In re Heston Oil Co.
| Decision Date | 18 August 1986 |
| Docket Number | Bankruptcy No. 83-00173,Adv. No. 83-0539. |
| Citation | 63 BR 711 |
| Court | U.S. Bankruptcy Court — Northern District of Oklahoma |
| Parties | In re HESTON OIL COMPANY, Debtor. The BISTATE OIL COMPANY, INC., A New York Corporation, Plaintiff, v. HESTON OIL COMPANY, an Oklahoma corporation; Utica National Bank & Trust Company, a National Association, Defendants. |
Bert C. McElroy, John L. Randolph, Jr., and Dale J. Gilsinger of Pray, Walker, Jackman, Williamson & Marlar, Tulsa, Okl., for plaintiff, BiState Oil Co.
A.F. Ringold and John Howland of Rosenstein, Fist & Ringold, Tulsa, Okl., for defendant, Heston Oil Co.
Robert S. Glass of Gable & Gotwals, Tulsa, Okl., for defendant, Utica Nat. Bank & Trust Co.
This matter comes on for hearing pursuant to the Court's Order of December 30, 1986, and pursuant to statements of counsel made at the hearing on February 7, 1986; and the Court specifically finds this is a Core proceeding under Section 157 of Title 28, more particularly the subsections therein of 157(b)(2)(A), (B), (C), (E), (K), (O). In adversary number 83-0465, Barrons Resources versus Heston Oil Company, Plaintiff, (Barrons) alleges, and Defendant, (Heston) admits that on or about December 30, 1981 Barrons paid Heston $365,514 in drilling expenses for a certain well; that such amount was deposited in Heston's general corporate account, the amount involved herein; that such amount was an overpayment to the extent of approximately $172,897.97; and Barrons was entitled to a refund of, or credit to and upon such overpayment; and that such refund or credit had not been given. Barrons asserts a constructive trust upon Heston's general account, the account involved herein, in the amount of such overpayment.
In its "Brief concerning further hearing", filed herein on February 7, 1986, Heston alleges that on July 6, 1982 the Heston 1981-B Private Drilling Partnership, hereinafter known as Heston PDP, paid Heston $272,831 in drilling expenses for a certain well; that said well was never drilled; that Heston PDP was entitled to a refund; that Heston drafted a check on its general corporate account in payment of such refund, and said check was dishonored. Heston asserts that under other circumstances than those pertaining among these and other parties in Heston's present Chapter 11 bankruptcy case that Heston PDP might forcibly argue the right to a constructive trust in the general account, as more fully shown in Heston's brief of February 7, 1986, at page 4.
That on or about September 21, 1982 the BiState Oil Company, hereinafter known as BiState, paid Heston $528,110 for purposes recited in the Court's Order filed December 30, 1985 which was deposited in Heston's general corporate account.
That during the month of December, 1982 through February, 1983 a total of 5 million 836 thousand 315 dollars was deposited from various sources in said general corporate account and a total of 5 million 494 thousand 970 dollars was withdrawn for various purposes from said account in a course of 1,877 transactions processed through said account.
The Court finds that during the period from September 21, 1982 to February 14, 1983 said account reached its lowest balance of $16,540 on November 23, 1982, and its highest balance of 1 million 354 thousand 857 dollars on February 10, 1983, and the balance in said account on the last business day before Heston filed its Chapter 11 petition was $663,685.
BiState alleges that some portion, at present undetermined, of the total withdrawals from said account during said period were used to pay operating, drilling, and completion expenses incurred on behalf of certain oil and gas limited partnerships and other joint interest owners, as more fully set forth in BiState's Trial Brief of February 7, 1985 at page 7. BiState alleges that the above mentioned partnerships and joint interest owners subsequently reimbursed Heston for such expenditures with funds which were eventually deposited, in amounts presently undetermined, in said account as more fully set forth in BiState's Brief at page 7 of its February 7, 1986 Brief.
Heston asserts that Utica, hereinafter known as Utica, but in the briefs and involved herein Utica will be referred to as Utica National Bank and Trust Company and The Chase Manhattan Bank, again, Heston asserts that Utica and Chase may assert interest in the funds deposited in this particular account as the proceeds of the accounts receivable and oil proceeds pledged to these banks, as set forth in Heston's Brief at page 4, of February 7, 1986.
Utica was a defendant in the present adversary proceedings until dismissed by BiState before trial, and as a party in interest has joined Heston in its Brief filed February 7, 1986 and in oral argument before the Court on that date.
On December 30, 1985 the Court made partial Findings of Fact and Conclusions of Law, finding the highest and lowest balance in the account, above stated, and that the Court should impose a constructive trust on the sum of money this plaintiff and other competing creditors may assert into the account, and that as to said sums so traced, each contributor would be entitled to that sum with the remaining portion being the basis for an unsecured claim.
At hearing for further trial on February 7, 1986 the parties requested the Court rule upon which properties may a constructive trust be imposed. The Court now seeks to attack that problem.
Whether, or to what extent a constructive trust will be imposed on a particular asset, even by a Federal Court upon assets of a debtor in bankruptcy, is a matter of State law. Jaffke v. Dunham, 352 U.S. 280; 77 S.Ct. 307, 1 L.Ed.2d 314 (1956).
Constructive trusts are equitable in nature, as set forth in 76 Am Jur 2d, "Trusts," Section 4 at page 221 and 222. Whether or to what extent a constructive trust will be imposed, and how competing claims to monies which shall be subject to such trusts shall be adjusted, are in fact matters of purely equitable cognizance wherein the findings and judgment of the trial court will not be disturbed on appeal unless clearly erroneous, as more fully set forth in Patterson v. McKeehen, 168 Okl. 252, 32 P.2d 875, and further elucidated upon in 76 Am Jur 2d at page 249.
A constructive trust is a remedial device whereby property which in law and in fact belongs to one party, the trustee, is treated by a court of equity as if it belonged to another party, the beneficiary. The device serves well to do equity as between trustee and beneficiary, but is obviously a dangerous game to play where innocent third parties, as an example other creditors of the trustee, are involved. As a general rule all parties owed unfulfilled obligations by another, that is the debtor, have as remedy claims for damages enforceable against the debtor's assets; and where debtor's assets are unsufficient to satisfy all such claims, then the claimant's share, pro-rata, in available assets, each claimant being satisfied or dissatisfied in proportion to his claim. But imposition of a constructive trust, though on some part of debtor's assets, reserves such assets to the trust beneficiary exclusive of others, enlarging the beneficiary's recovery while reducing the recoveries of other creditors. For this reason constructive trusts must be handled with care. Clearly recognized for what they are; that is remedial devices, not absolute rights, not used heedlessly, but when and as appropriate, with due regard for the rights of all concerned. Bankruptcy Courts must be especially careful in imposing constructive trusts on what would otherwise be property of the bankruptcy estate, since imposing such constructive trusts amounts to giving the beneficiary a non-statutory priority over other creditors in distribution of estate assets. See U.S. v. Randall, 401 U.S. 513, 91 S.Ct. 991, 28 L.Ed.2d 273; In re Mulligan, 116 F. 715.
Constructive trusts may be imposed where (1) the beneficiary has suffered a particular type of wrong amounting to constructive fraud or breach of a fiduciary responsibility, and (2) where such wrong has deprived the beneficiary of...
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