471 B.R. 199
Bankr. E.D. Tenn.2012Background
- APPCO filed Chapter 11 and later an adversary action against TEL seeking avoidance of preferential transfers under §547(b) and recovery under §550(a).
- TEL argued the transfers were trust funds not property of the debtor, so not subject to avoidance.
- APPCO alleged TEL’s weekly EFT sweeps and earlier transfers totaled $526,790.68 within the 90 days before filing; some transfers came from a trust account, others from a general account.
- TEL claimed an express trust existed under Tennessee law and retailer contract; APPCO contends no valid trust or tracing to trust funds occurred.
- The court held the six early transfers were trust funds and nontransferable as preferences, while the two January 2009 wired payments were property of the debtor; the matter turned on tracing and trust-restitution principles.
- This is a core proceeding under 28 U.S.C. § 157(b)(2)(F).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether six transfers were trust funds, not debtor property | APPCO argues trust funds existed via contract and Tennessee law | TEL contends all transfers were trust funds | Yes; six transfers were trust funds and not property of APPCO |
| Whether the two January 2009 wired payments were trust funds | APPCO says they were not from the trust account | TEL argues they were trust funds under tracing rules | No; the two wired payments were property of the debtor |
| Whether tracing was required to establish transfer as from trust funds | Tracing needed to be shown through commingled accounts | Begier may obviate tracing for certain statutory trusts | Tracing required for these express/statutory lottery trust funds; not exempt by Begier |
Key Cases Cited
- Begier v. Internal Revenue Serv., 496 U.S. 53 (1990) (trust-fund tax context; voluntary payments do not automatically negate tracing requirement)
- In re Cooper, 430 B.R. 497 (2010) (Tenn. retailer contract creates express trust in lottery proceeds)
- First Federal of Michigan v. Barrow, 878 F.2d 912 (6th Cir. 1989) (tracing required when funds commingled with debtor's accounts)
- In re Cannon, 277 F.3d 838 (6th Cir. 2002) (escrow/trust accounts; tracing not required when funds remain in trust accounts)
- In re Suwannee Swifty Stores, Inc., 266 B.R. 544 (Bankr.M.D. Ga. 2001) (statutory trust for Georgia Lottery; tracing not required for postpetition transfers in that context)