Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-87-02078/USCOURTS-ca10-87-02078-0/pdf.json

Parties Involved:
Bank of Oklahoma, National Association
Appellant
Credit Suisse
Appellant
Department of Energy
Appellee
Seneca Drilling Co.
Not Party
Seneca Drilling Company
Not Party
Seneca Oil Co.
Not Party
Seneca Oil Company
Not Party
The Bank of New York
Appellant
United Bank of Denver, National Association
Appellant

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

In re: SENECA OIL COMPANY 

and SENECA DRILLING COMPANY, 

Debtors. 

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UNITED STATES DEPARTMENT ) 

OF ENERGY, ) 

Plaintiff-Appellee/ 

Cross-Appellant, 

JUN 2 8 1~~0 

ROBERT L. HOECKER 

Clerk 

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Nos. 87-1890 

SENECA OIL COMPANY and SENECA 

DRILLING COMPANY, 

Defendants, 

and 

THE BANK OF NEW YORK, 

Individually and as agent 

for Interfirst Dallas; CREDIT 

SUISSE; UNITED BANK OF DENVER, 

National Association; BANK OF 

OKLAHOMA, National Association, 

Creditors-Appellants/ 

Cross-Appellees. 

87-2018 

87-2078 

87-2080 

Appeals from the United States District Court 

for the Western District of Oklahoma 

(D.C. Nos. CIV-85-1925-T, CIV-86-1866-T, 

and CIV-86-0464-BT} 

Eric M. Reuben of Emmet, Marvin & Martin, New York, New York 

(David A. Cheek of McKinney, Stringer & Webster, Oklahoma City, 

Oklahoma, and Marcia S. Ruskin and Eileen Chin-Bow of Emmet, 

Marvin & Martin, New York, New York, with him on the briefs), 

for Appellants/Cross-Appellees. 

Appellate Case: 87-2078 Document: 01019880489 Date Filed: 06/28/1990 Page: 1 
Floyd I. Robinson (Marc Kasischke and Phyllis Jo Gervasio, with 

him on the briefs), Office of Judicial Litigation, Economic 

Regulatory Administration, United States Department of Energy, 

Washington, D.C., for Appellee/Cross-Appellant. 

Before LOGAN, BRORBY, and EBEL, Circuit Judges. 

EBEL, Circuit Judge. 

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Appellate Case: 87-2078 Document: 01019880489 Date Filed: 06/28/1990 Page: 2 
This bankruptcy case involves appeals and a cross-appeal from 

three orders of the United States District Court for the Western 

District of Oklahoma. Appellants are a group of banks that made 

loans to the debtor, Seneca Oil Company. Appellee is the 

Department of Energy ("the DOE"), which is seeking recovery of 

overcharges made by Seneca on its sales of crude oil in violation 

of federal pricing regulations. 

Appellants raise the following issues on appeal: (1) Has the 

DOE established sufficient wrongdoing by Seneca to justify 

imposition of a constructive trust under Oklahoma law? (2) Has 

the DOE sufficiently traced the funds in dispute? (3) Does this 

court have jurisdiction to decide whether the DOE's claim is a 

"fine, penalty, or forfeiture" under the Bankruptcy Code, or does 

exclusive jurisdiction rest with the Temporary Emergency Court of 

Appeals? (4) Is the DOE's claim a "fine, penalty, or forfeiture" 

under Section 726(a)(4) of the Bankruptcy Code? 

In a cross-appeal, the DOE raises the issue of whether the 

constructive trust fund should be increased by $54,690.09 because 

of improper expenditures from that fund. 

FACTS 

To cope with increasing inflation, Congress in 1970 enacted 

the Economic Stabilization Act ("ESA"), 12 u.s.c. § 1904 note, 

which authorized the President "to issue such orders and 

regulations as he deems appropriate ... to ... stabilize 

prices." Economic Stabilization Act of 1970, Pub. L. No. 91-379, 

§ 202, 84 Stat. 799, 799 (1970), as amended E_Y Economic 

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Appellate Case: 87-2078 Document: 01019880489 Date Filed: 06/28/1990 Page: 3 
Stabilization Act Amendments of 1971, Pub. L. No. 92-210, 

§ 203(a), 85 Stat. 743, 744 (1971). In November 1973, after the 

OPEC (''Organization of Petroleum Exporting Countries") oil embargo 

was declared, Congress passed the Emergency Petroleum Allocation 

Act ("EPAA"), 15 U.S.C. § 751 et~' which authorized the 

President to establish regulations for the pricing and allocation 

of crude oil and petroleum products. The regulations promulgated 

pursuant to the EPAA that are relevant here are the Mandatory 

Price and Allocation Regulations, which included price ceilings 

for the sale of crude oil. Those regulations are enforced by the 

DOE. 1 The oil price controls relevant here were discontinued by 

the President in 1981, although enforcement actions for past 

violations continue under a savings clause, 15 u.s.c. § 767. 

During the time in which the Mandatory Price and Allocation 

Regulations were in effect, Seneca Oil Company was an independent 

producer of crude oil and natural gas operating primarily in 

Oklahoma. In 1977 and 1978, Seneca conducted test drilling on 

five oil and gas properties in Oklahoma. Seneca sold the "test 

oil" that it recovered from those wells. 

In May 1979, the DOE issued regulations ("the May 

regulations") exempting "newly discovered crude oil'' from price 

ceiling regulations. 10 C.F.R. § 212.79, 44 Fed. Reg. 25,828, 

25,832 (1979) (revoked effective March 30, 1981, 46 Fed. Reg. 

20,508, 20,516 (1981)). The May regulations defined newly 

1 Section 209 of the ESA specifically provides that the DOE may 

seek ''restitution" of revenues obtained in violation of the oil 

pricing regulations. Economic Stabilization Act Amendments of 

1971, Pub. L. No. 92~210, § 209, 85 Stat. 743, 748 (1971). 

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Appellate Case: 87-2078 Document: 01019880489 Date Filed: 06/28/1990 Page: 4 
discovered crude oil as crude oil "produced .•• from a property 

from which no crude oil was produced in calendar year 1978. 11 

10 ·c.F.R. § 212.79(b), 44 Fed. Reg. 25,828, 25,832 (1979) (revoked 

effective March 30, 1981, 46 Fed. Reg. 20,508, 20,516 (1981)). 

Seneca, allegedly believing that the word "produced" in the May 

regulations meant "produced in commercial quantities," disregarded 

its 1978 "test" production on the five properties and certified 

that the oil produced from those properties after 1978 was "newly 

discovered crude." Accordingly, Seneca charged the market price 

for that oil from November 1979 to December 1980. During that 

period, Seneca set aside, in an interest-bearing suspense account, 

a portion of its revenues equal to the difference between the 

market price it charged and the regulated ceiling price. 2 

In July 1980, the Office of General Counsel of the DOE issued 

Interpretive Ruling 1980-3, stating that the word "produced" in 

the May regulations meant produced in any quantity during 1978. 3 

In February 1981, Seneca sought injunctive and declaratory relief 

against the enforcement of Ruling 1980-3 in the United States 

District Court for the Western District of Oklahoma. It prevailed 

in the district court. That court held that the DOE's 

interpretation in Ruling 1980-3 of the term "produced" was 

2 Normally, Seneca would disburse approximately 90% of the 

proceeds from its sales of crude oil to royalty and working 

interest owners. Here, however, Seneca suspended a portion of the 

disbursements equal to the amount of the difference between the 

market price it charged and the regulated ceiling price, and it 

set the money aside in the contingency account, in the form of 

successive certificates of deposit. 

3 Shortly thereafter, the DOE amended the May regulations 

prospectively such that the term "produced" would mean "produced 

in commercial quantities." 

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Appellate Case: 87-2078 Document: 01019880489 Date Filed: 06/28/1990 Page: 5 
,f ' 

invalid, largely relying upon the preamble to the May 

regulations. 4 But on appeal the Temporary Emergency Court of 

Appeals ("the TECA") reversed the district court, holding that the 

DOE's interpretation of the pricing regulations was valid and that 

Seneca had violated the pricing regulations by miscertifying its 

crude oil and by overcharging for oil. Seneca Oil Co. v. 

Department of Energy, 712 F.2d 1384 (Temp. Erner. Ct. App. 1983). 

The TECA remanded to the district court "to grant motions for 

appropriate orders to secure recovery from [Seneca] of the 

overcharges in violation of Ruling 1980-3 and the May 2, 1979 

legislative regulation, interest thereon and costs." Id. at 1402. 

On March 8, 1985, before judgment was entered in favor of the 

DOE, Seneca filed for bankruptcy under Chapter 11 of the 

Bankruptcy Code. The district court .entered a final judgment 

against Seneca on July 3, 1985 for $1,741,597.77 -- the amount of 

the overcharges plus interest up to the date of bankruptcy. The 

DOE then filed a proof of claim for that amount. It also asserted 

that it had a constructive trust or equitable lien over the amount 

of Seneca's contingency fund as of the date of bankruptcy 

(approximately $1.3 million). 5 The bankruptcy court held that the 

4 The preamble stated that all crude oil produced that would have 

qualified as newly discovered crude oil under the new reservoir 

proposal would be entitled to newly discovered crude oil status 

under the May regulations. The new reservoir proposal had stated 

that "new reservoir'' meant any reservoir where crude oil had not 

been produced in commercial quantities. 

5 Although the overcharges plus interest totalled $1,741,597.77 

as of the date of bankruptcy, the amount in the contingency fund 

at that date was only $1,282,706.95 because Seneca had used the 

difference to pay windfall profit taxes and state severance taxes. 

Appellants assert a constructive trust only over the amount in the 

[continued on next page ..• ] 

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, I 

Appellate Case: 87-2078 Document: 01019880489 Date Filed: 06/28/1990 Page: 6 
DOE had not established sufficient wrongdoing by Seneca to warrant 

imposition of a constructive trust. 6 The district court reversed 

and remanded for a determination of whether the DOE had 

sufficiently traced the funds. In re Seneca Oil Co., 76 B.R. 810 

(W.D. Okla. 1985). 7 On remand, the bankruptcy court found that 

the DOE had sufficiently traced the funds, and the district court 

affirmed that finding. 

The bankruptcy court approved a plan of reorganization on 

November 21, 1985, over the DOE's objections. The DOE appealed to 

the district court, arguing that (1) the plan improperly 

subordinated the portion of the DOE's claim not covered by a 

constructive trust below the claims of unsecured creditors, 

labeling that portion of the DOE's claim as a fine, penalty, or 

forfeiture, and (2) the contingency account that the DOE asserted 

a constructive trust over was deficient by almost $55,000 because 

the bankruptcy court had improperly approved the payment of postpetition administrative fee expenses out of the contingency 

account. The district court reversed the confirmation of the plan 

to the extent that it subordinated the unsecured portion of the 

DOE's claim as a penalty. But the district court approved the 

[ •.. continued from previous page] 

fund at the time of bankruptcy. They assert an unsecured claim 

over the remaining amount. 

6 The bankruptcy court also rejected the DOE's claim of an 

equitable lien. The DOE has abandoned that theory. 

7 The district court, when it held that there was sufficient 

wrongdoing to justify a constructive trust here, also held that 

the DOE was the statutory trustee for the overcharged purchasers 

and that Seneca had legal title to the funds in dispute. In re 

Seneca Oil Co., 76 B.R. at 812. Those holdings have not been 

challenged. 

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Appellate Case: 87-2078 Document: 01019880489 Date Filed: 06/28/1990 Page: 7 
payment of the administrative fees because the constructive trust 

claim had not yet been granted when the administrative fees were 

authorized.a 

The appellants here are a group of banks that made secured 

loans to Seneca (The Bank of New York, Interfirst Bank Dallas, 

Credit Suisse, United Bank of Denver, and Bank of Oklahoma). 

Seneca has no interest in this litigation because it has been 

reorganized and the money in dispute has been set aside in a 

disputed claim fund for the benefit of Seneca's creditors. 

ANALYSIS 

I. CONSTRUCTIVE TRUST 

A constructive trust is an equitable remedy that is imposed 

for the recovery of wrongfully-held property. See In re Heston 

Oil Co., 63 B.R. 711, 714 (Bankr. N.D. Okla. 1986); Cacy v. Cacy, 

619 P.2d 200, 202 (Okla. 1980). In order to obtain a constructive 

trust over property of a bankrupt, a party must (1) show either 

sufficient wrongdoing by the bankrupt in acquiring the property or 

a fiduciary relationship between the party and the bankrupt, and 

(2) be able to trace the wrongfully-held property. See 4A Collier 

on Bankruptcy§ 70.25 (14th ed. 1978); see also In re Heston Oil 

Co., 63 B.R. at 714. 

8 When the fees were originally approved, the DOE sought, and was 

denied, a stay of the expenditures in the bankruptcy and district 

courts. The DOE did not appeal the denial of the stay by the 

district court. 

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Appellate Case: 87-2078 Document: 01019880489 Date Filed: 06/28/1990 Page: 8 
A. Wrongdoing 

The district court found a constructive trust here because it 

concluded that Seneca's illegal overcharging "clearly and 

unequivocally shows wrongdoing." In re Seneca Oil Co., 76 B.R. at 

813. Appellants argue that Seneca's oveicharging was not 

sufficient wrongdoing to warrant a constructive trust. Because 

this is an issue of law, we apply a de nova standard of review. 

In re Ruti-Sweetwater, Inc., 836 F.2d 1263, 1266 (10th Cir. 1988). 

The parties agree that Oklahoma law governs the issue of 

whether a constructive trust exists in this case. The Supreme 

Court of Oklahoma has explained the conditions for imposing a 

. constructive trust as follows: 

The primary reason for imposing a constructive trust is 

to avoid unjust enrichment. It is imposed against one 

who "by fraud, actual or constructive, by [duress] or 

abuse of confidence, by commission of wrong, or by any 

form of unconscionable conduct, artifice, concealment, 

or questionable means, or who in any way against equity 

and good conscience, either [has] obtained or holds the 

legal right to property which he ought not, in equity 

and good conscience, hold and enjoy." 

Easterling v. Ferris, 651 P.2d 677, 680 (Okla. 1982) (quoting Cacy 

v. Cacy, 619 P.2d at 202) (bracketed words added). Mere 

"unfairness'' in allowing the holder of the property to retain the 

property is not sufficient to justify imposition of a constructive 

trust. Easterling, 651 P.2d at 680. There must also be "active 

wrongdoing" by the person holding the property. Id. The evidence 

of wrongdoing "must be clear, unequivocal, and decisive beyond a 

reasonable doubt •..• A mere preponderance of the evidence is 

not sufficient to establish a constructive trust but it must be 

established by evidence which is clear, definite, unequivocal and 

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satisfactory, or such as to leave but one conclusion, or as to 

leave no reasonable doubt as to the existence of the trust." Id. 

at 681;, see also Ohio v. Four Seasons Nursing Centers of America, 

Inc., 465 F.2d 25, 28 (10th Cir. 1972) (observing that the 

standard for imposing a constructive trust in Oklahoma is 

rigorous). 

Although it is a close issue, we believe that there was 

sufficient wrongdoing here. The Temporary Emergency Court of 

Appeals has determined that Seneca overcharged customers for crude 

oil in violation of federal pricing regulations. Seneca's 

overcharging resulted in unjust enrichment to Seneca and its 

creditors. As noted above, the primary purpose of a constructive 

trust in Oklahoma is to avoid unjust enrichment. Easterling, 651 

P.2d at 680; Cacy, 619 P.2d at 202; see also G & M Motor Co. v. 

·Thompson, 567 P.2d 80, 83 (Okla. 1977). Moreover, Seneca was at 

all relevant times aware of the pricing regulations. Its creation 

of a contingency fund is evidence that it was on clear notice that 

it might be violating those regulations. Therefore, we conclude 

that Seneca's behavior constituted sufficient active wrongdoing. 9 

9 Cf. In re Mahan & Rowsey, Inc., 817 F.2d 682, 684 (10th Cir. 

1987) (constructive trust was proper to recover excess payments 

for oil drilling and completion costs); Haskell Lemon Constr. Co. 

v. Independent School Dist. No. 12, 589 P.2d 677, 681-82 (Okla. 

1979) (reversed dismissal of constructive trust claim where 

plaintiff asserted that school district paid money to second 

contractor that plaintiff should have received); G & M Motor Co. 

v. Thompson, 567 P.2d at 83-84 (court allowed a constructive trust 

over pro rata share of proceeds of life insurance policies where a 

portion of the policies' premiums were paid with embezzled funds); 

Goldsby v. Juricek, 403 P.2d 454, 458 (Okla. 1965) (illegal 

agreement to depress the sale price of property and avoid 

competitive bidding justified imposition of constructive trust); 

Easterling, 651 P.2d at 681 (breach of an oral contract is not 

[continued on next page ... ] 

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Appellants argue that the existence of actual fraud or a 

fiduciary relationship is necessary for the imposition of a 

constructive trust under Oklahoma law. (Appellants' Consolidated 

Reply Br. at 6.) We disagree. Although most Oklahoma cases 

imposing a constructive trust have involved either fraud or a 

fiduciary relationship, the Oklahoma Supreme Court repeatedly has 

stated that a constructive trust is proper under other 

circumstances. See,~, Easterling, 651 P.2d at 680 (noting 

that a "commission of wrong" can be sufficient); Peyton v. 

Mccaslin, 417 P.2d 316, 320 (Okla. 1966) ("Constructive trusts are 

such as are raised by equity in respect of property which has been 

acquired by fraud, or where, though acquired without fraud, it is 

against equity that it should be retained by him who holds it." 

(emphasis added)); Goldsby v. Juricek, 403 P.2d 454, 458 (Okla. 

1965) ("A constructive trust ... [is imposed] against one who, 

by fraud, actual or constructive, by duress or abuse of 

confidence, by commission of wrong, or by any form of 

unconscionable conduct, artifice, concealment, or questionable 

means, or who in any way against equity and good conscience, 

either has obtained or holds the legal right to property which he 

ought not, in equity and good conscience, hold and enjoy."); 

Phillips v. Ball, 358 P.2d 193, 197 (Okla. 1960) ("[W]here a party 

obtains legal title to property by fraud, violation of confidence, 

or in any other unconscientious manner, equity will impress a 

[ .•. continued from previous page] 

enough to justify a constructive trust); Cacy, 619 P.2d at 202 

(absent fraud, duress, or any unconscionable conduct, a 

constructive trust was not justified). 

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Appellate Case: 87-2078 Document: 01019880489 Date Filed: 06/28/1990 Page: 11 
constructive trust on property so obtained for one who in good 

conscience is entitled to it."}. 

Appellants also contend that Seneca's overcharging is the 

equivalent of the mere nonpayment of a debt to a creditor, which 

appellants argue is not the sort of conduct that warrants imposing 

a constructive trust. We disagree that Seneca's behavior amounted 

only to nonpayment of a debt. Seneca violated federal law by 

overcharging for oil, which is more wrongdoing than the typical 

creditor-debtor situation. 

B. Tracing 

Appellants argue that the DOE has failed to trace the funds 

in dispute. The bankruptcy and district courts found that the DOE 

had sufficiently traced the funds. Because the conclusions of 

those courts on the tracing issue are factual findings, we will 

not reverse them unless they are clearly erroneous. In re 

Schneider, 864 F.2d 683, 685 (10th Cir. 1988). 

Both sides agree that the "lowest intervening balance rule" 

should be applied in this case. That rule provides that when a 

trustee has commingled trust funds with his own funds, the 

creditor may recover the lowest balance to which the common fund 

has been depleted, on the theory that the trustee is presumed to 

use the trustee's own money first. See In re Mahan & Rowsey, 817 

F. 2d at 684; Aiers v. Fay, 102 P.2d 156, 159 (Okla. 1940}. 

Appellants first argue that the DOE has failed to trace the 

overcharges from the time those funds initially entered the 

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general account to the time the contingency fund was first 

established. 10 We agree. 

Seneca began depositing overcharges in December 1979 into its 

general account, but it did not set up the contingency certificate 

of deposit (the "Suspense CD") until January 1980. The DOE has 

not set forth any evidence in the record showing that the amount 

of the overcharges received during that short period was not 

depleted before the CD was established. Although we apply a 

clearly erroneous standard of review to the factual findings of 

the bankruptcy court, the bankruptcy court did not make any 

findings regarding depletion from the time the overcharges 

initially were being received to the time when the Suspense GD was 

first created. In fact, the district court, upon reviewing the 

bankruptcy court's opinion, was able to state only that "it 

appears possible that the bankruptcy court was able to apply the 

'lowest intervening balance rule.'" In re Seneca Oil Co., 76 B.R. 

813, 816 (W.D. Okla. 1987). Therefore, we remand for a factual 

finding as to the lowest intervening balance during that period. 

Appellants also argue that on three separate occasions the 

contingency fund was "commingled" with the general account and 

depleted. First, they argue that the fund was depleted in March 

1981. On March 11, the Suspense CD was deposited into Seneca's 

general account, and on March 12, a new CD was issued in the same 

lO The DOE argues that appellants waived this issue by not 

raising it before the bankruptcy court. But appellants apparently 

did raise it in their supplementary memorandum to the bankruptcy 

court. See Appellants' November 10, 1987 Reply Br. at 4. 

Moreover-;the district court decided this issue on the merits; 

thus, we conclude that it may properly be considered on appeal. 

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Ii 

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amount as the old CD. When the new CD was purchased, there was an 

overdraft of $291,793.77. Thus, appellants argue that the 

contingency fund was depleted by that amount. The DOE responds 

that the evidence supports a conclusion that the CD was 

instantaneously "rolled over'' by means of a "forced debit." We 

agree. The new CD was issued in the same amount as the old CD 

without regard to the negative balance that existed when the old 

CD was deposited into the general account. Thus, the amount of 

the overdraft on March 11 was, as a matter of substance, separate 

from the rollover of the CD. 

The second alleged depletion occurred at the end of June 

1983. On June 30, Seneca deposited the CD into its general 

account. As a result of withdrawals made during that day, the 

daily balance sheet reflected that the general account was 

depleted to $260,677.90. Seneca did not establish a new CD until 

five days later. Appellants argue that the contingency fund was 

depleted on June 30 to $489,491.58 (the $260,667.90 left in the 

general account at the end of the day on June 30 plus the 

$228,823.68 that was used to buy commercial paper on that date, 

see Appellants' Br. at 26). 

The district court disagreed that the fund had been depleted, 

taking into account a large deposit that was reflected on Seneca's 

General Ledger for June 30 but was not reflected on the account 

balance statement for that day. Although we tend to agree with 

appellants that the daily balance statement provided by Seneca's 

bank was better evidence of the state of Seneca's general account, 

see,~, Republic Supply Co. v. Richfield Oil Co., 79 F.2d 375, 

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380 (9th Cir. 1935) ("the daily closing balance is the one which 

reflects the actual state of the ordinary commercial bank 

account"), we do not believe that it was clearly erroneous for the 

district court to consider the General Ledger. 

The third alleged depletion occurred in February 1985. 

Appellants first argue that the funds in the CD cannot be traced 

because the CD was cashed and the funds were commingled with 

Seneca's other funds. However, mere commingling of the funds does 

not defeat tracing. Connecticut Gen. Life Ins. Co. v. Universal 

Ins. Co., 838 F.2d 612, 619 (1st Cir. 1988); In re Mahan & Rowsey, 

Inc., 817 F.2d at 684. Appellants also argue that the DOE has 

failed to trace the funds after the date of bankruptcy. The DOE 

correctly responds that it was not obligated to trace the funds 

after the date of bankruptcy. See 4A Collier on Bankruptcy 

§ 70.25[2], at 354 n.44 (14th ed. 1978) (no duty to trace after 

initiation of bankruptcy; collecting cases). 

c. The DOE's Cross-Appeal 

In a cross-appeal, the DOE argues that the constructi v.e trust 

fund should be increased by $54,690.09. It contends that the 

bankruptcy court erroneously approved that amount of expenditures 

out of the fund for administrative fees. We agree. 

As the district court noted, the $54,690.09 was spent before 

DOE's constructive trust was approved. Thus, the district court 

concluded that it was within the bankruptcy court's discretion to 

allow the expenditure of that amount for administrative expenses. 

See 11 U.S.C. § 503(b)(l)(A) (allows for payment of administrative 

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Appellate Case: 87-2078 Document: 01019880489 Date Filed: 06/28/1990 Page: 15 
expenses incurred during bankruptcy after notice and hearing). 

However, these constructive trust funds were never part of the 

bankruptcy estate, and therefore could not be used by the trustee 

to pay administrative expenses. There is some dispute 

conceptually whether a constructive trust arises at the time of 

the wrongful act or whether it arises only at the time it is so 

declared by the court, but then applied retroactively to the time 

of the wrongful act. Compare VA. Scott, The Law of Trusts. 

§ 462.4 (3d ed. 1967) (constructive trust arises at the time of 

the wrongful act) with G. Bogert, Trusts and Trustees, § 472 (2d 

ed. rev. 1978) (constructive trust arises only after it is imposed 

by a court, but after it is imposed, the trust relates back to.the 

time of the wrongful act). However, we need not resolve that 

dispute because under either theory, the effective date of the 

constructive trust is the date the wrongful act occurred. The 

bankruptcy estate expressly does not include any equitable 

interest in "[p]roperty in which the debtor holds, as of the 

commencement of the case, only legal title." 11 U.S.C. § 54l(d); 

see also In re Mahan & Rowsey, Inc., 817 F.2d at 684; cf. Begier 

v. Internal Revenue Serv., 58 U.S.L.W. 4674 (U.S. June 4, 1990) 

(trust-fund tax payments made from debtor's general accounts prior 

to filing bankruptcy petition are not avoidable as preferences 

because the payments involved trust property, which would not have 

been part of the bankruptcy estate). Thus, we remand to the 

district court for an order to have the trust fund reimbursed in 

the amount of $54,690.09 from whatever source is determined to be 

most appropriate and in accordance with law. 

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II. FINE, PENALTY, OR FORFEITURE 

The DOE's claim for recovery of the amount of Seneca's 

overcharges arises pursuant to Section 209 of the Economic 

Stabilization Act, 12 u.s.c. § 1904 note, as incorporated in the 

Emergency Petroleum Allocation Act of 1973, as amended, 15 U.S.C. 

§ 754(a)(l). Appellants argue that the DOE's claim is a "fine, 

penalty, or forfeiture" under Section 726(a)(4) of the Bankruptcy 

Code and thus should be subordinated below the claims of unsecured 

creditors. See 11 u.s.c. § 726(a}(4). We note that this argument 

relates only to the portion of the DOE's claim that is not 

governed by the constructive. trust because the constructive trust 

portion is not properly part of the bankruptcy estate and thus is 

not subject to the priorities set forth in Section 726 of the 

Bankruptcy Code. See In re Mahan & Rowsey, Inc., 817 F.2d at 684; 

11 u.s.c. §§ 54l(a)(l) and (c)(2). 

A. Jurisdiction 

The DOE has moved to dismiss Appeal No-. 87-1890, arguing that 

this court lacks jurisdiction to decide whether the DOE's claim is 

a fine, penalty, or forfeiture because exclusive jurisdiction to 

decide that issue rests with the Temporary Emergency Court of 

Appeals. We d~ny the motion to dismiss. 

The TECA has exclusive jurisdiction to decide issues arising 

under the ESA or the EPAA. Section 2ll(b)(2) of the ESA, which is 

incorporated into the EPAA, provides: 

[T]he Temporary Emergency Court of Appeals shall have 

exclusive jurisdiction of all appeals from the district 

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courts of the United States in cases and controversies 

arising under [the ESA, the EPAA, and] under regulations 

or orders issued thereunder. 

Economic Stabilization Act Amendments of 1971, Pub. L. No. 92-210, 

§ 2ll(b)(2), 85 Stat. 743, 749 (1971) (incorporated by reference 

in§ 5(a)(l) of the EPAA, 15 u.s.c. § 754(a)(l)). That provision 

for the TECA's exclusive jurisdiction was designed to provide for 

speedy resolution of cases brought under the ESA or EPAA by a 

court with special expertise, and to ensure consistency of 

decisions. See Bray v. United States, 423 U.S. 73, 74 (1975); 

s. Rep. No. 92-507, 92d Cong., 1st Sess. 10, reprinted in 1971 

U.S. Code Cong. & Admin. News 2283, 2292. 

The primary question here is whether the issue before us on 

appeal is one "arising under" the ESA or EPAA. Several courts 

have held, and we agree, that the TECA's "arising under" 

jurisdiction is a form of "issue jurisdiction," i.e., the TECA has 

exclusive jurisdiction over ESA/EPAA issues actually adjudicated 

by a district court. 11 See,~, RJG Cab, Inc. v. Hodel, 797 

F.2d 111, 117 (3d Cir. 1986) (collecting cases); Coastal States 

Marketing, Inc. v. New England Petroleum Corp., 604 F.2d 179, 184-

87 (2d Cir. 1979). Therefore, in deciding whether the TECA or 

this court has jurisdiction, we must "conduct a jurisdictional 

inquiry into each claim raised ••• [in this] appeal." United 

States v. Wyatt, 680 F.2d 1080, 1085 n.7 (5th Cir. 1982). 

11 Thus, the phrase "arising under" is.interpreted more 

expansively for purposes of the TECA's jurisdiction than it is for 

purposes of the federal question jurisdiction of the district 

courts. For example, unlike federal question jurisdiction, the 

TEC.A's jurisdiction can be created by defenses that raise ESA/EPAA 

issues. 

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An ESA/EPAA issue is one involving the construction, 

validity, or effect of the ESA or EPAA. Scallop Corp. v. Tully, 

705 F.2d 645, 647 (2d Cir. 1983); see also Wyatt, 680 F.2d at 

1083. "The crucial question is whether the case involves issues 

that must be decided by TECA in order that 'uniform interpretation 

of the substantive provisions of the' statute may be achieved." 

United States v. Uni Oil, Inc., 646 F.2d 946, 951 (5th Cir. 1981) 

(quoting Bray, 423 U.S. at 75), cert. denied, 455 U.S. 908 (1982). 

Here, the DOE sought restitution for the overcharges pursuant 

to Section 209 of the ESA, which is incorporated in Section 

5(a)(l) of the EPAA, 15 U.S.C. § 754(a)(l). But the validity of 

the pricing and restitution regulations and their application in 

this case already have been adjudicated before the Temporary 

Emergency Court of Appeals. See Seneca Oil Co. v. Department of 

Energy, 712 F.2d 1384 (Temp. Erner. Ct. App. 1983). The question 

before us is whether the restitution claim is a fine, penalty, or 

forfeiture within the meaning of the Bankruptcy Code. This appeal 

is not from an action to enforce DOE regulations or to obtain an 

order of restitution; rather, it is from a decision regarding the 

priority of the restitution claim in bankruptcy. 12 Although nonbankruptcy law creates the DOE's claim here, it is bankruptcy law 

that determines the priority of that claim in bankruptcy. The ESA 

and EPAA provide only the backdrop for the issue of the priority 

of the DOE's claim. Therefore, the issue of the priority of the 

12 On the other hand, resolving the priority issue requires that 

we analyze the nature of the DOE's claim. That analysis may 

involve an examination of the DOE's regulations. But "not every 

case that in some manner involves the EPAA necessarily raises EPAA 

issues." Uni Oil, 646 F.2d at 952. 

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DOE's claim is an issue of federal bankruptcy law, not an issue 

"arising under" the ESA or EPAA. Compare Uni Oil, 646 F.2d at 952 

(the defenses raised did not involve interpretation and 

application of the EPAA; rather, they involved "interpretation of 

the proper scope of the criminal code statutes under which the 

defendants were charged") with Mountain Fuel Supply Co .. v. 

Johnson, 586 F.2d 1375, 1383-84 (10th Cir. 1978) (TECA had 

exclusive jurisdiction where there was no basis for federal 

jurisdiction other than the ESA and the appeal involved the 

validity and the application of the ESA and regulations 

thereunder), cert. denied, 441 U.S. 952 (1979) and Coastal States 

Marketing, 604 F.2d at 187 (where only issue was whether plaintiff 

had violated EPAA, TECA had exclusive jurisdiction). 

The DOE largely relies upon the TECA's decision in Department 

of Energy v. West Texas Marketing Corp., 763 F.2d 1411 (Temp. 

Erner. Ct. App. 1985) to support its argument that the TECA has 

exclusive jurisdiction. In that case, the TECA held that it had 

exclusive jurisdiction over the same issue as the one raised in 

the instant appeal, i.e., whether the DOE's claim for restitution 

under Section 209 of the ESA is a fine, penalty, or forfeiture 

under Section 726(a)(4) of the Bankruptcy Code. Because, as 

discussed above, we believe that the issue of whether a claim is a 

fine, penalty, or forfeiture under federal bankruptcy law is a 

bankruptcy rather than an ESA/EPAA question, we disagree with the 

TECA's jurisdictional analysis in West Texas Marketing. We 

conclude that the issue presented in this appeal is not an issue 

arising under the ESA or EPAA and is instead an issue over which 

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this court, and not the Temporary Emergency Court of Appeals, has 

jurisdiction. 13 

B. Fine, Penalty, or Forfeiture? 

Appellants contend that the DOE's claim for recovery of the 

overcharges is a "fine, penalty, or forfeiture" under Section 

726(a}(4} of the Bankruptcy Code. We disagree. 14 

We hold that the DOE's claim is not a fine, penalty, or 

forfeiture because (1) the claim is based solely on actual 

pecuniary loss, (2) the purpose of the claim is restitutionary 

rather than penal, and (3) the statutory scheme supports the 

restitutionary nature of the claim. But cf. Kelly v. Robinson, 

479 U.S. 36, 52-53 (1986} (criminal restitution obligations were a 

"fine, penalty, or. forfeiture" under Section 523(a}(7} of the 

Bankruptcy Code because (1) criminal restitution is not merely 

concerned with benefiting victims but also with punishing and 

rehabilitating the offender, (2) the victim has no control over 

13 We note that the Fifth Circuit recently dismissed an appeal 

for lack ot subject matter jurisdiction in a case that involved, 

among other things, the same issue as the one raised in this case. 

In re Compton Corp. v. Department of Energy, No. 88-1680 (5th Cir. 

Jan. 30, 1989). That case was dismissed in a two-sentence 

unpublished order which contained no discussion of the 

jurisdictional issue. If the Fifth Circuit's dismissal is a 

determination that TECA has exclusive jurisdiction over the issue 

of whether a Section 209 restitution claim is a fine, penalty, or 

forfeiture under the Bankruptcy Code, we respectfully disagree. 

14 The district court held that the DOE's claim is not a "fine, 

penalty, or forfeiture" largely because the district court felt 

bound by the TECA's decision in West Texas Marketing. As noted 

above, we do not believe that the TECA had jurisdiction to decide 

that issue in West Texas Marketing. Nevertheless, we agree with 

the TECA's conclusion that the DOE's claim is not a fine, penalty, 

or forfeiture. 

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the amount of restitution, and (3) the amount of restitution is 

not determined by the severity of the victim's injury). 

First, the claim is based on the exact amount of the 

pecuniary loss to the overcharged purchasers and, thus, the exact 

amount of Seneca's unjust enrichment. Cf. Simonson v. Granquist, 

369 U.S. 38, 40 (1962) (In Section 57j of the Bankruptcy Act, 

Congress intended to bar all claims against a bankrupt "except 

those based on a 'pecuniary' loss."). Appellants argue that in 

order for the DOE's claim to be iestitutionary rather than penal, 

the DOE must be seeking to recover for injury to the government. 

We believe that argument is too restrictive. The language of 

Section 726(a)(4) does not provide that a claim is a fine, l 

penalty, or forfeiture unless the holder of the claim is seeking 

recovery for actual loss to the holder. Rather, the language 

provides that a fine, penalty, or forfeiture will be accorded 

fourth priority only "to the extent that such fine, penalty, [or] 

forfeiture •.. [is] not compensation for actual pecuniary loss 

suffered by the holder of such claim." Thus, the language makes 

actual pecuniary loss to the holder of the claim relevant only if 

a fine, penalty, or forfeiture is involved. That language does 

not state that if a claim is not for pecuniary loss to the holder 

of the claim the claim automatically is a fine, penalty, or 

forfeiture. 

Second, although the money that the DOE recovers in this case 

may not go directly to the overcharged purchasers, the DOE is 

seeking the money on their behalf. Under the Petroleum Overcharge 

Distribution and Restitution Act of 1986 ("PODRA"), 15 U.S.C. 

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§ 4501 et~, the DOE is obligated to attempt to identify and 

compensate overcharged purchasers. 15 U.S.C. § 4502(b). Any 

remaining funds are then to be distributed as "indirect 

restitution" to states for energy conservation programs and to the 

Federal treasury. 15 u.s.c. §§ 4502(d), 4503. Clearly, Congress, 

in enacting the PODRA, envisioned that the DOE's recovery for 

overcharges was restitutionary in nature. 

Third, the DOE's claim was brought pursuant to Section 209 of 

the ESA, which provides that "the court may order restitution of 

moneys received in violation of any such order or regulation." 

(Emphasis added.) Although the label "restitution" should not be 

conclusive, it is a factor to be considered in determining the 

nature of the DOE's claim. Moreover, the relevant regulations 

contain provisions for civil and criminal penalties, see 15 u.s.c. 

§ 754(a)(3), but the DOE did not seek those penalties in this 

case. 

CONCLUSION 

For the foregoing reasons, we AFFIRM the district court's 

finding of sufficient wrongdoing to justify a constructive trust. 

We REMAND for a determination of the lowest intervening balance 

between the time when the overcharges initially were received by 

Seneca and the time that Seneca first established the Suspense CD. 

We REVERSE the judgment against the DOE concerning the $54,690.09 

deficiency in the constructive trust fund and REMAND for further 

proceedings not inconsistent with our opinion. We DENY the DOE's 

motion to dismiss Appeal No. 87-1890 for lack of jurisdiction. We 

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I 

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AFFIRM the district court's decision that the DOE's claim is not a 

fine, penalty, or forfeiture under Section 726(a)(4) of the 

Bankruptcy Code. We GRANT DOE's motion to strike Section II of' 

Appellants' Second Reply Brief (dated August 15, 1988), but we 

consider all authorities cited therein as supplemental 

authorities. 

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