In re Goldblatt Bros., Inc., 83 C 1434
| Citation | 33 BR 1011 |
| Decision Date | 24 October 1983 |
| Docket Number | Bankruptcy No. 81 B 7075,Adv. No. 81 A 2114.,No. 83 C 1434,83 C 1434 |
| Parties | In re GOLDBLATT BROS., INC., Debtor. The FIRESTONE TIRE & RUBBER COMPANY, Plaintiff, v. GOLDBLATT BROS. INC., Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
John R. Teitger, Kirkland & Ellis, Chicago, Ill., William J. Reifman, Mayer, Brown & Platt, Chicago, Ill., Robert B. Chatz, Arvey, Hodes, Costello & Burman, Chicago, Ill., for plaintiff.
Nachman, Munitz & Sweig, Chicago, Ill., for defendant.
This cause is before the court on the appeal of plaintiff Firestone Tire & Rubber Company from an order of the bankruptcy court denying its motion for summary judgment and granting the cross-motion for summary judgment of defendant Goldblatt Bros., Inc. For the following reasons, the order of the bankruptcy court is reversed, and the case is remanded for the entry of summary judgment in appellant's favor.
This litigation arises out of a license agreement, executed in 1963, which authorized Firestone to operate tire centers within or near various Goldblatt retail stores. At these centers, Firestone tires and other of its automotive products were sold under Goldblatt's trade name. Firestone operated these outlets as an independent contractor, providing inventory, hiring employees, and managing each tire center. The license agreement provided that Goldblatt was to receive a royalty based on a percentage of the net sales generated by Firestone: this was 5% of the net sales if Firestone provided the real estate and building; 10% if the real estate and building were furnished by Goldblatt.
At the close of a business day, Firestone employees at each tire center gave cash and credit receipts from sales to the manager or cashier of the Goldblatt store associated with that center. Under the agreement, Goldblatt was required to return the funds to Firestone, after rendering a detailed monthly accounting of the sales generated by all the tire centers and subtracting the royalty payments. Goldblatt has produced uncontradicted evidence establishing that the proceeds it received from Firestone were commingled in various bank accounts with funds that Goldblatt itself has generated. Equally undisputed, on the other hand, is that Goldblatt was never authorized by Firestone to engage in this commingling of funds. Moreover, Firestone states in an uncontested affidavit that Goldblatt never told it about, nor did it ever become aware of, the fact that the proceeds from the tire centers were being commingled. The license agreement between the parties did not purport to create an express trust with respect to these proceeds, nor did it require on its face that the funds be segregated in a separate account. The agreement simply stated that Goldblatt, after conducting an accounting, was to remit to Firestone its 90 to 95% of the net sales within 15 working days following each four-week accounting period.
On June 15, 1981, Goldblatt filed a Chapter 11 bankruptcy petition. As of this date, Goldblatt was obligated to return to Firestone over $900,000 that it had received in the weeks immediately preceding the filing of the petition. Firestone claims that it is entitled to administrative priority with respect to the tire center proceeds held by Goldblatt; it argues that these funds are not part of Goldblatt's bankruptcy estate under Section 541 of the Bankruptcy Code because they are being held in an implied trust by the bankrupt.1 Goldblatt, on the other hand, contends that Firestone is not entitled to administrative priority because the parties were involved in a debtor-creditor, not in a trust, relationship. On the basis of the stated, undisputed facts, the parties filed cross-motions for summary judgment in the bankruptcy court. Summary judgment was entered for Goldblatt, the bankruptcy court concluding that the proceeds were not held in trust. Among that court's findings was a determination that the tire center proceeds were relinquished by Firestone "with the understanding that they could be commingled with Goldblatt's funds." Firestone maintains on appeal that the bankruptcy court erred in not granting summary judgment in its favor. After carefully reviewing the submissions of the parties and the opinion of the bankruptcy court, this court agrees with appellant.2
Section 541 of the Bankruptcy Code, 11 U.S.C. § 541, provides that the estate of a bankrupt consists of all its legal or equitable interests in property at the time the bankruptcy action commences. Therefore, property held by a bankrupt in trust for another, where the bankrupt has no cognizable legal or equitable interest in such property, is not part of the bankruptcy estate. See 4A Collier, Bankruptcy ¶ 70.251, at 339 (14th ed. 1964); Section 70 of Bankruptcy Act of 1898; Notes of Committee on the Judiciary, S.Rep. No. 95-989, 95th Cong., 2nd Sess. (1978) U.S.Code Cong. & Admin.News 1978, p. 5787 (). The law presumes, when one turns over to another proceeds to be held and later returned, that the party receiving the proceeds holds them in a fiduciary capacity and may not commingle them; in other words, there is a presumption that an implied trust has been created. See Harvey Brokerage Co. v. The Ambassador Hotel Corp., 57 F.2d 727, 729 (S.D.N.Y. 1932); Illinois Law & Practice: Agency, §§ 12, 13 and 72, and cases cited;3Illinois Law & Practice: Bailments, §§ 2, 11 and 12, and cases cited. This presumption, however, is not conclusive; it may be rebutted by establishing the existence of circumstances inconsistent with a trust relationship —such as an express agreement by the parties allowing the commingling of funds or requiring interest to be paid. Harvey Brokerage Co. v. Ambassador Hotel Corp., 57 F.2d at 729.
Appellee Goldblatt maintains that this presumption, on which Firestone relies, cannot be sustained by the facts of this case. In support of its position, appellee, as did the bankruptcy court, relies primarily on Lord's Inc. v. Maley, 356 F.2d 456 (7th Cir. 1965), cert. denied, 385 U.S. 847, 87 S.Ct. 55, 17 L.Ed.2d 78 (1966), in which a shoe dealer entered into a license agreement with Lord's authorizing operation of shoe departments in its stores. Lord's business arrangement closely resembles that between Firestone and Goldblatt. Each of the shoe departments was staffed by the licensee's employees; the proceeds of all sales made under the agreement were turned over to a Lord's representative at the close of each business day; and Lord's, too, was required to make an accounting of the funds 15 days after the close of each month.
Despite these similarities, however, there are significant differences between Lord's and this case which cannot be ignored. As was not done in this case, the parties in Lord's inserted language into their license agreement which purported to create an express trust; in fact, the contract contained several clauses which provided that the proceeds from shoe sales were to be considered trust funds even if they were commingled with Lord's receipts. 356 F.2d at 457. As contemplated by the license agreement, Lord's did, in fact, commingle those funds with its general cash receipts. The Court of Appeals for the Seventh Circuit concluded that the license agreement, in effect, authorized the commingling that took place; the proceeds, it found, were turned over by the licensee "with the understanding that they could be commingled with Lord's own funds" and that repayment would come out of Lord's general funds. 356 F.2d at 458. As the court further noted, the license agreement in that case, by condoning the commingling, virtually granted Lord's unrestricted use of the funds until the settlement date. Id. Any presumption that the funds were held in an implied trust was, therefore, defeated. Furthermore, the court concluded that an express trust had not been created, even though the parties in the governing agreement had invoked the term "trust" to describe their relationship....
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