Court Opinion

ID: 8967572
Source: CourtListenerOpinion
Date Created: 2022-11-27 10:12:18.949428+00
Date Added: 2024-06-11T17:10:21.054421
License: Public Domain

HATCHETT, Circuit Judge,
dissenting.
I would hold that the disputed funds became property of Roger & Roger’s (R & R) bankruptcy estate pursuant to 11 U.S. C.A. § 541 (West 1979 & Supp.1988).
The district court, relying on Georgia Pacific Corp. v. Sigma Service Corp., 712 F.2d 962 (5th Cir.1983), held that the disputed funds belong to the estate. T & B Scottdale Contractors, Inc. v. United States, No. C-83-2253-A (N.D.Ga. May 28, 1985) at 8,10. The majority relies on Georgia Pacific Corp. v. Sigma Service Corp., but concludes that the funds do not belong to the estate. Consequently, the majority or the district court misreads the case.
A. Section 541
A bankruptcy estate consists of “all legal and equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C.A. § 541(a)(1). If the debtor holds property in trust for another, however, the property does not become part of the estate. The following example, in section 541’s legislative history and quoted by the majority, illustrates this principle.
Situations occasionally arise where property ostensibly belonging to the debtor will actually not be property of the debt- or, but will be held in trust for another. For example, if the debtor has incurred medical bills that were covered by insurance, and the insurance company had sent the payment of the bills to the debt- or before the debtor had paid the bill for which the payment was reimbursement, the payment would actually be held in a constructive trust for the person to whom the bill was owed.
H.R.Rep. No. 595, 95th Cong., 1st Sess. 368 (1977); Sen.Rep. No. 989, 95th Cong., 2d Sess. 82, reprinted in 1978 ILS.Code Cong. & Admin.News 5868, 6324 (quoted in Collier on Bankruptcy, para. 541.01 at 541; Georgia Pacific, 712 F.2d at 967 n. 4; Majority Opinion at 1376).
The majority compares the hypothetical debtor and physician to R & R and R & R’s materialmen and concludes that “[i]n neither situation do the funds belong to the bankrupt estate.” Majority Opinion, slip at 1376. According to the opinion, the Georgia Pacific court recognized that all property held by a debtor for the benefit of another is not part of the debtor’s bankruptcy estate. This conclusion, however, appears to mischaracterize the rule set forth in Georgia Pacific.
B. Case Law
1. Georgia Pacific: Are the Facts Distinguishable ?
In Georgia Pacific, Sigma, a general contractor, began a project for Georgia Pacific. Sigma asked Georgia Pacific to send it checks drawn to the order of both Sigma and its materialmen. 712 F.2d at 964. Sigma filed for bankruptcy under Chapter 11 while in possession of these checks. The materialmen argued that funds from the checks belonged to them, rather than to Sigma’s bankruptcy estate. 712 F.2d at 964-65. The court, however, held that the funds belonged to the estate. 712 F.2d at 964, 972. The court focused on the fact that Georgia Pacific’s agreement to draw jointly-payable checks placed “no affirmative duties upon Sigma in relation to the suppliers.” 712 F.2d at 971-72.
The majority distinguishes T & B from Georgia Pacific by concluding that the T & B agreement placed affirmative duties on R & R in relation to its materialmen. “[I]n this case [unlike in Georgia Pacific] it is *1379undisputed that the parties agreed that the funds were meant solely for the material-men.” Majority Opinion, at 1376.
It is difficult to support the majority's distinction given the factual similarity between T & B and Georgia Pacific. For example, in Georgia Pacific, Georgia Pacific agreed to write checks to Sigma. In T & B, T & B Scottdale (T & B) agreed to deposit funds into a R & R account. In Georgia Pacific, Georgia Pacific contemplated that Sigma would use funds from the checks to pay materialmen. In T & B, T & B contemplated that R & R would use funds from the account to pay material-men. In neither case were the material-men parties to the agreement. It is difficult to conclude that the T & B agreement imposed affirmative duties on R & R, when the Georgia Pacific agreement did not impose affirmative duties on Sigma.
2. Georgia Pacific: Is Reliance on the Whiting Quote Proper?
The majority also states that Georgia Pacific stands for the proposition that property held by the debtor for the benefit of another is not part of the bankrupt estate. This appears to be an incorrect reading of Georgia Pacific.
The statement upon which the majority relies comes from a passage in United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983), that is quoted by the Georgia Pacific court. 712 F.2d at 967. The Whiting Court stated that property of the estate does not include “property of others held by the debtor in trust at the time of the filing of the petition.” 103 S.Ct. at 2315 n. 10 (citing legislative history to 11 U.S.C.A. § 541) (emphasis added). The T & B district court did not find the existence of a trust in favor of any party. The majority evidently finds a trust for the benefit of the materialmen. This the majority cannot do because the burden of establishing a trust relationship is on the party claiming the benefit of such a relationship. Georgia Pacific, 712 F.2d at 969 (citing Collier on Bankruptcy, para. 541.13 at 541-67). The materialmen are not parties to this litigation; consequently, no trust for their benefit can be created.
Further, the majority is incorrect in suggesting that either the Georgia Pacific court or the Whiting Court created a rule excluding all property held for the benefit of another from property of the estate. This is apparent from Georgia Pacific’s holding: Georgia Pacific’s checks, held by Sigma for the benefit of materialmen, became property of the estate. Likewise, T & B’s deposits, held by R & R for the benefit of its materialmen should become part of R & R’s bankrupt estate.
C. Conclusion
No Supreme Court or Eleventh Circuit decisions exist that control this case. The court in Georgia Pacific Corp. v. Sigma Service Corp., 712 F.2d 962 (5th Cir.1983), however, held that disputed funds similar to those in T & B belong to a bankruptcy estate. In addition, the funds in T & B came from an account named “Roger & Roger.” All persons who signed the account signature card identified themselves as R & R officials. R & R co-signed all checks from the account. The account, therefore, constituted a legal interest of R & R.
• Accordingly, when R & R filed for bankruptcy, the funds in the account became property of the estate pursuant to 11 U.S. C.A. § 541. The materialmen, like other creditors, may pursue their claims against R & R in accordance with bankruptcy procedures.