Issue link: https://mbozikis.ufcontent.com/i/1422521
81 was incurred postpetition. This is because "the debtor and the debtor-in-possession are two separate and distinct entities, which act in different capacities pre- and post-petition. Therefore, prepetition claims may only be setoff against prepetition claims, and post-petition claims may only be setoff against prepetition claims." Genuity Sols., Inc. v. Metro. Transp. Auth. (In re Genuity, Inc.), No. 02-43558, 2007 Bankr. LEXIS 2133, at *13-14 (Bankr. S.D.N.Y. June 20, 2007). i. Triangular Setoff While, as noted above, the right of setoff typically applies where there are debts owing between two entities, parties may sometimes attempt to expand their setoff rights by seeking to set off a debt against the other party's obligation to a third party. Although this right may be enforceable outside bankruptcy, in general, these so-called "triangular setoffs" have met with some resistance in bankruptcy. See In re SemCrude, L.P., 399 B.R. 388, 393 (Bankr. D. Del. 2009). This is true even where the creditor and the third party are related entities. See, e.g., In re Okura & Co., 249 B.R. 596, 608-09 (Bankr. S.D.N.Y. 2000). Notwithstanding the foregoing, however, some courts have suggested that Section 553 preserves these "triangular setoffs" in certain limited circumstances—specifically, where the parties have contractually agreed to permit triangular setoff among themselves. See In re SemCrude, L.P., 399 B.R. at 394 n.4. 39 The Third Circuit, however, has refused to uphold triangular setoffs even where the parties thereto agreed to it. In In re SemCrude, L.P., the Delaware Bankruptcy Court ruled that debts among different parties could not be deemed mutual even in the face of an agreement that expressly contemplated triangular setoff. 399 B.R. 388 (Bankr. D. Del. 2009). The court adopted a narrow interpretation of "mutuality," finding that debts between parties are mutual only if the debts are "due to and from the same persons in 39 Although, as discussed in the following paragraph, this court specifically prohibited a triangular setoff, the footnote reference provides a list of cases that have held that triangular setoffs are permitted.