy court also found, as a matter of fact, that Kathryn is the only person who
has ever deposited funds into or withdrawn funds from the survivorship account, and that the only
reason she opened this account was to provide a means for her son to have access to any remaining
balance upon her death. The bankruptcy court concluded that the credit union is not entitled to relief
from the automatic stay because it has no right to set off debtor’s credit card debt against any portion
of the funds in the survivorship account, as none of those funds belong to debtor.1
The court has appellate jurisdiction pursuant to 28 U.S.C. § 158. The court reviews
a bankruptcy court’s factual findings for clear error; its conclusions of law are reviewed de novo.
See In re Cook, 457 F.3d 561, 565 (6th Cir. 2006); In re Musilli, 398 B.R. 447, 452-53 (E.D. Mich.
2008). In the present case, the credit union does not challenge the bankruptcy court’s factual
findings. Rather, the appeal rests on the credit union’s argument that the bankruptcy court erred in
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The parties correctly note, as did the bankruptcy court, that the credit union’s setoff
rights, if any, are determined by state law. See 11 U.S.C. § 553; In re New Haven Foundry, Inc.,
285 B.R. 646, 648 (Bankr. E.D.Mich. 2002).
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concluding that the setoff right in Mich. Comp. Laws § 490.64 is subject to the presumptions
regarding ownership expressed in Mich. Comp. Laws § 490.53.
The bankruptcy court’s ruling is certainly appealing from an equitable point of view.
As noted, the funds in the survivorship account were deposited exclusively by debtor’s mother, and
she placed debtor on the account for the sole purpose of making the balance available to him upon
her death. Debtor apparently has never withdrawn any of the funds from this account and he, too,
understood that his mother placed him on the account merely in order to avoid probate. Clearly, it
seems unfair to allow the credit union to use funds in the survivorship account to satisfy debtor’s
credit card debt, which debtor’s mother had no role in amassing.
Nonetheless, the bankruptcy court’s ruling cannot be squared with the provisions of
Michigan’s Credit Union Act (“the Act”) concerning setoffs. The bankruptcy court correctly found,
and the parties agree, that the survivorship account is a “multiple-party account” under the Act and
that the credit union has a lien on the account by virtue of the debtor’s credit card debt to the credit
union. However, the credit union’s lien and setoff rights are against the entire account irrespective
of the net contributions of the parties to the account. The extent of the lien is made plain by Mich.
Comp. Laws § 490.361(4) which states that “a domestic credit union has a lien on any share of a
member, or any deposit account from which a member may withdraw for his or her own benefit
without the consent of another person, for any obligation owed to the domestic credit union by that
member . . . .” As the bankruptcy court correctly noted, debtor clearly could withdraw funds from
the survivorship account, even if he never did so and never intended to do so. The survivorship
account application, which was signed by both the debtor and his mother, indicated that “deposits
and accumulations, less setoffs as allowed by law for sums due the Credit Union by any party, shall
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be paid to one or more of the following parties, on proper withdrawal demand.”
The credit union’s setoff rights are also clearly defined in the Act: “[W]hen a party
to a multiple-party account is indebted to a credit union, the credit union has a right to set-off against
the entire amount of the account.” Mich. Comp. Laws § 490.64 (emphasis added). The credit
union’s setoff right is not limited to the indebted party’s net contribution to the multiple-party
account. The bankruptcy court found such a limitation by importing one of the “presumptions” from
an earlier section of the Act, namely, that “a multiple-party account . . . is presumed to belong to the
parties in proportion to the net contributions by each to the sums on deposit.” Mich. Comp. Laws
§ 490.53. Applying this statutory presumption to limit the credit union’s set off rights was error.
First, it does not appear that this presumption has any application in the present case. Section
490.53, along with four other statutory presumptions, “concerning beneficial ownership as between
parties, or as between parties and beneficiaries, of multiple-party accounts are relevant only to
controversies between these persons or their creditors and other successors, . . . .” Mich. Comp.
Laws § 490.52. These presumptions, if unrebutted, “are effective to establish beneficial ownership.”
Mich. Comp. Laws. § 490.59. There is no indication in the Act that these presumptions may be used
for any other purpose, i.e., to limit a credit union’s setoff rights.
Second, § 490.52 states that the presumptions, including § 490.53, “are relevant only
to controversies between these persons [i.e., parties and beneficiaries] or their creditors and other
successors, . . .” The present case does not involve a controversy between parties and beneficiaries.
Nor does it involve a controversy between creditors and successors. Even assuming the word “or”
is a drafting error and that the word “and” was meant instead, in which event the presumption would
also apply to controversies between parties and their creditors, the word “creditors” in § 490.52
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cannot be construed to include credit unions which also happen to be creditors. Section 490.64 is
the final section of the part of the Act dealing with multiple-party accounts; the “presumptions”
sections appear earlier in this part. Section 490.64 specifically addresses the situation where “a
party to a multiple-party account is indebted to a credit union.” This section, being the more
specific, clearly qualifies the more general rule (arguably stated in §§ 490.52 and 490.53) that is
applicable to “creditors.” See DeFrain v. State Farm Mut. Auto. Ins. Co., 491 Mich. 359, 367 n.22
(2012) (“The settled rule regarding statutory construction is that a specific statutory provision
controls over a related but more general statutory provision”). In other words, even assuming §§
490.52 and 490.53 apply generally to disputes between creditors and parties (or beneficiaries) to
multiple-party accounts, these “presumptions” are clearly trumped by § 490.64 which addresses the
specific situation where the creditor is a credit union and the debtor is a party to such an account.
Moreover, the only two decisions addressing this issue have concluded that a credit
union’s right to setoff, as established by §§ 490.361(4) and 490.64, is unaffected by the presumption
expressed in § 490.53. In In re: Pamela M. Crawford, No. 09-58228 (Bankr. E.D. Mich. Dec. 31,
2009), debtor owed approximately $10,000 on a credit card issued by her credit union. Debtor was
also a joint owner, along with her two sons, of two credit union accounts which were opened when
debtor’s sons were young children, approximately 20 years before debtor filed her bankruptcy
petition. Debtor did not know her name was still on these accounts, and the funds in those accounts
had been deposited exclusively by her sons. As in the present case, the credit union claimed to have
a lien and setoff rights as to the funds in these multiple-party accounts in order to satisfy debtor’s
credit card debt to the credit union. And as in the present case, relying on § 490.53, debtor argued
that the credit union had no such rights because she had not deposited any funds into the multiple-
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party accounts. The court rejected debtor’s argument:
The presumption created by M.C.L. § 490.53 “concerning beneficial
ownership as between parties, or as between parties and beneficiaries,
of multiple-party accounts [is] relevant only to controversies between
these person or their creditors and other successors . . . .” M.C.L. §
490.52. The Court acknowledges that some ambiguity may be raised
by M.C.L. § 490.52, given that in this case, facially at least, there is
a “controversy” between the owners of the accounts and a creditor,
[the credit union], to which that statute might seemingly apply.
However, what dictates the result in this case is that (1) there is not
a controversy as to ownership of the accounts between [the credit
union] and the owners of the accounts, including Debtor, which is
what that statute seeks to deal with – i.e.: [the credit union] does not
claim any ownership in the accounts; rather, its claim of set-off is at
issue – and (2) in any event, there is a specific statute, M.C.L. §
490.64, which, by reason of being specific, governs the issue of setoff.
Id. at 5. The court concluded that the credit union was entitled to a setoff and relief from the
automatic stay.
The same result was reached in In re Hess, 456 B.R. 309 (Bankr. E.D. Mich. 2011).
In that case, debtors owed approximately $20,000 on a credit card issued by their credit union. One
of the debtors, James, was also a party to a credit union checking account with his mother. The
credit union sought to assert a lien and setoff against the joint account. Debtors resisted on the
grounds that all of the funds in the joint account had been deposited by James’ mother. As in
Crawford, the court found no merit in debtors’ position. After finding that the checking account was
a multiple-party account, the court lifted the automatic stay “to allow [the credit union] to exercise
its set-off rights under Michigan law, . . .” Id. at 318.
In the present case, the credit union’s position is further strengthened by the fact that
both debtor and his mother acknowledged the credit union’s setoff rights in the application
establishing the survivorship account. The application, signed by both debtor and his mother, states
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in relevant part:
The undersigned requests the above Credit Union to open a multiple
name share-deposit account to be known as Account Number
__________ in which sums paid to the Credit Union on sharedeposits and accumulations, less setoffs as allowed by law for sums
due the Credit Union by any party, shall be paid to one or more of the
following parties, on proper withdrawal demand.
*
*
*
The Aforementioned are hereby made parties to this share-deposit
account and on proper withdrawal demand, the Credit Union will pay
all sums due on account of payment on share-deposits and any
accumulations or benefits added thereof, less any setoffs allowed by
law to any one or more of said parties.
(Emphasis added.) Even in the absence of the statutory provisions discussed above, this language
would suffice, as a matter of contract law, to establish the credit union’s right to set off any
indebtedness to the credit union by either debtor or his mother against all funds in the account.
For these reasons, the court concludes that the credit union may set off debtor’s credit
card debt against all funds in the survivorship account. The bankruptcy court’s contrary conclusion,
and its denial of the credit union’s motion for relief from the automatic stay is REVERSED and the
matter is REMANDED for further proceedings.
S/ Bernard A. Friedman________________
BERNARD A. FRIEDMAN
SENIOR UNITED STATES DISTRICT JUDGE
September 26, 2012
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