* This order and judgment is not binding precedent, except under the

doctrines of law of the case, res judicata, and collateral estoppel. The court

generally disfavors the citation of orders and judgments; nevertheless, an order

and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

F I L E D

United States Court of Appeals

Tenth Circuit

JUL 30 2002

PATRICK FISHER

Clerk

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

In re: COMMERCIAL FINANCIAL

SERVICES, INC.,

Debtor,

______________________________

BANK ONE, OKLAHOMA, N.A.,

Appellant,

v.

COMMERCIAL FINANCIAL

SERVICES, INC.; UNSECURED

CREDITORS LIQUIDATING

TRUSTEE,

Appellees.

No. 01-5190

(D.C. No. 00-CV-416-B)

(N.D. Oklahoma)

ORDER AND JUDGMENT *

Before BARRETT , PORFILIO , and BALDOCK , Circuit Judges.
1 These background facts are taken from the bankruptcy court’s order.

2

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)(2); 10th Cir. R. 34.1(G). The case is

therefore ordered submitted without oral argument.

This appeal requires us to determine whether the district court erred in

affirming a judgment of the bankruptcy court denying appellant Bank One’s

“Motion for Relief from Automatic Stay and for Order Directing Abandonment.” 

Upon appeal of the bankruptcy court’s order, the district court referred the matter

to a magistrate judge who recommended that Bank One could not exercise a right

to setoff consistent with Oklahoma law and that it did not qualify for Oklahoma’s

statutory banker’s lien. The district court adopted the report and recommendation

of the magistrate judge in its entirety. After our review of the pertinent law, the

briefs of the parties, and the record, we reverse.

Debtor Commercial Financial Services, Inc. (CFS) is an Oklahoma

corporation that was engaged in the business of acquiring portfolios of defaulted

credit card receivables and small balance consumer loans and then servicing and

collecting the delinquent accounts. 1 CFS financed this operation by transferring

the receivables to limited partnerships or corporations it established and then in

turn transferring the receivables to a trust. The trust then issued notes and
3

certificates secured by the receivables to investors who profited through

collection of the receivables. Revenue from the notes and certificates provided

operating capital for CFS, and CFS collected fees from the trusts in return for

servicing the receivables.

In order to facilitate collection of the receivables, CFS opened accounts at

Bank One. The account at issue here was titled “CFS Inc. as Servicer for CFS

TAPR II LTD & TAPR III LTD,” Aplt’s App. at 532, and was described by an

official of Bank One as a demand deposit account with a lockbox feature (“the

account”). That is, there was a particular post office zip code attached to the

account. When payments came into the lockbox, bank personnel would open the

envelopes, record the amounts, and forward the monies into the account. The

receivables in the account were owned by CFS and the TAPR II and TAPR III

partnerships. CFS, as servicer, would routinely reconcile the account and

occasionally would have to reallocate the monies among the several other

accounts it maintained at Bank One. 

Additionally, CFS was also a guarantor on a loan to one of its affiliates

from a group of lenders. Bank One owned 71⁄2% of the loan. This appeal

involves Bank One’s attempt to get relief from the automatic stay in order to

setoff the amounts owed it pursuant to CFS’s guarantee against CFS’s money in
4

the account. Alternatively, Bank One argued that it was entitled to the statutory 

banker’s lien as provided in Okla Stat. tit. 42, § 32.

Whether to lift the stay is a matter for the discretion of the judge presiding

in the bankruptcy matter and will be reviewed for abuse of discretion. Pursifull v.

Eakin , 814 F.2d 1501, 1504 (10th Cir. 1987). However, “a district court would

necessarily abuse its discretion if it based its ruling on an erroneous view of the

law or on a clearly erroneous assessment of the evidence.” Cooter & Gell v.

Hartmarx Corp. , 496 U.S. 384, 405 (1990). With regard to the specific

underlying issues here, Bank One’s right to setoff or to a banker’s lien, our

standard of review is the same as that governing the district court’s review of the

bankruptcy court. 

Accordingly we review the bankruptcy court’s legal determinations

de novo and its factual findings under the clearly erroneous standard. 

A finding of fact is clearly erroneous if it is without factual support

in the record or if, after reviewing all of the evidence, we are left

with the definite and firm conviction that a mistake has been made.

Conoco, Inc. v. Styler (In re Peterson Distrib., Inc.) , 82 F.3d 956, 959 (10th Cir.

1996) (citations omitted); see also Driver Music Co. v. Commercial Union Ins.

Cos. , 94 F.3d 1428, 1433 (10th Cir. 1996) (reviewing award of pre-judgment

interest for abuse of discretion, but subjecting underlying statutory interpretation

or legal analysis to de novo review).
5

“Although no federal right of setoff is created by the Bankruptcy Code,

11 U.S.C. § 553(a) provides that, with certain exceptions, whatever right of setoff

otherwise exists is preserved in bankruptcy.” Citizens Bank of Md. v. Strumpf,

516 U.S. 16, 18 (1995). 

The Bankruptcy Code provides no general equitable

mechanism for disallowing rights of setoff that are expressly

preserved by section 553. Consistent with the text of section 553, the

best statement of modern law and practice is that, if the relevant

claim and debt constitute mutual obligations within the meaning of

section 553, a right of setoff should be recognized in bankruptcy

unless the right is invalid in the first instance under applicable

nonbankruptcy law, or unless it is otherwise proscribed by some

express provision of the Code.

5 Collier on Bankruptcy ¶ 553.02[3] (Lawrence P. King ed. 15th ed. rev’d. 2002)

(footnotes omitted).

In this case, the applicable nonbankruptcy law available to test the validity

of Bank One’s right to setoff is the law of Oklahoma. In Oklahoma, a setoff is

appropriate if: (1) the fund deposited in the bank is the property of the depositor;

(2) the fund is not restricted or a special fund or account; and (3) there is “an

existing indebtedness then due and owing by the depositor to the bank.” Hall v.

Duncan Sav. & Loan Ass’n, 820 P.2d 1360, 1361 (Okla. Ct. App. 1991). Bank

One has the ultimate burden of demonstrating its right to setoff, see Newbery

Corp. v. Fireman’s Fund Ins. Co., 95 F.3d 1392, 1399 (9th Cir. 1996), and funds

placed on deposit in a bank are presumed to be those of the depositor and subject
2 The bankruptcy court cited Dowden v. Cross County Bank (In re Brittenum

& Assocs., Inc.), 868 F.2d 272, 275-76 (8th Cir. 1989) for the proposition that

when the name on an account gives notice of the special nature of the account, the

presumption is rebutted. The account in Dowden, however, was entitled “Jon R.

Brittenum & Associates, Inc. Special Reserve Account for the Exclusive Benefit

of Customers.” Id. at 273. In contrast, the account name here, “CFS as Servicer

for CFS TAPR II and TAPR III” indicated that funds in the account belonged not

only to third parties but also to CFS. The name on the CFS account does not

indicate that the funds were exclusively for the benefit of entities other than CFS. 

Under these circumstances, we decline to find the presumption rebutted here

based solely on the name of the account.

6

to setoff, see Southwest Nat’l Bank v. Evans, 221 P. 53, 55 (Okla. 1923). CFS, as

the depositor, can then rebut this presumption by showing that the account is

special and thus not subject to setoff. Id.2

Thus, the issue in this appeal is whether the account was a special account. 

In general, if the account is held in trust, or is dedicated to

a special use, the bank may be prohibited from taking a setoff. Thus,

a bank may be prevented from asserting a right of setoff against a

payroll account that the bank knew was dedicated for the purpose of

paying the debtor’s employees. Similarly, a bank may be prohibited

from taking a setoff against an escrow deposit, or an individual

retirement account.

5 Collier on Bankruptcy at ¶ 553.03[3][c][iv] (footnotes omitted). The name of

the account is not controlling, id., and if the depositor retains unlimited discretion

and dominion over the account, it will not be considered special, see John

TeSelle, Banker’s Right of Setoff, 34 Okla. L. Rev. 40, 46 (1981).

Oklahoma courts have found special accounts to exist where the bank knew

that a fund was specifically created as a trust deposit under an escrow contract,
7

see First Nat’l Bank & Trust Co. v. Osage Supply Co., 97 P.2d 3, 5 (Okla. 1939);

where the funds were deposited in an IRA account, see Hall, 820 P.2d at 1362;

where the depositor was a livestock commission company handling discrete funds

as an agent for a cattle buyer, see Evans, 221 P. at 55; and where the depositors

were acting as attorneys-in-fact for a third party, and the account was specifically

created to pay off the third party’s debts see First Nat’l Bank of Leedy v.

W.P. Seawell Lumber Co., 274 P. 873, 875 (Okla. 1928). 

The bankruptcy court concluded that the account was a special fund and not

eligible for setoff. It further found that Bank One could not have a banker’s lien

on the account because it was a depository account, the relationship between the

parties was as debtor and creditor, and Bank One held no money of CFS as bailee

to which a banker’s lien could attach.

Among the facts relied on by the bankruptcy court and which find support

in the record are the following: CFS had rights in the account, as of the petition

date, in its capacity as Servicer for CFS TAPR II LTD & TAPR III LTD”; Bank

One’s obligation on the account was to CFS as servicer; the deposits in the

account were generated by virtue of the efforts of CFS, as servicer, in collecting

purchased defaulted credit-card accounts; some individual deposits had to be

transferred to the accounts of one or more of the securitization trusts or other

entities; deposits made erroneously into the account had to be rerouted into the
8

correct lockbox accounts; the lockbox accounts collectively acted as a

clearinghouse into which collections were deposited and reconciled by CFS as

servicer in connection with its servicing activities; and Bank One was fully aware

of the mechanics of the CFS servicer lockbox accounts.

We find these facts, however, go more to a finding that monies from TAPR

II and TAPR III were intermingled in the account with funds belonging to CFS

rather than to a conclusion that the account was special. As Bank One correctly

points out, the fact that CFS’s money was commingled in the account with funds

of other entities does not defeat its right to setoff against CFS’s portion. See

Blackwell Livestock Auction, Inc. v. Cmty. Bank of Shidler, Okla. , 864 P.2d 1297,

1300-01 (Okla. Ct. App. 1993) (noting bank exercising setoff against commingled

funds was required to return funds of third party but not the entire amount of

setoff); see also Bridgeport Co. v. United States Postal Serv. 39 B.R. 118, 128

(Bankr. E.D. Ark. 1984) (recognizing that the general right to setoff is subject to

the rights of third parties where the bank has knowledge or is put on inquiry that a

third party has rights in the fund); see generally B.C. Ricketts, Annotation,

Bank’s Right to Apply Third Person’s Funds, Deposited in Debtor’s Name, on

Debtor’s Obligation , 8 A.L.R. 3d 235 § 13 (1966) (noting authority for the

proposition that “a bank’s actual knowledge that part of the funds in a certain

account belong to a third person gives it such knowledge or notice of the third
9

person’s interest as to prevent the bank from applying the third person’s funds on

a debt owed by the person in whose name the account is maintained (emphasis

added)).

Bank One has never attempted to setoff any funds belonging to TAPR II or

TAPR III against the amounts owed it by CFS. Indeed, the parties had entered

into a court-approved joint stipulation allocating the account funds among the

three entities with rights in the account, so it would have been possible for Bank

One to setoff against CFS’s funds without disturbing funds belonging to TAPR II

and TAPR III. 

The fact remains that there is no support in the record for finding that CFS

was restricted in any way from accessing its own funds in the account or

exercising complete dominion over their disposal. “Accounts specially designated

for the depositor’s accounting purposes . . . will not be considered special

accounts for the purposes of setoff, even if the bank knows of the intended

special use, if the depositor retains unlimited dominion over the account.” 

TeSelle, 34 Okla. L.R. at 46 (footnote omitted). The bankruptcy court found that

CFS’s rights in the account were “subject to its contractual duties toward many

entities, including CFS as an owner of some of the assets collected, TAPR II,

TAPR III, and the beneficiaries of other lockbox accounts.” R. Vol. I at 196. 

The court further found that CFS could not use the funds in the account for
10

general operating purposes. Id. While these findings would probably be enough

to sustain a conclusion that the account was a special account, there is no

evidence in the record substantiating either CFS’s contractual duties to other

entities (other than an accounting function owed TAPR II and TAPR III) or that

CFS was somehow restricted in the use of its own funds in the account. 

Specifically, nothing supports the finding that CFS was restricted from using the

CFS funds in the account for general operating purposes. 

On that point, Bank One identifies evidence in the record showing that CFS

requested Bank One to transfer the funds in the account to its debtor-inpossession account at another bank, establishing, according to Bank One, that the

account was not special. The magistrate judge refused to consider this argument

because he concluded it had not been raised to the bankruptcy court. Because

Bank One did not make a formal argument to the bankruptcy court on this point,

but merely included the documentary evidence in the record, we will not consider

it on appeal. See Oakland Oil Co. v. Conoco Inc. , 144 F.3d 1308, 1314 n.4 (10th

Cir. 1998) (refusing to entertain a theory presented in the district court in only a

vague and ambiguous way).

While it is certainly possible that, because of its long association with this

case, the bankruptcy court is correct about the facts marshaled to support its

conclusion, we note that CFS presented no witnesses at the hearing on Bank
11

One’s motion for relief from stay and offered no documentary evidence to support

a conclusion that this account was special and thus not subject to setoff. In both

of its briefs to this court, Bank One argued that the lack of evidence in the record

precluded affirmance. Under these circumstances, CFS was obligated to identify

essential references in the record, see S.E.C. v. Thomas , 965 F.2d 825, 827 (10th

Cir. 1992), or, assuming that such evidence had been before the bankruptcy court, 

to supplement the record on appeal. 

In a footnote, the bankruptcy court implied that Bank One’s arguably

inequitable conduct would also have barred recovery. Again the record is too

sparse for us to be able to affirm on this alternative ground. Because of our

disposition of this case, it is unnecessary for us to address Bank One’s arguments

relative to the banker’s lien statute.

The judgment of the United States District Court for the Northern District

of Oklahoma is REVERSED.

Entered for the Court

Bobby R. Baldock 

Circuit Judge