In re Mahan & Rowsey, Inc.

• Decision Date: 19 December 1983
• Docket Number: Bankruptcy No. 82-01390,Adv. No. 83-0028.
• Citation: 35 BR 898
• Court: U.S. Bankruptcy Court — Western District of Oklahoma
• Parties: In re MAHAN & ROWSEY, INC., Debtor. Dan B. TURLEY, Plaintiff, v. MAHAN & ROWSEY, INC., Defendant.

35 B.R. 898 (1983)

In re MAHAN & ROWSEY, INC., Debtor.

Dan B. TURLEY, Plaintiff, v. MAHAN & ROWSEY, INC., Defendant.

Bankruptcy No. 82-01390, Adv. No. 83-0028.

United States Bankruptcy Court, W.D. Oklahoma.

December 19, 1983.

Paul Tobin of Cohen & Pluess, Oklahoma City, Okl., for Mahan & Rowsey, Inc.

Dan T. Foley of Kirk & Chaney, Oklahoma City, Okl., for Dan B. Turley.

MEMORANDUM DECISION AND ORDER

ROBERT L. BERRY, Bankruptcy Judge.

This matter concerns the overpayment of certain joint interest billings by the plaintiff, Dan B. Turley (hereinafter "Turley"), to the defendant, Mahan & Rowsey, Inc. (hereinafter "M & R"). The parties have stipulated to the following facts:

1. Turley is a joint participant in the Rushing # 1-10 well.

2. M & R is an Oklahoma oil and gas corporation which filed its Chapter 11 petition in the United States Bankruptcy Court for the Western District of Oklahoma on July 26, 1982. M & R has continued as debtor in possession since its filing for relief. M & R is the operator and a joint participant of the Rushing # 1-10 well.

3. On or about February 25, 1982, M & R proposed and offered to Turley the opportunity to participate in the drilling and completing of the Rushing # 1-10 well. Turley elected to participate and informed M & R of such.

4. On March 12, 1982, M & R requested that Turley remit as the dry hole cost the sum of $28,706.45, this amount reflecting his percentage of ownership (2.35294%). On March 22, 1982, such an amount was forwarded to M & R. On March 26, 1982, said funds were deposited in M & R's checking account at Liberty National Bank and Trust Company of Oklahoma City, Account No. 012 7841 (hereinafter the "Liberty Account").

5. On March 26, 1982, Turley received from M & R a "Joint Interest Invoice" dated March 1, 1982, requesting payment of $11,714.41. On April 2, 1982, such an amount was forwarded to M & R. On April 20, 1982, said funds were deposited in the former Penn Square Bank, N.A., Checking Account No. 10-9971 (hereinafter the "B.F. Leasing Account").

6. On April 7, 1982, M & R sent Turley a letter requesting payment for completion costs. Turley's alleged amount owing was $15,908.94. Turley, on April 27, 1982, forwarded such an amount to M & R. On April 30, 1982, said funds were deposited in the Liberty Account.

7. On June 18, 1982, Turley received another "Joint Interest Invoice", this one dated April 30, 1982, stating that Turley owed $16,433.29. Turley, on June 24, 1982, forwarded payment in this amount. On July 2, 1982, said funds were deposited in the Liberty Account.

8. On October 6, 1982, Turley received a letter from M & R requesting $2,700.00 for remedial work on the well. These funds were furnished by Turley to M & R on November 8, 1982. Said funds were deposited in the escrow account for the Rushing # 1-10 which was a set up for remedial work on the well after M & R filed for bankruptcy relief, pursuant to order of this Court.

9. Turley paid M & R $75,463.09 pursuant to its requests. All payments were made by Turley to M & R by check. M & R deposited all checks in the accounts specified; the checks were forwarded to Turley's bank and subsequently honored.

10. Turley, by his inadvertence and excusable neglect, or by the mismanagement, lax bookkeeping, or negligence of M & R in sending demand letters and joint interest invoices, paid to M & R in response to its requests $42,082.65 over the proper amount actually owing, which was $33,380.44.

11. Turley has requested the turnover of the funds received by M & R which are in excess of amounts properly owing, and M & R has failed and refused to comply with said request for turnover.

12. The Liberty Account's two lowest intervening balances after the last payment by Turley was deposited, and before the petition for bankruptcy was filed, were respectively:

                   July 26, 1982 — $6,190.32
                   July 13, 1982 —    726.14
                

The July 13th balance was reached after Liberty Bank's deduction of $11,223.06 from the Liberty Account on July 13, 1982. This deduction arose out of a deposit, credited on July 7, 1982, in the amount of $11,223.06, of a check from AnSon Transportation drawn on AnSon's Penn Square Bank Account. The Federal Deposit Insurance Corporation, appointed Receiver of the Penn Square Bank on July 7, 1982, subsequently dishonored all checks drawn on AnSon's Penn Square Account. AnSon replaced all checks so dishonored, including the one previously deposited to the debtor's account on July 7, 1982. AnSon's substitute check was deposited on July 14, 1982.

13. The B.F. Leasing Account's lowest intervening amount, after the payment of Turley was made, occurred on June 3, 1982, and was $4,936.39. The account balance increased and on November 2, 1982, $21,669.14 was turned over to the debtor in possession.

14. M & R presently has more than $42,082.65 in its general operating account. This account was the receiving account for both the Liberty and B.F. Leasing Accounts. There are presently over $25 million in recorded claims against the debtor estate.

15. As of this date, M & R is unaware of any amount owing by Turley to M & R. Audits are being conducted on the other wells in which Turley is a participant; however, M & R acknowledges that the payments sent by Turley expressly stated that they were to be applied to the amount owing on the Rushing # 1-10 well.

16. As of this date, the amount of funds in M & R's general operating account has never decreased lower than the amount of funds which were in M & R's accounts as of the date on which M & R filed for bankruptcy relief. Specifically, the general operating account from July 26, 1982, through November 2, 1982, at all times exceeded $6,190.32, and after November 2, 1982, always exceeded $11,126.71.

Both parties have moved for summary judgment pursuant to Rule 756 Fed.R. Bankr.P.¹ and Rule 56 Fed.R.Civ.P., urging that there exists no issue of material fact regarding the overpayments. "If no such issue exists, the rule Rule 56 Fed.R.Civ.P. permits the immediate entry of judgment." 10A Wright, Miller and Kane, Federal Practice and Procedure, § 2725, at 76-77 (1983) (citations omitted).

In support of their motions, Turley and M & R argue opposite sides of the same propositions. Turley posits that the parties entered into a joint venture; M & R denies the existence of such an enterprise. Turley argues that he is entitled to the imposition of a constructive trust; M & R counters that a constructive trust may be imposed only when the funds that are the subject of the trust can be traced and that in the instant case such is not possible. Turley argues that the relationship between M & R and Turley is one of a fiduciary—beneficiary; M & R argues the relationship is in the nature of a debtor—unsecured creditor.

The parties submitted extensive briefs and the matter was taken under advisement.

We will address first the question of whether or not the parties were engaged in a joint venture. Should we find that such an arrangement existed between the parties, it is well recognized that a "joint adventurer occupies a fiduciary position with respect to the other members and owes a higher and greater duty to them than he owes to one with whom he deals at arms length." Oklahoma Company v. O'Neil, 440 P.2d 978, 984 (Okl.1968).

The requirements for determining whether a business relationship between two or more persons constitutes a joint adventure are that there must be a joint interest in the particular property or project involved; an agreement, either expressed or implied, to share in the profits and losses; and acts or conduct reflecting cooperation in the project. Oklahoma Company v. O'Neil, supra. Furthermore, "its existence must be proven as any other fact." Feagin v. Champion, 195 Okl. 116, 117, 155 P.2d 518, 520 (1944).

We take judicial notice that the operating agreement executed by the parties herein explicitly provides that "it is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other partnership or association. . . ." Article VII of the Operating Agreement. Similar language was found in the memorandum of agreement executed by the parties in Oklahoma Company v. O'Neil, supra. In that case, a group of individuals had agreed to jointly purchase several oil leases. The plaintiff in Oklahoma, who was the packager of this enterprise, had sought to enforce certain liens against the other purchasers. These purchasers cross-petitioned, requesting recission of the agreement, alleging fraud. Disregarding language similar to that hereinabove quoted, the Oklahoma Supreme Court found that there did indeed exist facts sufficient for a finding that a joint venture existed between the parties; that the plaintiff therefore occupied a fiduciary position with respect to the defendants. Mindful of the fact that this matter is before us on motions for summary judgment, we are of the opinion that as to the existence of a joint venture, there does exist issues of material fact and therefore deciding such a question in a summary disposition would be improper. We believe we may nonetheless dispose of the matter on other grounds and therefore next address the issue of imposition of a constructive trust.

In a bankruptcy context, questions of fiduciary relationships vis-a-vis trusts most frequently occur regarding issues of dischargeability pursuant to 11 U.S.C. § 523(a)(4)². The fiduciary capacity referred to in § 523(a)(4) has been held to be limited to express and technical trusts. Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S.Ct. 151, 79 L.Ed. 393 (1934); In re Romero, 535 F.2d 618 (10th Cir.1976); In re Niven, 32 B.R. 354 (Bkrtcy.W.D.Okl.1983). However, in certain circumstances, bankruptcy courts have imposed constructive trusts. Eg., In re Hurricane Elkhorn Coal Corp., II, 32 B.R. 737 (D.C.W.D.Ky.1983); In re Computer Input Service, Inc., 33 B.R. 292 (Bkrtcy.E.D.Pa.1983); Matter of U.S.N. Co.,...