Opinion ID: 2773213
Heading Depth: 2
Heading Rank: 3

Heading: Trust

Text: The FDIC’s argument that the tax refunds were merely held by DFC in trust for Downey Bank is also inconsistent with the express terms of the TSA. Under California law, “[t]he absence of language creating a trust relationship is explicitly an indication of a debtor-creditor relationship.” In re IndyMac Bancorp, Inc., 554 F. App’x at 670; see also In re Vineyard Nat’l Bancorp, 508 B.R. at 445 (“[T]he TSA did not create an express trust as it lacked the necessary language to create such a trust. . . . The TSA did not identify the Debtor as, and the Debtor did not assent to becoming, a trustee.”). The word “trust” does not appear in the TSA, nor is any party designated as a “trustee” or “beneficiary.” The TSA includes words such as “make payment,” “reimburs[e],” “compensat[e],” and “refund.” § 2.1(a), (e), (f), (h). Such terms are indicative of a debtor/creditor relationship. See Imperial Capital Bancorp, Inc. v. FDIC (In re Imperial Capital Bancorp, Inc.), 492 B.R. 25, 30 (Bankr. S.D. Cal. 2013) (acknowledging that “[c]ourts across the country have repeatedly held that terms such as ‘reimbursement’ and ‘payment’ in a tax sharing agreement evidence a debtor-creditor relationship”); In re IndyMac Bancorp, Inc., 2012 Bankr. LEXIS 1462, at . In addition to the language of the TSA, we are persuaded by: 1) the lack of any requirement that DFC segregate, or otherwise hold in escrow, money paid to it by Downey Bank and the other subsidiaries and 2) DFC’s ability, at its “sole discretion,” to 5 control the application for a refund or disposition of funds once received. 5 § 2.4(a). The only potential constraint on DFC’s discretion is the requirement that it “consider in good faith any treatment proposed by the Affiliated Group members,” but this does not override the grant to DFC of control over the refund process. Id. Downey Bank makes a superficially appealing argument that the TSA created a trust because of its requirement that “[i]n no instance shall the allocation of tax liability to any member . . . be less favorable than the tax liability which would result from such member filing a separate tax return.” § 2.1(d). However, “[a] debtor-creditor relationship may exist ‘even though the payee may be contractually obligated to pay an equal amount to a third person.’” In re IndyMac Bancorp, Inc., 554 F. App’x at 670 (quoting Petherbridge v. Prudential Sav. & Loan Ass’n, 79 Cal. App. 3d 509, 518 (Cal. Ct. App. 1978)). In light of these facts, the TSA does not create a trust under California law. See Altura P’ship v. Breninc, Inc. (In re B.I. Fin. Servs. Grp., Inc.), 854 F.2d 351, 354 (9th Cir. 1988) (concluding no trust existed where the words “trust,” “trustee,” or “beneficiary” were not used; the payee was not required to segregate funds; and the payee could use the money for its own purposes); see also In re Vineyard Nat’l Bancorp, 508 5 The TSA provided DFC the right, “in its sole discretion: (i) to determine (A) the manner in which such returns shall be prepared and filed, including, without limitation, the manner in which any item of income, gain, loss, deduction or credit shall be reported . . . (C) the elections that will be made . . . on behalf of any member of the consolidated group . . . (ii) to consent, compromise or settle any adjustment or deficiency proposed . . . (iii) to file, prosecute, compromise or settle any claim for refund; and (iv) to determine whether any refunds to which the consolidated group may be entitled shall be paid by way of refund or credited against the tax liability of the consolidated group.” § 2.4(a) (emphasis added). 6 B.R. at 442 (concluding that because “the [parent] would have owed the [subsidiary] sums it did not receive from the IRS if the [subsidiary] were entitled to receive a refund [had it filed] a separate return,” the TSA created a “debtor-creditor relationship because it established the [parent’s] obligation irrespective of whether a refund was obtained”).