WASHINGTON – Citizen’s Bank of Maryland was criticized in front of Supreme Court justices Tuesday for freezing the checking account of one of its customers who had declared bankruptcy.
Lawyers for David Strumpf, of Greenbelt, Md., argued that the bank violated bankruptcy code by placing a hold on Strumpf’s account without court permission.
“What we have here in this case is an Alice-in-Wonderland scenario with the bank saying, `We’ll seize the property first, and then we’ll go to court,’ ” said Roger Schlossberg, Strumpf’s lawyer.
Lawyers for the bank argued that by placing a hold on Strumpf’s account, the bank was merely maintaining the status quo and protecting money it was owed.
A decision in the case could be issued between early December and late June, according to a spokeswoman for the Supreme Court.
The case, Citizen’s Bank v. Strumpf, began in 1991 when Citizen’s Bank of Maryland placed an “administrative hold” on $3,500 in Strumpf’s checking account.
The bank froze the account about eight months after Strumpf had declared bankruptcy. He still owed the bank for an unsecured consumer loan from 1989.
A bankruptcy court later declared the bank’s action illegal and ordered the bank to remove the hold and pay $900 in punitive damages and attorney fees to Strumpf.
Citizen’s Bank appealed and the decision was reversed. But Strumpf had already withdrawn all his money from the account.
Schlossberg argued that by placing a hold on the account, the bank had violated bankruptcy code, which protected Strumpf’s funds from creditors while a repayment plan was worked out.
Justice David Souter seemed to agree with Strumpf’s position regarding the hold, saying it changed the status quo when it barred him from withdrawing funds.
The hold is “an interference with the debtor’s ability to use his money,” Souter said.
Not all of the justices concurred.
“Why isn’t the goal of the bankruptcy code best achieved by creating a temporary stalemate so that the court can decide [what action the bank is entitled to take]?” Justice Sandra Day O’Connor asked.
In his closing statement, Irving Walker, who represented Citizen’s Bank, warned that a decision in favor of Strumpf may lead banks to place holds on accounts before customers declare bankruptcy, as a way of protecting their interests. This would cause even more bankruptcy, Walker said. Schlossberg said the law already provides banks with the opportunity to protect their interests. He said they need to be seek out court permission before they act. -30-