In re Antweil
| Decision Date | 04 June 1993 |
| Docket Number | Adv. No. 88-0136 M.,Bankruptcy No. 11-86-00254 MA |
| Citation | 154 BR 982 |
| Parties | In re Alan J. ANTWEIL and Mary Frances Antweil, Hobbs Pipe and Supply, a general partnership, Morris R. Antweil, Debtors. Elliott JOHNSON, trustee, Plaintiff, v. William BARNHILL, Defendant. |
| Court | U.S. Bankruptcy Court — District of New Mexico |
Nancy S. Cusack, William P. Johnson, Andrew J. Cloutier, Roswell, NM, for plaintiff.
William J. Arland, III, James L. Arslanian, Albuquerque, NM, for Barnhill.
This matter came before the Court on cross motions for summary judgment on the Trustee's complaint seeking recovery of a preferential transfer. Having considered the complaint, the briefs, the arguments of counsel, and otherwise being fully informed and advised, the Court finds the Trustee's motion for summary judgment is well taken, and will be granted, and the Defendant's motion is not well taken and will be denied.
The following facts are undisputed.
1. Defendant William Barnhill ("Barnhill") is an individual who owned certain interests in various wells operated by Debtor Alan J. Antweil, either individually or d/b/a Antweil Oil Company ("Debtor").
2. One incident of Barnhill's ownership interest in the wells was that Barnhill was the owner of a percentage of the oil, gas, and/or associated hydrocarbons, produced from the wells.
3. Barnhill executed various division orders that authorized the Debtor to sell Barnhill's percentage share of oil and/or gas production from the wells and required the Debtor to pay Barnhill his share of production proceeds ("runs") received by the Debtor.
4. The Debtor was paid for production from the wells on a monthly basis, typically in the last week of the month after the month in which the production occurred.
5. In the fall of 1984, shortly after the Debtor paid Barnhill his share of July 1984, runs, the Debtor suspended payment of Barnhill's runs.
6. Barnhill met with representatives of the Debtor in February 1985, and was able to obtain his suspended runs for August and September 1984, production.
7. On May 14, 1985, Barnhill filed suit against the Debtor in the Fifth Judicial District Court of Chaves County, New Mexico. In his Complaint, Barnhill sought an accounting for his runs from October 1984, through the date of judgment, payment of his runs under an open account theory, interest on the suspended runs, attorneys' fees, and punitive damages.
8. On September 16, 1985, Barnhill obtained an order from the District Court compelling production by the Debtor of various documents and the sought after accounting. Production of the documents and the accounting was to be made by the Debtor no later than September 30, 1985.
9. The Debtor failed to produce the accounting and some of the documents required in the District Court's September 16, 1985 order by September 30, 1985.
10. On October 18, 1985, the District Court issued an Order To Show Cause in which the Debtor was ordered to appear before the Court on November 15, 1985, and show cause as to why he should not be held in contempt and have sanctions levied against him for failure to produce the accounting and documents.
11. On or about November 14, 1985, the Debtor and Barnhill agreed to a settlement that provided that the Debtor would pay Barnhill $140,563.55 net runs through August 1985; all runs for September 1985; $9,912.07 interest on the $140,563.55 through November 15, 1985; and, attorney fees and costs totaling $20,656.431 by November 18, 1985. In return Barnhill agreed that the November 15, 1985, show cause hearing would be rescheduled for November 20, 1985, and would be canceled if payment was made by November 18, 1985.
12. On November 18, 1985, the Debtor delivered to Barnhill's attorneys an unnumbered Antweil Oil Company check (the "Check") dated November 19, 1985, in the amount of $157,148.22 made payable to Barnhill.
13. The Check was drawn on the Debtor's account at First National Bank in Albuquerque identified by account number XXXXXXXXX.
14. The Check was honored by the drawee bank on November 20, 1985.
15. According to the detail on the Check, the Check was for a principal amount of $140,563.52, a September net of $6,672.63, and an interest amount of $9,912.07.
16. A typical monthly run check from the Debtor contained the following information on the check detail: production month and year, an identifying lease number, a designation whether the interest was oil or gas, an identifying lease number, the owner's interest in the property, the total volume of production (either barrels of oil or mcf of gas), lease production taxes, lease gross less the production tax, the owner's share of any applicable windfall profits tax, and the net value of the owner's interest in that particular production.
17. The check detail for the Check did not contain the type of information specified in Number 16, above.
18. The Debtor filed his petition for relief under Chapter 11 of the Bankruptcy Code on February 18, 1986.
19. On May 12, 1988, the Trustee filed this action against Barnhill seeking to avoid the payment of the $157,148.22 as a preference under 11 U.S.C. § 547.
20. When the Debtor filed bankruptcy in February, 1986, neither he, Hobbs Pipe and Supply, or Morris R. Antweil, maintained any separate suspense accounts in which suspended runs were held.
21. Prior to the filing of the Debtor's bankruptcy petition, the debtor's account at First National Bank in Albuquerque was used to pay various obligations.
22. The Debtor's account at First National Bank in Albuquerque was overdrawn on October 2 and 3, 1985.
23. Prior to filing bankruptcy, the Debtor typically deposited run checks he received from production purchasers into an account identified by the name "Morris R. Antweil Oil and Gas," (Disbursement Account") number XXXXXXXXX at Moncor Bank in Hobbs.
24. The Disbursement Account was overdrawn by over $200,000 on October 17, 1985.
25. The Debtor was insolvent on November 20, 1985.
The Trustee asserts that the payment of $157,148.22 made to the Defendant on November 18, 1985, was a preferential transfer under section 547 of the Bankruptcy Code, and seeks recovery of that payment plus prejudgment interest. The Defendant asserts that the payment was a payment of funds held in trust for his benefit by the Debtor, and that the funds used for the payment were thus not property of the estate.
Section 547 of the Bankruptcy Code authorizes a Trustee or Debtor in possession to recover for the benefit of the bankruptcy estate and its creditors certain transfers made within 90 days of the bankruptcy filing. To recover such a transfer, the Trustee must prove the following:
11 U.S.C. § 547(b).
The Trustee has the burden of proof with respect to each element. It is undisputed that the transfer was made for the benefit of a creditor on account of an antecedent debt while the Debtor was insolvent. It has also been determined that the transfer took place within 90 days of the debtor's bankruptcy filing. (See Barnhill v. Johnson, ___ U.S. ___, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992), where it was determined that the transfer took place on the date the check was honored). Thus, the only remaining issue is whether the payment was made from an interest of the debtor in property.
Defendant, Barnhill asserts that the $157,148.22 was not property of the estate, thus rendering section 547 inapplicable. He argues that the payment represented a payment of funds held in trust by the Debtor for his benefit. To determine whether the payment was a transfer of funds held in trust, a two part analysis is required. First, a trust relationship must have existed between Barnhill and the Debtor. Second, the funds paid to Barnhill must be funds that were held in trust by the Debtor for Barnhill's benefit.
Courts in this jurisdiction have held that an operating agreement creates "a trustee type relationship imposing a duty of fair dealing between the operator and the non-operator owners." Reserve Oil v. Dixon, 711 F.2d 951 (10th Cir.1983); See also, In re Mahan and Rowsey, Inc. 817 F.2d 682 (10th Cir.1987). Thus, this Court finds that a trustee type relationship existed between Barnhill and the Debtor.
The remaining issue is whether the funds transferred to Barnhill by the Debtor were trust funds. If so, the Debtor had no interest in the funds and section 547 is not applicable. If not, the funds were property of the estate and the payment to Barnhill was a preferential transfer under section 547. Express trusts are those that are created by the direct and positive acts of the parties, by some writing or deed, or by words that either expressly or impliedly evidence a desire to create a trust. E.g., Ward v. Buchanan, 22 N.M. 267, 160 P. 356 (1916); In re Palmer, 140 B.R. 765 (Bankr.C.D.Cal.1992). A trust arising from the agreement of the parties, whether written or oral is an express trust, and must be manifested, although it need not be created by some writing. Eagle Min. Imp. Co. v. Hamilton, 14 N.M. 271, 91 P. 718 (1907), aff'd, 218 U.S. 513, 31 S.Ct. 27, 54 L.Ed. 1131 (1910).
In the instant case, the Debtor and Barnhill entered into operating agreements and division orders relating to Barnhill's interest in the wells. None of these documents specifically create an express trust. Whether an express trust can be implied from these documents, or by the actions of the parties, is a question of fact that need not be reached as Barnhill is unable to trace the funds paid him to any specific funds held in trust for his...
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