ll

; *
No, 03 C3428 Page 4

agent of the trusts and had the power to enter into binding contracts for the trust. There is
however no indication that it entered into any such contract with Matrix, The property
management agreement was nothing more than a two-party contract between CFSC and
Matrix, whereby Matrix agreed to perform work in exchange for payments from CFSC. The
contract clearly mentions only CFSC and Matrix as parties, and CFSC alone has the duty to
pay Matrix for its services. Nowhere does the contract contemplate any third party.

‘The agreement between CFSC and Matrix states that Matrix will be paid from the
“Sellers” funds, Matrix argues that the trusts must be the sellers contemplated by the
agreement because they are the actual owners of the loans and because CFSC has no equitable
interest in the loans. CFSC however retained legal title to the loans for just this purpose.
CFSC has the power to service and sell the loans in order to maximize value and therefore
needed to retain title to the loans. Accordingly, CFSC is the seller of each asset and has the
contractual duty to pay Matrix its fees and reimburse it for its expenditures. Section 541 of
the bankruptcy code envisions just this scenario, providing that ifa debtor holds legal title to
legal property but has no equitable interest, such property belongs to the estate “only to the
extent of the debtor’s legal title.” 11 U.S.C. § 541(d). In other words, to the extent that CFSC
retained Jegal title in order to facilitate its servicing of the loans, this property is considered
part of the estate.

Let us characterize the relationships in a somewhat different way. CFSC was the
servicing agent for the trusts and had the contractual obligation to make collections on the
loans. It could have done so itself and, indeed, had legal title for that purpose. Ifit had self-

performed it would have been obligated to pay over the proceeds to the trusts, which had



No, 03 € 3428 Page3

On December 17, 2002, when appellee filed its bankruptcy petition under Chapter 11,
Matrix had advanced approximately $581,773.48, relating to assets that had not yet been sold.
CFSC refused to allow Matrix to collect its expenses at closing and instead insisted that Matrix
would be paid from CFSC’s assets. This left Matrix with only a claim in bankruptcy for the
funds it had advanced.

On March 6, 2003, appellant filed its complaint in the bankruptcy court, seeking a
declaration that the pre-petition expenditures by Matrix were not part of the bankruptcy
estate and that CFSC could not therefore interfere in Matrix’s collection. The case was tried
on stipulation and on April 29, 2003, in open court, the bankruptcy judge ruled against Matrix
and for CFSC.

STANDARD OF REVIEW

All facts relating to this matter were stipulated to by the parties. In determining
whether CFSC was acting as an agent of the trusts, and whether the expenditures were part
of the bankruptcy estate, the bankruptcy court essentially applied the law to these stipulated

facts and reached its conclusions. We review these mixed conclusions for clear error.

McFarlane vy. Life Ins. Co. of North America, 999 F.2d 266, 277 (7" Cir. 1993). To the extent
that we are reviewing the court’s statements of law, we do so de novo. In re Marrs-Winn Co.,
Inc., 103 F.3d 584, 589 (7" Cir, 1996).
DISCUSSION
Itis well settled that an agent, acting under actual authority, has the power to enter into

a binding contract on behalf of an undisclosed principal. See Indiana Gas Co., Inc. v. Home

Ins. Co., 141 F.3d 314, 319 (7" Cir. 1998). The facts clearly show that CFSC was the servicing



No, 03 C 3428 Page 5

equitable title, and then be paid by the trusts its fees and expenses, CFSC chose, however, to
contract with others, such as Matrix, to perform certain of those obligations, The trusts were
not parties to the arrangement between CFSC and Matrix; their relationship was with CFSC
and they would have no interest in how CFSC performed its obligations so long as they were
performed. That is, the trusts had no more interest in the CFSC-Matrix relationship than they
did in CFSC’s relationship with its landlord or its telephone service provider. Matrix was
entitled to look to the assets of CFSC for reimbursement, and it was not entitled to Jook to the
assets of the trusts, at least so long as the trusts paid to CFSC the fees and expenses it was
obligated to pay as a result of its agreement with CFSC, No one is contending that those
payments were not made ~ at which time they became property of the estate.

We do not need to address the second issue raised by the appellant ~ whether the actual
proceeds of the sales are part of CFSC’s bankruptcy estate or whether they belong to the
trusts, In either case, Matrix’s claim for reimbursement is against CFSC, the only party with
which ithad a contractual relationship. As it stands now, that claim is against the bankruptcy
estate of CFSC.

CONCLUSION

For the foregoing reasons, the order of the bankruptcy court is hereby affirmed.

a.

JAMES B. MORAN

% ior Judge, U. S. District Court
Sah. > 2003.



Ky United States District Court, Northern District of Illinois —
viii Magirate Judge James B. Moran “nan hetted Judge
CASE NUMBER 03 C 3428(02 B 49672) DATE 9/8/2003
CASE Matrix asset Management Corp. Vs, Conseco Financing Servicing Corp.
TITLE

[In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd purty plaintiff, and (b) state briefly the nature
of the motion being presented.)

MOTION;
Memorandum Opinion and Order
DOCKET ENTRY:
qd) a Filed motion of [ use listing in “Motion” box above.]
(2) a Brief in support of motion duc __
(3) Qo Answer bricf to motion due___. Reply to answer bricfdue_
(4) Qo Ruling/Hearingon___eset for___at
(5) Qa Status hearing[held/continued to] [set for/re-set forlon___ ss setfor_——sat,
(6) im Pretrial conference[held/continued to) [set for/re-set for]on_ set for at
(7) Oo Trial[set for/re-set for]on__— at.
(8) ia [Bench/Jury trial] [Hearing] held/continued to_at__
(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OOFRCP4(m) CLocal Rule 41.) OFRCP41(a)(1) OO FRCP41(a)(2).

do if [Other docket entry] Enter Memorandum Opinion and Order. For the foregoing reasons, the order
of the bankruptcy court is hereby affirmed.

dl) ff (For further detail see order attached to the original minute order.]

No notices required, udvised in open court. Docanignt

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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
TN RE: )
CONSECO, INC., et al., ) No. 03 C 3428
Debtors, ) (Appeal from 02 B 49672)
) i
MATRIX ASSET MANAGEMENT ) b. .
CORPORATION, ) EP 0 4 2008
) s)
Appellant, )
)
vs. y Adversary No. 03 C 671
)
CONSECO FINANCING SERVICING CORP., )
)
Appellee, )

MEMORA! M OPINION AND ORDER

Appellant Matrix Asset Management (Matrix) filed an adversarial complaint as part
of the Chapter 11 bankruptcy proceeding of appellee Conseco Finance Servicing Corporation
(CFSC), seeking reimbursement of certain expenditures. The Bankruptcy Court for the
Northern District of Illinois, Judge Carol A. Doyle, ruled in favor of CFSC and against Matrix,
holding that Matrix was not entitled to the funds but only to a claim against the bankruptcy
estate. Matrix now appeals that order, arguing that CFSC was acting solely as an agent of
certain trusts and that therefore the money was not part of the bankruptcy estate. For the
following reasons, the order of the bankruptcy court is affirmed.

BACKGROUND

CFSC is in the business of making loans secured by mortgages on real property. These

loans are subsequently sold to securitization trusts pursuant to individual pooling and

servicing agreements, all of which have essentially the same terms. The trusts then issue and

e



*

No. 03 C 3428 Page 2

sell shares of ownership interest in the trusts to third party investors. Pursuant to the polling
servicing agreements CFSC has “the sole obligation to manage, administer, service and make
collections” on the loans, In order to facilitate this duty, CFSC holds legal title to the loans but
has no equitable interest. All money collected by CFSC with respect to the loans is paid to the
trusts which, in return, pay fees to CFSC and reimburse it for its costs associated with
servicing the loans.

As part of its duty to service the loans, CFSC reached an agreement with Matrix
whereby Matrix would perform property management services for CFSC. In exchange,
Matrix is paid servicing fees and is reimbursed for its costs, The contract calls for Matrix to
be reimbursed whenever an asset sale closes or whenever Matrix’s expenditures in relation to
a specific asset exceed $5,000.

Section 2.9 of the agreement between Matrix and CFSC provides:

Payment Terms: Matrix shall remit to Conseco Finance [(CFSC] all Net Proceeds

from the sale or disposition of an Assct or Special Asset on the Remittance Date.

All authorized fees and Direct Expenses advanced by Matrix and not previously

paid by Conseco Finance shall be included on the Settlement Statement and

paid from Seller’s Funds at closing of that Asset or Special Asset.

Net Proceeds are defined as:

The Amount received from the sale, settlement or disposition of an Asset after

deduction of expenses related to closing. (i.e., all Direct expenses if any shall be

netted from Conseco Finance remittance)

Matrix and CFSC agreed on a procedure, not required by the contract, whereby Matrix
collected its fees and expenditures from escrow immediately upon the closing of each asset.

The remaining balance was paid from escrow to CFSC, which, presumably, passed the funds

on to the trusts as required by the polling and servicing agreements.