Court Opinion

ID: 40718
Source: CourtListenerOpinion
Date Created: 2010-04-25 20:52:37+00
Date Added: 2024-06-11T14:57:05.031418
License: Public Domain

United States Court of Appeals
                                                                                       Fifth Circuit
                                                                                    F I L E D
                    IN THE UNITED STATES COURT OF APPEALS
                                                                                    January 20, 2006
                                 FOR THE FIFTH CIRCUIT                          Charles R. Fulbruge III
                                                                                        Clerk

                                         No. 05-30426

       In the Matter Of: JAZZLAND, INC.

                                                           Debtor

       RICHARD NOBLE, Disbursing Agent for Jazzland, Inc.

                                                           Appellant,

                                             versus

       FEDERAL INSURANCE CO.,

                                                           Appellee.

                    Appeal from the United States District Court for
                     the Eastern District of Louisiana, New Orleans
                               (USDC No. 2:04-CV-467)
           _________________________________________________________

Before REAVLEY, DAVIS and WIENER, Circuit Judges.

PER CURIAM:*

       Disbursing agent for former theme park developer and Chapter 11 debtor,

Jazzland, Inc. (“Jazzland”), appeals summary judgment in an adversary proceeding

       *
        Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
granting the right to funds in a construction retainage account to Federal Insurance

(“Federal”), as assignee of creditor/contractor Broadmoor, L.L.C. (“Broadmoor”), rather

than to debtor’s estate. Reviewing the record de novo and applying the same standards as

applied by the bankruptcy court, we affirm for the following reasons:

       1.     In the context of contract interpretation under Louisiana law, only when

              there is a choice of reasonable interpretations of the contract is there a

              material fact issue concerning the parties' intent that would preclude

              summary judgment. Amoco Prod. Co. v. Texas Meridian Res. Exploration

              Inc., 180 F.3d 664, 669 (5th Cir. 1999). There is only one reasonable

              construction of the retainage account provision in the credit agreement

              between Jazzland and its project lender, Southtrust Bank: that this

              provision established a retainage account for the purpose of holding funds

              earned by Broadmoor, under the construction contracts between it and

              Jazzland, pending final payment of those funds to Broadmoor upon

              successful completion of the project. The credit agreement defines

              retainage by reference to the “Construction Contract” and keys the terms of

              the retainage account to the “Construction Contract.” The “Construction

              Contract” is expressly defined under the credit agreement as the

              construction contracts between Jazzland and Broadmoor.

       2.     As evidenced by Jazzland’s draw requests and by the certified substantial

              completion of the project in May of 2000, the retainage was earned by and

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     due to Broadmoor prior to Jazzland’s bankruptcy filing in February of

     2002. See LA. REV. STAT. 9:4822(H)(2) (providing that a certificate of

     substantial completion is equivalent to acceptance); see also State of

     Louisiana v. Laconco, Inc., 430 So.2d 1376, 1382 (La. Ct. App. 1st

     Cir.1983) (holding that, under Louisiana law, a contractor is entitled to the

     contract price, which includes retainage, upon substantial completion of the

     project). The funds in the retainage account do not belong to Jazzland’s

     estate.

2.   We are satisfied that, while the mechanics of the credit agreement provided

     for release of the retainage to Jazzland rather than to Broadmoor upon

     completion of the project, Jazzland’s only position as to those funds was to

     serve as a conduit to pay the money over to Broadmoor upon satisfaction of

     all contractual conditions. The retainage account, comprising segregated

     loan proceeds identifiable as a percentage withheld from each draw request,

     was set aside and earmarked for eventual disbursal to the construction

     contractor. See Coral Petroleum, Inc. v. Banque Paribas-London, 797 F.2d

     1351, 1356 (5th Cir. 1986) (holding that loan proceeds that were earmarked

     for disbursement for only a designated purpose were not property of a

     debtor’s estate). Beyond its role as a delivery vehicle, Jazzland had no

     interest in the retainage at the time it petitioned for bankruptcy and these

     funds were properly excluded from the estate. See, e.g, In re Searex Energy

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            Serv., Inc., 131 Fed.Appx. 449 (5th Cir. 2005) (affirming the bankruptcy

            court’s finding that marine building project funds’ passage through debtor’s

            account did not make them property of the estate); T.& B. Scottsdale

            Contractors, Inc. v. United States, 866 F.2d 1372, 1376 (11th Cir. 1989)

            (holding that funds placed by a contractor in an account of the debtor

            subcontractor for payment of the debtor’s materialmen were not property of

            the subcontractor’s bankruptcy estate); In re Bank of New England Corp.,

            165 B.R. 972, 977 (Bankr. D. Mass. 1994) (holding that funds in an

            advertising account collected by a parent company from subsidiaries and

            paid to an advertising firm were not property of the company’s estate

            because a “straight pass-through” of the funds occurred).

AFFIRMED.

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