Texas Mortg. Services Corp., Matter of

• Decision Date: 03 June 1985
• Docket Number: No. 83-1800,83-1800
• Citation: 761 F.2d 1068
• Parties: In the Matter of TEXAS MORTGAGE SERVICES CORPORATION, Debtor. TEXAS MORTGAGE SERVICES CORPORATION, Plaintiff-Appellee, v. GUADALUPE SAVINGS & LOAN ASSOCIATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1068

761 F.2d 1068

2 Fed.R.Serv.3d 881

In the Matter of TEXAS MORTGAGE SERVICES CORPORATION, Debtor.

TEXAS MORTGAGE SERVICES CORPORATION, Plaintiff-Appellee, v. GUADALUPE SAVINGS & LOAN ASSOCIATION, Defendant-Appellant.

No. 83-1800.

United States Court of Appeals, Fifth Circuit.

June 3, 1985.

Jenkens & Gilchrist, Robert W. Kanter, Dallas, Tex., for defendant-appellant.

Herman A. Lusky, William P. Rossini, Dallas, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before RUBIN, POLITZ, and GARWOOD, Circuit Judges.

GARWOOD, Circuit Judge:

Appellant, Guadalupe Savings & Loan Association ("Guadalupe"), appeals the district court's order requiring it to turn over three certificates of deposit to appellee, Texas Mortgage Services Corporation ("TMSC"), a debtor in possession under Chapter 11. TMSC initiated these proceedings in the bankruptcy court against Guadalupe for the turn over of the funds. ¹ The district court, Judge Buchmeyer, after reviewing the bankruptcy court's findings of fact and conclusions of law, ² issued the turn-over order on June 23, 1983. We sustain the district court's turn-over order, holding that Guadalupe is estopped from denying the enforceability of its promise to maintain certain deposits as trust funds.

FACTUAL AND PROCEDURAL BACKGROUND

TMSC, a mortgage broker, originates residential mortgage loans for subsequent sale to investors. ³ In order to obtain funding for its loans, TMSC executed a Warehousing Agreement with Guadalupe on November 25, 1981. Under the terms of this agreement, Guadalupe was to serve as a source of interim financing for mortgage loans originated by TMSC until TMSC could sell those loans to permanent lenders. ⁴ As consideration for this line of credit, TMSC executed promissory notes to Later that month, on July 24, 1982, TMSC wire transferred a deposit of $300,000 to Guadalupe. ⁶ Upon receipt of the deposit, Guadalupe issued three $100,000 certificates of deposit to TMSC with maturity dates of approximately thirty days. These certificates were styled, "Texas Mortgage Services Corporation Trust Account # 1," "# 2," and "# 3," respectively. The parties, however, sharply dispute the purpose and nature of the deposit. Guadalupe argues that the funds constituted a general deposit, and that they were labeled as trust accounts solely for purposes of FSLIC deposit insurance coverage. TMSC transferred the funds as a general deposit, Guadalupe argues, to comply with its Warehousing Agreement obligation to maintain a reserve account with Guadalupe. TMSC, however, argues that the $300,000 were trust accounts composed of loan payments TMSC had collected as servicing agent for its investors. TMSC argues that the funds were the property of the permanent lenders rather than of TMSC, and were held by TMSC only in trust. TMSC explained that the purpose of the deposit was to enable Guadalupe to benefit from the interest generated by the deposit, thereby alleviating a portion of TMSC's admittedly outstanding reserve account obligation.

                Guadalupe, which were secured in part by the assignment of a reserve account TMSC was to establish with appellant.  TMSC was supposed to make deposits of approximately $137,000 in the reserve account concurrently with appellant's advances of funds.  TMSC commenced borrowing from Guadalupe on November 25, 1981, as provided in the Warehousing Agreement. 5   TMSC was experiencing financial difficulty, however, and failed to make any deposits in the reserve account.  TMSC's financial status failed to improve over time.  On July 1, 1982, TMSC's creditors instituted Chapter 11 proceedings against it by filing an involuntary petition in bankruptcy court, pursuant to 11 U.S.C. Sec. 303 (1979)
                

Subsequently, on November 1, 1982, an order for relief was entered in TMSC's bankruptcy proceedings. A week later, on November 8, 1982, Guadalupe setoff $107,737.36 of the $300,000 deposit, which was the amount appellant believed it was owed in delinquent warehousing, commitment, and extension fees. In response to Guadalupe's setoff, TMSC sent a letter to appellant, dated December 14, 1982, demanding that Guadalupe immediately return the full deposit. Guadalupe refused. TMSC then, on December 10, 1982, filed a complaint for the turn over of the deposit in bankruptcy court as a "related action" to its Chapter 11 proceedings. In its answer to TMSC's complaint, Guadalupe asserted a right to setoff, pursuant to 11 U.S.C. Sec. 553 (1979), and filed a counterclaim requesting relief from the automatic stay imposed by TMSC's bankruptcy proceedings under 11 U.S.C. Sec. 362 (1979).

The bankruptcy court, Judge Gandy, held a hearing on TMSC's claim for the turn over on January 21, 1983. The court noted that there was sharp conflict between the testimony offered by both parties. As set out in greater detail below, Thomas Andrews, the President of TMSC, and Reba Lee, Executive Vice President for the company, testified that they explained to Guadalupe on numerous occasions prior to the transfer that the funds belonged to permanent lenders rather than to appellee. Andrews testified that he informed James Lammers, the President of Guadalupe, that the interest from the funds, not the trust funds themselves, could be applied to the reserve account. Andrews further testified that he called Lammers after the transfer, in August 1982, to again clarify that the funds constituted a trust account.

He also stated that written agreements between TMSC and the permanent investors required TMSC to hold any loan payments it collected on their behalf in segregated trust accounts. In response to Guadalupe's contention that the "Trust Account" label is as consistent with a general deposit as with a genuine trust account, Andrews testified that the parties would have arranged for the accounts to be styled "TMSC, Trustee for [specific investors]," except that the investors were too numerous to list.

Guadalupe presented almost opposite testimony. Maxine Short, Assistant Vice President for Guadalupe, testified that TMSC had never indicated one way or the other whether the money constituted trust funds. She later testified that TMSC had claimed to be the owner of the funds prior to the wire transfer, and had not indicated that the funds might in fact belong to permanent lenders. Short also testified that the parties agreed to label the account a "trust" at her suggestion, and solely for purposes of satisfying FSLIC insurance regulations. James Lammers testified that TMSC never indicated that the $300,000 constituted trust funds until August 1982, after the transfer already had occurred. In fact, he testified that TMSC's President, Thomas Andrews, earlier had told him that TMSC could not deposit trust funds because then it would be obligated to pay any resulting interest to the trust beneficiaries. Lammers testified several times that it was Guadalupe's belief all along that TMSC made the deposit in satisfaction of its obligation to maintain a reserve account, and that he would not have accepted the deposit had he known they were escrow funds. During cross-examination, however, Lammers admitted that the $300,000 was "more than would have been required under the Reserve Agreement."

The bankruptcy court, Judge Gandy, ruled in favor of TMSC on April 17, 1983, and issued a proposed order to turn over the certificates of deposit. In its Findings of Fact, the bankruptcy court found that TMSC had advised Guadalupe prior to the transfer that the funds were trust funds, but that the interest from the certificates of deposit could be used to mitigate TMSC's debt. The court found that Guadalupe consequently issued three certificates of deposit to TMSC, which totaled $300,000. The court also found that TMSC had again advised Guadalupe of the trust nature of the funds in August 1982, prior to Guadalupe's setoff. The court concluded that the $300,000 constituted trust funds, that the funds "did not belong to TMSC," and that Guadalupe had "wrongfully refused" to return the deposit to TMSC. The bankruptcy court concluded that TMSC was "entitled to an order of the Court directing Guadalupe to turn over said funds represented by said Certificates of Deposit, less all accrued interest which is to remain as a reserve fund." The ruling rendered appellant's counterclaim moot. The district court, Judge Buchmeyer, reviewed the bankruptcy court's Findings of Fact and Conclusions of Law and its proposed turn-over order, and entered the turn-over order on June 23, 1983, directing Guadalupe to return the three certificates of deposit or their equivalent to TMSC.

Guadalupe subsequently filed a Motion for Hearing for Reconsideration of [the Turn-over] Order in bankruptcy court on July 28, 1983. The motion was transferred to the district court for review. Appellant argued that the district court failed to hold a de novo hearing on the bankruptcy court's Findings of Fact and Conclusions of Law prior to executing the turn-over order. Moreover, Guadalupe argued that the transcript of the proceedings in bankruptcy court had not been before the district court when it issued its turn-over order. Guadalupe argued that the district court's failure to hold a de novo hearing violated the local rules of the Northern District of Texas. ⁷ A hearing was held on Guadalupe's motion On appeal, Guadalupe argues that the district court erred by failing to conduct a de novo hearing on the disputed issues of fact. Therefore, Guadalupe argues that it is entitled to a de novo review by this Court of the bankruptcy court's fact-findings. Guadalupe also contends that the three certificates of deposit cannot constitute trust funds as a matter of law, and that it consequently has a right to setoff the deposit. Having reviewed these arguments, we conclude that appellant has waived the issue whether the district court should have conducted a de novo hearing and affirm the district...