In re Amber's Stores, Inc.

Citation205 BR 828
Decision Date19 February 1997
Docket NumberAdversary No. 396-3061.,Bankruptcy No. 395-35650-HCA-7
PartiesIn re AMBER'S STORES, INC., Debtor. TEXAS COMPTROLLER OF PUBLIC ACCOUNTS, Plaintiff, v. AMBER'S STORES, INC., CIT Group/Business Credit, Inc., Lance P. Wimmer, Ron O. Craft, Lamar Roberts, and William Grimes, Defendants.
CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas

John Mark Stern, Assistant Attorney General, Collections Division, Austin, TX, for Texas Comptroller of Public Accounts.

Robert Michael Farquhar, Winstead, Sechrest & Minick, Dallas, TX, for Amber's Stores, Inc.

Tony M. Davis, Michael C. Li, Baker & Botts, Dallas, TX, for CIT Group/Business Credit, Inc.

Charles M. Cobbe, Jackson & Walker, Dallas, TX, for Lamar Roberts.


HAROLD C. ABRAMSON, Bankruptcy Judge.

Came before the Court on December 30, 1996, the Motion of the CIT Group/Business Credit, Inc. for Summary Judgment Against the Texas Comptroller of Public Accounts and Lamar Roberts1 ("CIT's Motion"), filed December 3, 1996, and the Texas Comptroller of Public Accounts' Cross Motion for Summary Judgment ("Comptroller's Motion"), filed December 27, 1996. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O). After consideration of the pleadings and arguments of counsel, the Court makes the following findings of fact and conclusions of law.


Amber's Stores, Inc. ("Debtor" or "Amber's") was a retailer of arts and crafts and operated several stores in Texas. As part of its business, the Debtor regularly collected sales tax from its customers and remitted the tax funds to the Texas Comptroller of Public Accounts ("Comptroller"). The Debtor filed its Chapter 11 petition on September 8, 1995, and the case was converted to Chapter 7 on August 23, 1996.

CIT Group/Business Credit, Inc. ("CIT") and the Debtor entered into a financing agreement ("Financing Agreement"), dated October 3, 1994, whereby CIT provided the Debtor with a revolving line of credit secured by substantially all of the Debtor's assets. CIT's security interest extended to the proceeds of Amber's sales of inventory. Pursuant to the Financing Agreement, the Debtor was to deposit into specific accounts all of the daily receipts collected in each store. The funds in each store's account would then be transferred into one central bank account ("Central Account"). Thereafter, the money in the Central Account would be withdrawn by CIT and applied to satisfy Amber's debt to CIT. CIT would then loan Amber's more money on its revolving account to cover its expenses, including its sales tax obligations.

As of the time of the bankruptcy petition, the taxes collected during August 1995 and September 1st through the 8th of 1995 were not yet due. The August sales taxes, totaling $132,970.62, were due on September 20, 1995. The September sales taxes, totaling $37,495.58, were due on October 20, 1995. CIT withdrew all funds in the central account for the final time on or about September 7, 1995.

For purposes of its summary judgment motion only, CIT does not dispute that Amber's deposited all of its receipts in accordance with the Financing Agreement and that the sales tax funds collected by the Debtor's stores were not segregated from its other receipts. For purposes other than CIT's Motion (e.g. the Comptroller's Motion for Summary Judgment), there has been insufficient evidence presented on those issues.

The Debtor filed a motion to pay the prepetition sales taxes owed to the Comptroller on November 13, 1995. After the motion was denied on December 27, 1995, the Comptroller filed this adversary complaint against CIT and the Debtor alleging that $170,466.20 in sales tax owed to the Comptroller was used by CIT to satisfy Amber's debt, and as a result of that, CIT, among others, is liable under Texas Tax Code § 111.016. The complaint was thereafter amended to include Lance P. Wimmer, Ron O. Craft, Lamar Roberts, and William Grimes.

CIT seeks summary judgment based on the following argument: there is a bona fide purchaser exception to the liability imposed by Texas Tax Code § 111.016(a), and CIT is bona fide purchaser; therefore, any tax trust funds that CIT withdrew from the Debtor's accounts along with its collateral were taken free from any trust in favor of the Comptroller.

The Comptroller seeks summary judgment based on the following argument: there is not a bona fide purchaser exception to the liability imposed by Texas Tax Code § 111.016(a), but the statute is one of strict liability, and since the tax funds were mixed with CIT's collateral, CIT owes the money to the State.


For the reasons stated herein, the Court concludes that § 111.016(a) creates a trust for the benefit of the Comptroller. The collector of the sales tax is a trustee. However, anyone who receives money from the trustee without knowledge or notice of the character of the funds is an innocent transferee of trust property, not a trustee, and thus is not liable under § 111.016(a). The Court further concludes that Texas trust law allows the beneficiary of a trust to reclaim trust property, wrongfully transferred by the trustee, from a transferee who is not a bona fide purchaser. Therefore, if the transferee has knowledge that it received trust property, the beneficiary may, subject to any tracing requirements, recover its property from the transferee.

The Court's decision on these motions turns on its resolution of some novel issues regarding Texas Tax Code § 111.016(a). The issues appear to be ones of first impression in Texas law, therefore, this Court must resolve them by anticipating a ruling by the Texas Supreme Court.2 It is not for this Court to adopt any innovative theories of state law.3 Furthermore, "when a statute is clear and unambiguous, no construction by the court is necessary, and the words will be given their plain meaning."4

A. Texas Tax Code § 111.016(a) is a Strict Liability Statute as to Collectors of Sales Tax

Both Motions turn on the decision of whether § 111.016(a) imposes strict liability on persons who "receive or collect" sales tax. Texas Tax Code § 111.016(a) provides:

Any person who receives or collects a tax or any money represented to be a tax from another person holds the amount so collected in trust for the benefit of the state and is liable to the state for the full amount collected plus any accrued penalties and interest on the amount collected.5

Following the Texas rules of statutory construction, the Court believes that § 111.016(a) is in part unambiguous and in part ambiguous. The unambiguous language in question is, "any person who . . . collects a tax . . . holds the amount so collected in trust . . . and is liable to the state for the full amount collected. . . ." The plain import of that language requires no scienter; the mere collection imposes the liability.6

Because the plain language of the statute is clear and unambiguous as to collectors of sales tax money, the Court interprets § 111.016(a) as imposing strict liability on the collector of sales tax. Therefore, Amber's, as a collector of a tax, is a trustee for the benefit of the Comptroller, and would be strictly liable for the amount of sales tax it collected from its customers.

This does not, however, establish CIT's liability under § 111.016, because CIT was not the "collector" of the sales tax. CIT's liability must necessarily arise from the phrase "any person who receives." If that phrase were given its plain meaning, CIT, and other mere "recipients," would be trustees for the benefit of the State and would be strictly liable for the sales tax funds.

B. CIT is not a Trustee under § 111.016(a), but a Transferee of Trust Property

The Court believes the phrase, "any person who receives," contains a latent ambiguity. "A latent ambiguity exists when a contract is unambiguous on its face, but fails by reason of some collateral matter when it is applied to the subject matter with which it deals."7 Texas rules of construction provide that the general rules for construction of written instruments, such as contracts, apply to the construction of legislative acts.8

For the sake of this analysis, assume that all sales tax money is physically marked as such with some distinguishing symbol or word. If § 111.016(a) were literally applied, any person in possession of that money could be holding the money (traceable by its marking) in trust for the state until the sales tax is paid to the Comptroller. In this case, any person or entity who Amber's paid might be holding some portion of the sales tax money. Employees, utility companies, and any other entity to which Amber's made payment from those funds would be trustees under a literal interpretation of this statute.

When construing statutory language in civil cases a court "must be governed by the rules of common sense."9 Further, "if the statute is subject to two interpretations, it should not be given one that would render enforcement impossible."10 If the statute imposed strict liability on any person who received the money, the result would defy common sense and enforcement would be impossible. The Court finds that the word "receives" is merely a superfluous word in the statute which has the same meaning as "collects,"11 and that § 111.016(a) was intended to hold only collectors and transferees with notice liable.12

This conclusion is reinforced by case law interpreting this statute and prior versions of it.13 In the Davis case, the Texas Court of Appeals discussed the effect of the 1987 amendment to § 111.016.14 The 1987 amendment added the trust language to § 111.016(a). The Davis court seems to accept the proposition that the amendment's purpose was to clarify existing law.15 The Davis court found that an agency relationship arose between the seller and ...

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