Case Summary:
Travelers Indemnity Co. and the Debtor entered into a surety agreement and a workout agreement.  The workout agreement provided that the Debtor would sell its real estate and pay the proceeds to Travelers.  Travelers commenced a state court action against the Debtor seeking payment, and the state court allowed the sale of the last real estate asset owned by the Debtor but required the net proceeds from the sale be held in two joint bank accounts in the names of Travelers and the Debtor until further order of the Court.  After the Debtor filed for Chapter 7 bankruptcy relief, the Trustee brought this adversary proceeding to compel turnover of the funds in those accounts.  Travelers filed a Motion for Summary Judgment and the Trustee filed a Cross-Motion for Summary Judgment.  The Court granted Travelers' motion and denied the Trustee's.  The Court found that the state court's injunction order was akin to a pre-judgment attachment. Therefore, under the injunction order, Travelers was placed in the position of a pre-judgment attachment creditor who had levied on and "caught" the proceeds from the sale of the debtor's last real estate asset.  Under Wisconsin law, the attaching creditor is treated as having a lien on the property when the creditor levies upon attachment.  Therefore, Travelers had a lien on the proceeds when they were placed in the accounts.  The Court further ruled that the trustee could not avoid Travelers' interest in the proceeds under 11 U.S.C. § 544(a), because Travelers had a contingent lien under the 1995 injunction order.  However, once Travelers obtained relief from stay and a judgment in state court, Travelers' lien was converted into a judgment lien that related back to 1995, the date of the injunction order.

Statute/Rule References:
11 U.S.C. § 544 -- Trustee as Lien Creditor
11 U.S.C. § 541 -- Property of the Estate
Wis. Stat. § 811.03 -- Basis for Attachment

Key Terms:
Avoidance
Pre-Judgment Attachment
Turnover of Property