Citizens Bank of Maryland v. Strumpf

PETITIONER: Citizens Bank of Maryland
RESPONDENT: Strumpf
LOCATION: Virginia Military Institute

DOCKET NO.: 94-1340
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Fourth Circuit

CITATION: 516 US 16 (1995)
ARGUED: Oct 03, 1995
DECIDED: Oct 31, 1995

ADVOCATES:
Irving E. Walker - on behalf of the Petitioner
Miguel A. Estrada - on behalf of the United States, as amicus curiae, supporting the Petitioner
Roger Schlossberg - on behalf of the Respondent

Facts of the case

Question

Media for Citizens Bank of Maryland v. Strumpf

Audio Transcription for Oral Argument - October 03, 1995 in Citizens Bank of Maryland v. Strumpf

John Paul Stevens:

We'll hear argument in Case Number 94-1340, Citizens Bank of Maryland v. Strumpf.

Mr. Walker, you can proceed when you're ready.

Irving E. Walker:

Thank you, Justice Stevens, and may it please the Court:

This case presents a single issue involving the interpretation of the Bankruptcy Code, and that issue is whether a bank creditor may refuse a debtor depositor's request to withdraw funds pending a Bankruptcy Court's determination of the bank's right of setoff without violating the automatic stay.

The Court's answer to this question should govern the conduct of nonbank and bank creditors alike, including the United States Government.

The Fourth Circuit held that the bank's refusal to allow the debtor to withdraw funds to the extent of the bank's setoff right, what is referred to commonly as an administrative hold, is tantamount to a setoff.

Sandra Day O'Connor:

Mr. Walker, would you mind telling me what your definition is of a setoff?

Irving E. Walker:

Yes, Your Honor.

Justice O'Connor, a setoff occurs when there is an intention to effect a settlement of mutual debts.

It has several attributes.

One is that the creditor intends to do it.

Two, there is an affirmative action which results in a bank account balance actually being reduced in a corresponding amount.

The bank's claim is reduced, and there is invariably a record evidencing that the setoff occurred.

Sandra Day O'Connor:

Is this a matter of Federal law or State law for purposes of this case?

Irving E. Walker:

Your Honor, I believe it is a matter of Fed... excuse me.

I believe it is a matter of State law consistent with Justice Breyer's view when he was with the First Circuit in the Saugus General Hospital case, that in determining when a setoff occurs, consistent--

Sandra Day O'Connor:

We look to State law.

Irving E. Walker:

--Yes, Your Honor, and there is--

Sandra Day O'Connor:

There's no overall Federal meaning of that term for purposes of the Bankruptcy Code.

Irving E. Walker:

--I do not believe there is, Your Honor.

The Federal Bankruptcy Code, of course, determines what conduct is permissible under the code, and our view is that administrative hold is expressly permitted under section 542(b).

Sandra Day O'Connor:

And as a matter of State law in this instance, you think that it depends on the bank's intention?

Irving E. Walker:

More than that, Your Honor.

Intention would be one factor.

First, I should point out there is no Maryland reported case expressly telling any of us exactly when a setoff occurs, and therefore we look to the general common law and the Federal cases considering nonbankruptcy and State law have generally agreed, at least at the circuit court level and below, with our view of the case, namely that there needs to be an intent, there needs to be an affirmative act to change the status quo, and that's a key point in our case, Your Honors.

An administrative hold, consistent with the purpose behind the automatic stay, accomplishes a preservation of the status quo, and that's quite--

Antonin Scalia:

Well, the status quo was changed here.

The bankrupt was able to withdraw funds before the bank's action in freezing the account.

Thereafter, the account was frozen.

Isn't that a change in the status quo?