FI L ED U.S. COURT OF A P P E A LS E LE V E N T H C IR C U IT J ULY 18, 2006 THOMAS K. KAH

N CL ERK [P UB LI SH ] IN THE UN ITED STATES COURT OF APPEALS FO R T HE EL EV EN TH CIRC UI T

____ ____ ____ N os. 04- 1665 0, 04- 1665 1, 05- 1003 1

____ ____ ____ _ D . C. D oc ke t N os. 03- 0190 3- CV -T -1 7MA P, 03- 0190 4- CV -T -1 7T G W , 04- 0166 8- CV- T- 17EAJ & 92-1640 6-8B1 IN RE : Sunshin e Jr. Stores, Inc. d. b. a. S unsh ine S upe rm ar ke ts d.b .a. Jr. Fo od Sto res , Debt or .

____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ BANK OF NEW

YORK, Pl ai nt iff -Ap pe ll an t, ve rs us SUNSHINE-J R. STORES, INC., Defen da nt -Ap pe ll ee.

____ ____ ____ __ Appeals fr om

the United State s District Court fo r the Mi ddl e D istri ct

of F lor ida

____ ____ ____ _ (J ul y 18 , 200 6) Before TJO FL AT and BARKE TT , C ircuit Judg es, and MILL S , D istrict Judg e. * * Ho no ra ble Ric ha rd Mil ls, Un ite d St ate s D istri c t Judg e fo r t he Ce ntr a l D ist

ri c t of I lli no is, sitti ngby desig nation.2

TJO FL AT , C ircuit Judg e: In this Chapter 11 case, the bankruptcy court sanctioned the Bank of New Y ork ( “ BO N Y ”) f

or r ep eate dly

r ef usi ng t o ob ey

se ve ra l or de rs the c ourt i ssu ed f or the benefit of Sunshine-Jr. S tores, I nc. ( The “ De btor”). First, the court struck BO N Y ’ s r es pons e to the D eb tor ’ s c la im f or int er es t onf

unds BO N Y he ld a s a fi duc iary f or the D eb tor . S ec ond, havin g stru ck BO N Y ’ s r es pons e, the c ourt gave the D eb tor

j udgm en t f

or the int er es t. T hir d, the c ourt or de re d B O N Y to pay the Deb to r’s at to rn ey ’s fees . BONY ap pe al edth es e d eci si on s t o t he di st ric t co ur t, wh ic h a ffi rm ed . BO NY n o w ap p ea l s t o th i s co u rt . B ONY ac kn o wl ed g es th at i th el dth e D eb t o r’s funds, a s a lle ge d, but

a sse rt s th at

it w as not doi ng s o a s af

idu ci ar y and thus ha d no obl igatio n to pay

int er es t ontho se f

unds . A s f

or the sanc tio ns, BO N Y c ont en ds that the y w er e ina ppr opr ia te on s ev er al gr ound s. W e ar e unpe rs ua de d by BO N Y ’ s arg um en ts an d t he refo re af fir m . Part I of this opi nion sets out th e fa ctual backgroundof this case. Par t II an al y ze s B O N Y ’ s vari ous ch al le nge s to the bankr upt cy c ourt’ s im

posi tio n of sanctions , award of interest, and award of attorney ’ s fees. Par t III addresses BO N Y ’ s c la im

that i t w as an I nde nture T ru ste e w ithc ontra ct ua l du tie s, not

a co nve nti ona l tru ste e w ithan im pli ed f idu ci ar y duty . P ar

t I V br ie fl y

c onc lud es .The Note s were set to mature on Ma y 12, 1999, the fifth annive rsar y of the 1 confirmation. No pay

ments were to be made to Note holders duringthe first y ear afte r confirmation. Beg inning with the se cond year , principal a nd interest we re to be paid by the De bto r o n a

qu art e rl y ba sis . Section 1.01 of the Tr

ust I ndenture Ag ree ment define s “Collatera l” as the r eal a nd 2 persona l property

of the De btor, any

individual item of such rea l and per sonal proper ty , and the “Escr ow Acc ount.” That sec tion defines “E scrow A ccount” as an a ccount e stablished and owne d by the Debtor

into which the Debtor

is require d to place the net proc eeds f rom the sale of

any of the Collateral that se cure s the Notes, with ce rtain spec ified exceptions not releva nt to this appea l. 3 I . In De cem ber 1992, the De btor com m enced Chapter 11 bankruptcy pr oc ee din gs i n th e U nit ed S ta te s B an kr

upt cy Co urt f or the Mi ddl e D istri ct

of Fl or ida . O n M ay

12, 199 4, the bankr

upt cy c ourt c onf

irm ed the D eb tor ’ s P lan of Re or ganiz at ion( “ Re or ganiz at ionP lan” ). A s part of the Re or ganiz at ionP lan, the D eb tor e xe cu te d aT ru st I nde nture A gr ee m en t ( al so r ef er re d to he re in a s th e

“ A gr ee m en t” ). T he pur

pose of the A gr ee m en t w as to es ta bli sh an e ff

ic ie nt m ethod fo r pay ing the D eb tor ’ s ge ne ra l un se cure d c re dit or s ( “ Cl as s 7 C re dit or s” ), w ho w er e num er ous an d ge ogr ap hic al ly sc atte re d. U nde r the A gr ee m en t, e ac h C la ss 7 Creditor w as issued a prom issory note (the “

Notes”) in satisfaction of its allowed cl ai m . T he se N ote s w er e the n se cure d by ali enon s ubst an tia lly

a ll of the 1 De btor’ s assets, valued at approxim ately $14 m illion (the “ Collateral”) . 2 To avoid the adm inistrative difficulties of havin g each individ ual Noteholder hold a lien on th e Collatera l, the T rust Indenture Agree m ent appoin tedThe Indenture Trustee was e mpowere d to sue the De btor for pa y ment of the Note s on 3 be ha lf of the No te ho lde rs or

fo re c los e on

the lie ns . 15 U.S.C. §§ 77aaa- 77bbbb (2005). 4 Section 15.01 of the Tr ust I ndenture Ag ree ment provided that “ [t ]he Notes may be 5 pr e pa id b e fo re the ir

State d M atur ity

in a c c or da

nc e wi th t he ir te rm s a nd in a c c or da

nc e wi th t his Ar tic le , a nd Se c tio n 4 .0 1 G .” Se c tio n 4 .0 1 Gstate d th at “ [t]he Com pa ny sh a ll h ave the op tio n to prepa y the Notes in whole or

in part (in incr ements of $250,000.00) , without premium or penalty . Prepay ments can be made at any time upon at least five da y s’ written notice .” F or sim pli c ity , “ De bto r” wi ll r e fe r c oll e c tiv e ly to S un sh ine -Jr . St or e s, Inc . a nd its 6 succe ssor-in-intere st, E-Z Serve. 4 anI nde nture T ru ste e to h old the li en s intr

ust f or the be ne fi t of

a ll N ote hol de rs . 3 T he A gr ee m en t l im ite d th e re spon sib ili tie s and d uti es of the I nde nture T ru ste e to those sp ecifica lly

set forth in the Agre em ent, qualified under the T rust Indenture A ct of 193 9 ( “ T IA ”) . T he A gr ee m en t a lso pe rm itt ed the c re at ionof

ase parate 4 tr ust in w hic h th e D eb tor

w oul d pl ac e funds suf

fi ci en t t o satis fy

the pr inc ipa l and int er es t of

the N ote s inf

ull , if the D eb tor

de ci de d to c al l the N ote s ina dvanc e of m at ur ity ( the “ Pr ep ay

m en t F unds ”) . T he D eb tor appoi nte d N at ion sB an k a s th e 5 Indenture Tr

ustee. In199 5, E -Z S er

ve Co nve nie nc e St or es , I nc . ( “ E -Z S er ve ”) a gr ee d to ac qui re the D eb tor

and i ts a sse ts, inc lud ing the Co llate ra l. T o a llo wthe 6 ac qui sit ionto pr oc ee d, the D eb tor on July 6, 199 5 m ove d th e bankr upt cy c ourt t o en te r anor de r al low ing a ll of the N ote s to be c al le d and p re pa id i n f ull , and5

dir ec tin g th e In de nture T ru ste e to r el ea se it s li en s onthe Co llate ra l. T he bankr upt cy c ourt gr an te d th e D eb tor ’ s m oti on, and o n O ct obe r 2, 199 5, the D eb tor ca lle d th e N ote s f

or pr ep ay m en t and d ep osi te d w ithN at ion sB an k a ppr oxi m at el y $ 1 mi l l i o n , th e a mo u n tn e c e s s a ry t o p r e p a y a l l o f th e N o t e s . T h e N o t e s b e c a me im m ed ia te ly due and p ay ab le by

the D eb tor

w he n th ey

w er e ca lle d and c ea se d to ac cr ue int er es t. Upon re ce ipt of the P re paym en t F unds , N at ion sB an k r el ea se d th e lie ns o n th e Co llate ra l. InD ec em be r 1995 , BO N Y a cquir ed the c or por at e tr ust div isi on o f Nati on sB an k. As pa rt o f th is acq ui si ti on , Nati on sB an k t ran sf erre d t o B ONY $983 , 935. 11 i n P re paym en t F unds that ha d y et to be c la im ed

by N ote hol de rs . T he re co rd doe s no t i ndi cate w he the r BO N Y a lso r ec ei ve d f ro m N at ion sB an k ac opy of the T rust Indenture Agree m ent or the De btor’ s Reorganization Plan, or whether i tw a s o t h e rw i s e ap p r i s e do f th e c i r c u ms t a n c e s u n d e r

w h i c h N a t i o n s B a n kc a me into p ossessi on of the Prepay m ent Funds. BO NYnevertheless disbu rsed Pr ep ay m en t F unds to tho se N ote hol de rs w ho t en de re d th ei r N ote s. A cc or din g to the D eb tor , it m ad e se ve ra l r eque sts of tw o B O N Y of

fi ce rs , Irene Siegel and Janet L ee ( née W ong), to account for those Noteholders who had y et to te nde r the ir

N ote s f or paym en t. B O N Y the n pr ovi de d w ha t the D eb tor re gard ed a s an in ac curate pr int out of the unp ai d N ote hol de rs . B as ed on thisSpe c if ic a lly , th e ba

nk ru ptc y c ourt or de re d B ON Y t o “ pr ov ide the De bto r’ s c ouns e l w ith 7 an a c c ounti ngof

a ll p ay me nts ma de purs ua

nt t o th e Tr

us t Ind e ntu

re , a s w e ll a s a

state me nt o f a ll c la ima nts fo r who m f

un ds sti ll a

re be inghe ld, the ir

a dd re sse s a nd the lis te d amou

nts of the ir allowed c laims (the fa ce a mount of their note).” 6 pr int out , the D eb tor

iss ue d ase co nd c al l no tic e to N ote hol de rs . B O N Y pa id those N ote hol de rs w ho the n te nde re d th ei r N ote s. D ur ing thi s pe ri od, the D eb tor co nti nue d to a sk B O N Y f or am or e ac curate a cc ount ing , but BO N Y did

not re spon d to it s r eque sts . On April 24, 2000, the Debtor m oved the bank ruptcy court to issue an order re qui ri ng B O N Y to pr ovi de af ina l a cc ount ing f

or a ll paym en ts N at ion sB an k and BO N Y m ad e to N ote hol de rs , and t o e sta bli sh p ro ce dur es f

or pay ing tho se N ote hol de rs w ho s ough t paym en t bu t ha d lo st the ir N ote s. T he D eb tor

se rv ed the m oti on o n “ Jane t W ong, Bank o f N ewY ork” that day . B O N Ydid not opp ose the m otion or otherwise respond to it. T he court granted the m otion and ordered BO N Y to pr ovi de the D eb tor w ithaf ull a cc ount ing no l at er

than June 1, 200 0. 7 T he or de r furthe r state d th at “ [i ] f the I nde nture T ru ste e fa ils ti m el y to pr ovi de sa id ac co u n t i n g an ds t at emen t[o f a l l cl ai m an t s fo r w h o m fu n d s s t i l l ar e b ei n g h el d ], this Court sh all issue an Order to Show Cause as to why the Indenture T rustee has fa ile d and r ef

use d to f ulf ill it s f idu ci ar y duty to the D eb tor . ” BO N Y did not pr ovi de the D eb tor

w ithaf ina l a cc ount ing by

the da te m an da te d by

the c ourt, norTh e De bto r’ s mo tio n w a s b a se d o n 1 1 U .S. C. § 34 7( b) , whic h s tate s: 8 Any se c ur ity , mo ne y , o r o the r p ro pe rt y re ma ini ngun c la ime d at th e e xpir atio n o f t he tim e a llo we d in

a c a se un de r c ha

pte r 9 , 1 1, or

12 of thi s ti tle fo r t

he pr e se ntatio n o f a

se c ur ity or the pe rfor

mance of any

other a ct as a

condition to participation in the distribution under a ny plan conf

irmed under

section 943(b) , 1129, 1173, or 1225 of this title, as the case may be, bec omes the prope rty of the de btor or of the entity acquir ing the assets of the debtor unde r the plan, a s the ca se may be. 11 U.S.C. § 347(b) (2005). 7 di d i t o th erwi se res po nd to th e co ur t’s o rd er. O n D ec em

be r 13, 200 0, the D eb tor

m ove d th e co urt f

or an or de r “ dir ec tin g T he Bank o f N ewY ork to pay E Z S er ve [ sic ] a ll re m ai nin g m one y that i t ha s on deposit pursuant to the trust indent ure, plus anyand all other funds which curr en tly are in its c ust ody , pos se ssi on and c ontro l tha t i n any w ay r el at e to [ the D eb tor ] . ” T he D eb tor

se rv ed thi s m oti on o n “ Ir en e Si eg al , V ic e Pr es ide nt, T he 8 Bank o f N ewY ork” the sam e day . A ga in, BO N Y did not opp ose or

oth er w ise re spon d to the m oti on. T he c ourt gr an te d th e m oti on o n F eb ru ar y 23, 200 1, and or de re d B O N Y to pr ovi de to the D eb tor ’ s c ouns el “ a co m ple te a cc ount ing re fl ec tin g a ll paym en ts m ad e to c re dit or s” no l at er than M ar ch31, 200 1 ( the

“ Fe br uary 23 O rd er ”) . T he c ourt f

urthe r dir ec te d th e D eb tor to publ ishanot ic e in periodicals serving th ose area s in which m ost of the rem aining Notehold ers re sid ed , statin g th at

a ll out standi ng c la im s and N ote s ha d to be te nde re d f or paym en t w ith in 3 0 day s of the not ic e publ ic at ionda te . A ft er that 30 -d ay

pe ri od expir ed , the P re paym en t F unds he ld b y BO N Y w oul d be r et

ur ne d to the D eb tor

“ inPursuant to the Fe bruar y 23 Orde r, the De btor was e ntitled to rece ive the uncla imed 9 P r e p aym e n tF un d s f

r o mB O N Y a f

t e r Ap r i l 2 9 , 2 0 0 1 o r , p r e s um a b l y, th e n e x tb u s i n e s s d ay. Neither the May 11 motion for an orde r to show ca use nor the f

irst and sec ond 10 amende d motions refer

red to in the followingtextindicated the r elief the Debtor w as see king. Although the rec ord is silent on the point, we assume that the D ebtor wa s invoking the c ourt’s civil contempt power

under 11 U .S.C. § 105. S ee H ardy v. United States, 97 F.3d 1384, 1389 (11th Cir. 1996). The De btor’s first motion was filed by E-Z Serve. The first amende d motion was filed 11 by Swifty Serve, Inc., which pur

ported to be Sunshine-Jr. Stores, Inc.’s suc cessor -in-intere st. The sec ond amende d motion was identical to the first, except that it was ser ved on Wong by c e rt if ie d ma il. 8 ac co rd an ce w ithf

ed er al law . ” T he D eb tor

pub lis he d th e not ic e on M ar ch30, 2001 , and f

ile d aN oti ce of

P ubl ic at ionw iththe c ourt onApr il 10, 200 1. A ga in, 9 BO N Y did

not r es pond to the c ourt’ s or de r, and d id n ot r el ea se the P re paym en t Funds to the De btor. On M ay 11 , 20 01 , th e Deb to r m ov edth e co ur t fo r an “ or de r to sh ow ca us e,” a lle gin g th at

a lth oughBO N Y ha d “pr ovi de d th e D eb tor w ithsom e inf

orm at ion about ‘r ecent’ paym ents, it ha[d] failed to provide a com plete accounting, which w oul d a llo wthe D eb tor

to co nc lud e the c as e. ” T he D eb tor se rv ed thi s m oti on o n 10

“ Irene Siegal, Vic e Pr esident, and Janet W ong, of T he Bank of N ewYork. ” E ven tho ugh ana m en de d m oti on f or an or de r to s howc au se w as se rv ed on S ie ga l and W ong on M ay

14, 200 1, and a

se co nd am en de d m oti on w as se nt b y c er tif ie d m ai l to W ong on M ay

31, 200 1, BO N Y did

not r es pond . T he c ourt gr an te d th e

11 D eb tor ’ s m oti on o n June 14, 200 1, and e nte re d an or de r co m m an din g B O N Y to9

ap pe ar be fo re the c ourt onA ugus t 13 , 200 1 “ to s howc au se w hy the D eb tor

sho uld not be gr an te d th e re lie f re que ste d. ” A s be fo re , BO N Y ign or ed the or de r an d fai le d t o app ear o n Au gu st 13 , 20 01 as d ire ct ed . A t the A ugus t 13 he ar ing , the c ourt st at ed that B O N Y ow ed

both th e D eb tor an d t he co ur t a f

id uc ia ry du ty, an d t ha t i t h adfai le d t o c arry out th atdu ty. A cc or din gly , the c ourt st at ed it s in te nti on t o se t an e vid en tiary he ar ing a t w hic h it w oul d de te rm ine the r ea sona ble int er es t r at e that B O N Y ow ed to the D eb tor

on the Pr ep ay m en t F unds . T he c ourt a lso state d th at it w oul d de te rm ine the appr opr ia te at t o rn ey’s fe es an dco s t s t o ch ar g e B ONY fo r i t s fa i l u re t o co m p l y wi t h th e c o u rt ’s or de rs . O n S ep te m

be r 12, 200 1, the c ourt e nte re d an “ O rd er to Sh owCa

use f or Co nte m pt A ga ins t B an k of

N ewY ork, ” re ite ratin g w ha t i t ha d announc ed a t the A ugus t 13 he ar ing ( the “ Se pte m be r 12 O rd er ”) . I n th at

or de r, the c ourt he ld ( 1) that “ BO N Y ow es af

idu ci ar y duty to thi s C our

t, the Re or ganiz ed

D eb tor , and i ts cr ed ito rs ;” ( 2) that “ BO N Y ’ s f idu ci ar y duty inc lud es an ob lig at ionto pr ovi de thi s Co urt and the Re or ganiz ed D eb tor w ithan a de qua te a cc ount ing of the f unds it rece ived, those it has paid, and the am ount it continu es to hold for the Re organized D eb tor and i ts c re dit or s;” and ( 3) that “ BO N Y ’ s f idu ci ar y duty inc lud es paym en t of rea sonable int erest on the funds that it ho lds for the Reorganized [D ebtor] .”The c ourt resc heduled the he aringfor Oc tober 29, 2001 at the reque st of the Debtor . 12 The c ourt stated that “[t]he transfer of the [Prepay

ment] Funds . . . shall be in full and 13 complete satisfaction of [BON Y]’s obligations to cre ditors pursuant to the Reorg anized Debtor’ s plan of re org anization and shall absolve [BONY ] from any further liability to such cre ditors.” 10 T he c ourt the re fo re or de re d B O N Y w ith in 2 0 day s to tr an sf er to a tr ust a cc ount m ai nt ai ne d b y

th e Deb to r’s co un se l al l fu nd s t ha t i t was ho ld in g fo r th e Deb to r. T he S ep te m

be r 12 O rd er

a lso sc he dul ed

ahe ar ing f

or O ct obe r 30, 200 1 “ to de te rm ine the r ea sona

ble int er es t r at e that B O N Y sha ll be r equir ed to pay f or the funds it ha s he ld o n be ha lf of the Re or ganiz ed

D eb tor and i ts c re dit or s, ” an d to

“ de te rm in e th e ap pr op ria te am ou nt of f ees an d c os ts to su rch arg e ag ai ns t BONY fo r its f ai lur e to f oll owthi s C ourt’ s O rd er s and t o pr ovi de an a ppr opr ia te acco un ti ng .” On O ctober 29, 2001, BO NYfinally appeared bef

ore the court. A t that

12 he ar ing , BO N Y a cknow le dge d th at it ha d no t r es pond ed

to the c ourt’ s pr ev iou s or de rs , and i nf

orm ed the c ourt tha t i t w as in poss es sio n of $48 7, 844. 90 o f Prepay m ent Funds th at had y et to be disbu rsed to Noteholders. T he court ordered BON Y im

m ediately to return the unclaim ed Pre paym ent Funds to the De btor, 13 w hic h it did . T he c ourt a lso or de re d th e part ie s to m ee t i n agoo d f ai th e ff ort t o re ac h af ina l a cc ount ing of

the P re paym en t F unds . T he c ourt r et ai ne d j ur isd ic tio n to d et er m ine “ the r ea sona

ble int er es t r at e that [ BO N Y ] m ay be r equir ed

to pay ” on11

the P re paym en t F unds , and the a m ount of the D eb tor ’ s a tto rn ey ’ s f ee s and c ost s BO N Y sho uld

be sur ch ar ge d f

or it s “ fa ilure to co m

ply w iththe Co urt’ s pr ior or de rs .” On April 16, 2002, the Debtor’ s counsel m oved the court for an order aw arding it “ reim

bursem ent for the fe es and expenses incurred to obtain a final accounting from

the Bank of N ewYork . . . during the period beginn ing Decem ber 8, 2000 and endi ng October 26, 2001.” The m otion stated that BON Y’ s counsel

“ be gan to be r es pons ive on o r ab out O ct obe r 26[ , 200 1] ; ho w ev er , the D eb tor did not r ec ei ve an a cc ount ing f

or se ve ra l m onths the re af

te r. ” I n an Apr il 26, 200 2 or de r, the c ourt di re ct ed

the D eb tor

to “ co m m en ce ac ont es te d m atte r by f ili ng a Mot ionse ek ing int er es t onthe a m ount s he ld b y BO N Y , ” an d B O N Y to “ re spon d to the D eb tor ’ s M oti on and t o it s [ attor ne y ’ s] f ee appl ic at ion ” by

Jun e 14, 200 2. O n M ay 16, 200 2, the D eb tor

f ile d a“ Mot ionto Surc harg e [B O N Y ] and t o Dire ct Pay

m ent of Intere st” (the “ Surcharge Motion ”), in which it sough t “ an O rd er sur ch ar gin g [ BO N Y ] and d ir ec tin g it to pay the D eb tor

int er es t, or investm ent incom e, on the funds held by BO NYpursuant to [the] Tr ust Indentu re [A greem ent] .” T he De btor asserted that under Florida law , B ON Y had bre ached its f idu ci ar y duty to pr ovi de the D eb tor

w ithati m el y

a cc ount ing and t o in ve st the Prepay m ent Funds it h eld in trust. T he De btor also claim ed that BON Y hadTh e TIA, at 15 U. S.C. § 7 7o oo (a )( 1) , s tate s: 14 (a ) D uti e s p ri or

to d e fa ult : The indenture to be qualified sha ll automatically be dee med (u nle ss i t is e xpre ssl y

pr ov ide d th e re in t

hat any su c h p ro vis ion

is excluded) to provide that, pr ior to defa ult (as such ter

m is defined in such indenture) – (1) the inde nture trustee shall not be liable except for the perf ormanc e of suc h duties as ar e spec ifically set out in such indenture. . . . 12 vio la te d th e te rm s of

the T ru st I nde nture A gr ee m en t, w hic h r equir ed the Pr ep ay m en t F unds pr om

ptl y to be r et ur ne d to the D eb tor

thr ee y ears a ft er

the N ote s be cam e due and p ay ab le . A s th e N ote s w er e ca lle d onO ct obe r 2, 199 5, BO N Y w as r equir ed

to re tur n th e Pr ep ay

m en t F unds on O ct obe r 3, 199 8, but BO N Y did

not do s o un til or de re d by

the c ourt onO ct obe r 29, 200 1. T he D eb tor ca lc ulate d th at

it w as e nti tle d to $27 3, 343. 87 i n in te re st. Inopp osi tio n to the m oti on, BO N Y arg ue d th at it did not ow e an y int er es t on the P re paym en t F unds be ca use it w as an I nde nture T ru ste e unde r the T ru st In de nture A gr ee m en t. T he T IA , w hic h go ve rn s th e cr eatio n of T ru st I nde nture s, state s th at an I nde nture T ru ste e w oul d be und er no o bli ga tio n to pe rf

orm any duties ot her than those expressly set forth in the trust inden ture. BO NYtherefor e 14 as se rt ed that i ts o bli ga tio ns t o th e D eb tor and the N ote hol de rs w er e sol el y co ntr ac tua l, and tha t S ec tio n 10 . 06 o f the A gr ee m en t sp ec if ic al ly state d th at

“ the T ru ste e sha ll be und er

no l ia bil ity f or int er es t onany

m one y r ec ei ve d by

itFe d. R. Bank. P. 7030 incor porate s by

ref ere nce F ed. R. Civ. P. 30. Rule 30(b)( 6) 15 state s, in r e le va

nt p art : A par ty may in the party ’s notice a

nd in a subpoena

name a s the depone nt a public or private c orporation . . . and descr ibe with rea sonable pa rticularity the matters on whic h examination is reque sted. In that event, the or g anization so named shall desig nate one or more off icer s, director s, or manag ing a g ents, or other persons who c onsent to testify on its behalf, and ma

y set forth, for

eac h person de signated, the matter s on which the pe rson wi ll t e sti fy . . . . Th e pe rs on s so de signate d s ha ll t e sti fy a s to matte rs kn own o r r e a so na bly available to the org anization. Fe d. R. Civ. P . 30(b)( 6). 13 he re unde r ex ce pt a s othe rw ise a gr ee d w iththe [ D eb tor ] . ” BO N Y of fe re d no al te rn at ive m ethod fo r ca lc ulatin g th e int er es t on the P re paym en t F unds in the event the court found th at interest w as owed to the D ebtor. T he c ourt sc he dul ed

af ina l e vid en tiary

he ar ing f or S ep te m be r 17, 200 2, to as se ss s uc h in te re st. A t B O N Y ’ s r eque st, it pos tpo ne d th e he ar ing to Apr il 17, 2003 . O n S ep te m

be r 19, 200 2, the D eb tor

se rv ed a“ Re que st f

or P ro duc tio n of Docum ents” on BON Y see king inform ation related to the Tr ust Indentu re A gr ee m en t, BO N Y ’ s in ve stm en t of the P re paym en t F unds , and B O N Y ’ s in te re st inc om e on unr el at ed

tr ust ind en tur es . I n a

le tte r da te d O ct obe r 29, 200 2, the D eb tor out lin ed the top ic s onw hic h it

sou ght to de pose BO N Y and c er ta in o f its em ploy ees. T he De btor followed this letter with a f orm al depositio n noti ce, pur suant t o F ed er al Ru le of Bankr upt cy P ro ce dur e 7030 and F ed er al Ru le of Ci vil Pr oc ed ur e 30( b) (6 ), on N ove m be r 13, 200 2. B O N Y a gr ee d to pr oduc e ce rt ai n 15 doc um en ts and t o be de pose d onc er ta in t opi cs , but

oth er w ise obj ec te d to the14

req ue st s. On Nov em

be r 15 , 20 02 , BONY m ov edth e co ur t fo r a p ro te ct iv e o rd er. T he re af te r, the D eb tor ’ s c ouns el de pose d se ve ra l of BO N Y ’ s e m

plo y ee s. On J an u ary 2 9 , 2 0 0 3 , t h e c o u rt g ra n t ed i n p ar tan dd en i ed i n p ar tBO NY’s m otion for a protective order (the “ January 29 Order ”). It also entere d a discovery or de r. T he or de r ins tr

uc te d B O N Y to pr oduc e doc um en ts and w itn es se s pe rt ai nin g to: ( 1) the int er es t B O N Y ha d pa id o n f unds r ec ei ve d un de r unr el at ed tr ust ind en tur es ; ( 2) BO N Y ’ s no rm al c our se of bus ine ss i nve stm en t strate gy r eg ar din g tr ust f unds r ec ei ve d and i nve ste d; ( 3) BO N Y ’ s r at e of r et ur n ontr ust f unds it inv es te d inaf

idu ci ar y c ap ac ity ; ( 4) the r at e of

int er es t B O N Y w as pay ing on tru st funds it re ce ive d; and ( 5) BO N Y ’ s no rm al str at eg y f or handl ing tr

ust f unds . T he court ordered BO NYto provid e this inform ation for the period from De cem ber 1995 to O ct obe r 2001 . I n a ddi tio n, the c ourt or de re d th e D eb tor to pr oduc e al l docum ents relating to the Debtor’ s counsel’s f ees and costs, and the interest that had been earned on the funds BON Y had turned over to the D ebtor. In st eadof p ro du ci ng th e d oc um en ts an d wi tn es se s as ord ered , BONY m ov edto di sm is s t he co nt es te d m at te r fo r la ckof s ub ject m at te r juri sd ic ti on . A lon g w ithit s m oti on t o di sm iss , BO N Y f ile d y et anothe r m oti on f

or apr ote ct ive order in which it asked the court to stay discovery

of the inform ation that th e court ha d o rd ered BONY to pro du ce. The co ur t d en ie d b ot h m ot io ns .15

Ther eafte r, counsel for the parties exchanged corre spon dence in which BO N Y ins ist ed

that the D eb tor ’ s di sc ove ry r eque sts w er e too br oa d to be m an ag ea ble , and a ske d th e D eb tor to narr owthe sc ope of

it s r eque sts . I n any ev en t, the D eb tor

did not r ec ei ve the inf

orm at ionto w hic h th e co urt’ s January 29 Or der re ferr ed. On April 2, 2003, the De btor m oved the court for sanctions. It as ke d th e co urt t o ( 1) hol d B O N Y in co nte m pt o f co urt f

or f ai lur e to c om

ply w ith the January

29 O rd er ; ( 2) str ike BO N Y ’ s de fe nse s to the S ur ch ar ge Mo tio n; ( 3) aw ar d th e D eb tor

int er es t onthe P re paym en t F unds a t the F lor ida statut or y int er es t rate ; ( 4) pr ohi bit

BO N Y f ro m intro duc ing e vid en ce on the r at e an d am ount of i n t er es tap p l i cab l e t o th e P re p aym en tFu n d s ; an d(5 ) a wa rd th e D eb t o r a t t o rn ey’s fe es . Init s w ri tte n op posi tio n to that m oti on, BO N Y de nie d th at it ha d r ef use d to co m ply w iththe c ourt’ s or de r. R athe r, BO N Y c la im ed that i t a tte m

pte d to fa ci lit at e ane ff

ic ie nt p ro ce ss b y

w hic h th e D eb tor ’ s c ouns el c oul d r ev ie wthe docum ents described in the Janu ary 29 Order which, accor ding to BON Y, we re num er ous an d vo lum ino us. B O N Y a lso r ea sse rt ed the de fe nse it

ha d r ai se d init s oppo sit ionto the S ur ch ar ge Mo tio n by c la im ing that “ [u ] nde r the br igh t l igh t of prevailing federal lawon trust in dentures, [the D ebtor] is not entit led to the relief it has dem anded.” I n other words, BON Y a gain claim ed that it was an IndentureTh e c ourt a lso c anc e lle d th e fi na l e vid e nti ary he ari ngthat w a s to take pla c e on Ap ri l 16 17, 2003. 16 T ru ste e, not

ac om m on l awtr

ust ee , and the re fo re w as und er no o bli ga tio n to the D eb tor to pay int er es t onthe P re paym en t F unds . A t an Apr il 7, 200 3 he ar ing , the c ourt st at ed that i t w as unp er sua de d by BON Y’ s argum ents, and granted the D ebtor’ s m otion in full. Clear ly frustrated 16 by BO NY ’ s reca lcitrance, the court em phasized in its May

9, 2003 order (w hich m em orialized the decision it had reached at the April 7 hearing) that BON Y w as sti ll unpr ep ar ed

to pr ovi de the inf

orm at ionr eg ar din g th e Pr ep ay m en t F und int er es t rate de sc ri be d inthe January 29 O rd er . I t f

ound that B O N Y ’ s f

ai lur e to p ro vid e th e Deb to r wit h d oc um en ts an d wi tn es se s as req ui redco ns ti tu te d “ sl ack in g o ff,”

“ da wdl in g, p ut ti ng up ba rri ers an d o bf us cat in g.” Ci tin g C ha m

be rs v. N A SC O , I nc . , 501 U . S. 32, 111 S . Ct . 212 3, 115 L . E d. 2d 2 7 ( 1991 ), the c ourt ob se rv ed that i t ha d th e inh er en t po w er to sanc tio n li tig an ts for bad fa ith cond uct. G iven that BON Y r epeatedly had igno red the court’ s orders be tw ee n Apr il 2000 and O ct obe r 2001 , and h ad r ef use d to c om

ply w iththe De btor’ s discov ery

requests even after

being ordered to do so , the c ourt conclud ed that BON Y had ac ted in bad faith and that sanctio ns were appropriate. The court aw ar de d th e D eb tor

the a tto rn ey ’ s f

ee s and c ost s it

ha d in curr ed

f ro m D ec em be r 8,The c ourt order ed B ONY to pay interest on the Pre pay

ment Funds at the prime rate, 17 compounded monthly , beg inning in Apr il 1996 and endingon October 30, 2001. The c ourt c ho se Ap ri l 19 96 ba se d o n it s b e lie f t hat ma ny of the No te s w ou ld h ave be e n p a id i n th e fi rs t si x months after the Notes we re c alled. Appa rently , the cour

t believed that B ONY would have wa ite d unti l a ft e r t

his fl ur ry of re de mpt ion s to inv e st the fu nd s. 17 2000 to October 26, 2001 , which am ount ed to $14 ,440.19. The c ourt also allowed the Debtor to am end its attorney ’ s fee a pplication to reflec t work counsel had pe rf orm ed thr oughApr il 17, 200 3. Ina ddi tio n, the May

9 or de r inc lud ed

a“ de fa ult ” ag ai nst

BO N Y on the que sti on o f Pr ep ay

m en t F unds int er es t. T he c ourt di d no t e xpl ic itl y a ddr es s w he the r BO N Y w as an I nde nture T ru ste e or ac om m on l awtr

ust ee , i. e. , w he the r in ei the r ca pa ci ty , BO N Y w as li ab le to the D eb tor f or int er es t onthe P re paym en t Funds. R athe r, the c ourt qu ote d th e portio n of it s S ep te m

be r 12, 200 1 or de r in w hic h it he ld tha t B O N Y ow ed

the D eb tor

af idu ci ar y duty that i nc lud ed

pay ing int er es t, and m ove d di re ct ly to the a m ount

of int er es t B O N Y ow ed , w hic h it ca l cu l at ed t o b e $ 2 8 5 ,5 6 8 .2 9 . In ef fe ct , t h e c o u rt s t ru cks ub s i l en t i o BO NY’s 17 oppo sition to the Surcharge M otion , in w hich it argued that it was an Indenture Tr ustee without any

liabilityfor intere st; the bankrup tcy court never considered the m er its of

that arg um en t. O n June 23, 200 3, the c ourt e nte re d af ina l j udgm en t on it s awa rdof i nt eres t an d a tt orne y ’s fees to th e Deb to r. BO N Y appe al ed

the im posi tio n of

the se sanc tio ns t o th e dis tr ic t c ourt. T he18

district court affirm ed the im posit ion on two grounds. First, it concluded th at BO N Y ’ s r ep eate d f

ai lur e to o be y

the bankr

upt cy c ourt’ s or de rs w ar

rante d th e attor ne y ’ s f ee s sa nc tio n. S ec ond, the c ourt de te rm ine d th at BO N Y w as ac om

m on law trustee, not an Indentu re T rustee, and as such owed the De btor a fiduciary duty , inc lud ing the obl igatio n to dis gor ge any int er es t i t ha d e ar

ne d onthe Prepay m ent Funds. By

addressing th e question o f w hether BO NYwa s an In de nture T ru ste e, a s B O N Y c ont en de d, the c ourt de ci de d th e m er its of an ar gum en t the bankr

upt cy c ourt ha d de cl ine d to c onsi de r. P ut anothe r w ay , the court approached the bankruptcy court’ s sub si lentio strik e of BO NY ’ s Indenture T ru ste e de fe nse a s if

the bankr

upt cy c ourt ha d a ct

ua lly c onsi de re d th e de fe nse and re j ec te d it . The district court r easoned that the Trust Indenture A greem ent term inated when the D ebtor transferr ed the Pre paym ent Funds to Nations Bank. “ When s u ff i ci en tfu n d s we re p ro v i d ed t o s at i s fy th e o u t s t an d i n g n o t es , t h e t ru s t ee ’s authorityended and the rights and oblig ations un der the [T rust Indenture Ag re emen t ] wer e e x t i n g u i s h ed .” Th u s , Na t i o n s Ba n kh el dth e D eb t o r’s Pr ep ay m en t F unds a s ac onve nti ona l tru ste e unde r a tr ust se parate f

ro m the tr ust in which the Indenture T rustee held the liens on th e D ebtor’ s Collateral. When BON Y purchased N ationsBank’s corporate trust divi sion it , too, becam e a19

co nve nti ona l tru ste e w ithaf idu ci ar y duty , a s op pose d to an in de nture tr ust ee w ith contractually -based obligatio ns. Citing 11 U.S .C. § 347(b), the court concluded that B O N Y ha d af

idu ci ar y duty to re tur n to the D eb tor

any pr oc ee ds e ar

ne d onthe Pr ep ay m en t F unds . The district court also re

j ected BO NY ’ s argum ent that the bankrup tcy court ha d de nie d it

due pr oc es s of

lawin im

posi ng the sanc tio ns. B O N Y c la im ed that i t did not r ec ei ve a de qua te not ic e fr om the bankr

upt cy c ourt tha t i ts c ondu ct

c oul d res ul t i n s an ct io ns . Howev er, t he ba nk rupt cy co ur t’s fi nd in g t ha t BONY re pe at ed ly

ign or ed num er ous m oti ons se rv ed by the D eb tor , and o rd er s is sue d by the court, c onvi nced the district court otherwise. T he court therefor e concluded that the bankr

upt cy c ourt ha d no t a

buse d it s di sc re tio n w he n it inv oke d it s in he re nt pow er s to sanc tio n B O N Y . T he c ourt a lso not ed that B O N Y de lib er at el y

w ith he ld inf orm at ionf

ro m the D eb tor

in br ea chof

it s f idu ci ar y duty , w hic h e xpos ed

it to sa nc ti on un de r Fl or id a la w. BONY no w app eal s t o t hi s co ur t, p res en ti ng fou r arg um en ts forrev ers al . First, BON Y r easserts that it wa s an Indenture Tr ustee owing strictly

contractual oblig ations to the De btor, not a convention al trustee w ith an im plied fiduciary duty . T his c ontra ct

ua l ob lig at iondid

not r equir e BO N Y to inv es t the P re paym en t Funds, or to dis tr ibu te int er es t e ar

ne d ontho se f

unds to the D eb tor . S ec ond,20

BO N Y be lie ve s th at

the bankr

upt cy c ourt m ad e no f

ind ing s of

ba d f ai th a ga ins t i t as ali tig an t and thus co uld not have inv oke d it s in he re nt p ow er s to im pose sanc tio ns. T hir d, BO N Y a ga in a sse rt s th at the bankr

upt cy c ourt de nie d it

due pr oc es s by

f ai lin g to pr ovi de not ic e that i ts c ondu ct w as sanc tio nable . T he c ru x of thi s arg um en t i s th at

the c ourt’ s or de rs did

not use the te rm s “ sanc tio n” or

“ co nte m pt, ” w hic h w oul d have a le rt ed BO N Y ’ s no n- law y er

of fi ce rs – nam el y Ir en e Si eg el and J an et

W ong – to the f

ac t tha t f ai lur e to o be y

the or de rs w oul d re sul t i n punis hm en t. B O N Y ’ s of fi ce rs pr es um ab ly

la ck the sop his tic at ionto a n t i c i p a t e s u c h ac o n s e qu e n c e u n l e s s p r o v i d e dth e s e e x p l i c i ts i g n a l s . F i n a l l y, BO N Y arg ue s th at

the D eb tor

did not ne ed to pur sue any

dis co ve ry , and thus did not ne ed to inc ur any a tto rn ey ’ s f

ee s, r eg ar din g th e Pr ep ay m en t F unds int er es t rate . B O N Y c la im s th at

the bankr

upt cy c ourt sh oul d have appl ie d apr ej udgm en t int er es t r at e as pr ovi de d in28 U . S. C. § 19 61.

“ A c or re ct j udgm en t m ay

be a ff irm ed on any gr ound r eg ar dle ss o f the gr ound s a ddr es se d, a dopt ed or r ej ec te d by

the dis tr ic t c ourt. ” S osa

v. Ch as e Manha ttan M ortga ge Co rp . , 348 F . 3d 9 79, 983 ( 11th C ir . 200 3) ( ci ta tio ns om it te d) . W e acc or di ng ly affirm th e d is tri ctco ur t o n t wo g ro un ds . Firs t, we af fi rm the dis tr ic t c ourt’ s ho ldi ng tha t the bankr upt cy c ourt di d no t a

buse it s di sc ret io n wh en itin vo ke d i ts in he ren t p owe r to im po se san ct io ns on BONY.21

A lte rn at ive ly , w e upho ld the dis tr ic t c ourt’ s c onc lus ionthat B O N Y w as ac om m on lawtr ust ee w ithr es pe ct

to the P re paym en t F unds , and w as the re fo re li ab le to the D eb tor f or int er es t. W e do s o e ve n th oughthe dis tr ic t c ourt a ppr oa ch ed

thi s que sti on a s if

the bankr

upt cy c ourt a ddr es se d it

on the m er its , w he n inf

ac t the bankr upt cy c ourt si m

ply r ef use d to c onsi de r it.

II. BON Y m akes essentially three argum ents challengin g the bankrup tcy co urt’ s im

posi tio n of

sanc tio ns. F ir st, BO N Y be lie ve s th at the dis tr ic t c ourt di d no t fi nd th e b adfai th ne ces sa ry to in vo ke it s i nh eren t p owe r to im po se san ct io ns . Second, B ON Y c laim s that the bankrup tcy court did not provide it with fair notice that i t w as sub

j ec t t o sanc tio ns. T hir d, BO N Y w oul d c onvi nc e us tha t the dis co ve ry pur sue d by

the D eb tor

to de te rm ine the appr opr ia te int er es t r at e applicable to the Prepay

m ent Funds was unnecessary because the bankruptcy

court s h o u l dh av e ap p l i ed a p re ju d g m en ti n t er es tra t e s et fo rt h i n2 8 U.S .C . § 1 9 6 1 . We ad dr es s e ac h arg um en t i n turn . A. Fe de ra l c ourts h av e the inh er en t po w er to im pose sanc tio ns o n part ie s, law y er s, or

both. B yrn e v. N ez ha t, 261 F . 3d 1 075, 112 1 ( 11th C ir . 200 1) ; se e al so In re M roz, 65 F.3d 1567, 1572 (11th Cir. 1995) (ac knowledgin g bankrup tcy22

co urt’ s in he re nt p ow er

to im pose sanc tio ns) . “ T his pow er is de ri ve d f

ro m the co urt’ s ne ed

‘ to m an ag e [i ts] ow n a ff

ai rs so a s to a ch ie ve the or de rl y and expe dit iou s di spos iti on o f ca se s. ’ ” By rn e, 261 F . 3d at 11 06 ( ci tin g C ha m be rs , 501 U.S . a t4 3 , 1 1 1 S. Ct . a t2 1 3 2 ) ( al t er at i o n i n o ri g i n al ). We re v i ew a c o u rt ’s ex er ci se of

it s in he re nt p ow er

f or abuse of dis cr et ion . Mr oz , 65 F . 3d at 15 72 (c iti ng C ha m

be rs , 501 U . S. a t 55 , 111 S . Ct . a t 21 38) . “ Inde te rm ini ng whe the r the court has abused its d iscretion we a sk whether it ‘ applie[d] the wr ong legal standard or m a[ de ] f ind ing s of

f ac t tha t are c le ar ly

e rr one ous. ’ ” By

rn e, 261 F . 3d at 110 3. A s w e ha ve state d e lse w he re , “ ‘ [t ] he ke y to unl oc kin g ac ourt’ s in he re nt pow er is a fi ndi ng o f ba d f

ai th. ’ ” By

rn e, 261 F . 3d at 11 06 ( quot ing Barn es v. Da lton, 158 F.3d 1212 , 1214 (11th Cir. 1998)). “ A par ty . . . dem onstrates bad faith by delay ing or dis rupting the litigatio n or ham pering enforcem ent of a court o rd er .” Byrn e, 2 6 1 F. 3 dat 1 1 2 1 (q u o t i n g Ba rn es , 1 5 8 F. 3 dat 1 2 1 4 )) . We the re fo re be ginby

r ev ie w ing the bankr

upt cy c ourt’ s f ind ing that B O N Y a ct ed

in ba d f ai th. Be tw ee n Apr il 2000 and O ct obe r 2001 , the bankr upt cy c ourt i ssu ed

m ult ipl e or de rs and s ch ed

ule d he ar ing s to pr ovi de the D eb tor w ithan a cc ount ing of

the unc la im ed

P re paym en t F unds , to en sur e that the r em ai nin g N ote hol de rs w er e ab le23

to r ec ei ve the paym en ts t o w hic h th ey w er e le ga lly

e nti tle d, and g en er al ly

to br ing closure to the Debtor’ s bankrupt cy case. T he c ourt’ s M ay

9, 200 3 sanc tio ns o rd er

c ont ai ne d ade ta ile d c hr onol ogy of BO N Y ’ s r ep eate d f

ai lur e to r es pond

to co urt or de rs , it s f

ai lur e to a ppe ar be fo re the co u rtwh en o rd er ed , a n di t s re fu s al t o p ro v i d e d i s co v ery p u rs u an tt o th e c o u rt ’s January 29 Order . Based on this course of condu ct, the bankrupt cy court concluded th at “ BON Y has r epeatedly ignored the orders of this Court in b ad faith, and BON Y’ s dawdling and ob fuscation in th e re spon se of the discovery re que sts , a ft er

thi s C ourt’ s r

uli ng o n B O N Y ’ s m oti on f or apr ote ct ive or de r, have been done in bad faith.” BON Y’ s noncom

pliance delay ed the resolution of the D ebtor’ s bankrupt cy ca se , int er fe re d w iththe bankr upt cy c ourt’ s a bil ity to m an ag e its c as e loa d, and, m ost ob viou sly , ham

pered the enforc em ent of the court’ s orders. Moreover, BON Y’ s conduct forced the De btor repeatedly to appear before the court, see k relief from

the court, and oth erw ise litigate m atters that should have been resolved far m or e qui ck ly . W e the re fo re m ust c onc lud e that the bankr

upt cy c ourt di d no t abuse its dis cretion in finding that BON Y a cted in bad faith. T he bankruptcy court pr op erl y in vo ke d i ts in he ren t p owe rs to san ct io n B ONY. 1.24

W e al so f ind that the bankr

upt cy c ourt di d no t a

buse it s di sc re tio n in ap ply ing it s in he re nt p ow er s. A s B O N Y c or re ct ly poi nts out , “ [b ] ec au se of the ir very potency , inhere nt powers m ust be exercised with re straint and discretion.” Ch am be rs , 501 U . S. a t 44 , 111 S . Ct . a t 21 32. “ A pr im ar y a spe ct of that di sc re tio n is the abil ity

to fa shi on an a

ppr opr ia te sanc tio n f

or c ondu ct w hic h a buse s th e j udi ci al pr oc es s. ” I d. a t 44 -4 5, 111 S . Ct . a t 21 32- 33. U nde r ap pr opr ia te c ir cum stanc es , it is w ith in a

c ourt’ s di sc re tio n to a sse ss attorney ’ s fees on a party , or even to dism iss its lawsuit, for a ctions taken in bad faith. Id. at 45, 111 S. C t. at 2133 . In this case, the bankrupt cy court sanctioned BO N Y f or w ha t r ed uc es to tw o c la sse s of

c ondu ct . F ir st, BO N Y f ai le d to obe y

or oth er w ise r es pond

to the c ourt’ s or de rs ove r ane xte nde d pe ri od o f tim e. S ec ond, BON Y r efused to com

ply with the court’ s January

29 Order , which directed BON Y to provide the De btor with inform ation on the interest BO NYhad earned on th e Pre pa ym en t Fu nd s b et ween Apri l 1 99 6 a nd Octo be r 20 01 . In its discretion, the court assessed BON Y w ith the Debtor’ s attorney ’ s fees fro m Decem be r 8, 2 00 0 t hr ou gh Octo be r 26 , 20 01 . Duri ng th is pe rio d B ONY re fu se d to c om

ply w iththe c ourt’ s or de rs to pr ovi de ac om ple te a cc ount ing of

the N ote hol de rs it

ha d pa id, tho se that ha d y et to re de em

the ir bon ds, and the a m ount o f u n cl ai m ed Pr ep aym en tFu n d s i th el d . Th e c o u rt al s o p er m i t t ed th e D eb t o r’sThe district cour t held that the Debtor

was a lso entitled to attorney ’s fe es under Fla. 18 Stat. § 73 7. 62 7. Sin c e the c ourt ’s inh e re nt p ow e rs we re su ff ic ie nt t o a wa rd the De bto r w ith at t o rn ey ’s fe es , we n ee d

n o tre v i ew th ath o l d i n g.

25 co unse l t o am en d he r fe e ap pli catio n to r ef le ct c ost s in curr ed

thr oughApr il 17, 2003 , the he ar ing da te a t w hic h th e co urt e xpr es se d it s in te nti on t o sanc tio n BO N Y . T his f

ee aw ar d w as dir ec tly

ti ed to the de lay s and p ro tr ac te d li tig at ion ca u s ed b y BO NY’s d i l at o ry co n du ct , a n dth er ef o re wa s n o tan ab u s e o f t h e c o u rt ’s dis cr et ion . 18 2. T he bankr

upt cy c ourt a lso e nte re d ade fa ult a ga ins t B O N Y w ithr es pe ct to the int er es t pay ab le to the D eb tor on the P re paym en t F unds . T his de fa ult ha d th e effe ct of striking BON Y’ s oppo sition to the Surcharge M otion and its defense that it w as an I nde nture T ru ste e unde r no o bli ga tio n to pay int er es t onP re paym en t Funds to the D eb tor . D ism iss al of aparty ’ s c om

pla int or answ er , or

str iki ng i ts de fe nse s, a s asanc tio n f

or f ai lur e to c om

ply w ithac ourt’ s or de rs is a he av y puni shm en t. T he “ se ve re sanc tio n of adis m iss al or

de fa ult j udgm en t i s appropriate only

as a last r esort, when less drastic sanctions would not ensu re co m pli an ce w iththe c ourt’ s or de rs . ” Ma laute a v. S uz uki Mo tor Co . L td. , 987 F . 2d 1536 , 154 2 ( 11th C ir . 199 3) ( upho ldi ng F ed . R. Ci v. P . 37( b) sanc tio n of str iki ng de fe ndant’ s answ er

and e nte ri ng d ef

au lt j udgm en t ba se d onde fe ndant’ s f ai lur e to26

co m ply w ithdis co ve ry

or de rs ). “ H ow ev er

se ve re the sanc tio ns thoug h, w e w ill not int er fe re unl es s im

portant h ist or ic al f

ind ing s are c le ar ly

e rr one ous or

– by the im posit ion of sanction s which are not just – there has been an abuse of discre tion.” Jaffe v. G rant, 793 F.2d 118 2, 1189 (11th Cir. 1986 ) (quoting Marshall v. Segona, 621 F. 2d 7 63, 767 ( 5thCi r. 198 0) ( int er na l qu otatio n m ar

ks and a lte ratio ns om itted)). T he D eb tor

f ir st r eque ste d in fo rm at ionf ro m BO N Y on the int er es t i nc om e it ha d e ar ne d onthe P re paym en t F unds in Se pte m be r 2002 . B O N Y sou ght a pr ote ct ive or de r to avoi d pr ovi din g so m e of that i nf orm at ion . O n January

29, 2003 , the bankr

upt cy c ourt gr an te d th e pr ote ct ive or de r in p ar t and d en ie d it

in part , and o rd er ed

BO N Y to pr oduc e w itn es se s and d oc um en ts r el at ing to the interest ear

ned on th e Pr epaym ent Funds. BO NYdid no t ask the court to clarify its order as to which m aterials it w as required to produce, nor did BO NYappeal the part ia l de nia l of

the pr ote ct ive or de r. I nst ea d, BO N Y m ove d to dis m iss the co nte ste d m atte r an d so ught y et anothe r pr ote ct ive or de r (p re sum ab ly to pr ote ct

it from the court’ s discov ery

order). BO NYwa s still un prepared to produce dis co ve ry on Apr il 7, 200 3, m or e than tw o m onths a ft er it w as or de re d to do s o by the c ourt. O f co ur se , BO N Y ha d a lr ea dy de m onstrate d it s pe nc hant f or ign or ing the c ourt be tw ee n Apr il 2000 and O ct obe r 2001 .27

G ive n B O N Y ’ s c le ar

his tor y of ba d f ai th s ton ew al lin g inthi s c as e, the bankrupt cy

court wa s well w ithin its discretion to conclude that BON Y had fo rf ei te d it s op portun ity

to dis put e both it s li ab ili ty to the D eb tor

f or int er es t and the am ount of interest it had ear ned on th e Pr epaym ent Funds. T houg h the district co urt di d no t e xpl ic itl y

f ind that othe r sanc tio ns w oul d have f or ce d B O N Y to co m ply w iththe January

29 O rd er , suc h ac onc lus ionis re ad ily im pli ed f ro m the record. E ntry

of a j udgm ent awarding that in terest incom e to the De btor was appropriate. 3. BO N Y f urthe r ar gue s th at

the bankr

upt cy c ourt e rr ed

by usi ng the m onthly

“ pr im e rate ” to c al cu la te the int er es t e ar ne d onthe P re paym en t F unds . I nst ea d, BO N Y be lie ve s th at

the c ourt sh oul d have appl ie d th e pr ej udgm en t i nte re st r at e se t f orth i n 28 U . S. C. § 19 61, w hic h a ppl ie s to aparty ’ s f

ai lur e to p ay

asum of m one y by ada te c er

ta in. A ga in, BO N Y f

or fe ite d th is arg um en t w he n it r ef use d to obey the court’ s discov ery

order. B. Fi n al l y, BON Y a s s er t s a du e p ro ce s s ch al l en g e t o th e b an kru p t cy co u rt ’s im posi tio n of

sanc tio ns, c la im ing that the c ourt f ai le d pr ope rl y

to not if y BO N Y of th e co ns eq ue nc es of i ts fai lu re t o re sp on d t o t he co ur t’s o rd ers .28

Co urts m ust a ff or d asanc tio ne d party

due pr oc es s, both inde te rm ini ng the ba d f ai th r equir ed

to inv oke the c ourt’ s in he re nt p ow er to im pose sanc tio ns and i n as se ssi ng f

ee s. I n r e Mr oz , 65 F . 3d 1 567, 157 5 ( 11th C ir . 199 5) ( ci tin g C ha m be rs , 501 U.S . at 49, 111 S. C t. at 2135 ). “ Due proce ss requires that the [party ] be given fa ir not ic e that [ its ] c ondu ct

m ay w ar rant s an ct ion s and the r ea sons w hy . ” I d. (ci ti ng Don al ds on v. Cl ark , 81 9 F .2d15 51 , 15 59 -6 0 (1 1t h C ir. 1 98 7) ). Im portantl y , aparty

c anbe giv ennot ic e fr om e ith er the c ourt or

f ro m the party se ek ing sanc tio ns. I d. T he party sub j ec t t o sanc tio ns m

ust be a ff or de d th e oppo rt uni ty to j ust if y it s a ct ion s e ith er

or al ly or in w ri tin g. I d. a t 15 75- 76. H er e, BO N Y ’ s a sse rt ionthat i t di d no t r ec ei ve a de qua te not ic e that i t c oul d be sanc tio ne d is , qui te f

rankl y , a sto undi ng. A s w e ha ve a lr ea dy de sc ri be d in de ta il, BO N Y c onsc iou sly and w ilf ull y ign or ed num er ous or de rs iss ue d by the bankrupt cy

court over the course of e ighteen m onth s, and re fused to appear before t h e c o u rt wh en co m

m an d ed t o d o s o . M o re o v er , B ONY re ce i v ed th e D eb t o r’s num er ous m oti ons, inc lud ing the May 14, 200 1 m oti on whic h w as ba se d on BO N Y ’ s “ fa ilure to co m

ply w iththe c le ar

te rm s of the Co urt’ s O rd er s. ” A s th e district court correctly

observed, BO NY ’ s “ blatant disregard for the Bankruptcy Co ur t’s o rd ers is it se lf n ot ic e.” W e not e that B O N Y ha s ne ve r m ad e the arg um en t tha t i t di d no t r ec ei ve theIn B onne r v . Ci ty of Pr ic ha rd , 6 61 F .2 d 1 20 6, 12 09 (1 1th Cir . 1 98 1) (e n b anc ), thi s 19 c ourt a do pte d a s b ind ingpr e c e de nt a ll d e c isi on s o f t he fo rm e r F if

th C ir c uit ha nd e d d own p ri or

to the close of

business on September 30, 1981. 29 bankr upt cy c ourt’ s or de rs or

he ar ing not ic es . R athe r, BO N Y a tte m pts to expla in aw ay its failure to respond by

point ing to the fac t that the court’ s orders we re se rv ed on i ts n on- law y er

e m plo y ee s. T he se non -l awy er s sh oul d su ppos ed ly be ex cu se d f ro m c om ply ing w iththe bankr

upt cy c ourt’ s or de rs be ca

use the or de rs did not in clude the words “ contem pt” or “ sanctions ,” which w ouldhave alerted them (a s pr es um ab ly

uns ophi sti cate d bank e m plo y ee s) that the ir

non co m pli an ce w oul d subject them

to pun ishm ent. Unsurprisin gly , B ON Y c ites not on e case to supp ort th is pro po si ti on . It is equa lly

uns ur pr isi ng tha t this c ourt ha s a lr ea dy state d “ that e ve n anon law y er sho uld r ea liz e the pe ri l t o he r ca se , w he n sh e . . . ign or es num er ous not ic es , an d f ai ls t o a tte nd h eari ngs an d de posi tio ns. E ve n anon -l awy er sho uld r ea liz e the ne ed to co m m uni cate e ith er

w iththe c ourt or

w ithopp osi ng c ouns el . ” A nth ony v. Mari on C ounty

G en . H osp. , 617 F . 2d 1 164, 116 9 ( 5thCi r. 198 0) ; se e al so M oon 19 v. News om e, 86 3 F .2d83 5, 8 38 n.5 (11 th Cir . 19 89 ). W e al so no te th atBONY of fe rs no e xpl an at iona s to w hy it s no n- law y er

e m plo y ee s di d no t r ef

er the D eb tor ’ s m oti ons an d th e bankr upt cy c ourt’ s or de rs to its le ga l de partm en t or it s ou ts id e co un se l upo n re cei pt . In s um , BONY’ s ar gu m en ts are u np ers ua si ve .BO NY conc edes that it did notraise this issue bef ore the bankruptc y

court. The ref

ore, 20 we r eview the bankruptc y court’s de cision for plain e rror . See Mike Ousley Prods. Inc. v. WJBF -T V, 95 2 F .2 d 3 80 , 3 83 (1 1th Cir . 1 99 2) (“ B e c a

us e [the pla int if

f’ s atto rn e y ] fa ile d to ra ise 30 E ve n if BO N Y is co rr ec t tha t the c ourt’ s or de rs sho uld have inc lud ed

the w or ds “ co nte m

pt” or “ sanc tio ns, ” w e m

ust sti ll re j ec t i ts arg um en t. T he bankrupt cy

court took sp ecific steps to ensu re that BO NYrec eived proper notice an d op portun ity

to re spon d to the D eb tor ’ s r eque st f or int er es t. T he c ourt’ s Apr il 26, 2002 o rder specif

ically directed the D ebtor to “ com m ence a contested m atter by f ili ng a Mo tio n se ek ing int er es t onthe a m ount s he ld b y BO N Y , ” an d f

or BO N Y to “ re spon d to the D eb tor ’ s M oti on and t o it s f ee appl ic at ion . ” T he D eb tor ’ s S ur ch ar ge Mo tio n so ught “ anO rd er

sur ch ar gin g [ BO N Y ] and d ir ec tin g it to pa y th e Deb to r in te res t, o r in ve st m en t i nc om e, on th e fu nd s h el d b y BONY pursuant to [the] Tr

ust Indentu re [ Agre em ent] .” T hus, BO N Y ha d am

ple not ic e that i t c oul d be r equir ed to pay int er es t and at to rn ey ’s fees , and was g iv en am pl e o pp or tu ni ty to d efen d i ts el f. Ind eed , BONY fi le d ar es pons e oppo sin g th e Surc harg e Mot ionon June 14, 200 2. T he bankr upt cy c ourt di d no t di re ct

BO N Y to pay

a tto rn ey ’ s f

ee s or int er es t onthe Pr ep ay m en t F unds unt il Apr il 7, 200 3, a lm ost af ull y ear af

te r the D eb tor co m m en ce d th e co nte ste d a ct ion . A s B O N Y c oul d have r ai se d th e not ic e iss ue with the bankruptcy

court on any

num ber of occa sions , w e find no plain error. 20the [Rul e 11] notice issue at the district cour t level, we r eview f

or plain er

ror.” ) (c iting United States v. S. Fabric atingCo., 764 F.2d 780, 781-82 ( 11th Cir. 1985)). 31 BO N Y ’ s du e pr oc es s arg um en t a cc or din gly f ai ls. W e nowtur

n to BO N Y ’ s a sse rt ionthat the dis tr ic t c ourt e rr ed by f ind ing that BON Y w as a com

m on law trustee w ith a fiduciary duty , a s oppo sed to an In de nture T ru ste e w ithc ontra ct ua l du tie s. III . W e re view de novo determ ination s of law , whether rea ched by the district court or the bankruptcy

court. See In re S im

m ons, 200 F.3d 738, 741 (11 th Cir. 2000 ). W e se t a sid e the bankr upt cy c ourt’ s f ac tua l f ind ing s on ly

if the y are c le ar ly erro ne ou s. Id . The i nt erp ret at io n o f co nt ract ua l l an gu ag e is a qu es ti on of l aw. T obi n v. Mi ch . Mu t. I ns. Co . , 398 F . 3d 1 267, 127 4 ( 11th C ir . 200 5) ( ci tin g B ra gg v. Bi ll HeardCh ev ro le t, In c., 37 4 F .3d10 60 , 10 65 (11 th Cir . 20 04 )). Thu s, we re vie wde nov o w he the r the dis tr ic t c ourt c or re ct ly c onc lud ed

that B O N Y w as a conventio nal trustee. BONY co nt en ds th atitsu ccee de d Nat io ns Ban k a s In de nt ur e Tru st ee. To whit, BON Y c laim s that its ob ligation s to the Debtor and to the Noteholders we re go ve rn edex cl us iv el y

by the ter m s o f th e Tru st Ind en tu re Ag reem en t. BONY argues that the Tr

ust Indentu re A greem ent im posed no oblig ation on the Indenture32

T ru ste e to p ay

int er es t onthe P re paym en t F unds pr ovi de d by the D eb tor

f or the pur pose of sa tis fy ing the N ote s. The sine qua non of BON Y’ s theory is its im plicit assertion th at it assum ed N at ion sB an k’ s ob lig at ion s un de r the T ru st I nde nture A gr ee m en t. I n r es pons e, the D eb tor c ont en ds tha t the T ru st I nde nture A gr ee m en t t er m inate d on ce the Pr ep ay m en t F unds w er e tr an sf

er re d to N at ion sB an k and N at ion sB an k r el ea se d it s li en on th e Deb to r’s as se ts . A. Before we can deter

m ine whether the Tr

ust Indentu re A greem ent lim ited BON Y’ s duties as it claim s, w e m ust first consid er whether BO NYis in fact an Indenture Tr

ustee. I n other words, wa s BON Y a party to the Tr ust Indentu re Agre em ent such that its oblig ations to the De btor are c ontractually lim ited by

that instrum ent? T he parties do not di spute that NationsBank was the original Indenture Tr

ustee and a party

to the Tr ust Indentu re A greem ent. I n Dec em ber 1995 , B ON Y bought NationsBank’s cor porate trust divis ion, and by way of that ac qui sit ionga ine d c ontro l ov er the D eb tor ’ s P re paym en t F unds . I t i s by thi s acquisitio n that BON Y nowclaim s it succeeded Nations Bank as the Indenture Trus te e. BO N Y c or

re ct ly poi nts out

that, unl es s th e D eb tor

de fa ult s onit s33

obl igatio ns t o it s N ote hol de rs , “ the ind en tur e tr ust ee sha ll not

be li ab le e xc ep t f

or the perform ance of such duties as are specifically set out in [the trust] indenture. ” 15 U . S. C. § 77 ooo( a) (1 ). T he sc ope of the I nde nture T ru ste e’ s du tie s and liabilities, therefore , is dictated by the express term s of the Tr ust Indentu re A gr ee m en t. S ee Bake r v. S um m it Bank, 46 F ed . Appx. 689 , 690 ( 3d C ir . 200 2) (“ It is w el l se ttl ed

that un de r the T ru st I nde nture A ct , the obl igatio ns o f the In de nture T ru ste e ar e lim ite d to the te rm s of the I nde nture . ”) ; E lli ot A sso cs . v. J. He nry Schroder B ank & Tr

ust, Co., 838 F.2d 66, 71 (2d Cir. 1988 ) (“ [I] t is clear from the express term s of the [T rust Indenture] Ac t and its legis lative histo ry that no im plicit du ties . . . are im

posed on the trustee to lim it its pre-default conduct.”); Me ck el v. Co nt’ l R es . Co . , 758 F . 2d 8 11, 816 ( 2d C ir . 198 5) ( statin g th at “ [u ] nli ke the or din ar

y tr ust ee , w ho h as his tor ic c om m on- lawdut ie s im

pose d be y ond tho se in the trust agreem ent, an indent ure trustee is m ore like a stakeholder w hose dut ies an d o bl ig at io ns are ex cl us iv el y de fin edby the ter m s o f th e in de nt ur e ag reem en t” ). The Ind en tu re Tru st ee i s t he refo re a cr eatur e cre at edan d g ov ern edby con tra ct . To support its assertion that it succeeded N ationsBank as Indentu re T rustee, BON Y m ust argue that it assum ed Nations Bank’ s contractual obligatio ns und er the T ru st I nde nture A gr ee m en t. B O N Y of fe rs no e xpl ic it j ust if

ic at ionf or f ind ing that su chan a ssu m

pti on t ook pla ce . I nst ea d, BO N Y im pli es that i t a ssu m ed

thePur su ant t o Se c tio n 1 .1 2 o f t he Agre e me nt, the Agre e me nt “ sh a ll b e c on str ue d in 21 acc ordanc e with and g overne d by the laws of the State of F lorida.”

34 obl igatio ns o f In de nture T ru ste e w he n it pur ch as ed

N at ion sB an k’ s c or

por at e tr ust div isi on. T he f

ac t of thi s a cquis iti on, standi ng a lon e, is le ga lly ins uf fi ci en t t o supp ort the conclusio n that BON Y a ssum ed Nations Bank’ s contractual obl igatio ns. U nde r Fl or ida

law , an “ as sig nor

c an not r el ie ve him se lf

of his obl igatio ns 21 [under a contrac t] by

an assignm ent unless th e party with w hom

he contracted ag re es to ac ce pt the r es pons ibi lity of the a ssi gne e. ” 3AF la . Jur . 2d A ssi gnm en ts § 26 ( 2006 ) (c iti ng K or

nbl um v. H en ry E . Mange ls C o. , 167 S o. 2d 1 6 ( Fl a. D ist . Ct . App. 196 4) ). N orm al ly , an a ssi gnm en t i nvol ve s on ly the a ssi gne e’ s a cquis iti on o f rights un der a c ontract and not th e assignor’ s oblig ations, unless it is found that the a ssi gnm en t w as a lso anov at ion . S an s S ouc i v. D iv. F la . L an d S al es & Condos ., 448 So. 2d 111 6, 1120 (Fla. Dist. Ct. App. 1984 ). A nov at ionis a m

utu al a gr ee m en t be tw ee n th e part ie s to ac ontra ct f or the dis ch ar ge of

ava lid e xis tin g ob lig at ionby

the sub sti tut ionof

ane wva lid obl igatio n. Jakobi v. K ing s C re ek V ill . T ow nhou se A ss’ n, I nc . , 665 S o. 2d 3 25, 327 (F la . D ist . Ct . App. 199 5) . “ T he re are f our e sse nti al e le m en ts n ec es sary to fo rm asub sti tut e co ntr ac t or

nov at ion : ( 1) the e xis te nc e of apr ev iou sly

va lid35

co ntr ac t; (2 ) the a gr ee m en t of the part ie s to c an ce l and e xti ngui sh the f ir st contract; (3) the a greem ent of the parties that the second contract takes the place of the f ir st; and ( 4) the va lid ity

of the ne wc ontra ct . ” I d. A lth oughc onse nt o f the part ie s to sub sti tut e a ne wc ontra ct f or the old m ay be im pli ed f ro m sur ro undi ng ci rc um stanc es , “ thi s is not to say that m er e know le dge of

the a ssi gnm en t by

the obl ige e an d a cquie sc en ce the re in, a lon e is s uf fi ci en t t o r el ea se the or igi na l ob lig or an d c re at e a novatio n. ” S an s S ouc i, 448 S o. 2d at 11 21. BO N Y ha s no t a lle ge d, le t a lon e pr ove d, that a nov at ionof

the T ru st In de nture A gr ee m en t t ook pla ce . B O N Y ha s no t a sse rt ed , nor is the re any

pr oof in the r ec or d, that the D eb tor and N at ion sB an k e ve r co nte m plate d th e canc el la tio n of the T ru st I nde nture A gr ee m en t f or the pur pose of c re at ing ane wa gr ee m en t w ith BO N Y . Mo re f

undam en ta lly , BO N Y ha s a dduc ed no e vid en ce of

ase co nd co ntr ac t tha t c oul d be c onstru ed a s r ep la ci ng the A gr ee m en t. I n or al arg um en t be fo re thi s c ourt, BO N Y ’ s c ouns el a dm itt ed that B O N Y ha d no t pr oduc ed ac opy of it s a cq uis iti on a gr ee m en t w ithN at ion sB an k, nor any oth er doc um en t tha t w oul d set forth the term s of that acquisitio n. I n fact, BO NYcould no t even confirm that it re ce ive d ac opy

of the T ru st I nde nture A gr ee m en t pr ior to the a cquis iti on. Consequent ly , w e need not reac h the questio n of whether the parties agree d that said second con tract r eplaced the fir st, or whether said second contract wa sSection 10.12 of the Tr ust I ndenture Ag ree ment stated that a me rg er or acquisition of 22 NationsBa

nk’s cor porate trust business makes the ac quiror the indentur e trustee “without the execution or filing of

any paper or any further act on the pa

rt of any of the pa rties her eto.” BO NY may

be inclined to ar gue that this provision shows the Debtor’ s intent that BONY be c ome the Ind e ntu

re Tr us te e . H ow e ve r, B ON Y i s n ot a pa rt y to t he Tr us t Ind e ntu

re Agre e me nt, and so has no r ights or oblig ations pursuant to its terms. See 11 Fla . J ur. 2d Contrac ts § 19 (2 00 6) (“ In F lor ida , a

c ontr a c t c ann ot b ind

on e wh o is no t a

pa rt y the re to, be c a

us e in o rd e r t o c re ate an e nf

or c e a ble c ontr a c t, t

he re mus t be re c ipr oc a l a sse nt t o a c e rt a in a nd de fi nit e pr op os iti on .” (c iti ngIn r e Un iv. Ctr . H ote l, I nc ., 32 3 B .R. 30 6 ( B ank

r. N. D. F la . 2 00 5) )) . Wh ile it c an b e argue d th at th is p ro vis ion did e xpre ss t he De bto r’ s a g re e me nt t o c anc e l th e Tr us t Ind e ntu re Agre e me nt i n th e e ve nt t hat N atio ns B ank

tr ans fe rr e d it s c or

po rate tr us t de pa rtme nt, BO NY would still need to provide e vidence of an a gree ment with NationsBa nk to undertake the role of I ndenture Trustee . As we later discuss, howe ver, this provision did express the Debtor’ s intention that NationsBank’ s succe ssor repla ce N ationsBa nk as trustee . 36 v al i d . Gi v en th at BO NY h as fa i l ed t o d emo n s t ra t e t h at i tas s u m ed Na t i o n s Ba n k ’s co nt ract ua l o bl ig at io ns as I nd en tu re Tru st ee, we ca nn ot co nc lu de th atBONY be cam e the I nde nture T ru ste e w he n it a cquir ed N at ion sB an k’ s c or

por at e tr ust div isi on. 22 BO NY o ff

er s th e f o l l o wi n g fa ct u al re ci t at i o n i n re s p o n s e t o th e D eb t o r’s al le gatio n th at

it ne ve r re ce ive d ac opy

of the T ru st I nde nture A gr ee m en t: “ (a ) the T ru st I nde nture w as part

of the c onf irm ed plan of r eo rg an iz at ion , ( b) the f

unds he ld b y N at ion sB an k w er e subj ec t t o th e T ru st I nde nture w he n te nde re d to N at ion sB an k, and ( c) the f unds tr an sf

er re d by N at ion sB an k to [ BO N Y ] w er e to b e pa id t o [ N ] ote hol de rs in ac co rd an ce w iththe te rm s of the plan, the T ru st In de nt ur e, an d t he ba nk rupt cy co ur t’s d efea sa nc e Ord er.” T his c hara ct er iz at ionof

e ve nts , e ve n if

a cc ep te d a s tr

ue , doe s no t answ er

theTh e re is n o e vid e nc e in t he re c or d th at B ON Y a c qu ir e d p e rs onne l a s w e ll a s tr us t 23 acc ounts with NationsBank’ s corpor ate trust depa rtment. Moreove r, there is no indication of which re cords ( if any

) NationsBank pr ovided to BO NY. In short, we have no evide nce a s to how or whe n BO NY ca

me to understand the purpose of the Prepa y ment Funds, or how

or whe n BO NY identified the persons to whom those Prepa y ment Funds we re pa

y able. BO NY would have us g ive leg al ef fec t to the fac t that the bankruptc y court a nd the 24 Debtor r efe rre d to BON Y as “ indenture truste e” at severa l points i n the re cord be low. For e xamp le , th e De bto r’ s D e c e mbe r 1 3, 20 00 mot ion state d th at “ [t]he B ank

of Ne w Y or k b e c ame the indenture trustee” afte r its acquisition of NationsBa nk’s cor porate trust divisi on, and that BO NY held the Pre pay

ment Funds “ pursuant to the trust indenture .” Ag ain, abse nt proof of a novation or of a

n assig nment of NationsBank’ s obligations to BONY, we must conclude that such re fer ence s were in error . 37 sa lie nt que sti on o f w he the r BO N Y w as an I nde nture T ru ste e. I t i s e nti re ly pla usi ble that B O N Y a cc ep te d th e Pr ep ay m en t F unds and d isb ur se d th em to the Noteholders in a m anner outwar dly consistent with the T rust Indenture A gr ee m en t, w ith out

any a ct ua l kn ow le dge of

w ha t the A gr ee m en t r equir ed , and without actually

acce pting Nations Bank’ s responsib ilities as Indenture Trustee. 23 Pu t anothe r w ay , BO N Y ’ s a ct ion s w ithr es pe ct to the P re paym en t F unds w ill not subs tit ute a s pr oof

that i t e nte re d in to a

f orm al a gr ee m en t w ithN at ion sB an k and the Debtor to assum e the role of I ndentu re T rustee. 24 Curiously , B ON Y f

aults the Debtor for f

ailing to provide any

wr itten ag re emen t , o t h erth an th e T ru s tIn d en tu re Ag re emen t , t h at m i g h ts et fo rt h BO NY’s rights and d uties with respect to the Pre paym ent Funds. It is BO NYthat has as se rt ed that i ts r el at ion shi p to the D eb tor and t o th e N ote hol de rs is gove rn ed by the T ru st I nde nture A gr ee m en t. I t w as not the D eb tor ’ s ob lig at ionto pr ovi de38

BO N Y w iththe e vid en ce it ne ed ed to pr ove it s a lle ga tio ns. B. Hav in g e li m in at edth e p os si bi li ty tha t BONY was an Ind en tu re Tru st ee, we ad dr es s th e que sti on o f w ha t ob lig at ion s, if any , BO N Y ha d to the D eb tor . T he D eb tor a sse rt s th at

the r ole of

I nde nture T ru ste e te rm inate d w he n it tr an sf er re d th e Pr ep ay m en t F unds to N at ion sB an k, and tha t purs uant t o S ec tio n 8. 02 o f the T ru st Indenture Agre em ent, N ationsBank h eld those fund s in a com m on law trust. In sum , the D eb tor

a sse rt s th at

the dut ie s ow ed

to it by BO N Y w er e not

gov er ne d by the te rm s of

the A gr ee m en t. R athe r, the D eb tor c ont en ds tha t B O N Y w as a c o mm o n l a wtr

u s t e e wi t h an a t t e n d a n tf

i du c i a ry du t y. Init s or de rs , the bankr

upt cy c ourt r ep eate dly

state d th at

BO N Y ow ed

a fi duc iary duty to the D eb tor

and t o th e co urt. T he c ourt, how ev er , ne ve r expli ci tly st at eda le ga l b as is forth is co nc lu si on . App aren tl y , th e co ur t as su m edth atBONY be cam e a co m

m on l awtr

ust ee w ithr es pe ct

to the P re paym en t F unds w he n it pur ch as ed

N at ion sB an k’ s c or

por at e tr ust div isi on. T he dis tr ic t c ourt c am e to the sam e co nc lus ion , tho ugh by e xpl ic itl y ar tic ulate d m eans. T he c ourt f oc use d onthe f

ac t tha t the D eb tor

tr an sf er re d th e Pr ep aym en tFu n d s t o Na t i o n s Ba n kb ef o re BO NY a cq u i re dNa t i o n s Ba n k ’s co rp o ra t e t ru s td i v i s i o n . F ro m th i s fa ct th e c o u rt i n fe rr ed th at Na t i o n s Ba n k ’s39

rights and o bligatio ns und er the T rust Indenture Agree m ent wer e extinguis hed o n c e th e De b t o r

p r o v i d e dth e f

u n d s t o s a t i s f

y th e No t e s i n f

u l l . P u tan o t h e r

wa y, the district court regarded the transfe r of the P repay m ent Funds to Nations Bank as a term ination of both the Trust Indenture Agre em ent and of Nations Bank’ s role as Indenture Tr

ustee. C onsequ ently , that r ole could no t have passed to BON Y a s part of it s a cq uis iti on. I nst ea d, N at ion sB an k be cam e a co m m on l awtr

ust ee w ith re spe ct to the P re paym en t F unds , and B O N Y suc ce ed ed in that c ap ac ity

onc e the ac qui sit ionw as e ff

ec te d. T he dis tr ic t c our

t, how ev er , did

not pr ovi de ale ga l ba sis fo r co nc lud ing that B O N Y c oul d a ssu m e the r ole of c om m on l awtr

ust ee f ro m N at ion sB an k. 1. W e begin our assessm ent of BO NY ’ s argum ent by addressing th e district co urt’ s c onc lus ionthat N at ion sB an k’ s du tie s r eg ar din g th e Pr ep ay m en t F unds were t ho se of a co m

m on law t ru st ee, as op po se d t o t ho se of a n In de nt ur e Tru st ee. Whil e w e ag re e w iththi s c onc lus ion , w e fi nd tha t the dis tr ic t c ourt c oul d have reac he d i t b y

an al y zi ng th e te rm s o f th e Tru st Ind en tu re Ag reem en t i ts el f. Sp ec if ic al ly , the A gr ee m en t e sta bli she d di ff

er en t tru ste e obl igatio ns d ep en din g on the r es to be he ld i n tr

ust . I t m ad e cl ear that the tr ust f or the P re paym en t F unds is not gov er ne d by the te rm s of

the A gr ee m en t or

the T IA . S ep ar at e an d a part f ro mThe ter ms “Collateral” and “E scrow A ccount” are define d in footnote 2, supra. The 25 Ag ree ment’s def

inition of the term “Trust Money s” includes a ll money s, including the net proce eds fr om the sale of the Collateral, paid into the Escr ow Acc ount. The Trust Money s were essentially

part of the Collateral sec uringthe Notes. 40 de lin eatin g th e ro le of

I nde nture T ru ste e, the A gr ee m en t w as atr ust ins tr um en t that e xpr es se d th e D eb tor ’ s in te nti on t o c re at e a co nve nti ona l tru st f or the Pr ep ay m en t F unds .

“ ‘ T he pol es tar of

tr ust int er pr et at ionis the se ttl or [‘ s] int en t. ’ ” Ro be rt s v. Sarr os, 920 S o. 2d 1 93, 195 ( Fl a. D ist . Ct . App. 200 6) ( quot ing L ’ A rg en t v. Barn ett B an k, N . A . , 730 S o. 2d 3 95, 397 ( Fl a. D ist . Ct . App. 199 9) ). “ If the tr ust la ng ua ge is un am

bi gu ou s, t he set tl or [‘s] int en t as ex pr es se d i n t he tru st co nt ro ls . .

. . ” I d. ( ci tin g L ’ A rg en t, 730 S o. 2d at 39 7; L udw ig v . A m So uthBank o f Fl a. , 686 So . 2d 1 373, 137 6 ( Fl a. D ist . Ct . App. 199 7) ). “ Inde te rm ini ng the se ttl or ’ s in te nt, the c ourt sh oul d . . . c onstru e ‘ the ins tr um en t a s aw hol e, ’ takin g in to a cc ount the ge ne ra l di spos iti ona l sc he m e. ” I d. ( quot ing P ound s v. P ound s, 703 S o. 2d 4 87, 488 (Fla. D ist. Ct. App. 1997 )). Section 4.03 of the T rust Indenture Agree m ent stated that the Indenture Tr ustee’ s responsib ilities with respect to the Collateral f or the Notes w ere gove rn ed by the te rm s of

the A gr ee m en t and the T IA . T ha t se ct iondir ec te d th e 25 In de nture T ru ste e to “pe rf orm it s ob lig at ion s un de r the S ec ur ity D oc um en ts i nSe c tio n 1 .0 1 o f t he Agre e me nt d e fi ne s “ Se c ur ity Do c ume nts ” a s “ any

and a ll s e c ur ity 26 a g re e me nts , mo rt g a g e s, de e ds of tr us t and de e ds to s e c ur e de bt ( inc lud ingc oll ate ra l a ssi g nme nts ob ta ine d p ur su ant t

he re to) , a ssi g nme nts , p le dg e s a nd oth e r a g re e me nts or

do c ume nts purs ua

nt t o which the [Debtor] g rants a se curity interest in or lien upon, or othe rwise pledg es or a ssigns, a ny Collateral to the Truste e for the bene fit of the Noteholde rs.” Under limit ed cir cumstance s, the Debtor w as per mitted to use insurance proce eds 27 place d in the EscrowAcc ount to repair the proper ty held by the Indenture Trustee as Collatera l. Even he re, the funds could not be r elea sed fr om the EscrowAcc ount unless cer tain proofs we re provided to the Indenture Trustee . We note that Section 1.08 states that “[t] he Ar ticle and Sec tion heading s here in are for 28 convenie nce only

and shall not aff

ect the c onstruction here of.” We ther efor e g ive no interpre tive eff ect to the Agree ment heading s mentioned in this opini on. 41 ac co rd an ce the re w ith , ” but it s ob lig at ion s w er e al so l im ite d “by the pr ovi sio ns o f 26 the TI A, ” the fe deral statute under which the r ole of Indenture T rustee w as cr eate d. S im ilarl y , S ec tio n 7. 01 o f the T ru st I nde nture A gr ee m en t pl ac ed the re spon sib ili ty

f or dis bur sin g th e T ru st M one y s, inc lud ing tho se he ld i n th e E sc ro w A cc ount , on the I nde nture T ru ste e al one . W ithr es pe ct to the Co llate ra l and the 27 T ru st M one y s, the I nde nture T ru ste e’ s ob lig at ion s w er e expr es sly li m ite d to the Agre em ent and the TIA . These obligations in cluded taking car e of the Collater al an d th e T ru st M one y s. Inc ontra st, S ec tio n 15 . 04 ( en tit le d “ D ep osi t of P re paym en t P ri ce ”) of

the 28 A gr ee m en t se t ou t the pr oc ed ur e by w hic h th e D eb tor

m ust de posi t the Pr ep ay m en t F unds f

or paym en t of

the N ote s. I t st at ed : O n or pr ior to an y P re paym en t D at e, the [ D eb tor ] sha ll de posi t w iththe Trus te e o r wit h a Pay in g Ag en t (o r, if t he Co m pa ny is ac ti ng as i ts ownSe c tio n 1 .0 1 d e fi ne s a “ PayingAg e nt” a s a

“ any pe rs on a uth or ize d b y

the [De bto r] t o 29 pay the principa l of, or intere st on, any Notes on beha lf of the [Debtor].” 42 Pay ing Agent, segregate and holdin trust as provid ed in Section 14.03) an am ount of m oney

sufficient to pay

the Pre paym ent Price of all the N otes w hic h are to be pr ep ai d onthat date . S uc h m one y sha ll be he ld i n tr

ust [ f] or the be ne fi t of

the P er sons e nti tle d to suc h P re paym en t P ri ce and s ha ll not be de em ed to be part

of the Co llate ra l or

T ru st M one y s. U nde r thi s pr ovi sio n, the D eb tor c oul d have de posi te d th e Pr ep ay m en t F unds w ith o n e o f th r e e e n t i t i e s : th e I n d e n tu r e Tru s t e e , a“ P a yi n g Ag e n t , ” o r i t s e l f . C l e a r l y, 29 the Pay ing Agent and the Debtor did not b ecom e Indenture T rustees (trustees w hose dut ie s w er e dic ta te d by the T ru st I nde nture A gr ee m en t and the T IA ) sim ply be ca use the y he ld P re paym en t F unds f or the be ne fi t of

the N ote hol de rs . S ec tio n 15.04 didnot provi de differ ent oblig ations for differe nt entities; each entity wa s charged to hold th e Pr epaym ent Funds “ in trust” without further m odification. In additio n, Se ction 15 .04 explicitly separated the P repay

m ent Funds bystating th at the y “ sha ll not

be de em ed

to be part

of the Co llate ra l or

T ru st M one y s. ” T he tr

ust int o w hic h th e Pr ep ay

m en t F unds ha d to be pla ce d, the re fo re , w as se parate and dis tin ct f ro m the tr ust c ont ai nin g th e Co llate ra l. T his r ea din g is bol ste re d by S ec tio n 8. 02 o f the T ru st I nde nture A gr ee m en t, w hic h is e nti tle d “ Appl ic at ionof D ep osi te d M one y . ” E ch oin g th e langua ge of Se ct ion15. 04, thi s se ct ionstate d, in pe rt ine nt p ar t:43

Mon ey s de posi te d w iththe T ru ste e pur suant t o S ec tio n 8. 01 [ w hic h de al t w iththe sa tis fa ct ionand d isc harg e of the N ote s] sha ll not

be apart of the Collateral and shall not be deem ed to be Tr ust Mon ey s but sh all constitu te a se parate tr

ust f und fo r the be ne fi t of

the P er sons e nti tle d th er et o. He re, the Agre em ent explicitlystated that the funds u sed to dis charge and satisfy the N ote s, inc lud ing the P re paym en t F unds , w er e not part of the Co llate ra l he ld b y the I nde nture T ru ste e an d no t part of the T ru st M one y s. R athe r, tho se f unds ha d to be pla ce d inase parate tr

ust se t up f or the be ne fi t of

thi rd part ie s. T he A gr ee m en t in n o w ay li m ite d or

m odi fi ed the r es pons ibi lit ie s of

the tr ust ee f or thi s se parate trust, nor did the Agree m ent anywher e provide that the dut ies owed by the trustee fo r thi s se parate tr

ust w er e lim ite d by

the T IA . Mo re ove r, and unli ke it s tr eatm en t of the Co llate ra l, the D eb tor did not giv e the I nde nture T ru ste e a se curi ty int er es t in, ali enupo n, or

oth er w ise ple dge or

a ssi gn the P re paym en t F unds to the Indenture Tr

ustee. That the A greem ent provideddiffer ent responsib ilities for the Indenture T ru ste e than it

did f or the P re paym en t F unds tr ust ee is se nsi ble giv enthe pur pose of the T ru st I nde nture str

uc tur e. T he T ru st I nde nture w as c re at ed to se cure the obl igatio n of

the D eb tor

in ana dm ini str at ive ly

m an ag ea ble f as hio n. G ive n th e ins olv en cy

of the D eb tor , it s C la ss 7 Cr ed ito rs w er e pr ovi de d w ithli en s onthe D eb tor ’ s a sse ts a s se curi ty in ca se the D eb tor

f ai le d to m ee t i ts o bli ga tio ns. T he se44

lie ns w er e the n po ole d and transf er re d to asin gle I nde nture T ru ste e, w ho w oul d ac t onbe ha lf

of the N ote hol de rs if

the D eb tor

de fa ult ed . O nc e the P re paym en t Funds w er e te nde re d, how ev er , the N ote hol de rs no l onge r ha d any c onc er ns regarding the De btor’ s inso lvency . The am ount needed to satisfy the debt had be enpr ovi de d; tha t, in tur n, e xti ngui she d th e ne ed

to fo re cl ose on the li en s to e x a c tp a ym e n t . C o n s e qu e n t l y, a n I n d e n tu r e Tru s t e e wa s n o l o n g e r n e c e s s a ry. Re ad ing S ec tio ns 4 . 03, 8. 02 and 1 5. 04 t oge the r, w e m ust c onc lud e that the D eb tor int en de d th e Pr ep ay

m en t F unds to be he ld i n ac om m on l awtr

ust . T he responsib ilities of Indenture Trustee, as governed by the Tr ust Indentu re A gr ee m en t and the T IA , did not appl y to the tr ust in w hic h th e Pr ep ay

m en t F unds w er e he ld. A ddi tio na lly , the re w as no o the r lim itatio n onor m odi fi catio n of

the trustee’ s duties with respect to the Prepay m ent Funds. Rather, these funds, w hen providedby

the De btor, had to be held in a com m on law trust, and the trustee charged w ith caring for them had to be a com

m on law trustee. 2. H av ing e sta

bli she d th at

the P re paym en t F unds w er e re qui re d to be he ld i n a com m on law trust, we turn to the quest ion of whether the r ole of com m on law tru st ee p as se d t o B ONY when itacq ui redNati on sB an k’s co rp or at e trus t d iv is io n. If it did , it w as not pur suant t o an a gr ee m en t be tw ee n th e D eb tor and B O N Y ;Unless there is a statute to the contra ry , an instrument cr eatinga trust may provide for 30 the su c c e ssi on

of a tr us te e dir e c tly , in dir e c tly , o r b y imp lic atio n a lon e . Se e 90 C.J.S. Tr us ts § 289 (2005) ( citing Pay

iasis v. Robil lard, 171 So.2d 630 (F la. Dist. Ct. App. 1965). “[A] succe ssor appointed by

the trust instrument takes his place automatically without court ac tion, and it is competent for

the cr eator

of the trust to provide dire ctly for the f illing of va canc ies in the trusteeship by

the namingof the pe rsons to be substituted.” Doug las Props. v. Sti x , 159 So. 1, 5 (1935). 45 rathe r, the r ole of

c om m on l awtr

ust ee ha d to have pa sse d to BO N Y , a s su cc es sor tr ust ee , und er

the te rm s of

the T ru st I nde nture A gr ee m en t be tw ee n th e D eb tor and Nati on sB an k. T he T ru st I nde nture A gr ee m en t pr ovi de d f or asuc ce sso r tr

ust ee . S ec tio n

30 10. 12 o f the A gr ee m en t ( en tit le d “ Me rg er , Co nve rs ion , Co nsol idatio n or Su cc es sio n to Bu sin es s” ) pr ovi de d f or the appoi ntm en t of

asuc ce sso r tr

ust ee in the e ve nt the or igi na l tru ste e tr an sf er re d c ontro l of

it s tr ust bus ine ss. I t st at ed , in re le vant p ar

t: A ny c or por at ionint o w hic h th e T ru ste e m ay be m er ge d or

c onve rt ed

or w ith which it m ay

be consolid ated, or any

corporation resulting from any m erger, co nve rs ionor

c onso lid at ionto w hic h th e T ru ste e sha ll be aparty , or any co rp or at ionsuc ce ed ing to al l or sub stanti al ly

a ll of the c or por at e tr ust bu si ne ss of t he Trus te e, sh al l b e th e su cces so r of th e Tru st ee h ereu nd er . . . w ith out the e xe cu tio n or

f ili ng o f an y

pa pe r or any f urthe r ac t onthe part

of an y of the part ie s he re to. Se ct ion10. 12 una m

big uous ly e xpr es se d th e w ill of

the A gr ee m en t’ s c re at or , the D eb tor , that the e nti ty

that purc ha se d N at ion sB an k’ s c or por at e tr ust div isi on be co m e the suc ce sso r tr

ust ee . T his se ct ionpla ce d no li m it on i ts e ff ec t; its pla inThe Tr ust I ndenture Ag ree ment set out sever al pre conditions gove rningthe selec tion 31 of a tr us te e or a su c c e sso r t

ru ste e , whic h a

re no t r e le va

nt t o th is a

pp e a l. BO NY ar gues that the re quirements for termination of the Tr

ust Indenture Ag ree ment 32 set out in Section 8.01 were never satisfied. That se ction require s, amongother thing s, that the Debtor de liver to the Indenture Trustee an Of fice rs’ Cer

tificate a nd opinion of counsel stating that all conditions prece dent re lating to the satisfaction of the N otes have been me t. We need not a dd re ss t his argume nt f

ur the r. As dis c us se d a

bo ve , B ON Y h a s p ro vid e d u s w ithno re a so n to conclude that it was a pa

rty to the Trust Indenture Ag ree ment such that the ter mination p r o v i s i o n s i nS e c t i o n8 . 0 1 w o u l d a p p l y. 46 language ind icated that any trustee, Indenture T rustee or com m on law trustee, w oul d be co m e N at ion sB an k’ s su cc es sor pr ovi de d th e oth er

tr ust ee qua lif

ic at ion s were m et . Obv io us ly, th aten ti ty w as BONY.

31 Sect io n 1 0.1 2 c ou ldno t b in d B ONY as a m at te r of co nt ract law. BONY w as not aparty to the T ru st I nde nture A gr ee m en t, and the re is no e vid en ce that a tr ipart ite nov at iontoo k pl ac e that su bst itu te d B O N Y a s th e In de nture T ru ste e. T he expr es sio n of

w ill c ont ai ne d inS ec tio n 10 . 12 d id h av e ef fe ct a s am atte r of

tr ust law, however, and it operated to transfer N ationsBank’s com m on law trustee oblig ations to BO NY . W e theref ore af firm the district court’ s conclusio n that BON Y held the Pr epaym ent Funds as a com m on law trustee. 32 3. As com m on law trustee f

or the Pre paym ent Funds, we have no dou bt that BO N Y ow ed

af idu ci ar y duty to the be ne fi ci ar ie s of

that tru st. T he que sti on, the n, is whether the D ebtor wa s a trust beneficiary to whom BO NYowed a fiduciary47

duty . T he D eb tor

c ont en ds tha t on ce the P re paym en t F unds w er e pr ovi de d to N at ion sB an k onO ct obe r 2, 199 5, N at ion sB an k ( an d th er ea ft er BO N Y ) he ld those funds fo r the be ne fi t of

the N ote hol de rs in the f

ir st i nst an ce , and the n f

or the be ne fi t of the D eb tor

w ithr es pe ct

to an y P re paym en t F unds the N ote hol de rs did not c la im . I n e ff

ec t, the D eb tor

c la im s th at

it w as the r es idu ar

y be ne fi ci ar

y of the tr ust . BO N Y ha s c onc ed ed that the D eb tor

is the r es idu ar

y be ne fi ci ar

y of the Pr ep ay m en t F unds tr

ust . I n it s “ Re spon se in O ppos iti on t o th e D eb tor ’ s M oti on t o Surc harg e the Bank o f N ewY ork and t o D ir ec t P ay m en t of I nte re st, ” fi le d w iththe bankrupt cy

court on Jun e 14, 2002, BO NYasserted that the D ebtor had no greater cl ai m to int er es t onthe P re paym en t F unds tha n di d th e N ote hol de rs . I n so doi ng, BO N Y a dm itt ed

that “ al l the D eb tor

ha d w as ac ont ing en t r em ai nde r ri ght to the Pr ep ay m en t F unds , sho uld

tho se f unds go unc la im ed . ” BO N Y r ei te rate d th is arg um en t i n i ts op en in g b rie f to us . 4. Fi na lly , w e m

ust de te rm ine w he the r BO N Y ’ s f idu ci ar y duty inc lud ed aduty to pay interest to the Debtor on the Pre paym ent Funds. Fiduciaries have an unf la ggi ng d uty of loy al ty to the be ne fi ci ar ie s w hom the y se rv e, and t o avoi d co nf lic ts o f int er es t. S ee Co m pto n v. F if

th A ve . A ss’ n, I nc . , 7 F . S upp. 2d 1 328,As explained in section I I .A.2., supra, B ONY de faulted its rig ht to challeng e the 33 Debtor’ s alleg ation that BO NY had e arne d interest income on the Prepay ment Funds be tween April 1996 and Oc tober 2001. 48 1333 ( M. D . F la . 199 8) . Ac onf lic t of int er es t ari se s w he n th e fi duc iary pr of its fr o m th e p ro p er t y en t ru s t ed t o i t s ca re , a n dd o es s o at th e e x p en s e o f t h e p ro p er t y’ s be ne fic ia rie s. “ A card in al rul e o f th e la w of t ru st s i s t ha t a t ru st ee m ay no t . . . m an ag e the a ff

ai rs of the tr ust pr ope rty so a s to ga in any

a dvanta ge dir ec tly

or indirectly for him self bey ond h is lawf ul com pensation .” John G. G rim sley , F la. Law of Tr

usts § 6-4 (4th ed. 1993). He re, BO NYheld the Debtor’ s Prepay m ent Funds, $487 ,844.90, f or over five y ears. D uring that tim e, BO NYprofited on tho se funds while the De btor was un ab le to us e th em . Mo reo ve r, BONY di d n ot rel in qu is h i ts pro fit to th e Deb to r. 33 Such self-dea ling was a cle ar violation of BON Y’ s dutyof loy alty to the Debtor. Inlarg e m ea sur e, BO N Y ’ s c ha lle nge of the c ourt’ s aw ar d of

int er es t i s ba se d onit s be lie f that i t w as und er no o bli ga tio n to a cc ru e int er es t onthe Pr ep ay m en t F unds . B O N Y ba se s th is arg um en t onS ec tio n 10 . 06 o f the T ru st In de nture A gr ee m en t, w hic h st at ed , in re le vant p ar t: Mo ne y he ld b y the T ru ste e in tru st h er eunde r ne ed not be se gr eg at ed

f ro m other funds except to th e extent required by law . The T rustee shall be under no liabil ity

for intere st on anym oney rec eived by

it hereunder exce pt as o t h erwi s e a g re ed wi t h th e [ De b t o r].49

BO N Y ’ s r el ianc e on S ec tio n 10 . 06 i s m isp la ce d f or tw o r ea sons . F ir st, a s a ge ne ra l m atte r, S ec tio n 10 of the T ru st I nde nture A gr ee m en t ou tli ne d th e contractual obligatio ns and right s of the Indenture T rustee. Sec tion 1 0.01 stated that “ the Tr

ustee undertakes to perform such duti es and onlysuch duti es as ar e spe ci fi ca lly

se t f orth i n th is I nde nture , and n o im pli ed c ove nants or

obl igatio ns sha ll be r ea d in to t

his I nde nture a ga ins t the T ru ste e. ” A s w e ha ve e sta bli she d, BO N Y w as not

the I nde nture T ru ste e. A cc or din gly , the pr ote ct ion s a ff or de d to th e In de nt ur e Tru st ee b y

Sect io n 1 0.0 6 d idno t ap pl y to BONY. Se co nd, the f

unds to w hic h S ec tio n 10 . 06 r ef er re d c an not

be the P re paym en t Funds. As a lready

discussed, Sections 8.02 and 15.04 of the Trust Indenture A gr ee m en t sp ec if

ic al ly r equir ed that the P re paym en t F unds be pla ce d inase parate trust. Se ction 10 .06, on the oth er hand, providedthat the funds heldby the Tr ustee ne ed not be he ld i n ase parate tr

ust . I f Se ct ion10. 06 a

ppl ie d to the P re paym en t Funds, it w oul d ob vio usl y

c onf lic t w iththe c le ar

dir ec tiv e expr es se d inS ec tio ns 8. 02 and 1 5. 04. W e m

ust c onc lud e, the re fo re , that S ec tio n 10 . 06 d oe s no t a ppl y to the P re paym en t F unds . IV. T he dis tr ic t c ourt c or

re ct ly c onc lud ed

that the bankr

upt cy c ourt di d no t abuse its dis cretion when it im posed sanctio ns on BONYfor its dilatory conduct50

an d r ep eate d r ef

usa l t o ob ey

the c ourt’ s or de rs . A lth oughthe dis tr ic t c ourt di d no t address the part of the bankruptcy court’ s sanctions that effe ctively struck BON Y’ s response to th e D ebtor’ s claim for intere st, w e do so and conclu de that the bankr upt cy c ourt a ct ed

w el l w ith in i ts i nhe re nt p ow er to m an ag e the c as e. T he di st ric t co ur t d et erm in edth atBONY was n ot an Ind en tu re Tru st ee b ut , in st ead , a co m m on l awtr

ust ee w he n it

too k po sse ssi on o f the P re paym en t F unds , and tha t i t owed a f iduciary duty to the Debtor and to the bankruptcy court. W e af

firm that de te rm inatio n f

or the r ea sons se t ou t i n part I II of thi s op ini on. T he j udgm en t of th e d is tri ctco ur t i s, ac co rd in gl y , affi rm ed . SO ORDE RED.