Bankr. L. Rep. P 72,739
T & B SCOTTDALE CONTRACTORS, INC., Plaintiff-Appellant,
v.
UNITED STATES of America, Defendant-Appellee,
Richard D. Ellenberg, Trustee for Rodger & Rodger, Inc.,
Trust Company Bank, Intervenors-Defendants-Appellees.
No. 88-8088.
United States Court of Appeals, Eleventh Circuit.
March 2, 1989.
Rehearing and Rehearing In Banc Denied April 5, 1989.
A.L. Mullins, Jr., Swift, Currie, McGhee & Hiers, C. David Hailey, Atlanta, Ga., for plaintiff-appellant.
Richard D. Ellenberg, Sharon Douglas Stokes, Asst. U.S. Atty., Atlanta, Ga., Gary R. Allen, Chief, Appellate Sect., Tax Div. Dept. of Justice, William S. Rose, Jr., Asst. Atty. Gen., Washington, D.C., Lawrence S. Burnat, Schreeder, Wheeler & Flint, Atlanta, Ga., for defendant-appellee.
Appeal from the United States District Court for the Northern District of Georgia.
Before JOHNSON, HATCHETT and COX, Circuit Judges.
JOHNSON, Circuit Judge:
This appeal arises from the district court's clarification upon remand of a previous order. In denying the summary judgment motions of T & B Scottdale Contractors, Inc., аnd Trust Company Bank and granting the motion of the trustee in bankruptcy of Rodger & Rodger, Inc., the court declared certain funds part of Rodger and Rodger's estate in bankruptcy. We reverse and remand.
I. FACTS
We summarize the facts more fully set forth in this Court's opinion in T & B Scottdale Contractors, Inc. v. United States,
With respect to Item 3 above, Contractor shall purchase and pay for equipment in Subcontractor's name in accordance with terms and conditions dictated by Contractor. Contractor shall open a bank account in Subcontractor's name for the sole purpose of paying for equipment coverеd by Item 3 above. Contractor shall maintain control of such bank account, but account shall be set up joint signature by Contractor and Subcontractor.
T & B established the account as required by the contract at Trust Company Bank ("TCB" or "the bank").
Through late 1983, the account functioned as anticipated. R & R would send T & B its unpaid invoices for materials. T & B would then deposit money into the account and write a check to R & R's vendor.2 The check would be sent to R & R for signature and then forwarded to the vendor.3 Only T & B ever deposited funds into the account. The account statements were sent to T & B. No funds were ever disbursed to R & R.
On September 23 and October 4, 1983, T & B deposited a total of $135,264.89 in the joint account. On October 7, in response to R & R's failure to pay its back taxes, the IRS served notice of levy on the account. T & B filed a wrongful levy action against the government on October 14. Although the district court did not preliminarily enjoin the IRS levy, it did order $92,008.48 (the amount subject to the levy) deposited into the court registry. On November 17, the IRS served notice of an additional levy of $44,909.45 on the account. The court ordered the remainder of the funds placed in the registry "as soon as practicable." R & R filed for bankruptcy on the same day. The bank, fearful of running afoul of the automatic stay provisions of the bankruptcy code, delayed the deposit of the final $43,256.41. This last portion of the funds was eventually deposited with the district court early in 1985.
The bank, which sought $89,256 allegedly owed it by R & R on a defaulted loan, and the trustee in bankruptcy intervened several weeks later in the wrongful levy action. T & B and the bank moved for summary judgment, each claiming title to the money. The trustee moved for summary judgment on the basis that the money was part of the bankruptcy estate. The district court rejected the arguments of the bank and T & B and granted summary judgment to the trustee, remanding the case to the bankruptcy court "for its determination of the parties' interests, and distribution of the estate's assets." The bank and T & B then brought their first appeals.
On appeal, this Court did not reach the merits of the case due to the district court's somewhat uncertain holding regarding thе nature of T & B's claims. We could not conclude we had jurisdiction to decide the merits because the trial court's order was unclear as to whether all of T & B's arguments regarding its ownership of the funds had been completely rejected. We held that if T & B could still argue to the bankruptcy court that the funds were really its own, then the district court's order was not final and appealable. We indicated that if T & B's arguments had been foreclosed, then the order would probably be considered final and appealable.
II. DISCUSSION
A. Jurisdiction
We may now squarely address the question of jurisdiction. The answer turns on whether the district court's decision constitutes a final and appealable order which "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." In re TCL Investors,
The clarified order of the district court is a final order. The issue the district court addressed was whether the money was part of the bankruptcy estate of R & R. The district court held that it was. There is nothing left of T & B's claims that the money is not part of the bankruptcy estate. This decision is final and ended this part of the litigation on the merits.5 The Seventh Circuit recently decided that a district court's decision that disputed assets are part of the bankruptcy estate is a final and appealable order. In re Joliet-Will Cty. Comm. Action Agy.,
The holdings of In re Regency Apts., supra, In re TCL Investors, supra, and In re Miscott, supra, are not to the contrary. They emphasize that an order is not final if on remand the bankruptcy court must exercise "significant judicial activity invоlving considerable discretion." Miscott,
B. Merits
1. Summary Judgment Motion of the Trustee
The district court held that the funds that had been deposited in the joint account at TCB were part of the bankruptcy estate. A debtor's estate in bankruptcy consists of "all legal and equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C.A. Sec. 541(a)(1) (1979) (emphasis added). The extent and validity of the debtor's interest in property is a question of state law. See In re Livingston,
Situations occasionally arise where property ostensibly belonging to the debtor will actually not be property of the debtor, but will be held in trust for another. For example, if the debtor has incurred medical bills that were covered by insurance, and the insurance company had sent the payment of the bills to the debtor before the debtor had paid the bill for which the payment was reimbursement, the paymеnt would actually be held in a constructive trust for the person to whom the bill was owed.
H.R.Rep. No. 595, 95th Cong., 1st Sess. 368 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 82 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5868, 6324. See also Collier, p 541.01 at 541-7; cf. Georgia-Pacific,
It is undisputed that the funds deposited by T & B in the account were meant for R & R's materialmen. T & B's contracts with R & R and with the City of Atlanta expressly stated the funds wеre to be used to pay the materialmen. Like the hypothetical debtor holding funds meant to pay his physician described in the legislative history cited above, R & R was holding funds meant to pay its materialmen. In neither situation do the funds belong to the bankrupt estate.8 The trustee argues that Georgia-Pacific, supra, is to the contrary. Although the Georgia-Pacific court found that checks held by the debtor made out jointly to materialmen and the debtor were part of the debtor's estate, the case actually supports our holding. The court recognized that property held by the debtor for the benefit of another was not part of the bankruptcy estate. Id.,
Finally, TCB argues that under Georgia law it had a right to set off the funds in the account to satisfy a loan on which R & R had defaulted. See Cotton States Mut. Ins. Co. v. Citizens and Southern Nat. Bank,
In Prudential-Bache, a judgment creditor attempted to garnish funds held by thе debtor's bank. The court held that once the funds, in this case a certificate of deposit, had been used to offset a deficiency on a defaulted loan, the judgment creditor could not garnish the funds. However, the court noted that interest collected on the deposit certificate had never been applied to the defaulted loan. The court held that although the bank could have offset the interest money before the garnishment action was filed, it was foreclosed from exercising its set-off rights after the claim was made.
In the present case, both the United States and T & B asserted claims in federal court against the money long before TCB attempted to exercise its set-off rights. The IRS filed its notices of levy on September 23 and October 4, 1983. T & B brought the wrongful levy action on October 4. By November 17, all of the funds had been ordered deposited in the district court registry. The bank did not try to еxercise its set-off rights until its motion to intervene on November 30. Under Prudential-Bache, the bank's chance at the funds had long since passed.9
2. Summary Judgment Motions of T & B and TCB
The district court restricted itself to determining whether or not the funds comprised part of the bankruptcy estate. It stated, "If the account is not within R & R's estate, the court would retain the action to determine the efficacy of T & B's and TCB's claims. In the latter scenario, fact issues would be involved and summary judgment would not be appropriate." Since the district court has not passed upon the merits of T & B's and TCB's claims against the funds (except to hold that their claims were inferior to that of the R & R estate), we will not decide their summary judgment motions.10 See Osborne v. Folmar,
For the foregoing reasons, the order of the district court is REVERSED and REMANDED.
HATCHETT, Circuit Judge, dissenting.
I would hold that the disputed funds became property of Roger & Roger's (R & R) bankruptcy estate pursuant to 11 U.S.C.A. Sec. 541 (West 1979 & Supp.1988).
The district court, relying on Georgia Pacific Corp. v. Sigma Service Corp.,
A. Section 541
A bankruptcy estate consists of "all legal and equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C.A. Sec. 541(a)(1). If the debtor holds property in trust for another, however, the property does not become part of the estate. The following example, in section 541's legislative history and quoted by the majority, illustrates this principle.
Situations occasionally arise where property ostensibly belonging to the debtor will actually not be property of thе debtor, but will be held in trust for another. For example, if the debtor has incurred medical bills that were covered by insurance, and the insurance company had sent the payment of the bills to the debtor before the debtor had paid the bill for which the payment was reimbursement, the payment would actually be held in a constructive trust for the person to whom the bill was owed.
H.R.Rep. No. 595, 95th Cong., 1st Sess. 368 (1977); Sen.Rep. No. 989, 95th Cong., 2d Sess. 82, reprinted in 1978 U.S.Code Cong. & Admin.News 5868, 6324 (quoted in Collier on Bankruptcy, рara. 541.01 at 541; Georgia Pacific,
The majority compares the hypothetical debtor and physician to R & R and R & R's materialmen and concludes that "[i]n neither situation do the funds belong to the bankrupt estate." Majority Opinion, at 1376. According to the opinion, the Georgia Pacific court recognized that all property held by a debtor for the benefit of another is not part of the debtor's bankruptcy estate. This conclusion, however, appears to misсharacterize the rule set forth in Georgia Pacific.
B. Case Law
1. Georgia Pacific: Are the Facts Distinguishable?
In Georgia Pacific, Sigma, a general contractor, began a project for Georgia Pacific. Sigma asked Georgia Pacific to send it checks drawn to the order of both Sigma and its materialmen.
The majority distinguishes T & B from Georgia Pacific by concluding that the T & B agreement placed affirmative duties on R & R in relation to its materialmen. "[I]n this case [unlike in Georgia Pacific ] it is undisputed that the parties agreed that the funds were meant solely for the materialmen." Majority Opinion, at 1376.
It is difficult to support the majority's distinction given the factuаl similarity between T & B and Georgia Pacific. For example, in Georgia Pacific, Georgia Pacific agreed to write checks to Sigma. In T & B, T & B Scottdale (T & B) agreed to deposit funds into a R & R account. In Georgia Pacific, Georgia Pacific contemplated that Sigma would use funds from the checks to pay materialmen. In T & B, T & B contemplated that R & R would use funds from the account to pay materialmen. In neither case were the materialmen parties to the agreement. It is difficult to conclude that the T & B agreement imposed affirmative duties on R & R, when the Georgia Pаcific agreement did not impose affirmative duties on Sigma.
2. Georgia Pacific: Is Reliance on the Whiting Quote
Proper?
The majority also states that Georgia Pacific stands for the proposition that property held by the debtor for the benefit of another is not part of the bankrupt estate. This appears to be an incorrect reading of Georgia Pacific.
The statement upon which the majority relies comes from a passage in United States v. Whiting Pools, Inc.,
Further, the majority is incorrect in suggesting that either the Georgia Pacific court or the Whiting Court created a rule excluding all property held for the benefit of another from property of the estate. This is apparent from Georgia Pacific 's holding: Georgia Pacific's checks, held by Sigma for the benefit of materialmen, became рroperty of the estate. Likewise, T & B's deposits, held by R & R for the benefit of its materialmen should become part of R & R's bankrupt estate.
C. Conclusion
No Supreme Court or Eleventh Circuit decisions exist that control this case. The court in Georgia Pacific Corp. v. Sigma Service Corp.,
Accordingly, when R & R filed for bankruptcy, the funds in the account became property of the estate pursuant to 11 U.S.C.A. Sec. 541. The materialmen, like other creditors, may pursue their claims against R & R in accordance with bankruptcy procedures.
Notes
Under-capitalized minority subcontractors often have problems obtaining surety bonds. The use of joint checking accounts made surety bonding unnecessary
The balance in the account was usually zero because T & B would deposit only enough to cover a specific invoice
The account card required the signature of agents of both T & B and R & R
However, it did not enter a final judgment under Fed.R.Civ.P. 54 against T & B, presumably because, if T & B had other unrelated claims to bring as an unsecured creditor against R & R's estate, it should be allowed to do so before the bankruptcy court
We suggested in our previous opinion that:
if the litigation in question is viewed as the discrete controversy between T & B Scottdale and the trustee of whether the account should be included in the bankruptcy estate, the district court has indeed ruled on the merits, leaving only a judgment to be executed.
The United States also argues that when an order is final as to only one party, it is not appealable unless final judgment is entered against that party. Sеe Fed.R.Civ.P. 54(b). The district court did not enter a Rule 54(b) judgment against T & B. Although the United States correctly states the law, that law does not apply in this case. The decision that the funds are part of the estate is final as to all parties. That issue may not be relitigated, although other questions concerning the actual division of the estate will be decided later by the bankruptcy court
Not only is the order final, but it is also appealable. In In re Regency, this Court held that for a collateral bankruptcy order to be reviewable:
it must (1) be independent and easily separable from the substance of other claims in the action; (2) present a need to secure prompt review in order to protect important interests of any party; and (3) be examined in light of practical, rather than narrowly technical considerations.
It should be noted that $92,008.48 of the funds were not even in the joint account at the time R & R declared bankruptcy. R & R had neither possession of, nor control over, nor any equitable interest in those funds in the registry of the court at the time of the commencement of the bankruptcy case
When a bank has a contractual lien on a certificate of deposit, the result may be different. Prudential-Bache,
In this case the bank claims that such an express contract exists. The joint account signature card states:
Bank may, at any time and without prior notice, charge the account for any indebtedness to the Bank, whether or not matured, if the Bank believes its ability to collect the debt is in any way in jeopardy.
This clause does not create a lien on the account. It does not purport to give the bank rights typically associated with that of a lienholder. It does not use the term lien or security interest. It merely gives written expression to the bank's pre-existing set-off rights under Georgia common law, and adds the single expansion of encompassing unmatured debts. See Design Spectrum, Inc. v. First Nat. Bank of Atlanta,
However, some of the findings necessarily made by this Court in the course of its decision in this case will be relevant upon remand. Obviously, R & R's estate is foreclosed from making a claim upon the funds, and TCB's claim of a right to set off or lien has been rejected. Most importantly, this Court has found that the funds placed in the registry were meant to pay R & R's materialmen. Those materialmen or a party succeeding to their interests would appear to have a strong claim to the funds. See Pearlman v. Reliance Ins. Co.,