Marrs-Winn Co., Inc., In re
| Decision Date | 27 December 1996 |
| Docket Number | No. 96-1864,MARRS-WINN,96-1864 |
| Citation | 103 F.3d 584 |
| Parties | In reCOMPANY, INC., Debtor. COMPANY, INC. and J.S. Alberici Construction Company, Inc., Plaintiffs-Appellees, v. GIBERSON ELECTRIC, INC., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
James E. Peckert, A. James Shafter, Mark D. Gibson, Michael J. Kehart (argued), Kehart, Shafter, Hughes & Webber, Decatur, IL, for Defendant-Appellant.
Michael E. Wilson (argued), A. Thomas Dewoskin, Greensfelder, Hemker & Gale, St. Louis, MO, for J.S. Alberici Construction Co., Incorporated.
John L. Greenleaf, Jr., Decatur, IL, for Marrs-Winn Co., Incorporated.
Before POSNER, Chief Judge, COFFEY and KANNE, Circuit Judges.
This case arises out of the construction of St. Louis, Missouri's new domed football stadium--now known as the Trans-World Dome--which serves as the home of the National Football League's St. Louis Rams. Plaintiff-Appellee J.S. Alberici Construction Co., Inc., ("Alberici") was the general contractor on the stadium project, and Plaintiff-Appellee-Debtor Marrs-Winn Co., Inc. ("Marrs-Winn") 1 was a subcontractor who installed reinforcing steel and post-tensioning cable on the project. Defendant-Appellant Giberson Electric, Inc. ("Giberson") loaned money to Marrs-Winn in order to allow Marrs-Winn to comply with the terms of its contract (the "Subcontract") with Alberici.
At issue is whether Giberson wrongfully seized $211,462.61 from a bank account held in the name of Marrs-Winn as Debtor-in-Possession. The answer to this question rests on whether those funds were trust funds held for the benefit of Marrs-Winn's laborers and materialmen, or whether Marrs-Winn acquired equitable title to those funds, thereby making them subject to Giberson's first priority security interest. Because we find that the Subcontract designated these monies as trust funds, and that the financing order approving the Giberson/Marrs-Winn loan agreement did not trump the Subcontract, we agree with the courts below that Giberson wrongfully seized the $211,462.61. Thus, we affirm the opinion of the district court.
Pursuant to the general contract on the stadium project, Alberici was required to assist or "mentor" minority-owned businesses. On May 18, 1993, Alberici informed Marrs-Winn, a struggling minority-owned construction company, that it intended to award Marrs-Winn a subcontract on the project. Alberici agreed to pay Marrs-Winn $6,896,900 in return for Marrs-Winn's work to furnish and install reinforcing steel, post-tensioning cable, and related accessories on the stadium. This Subcontract also required Marrs-Winn to furnish certain payment and performance bonds.
Initially, Marrs-Winn could not satisfy the bonding requirements, nor could it contract with the union iron-workers needed to perform the job. Thus, on June 11, 1993 Alberici informed Marrs-Winn that it would not sign the Subcontract until it received adequate bonds. In addition, Alberici informed Marrs-Winn that it would begin the reinforcing work and later "charge Marrs-Winn's Subcontract for the costs associated with this activity." On June 21, 1993, Alberici began performing the reinforcing work, using ironworkers employed and paid by Alberici; Alberici subsequently "backcharged" Marrs-Winn $296,724.25 for this work, $205,722.59 of which Alberici incurred before August 10, 1993.
Marrs-Winn needed assistance in satisfying the bonding requirements so that it could begin work on the dome. In May or June of 1993, Giberson and Marrs-Winn first discussed the possibility of Giberson lending money to Marrs-Winn. On July 31, 1993, Giberson sent a letter to Alberici expressing Giberson's willingness to finance Marrs-Winn and to implement special procedures to handle Marrs-Winn's progress payments and payroll expenses.
Marrs-Winn ultimately obtained the necessary guarantees to satisfy Alberici. As a result, on August 9, 1993 Alberici and Marrs-Winn added "Exhibit G" to the Subcontract. Exhibit G required Marrs-Winn to post a $100,000 letter of credit in favor of Alberici and established a special account to facilitate the payment of Marrs-Winn's payroll expenses for the project.
Nonetheless, Marrs-Winn filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code the very next day--August 10, 1993. Marrs-Winn eventually entered a financing agreement with Giberson in order to meet its obligations under the Subcontract. Marrs-Winn and Giberson entered into this Business Loan and Security Agreement ("BLSA") on August 19, 1993. The BLSA required Giberson to post the $100,000 letter of credit and provided that Giberson advance up to $150,000 to Marrs-Winn so that it could proceed with its performance of the Subcontract.
Marrs-Winn and Giberson sought the bankruptcy court's approval of the BLSA, characterizing the agreement as essential to Marrs-Winn's ability to perform the Subcontract. The bankruptcy court subsequently approved the BLSA in its Order Authorizing Debtor to Borrow Money, Grant Security Interest and Accord Priority Claim Status (the "Financing Order"). It is undisputed that Giberson was aware of the existence of the Subcontract when it signed the BLSA and when the bankruptcy court entered the Financing Order.
The Financing Order, dated August 20, 1993, granted Giberson a first priority security interest in all of Marrs-Winn's presently existing, later created, or later acquired personal property including all of its inventory, accounts, accounts receivable, contracts, contract rights, documents, instruments, chattel paper, machinery, fixtures, cash proceeds, and non-cash proceeds. The Financing Order further provided that all advances from Giberson were payable on demand.
Alberici received the $100,000 letter of credit on August 18, 1993, and the next week Alberici received Marrs-Winn's Certificate of Insurance. On August 27, 1993, Alberici signed the Subcontract, which is dated May 18, 1993. Marrs-Winn executed a labor agreement with the union ironworkers on August 31, 1993 and began work on the stadium project with its own employees on September 1, 1993.
Meanwhile, on August 17, 1993 Marrs-Winn and Giberson opened the bank account that is the focus of the entire case. The presidents of both Marrs-Winn and Giberson set up an account at the Magna Bank of Illinois under the name "Marrs-Winn Co., Inc., Debtor-in-Possession" (the "Magna Account"). 2 This account was not specifically designated as a "trust account." A Magna Bank resolution, signed only by Marrs-Winn's president, revealed that Marrs-Winn's president was the only named individual authorized to transfer account funds.
Alberici claimed this account was the special payroll account contemplated by Exhibit G of the Subcontract. Pursuant to Exhibit G, Alberici agreed to "transfer funds into a Special Marrs-Winn Stadium Payroll Account to fund: (1) payroll to on-site workers and on-site supervisors, and (2) taxes, fringes and benefits based on such payroll." Exhibit G further outlined the detailed procedures that Alberici and Marrs-Winn would follow when transferring these payroll and payroll-related funds to the payroll account. Finally, Exhibit G required Marrs-Winn "to open and establish such Bank accounts, and provide such authorizations and documents necessary to implement the payment procedures herein set forth."
Giberson, on the other hand, contended that the Magna Account was the "lockbox" account contemplated by the BLSA and the Financing Order. The BLSA provided:
5.4 MARRS-WINN covenants and agrees that it shall establish, and execute any further documentation to effectuate, a joint account at Magna Bank located in Decatur, Illinois, or a likewise institution acceptable to GIBERSON, into which account all payments made pursuant to the subcontract to MARRS-WINN shall be placed. The parties hereto understand and agree that certain payments are being made by J.S. Alberici Construction Co., Inc., pursuant to the subcontract, directly to future creditors of MARRS-WINN, including payroll, and such payments will not be placed in the bank account described herein.
5.5 All funds placed within the account at Magna (or other acceptable institution) shall be withdrawn only pursuant to the signature of MARRS-WINN and GIBERSON. MARRS-WINN expressly agrees to execute any and all documents required by GIBERSON to obtain sole possession of funds in satisfaction of obligations or liabilities of MARRS-WINN described herein.
The Financing Order approved the lockbox arrangement and authorized Giberson to "withdraw all remittances made to the lock boxes" and to "apply the proceeds of said remittances to the indebtedness due to it from the Debtor."
In late November 1993, Alberici issued its first progress payment of $112,462.61 to Marrs-Winn in the form of a check made payable to Marrs-Winn. At a meeting held on or about December 1, 1993, Marrs-Winn's president (Charles Currie) asked Giberson's president (Phillip Giberson) to co-sign a $50,000 check payable to Alberici to cover the first installment payment on the Alberici "backcharge." Giberson refused to sign the $50,000 check. Instead, Giberson took possession of the $112,462.61 progress payment check; Currie, however, did not authorize Giberson to take any of the proceeds of that check.
As of December 1, 1993, the Magna Account balance was approximately $20,000. On that same day, Alberici approved a payroll-related transfer of $79,610.67 to the Magna Account. Also on December 1, Giberson, who now possessed the $112,462.61 progress payment check, deposited that check into the Magna Account. Later that day, Giberson transferred $112,462.61 from the Magna Account to its own account without the permission or signature of Marrs-Winn. On December 3, 1993, Giberson transferred $99,000 from the Magna Account to its own account, again without Marrs-Winn's signature or...
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