Allison v. Centris Fed. Credit Union (In Re Tri-State Fin., LLC)
885 F.3d 528
8th Cir.2018Background
- After Tri-State Ethanol (TSE) filed Chapter 11, a group of investors ("Omaha Group") formed Tri-State Financial, LLC (TSF) to fund TSE; Omaha Group transferred $2,000,000 to TSF. TSF paid ~ $800,000 to TSE and $1.19 million to a TSE vendor. TSE later converted to Chapter 7.
- TSF filed claims against TSE for the $2,000,000; TSF received the ~ $800,000 as an administrative claim and later recovered the $1.19 million from TSE.
- Omaha Group demanded return of the $1.19 million, asserting TSF held the funds in trust and they were not property of TSF’s bankruptcy estate. TSF’s trustee and secured creditor Centris argued the funds were estate property and some investors had released claims.
- Bankruptcy Judge Mahoney initially found the funds were held in trust. The BAP reversed and remanded, directing the bankruptcy court to address unresolved estoppel/release issues and not deciding estate-property status.
- Successor Judge Hastings (after proper certification under Rules 63/9028) found Omaha Group failed to show, by clear and convincing evidence, a trust; she concluded the funds were most likely treated as loan proceeds and thus part of TSF’s Chapter 7 estate.
- The district court affirmed Hastings; Appellants (several Omaha Group investors) appealed to the Eighth Circuit, which affirmed the district court’s judgment.
Issues
| Issue | Plaintiff's Argument (Omaha Group) | Defendant's Argument (TSF trustee / Centris) | Held |
|---|---|---|---|
| Whether the $1.19M was held in trust (excluded from TSF’s bankruptcy estate) | Funds were transferred to TSF to be held in trust for investors; absent written trust, evidence suffices to show trust | Transactions and documentary record show capital contribution then loan treatment; funds were estate property | Funds were not shown to be held in trust by clear and convincing evidence; treated as loan proceeds and part of TSF’s estate |
| Whether successor judge exceeded BAP mandate or violated law-of-the-case by revisiting earlier factual findings | Judge Hastings improperly revisited Judge Mahoney’s findings and thus exceeded the BAP mandate | BAP did not adopt Mahoney’s factual findings; issues remained open for reevaluation on remand | Hastings did not exceed the BAP mandate or abuse discretion under law-of-the-case doctrine |
| Whether Judge Hastings erred by not observing original witness testimony (and thus by applying clear-error review) | Failure to observe witnesses requires different treatment or de novo review of facts | Hastings afforded opportunity to recall witnesses; parties declined; standard of review remains clear-error | Appellants forfeited that argument by not recalling witnesses; clear-error standard applies and was not met |
| Standard for showing an implied trust under Nebraska law | Creation of a trust can be proved by parol evidence and witness testimony | Nebraska requires clear and convincing evidence absent written trust; record favors loan characterization | Nebraska law requires clear and convincing evidence; Appellants failed to meet that burden |
Key Cases Cited
- In re Webb, 742 F.3d 824 (8th Cir.) (bankruptcy estate is defined by 11 U.S.C. § 541 and state law determines property interests)
- In re Vote, 276 F.3d 1024 (8th Cir.) (standard of review: factual findings in bankruptcy reviewed for clear error)
- Usery v. (In re Usery), 242 B.R. 450 (8th Cir. B.A.P.) (mandate rule: trial court may address matters not decided by appellate court)
- Arizona v. California, 460 U.S. 605 (Supreme Court) (law-of-the-case doctrine summarized)
- Exxon Corp. v. United States, 931 F.2d 874 (Fed. Cir.) (successor judge’s authority and limits stepping into predecessor’s rulings)
- Richardson v. Sugg, 448 F.3d 1046 (8th Cir.) (factfinding: choice between permissible views of evidence is not clearly erroneous)