Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-07013/USCOURTS-ca10-91-07013-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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... 

FILED 

United States ~~rt (?f Appeal::; 

UNITED STATES COURT OF APPEALS Tenth Circuit 

FOR THE TENTH CIRCUIT OCT 2 1 1991 

DALE L. MCCULLOUGH, Trustee in 

Bankruptcy for Brio Petroleum, Inc., 

Plaintiff-Appellant, 

v. 

BILLY G. YOUNG and LORETTA M. YOUNG, 

Defendants-Appellees. 

) 

) 

) 

) 

) 

ROBERT L. HOECKER 

Clerk 

) No. 91-7013 

) (D.C. No. 90-418-S) 

) (E.D. Okla.) 

) 

) 

ORDER AND JUDGMENT* 

Before McKAY, Chief Judge, EBEL, Circuit Judges, and SAFFELS,** 

District Judge. 

**Honorable Dale E. Saffels, Senior District Judge, United States 

District Court for the District of Kansas, sitting by designation. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

* 

The case is therefore ordered 

This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 91-7013 Document: 010110091407 Date Filed: 10/21/1991 Page: 1 
Appellant/Trustee appeals the district court's affirmance of 

a bankruptcy court order denying his claims against Appellees 

under the Texas Business Corporation Act and the common law "trust 

fund" doctrine. 1 Although Appellant challenges several of the 

bankruptcy court's rulings as error and argues several points 

regarding its various claims against Appellees, we need only 

address one issue because its resolution is dispositive of 

Appellant's suit. 

The sole remedy Appellant sought in this action is the 

imposition of a constructive trust on Appellees' homestead 

property in Mounds, Oklahoma. Brief of Appellant at 5; Complaint, 

Appellant's App. at 9. As the bankruptcy court correctly noted, 

before a court can impose a constructive trust, the plaintiff must 

be able to trace with some certainty the "tainted" funds to an 

identifiable res. Bankruptcy Court Order at 6. See Rosenberg v. 

Collins, 624 F.2d 659, 663 (5th Cir. 1980); Peirce v. Sheldon 

Petroleum Co., 589 S.W.2d 849, 853 (Tex. Ct. App. 1979). The 

bankruptcy court found that Appellant's evidence on this point was 

insufficient. Bankruptcy Court Order at 9. This finding was 

affirmed by the district court. District Court Order at 2-3. The 

tracing requirement is a factual determination, therefore, our 

review of the bankruptcy court's finding is limited to a clearly 

erroneous standard. See In re General Coffee Co., 64 B.R. 702, 709 

1 Appellant's original suit was filed in the Northern District 

of Texas, Brief of Appellant at 3, and the Texas judgment 

registered in Oklahoma. Appellees subsequently filed for 

bankruptcy and moved to avoid the judgment lien on their homestead 

pursuant to 11 U.S.C. § 522(f). The Trustee, Appellant here, 

objected to the motion, and filed this adversary action against 

Appellees. Pre-Trial Order, Appellant's App. at 2122. 

2 

Appellate Case: 91-7013 Document: 010110091407 Date Filed: 10/21/1991 Page: 2 
n.13 (S.D. Fla. 1986), aff'd, 828 F.2d 699 (11th Cir. 1987), cert. 

denied, 485 U.S. 1007 (1988). 

Our review of the record leads us to agree with the 

bankruptcy court's finding. Contrary to Appellant's assertion in 

his brief on appeal, at no time during the trial did Appellees 

admit that funds from the Brio loans2 were used to purchase or 

improve their homestead property. Although Appellant argues that 

strict tracing is not required, it is not enough to show that the 

Brio loan funds went into appellees' bank account. See In re 

Independent Clearing House Co., 41 B.R. 985, 1001 (Bankr. D. Utah 

1984)(citing Texas & Pac. Ry. v. Pottorff, 291 U.S. 245, 261 n.19 

(1934)), rev'd in part on other grounds, 62 B.R. 118 (D. Utah 

1986). Appellant must establish that Brio loan funds were used, 

even if only in part, to purchase or improve the Appellees' 

homestead property. See McMerty v. Herzog, 702 F.2d 127, 130 (8th 

Cir. 1983); Landry v. Williamson, 335 S.W.2d 400, 405 (Tex. Ct. 

App. 1960). Appellant presented no evidence that connected the 

Brio loan funds with any certainty to Appellees' homestead. 3 

2 Appellant contends that the funds which are the subject of 

this suit were not loans from Brio, but rather dividends or 

distributions. Because we do not reach this point on appeal, we 

will refer to the funds in this order and judgment as the Brio 

loan funds, in order to differentiate them from funds the 

Appellees may have received from Brio as salary or otherwise. 

3 In a further mischaracterization of the events at trial, 

Appellant contends that the court "refus[ed] to permit examination 

of the Debtor to prove the exact amount of the commingled funds 

which were used to acquire the homestead." Brief of Appellant at 

40. The transcript reveals that the trial judge admonished 

Appellant's lawyer regarding his attempt to introduce previous 

deposition testimony as evidence at trial, limiting the use of the 

deposition to challenging Appellees' credibility. Appellant's 

characterization of this event is patently incorrect and 

(continued on next page) 

3 

Appellate Case: 91-7013 Document: 010110091407 Date Filed: 10/21/1991 Page: 3 
. - ~ 

J 

On this point, Appellant argues on appeal that the bankruptcy 

court improperly placed the burden on the Appellant to distinguish 

the Brio loan funds from the balance of funds in Appellees' bank 

account. The burden to trace the funds to an identifiable res is, 

in the first instance, on the party seeking to impress the 

property with a constructive trust, in this case, the Appellant. 

See Independent Clearing House, 41 B.R. at 1001; Sims v. Falvey, 

234 S.W.2d 465, 470 (Tex. Ct. App. 1950). Had the Appellant 

established that Appellees' homestead was purchased or improved, 

even in part, with the Brio loan funds, only then would the burden 

have shifted to Appellees. See Independent Clearing House, 41 

B.R. at 1004 n.19; Sheldon Petroleum Corp. v. Peirce, 546 S.W.2d 

954, 958 (Tex. Ct. App. 1977). Appellant failed to trace any Brio 

loan funds to Appellees' homestead; the bankruptcy court properly 

placed the burden on Appellant. 

The judgment of the United States District Court for the 

Eastern District of Oklahoma is AFFIRMED. 

(continued from previous page) 

Entered for the Court 

Monroe G. McKay 

Chief Judge 

misleading, in that it attempts to mask Appellant's failure to 

present any evidence tracing the Brio loan funds to Appellees' 

homestead. 

4 

Appellate Case: 91-7013 Document: 010110091407 Date Filed: 10/21/1991 Page: 4