MEMORANDUM OPINION
Bеfore the Court is the motion (Doc. # 7) of Allfirst Bank (“Allfirst” or “Defendant”) to dismiss the adversary complaint (Doc. # 1) (“Complaint”) filed against it by Hechinger Investment Company of Delaware, Inc. (“Debtor” or “Plaintiff’). The motion seeks dismissal pursuant to Fed. R.Civ.P. 12(b)(6) 1 (“Rule 12(b)(6)”) for failure to state a claim upon which relief may be granted. For the reasons discussed below, I will grant the motion with respect to Count II, but deny the motion with respect to Counts I, III and IV.
BACKGROUND
Debtor and certain of its affiliates (collectively, “Debtors”) filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code on June 11, 1999 (“Petition Date”). (Complaint ¶ 1.) That same date, this Court entered an order (“Account Order”) (Doc. # 21, Case No. 99-2261) authorizing Debtors to continue to use their existing pre-petition bank accounts (“Accounts”), and authorizing and directing the banks at which such Accounts were maintained to continue to service the Accounts postpetition in the usual and ordinary course, subject only to not honoring checks issued or drawn on the Accounts pre-petition. 2 (Complaint ¶ 8-9.)
Among other things, the Consent Order authorized and directed the Maryland Banks, on the first business day following the entry of the Consent Order, to close all of Debtors’ Accounts maintained therewith other than the Depository Account and the Accounts numbered 191-84006 (the “Payroll Account”) and 191-83994 (the “Master Account”). (Id. at ¶ 11; Consent Order ¶ 6.) The Consent Order also authorized and directed the Maryland Banks to close the Payroll and Master Accounts on or before July 23,1999 (“Termination Date”). 4 (Complaint ¶ 11; Consent Order ¶ 6.) Upon closing these Accounts, the Maryland Banks were to remit to Debtors within two days of the termination thereof the funds on deposit in the Accounts less a reserve of $160,000.00 (“Reserve”) in the Master Account to cover any fees and expenses “as may be allowed by further Order of this Court”. (Consent Order ¶ 7; Complaint ¶ 12.) To insure that funds would be available to fund the Reserve upon the closing of the Master Account, the Consent Order provides:
[Defendant] be, and it hereby is, authorized to place аn administrative hold on funds on deposit in the Master Account in the amount of the Reserve, subject to further Order of this Court. The Maryland Banks shall file an Application for allowance of fees and expenses no more than ten business days after the Termination Date (the “Application Date”) and give notice of such Application to [Debt- or], Hechinger Property, the DIP Lender, the U.S. Trustee and the Committee.
(Consent Order ¶ 7.)
With respect to Debtors’ Depository Account, the Consent Order provides that such Account was to be closed on August 2, 1999 unless Debtor obtained and delivered to Defendant an “Acceptable Substitute LC” on or before that date. (Id. at ¶ 9.) An “Acceptable Substitute LC” is defined in the Consent Order as:
an irrevocable standby letter of credit or an amendment to letter of credit number 50087859 issued by BankBoston, N.A. on March 31, 1999 (the “Existing LC”) that: (a) is issued to [Defendant], as beneficiary: [sic] (b) is issued by BankBoston, N.A. or another issuer acceptable to [Defendant]; (c) is in the amount of One Million Five Hundred Thousand Dollars ($1, 500,000.00); (d) permits drawings on the same termsand condition under which drawings are permitted under the Existing LC; (e) has a date of expiry of not less than three months after the date of issuance; and (f) provides that its date of expiry shall be automatically extended for successive periods equal to the number of calendar days between the date of issuance and the original date of expiry unless, not less than thirty calendar days prior to the original date of expiry or any applicable extension thereof, the issuer notifies [Defendant], in writing, that the date of expiry then in effect will not be extended.
(Id.) (emphasis added). In the event Debtor obtained an Acceptable Substitute LC on or before August 2, 1999, the Consent Order provides that the “Depository Account Closing Date shall be the fifteenth calendar day after the issuer of the Acceptable Substitute LC notifies [Defendant] that the expiration date of the Substitute Acceptable LC [sic] will not be extended.” (Id.; Complaint ¶ 14.) The Consent Order further provides:
From and after the Petition Date and until the Depository Account Closing Date, [Defendant] may debit the Depository Account for the amount of any items deposited to the Depository Account and subsequently dishonored by the institutions by which they are payable or otherwise reversed and for its usual and customary fees, but not for attorneys’ fees and expenses. In the event [Defendant] incurs attorneys’ fees and expenses relating to its account relationship with [Debtors] after the Termination Date and prior to the Depository Account Closing Date, [Defendant] may withhold the actual amount of such fees and expenses plus Three Thousand Dollars ($3,000.00) to cover estimated fees and expenses to be incurred in connection with the collection gap thereof (“Gap Fees”) from the funds transferred to the main concentration account maintained with BankBoston, N.A. as security for payment of the Gap Fees. The allowance of Gap Fees shall be subject to further Order of this Court. The Maryland Banks shall file an Application for allowance of Gap Fees no more than ten business days after the Depository Account Closing Date (the “Gap Application Date”) and give notice of such Application to [Debtor], Hechinger Property, the DIP Lender, the U.S. Trustee and the Committee.
(Consent Order ¶ 9) (emphasis added).
On or about July 12, 1999, Debtor obtained an Acceptable Substitute LC from BankBoston, N.A. (“BankBoston”) by extending the terms of the Existing LC referenced in paragraph 9 of the Consent Order. 5 (Complaint ¶ 12.) Although the expiration date of the Acceptable Substitute LC was originally established as October 12, 1999, such date was subsequently automatically extended to January 12, 2000. (Id.; Def.’s Mem. (Doc. # 7) at 3.) The Acceptable Substitute LC “permits drawings on the same terms and condition under which drawings are permitted under the Existing LC” (Consent Order ¶ 9) and provides that all or any portion of the amount provided for therеin shall be available for draw by Defendant upon the presentation of a draft accompanied by a certification, purportedly signed by one of Defendant’s officers, which states:
The amount of this drawing USD_ under BankBoston, N.A. Letter of Credit No. 50087859 represents the amount due and unpaid atthe time by HSC, Hechinger Company, Hechinger Property Company and/or [Debtor] with respect to: A. Charge-backs to any deposit accounts maintained with us and/or [AFCNA] by HSC, Hechinger Company, Hechinger Property Company and/or [Debtor] (“Account”) and/or; B. The absence of sufficient collected funds on deposit in any accounts) to make payment of checks, wire transfers, automated clearing house transfers, drafts and other debits thereto.
(Acceptable Substitute LC at 1) (emphasis added).
On or about September 17, 1999, Outdoor Technologies, Inc. (“OTI”), one of Debtors’ suppliers, commenced an action (“Action”) against Defendant in the Delaware Superior Court for fraud, conspiracy, negligent misrepresentation and breach of contract arising out of Defendant’s conduct in connection with OTI’s pre-petition attempts to present for payment one of Debtors’ checks drawn on Defendant. 6 (Complaint ¶ 15.) Subsequently, on October 14, 1999, Defendant filed an emergency motion (Doc. # 865, Case No. 99-2261) (“Emergency Motion II”) seeking an order modifying the Consent Order to permit Defendant to place an administrative hold on the funds remaining in Debtors’ Depository Account as security for any right to indemnification it purportedly has against Debtors arising out of its defense of the Action. (Complaint ¶ 16.) After conducting a hearing on Emergency Motion II on or about October 25, 1999, this Court entered a preliminary order (Doc. # 1064, Case No. 99-2261) (“Preliminary Order”) authorizing Defendant to place an administrative hold on the funds then in the Depository Account, net of pending items, during the pendency of Emergency Motion II. (Complaint ¶ 17.) Thereafter, on November 23, 1999, Defendant filed аnother emergency motion (Doc. # 1273, Case No. 99-2261) (“Emergency Motion III”) seeking to modify the Preliminary Order to increase the administrative hold authorized therein to cover additional funds credited to Debtors’ Depository Account subsequent to the issuance thereof. (Complaint ¶ 18.) After conducting another hearing on the matter, the Court granted Defendant’s Emergency Motion III. (Id.)
On December 10, 1999, BankBoston notified Defendant that Debtor had informed BankBoston that the Acceptable Substitute LC would not be renewed and, as a result, would expire on January 12, 2000. (Id. at ¶ 19.) Thereafter, on December 29, 1999, subsequent to the Depository Account Closing Date, Defendant drew down on the Acceptable Substitute LC in the amount of $194,190.61 (“Drawn Funds”). (Id. at ¶ 20.) In support of its draw (“Draw”), Defendant submitted a sight draft (“Draft”) along with a signed certification (“Certification”) stating:
THE AMOUNT OF THIS DRAWING USD194,190.61 UNDER BANKBO-STON, N.A. LETTER OF CREDIT NO. 50087859 REPRESENTS THE AMOUNT DUE AND UNPAID AT THE TIME BY HSC, HECHINGER COMPANY, HECHINGER PROPERTY COMPANY, AND/OR [DEBTOR] WITH RESPECT TO: A. CHARGE-BACKS TO ANY DEPOSIT ACCOUNTS MAINTAINED WITH U.S. AND/OR [AFCNA] BY HSC, HE-CHINGER COMPANY, HECHINGER PROPERTY COMPANY, AND/OR [DEBTOR) (“ACCOUNT”) AND/OR: B. THE ABSENCE OF SUFFICIENTCOLLECTED FUNDS ON DEPOSIT IN ANY ACCOUNT(S) TO MAKE PAYMENT OF CHECKS, WIRE TRANSFERS, AUTOMATED CLEARING HOUSE TRANSFERS, DRAFTS AND OTHER DEBITS.
(Id.) 7 In response to an inquiry from Debtors’ counsel on January 3, 2000, counsel for Defendant advised that the purpose of the Draw was to reimburse Defеndant for attorneys’ fees incurred in connection with the Action and Emergency Motions II and III, as well as other attorneys’ fees incurred in the Debtors’ chapter 11 cases. (Complaint ¶ 21.) Thereafter, by letter dated January 6, 2000, Debtors’ counsel notified Defendant that the Draw had been improper and demanded prompt repayment of the Drawn Funds. (Id. at ¶ 22.) Defendant did not remit the Drawn Funds to Debtors. (Id.)
Debtor commenced the instant adversary proceeding on January 26, 2000. Debtor seeks damages, interest, costs and attorneys’ fees based on Defendant’s alleged improper Draw on the Acceptable Substitute LC and its failure to credit and/or account for certain funds which Debtor alleges were deposited into the Depository Account, but for which Debtors have not been credited.
(Id.
at 15.) Specifically, Count I of the Complaint alleges that Defendant’s Draw for attorneys’ fees and expenses subsequent to the Depository Account Closing Date constitutes a breach of the Consent Order and an impermissible Draw under the terms of the Acceptable Substitute LC which resulted in a reimbursement obligation on the part of Debtor to BankBoston.
(Id.
at ¶¶ 23-31.) Count II alleges that the Drawn Funds, of which Defendant is in possession, are funds that Debtor can use under 11 U.S.C. § 363, and therefore, constitute property of Debtor’s estate (“Estate”) that is not of inconsequential value and/or benefit to the Estate, and to which Debtor is entitled to turnover pursuant to 11 U.S.C. §§ 542
8
and 105
9
. (Complaint ¶¶32-36.)
10
Count III alleges that Defendant’s Draw on the Acceptable Substitute LC for attorneys’ fees and expenses subsequent to the Depository Account Closing Date constitutes a violation the Consent Order for which Defendant should be held in contempt.
(Id.
at ¶¶ 37-42.) Finally, Count IV alleges that Debtor is entitled to turnover of certain funds which have been deposited in Debtors’ Depository Account, but for which deposits (“Missing Deposits”) Debtors have not been credited.
11
DISCUSSION
I. Standard of Review Under Rule 12(b)(6)
A motion to dismiss for failure to state a claim upon which relief may be granted under Rule 12(b)(6) serves to test the sufficiency of the complaint.
Kost v. Kozakiewicz,
In determining whether a claim should be dismissed pursuant to Rule 12(b)(6), the Court may look only to the allegations contained in the Complaint and any exhibits attached thereto.
City of Pittsburgh v. West Penn Power Co.,
Defendant argues that in determining whether dismissal is proper with respect to Count I, the Court “should bear in mind” certain arguments and objections made by Debtors and the Liquidators in response to Emergency Motions I and II prior to the time of the Draw. (Def.’s Mem. (Doc. # 7) at 8, n. 2., 8-9.) 14 I disagree. In my opinion, it would be premature to convert the instant motion to dismiss to a motion for summary judgment. Not only has Defendant not yet filed an answer to the Complaint, but also, the parties have conducted no discovery with respect to any of the allegations set forth therein. The only documents on file for the Court’s consideration in ruling on the instant motion are the Complaint, the exhibits attached thereto (i.e., the Consent Order, Acceptable Substitute LC and Draft), Defendant’s motion (Doc. # 7) to dismiss and the memoranda submitted in connection therewith. 15 In light of the limited nature of the current record in this proceeding, I will ignore аny references to extraneous evidence and confine my ruling to the face of the Complaint.
II. Counts I and III
In Counts I and III respectively, Debtor alleges that the Draw constitutes a breach of the Consent Order and an improper Draw on the Acceptable Substitute LC (Complaint ¶¶ 23-31); and that the Draw constitutes a violation of the Consent Order for which Defendant should be held in contempt of Court
(id.
at ¶¶ 37-42). Specifically, Debtor alleges that: (1) under the terms of the Consent Order, Defendant was permitted to debit the Depository Account during the period between the Petition Date and the Depository Account Closing Date for the “amount of any items deposited to the Depository Account and subsequently dishonored by the institutions by which they are payable or otherwise reversed and for its usual and customary fees, but not for attorneys’ fees and expenses”
(id.
at ¶ 24); (2) subsequent to the Depository Account Closing Date, December 25, 1999, Defendant was not permittеd to debit the Depository Account for any purpose
(id.
at ¶ 25); (3) the Draw was made by Defendant to reimburse itself for attorneys’ fees and expenses incurred in the Action and in Debtors’ chapter 11 cases, not to reimburse Defendant for items deposited to the Depository Account and subsequently dishonored by the institutions by which they were payable or for Defendant’s usual and customary fees
(id.
at ¶ 26); (4) while under the terms of the Acceptable Substitute LC, Defendant was permitted to make a draw for “chargebacks” to any deposit accounts maintained by Debtors with Defendant (“Chargebacks”) or because of the “absence of sufficient collected funds on deposit in any account(s) to make payment
In response to these allegations, Defendant argues that Counts I and III should be dismissed because the allegations set forth in the Complaint demonstrate that there was no provision in the Consent Order that prohibited Defendant from drawing under the Acceptable Substitute LC when it did. (Def.’s Mem. (Doc. # 7) at 6.) Defendant asserts that while the Consent Order conditiоned Debtor’s right to continue to use the Depository Account after August 2, 1999 upon retaining an Acceptable Substitute LC, it was silent as to the circumstances under which Defendant would be permitted to Draw.
(Id.)
In addition, Defendant further argues that the Draw was also permissible under the terms of the Acceptable Substitute LC because its Certification complied with the requirements set forth therein.
(Id.
at 6-7.) Acknowledging that the Draw was made due to Insufficient Funds rather than for Chargebacks, Defendant contends that its Certification could have only been incorrect if: (1) the Draw had been made either for “items deposited to the Depository Account and subsequently dishonored by the institutions by which they were payable,” or for Defendant’s “usual and customary fees”; or (2) there had been at least $194,190.61 on deposit in the Depository Account at the time of the Draw.
(Id.
at 7.) In arguing that the first condition did not apply at the time of the Draw, Defendant asserts that: (1) the Draw was made for Debtоr’s “indemnification obligation” to Defendant, and did not result from the dishonor of any deposited items; and (2) the Draw was not for usual and
Based on the facts alleged in the Complaint and all reasonable inferences drawn therefrom, considered in a light most favorable to Debtor, I find that Counts I and III sufficiently state claims, respectively, for breach of the Consent Order and improper Draw on the Acceptable Substitute LC, and contempt of court. The Consent Order was part of a contractual relationship between Debtor and Defendant and there is no doubt that Debtor has been adversely affected by Defendant’s Draw on the Acceptable Substitute LC. Therefore, the question becomes whether the Consent Order and Acceptable Substitute LC together suggest that Defendant acted improperly as to Debtor in making the Draw аnd, if so, whether Defendant’s conduct was the direct cause of any injury to Debt- or. Upon reviewing the language of the Acceptable Substitute LC in the context of the Consent Order, I find that a question exists as to whether the Draft and Certification submitted by Defendant in support of the Draw fairly represented the facts. Given that questions remain as to whether the Draw was in accordance with the terms of both the Consent Order and the Acceptable Substitute LC, I find that Debtor is entitled to present evidence to support its claims for breach of contract and improper Draw on the Acceptable Substitute LC, as well as evidence in support of its claim for contempt.
The Consent Order provides that “[t]he term ‘Acceptable Substitute LC’ shall mean: an irrevocable standby letter of credit or an amendment to [the Existing LC] that... permits drawings on the same terms and conditions under which drawings are permitted under the Existing LC”. (Consent Order ¶ 9.) It further provides that “[f]rom and after the Petition Date and until the Depository Account Closing Date, [Defendant] may debit the Depository Account for the amount of any items deposited to the Depository Account and subsequently dishonored by the institutions by which they are payable or otherwise reversed and for its usual and customary fees, but not for attorneys’ fees and expenses” (“Debit Limitation”).
(Id.)
Although Defendant contends that the Certification cannot be challenged as inaccurate because the Draw was made due to “the absence of sufficient collected funds on deposit in any account(s), to make payment for... other debits” (Acceptable Substitute LC at 1), in my opinion the Debit Limitation can fairly be viewed as suggesting that the language in the Acceptable Substitute LC with respect to “other debits” is to be narrowly construed so that the Consent Order’s prohibition on debiting the Depository Account for attor
As discussed above, Defendant’s argument that the Draw did not violate the terms of the Acceptable Substitute LC rests on Defendant’s condition that the Certification was accurate in that: (1) the Draw was made for Debtor’s “indemnification obligation” to Defendant for attorneys’ fees and expenses, the payment of which Defendant could not obtain out of the Depository Account at the time of the Draw (Def.’s Mem. (Doc. # 7) at 7), and (2) even if the “indemnification obligation” was one Defendant was authorized to pay out of Depository Account, there were insufficient funds on deposit therein at the time of the Draw (id. at 8). With respect to the first prong of Defendant’s argument, the Court has no idea as to what obligation Defendant’s term “indemnification obligation” refers. The parties have failed to identify and explain what such “indemnification obligation” (“Indemnification Obligation”) is, how it arose, and/or whether or not its terms are embodied in some form of document. It is possible that the Indemnification Obligation is that which is referred to in Defendant’s statement that “[t]he amount of the draft represented fees and expenses incurred by the Maryland Banks in connection with [Debtor’s] deposit accounts for which [Debtor] is obligated to indemnify the Maryland Banks pursuant to the Rules and Regulations for Deposit Accounts that governed [Debtor’s] depository relationship with the Maryland Banks” (“Rules and Regulations”). (Id. at 4.) However, even if this is true, the Court has no idea as to what Rules and Regulations this statement refers. Aside from the brief reference cited above, neither party has identified or made any reference to any Rules and/or Regulations which may govern the parties’ depository relationship, nor have they addressed the issue of how such Rules and Regulations may pertain to the instant dispute. While Defendant’s argument suggests that its permission under the terms of the Consent Order and the Acceptable Substitute LC to make the Draw when it did is somehow addressed by either the Indemnification Obligation or the Rules and Regulations giving rise thereto, in absence of any reference by the parties as to how Debtor’s Indemnification Obligation and/or the Rules and Regulations relate to the “other debit” language contained in the Acceptable Substitute LC, I am unable to determine if these references fall within such language.
In addition, with respect to the second prong of Defendant’s argument, Defеndant supports its contention that there were insufficient funds on deposit in the Depository Account at the time of the Draw to pay Defendant’s $194,190.61 claim by arguing that although there was $241,735.79 was on deposit in the Depository Account at the time of the Draw, Debtor has since alleged that $67,288.48 belongs to Debtors’ Liquidators. However, I find Defendant’s reliance on Debtor’s allegation to be misplaced. First, Defendant’s Certification was made at the time of the Draw, not subsequent to the filing of the Complaint. Therefore, any facts alleged in the Complaint of which Defendant was not aware at the time at which it made the Certifica
Despite Defendant’s contention to the contrary, I find that a question exists as to whether there were Insufficient Funds on deposit in the Depository Account at the time of the Draw. As Debtor points out in its memorandum, at that time, there had neither been a determination by this Court as to the proper ownership of the Liquidators’ Funds, nor a concession by Debtors that such funds belonged to its Liquidators. Although Defendant argues that at the time Debtor’s Liquidators “had taken the position that no funds on deposit with [Defendant] even belonged to [Debt- or]” (Def.’s Reply (Doc. # 9) at 8), I find the Liquidators’ position at the time to be irrelevant. The Certification stated that the Draw was due to “the absence of sufficient collected funds on deposit in any accounts) to make payment of... other debits”. (Complaint ¶ 20.) If Defendant made this Certification without knowing it to be true, an argument can be made that the Cеrtification was inaccurate. Indeed, such a conclusion may be supported by Defendant’s own acknowledgment that “determining whether there were any collected funds on deposit in the Depository Account to pay any claim, let alone determining the amount of such funds if any existed, was impossible.” (Def.’s Reply (Doc. # 9) at 8-9.)
In light of the foregoing, and of Defendant’s failure to respond to Debtor’s allegation that the Draw constituted a breach of the Consent Order and the Acceptable Substitute LC due to the fact that it was made subsequent to the Depository Account Closing Date in violation of the Consent Oi'der, I find that Counts I and III sufficiently state claims, respectively, for breach of contract and improper Draw on the Acceptable Substitute LC, and contempt of Court. Defendant’s additional argument that Count III must be dismissed because Debtor can not show by clear and convincing evidence that Defendant’s interpretation of the Consent Order was not reasonable and/or in good faith is without merit. The issue at this stage of the proceeding is not whether Debtor can ultimately meet the burden of proof required with respect to its claim for contempt, but rather, whether the facts alleged in Count III sufficiently states a claim upon which relief may be granted. I find that it does.
III. Count II
In Count II, Debtor seeks turnover of the Drawn Funds as property of the Estate pursuant to §§ 542 and 105. (Complaint ¶¶ 32-36). Defendant disputes that the Drawn Funds constitute property of the Estate and argues that Count II should be dismissed as a matter of law because funds drawn on a letter of credit belong to the issuing bank and not to the customer causing the letter of credit to be issued. (Def.’s Mem. (Doc. # 7) at 10-11.) While Debtor does not dispute this general proposition to the extent such funds remain in the possession of the issuing bank, Debtor argues that the Drawn Funds constitute property of the Estate in the possession of Defendant for two reasons: (1) Debtor has an equitable interest in its claim to the return of the Drawn Funds as funds improperly debited from the Depository Account (Debtor’s Mem. (Doc. # 8) ¶¶ 6-7); and (2) Debtor has an equitable interest in BankBoston’s claim for breach of contract against Defendant arising out of Defendant’s allegedly inaccurate Certifi
Based on the facts alleged in the Complaint and all inferences that can reasonably be drawn therefrom, considered in a light most favorable to Debtor, I find that Count II fails to state a claim upon which relief may be granted. In my opinion, Debtor can prove no set of facts in support of its claim that the Drawn Funds constitute property of the Estate such that Debtor would be entitled to turnover of the Drawn Funds pursuant to § 542.
See Conley,
As Defendant argues in its memorandum in support of its motion to dismiss, it is well settled that the proceeds from a letter of credit do not constitute property of the estate under § 541.
See, e.g., Kellogg v. Blue Quail Energy, Inc. (In re Compton Corp.),
“Turnover under 11 U.S.C. § 542 is a remedy available to debtors to obtain
IY. Count IV
In Count IV, Debtor alleges that in the ordinary course of business, between June 1998 and October 1999, $176,002.77 (“Missing Deposits”) was deposited in Debtors’ Depository Account, yet never credited thereto. (Complaint ¶ 44.) Of those Missing Deposits, Debtor alleges that $62,288.48 belong tо Debtors’ Liquidators and was inadvertently deposited into the Depository Account, and $108,714.29 belong to Debtors. (Id.) With respect to its own Funds, Debtor alleges that such Funds constitute property that Debtor can use under § 363, that they therefore, constitute property of the Estate under § 541 (id. at ¶ 45), and that such Funds are not of inconsequential value or benefit to Debtors’ Estates (id. at ¶ 46). Because, to date, Defendant has failed to properly credit the Depository Account or remit an amount equal to the Missing Deposits to Debtor despite Debt- or’s request that Defendant do so (id. at ¶ 47), Debtor alleges that it is now entitled to a judgment, pursuant to §§ 542 and 105, directing Defendant to deliver and account for Debtors’ Funds to Debtor, and the Liquidators’ Funds to the Liquidators (Complaint ¶ 48).
In response to these allegations, Defendant argues that Debtor is not entitled to relief because: (1) Debtor has no substantive right to enforce with respect to the Liquidators’ Funds and therefore, the Liquidators, not Debtor, represent the real parties-in-interest with respect to those Funds pursuant to Fed.R.Civ.P. 17(a) (Def.’s Mem (Doc. # 7) at 14-15); and (2) Debtors’ Funds are not subject to turnover pursuant to § 542 as Funds Debtor can use under § 363 because the Court has entered orders placing an preliminary administrative hold (“Hold”) on any funds on deposit in the Depository Account pending
Based on the facts alleged in the Complaint and all reasonable inferences drawn therefrom, considered in a light most favorable to Debtor, I find that Count IV states a colorable claim for relief at least to the extent Debtor seeks to have the Missing Deposits properly credited to the Depositоry Account. In contrast to Debt- or’s alleged interest in the Drawn Funds, see discussion supra, Part III, Debtor’s interest in the Missing Deposits is both liquidated and undisputed. Indeed, Defendant does not dispute Debtor’s interest in the Missing Deposits, but rather argues that the instant action for turnover is inappropriate and unnecessary in light of the Hold and the fact that Emergency Motions I and II remain pending. (Def.’s Mem. (Doc. # 7) at 15-16.) I disagree.
As Debtor notes in its memorandum (Doc. # 8) in opposition to Defendant’s motion to dismiss, Defendant’s argument that Debtor is not entitled to relief because the Depository Account is subject to the Hold misses the point. (Debtor’s Mem. (Doc. # 8) ¶ 12.) The fact that the funds on deposit in the Depository Account are currently subject to the Hold has no bearing on the instant matter. Debtor alleges in the Complaint that the Missing Deposits were never credited to the Depository Account. (Complaint ¶44.) Accepting this to be true, an argument can be made that the Missing Deposits are not yet “on deрosit in the Depository Account” such that they are subject to the Hold. As such, the missing Deposits would constitute funds that Debtor can use within the meaning of § 542.
Similarly, I am not convinced by Defendant’s argument that as a practical matter, Count IV is unnecessary because if the Court rules ultimately rules in favor of Debtor with respect to Emergency Motions I and II, “[Defendant] will release the funds remaining on deposit in the Depository Account to [Debtor] or the Liquidators, as the Court determines” (Def.’s Mem. (Doc. # 7) at 16, n. 4). As discussed above, assuming, as Debtor alleges in the Complaint, that the Missing Deposits have never been credited to the Depository Account (Complaint ¶ 44), Defendant’s release of the funds “remaining on deposit in the Depository Account” upon a final ruling on Emergency Motions I and II would not resolve the instant dispute because the Missing Deposits are allegedly not included in such funds. Indeed, if Emergency Motions I and II are ultimately decided in Debtor’s favor, Debtor will nevеr receive the benefit of the Missing Deposits absent the relief sought in Count IVi.e., a judgment directing Defendant to “deliver and account” for the Missing Deposits pursuant to § 542. In light of the fact that the Hold remains in effect, such a judgment need not direct Defendant to actually turn over the Missing Deposits to Debtor, but may simply require that Defendant credit the Depository Account with the Missing Deposits. Indeed, the issue of whether Debtor is entitled to have the Depository Account
credited
with the Missing Deposits is separate and distinct from the issue of whether Debtor is ultimately entitled to the disposition of such Missing Deposits. Thus, while turnover may not be the proper recovery at this stage of the proceeding, Debtor has certainly stated a colorable
In addition, I disagree with Defendant’s contention that Debtor’s right to recover the Liquidators’ Funds is somehow different than its right to recover Debtors’ Funds because Debtor is not a real party in interest with respect thereto.
(See
Def.’s Mem. (Doc. # 7) at 14-15). Rule 17(a) of the Federal Rules of Civil Procedure (“Rule 17(a)”), applicable in this proceeding pursuant to Fed. R. Bankr.P. 7017, provides that “[e]very action shall be prosecuted in the name of the real party in interest.” Fed.R.Civ.P. 17(a). The real party in interest for the purposes of Rule 17(a) is “[t]he person holding the substantive right to be enforced.”
T.A. Title Ins. Co. v. Lampl, Sable & Makoroff (In re Marcus Hook Dev. Park, Inc.),
In light of the foregoing, I will permit Count IV to stand limited to Debtor’s right to have the Missing Deposits properly credited to the Depository Account, reserving for determination at a later date the proper disposition of any Missing Deposits credited to such Account.
CONCLUSION
For the reasons discussed above, Defendant’s motion (Doc. # 7) to dismiss is granted with respect to Count II of the Complaint, but denied with respect to Counts I, III and IV.
Notes
. Fed.R.Civ.P. 12(b)(6) is applicable in this proceeding pursuant to Fed. R. Bankr.P. 7012.
. An exception was made for checks ■ authorized under a separate Wage Order as defined in Debtors' Motion for Order Authorizing Maintenance of Prepetition Bank Accounts, Continued Use of Existing Business Forms and Continued Use of Existing Books and Records (Doc. #20, Case No. 99-2261) (“Bank Account Motion”). (Complaint ¶ 8.)
. The Consent Order (Doc. # 169, Case No. 99-2261) is attached to the Complaint as Exhibit A and will herein be cited to as "Consent Order ¶_",
. Either Account closing deadline could be extended by the parties’ written agreement. (Consent Order ¶ 6.)
. The Acceptable Substitute LC is attached to the Complaint as Exhibit B and will herein be cited as "Acceptable Substitute LC at _”.
. OTI alleges that as a result of Defendant’s conduct, it was unable to negotiate Debtors’ check for payment prior to the Petition Date and consequently, has not been paid for certain merchandise. (Complaint ¶ 15.) The amount in dispute is $706,735.62. (Id.)
. A copy of the Draft is included in Exhibit C to the Complaint.
. Section 542 provides in pertinent part:
(a) Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.
. Section 105 provides in pertinent part:
(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
. 11 U.S.C. §§ 101 et seq. is hereinafter referred to as "§ _”.
. Allegedly, $62,288.48 ("Liquidators’ Funds”) of the Missing Deposits were inadvertently deposited in the Depository Account and are funds that belong to Debtors’ liquidators ("Liquidators”). The remaining $108,714.29 of Missing Deposits belongs to Debtors ("Debtors’ Funds”).
. The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b).
. This rule makes Fed.R.Civ.P. 8(a) applicable in this proceeding. Fed.R.Civ.P. 8(a) provides in pertinent part:
"A pleading which sets forth a claim for relief, whether an original claim, counterclaim, cross-claim, or third-party claim, shall contain... (2) a short and plain statement of the claim showing that the pleader is entitled to relief..."
. Defendant contends that the Court should consider this extraneous evidence because: (1) the allegations set forth in the Complaint are inconsistent with certain arguments previously set forth by Debtors in opposing Emergency Motions I and II; and (2) if either of Debtor's or the Liquidators' positions, which were made prior to the time of the Draw, ultimately prevail, it will conclusively demonstrate "there were no funds on deposit in the Depository Account to pay any claim of any kind at the time [Defendant] drew under the Acceptable Substitute LC,” thereby supporting Defendant's argument that its Certification was accurate and therefore, did not constitute a breach of the Consent Order or result in an improper Draw on the Acceptable Substitute LC. (Def.’s Mem. (Doc. # 7) at 8, n. 2.)
. Defendant has submitted no documentation evidencing the extraneous arguments and objections of Debtor and the Liquidators which Defendant contends the Court should consider.
. Debtor further seeks "an award of compensatory damages in an amount to be determined at trial, but no less than an amount equal to the Drawn Funds, plus interest, as well as its attorneys' fees incurred in this proceeding.” (Complaint ¶ 42.)
. This latter interest allegedly arises due to the facts that Debtor was obligated to reimburse BankBoston for the amount of the Drawn Funds, has already done so, and therefore, is equitably subrogated to any claim BankBoston has against Defendant for breach of the Acceptable Substitute LC. (Debtor’s Mem. (Doc. # 8) ¶¶ 6, 8.)
. Under § 363, the debtor or trustee may use, sell or lease property of the estate and, in some circumstances cash collateral. See 11 U.S.C. § 363(b)(1), (c)(l)-(2). For the purposes of § 363, " 'cash collateral’ means cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents whenever acquired in which the estate and an entity other than the estate have an interest...” Id. at § 363(a).
. In support of its argument to the contrary, Debtor cites
Demczyk v. Mut. Life Ins. Co. of New York (In re Graham Square, Inc.),
. The Court states no opinion as to whether the Liquidators have a viable cause of action against Debtor with respect to die Liquidators' Funds.
. Indeed, one way Debtor may potentially "use” the Liquidators’ Funds is to pay them to the Liquidators.