Memorandum of Decision Re: Rights of Purchaser of Claim

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re VESTEQ FINANCIAL CORPORATION,                                                   No. 3-86-02119-W-LK      Debtor. ___________________________/ EDWARD M. WALSH, Trustee,      Plaintiff,    v.                                                                                                                     A.P. No. 3-89-0483 LK WESTERN SAVINGS ASSOCIATION, et al.,      Defendants. ______________________________/
Memorandum of Decision
     Debtor Vesteq Financial Corporation filed its Chapter 11 petition on July 16, 1986. Shortly thereafter, Vesteq's bank, Western Savings Association, was taken over by the FDIC and its assets sold to Western Federal Savings & Loan Association. Western Federal also failed, and its assets were transferred by the FDIC to Sunbelt Savings FSB. Among the assets now owned by Sunbelt is Western's claim against Vesteq in the amount of $26,058,245.25. The claim is partially secured by Vesteq's deposits.      This adversary proceeding has been commenced by the trustee appointed in the Vesteq bankruptcy proceeding. He alleges that Western received numerous avoidable transfers, and that Sunbelt, as its successor, is liable for them. Now before the court is Sunbelt's motion for summary judgment.      The Trustee does not seriously contend that Sunbelt is affirmatively liable for any avoidable transfers, and the court accordingly grants Sunbelt's motion insofar as it seeks a judicial determination that it is insulated from such liability. However, the real issue before the court is Sunbelt's status as holder of Western's claim. Sunbelt argues that it may assert the claim without regard to any avoidable transfers made to Western. The Trustee argues that if Western received avoidable transfers, its claim must be disallowed until the avoided transfers are recovered, regardless of who holds the claim.      Sunbelt's reliance on section 550(b) of the Bankruptcy Code is misplaced for two reasons. First, that section is only intended to protect good faith purchasers of the transferred property; Sunbelt purchased Western's claim, not property fraudulently or preferentially transferred to Western. Second, section 550(b) merely eliminates the trustee's ability to affirmatively recover from a good faith purchaser; the court has already ruled that Sunbelt is not affirmatively liable for any avoided transfers made to Western.      Reduced to its simplest terms, Sunbelt's argument is that it is a holder in due course of Western's claim, entitled to assert it without being subject to any defenses available against Western. There is simply no basis in the law for such a position. Any person who purchases a claim against a debtor in bankruptcy stands in the shoes of the original claimant. In re Defense Services, Inc., 104 B.R. 481, 485 (Bkrtcy.S.D.Fla.1989). To hold otherwise would mean that postpetition events not involving the bankruptcy estate could turn an invalid claim into an enforceable claim. Such a rule would create chaos and be grossly unfair to the other creditors.      Even when a preference or fraudulent transfer may not be affirmatively recovered, avoidable transfers may be raised in defense to a claim asserted against a bankruptcy estate. See Matter of Mid Atlantic Fund, Inc., 60 B.R. 604, 610 (Bkrtcy.S.D.N.Y.1986), and cases therein cited. In this case, since Sunbelt stands in Western's shoes in asserting Western's claim, the Trustee may raise avoidable transfers made to Western to defeat the claim.      Accordingly, the court will order that the following shall be deemed without substantial controversy in this adversary proceeding:
     1. Sunbelt has no affirmative liability for any avoidable transfer received by Western. Under no circumstances shall Sunbelt be obligated to pay anything to the Trustee.
     2. The Trustee may continue to litigate whether any avoidable transfers were made to Western. If such avoidable transfers are found to have been made, then its claims will be disallowed pursuant to section 502(d) of the Bankruptcy Code, regardless of who presently owns such claims, unless and until the amount of such avoidable transfers are paid to the Trustee.
     Except to the extent provided above, the motion of Sunbelt for summary judgment will be denied. The court notes that the Trustee made a countermotion for summary judgment, but Sunbelt has admitted only that certain transfers were made to Western, not that the transfers were avoidable. Consequently, the countermotion cannot be granted.
     Counsel for the Trustee shall submit an appropriate form of order, which counsel for Sunbelt has approved as conforming to this decision.
Dated: March 27, 1991                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy