Amdura Corp., In re

• Decision Date: 05 February 1996
• Docket Number: No. 94-1292,94-1292
• Citation: 75 F.3d 1447
• Parties: , Bankr. L. Rep. P 76,906 In re AMDURA CORPORATION; Amdura National Distribution Company, formerly known as FOK; Coastamerica Corporation; Coast to Coast Holdings, Inc.; Coast to Coast Stores, Inc.; Intertrade Cargo, Inc., Debtors, AMDURA NATIONAL DISTRIBUTION COMPANY, formerly known as FOK, Plaintiff-Appellant, v. AMDURA CORPORATION, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1447

75 F.3d 1447

28 Bankr.Ct.Dec. 668, Bankr. L. Rep. P 76,906

In re AMDURA CORPORATION; Amdura National Distribution

Company, formerly known as FOK; Coastamerica Corporation;

Coast to Coast Holdings, Inc.; Coast to Coast Stores, Inc.;

Intertrade Cargo, Inc., Debtors, AMDURA NATIONAL DISTRIBUTION COMPANY, formerly known as FOK, Plaintiff-Appellant, v. AMDURA CORPORATION, INC., Defendant-Appellee.

No. 94-1292.

United States Court of Appeals, Tenth Circuit.

Feb. 5, 1996.

Appeal from the United States District Court, for the District of Colorado, (D.C. No. 93-B-2044).

Steven E. Abelman, Berryhill, Cage and North, Denver, Colorado (Albert Solochek, Howard, Solochek & Weber, Milwaukee, Wisconsin with him on the briefs), for appellant.

David M. Bennett, Thompson & Knight, Dallas, Texas (James R. Prince, Thompson & Knight, Dallas, Texas and Merrie Margolin Kippur, McKenna & Cuneo, Denver, Colorado with him on the brief), for appellee.

Before LOGAN and HENRY, Circuit Judges, and ELLISON, ^* District Judge.

HENRY, Circuit Judge.

The sole issue in this bankruptcy appeal is the ownership of funds deposited by a subsidiary into a parent corporation's cash management bank account. We affirm summary judgment for the parent.

Background

Amdura National Distribution Company (Andco) was a hardware distributor, one of three wholly owned subsidiaries of Amdura Corporation (Amdura), which was a holding company with few assets of its own. Amdura's other subsidiaries were The Crosby Group, Inc., and The Harris Waste Management Group, Inc. Amdura provided management, accounting, and financial services to its subsidiaries.

As part of its cash management system, Amdura took the receipts of its subsidiaries each day, concentrated them in a single account (the "concentration account") held solely in its name, and then paid the subsidiaries' expenses from that account. In Andco's case, money from Andco's customers went into lockbox accounts held solely in Andco's name. The banks where these accounts were located were under standing instructions to transfer the entire contents of the lockbox account to Amdura's concentration account each day. The other subsidiaries also used a similar arrangement to transfer their receipts to the Amdura account. Thus, the receipts from Andco were commingled with the daily receipts from the other subsidiaries, although Amdura kept records of how much each subsidiary deposited and how much was spent on the operating expenses of each subsidiary. Amdura recorded all monies received in the concentration account from a lockbox account as a debt owed by Amdura to the subsidiaries; monies expended from the concentration account on behalf of a subsidiary were recorded as a debt owed by the subsidiary to Amdura. On any given business day, the balance owed by Amdura to a subsidiary (and vice versa) would therefore increase or decrease depending upon whether the amounts transferred from the subsidiary to the concentration account were greater or less than the amounts Amdura advanced on behalf of that subsidiary.

This arrangement gave Amdura complete control over the funds in the concentration account. Amdura paid its subsidiaries' obligations without regard to how much cash a particular subsidiary had deposited into the account. Additionally, Amdura used the account for its own deposits and withdrawals, and all interest accrued on the account went to Amdura.

In 1988, Amdura acquired Coast America Corporation and its subsidiaries (Coast). In order to obtain capital for the purchase, Amdura borrowed over $200,000,000 from a group of bank lenders led by Continental Bank, N.A. (the Bank Group). Amdura pledged as security its own accounts receivable, the accounts receivable of Andco and Coast, the cash in the concentration account, and Amdura's equity interest in Andco and Coast.

On April 2, 1990, Amdura, Andco, and Coast filed bankruptcy petitions. (Neither Harris nor Crosby sought bankruptcy protection and continued to operate during the bankruptcy proceedings.) According to Amdura's ledger records, the concentration account contained approximately $3,625,557.63 on the petition date, of which $1,719,002.92 was derived from Andco.

After the petition date, the debtors sought immediate bankruptcy court approval to use the funds in the concentration account, in which the Bank Group claimed a security interest, to pay the operating expenses of Amdura and its subsidiaries. On April 6, 1990, retroactively effective April 4, 1990, the bankruptcy court issued the first of several orders authorizing the debtors to use the concentration account funds to operate their respective businesses. In its order, the bankruptcy court specified that the use of one debtor's funds for the benefit of another To the extent that Cash Collateral of AMDURA Corporation is used for the benefit of Subsidiary Non-Debtors, such use will give rise to an account(s) receivable owed by the Subsidiary Non-Debtors to AMDURA Corporation. To the extent that Cash Collateral is used by a debtor entity other than that entity which owns the Cash Collateral, such use will also give rise to an account(s) receivable owed by the debtor entity which used the Cash Collateral to the entity which owned the Cash Collateral.

should give rise to an account receivable owed by the benefitted entity:

Aplee's Supp.App. at 2. The bankruptcy court allowed use of the funds only to the extent necessary to keep the subsidiaries in operation, devised a budget for such expenditures, and set an absolute limit for total expenditures. The court also granted the Bank Group a first and senior lien and security interest (plus an administrative priority claim) upon the post-petition accounts receivable of all the debtors to the extent that the value of the accounts receivable was diminished by their use in operating the businesses.

At the same time, having learned of the bankruptcy petition, certain banks where Coast and Andco maintained lockbox accounts had begun to disregard these subsidiaries' orders to transfer funds to the concentration account. On April 10, 1990, Amdura, Andco, and Coast filed an "emergency motion" to direct the banks to resume transfer of the funds. This motion asserted that approximately $2,800,000 of the cash collateral previously authorized for use had been frozen in the subsidiaries' lockbox accounts, although that amount was not broken down by subsidiary. The record is silent as to whether this motion was granted. However, Andco continued in business and did not establish a separate bank account until May 25, 1990, almost two months into the bankruptcy case.

Upon further petitions by the debtors, the bankruptcy court issued further orders on April 12, April 18, and April 25, authorizing continued use of the collateral for additional periods. The April 25 order provided that "none of the Cash Collateral of the Debtor may be utilized by the other debtors in these jointly administered cases or by the non-debtor subsidiaries of AMDURA Corporation." On May 17, the bankruptcy court issued another order authorizing continued use pending a final hearing. On May 23, the court issued a final order authorizing continued use indefinitely, contingent upon continued approval of the parties and fulfillment of reporting requirements by the debtors.

Pursuant to the cash collateral orders, Amdura advanced approximately $1,670,000 for Andco's operating expenses within the first two months after the petition was filed. In May 1990, Andco paid approximately the same amount back into the concentration account.

In June 1991, the bankruptcy court approved a joint plan of reorganization with respect to Amdura. The court approved the plan with respect to Andco six months later, in January, 1992. Under the terms of the plan, the Bank Group was entitled to $4,000,000 of the money in the concentration account. The Bank Group settled with the debtors in agreements finalized on February 26 (the Andco agreement) and March 9, 1992 (the Coast agreement). Under these agreements, Andco and Coast released their claims to the funds in the concentration account. Coast released its claims entirely; Andco released its claims only up to $3,800,000, based on the balance in the account as of November 29, 1991. On that date, the balance in the account was $4,847,875.

Andco then filed this complaint in bankruptcy court on March 18, 1992. Relying on 11 U.S.C. § 542, it sought turnover of the concentration account's remaining $1,047,875 and an injunction to prevent Amdura's use of that money to pay its creditors. It proceeded under two theories. First, it argued that it owned the funds outright. Second, it argued that for various reasons it was entitled to have a constructive trust imposed on the funds.

The bankruptcy court declined to issue an injunction, and the district court denied leave to appeal on the issue. Amdura and Andco then filed cross-motions for summary judgment. The bankruptcy court held that there

                were no disputed material facts, that the funds were part of the Amdura estate, that Andco was not entitled to a constructive trust, and that Amdura was therefore entitled to summary judgment.   The district court affirmed.   See In re Amdura Corp., 167 B.R. 640 (D.Colo.1994).   Andco now appeals
                

DISCUSSION

Andco first argues that the bankruptcy court erred in granting summary judgment because Andco is entitled to the disputed funds in the concentration account--either because it owned the funds outright or because it is entitled to the funds under a constructive trust theory. We review the grant of summary judgment de novo, viewing the record in the light most favorable to the nonmoving party. Deepwater Invs., Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir.1991).

We begin, as did the district court, by noting that Andco must prove with clear and convincing evidence that the disputed funds are the property of Andco's bankruptcy estate. See Amdura, ...