Issue link: https://mbozikis.ufcontent.com/i/1422521
83 b. Recoupment Recoupment is an equitable doctrine which permits a party to reduce the amount of a counterparty's claim by asserting a claim against the counterparty arising out of the same transaction. See Delta Airlines, Inc. v. Bibb (In re Delta Airlines), 359 B.R. 454, 465-67 (Bankr. S.D.N.Y 2006). Although recoupment applies in bankruptcy proceedings, the doctrine is not referenced in the Bankruptcy Code and is not subject to the limitations of Section 553 or the automatic stay. Id. at 467. Thus, for example, recoupment does not require that there be mutuality between the parties or that both of the obligations at issue arise prepetition (so long as they arise out of the same transaction). Perhaps even more significantly, recoupment is not prohibited by the automatic stay, and a creditor is free to exercise its right of recoupment without seeking court approval. Courts have been reluctant to define precisely what constitutes a "single transaction" for recoupment purposes, "focusing instead on the facts and the equities of each case." U.S. Postal Serv. v. Dewey Freight Sys., Inc., 31 F.3d 620, 623 (8th Cir. 1994). Most courts apply one of two approaches when determining if certain events and obligations satisfy the "single transaction" standard. Courts that consider this issue under the framework of the "logical relationship" test adopt a fairly permissive view of the case before them, guided by the following principle: transaction "is a word of flexible meaning. It may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship." Moore v. N.Y. Cotton Exch., 270 U.S. 593, 610 (1926). Other courts take a stricter view and apply the "integrated transaction" test. These courts conclude that in a bankruptcy, recoupment may only be applied where both debts "arise out of a single integrated transaction so that it would be inequitable for the debtor to enjoy the benefits of that transaction without also meeting its obligations." Westinghouse Credit Corp. v. D'Urso, 278 F.3d 138, 147 (2d Cir. 2002) (quoting Malinowski v. N.Y. State Dep't of Labor (In re Malinowski), 156 F.3d 131, 133 (2d Cir. 1998)).