## Facts

- Delco Oil, Inc., a motor-fuel distributor, bought petroleum products from Marathon Petroleum Company, LLC under a sales agreement.
- Delco entered a financing agreement with CapitalSource Finance granting CapitalSource a security interest in essentially all Delco personal property, including “collections, cash payments, and inventory,” encompassing proceeds deposited into Delco’s operating accounts.
- Delco filed a Chapter 11 bankruptcy petition and operated as a debtor-in-possession.
- Delco sought authority to use “cash collateral” under 11 U.S.C. § 363(c); CapitalSource objected.
- The bankruptcy court allowed Delco to continue operations but did not authorize use of CapitalSource’s cash collateral and later expressly denied Delco’s cash-collateral request.
- Between those events, Delco paid Marathon over $1.9 million from Delco’s operating accounts for post-petition fuel purchases.
- The case converted to Chapter 7, and the trustee sued Marathon to avoid and recover the payments as unauthorized post-petition transfers.

## Issues

1. Whether the trustee could avoid Delco’s post-petition payments to Marathon as unauthorized transfers of “cash collateral” under 11 U.S.C. §§ 363(c)(2) and 549(a), and recover from Marathon under § 550(a).
2. Whether the funds paid from Delco’s operating accounts constituted “cash collateral” subject to CapitalSource’s security interest.
3. Whether ordinary-course dealing or alleged tracing deficiencies defeated avoidance at summary judgment.

## Decision

- The Eleventh Circuit affirmed summary judgment for the trustee.
- The payments were transfers of CapitalSource’s cash collateral because they came from accounts containing proceeds subject to CapitalSource’s perfected lien.
- Delco lacked authority to use cash collateral because there was neither secured-creditor consent nor a court order authorizing use under § 363(c)(2).
- The transfers were avoidable under § 549(a) and recoverable from Marathon under § 550(a).
- Ordinary-course arguments did not override § 363(c)(2), and Marathon’s tracing objections did not create a genuine dispute of material fact.

## Legal Principles

- “Cash collateral” under § 363(a) includes cash and proceeds in which both the estate and a secured creditor have an interest, including proceeds deposited into debtor accounts subject to the creditor’s lien.
- Under § 363(c)(2), a debtor-in-possession may not use cash collateral absent secured-creditor consent or court authorization after notice and a hearing.
- A post-petition transfer of estate property that is not authorized by the Bankruptcy Code or by court order is avoidable under § 549(a).
- Once avoided, the trustee may recover the transferred value from the initial transferee under § 550(a).
- Ordinary-course transaction authority under § 363(c)(1) does not permit use of cash collateral contrary to § 363(c)(2).

## Conclusion

Post-petition payments to a trade creditor made from a secured lender’s cash collateral, without the lender’s consent or court approval, are unauthorized transfers avoidable under § 549(a) and recoverable from the transferee under § 550(a), even if the payments arose in the ordinary course of the debtor’s business.


Marathon Petroleum Co. v. Cohen (In re Delco Oil, Inc.), 599 F.3d 1255 (11th Cir. 2010)