623 B.R. 323
Bankr. E.D. Wash.2020Background
- Debtor King Mountain Tobacco Co. filed Chapter 11 to resolve a dispute with the TTB and moved for first‑day relief to continue its prepetition cash‑management and escrow arrangements and to waive 11 U.S.C. § 345(b).
- Relevant accounts: two operational checking accounts (Heritage Bank ≈ $561,872; Truist Bank ≈ $1,017,561) and 21 state‑segregated escrow accounts at Truist totaling ≈ $51.8 million used to collateralize state reserve obligations.
- The United States Trustee (UST) objected: neither bank was on the UST’s approved depository list and the UST contended § 345(b) is mandatory and cannot be waived as to § 345(b)(1).
- The banks could not satisfy § 345(b) bonding/securities requirements and moving the accounts would be disruptive, especially for the complex state escrow arrangements.
- The parties negotiated but reached an impasse; the court considered (1) whether the statute’s “unless the court for cause orders otherwise” clause covers all of § 345(b) and (2) whether “cause” exists to waive § 345(b) here.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of § 345(b)’s "unless the court for cause orders otherwise" clause | Debtor: clause authorizes court to modify or waive requirements of both § 345(b)(1) and (b)(2). | UST: clause only applies to (b)(2); (b)(1) (bond requirement) is unmodifiable. | Court: clause applies to entire § 345(b); court may alter/waive (b)(1), (b)(2), or both. |
| Whether "cause" exists to waive § 345(b) for these accounts | Debtor: totality of circumstances (size, sophistication, internal controls, banks’ stability, complexity of escrow accounts, short proposed case timeline, lack of stakeholder opposition) justify waiver. | UST: statutory protections are mandatory; debtor failed to justify deviation. | Court: applying a totality‑of‑circumstances test (Service Merchandise factors) found sufficient cause and authorized continued use of existing accounts. |
Key Cases Cited
- United States v. King Mountain Tobacco Co., 899 F.3d 954 (9th Cir. 2018) (background appellate decision involving the debtor)
- United States Trustee v. Columbia Gas Sys. Inc. (In re Columbia Gas Sys. Inc.), 33 F.3d 294 (3d Cir. 1994) (pre‑1994 interpretation that § 345(b) allowed only listed options)
- In re Service Merchandise Co., 240 B.R. 894 (Bankr. M.D. Tenn. 1999) (articulated multi‑factor test for determining “cause” under § 345(b))
- Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (2019) (general principle: statutory interpretation begins with text)
- Baker Botts L.L.P. v. ASARCO LLC, 576 U.S. 121 (2015) (debtor‑in‑possession retains trustee‑like powers under Chapter 11)