*1 720 invеntory buildings or unusable alleged grantor’s for unsaleable
penditures services; and products or as, example, a food franchisor for fast tered). two Ziegler v. lishing percentage leged dealer derives alleged dealer N.W.2d (2) plementary services leged dealer to grantor’s products [10] the amount of time and highly important the extent These 873, community Rexnord, 879-80 revenues factors has sunk into the relation- consumers of the and nature of from the (1987) or 139 , may of interest: questions in estab- provided services. and Wis.2d be distilled into (formatting al- profits grantor money an by the al- any sup- 593, (1) the alleged the al- 407 Book Performance very similar facts. Kornacki v. Norton ment might had not made a substantial have dealer under summary judgment of his revenue or’s (7th Cir.1992) (sales products); compare Moodie v. Fairs, Inc., power specific be. This court has WFDL, Plastics, came from bind 889 F.2d even grantor alleged grantors 956 F.2d agent grantor selling upheld grants 739, 740-41 though capital who was not a 129, and who 75-85% did invest School grant- 132- (7th not Tri-Clover, Inc., Cir.1989) (WFDL v. ship. applied allegеd Baldewein Co. where 57, 145, 151 606 N.W.2d 233 Wis.2d dealer had made front-end investment alone, but Neither of these is sufficient $46,000 equipment operate a book up can make strong facts in one area dealership grantor). on behalf of the in another area. Id. at 152 n. weaker facts question ultimate is whether the 9. The III. CONCLUSION alleged dealer “over a grantor has reasons, foregoing For the we AffiRM is, great it barrel” —that whether has such ruling of the district court. power economic over the dealer negotiate dealer with the will be unable
grantor comparison-shop or with other Battery Auto Elec. &
grantors. Praefke Co.,
Co. v. Tecumseh Prods. F.3d (7th Cir.2001).
464-65 LINES, In re AIR UNITED Here, undisputed it derived HPS INC., Debtor. of its 95% of its revenue devoted 95% arrangement to its with personnel hours Association, U.S. Bank National However, correctly the district court ADT. Appellant, Cross-Appellee, (and did) that because it could find found with, it not grantor another to work was relationship “over a barrel.” The new Lines, Inc., Air Debtor- HPS, economically advantageous to not as Appellee, Cross-Appellant. to cut which was forced back most staff, provides protec- but the WFDL no 05-1752, No. 05-1814. tion that kind of sustainable economic from Appeals, United States Court of harm. for HPS’s lost investments in As Seventh Circuit. relationship, the funds invested in HPS years ADT marketing the over the name Argued Sept. 2005. may recouped have been via increased well Decided Feb. 2006. during (cf. Super sales that time Natural Distributors, Inc. v. Muscletech Research As Amended March 2006. Development, F.Supp.2d & En Banc Rehearing Rehearing (E.D.Wis.2002)), $10,000 in unusa- and the March 2006. Denied currently ADT promotional ble materials has on hand is not sufficient to render not
“over a barrel.” HPS is left *4 cargo Angeles at Los Inter-
new terminal (LAX). That terminal Airport national Lines, belong Air Inc. was (United), every and as almost air traveler knows, entered in late 2002. These cases come to this Court as appeal separate the consolidated of two court. In proceedings (HSBC) proceeding, one HSBC Bank USA an auto- seeking filed a motion relief from stay matic so that could distribute million approximately bondholders $4.9 that it held as indenture trustee. proceeding, other United sued U.S. Bank (U.S. Bank) seeking a National Association turnover of construction funds. Ratner, Chicago, Leipold, Mark Gould & appeal are whether the The issues Constantine, IL, Katherine A. Patrick (1) correctly district court affirmed Dorsey Whitney, McLaughlin (argued), & *5 bankruptcy grant summary court’s MN, Trustee-Appellee. Minneapolis, for judgment respect to United with to its prepetition reimbursement for work com- A. Sprayregen, James H.M. Todd Gale (2) Ellis, IL, pleted prepetition; bankruptcy Chicago, (argued), Kirkland & grant summary judgment court’s to U.S. Debtor-Appellee. for respect postpetition Bank with to United’s (ar- Kaplan, Gary L. Garner Harold W. request prepetition for reimbursement LLP, gued), Douglas Gardner Carton & (3) work; grant and court’s IL, Chicago, Appellee. for motion for from the auto- HSBC’s relief CUDAHY, MANION, Before stay. properly matic The district court SYKES, Judges. Circuit disposi- affirmed the court’s tions and we affirm.
CUDAHY, Judge. Circuit in question The fundamental this consol- Background I. in appeal idated is when title to funds held Authority In issued beneficiary. That passes ques- trust to a $190,240,000in bonds on behalf of United broad, imprecise tion is and an resolution cargo to fund construction of an LAX for,
might far-reaching implications have terminal. Manhattan Bank and Chase among things, the law of secured other (Chase) N.A. Company, Trust served as appeal, transactions. The facts of this pursuant agree- indenture trustee however, scope. appeal limit its While this underlying ments the bonds. question about secured- involves basic $34,590,000 Authority in issued bonds lending relationships, importantly it more provide on behalf of United to additional beneficiary involves a on the brink of funding. U.S. Bank served as indenture funda- bankruptcy. How to resolve this agreements underlying trustee for the in question particular mental situation 9, 2002, those bonds. On December easy. is not Chapter bankruptcy. entered United underlying this consolidated The cases Agreements A. The Bond appeal disputes relating involve to two con- agreements The 1997 and 2001 bond struction that the California State- bonds share the same basic structure are Authority Development wide Communities (the A governed by California law. trust Authority) established to finance agreement Agreement requires un- Trust Bank as and a U.S. agreement trustee to reimburse Authority first United construc- bonds. The derlie both upon request. tion costs its written deposited pro- their sold the bonds Agreement expressly provides 2001 Trust money construction funds. The ceeds into may rely Bank on a U.S. written pledged repay- funds is for the in these request as sufficient evidence that United and interest on the principal ment of stated, they incurred the costs are for the bond- and is held trust bonds properly payable out of the 2001 construc- obligated to make holders. United tion fund and there are no liens on the The construction funds payments. these paid. to be is make themselves, however, designed to re- were payments “upon receipt” to United of a costs it imburse United for construction request. written Although project. incurred on the LAX similar, of the funds is we the structure B. The Bank Requests clarity. in turn for discuss each arrangement The reimbursement fell 1, 1997, Authority en- On November apart early December of 2002—when (the agreement tered into trust bankruptcy filing appeared immi- Chase, which Agreement) Trust nent. Prior to December the 1997 in 2003. Under HSBC succeeded summarily granted Bank had each Authority Agreement, Trust issued making any for construction funds without aggregate sum bonds attempt to substantiate it. On December $190,240,000. day, On the same country re- newspapers across Authority entered into the 1997 and the ported that teetered on the brink governing the bonds. Payment Agreement bankruptcy, United made a draw re- *6 Agreement requires that United This quest directing Bank to disburse U.S. periodic payments make to HSBC to cover $1,191,547.29 the from 2001 construction on principal and interest due the bonds. fund as reimbursement for costs incurred payment in in its Unless United is default bankruptcy on LAX The and project. the pay to the costs of obligations, HSBC is to requests district courts referred these projects upon request. United’s written III Bank took Category as Claims. U.S. in to Any money remaining the funds is be and filed request, no action on this United after com- pay used to bondholders United peti- voluntary Chapter bankruрtcy a The pleted cargo the LAX terminal. tion 2002. On December on December by pledge assign- a and bonds are secured request for United submitted a HSBC, Authority’s ment the interests to $233,824.88 it to Bank for costs had presented not to the details of which were filing bankruptcy peti- incurred before its assignment A also pledge this Court. tion. The lower courts referred these payment principal secure and inter- II requests Category as Claims. U.S. a on est on the bonds. HSBC holds lien finally again Bank took no action. United holds, perfected by possession, funds it the $30,093.51 incurred in LAX construction the payment to secure of the bonds under filing bankruptcy. costs after low- Agreement. 1997 Trust er courts called claims based on these Likewise, 1, 2001, Authority United, April on the I Category costs Claims. howev- $34,590,000 er, bonds. The issued revenue never submitted a written reimburse- that Payment Agreement requires request respect ment to these costs. granted payments principal Accordingly, bankruptcy make the court bonds, summary judgment and the 2001 Bank’s motion for interest on these Claims, request. does of the written I and United submission Category on the obliged that it not responded here. was ruling that not contest alternative, or, in that the funds pay the it de- bankruptcy, entered When United subject to since U.S. Bank was were setoff under the 1997 obligations its faulted on verify a reasonable time to the provided Payment Agreements, 2001 Trust and us, a request. In the circumstance before provide bankruptcy that a expressly which time carried the transaction “reasonable” United, part of its filing is a default. occasioning a bankruptcy, into the United paying ceased bankruptcy proceeding, also court, however, bankruptcy default. The bonds, on the principal and interest agreement imposes no concluded since further default. United which constitutes confirm any duty on the trustee to since required has not made extends to validity of the submission nor October 2002. so, the discretion to do Unit- the trustee that, court concluded bankruptcy upon arose right ed’s reimbursement terms of the 1997 and 2001 under the request. submission of the written Payment Agreements, Trust and tp obliged submit written reimbursement concluding that United was enti- After any pay- request the trustee has before Category to the funds covered tled whatsoever. That court obligation ment request III Claims when made that, submitting prop- because reasoned court bankruptcy December precedent is a condition er written very on to the difficult issue of moved reimbursement, obtaining problem assessing damages. The essential I fail. claim to the funds must here, explained, is bankruptcy court Likewise, the court concluded simply damages that if it awarded at law subject were to setoff. Category II Claims United, now be sub- would bankruptcy when it was Since United ject problem, to setoff. To avoid this request, filed the the airline was bank- equity. court turned to More entitled to the ruptcy when became applied court specifically, such, subject As the funds were funds. equitable maxim codified at California 553(a), per- § which setoff under U.S.C. “[tjhat 3529, holding which Civil Code against if a creditor’s claim mits setoff *7 regarded is to be ought to have been done against the аnd the estate’s claim estate whom, done, in him to and as favor of filing arose before the creditor both whom, against performance him from bankruptcy bankrupt- case. The debtor’s court reasoned that bankruptcy due.” The 553(a)’s § mu- cy court also concluded that ought since Bank to have United paid U.S. tuality requirement was satisfied because 5, 2002—before on December United’s obliged pay was the trustee United Bank must now bankruptcy filing —U.S. obliged pay the trustee was United. pay payment and that was to be United II fit Category Because the Claims regarded paid as on December 5. Since the 553(a), bankruptcy court reduced the the made before court deemed obligation to Bank the United’s U.S. bankruptcy, it likewise United filed amount claimed. United free from concluded that the was Category presented III Claims the setoff. question bankruptcy most difficult for the n court affirmed appeal, that Bank had On the district argued court. United U.S. essentially nondiscretionary duty bankruptcy the the court and a disburse adopted reаsoning. its upon funds for the III Claims its II. Discussion Matter The HSBC C. Bank A. U.S. Matter slightly dif- HSBC is
The situation with
bankruptcy
We review
court’s
ferent,
is in default on the
although United
summary
of cross-motions for
disposition
9,
well. As of December
bonds as
HSBC
novo,
judgment de
with all facts and infer
(HSBC’s
had no
predecessor)
Chase
light
ences viewed in a
most favorable to
due from United.
outstanding requisitions
respective nonmoving parties.
the
Hose
precau-
HSBC filed
August
On
Weinschneider,
322 F.3d
man
from the automat-
tionary motion for relief
Cir.2003).
(7th
summary
An award of
apply
it could
setoff
stay
ic
so that
is no
judgment
proper
gen
when “there
and dis-
outstanding obligations
United’s
any
fact and []
uine issue as to
material
in
con-
remaining money
burse
moving
judgment
is entitled to a
party
funds —about
million—to
struction
$37
as a matter of law.”
R. Crv. P.
56(c);
Fed.
consented to the re-
United
bondholders.
Catrett,
Corp. v.
477 U.S.
322-
Celotex
million.
approximately
of all but
$5
lease
23, 106 S.Ct.
§ 1642
916,
890,
matter,
Cal.Rptr.
between the same
136
892
Cal.App.3d
to the same
(1977).
substantially
parts
third-party
made as
of
Because United is a
parties, and
together.”);
transaction, are to
taken
beneficiary,
be
Bank owes
the same
Court, 127
Superior
dealing. E.g.,
v.
faith
fair
duty
good
aci
of
Vers
92,
805,
Exch.,
Inc.,
Cal.Rptr.3d
26
97-98
Cal.App.4th
11
v. Truck Ins.
Waller
(2005);
Group,
Ins.
1,
370,
619,
v. Farmers
Heston
44 Cal.Rptr.2d
Cal.4th
900 P.2d
402,
585,
Cal.Rptr.
594
206
Cal.App.3d
(1995);
160
v.
639
CalFarm Ins. Co. Krusiew
icz,
273,
Cal.Rptr.3d
Cal.App.4th
131
31
(2005).
619,
1
628
directly
leads
This discussion
duty
question of
important
into the
—what
have, then,
competing
are
What we
duty,
any,
if
does U.S. Bank owe Unit
obligations
duty
part
of
on the
of U.S.
Bank contends that it owes Unit
ed? U.S.
Bank;
Bank owes the bondholders a
duty
signatures
their two
ed no
because
fiduciary duty
duty
good
appeared
never
on the same document.
inevitable,
dealing.
faith and fair
It
is
Agree
2001
By the terms of the
Trust
one,
in a
especially
situation such as this
ment,
reasons,
only duty
that these duties will sometimes conflict.
fiduciary duty it
anyone is the
owes
owes
question
then becomes how to resolve
however,
Again,
these
the bondholders.
in a
the conflicts
manner fairest
they misap
arguments are flawed
that
agree
and to the terms of the
parties
essentially
prehend the
unified nature of
ments.
Agreements.
Bond
the Trust and
course,
possible,
It
to conclude that
is
beginning
from
parties understood
duty trumps
one
the other.2 U.S. Bank
that United would receive the bond
contracts, then,
essentially
point, arguing
makes
this
upon
request. These
its
benefit,
fiduciary duty
pre-
to the bondholders
were made for United’s
as well as
paying
financially
It well settled
vented it from
out to a
that of the bondholders.
is
But
strapped
under California law that when a contract
United.
this resolution is
arbitrary,
it is
to con-
expressly
strange
is made
for the benefit of anoth
rather
er,
fiduciary duty to a
party
third-party
party
that other
is a
benefi
tend that one’s
Court,
ciary. E.g.,
Superior
requires
Johnson v.
80
to violate the terms
agreement creating
fiduciary
relation-
Cal.App.4th
Cal.Rptr.2d
(2000);
ship.
suppose
possible
v.
it is
to create
Principal Mut.
Ins. Co.
We
Life
Vars, Pave,
Freedman,
arrangement,
certainly
an
McCord &
65 Cal.
such
but
Moreover,
argu-
not the case here.
App.4th
Cal.Rptr.2d
488-89
Co.,
(1998);
places
following
56 ment
the burdеn
resolu-
Harper Wausau Ins.
Cal.App.4th
Cal.Rptr.2d
squarely
parties
68 tion
on one of the
argument
appears
1. U.S. Bank's
is curious on the
2. The dissent
to assert that the fidu-
duty.
point
The fulcrum of its overall
ciary duty
prevail
particular
must
under the
argument
equity
inappropriate
is that
be-
here,
citing any
but
circumstances
without
contractual. But on
cause this case is
authority
fiduciary
for this conclusion. The
duty,
issue of
U.S. Bank turns to the Restate-
relationship
product
is the
bondholders
(Third)
that "a
ment
Trusts
conclude
duty
of the same contract that creates the
person
merely
perform-
*9
who
benefits from the
United.
beneficiary.”
ance
a trust is not a
While
true,
may
be
United remains
third-
beneficiary
party
under California contract
law.
owed,
duty
inap-
elephant
is
which seems
face the
in the
whom a
room: United’s
resolution,
The better
we
propriate.
bankruptcy, which was imminent
in De-
think,
Balancing
is to balance the duties.
2002 and of
cember
which U.S. Bank rath-
just,
and more
and it
is both more sensible
implausibly
anticipation
er
denied
at oral
among all
agreement
remains truer to the
There,
argument.
asserted
Thus,
parties.
we conclude that
interested
it had no
nearing
idea United was
fiduciary duty
U.S. Bank’s
while
bankruptcy in December 2002. A cursory
important
bondholders is
and must be con- glance
major
at the
newspapers
day
sidered, it
claim
does not erase United’s
it
makes
hard to believe that
layper-
even
duty
third-party beneficiary.
as a
sons were unaware of the
impend-
airline’s
ing bankruptcy.3
major
Surely bank in a
Since U.S. Bank owes United the
duty
faith
fair
it
good
dealing,
lending relationship
must
with United under-
Andrews,
E.g.,
Help
Employee
3.
Edmund L.
No
Unit-
United is a Poor Model
Owner-
for
for
4, 2002,
ed,
8, 2002,
,
("The
("It
at 1
ship,
N.Y.
Dec.
L.A.
Dec.
at 3:1
Times,
Times,
give
Bush
refused to
United
administration
easy
happening
would be
at
look what’s
at
guarantee,
$1.8
... a
billion loan
Airlines,
Airlines
United
now on the brink of bank-
certainly pushing
bankruptcy
almost
ruptcy,
concept
and conclude that the
em-
Griffin,
court."); Greg
Weighs
United Board
ployee ownership in America has fallen into a
Filing;
Today,
Bankruptcy Move Could Come
Grantham,
tailspin.”); Russell
Delta's Status
8, 2002,
("Unitеd
Dec.
at A-l
United,
Post,
Denver
Say,
Better than
Observers
J.-
Atlanta
bymet
Airlines’ board of directors
teleconfer-
4, 2002,
("United
Dec.
at
ID
will al-
Const,
Saturday
ence
afternoon to consider how to
certainly
Chapter
protection
most
seek
proceed
bankruptcy filing
with a
in the next
creditors,
analyst],
from
[an
said
if Machinists
Brelis,
days.”);
two"
Matthew
US Rebuffs
approve
union members don’t
an amended
Guarantees;
$1.8B
Airlines on
Loan
week.”);
package
$700 million concession
Likely,
Bankruptcy Filing Looks
Boston Globe,
Griffin, United,
Vote;
Greg
Union Set New
5, 2002,
("United
at
...
Dec.
A1
Airlines
will
Payment, Though
Airline
Bond
Another
Defers
certainly be
almost
forced
file for bank-
Solvency Fight,
Comes Due in
Denver Post,
ruptcy protection after the federal Air Trans-
3, 2002,
("Without
Dec.
at A-01
ratification of
portation
yesterday
Stabilization Board
eve-
mechanics,
percent pay
the 7
cut
cash-
ning rejected
application
$1.8
its
billion
strapped
bankruptcy
United could file for
im-
Burns,
guarantees.”); Greg
federal loan
Bitter
mediately because it will have no chance of
Feared, Workers,
Bankruptcy
Travelers Would
receiving
guarantee
govern-
a loan
from the
Lose,
Gain,
Rivals Stand to
Dec.
Chi.
Trib.,
preparing
ment.-...
also is
for the
(“United
running
options
at 1
is
out of
possibility
Chapter
trying
up
to line
Editorial,
bankruptcy”);
besides
United: An
emergency financing
$1.5 billion in
to fund
End,
Beginning,
and a
Dec.
Chi.
Trib.,
court,
operations
according
its
while in
("Given
overwhelming
at 28
liabilities
Schmeltzer,
published reports.”); John
Chi.
burning
United faces and
fact
it is
3, 2002,
bets,
("Hedging
at
Trib, Dec.
N1
rate,
through
startling
[$1.8
cash at a
working
private
United also is
lenders to
guarantee]
billion
decision
loan
almost cer-
operations
company’s
finance the
should it
tainly
financially struggling
means the
airline
arrange
protection. ‘You
file for court
don’t
reorganize
will be forced to
under
you
bankruptcy financing
you're
unless
think
English,
protection.”); Simon
United Airlines
going
bankruptcy,'
analyst]
[an
to file for
said.
Telegraph
(Lon-
Collapse,
on Brink of
Daily
file,
");
they
surprised.'
don't
I would be
don),
5, 2002,
'If
("United
Dec.
at 34
warned
Edge
Air NZ
As United Teeters on the
earlier this week
was down to
that it
its last
Unfazed
Bankruptcy,
Dec.
N.Z.
repeated
$1 billion and
its threat that bank-
Herald,
("United
avoid,
likely
to file for
within
ruptcy looked hard to
even with a
loan.”);
get
the next two weeks unless
can soon
Up Against,
What United’s
Chi. Trib.,
("But
wage-cut deal from reluctant mechanics
many
analysts
new
Dec.
at 6
airline
inevitable.”);
guarantee
say bankruptcy
US$1.8
and a crucial
of a
L. Alex-
federal
Keith
ander,
loan,
Frequent
billion ...
sources familiar with the
Fliers Look Ahead to United
United,
E01;
Schmeltzer,
said.”);
Filing,
Flanigan,
at
James
John
Me-
matter
Post,
Wash.
*10
of
situation,
text and the course
ignores
plain
their
financial
dire
the airline’s
stood
Thus,
parties.
the
we
dealing between
has in this case
bank that
especially a
conclude,
bankruptcy and dis-
as did the
for due dili-
the need
repeatedly asserted
courts,
a
Bank had
nondis-
trict
implicates
understanding
This
gence.4
upon
funds
an
cretionary duty to disburse
questions:
policy
critically important
from United.
request
appropriate
virtual-
trustees with
to imbue
appropriate
to disburse funds
ly
discretion
unfettered
permit us to re
These сonclusions
on the
punish debtors
they
can
so
adjudicating
these
step
the first
solve
extend
Should we
verge
bankruptcy?
money in
claims:
who is entitled to
of agree-
even in the face
power
such a
(an
to which we will
of setoff
issue
absence
create a nondiscretion-
plainly
ments that
return)?
agree
the terms of the
Since
think not.
ary duty to disburse funds? We
clearly
state that once
ments
reimburse,
filed, U.S. Bank must
properly
may have been differ
Our answer
was entitled to
it follows that United
un
setting with different
ent in a factual
by
III Claims
funds covered
reality
But the
here
derlying agreements.
2002,
5,
and the funds sub
on December
agreements
parties negotiated
is that
Decem
ject
Category II Claims on
in dis
Bank no discretion
that afford U.S.
13, 2002.
ber
law,
the funds. Under California
bursing
obligations are
a trustee’s duties and
pre
law as
Under California
limited to the terms
strictly defined
Code, mutual
Bankruptcy
in the
served
underlying agreement, particularly
of the
arising
the commencement
debts
before
trus
relationships involving indenture
offset,
may be
bankruptcy proceeding
170,
Cal.App.
Bryson
Bryson,
v.
tees.
subject
exceptions
not relevant
certain
391,
agreements
(also
216 P.
called
right
here.
“The
of setoff
completes
that once United
provide
‘offset’)
here
entities that owe each other
allows
a reim
and once United submits
the work
against
mutual
apply
their
debts
pay.
Bank must
request, U.S.
other,
‘absurdity
bursement
thereby avoiding the
each
”
3.3(a) (“Each
(2001
Payment Agreement
A
B
B owes A.’
making
pay
when
...
be
referred to
shall
payments
of the
516 U.S.
Strumpf,
Bank Md. v.
Citizens
Trustee of a
upon receipt by
made
731 (7th Cir.1998); F.3d 1100 see also 2001. already explained We have that we (2005); § 431.70 Harri willing are not arrangement view the Code Cal. Civ. Pro. Adams, 646, 128 9,11 20 son Cal.2d P.2d piecemeal a series of agreements; it is (1942); Co., Plut v. Fireman’s Fund Ins. improper to view the 2001 Agree- Trust Cal.App.4th Cal.Rptr.2d 85 102 42 ment and Payment the 2001 Agreement as separate agreements two because together they form a single framework of provisions appropriate against Setoff is governing financing arrаngement, and because, II Category Claims under the possible it not to understand one without Agreements, 2001 United owed U.S. Bank Likewise, reference to the other. it is and the bondholders repayments princi improper to treat each interaction this pal and interest. Once United entered arrangement separate as a transaction. bankruptcy, all debts were therefore sub Accordingly, this debt prepetition. arose ject primary to setoff. United’s defense against setoff is that are not debts Moreover, not, these funds are 553(a) mutual. California law and re contends, as United special purpose funds that, quire apply, for setoff to debts be exempt from setoff. In See re Ben Frank parties between the same and that both Store, Inc., lin Retail 202 B.R. 957 filing bankruptcy arise before the of the (Bankr.N.D.Ill.1996). exemption This ap petition. Meyer Physicians Group, Med. plies when a debtor deposits funds for Corp., Ltd. v. Health Care Serv. 385 F.3d special some purpose, thereby which are (7th Cir.2004); In re Doctors held in trust for the debtor. Id. A tyрical Park, Inc., Hosp. Hyde 337 F.3d example of special purpose a fund is collat (7th Cir.2003); Harrison, 128 P.2d at eral pledged satisfy obligations to third since, argues 11-12. United as we parties in the event of a draw on a letter of concluded, obligation have U.S. Bank’s Here, however, credit. Id. the bondhold pay not arise until does United submits a deposited ers the funds —not United. request, U.S. Bank’s debt to not United is These funds are not in any way earmarked prepetition enjoys and therefore no mutu them, imposes special purpose ality with to repay principal United’s debt they pledged any nor are third-party and interest. (that is, purpose some purpose outside the argument by order for this Thus, project). LAX these debts are mu succeed, we would need to read each reim- tual, ordinary subject purpose funds request separate bursement as a act that setoff. obligates is, U.S. Bank. That we would We next confront the issue of de need to conclude that Bank is bound 6.1(c) Payment fault. Section the 2001 pay only after United submits reim- Agreement filing identifies request, bursement and once that out, petition as an paid has event of default.5 United obligation been U.S. Bank’s argues that provision ipso ceases. But that not this is an facto arrangement term, 363(1), §§ Although here. default which 11 United was not entitled to U.S.C. 541(c)(1)(B) 365(e)(1), until it request, prohibit. filed its Unit subject pay, bound itself to to re- ed reasons that the default provision quest, agreements Payment Agreement provide when entered the however, Nothing, anticipa- 5. indicates that ment. pay- tion of is cause to withhold setoff, setoff, III only avenue to we can move on to which
Bank with its demonstrated, provision *12 the default modifies Claims. As we have means that property. Authority in claimed upon interest was entitled to the funds United’s is not proposition making this slim and supporting its reimbursement —that Indeed, is, the quite only 5, case di- point. on on 2002. Because U.S. December to rectly brought duty our attention— point nondiscretionary on Bank had to reim- a disposition burse, an at that —limits unpublished withheld funds. wrongfully these holding to situations where debtors are bankruptcy, In the of we could absence not in dеfault. Reloeb Co. v. otherwise simply pay Bank to order U.S. United now (In Chateaugay 1993 Corp. Corp.), LTV re damages and the would issue of be re- (S.D.N.Y. 1993). 10, 159969, May at *5 WL bankruptcy filing, solved. But the which only just overcoming, is now com- hand, United, in on the other is default if plicates simply matter. For we were extending beyond the bank- reasons damages to award United its effective to- airline has a ruptcy filing; the not made subject day, the be money would to the required principal of interest payment and bankruptcy filing and would be disbursable since 2002. Even if to October we were purpose of damages creditors. The ipso facto provi- determine that the default served; would not be United would not be unenforceable, nonpay- sions are United’s suffered, compensated damages it for the ment remains a default under 6.1 Section nor funds would the construction be avail- (which Payment Agreement of is the 2001 See, purpose. able for e.g., their intended parallel to Section 7.01 the 2001 Trust Westbrook, Avery v. & Fredericksen 67 Agreement). that these United contends (1944); 42 Cаl.App.2d 154 P.2d defaults, ought not count nonpayments as Compress Mente & v. Fresno Co. & Ware Bankruptcy prohibits because the Code Co., 298 Cal.App. house 113 P. types payments these while it remains (1931). addition, 128 In U.S. Bank would in The bankruptcy. may pro- Code well speculating be rewarded for but the United’s payments, agreements— hibit such surely would authority bankruptcy, which increase governing sole this relation- in the incidence of such behavior the fu no basis avoid setoff on ship provide — then, question, this must be to the ture. The is whether ground. United held Cali made, just remedy fornia deal it as U.S. Bank must be contains that will law obligations held it made. make payment United whole. addition, ipso argu- facto court, as we have particularly ment not here. is relevant discussed, provided equity believed 553(a) expressly preserves Section credi- necessary remedy. While max rights protected tors’ that are under setoff ought im—that to be which done is state law ex- expressly law. California having deemed been done—is codified rights bankruptcy filings tends setoff certainly under California law and makes the creditor the debt- situations where and sense, tight may seem to be fit here. Thus, or debt. share a mutual because First, equity generally unavailable satisfy require- II Claims cases, although breach of contract as outlined in
ments for setoff California willing equity courts are to turn where 553(a), §in preserved law the claims damages inadequate. at law are Wilkison subject are to setoff. Wiederkehr, Cal.App.4th 101 124 (2002).
Now,
Second,
having
Catego Cal.Rptr.2d
resolved the
ry
fundamentally,
II
explored
aspects
perhaps
applying
some
more
Claims
428, 433-34,
maxim
may appear
context
be
WL
doctrine,
beyond
receipt
then,
constructive
reaching
bounds
this case to
ad-
dresses issues of timing, specifically to
force a result.
preclude taxpayers from manipulating the
however,
That appearance,
deceptive.
timing of
receipt
income
for their own
courts,
The California
like courts of other
us,
benefit.
In the case before
prob-
jurisdictions, rely
equitable
on a number of
lem is tо preclude the lender from manipu-
provide
doctrines in different situations to
lating
timing
to the detri-
required
plaintiffs
the relief
redress
*13
ment of the borrower.
injuries when the law is unable to do so.
Quite
then,
clearly,
policy
un
See, e.g., Cortez v. Purolator Air Filtra
derlying
receipt
the constructive
doctrine
Co.,
163,
tion Prods.
23
96
Cal.4th
Cal.
is appropriately responsive to the issues
518,
706,
(2000);
Rptr.2d
999 P.2d
716-17
in this case. A key policy issue here is
Poultry Producers
Cent.
Inc. v.
Cal.
of
that a trustee should not be rewarded for
Nilsson,
245, 253-55,
197 Cal.
734
fears, however,
doomsday
are
(applying
Those
ness under the 2001
See Cit
III. Conclusion
Strumpf,
izens Bank
516 U.S.
of Md.
116 S.Ct.
I agree summary that judgment was properly granted Bank on Although U.S. the issue the construction fund is held in trust, of postpetition obligations reimbursement re- Bank’s U.S. United quest contractual, for prepetition expenses wholly fiduciary. construction are not (the claims). “Category party agree- so-called II” is not a Un- United the trust payment agree- der the 2001 and party trust ment and U.S. Bank is not a agreement provides de- that Written agreement. “[e]ach The California payment Bank, state, Request and as shall and shall velopment Authority [United] U.S. trustee, agreement; ... parties are to the trust sufficient to the Trustee be evidence Authority parties and are in have obligations the United that the stated amounts majority is agreement. by payment incurred and that each [United] been the con- correct that under law proper charge against California thereof is a item and must be read tracts are interrelated Fund in accordance here- Construction that that not mean U.S. together, but does with.” duty to or any fiduciary United Bank owes United, As between U.S. Bank and equity parties’ controls the substan- only terms establish contractual— these remedies. rights applicable tive or fiduciary rights not and duties. State — trust-agreement, the terms of Under of the na governs law the determination fiduciary obligations Bank’s trus- scope interests property ture only; pro-
tee are to the bondholders
comprise the
of the estate”
“property
in
deрosited
ceeds
the bond issue were
541(a)(1),
§
bankruptcy,
in
see 11 U.S.C.
fund,
repay-
pledged
the construction
the setoff
are
rights
pre
as well as
interest,
and “held
principal
ment of
553(a)
Bankruptcy
served under
of the
the bondholders.”
trust for
benefit of
States,
See Butner v.
Code.
and exclu-
pledge
first
“constitute^]
99 S.Ct.
law: the doctrine whereby income is received and part authority deemed of U.S. Bank no for the the Revenue Service reportable to Internal importation the of this income tax doctrine actually constructively re- it is or when of dispute. into breach contract ceived, the tax- occurring the latter when undisputed It Bank received is that U.S. income payer power has the to receive but sometime United’s reimbursement to, usually chooses not for tax avoidance 5, 2002, Thursday, and that on December doctrine, No one raised this purposes. for bankruptcy United filed before busi- or on should appeal. either below We opened Monday, ness December nonjuris- generally deciding refrain from most, noted, I 2002. At as havе two busi- by grounds issues on not asserted dictional days passed. undisputed ness It also is Nash, see 29 parties, United States paid prior that U.S. Bank numerous reim- (7th Cir.1994), not F.3d n. 5 summarily bursement requests, apparently adversarial sabotages least because promptly, although the record does Wisconsin, process. See McNeil v. dealing not address the of between course 181 n. S.Ct. regarding parties timing the mode and (1991) (“What system L.Ed.2d makes payments. of these It is reasonable to rather ... inquisitorial adversarial than is infer that of was aware United’s (as presence judge of a who does not looming bankruptcy in December does) inquisitor an the factual and conduct by majority. the reasons noted But it himself, legal investigation de- but instead from quite leap is infer- permissible arguments on the basis cides of facts and finding by ence to a an court— appellate pro by parties.”). and con adduced — manipulation shirking of or faith of bad right Parties court to address have obligations. Reviewing contractual courts arguments by opponents their made are not in the rely fact-finding on the of waiver for business. doctrine event, Moreover, arguments any not decision- us on made. matter before grounds sponte by appel- summary judgment. al invoked an sua may court appropriate late lack factual Application of the taxation doctrine subjected and have support not been receipt support- constructive no more testing, normal adversarial could ex- which application than eq- able of the California weaknesses, worse, pose outright or error. uity doctrine invoked the lower courts. majority believes the doctrine I Accordingly, summary would reverse the receipt constructive re- appropriately “is judgment favor United on the issue of sponsive to the because issues this case” III claims and to that extent timing, specifically it “addresses issues respectfully must dissent. preclude taxpayers manipulating from timing receipt income for their own here, applied according As benefit.” majority, pre- the doctrine serves *18 “speculating”
vent U.S. from bankruptcy by manipulating
timing of its on the reimburse- majority justifies
ment claim. The also
application of the doctrine as means
enforcing duty Bank’s contractual faith fair
good dealing. But there is