In re Thomas H. DAMERON, t/a St. Asaph Lawyers Title
Company, Incorporated, t/a Beneficial Settlement Services,
Incorporated, t/a Choice Settlement Services, Incorporated;
Mid-atlantic Title & Escrow Services, Incorporated; Hill
Management & Investment, Limited; Inwood Center Associates;
Sylvan Grove Waste Treatment, Incorporated, Debtors.
OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY; Chemical
Residential Mortgage Company, Plaintiffs-Appellees,
and
Mortgage Access Corporation, Plaintiff,
v.
Robert O. TYLER, Trustee, Defendant-Appellant,
and
Richard S. Mendelson; Midatlantic Title & Escrow Services,
Incorporated; Burke & Herbert Bank & Trust
Company, Defendants.
No. 97-2402.
United States Court of Appeals,
Fourth Circuit.
Argued June 5, 1998.
Decided Sept. 24, 1998.
ARGUED: Robert Terrence Ney, McGuire, Woods, Battle & Boothe, L.L.P., McLean, VA, for Appellant. Brian F. Kenney, Miles & Stockbridge, P.C., McLean, VA, for Appellees. ON BRIEF: James M. Lewis, Robert R. Vieth, McGuire, Woods, Battle & Boothe, L.L.P., McLean, VA; Madeline A. Trainor, Tyler, Bartl, Burke & Albert, Alexandria, VA, for Appellant. David J. Ervin, Miles & Stockbridge, P.C., McLean, VA, for Appellees.
Before MURNAGHAN and MICHAEL, Circuit Judges, and BUTZNER, Senior Circuit Judge.
Affirmed by published opinion. Judge MURNAGHAN wrote the opinion, in which Judge MICHAEL and Senior Judge BUTZNER joined.
OPINION
MURNAGHAN, Circuit Judge.
Appellant, bankruptcy trustee Robert O. Tyler (Trustee), appeals the district court's grant of summary judgment to the Appellees, Old Republic National Title Insurance Co. (Old Republic) and Chemical Residential Mortgage Co. (Chemical), in an adversary proceeding commenced by those parties to recover from the bankruptcy estate funds they claim were misappropriated by the debtor. Because we agree that summary judgment was proper, we affirm.
I.
The debtor, Thomas H. Dameron, is a former member of the Virginia bar who conducted residential real estate settlements through his company, Mid-Atlantic Title & Escrow Services, Inc. (Mid-Atlantic). In the course of that business, Dameron received funds from various lenders to be held for disbursement to designated third parties following closings. Dameron held such funds in his general corporate account at Burke & Herbert Bank & Trust Co. (B & H).
Four transactions conducted by Dameron are relevant to this appeal. On January 25, 1996, Dameron received $71,475.40 from Shelter Mortgage Corp. (Shelter) for use in the Browning settlement.1 Four days later, Dameron received $41,619.20 from Mortgage Access Corp. (Mortgage Access) for use in the Hedayaty settlement and $180,749.82 from Chemical for use in the Ruffin settlement.2 Finally, on January 31, 1996, Dameron received another $164,807.10 from Chemical for use in the Abercrombie settlement.3
Early in 1996, the Virginia State Bar received information indicating that Dameron was misappropriating settlement funds. The State Bar commenced an action against Dameron in the Circuit Court for the City of Alexandria, Virginia, and the court appointed a receiver for Dameron and froze his personal and corporate assets, including his account at B & H. On February 23, 1996, various individual claimants4 (collectively, Lenders) filed an involuntary Chapter 11 petition against Dameron and Mid-Atlantic, claiming to be creditors in the amount of $458,652, and commenced an adversary proceeding to recover their share of Dameron's frozen account. As of the petition date, the account contained $453,338.47.
In the consolidated adversary proceeding, the Lenders moved for summary judgment and the Trustee filed a cross-motion for summary judgment. The bankruptcy court, Judge Tice, denied the Trustee's motion but granted the Lenders' motion on the grounds that they are entitled to an express or constructive trust over their share of Dameron's bank account. The Trustee appealed that decision to the district court, which affirmed the grant of summary judgment to the Lenders. This appeal followed.
II.
The Trustee contends that the district court erred in granting summary judgment to the Lenders on the ground that they were entitled to an express or constructive trust over a portion of Dameron's bank account. We review de novo the district court's decision to grant summary judgment to the Lenders. See M & M Medical Supplies & Service v. Pleasant Valley Hosp., Inc.,
Under the Bankruptcy Code, a trustee is entitled to distribute all property within the scope of the bankruptcy estate. The Code defines the scope of such property broadly, including within the estate "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). Expressly excluded from the estate is any "[p]roperty in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest...." 11 U.S.C. § 541(d). We have previously explained that the purpose of § 541(d)'s exclusion is to ensure that the trustee "take no greater rights [in the property] than the debtor himself had." Mid-Atlantic Supply, Inc. v. Three Rivers Aluminum Co.,
Our consideration of what constitutes an "equitable interest" subject to exclusion from the bankruptcy estate under § 541(d) is a question of state law. See Butner v. United States,
Virginia law recognizes three basic forms of trust. See Leonard v. Counts,
In the case at bar, the Lenders maintain that the parties created an express trust in Dameron to hold the Lenders' funds for the benefit of specified third parties. They point out that, pursuant to the plain language of their closing instructions, Dameron was to hold the funds, essentially as an escrow, for disbursement after closing. That arrangement, they contend, is the very definition of an express trust.
We agree. The language of the parties' agreements and the circumstances under which the Lenders advanced their funds to Dameron leave no doubt that the parties intended Dameron to act merely as an intermediary. There was plainly no expectation that Dameron would keep the Lenders' funds after closing or that he would develop any equitable interest in the funds. In fact, under Virginia law, a trust fiduciary is prohibited from acquiring an equitable interest in trust property adverse to his principal. See Greenspan v. Osheroff,
The Trustee argues that the intended beneficiaries, rather than the trustors, are the proper plaintiffs to sue for disgorgement of the trust property. We disagree. An escrow arrangement, like all express trusts, is a contractual relationship, in which disbursement by the trustee is conditioned upon the happening of a specified occurrence. See Winslow, Inc. v. Scaife,
In light of the discussion thus far, the sole remaining issue is whether the Lenders can adequately trace their assets into Dameron's frozen bank account. Ordinarily, a party claiming entitlement to a trust must be able to trace its assets into the fund or property that is the subject of the trust. See In re United Cigar Stores Co.,
In the present case, the Trustee argues that tracing is impossible, since it is undisputed that Dameron commingled the Lenders' funds in his general corporate account. We find that argument to be without merit, since courts have consistently rejected the notion that commingling of trust property, without more, is sufficient to defeat tracing. See, e.g., Chiu v. Wong,
In the present case, at the time of the bankruptcy filing, the balance of Dameron's account was $453,338.47. The Lenders claim entitlement to a trust in the amount of $458,651.52. Because the account has been reduced below that amount but not depleted entirely, the Lenders are entitled to the lowest intermediate balance, without the benefit of any deposits made after such balance was reached.
Based on the uncontroverted affidavit of Charles P. Cocke, a Certified Public Account, the district court accepted the following facts with regards to Dameron's account:
1. On January 25, 1996, Shelter7 deposited $71,475.40 into the account for the Browning settlement. By January 29, 1996, various unrelated withdrawals created a deficit in the account in the amount of $5,313.05. Because Shelter was the only lender with funds then in the account, the court presumed, based on the lowest intermediate balance rule, that the withdrawals depleted Dameron's own funds first and that Shelter's funds were withdrawn only to the extent necessary to cover any remaining deficit. Therefore, Shelter's funds were reduced by $5,313.05, leaving Shelter with a lowest intermediate balance of $66,162.35.
2. On January 29, 1996, Mortgage Access transferred into the account $41,619.20 for the Hedayaty Settlement. Because those funds were subjected to no subsequent withdrawals, Mortgage Access has a lowest intermediate balance of $41,619.20.
3. On January 29, 1996, Chemical transferred into the account $180,749.82 for the Ruffin Settlement. Chemical later transferred another $164,807.10 in connection with the Abercrombie Settlement. Because the account was subjected to no subsequent withdrawals, Chemical's lowest intermediate balance is $345,556.92.
In the lower courts, the Trustee presented no affidavits to contradict Cocke's analysis. Therefore, because no genuine issue of material fact remains, summary judgment was appropriately granted to the Lenders.
The judgment of the district court is, therefore,
AFFIRMED.
Notes
Shelter's closing instructions to Dameron stated as follows: "Settlement of this loan is to be completed in FULL ACCORDANCE with these instructions.... If any of the aforementioned conditions cannot be met, you may NOT settle the loan or disburse our closing funds."
Mortgage Access's closing instructions to Dameron stated as follows: "NO FUNDS MAY BE DISBURSED UNTIL ALL CLOSING CONDITIONS HAVE BEEN COMPLIED WITH." Chemical's instructions stated similarly: "You may not cash, deposit or disburse our funds until you have fully complied with all instructions."
Chemical's closing instructions stated as follows: "You may not cash, deposit or disburse our funds until you have fully complied with all instructions."
Old Republic issued insured closing letters to Chemical, Shelter, and Mortgage Access in connection with the four settlements at issue. When called upon to do so, Old Republic paid Shelter and Mortgage Access--but not Chemical--for their losses and thereby became subrogated to their rights in the funds
Because we conclude that the parties intended to create an express trust, we have no occasion to address the district court's alternative holding that the Lenders are entitled to recover under a theory of constructive trust
Of course, to prevent double recovery, the Lenders must now relinquish any deeds of trust they received over the subject properties in return for their loans
Recall that Old Republic has been substituted in these proceedings for Shelter and Mortgage Access