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Parties Involved:
Castletons, Inc.
Not Party
Mary Ellen Sloan
Appellant
Zions First National Bank
Appellee

Document Text:

FIL~ D 

United States Court of Appeals 

Tenth Cb::uit 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

FEB 2 5 1 

.ROBERT L. HOECKER 

Clerk 

In re CASTLETONS, INC., a Utah 

corporation, 

Debtor, 

MARY ELLEN SLOAN, Trustee, 

Appellant, 

v. 

ZIONS FIRST NATIONAL BANK, 

Appellee. 

) 

) 

) 

) 

) 

) No. 90-4088 

) (D.C. No. 90-CV-39-J) 

) (D. Utah) 

) 

) 

) 

) 

) 

) 

) 

) 

ORDER AND JUDGMENT* 

Before McKAY, SEYMOUR, and EBEL, Circuit Judges. 

This appeal challenges the district court's affirmance of a 

bankruptcy court order directing the return of monies from 

appellant Mary Ellen Sloan, as trustee for debtor Castletons, 

Inc., to appellee Zions National Bank. 1 We affirm. 

* 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. 

1 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. 

(continued on next page) 

Appellate Case: 90-4088 Document: 010110028605 Date Filed: 02/25/1991 Page: 1 
Background 

Castletons, Inc. (Debtor) filed for Chapter 11 bankruptcy in 

the United States Bankruptcy Court for the District of Utah on 

May 15, 1987. Approximately one year earlier, the Debtor had 

executed a promissory note in the principal sum of $3,600,000 to 

Zions First National Bank (Zions). To secure payment of this note 

and an additional $100,000 loan, the Debtor granted Zions a 

security interest in its inventory and accounts receivable. On 

May 9, 1987, six days before the Debtor declared bankruptcy, Zions 

exercised its rights under the security agreement by notifying the 

Debtor's charge account customers that payments on their accounts 

should be made directly to Zions. As a result of this notice, 

Zions collected $129,702.39 in payments on the Debtor's charge 

accounts in the period before the Debtor declared bankruptcy. 

On May 21, 1987, Zions brought an adversary proceeding 

against the Debtor seeking a declaration that Zions, through 

foreclosure, bad become the owner of the Debtor's accounts 

receivable and an injunction preventing the Debtor from collecting 

on its accounts receivable or disposing of the proceeds previously 

collected. On the same day, the Debtor initiated a separate 

adversary proceeding in which it sought to compel Zions to return 

the proceeds it had collected before the Debtor declared 

bankruptcy because they were property of the estate. 

The bankruptcy court consolidated these cases and, upon the 

parties' cross-motions for summary judgment, granted the Debtor's 

(continued from previous page) 

34(a); 10th Cir. R. 34.1.9. The case is therefore ordered 

submitted without oral argument. 

2 

Appellate Case: 90-4088 Document: 010110028605 Date Filed: 02/25/1991 Page: 2 
motion and ordered Zions to turn over the $129,702.39 it had 

collected before the Debtor's bankruptcy. Castletons, Inc. v. 

Zions First Nat'l Bank (In re Castletons, Inc.), Nos. 87PC-0403 & 

87PC-0405 (Bankr. D. Utah June 17, 1987) (Turnover Order). Zions 

complied with the Turnover Order on that same day and filed a 

notice of appeal with the district court two days later. The. 

district court subsequently reversed the Turnover Order upon 

holding that Zions had successfully completed a nonjudicial 

foreclosure on the security agreement before the Debtor's May 15, 

1987 bankruptcy filing, leaving the Debtor with no legal or 

equitable right to the proceeds (Turnover funds) collected by 

Zions before that date. Zions First Nat'l Bank v. Castletons, 

Inc. (In re Castletons, Inc.), No. 87-C-565J (D. Utah Aug. 15, 

1989)(Turnover Appeal Decision). 

In reversing the Turnover Order, the district court 

specifically rejected the Debtor's contention that the parties' 

dispute over the Turnover funds had been mooted by their July 2, 

1987 Stipulation and Agreement Concerning Use of Cash Collateral 

(Stipulation). 2 See id. at 5-7. Pursuant to that Stipulation, 

the Debtor had acknowledged that Zions held a valid, properly 

perfected and enforceable security interest in all of the Debtor's 

inventory, accounts receivable and the proceeds therefrom and 

agreed to deliver these assets to Zions. R. Vol. IV at 340-41. 

In return, Zions agreed, among other things, to reduce its secured 

claim by $400,000 and to allow the Debtor to draw on these secured 

2 This stipulation was approved 

July 7, 1987. 

3 

by the bankruptcy court on 

Appellate Case: 90-4088 Document: 010110028605 Date Filed: 02/25/1991 Page: 3 
assets during its efforts to convert its inventory to cash, to 

collect its accounts receivable and to take other actions 

consistent with satisfying Zions' secured claim. See id. at 

340-44. Consistent with this Stipulation, the Debtor delivered 

all of the proceeds from its accounts receivable to Zions, 

including the $129,702.39 it had just received pursuant to the 

bankruptcy court's Turnover Order. The record does not reveal how 

much, if any, of the Turnover funds were then utilized by the 

Debtor to liquidate inventory and take other actions consistent 

with the Stipulation. The Turnover funds were also not referenced 

in the Stipulation or otherwise distinguished by the parties from 

the other funds and accounts transferred to Zions pursuant to the 

Stipulation. 

In its brief to the district court, the Debtor argued broadly 

that the Stipulation mooted the appeal concerning the propriety of 

the Turnover Order because it provided for Zions to collect and 

receive all proceeds from the Debtor's accounts receivable and 

other sales. R. Vol. IV at 316-17, 321. At some point later in 

the appeal process, the Debtor apparently refined this argument to 

assert that no case or controversy existed because the Stipulation 

adequately provided for protection of Zions' security interest. 

See Turnover Appeal Decision at 5-6 (citing 11 U.S.C. § 542 

regarding the standards for determining the propriety of a 

turnover order). The district court rejected this argument on the 

ground that the subject proceeds had never been part of the 

Debtor's estate and hence could not be considered in determining 

whether Zions' remaining interest in the Debtor's estate was 

4 

Appellate Case: 90-4088 Document: 010110028605 Date Filed: 02/25/1991 Page: 4 
adequately protected. See id. at 5-7. The district court further 

found that the appeal was not mooted because the Debtor's 

remaining estate of $135,000 in unencumbered funds was available 

to provide an "effective remedy" for the bankruptcy court's 

erroneous Turnover Order. Id. at 7. The Debtor did not appeal 

this or any other aspect of the district court's decision. 

On remand for further action in accordance with the district 

court's rulings, the bankruptcy court ordered the Debtor's 

Trustee3 to pay Zions $129,702.39, plus interest accrued since the 

June 17, 1987 Turnover Order. Zions First Nat'l Bank v. 

Castletons, Inc. (In re Castletons, Inc.), Nos. 87PC-0403 & 

87PC-0405, Order Directing Return of Monies (Bankr. D. Utah 

Nov. 29, 1989)(Return Order). The Trustee appealed to the 

district court, which summarily affirmed the Return Order after a 

hearing. Zions First Nat'l Bank v. Castletons, Inc. (In re 

Castletons, Inc.), No. 90C-0039J (D. Utah May 5, 1990). The 

Trustee then timely appealed to this court. 

Discussion 

The Trustee argues on appeal that the bankruptcy court erred 

in ordering it to repay Zions the Turnover funds because, by the 

time the Return Order was entered, such payment could only be made 

out of funds derived from the sale of unencumbered assets of the 

Debtor's estate, that is out of assets to which Zions had no 

special entitlement under the Bankruptcy Code. The Trustee 

further contends that disputed issues of fact regarding Zions' 

3 The Trustee was appointed in September 1988 when the Debtor's 

case was converted to a Chapter 7 bankruptcy. 

5 

Appellate Case: 90-4088 Document: 010110028605 Date Filed: 02/25/1991 Page: 5 
"claim" against the Debtor for the Turnover funds precluded the 

bankruptcy court from entering "summary judgment" on the issue and 

that the real effect of the Return Order was to grant Zions a 

double recovery of the Turnover funds because they had previously 

been delivered to Zions pursuant to the Stipulation. We find no 

basis for reversal in any of these contentions. 

First, we disagree that the Return Order is a summary 

judgment subject to review under the standards of 

Fed. R. Civ. P. 56(c). The ordinary standard for review on a 

second appeal following a remand "is whether the court below 

'reached its final decree in due pursuance of the previous opinion 

and mandate of [the appellate] court.'" Mobil Oil Corp. v. 

Department of Energy, 647 F.2d 142, 145 (Temp. Erner. Ct. App. 

1981)(quoting United States v. Camou, 184 U.S. 572, 574 (1902)). 

In conducting this review, we are to interpret that mandate 

"'reasonably and not in a manner to do injustice.'" Id. (quoting 

Bailey v. Henslee, 309 F.2d 840, 844 (8th Cir. 1962)). We see no 

reason to depart from this standard of review in this case.

4 

We also disagree that the bankruptcy court did more than 

simply execute the district court's mandate when it issued the 

Return Order. As described earlier, the district court held in 

the Turnover Appeal that the bankruptcy court should not have 

4 The Trustee also argues that a de novo standard of review is 

required because the Return Order decided an issue not addressed 

by the district court, that is "the issue of how Zions' claim 

should be treated under the Bankruptcy Code." Reply Brief of 

Appellant Castletons, Inc. at 3 (emphasis added). The error of 

this argument, as discussed herein, is its assumption that Zions' 

ability to recover these funds is subject to the Bankruptcy Code's 

provisions for recognizing claims against a debtor's estate. 

6 

Appellate Case: 90-4088 Document: 010110028605 Date Filed: 02/25/1991 Page: 6 
., 

ordered Zions to turn the subject funds over to the Debtor because 

these funds were not part of the Debtor's estate at the time it 

filed for bankruptcy. See Turnover Appeal Decision at 13. The 

district court further stated that it had an "effective remedy" 

available to correct this error because the estate retained 

sufficient funds, derived from the sale of unencumbered assets, to 

return the improperly received funds. Id. at 7. Given these two 

statements, we find that the bankruptcy court acted "in due 

pursuance" of its mandate in ordering the Trustee to repay Zions 

the Turnover funds. 

The district court's rulings in the first appeal in this case 

also preclude the Trustee's remaining arguments. By holding that 

the Turnover funds were never part of the Debtor's estate, the 

district court effectively removed these funds from the Bankruptcy 

Code's priority scheme for distributing property of the debtor's 

estate. See 11 U.S.C. § 726(a) (establishing priorities for 

paying claims against the debtor's estate). Thus, the Trustee's 

arguments challenging Zions' entitlement to the Turnover funds 

based on this statutory distribution scheme must fail. 5 The 

Trustee's final argument, that the Return Order effectively allows 

Zions to recover the Turnover funds twice, once via the 

Stipulation and a second time via the Return Order, also fails as 

it is merely a reformulation of the mootness argument considered 

and rejected by the district court in the Turnover Appeal. See 

5 We know of no authority requiring 

Trustee argues, simply because the 

improperly seized funds was ultimately 

to the sale of unencumbered assets. 

7 

a different result, as the 

actual repayment of these 

made out of funds traceable 

Appellate Case: 90-4088 Document: 010110028605 Date Filed: 02/25/1991 Page: 7 
Turnover Appeal Decision at 7. The Trustee chose not to appeal 

that final decision and cannot now complain that the bankruptcy 

court properly executed it. 

The judgment of the United States District Court for the 

District of Utah is AFFIRMED. 

ENTERED FOR THE COURT 

Judge Stephanie K. Seymour 

8 

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