In re Universal Trend, Inc.
| Decision Date | 30 May 1990 |
| Docket Number | No. 489-01022.,489-01022. |
| Parties | In re UNIVERSAL TREND, INC., Debtor. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
Joseph C. Lucci, Youngstown, Ohio, for trustee.
Richard G. Hardy, Cleveland, Ohio, for Northeast Ohio Dist. Council of Carpenters.
The matter before the Court is the Motion of the NORTHEAST OHIO DISTRICT COUNCIL OF CARPENTERS for an order directing the Trustee to execute a check and enforce a statutory trust. The Trustee filed a brief in response to the Motion, and both parties filed supplemental memoranda. For the reasons set forth below, the Motion of NORTHEAST OHIO DISTRICT COUNCIL OF CARPENTERS is overruled.
Although the facts of this case have not been stipulated by the parties, the pleadings set forth the following facts of this case which are not in dispute. The Debtor, UNIVERSAL TREND, INC., filed its Petition for relief under 11 U.S.C. Chapter 7 on July 21, 1989. Prior to the filing of its Petition, the Debtor was engaged in the commercial installation of drywall. The Debtor employed members of the NORTHEAST OHIO DISTRICT COUNCIL OF CARPENTERS (the "Union") and agreed to comply with the terms of a collective bargaining agreement of the Union. As a part of this agreement, the Debtor agreed to pay working dues and fringe benefit contributions to the Union for the benefit of its members.
On one of its jobs, the Debtor was engaged as a subcontractor to GQ DRYWALL COMPANY on the Calvary Towers construction project in Youngstown, Ohio. At the time of the filing of the Petition, the Debtor was owed approximately Nineteen Thousand Dollars ($19,000.00) from GQ DRYWALL. The president of the Debtor, Mr. Thomas Behnke, indicates in an Affidavit filed with the Trustee's brief that the Union contacted him pre-petition and asked that he authorize GQ DRYWALL to issue a check payable to the Union and the Debtor as co-payees. Mr. Behnke refused to consent to such an arrangement; nonetheless, a check for Twelve Thousand Four Hundred Seventeen and 21/100 Dollars ($12,417.21) was issued by GQ DRYWALL to the Debtor and the Union as co-payees on July 24, 1989, three days after the Petition was filed.
The Union asserts that the Debtor is indebted to the Union in the amount of Seventeen Thousand Fifty-Three and 09/100 Dollars ($17,053.09), and that this amount is the subject of a statutory trust imposed by state law. That sum is composed as follows:
Health and Welfare/Pension
Contributions $13,149.44
Working Dues 1,336.34
Penalties 2,567.31
__________
$17,053.09
On November 30, 1989, this Court entered an Order directing the Union to appear and show cause why it should not be held in violation of the provisions of the automatic stay of 11 U.S.C. § 362. After a hearing on that Order, this Court concluded, in an Order dated December 26, 1989, that the issuance of the co-payee check did violate the provisions of the automatic stay and that there is an affirmative obligation upon creditors to restore the pre-petition status quo which was altered by a creditor's actions. In re Dungey, 99 B.R. 814, 816, 818 (Bankr.S.D.Ohio 1989). This Court also found that there was no evidence that the Union took any action after it had actual knowledge of the filing of the bankruptcy Petition, and, therefore, no sanctions would be imposed under 11 U.S.C. § 362(h). Finally, this Court authorized the Trustee to endorse and negotiate the July 24, 1989 check and to hold those funds in a separate interest-bearing account, but this Court "left for determination . . . the extent to which the Union may be entitled to funds of the estate outside the priority set forth in the Bankruptcy Code. . . ."
Before reaching the primary issue of this case, the ramifications of this Court's previous findings should be emphasized. In the December 26, 1989 Order, this Court found that the issuance of the co-payee check was in violation of the provisions of the automatic stay imposed by 11 U.S.C. § 362. Post-petition actions taken by creditors to collect a debt from the debtor are void ab initio and have no legal effect, even if the creditor had no notice of the bankruptcy filing. Dungey, 99 B.R. at 816; Kalb v. Feuerstein, 308 U.S. 433, 60 S.Ct. 343, 84 L.Ed. 370 (1940). Therefore, the fact that the check was issued to two payees is of no consequence. This discussion will assume that the funds in question were paid directly to Debtor. That the funds are currently on deposit in a separate account is also of no significance, as that action was taken by order of the Court for administrative convenience. It is possible that the Union took no actual steps with regard to the check after the bankruptcy Petition was filed; nonetheless, it is undisputed that the manner in which the check was issued was a result of the Union's collection activity. GQ DRYWALL issued the co-payee check at the suggestion or request of the Union, and because this action occurred post-petition, it has no legal effect. The Union's arguments with respect to its rights in a co-payee check, including its reliance in In re Duracraft Products, Inc., 26 B.R. 92 (Bankr.S.D.Ohio 1982), are without merit.
The primary issue in this proceeding is whether O.R.C. § 4113.15(C), through a purported statutorily imposed trust, gives the Union superior rights to the funds in question over the Trustee in bankruptcy. Put another way, does the trust created by Ohio statute prevent these moneys from becoming part of the bankruptcy estate? If the funds are in fact property of the estate under 11 U.S.C. § 541, then the trustee has the unimpaired right to use or distribute those funds according to applicable bankruptcy law. 11 U.S.C. §§ 363, 704.
It is the Union's primary contention that a statutory trust "arises in connection with an employer's duty to pay fringe benefits" as soon as those moneys are owed, pursuant to O.R.C. § 4113.15(C). That section provides as follows:
In the absence of a contest, court order or dispute, an employer who is party to an agreement to pay or provide fringe benefits to an employee or to make any employee-authorized deduction becomes a trustee of any funds required by such agreement to be paid to any person, organization, or governmental agency from the time that the duty to make such payment arises.
The Union contends that because the statutory trust arises simultaneously with the duty to make payment, the funds owed to the Union by Debtor in this case were the subject of this trust and never became property of the bankruptcy estate. Therefore, the Union urges that the Trustee has no interest in the GQ DRYWALL check and that it should be endorsed over to the Union.
In its Motion, the Union cites In re Davis, 13 B.R. 456 (Bankr.S.D.Ohio 1980) for the proposition that "where a statutory trust has been created under state law, it must be enforced in accordance with the law creating it." Motion of Union at 4. This Court fails to find any such proposition in the Davis case. Indeed, as the Trustee points out, In re Davis reaches a very different conclusion:
Even if a trust has been created under state law, the Bankruptcy Court has a special duty to decide whether or not it is a trust for purposes of the Bankruptcy Act. Schlecht v. Thornton (In re Thornton), 544 F.2d 1005 (9th Cir.1976). . . . If a trust is created, it must exist before the incident creating the debt and separate from it. Davis v. Aetna Acceptance Co., 293 U.S. 328 55 S.Ct. 151, 79 L.Ed. 393 (1934).
Davis, 13 B.R. at 460. This Court finds no authority in In re Davis for the application of a statutory trust in the manner proposed by the Union.
In its supplemental brief, the Union points to Selby v. Ford Motor Co., 590 F.2d 642 (6th Cir.1979) as "controlling precedent." Selby was a case decided under the Bankruptcy Act in which the debtor company had performed work for Ford Motor Company. Upon completion of the project, the debtor company owed its subcontractors approximately the same amount which Ford owed to it, so it authorized Ford to pay the subcontractors directly. The final payments occurred within the Bankruptcy Act's preference period, and after the filing of the petition, the trustee in bankruptcy sought to recover these payments as preferences. The subcontractors claimed that the money was not recoverable as it constituted the corpus of a trust under the Michigan Builders Trust Fund Act, which, for purposes of this proceeding, is significantly similar to O.R.C. § 4113.15(C). The Sixth Circuit Court of Appeals considered various interpretations of a statutory trust under the Bankruptcy Act and concluded:
. . . a state statute creating a builders trust fund should be given effect in bankruptcy. The beneficial interests of subcontractors and materialmen in a building fund should not be regarded as the property of the bankrupt debtor, at least so long as the beneficial interests are traceable.
Although the Union asserts that this case is controlling in this District under the Bankruptcy Code, the Sixth Circuit in Selby stated more than once that it would "look to the new Bankruptcy Act the Code and its legislative history to see if its treatment of statutory trusts should be used as persuasive authority." Selby, 590 F.2d at 645 (emphasis added). The Trustee is correct in his assertion that any conclusions made in Selby regarding the application of the Bankruptcy Code are dicta. See, Drabkin v. District of Columbia, 824 F.2d 1102, 1110 n. 27 (D.C.Cir.1987).
The facts of the Selby case were also much different than those found in the present case. In Selby, the funds in question had already been paid to the subcontractors prior to the filing of the petition. The trustee in bankruptcy then sought to recover those funds as preferences, and the subcontractors...
To continue reading
Request your trial