In re Golden Triangle Capital, Inc.
| Decision Date | 28 July 1994 |
| Docket Number | BAP No. SC-92-1545-AsVO. Bankruptcy No. 91-05063-H7. Adv. No. 91-90441-H7. |
| Parties | In re GOLDEN TRIANGLE CAPITAL, INC., Debtor. GOLDEN MORTGAGE FUND # 14, a joint venture, Appellant, v. James KENNEDY, Trustee of Golden Triangle Capital, Inc., Appellee. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Jean M. Heinz, San Diego, CA, for appellant.
Gary B. Rudolph, San Diego, CA, for appellee.
Before ASHLAND, VOLINN and OLLASON, Bankruptcy Judges.
A lender allegedly presented a check to the debtor for the purpose of transferring the funds to the lender's borrower. Prior to consummation of the transfer, the debtor's bank accounts were seized and the debtor was placed in receivership. The lender appeals a summary judgment of the bankruptcy court that the funds became property of the estate.
The debtor, Golden Triangle Capital, Inc. (Triangle), performed various real estate transaction functions. In the instant case, Triangle was to act as a loan servicing agent for a loan evidenced by a promissory note and secured by a deed of trust. In June of 1990, appellant Golden Mortgage Fund # 14, (Fund # 14) agreed to loan $95,000 to Camino Del Norte Partners II (Camino). Triangle would receive a fee to collect the loan payments from Camino and distribute them to Fund # 14. Triangle was also to act as an intermediary in the execution of the loan. Although Camino delivered a promissory note directly to Fund # 14, Fund # 14 was to transfer the loan amount to Camino through Triangle.
According to Fund # 14, the loan was funded on July 10, 1990, when a cashier's check for $95,000 was delivered to Robert Braun, the president of Triangle. A cashier's check dated July 6, 1990 was made payable to the order of Fund # 14's principal, Robert Brandt. Language on the face of the check states, "RE: FINDLEY." On the back of the check, Brandt indorsed it restrictively, "Pay to GTC/Findley." Findley was Camino's principal. Braun apparently deposited this check in one of Triangle's general accounts. The evidence presented is unclear whether this, in fact, occurred.
Fund # 14 asserts that Triangle deposited the $95,000 check in Triangle's general account in American Savings Bank. The Chapter 7 trustee of Triangle contends that there is no evidence that the $95,000 was deposited in a Triangle bank account. The evidence shows that a deposit was made in Triangle's American Savings Bank on July 6, 1990, which included a $95,000 deposit among various deposits totalling $102,345.80. The bank code for a $95,000 check deposited on the July 6 deposit slip indicates that the check was drawn on the same bank as Fund # 14's cashier's check. However, the declaration of Fund # 14's Robert Brandt states that he delivered the cashier's check to Triangle on July 10, 1990 at 3:30 p.m.
It is undisputed that the parties intended that Triangle would transfer the $95,000 to Camino, minus a nominal service fee for acting as transfer agent. However, on July 10, 1990, before the transfer occurred, the California Department of Real Estate and the FBI seized the funds in Triangle's bank accounts, including the $95,000 deposited on July 6.
The funds seized were turned over to a court-appointed receiver for Triangle. In March 1991, Fund # 14 filed a motion in the state court receivership proceedings for turnover of the $95,000 held by the receiver, alleging that the funds were not part of the receivership estate. After being informed that the receiver intended to file bankruptcy, the court denied Fund # 14's motion without prejudice to allow it to revive the motion in the bankruptcy court.
On May 7, 1991, Triangle filed its Chapter 7 bankruptcy petition. On June 24, 1991, Fund # 14 filed a complaint for declaratory relief in the bankruptcy court to determine entitlement to the funds. The Chapter 7 trustee brought a motion for summary judgment. The bankruptcy court requested additional briefing on whether the funds in question were held by the debtor in a resulting trust.
The court subsequently filed a memorandum decision which granted the trustee's summary judgment motion. The court determined that under California law, a resulting trust did not arise under the circumstances presented. Further, the court placed the burden on Fund # 14 to demonstrate that the equities favored imposition of a trust, and found that Fund # 14 failed to meet this burden. Judgment for the trustee was entered on May 11, 1992, and Fund # 14 filed a timely notice of appeal. We reverse.
Whether the bankruptcy court erred by granting the trustee summary judgment on the basis that Triangle did not hold the funds in a resulting trust, and by requiring the claimant to demonstrate that the equities required imposition of a constructive trust.
The grant of summary judgment is reviewed de novo. In re Sunset Bay Assoc., 944 F.2d 1503, 1508 (9th Cir.1991), citing Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, 496 U.S. 937, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990). "A summary judgment may be affirmed only if it appears, after reviewing all evidence and factual inferences in the light most favorable to the opposing party, that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law." In re Southland + Keystone, 132 B.R. 632, 637 (9th Cir. BAP 1991), quoting In re Hyman, 123 B.R. 342, 344 (9th Cir. BAP 1991), aff'd, 967 F.2d 1316 (9th Cir.1992).
It is well-settled that property in the debtor's hands that belongs to another does not become property of the estate under § 541(a):
In re Minoco Group of Companies, Ltd., 799 F.2d 517, 519 (9th Cir.1986).
After submission of this appeal, the Ninth Circuit applied the above analysis to an allegedly preferential transfer. In re Unicom, 13 F.3d 321 (9th Cir.1994). Unicom analyzed whether funds that would be subject to imposition of a constructive trust under California law are property of the estate pursuant to § 541(a) or are excluded therefrom by § 541(b)(1) and § 541(d), and answered clearly that such funds are not property of the estate for the purposes of preferential transfer analysis. Having reached this conclusion, Unicom then imposed on the debtor the burden to demonstrate that it would be inequitable to impose a constructive trust on the funds. Id. at 325. Thus, if property is excludable from the estate because of state constructive trust law, in order to assert control over the property, the debtor must demonstrate that bankruptcy's policy of ratable distribution outweighs the constructive trust beneficiary's right to the res.
Under this rule, the distinction between a resulting trust and a constructive trust becomes important. A resulting trust is a trust implied by operation of law to enforce the inferred intent of the parties to establish a trust. A transaction that has failed to carry out the parties' intent becomes a resulting trust, and a resulting trust cannot be part of the debtor's estate. A constructive trust, on the other hand, is a remedy for circumstances where, although both legal and equitable title repose in one party, in equity the beneficial interest should belong to another. In the event that circumstances warrant the remedy of a constructive trust, however, this equitable remedy must be weighed against bankruptcy's equitable policy of ratable distribution, to which end the point in time when the remedy is imposed may become critical. Pursuant to Unicom, the debtor has the burden to demonstrate that ratable distribution outweighs the creditor's equitable remedy.
Cases have at times used the terms "constructive trust" and "resulting trust" interchangeably. Nevertheless, ignoring the label and focusing on the circumstances presented by the cases shows that courts follow a predictable rule.
Determination of whether bankruptcy's policy of ratable distribution outweighs imposition of a trust depends on whether the trust arises out of intended ownership rights in the property or whether it is to be imposed as a remedy to correct a wrong. Analysis focuses on the legal relationship between the parties. If no debtor-creditor relationship exists, a trust will exclude property from the estate. This is the conclusion of Unicom, (property never intended for the debtor is not part of the estate); In re Torrez, 63 B.R. 751 (9th Cir. BAP 1986) (); and In re Anchorage Nautical Tours, Inc., 102 B.R. 741 (9th Cir. BAP 1989) ().
If, on the other hand, the trust is imposed as a remedy for a claim, circumstances may warrant treating the claimant as any other creditor of the debtor, and thus subject to the policy of ratable distribution. This is the result in In re Tleel, 876 F.2d 769 (9th Cir. ...
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