Sixth Circuit Notes Split Re Application of Earmarking Doctrine in the Context of a Refinancing Transaction

Per In re Lee, 530 F.3d 458 (6th Cir. Jun 26, 2008):

When applying the earmarking doctrine in the context of a refinancing transaction, courts have split over whether to characterize the refinancing as a single unitary transaction or as a number of parts. Although Chase suggests that the multiple-transfer approach adopted by the First Circuit in In re Lazarus has been followed only by a small minority of bankruptcy courts, it is in fact the prevailing view. See Encore Credit Corp. v. Lim, 373 B.R. 7, 17 (E.D.Mich.2007); George v. Argent Mortgage Co. (In re Radbil), 364 B.R. 355, 358 (Bankr.E.D.Wis.2007); Baker v. Mortgage Elec. Registration Sys., Inc. (In re King), 372 B.R. 337, 341 (Bankr.E.D.Ky.2007); Peters v. Wray State Bank (In re Kerst), 347 B.R. 418, 422 (Bankr.D.Colo.2006); Gold v. Interstate Fin. Corp. (In re Schmiel), 319 B.R. 520, 528 (Bankr.E.D.Mich.2005); Scaffidi v. Kenosha City Credit Union (In re Moeri), 300 B.R. 326, 329-30 (Bankr.E.D.Wisc.2003); Strauss v. Chrysler Fin. Co. (In re Prindle), 270 B.R. 743, 746-47 (Bankr.W.D.Mo.2001); Sheehan v. Valley Nat'l Bank (In re Shreves), 272 B.R. 614, 625 (Bankr.N.D.W.Va.2001); Vieira v. Anna Nat'l Bank (In re Messamore), 250 B.R. 913, 916 (Bankr.S.D.Ill.2000). See also Goodman v. S. Horizon Bank (In re Norsworthy), 373 B.R. 194, 200 n. 3 (Bankr.N.D.Ga.2007) ("Many courts have held that the 'earmarking doctrine' is not properly applied in the case of the transfer of a security interest."). In actuality, the case upon which Chase relies, In re Heitkamp, 137 F.3d 1087, represents the minority view. As far as we are aware, the only courts that have followed it are lower courts in the Eighth Circuit, the lower courts in In re Lazarus, and the district court here.


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