This case presents the issue whether a creditor claiming a constructive trust over commingled funds from a debtor’s general account must trace the funds back to the illegal transfer giving rise to the trust. Appellant contends that strict tracing is unnecessary in light of this court’s decision in
Mitsui Mfrs. Bank v. Unicom Computer Corp. (In re Unicom Computer Corp.),
FACTS
This case involves a three-sided transfer. Appellant Taylor Associates (“Taylor”) provided temporary personnel and other services to Coastal Insurance Company (“Coastal”). Coastal transferred most of its income to its parent company, Advent Management Corporation (“Advent”). Some of Coastal’s transfers to Advent were legitimate compensation and sales commissions for Advent’s administrative and sales support of Coastal. Other transfers were illegal diversions of Coastal funds. Advent commingled all of its receipts from Coastal in Advent’s general account. Advent made a number of payments from this general account to Taylor, as compensation for Taylor’s services to Coastal. Within a year of Advent’s payments to Taylor, Coastal became insolvent and Advent filed for bankruptcy.
Advent’s bankruptcy trustee, Appellee Lawrence A. Diamant (“Diamant”), is suing Taylor in bankruptcy court to recover Advent’s payments to Taylor. Diamant claims that Advent’s payments constituted preferential or fraudulent transfers of the debtor’s property avoidable under §§ 547 and 548 of the Bankruptcy Code. 11 U.S.C. §§ 547, 548 (West 1993).
Taylor contends that the payments it received from Advent’s general account cannot be preferential or fraudulent transfers of the debtor’s property because they were not *295 transfers of the debtor’s property at all. According to Taylor, the funds in Advent’s account were never properly owned by Advent. Rather, Advent merely held the funds in constructive trust for Coastal and Coastal’s creditors, such as Taylor.
The bankruptcy court rejected Taylor’s constructive trust argument. The court granted partial summary judgment to Diam-ant on the question whether Advent’s payments to Taylor constituted transfers of Advent’s property, thereby allowing Diamant to proceed to trial on the question whether those transfers were preferential or fraudulent. Taylor filed two motions to reconsider the grant of partial summary judgment. The bankruptcy court denied both motions. The bankruptcy appellate panel granted leave for an interlocutory appeal of the second denial, and affirmed the bankruptcy court.
Taylor now appeals the bankruptcy appellate panel’s decision on Taylor’s second motion for reconsideration. We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(d) (West 1993).
DISCUSSION
A.Standard of Review
We review the bankruptcy appellate panel’s decision de novo.
Unicom,
B.Definition of “Interest of the Debtor in Property”
Sections 547 and 548 of the Bankruptcy Code permit Diamant to recover certain preferential and fraudulent transfers made in the year before Advent filed for bankruptcy. The reach of §§ 547 and 548 is limited, however, to preferential or fraudulent transfers of “an interest of the debtor in property.” 11 U.S.C. §§ 547(b), 548(a).
While the Bankruptcy Code does not define “an interest of the debtor in property,” the United States Supreme Court has interpreted the term to mean “that property that would have been part of the estate had it not been transferred before the commencement of bankruptcy proceedings.”
Begier v. I.R.S.,
In the case of funds held by a debtor in constructive trust for another person, the equitable interest in the trust funds belongs to the trust beneficiary, not the debtor. Accordingly, this court held in
Unicom
that funds held by a debtor in constructive trust are neither “property of the estate” under § 541(d), nor “an interest of the debtor in property” under § 547(b).
Unicom,
C.Taylor’s Constructive Trust Claims
Under California state law, a constructive trust may be imposed on property as. a remedy for things “wrongfully detain[ed],” Cal. Civ.Code § 2223 (West Supp. 1996), or “gain[ed] ... by .fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act,” id. § 2224. Taylor advances two arguments for why its payments from Advent came from funds held. in constructive trust. r
First, Taylor claims that the payments came from wrongfully diverted Coastal funds which Advent held in constructive trust for
Coastal’s
benefit. This claim is without merit. Under California law, Taylor has no right to seek the imposition of a constructive trust on Coastal’s behalf.
Sobel Bldg. Dev. Partners v. Broach (In re Sexton),
Second, Taylor claims that the payments came from funds which Advent held in con *296 structive trust for Taylor’s benefit. The evidence presents no genuine issues of material fact or support for this claim, however, even when the evidence is construed in the light most favorable to Taylor.
Under the strict tracing standard applicable to bankruptcy cases involving commingled funds, Taylor bears the burden of tracing the alleged trust property “specifically and directly” back to the illegal transfers giving rise to the trust.
Bank of Alex Brown v. Goldberg (In re Goldberg),
Taylor makes no showing that Advent paid Taylor with wrongfully diverted Coastal funds as opposed to funds that Advent lawfully earned as compensation or commissions from Coastal. Therefore, since the money that Advent paid Taylor came from a commingled bank account under Advent’s control, we must adopt the presumption that the payments were made with Advent’s property.
Taylor incorrectly argues that it has satisfied all tracing requirements by tracing its payments from Advent back to
any
transfer from Coastal to Advent. Taylor’s assertion is inconsistent with the premise that the only money held in constructive trust is that which was
wrongfully
acquired or detained by Advent, whether through negligence, fraud, or other wrongful act.
See
Cal.Civ. Code §§ 2223, 2224;
Unicom,
This court’s decision in
Unicom
did not lower the standard of tracing, as Taylor contends it did.
Unicom
did not address the issue of tracing except to state that the party claiming a constructive trust in that case had satisfied the tracing requirements set forth in
Esgro
and
Sierra Steel. See Unicom,
Nor does the finding of a constructive trust in
Unicom
dictate that Taylor prevail in the present case. The facts of the two cases are readily distinguishable. In
Unicom,
the funds in question came from a single check which had been designated for delivery to the creditor, and was mistakenly deposited by the debtor in the debtor’s general account.
CONCLUSION
Our decision in Unicom is consistent with the rule that a creditor claiming a constructive trust over commingled funds from a debtor’s general account must trace those funds back to the illegal transfer giving rise to the trust. Since Taylor did not trace the funds in this ease, we reject Taylor’s constructive trust claims. We therefore conclude that the funds paid by Advent to Taylor qualify as “an interest of the debtor in property” under §§ 547 and 548 of the Bankruptcy Code.
*297 The judgment of the bankruptcy appellate panel is AFFIRMED.