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In re Mwangi

United States Court of Appeals, Ninth Circuit

August 26, 2014

In the Matter of: ERIC NJAU MWANGI; PAULINE MUTHONI MWICHARO, Debtors,
v.
WELLS FARGO BANK, N.A., Appellee ERIC NJAU MWANGI; PAULINE MUTHONI MWICHARO, Appellants,

Argued and Submitted, San Francisco, California: April 11, 2014.

As Corrected August 26, 2014.

Page 1169

Appeal from the United States District Court for the District of Nevada. D.C. No. 2:11-cv-01753-PMP-GWF. Philip M. Pro, Senior District Judge, Presiding.

SUMMARY[*]

Bankruptcy

The panel affirmed the district court's affirmance of the bankruptcy court's dismissal of two chapter 7 debtors' adversary proceeding against a bank that placed a " temporary administrative pledge" on their accounts after it discovered that they had filed a bankruptcy petition.

The panel held that the debtors could not state a claim for willful violation of the automatic stay provision of 11 U.S.C. § 362(a)(3), which proscribes " any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." The panel concluded that before the account funds revested in the debtors, they remained estate property, and the debtors had no right to possess or control them. Accordingly, the operation of the administrative pledge could cause the debtors no injury before the account funds revested. The panel concluded that after the account funds revested in the debtors, they lost their status as estate property and thus were no longer subject to § 362(a)(3).

Christopher P. Burke (argued), Las Vegas, Nevada, for Plaintiffs-Appellants.

M. David Minnick (argued), Kevin M. Fong, and Daniel Lamb, Pillsbury Winthrop Shaw Pittman LLP, San Francisco, California; Lance Earl and Lars K. Evensen, Holland & Hart LLP, Las Vegas, Nevada, for Defendant-Appellee.

Before: Barry G. Silverman, William A. Fletcher, and Jay S. Bybee, Circuit Judges.

OPINION

Page 1170

BYBEE, Circuit Judge:

Eric Mwangi and Pauline Mwicharo (collectively " the Debtors" ) were account holders at Wells Fargo Bank, N.A. When Wells Fargo discovered that the Debtors had filed a voluntary Chapter 7 bankruptcy petition, it placed a " temporary administrative pledge" on the Debtors' accounts. Wells Fargo then requested instructions from the Chapter 7 trustee regarding the distribution of account funds, a portion of which the Debtors claimed as exempt under Nevada Revised Statutes § 21.090(1)(g).

In this case, we must decide whether the Debtors can state a claim for a willful violation of 11 U.S.C. § 362(a)(3) which proscribes " any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate" based on the operation of Wells Fargo's administrative pledge. We hold that they cannot state such a claim. Before the account funds revested in the Debtors, they remained estate property, and the Debtors had no

Page 1171

right to possess or control them. Accordingly, the operation of the administrative pledge could cause the Debtors no injury before the account funds revested. After the account funds revested in the Debtors, they lost their status as estate property and thus were no longer subject to ยง 362(a)(3). We therefore affirm the district ...


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