Michael Wolff v. United States , 773 F.3d 583 ( 2014 )


Menu:
  •                                 PUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    No. 13-2116
    In Re: FIRSTPAY, INC.,
    Debtor.
    -------------------------
    MICHAEL G. WOLFF, Trustee,
    Plaintiff – Appellant,
    v.
    UNITED STATES OF AMERICA, IRS,
    Defendant - Appellee.
    Appeal from the United States District Court for the District of
    Maryland, at Greenbelt.     Peter J. Messitte, Senior District
    Judge. (8:12-cv-02952-PJM; BK-03-30102; AP-05-01695)
    Argued:   September 17, 2014            Decided:   December 12, 2014
    Before MOTZ and DIAZ, Circuit Judges, and DAVIS, Senior Circuit
    Judge.
    Affirmed by published opinion.     Senior Judge Davis wrote the
    opinion, in which Judge Motz and Judge Diaz joined.
    ARGUED: Jeffrey Mitchell Orenstein, GOREN, WOLFF & ORENSTEIN,
    LLC, Rockville, Maryland, for Appellant.   Michael J. Haungs,
    UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
    Appellee.    ON BRIEF: Kathryn Keneally, Assistant Attorney
    General, Ivan C. Dale, Tax Division, UNITED STATES DEPARTMENT OF
    JUSTICE, Washington, D.C.; Rod J. Rosenstein, United States
    Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Baltimore,
    Maryland, for Appellee.
    2
    DAVIS, Senior Circuit Judge:
    In this adversary bankruptcy proceeding, the trustee of the
    bankruptcy estate of a payroll processing firm seeks a judgment
    against the United States for an amount of payroll tax payments
    the firm made on behalf of its employer-clients to the Internal
    Revenue    Service.        After      a     series     of    decisions         by     the       United
    States Bankruptcy Court for the District of Maryland and appeals
    to   the   U.S.      District        Court    and      to    this        Court,      this    appeal
    presents      one     issue:       whether     the         trustee       in    bankruptcy         may
    reclaim as property of the debtor the approximately $28 million
    transferred         by   the       debtor    to       the    IRS    during        the      90    days
    preceding the filing of the bankruptcy petition. We agree with
    the bankruptcy court and the district court that, as a matter of
    law, the debtor lacked an equitable interest in the funds paid
    over to the IRS, and therefore we affirm the judgment.
    I.
    A detailed description of the facts and procedural history
    of this case is provided in the opinion we issued the last time
    this   case    came      before      us.     See      In    re    FirstPay,         Inc.    (In     re
    FirstPay    I),      391      F.   App’x     259,      262–67      (4th       Cir.    2010)      (per
    curiam).      Here,      we    provide       only       those      facts       and    procedural
    history    necessary          to    understand         the       issue    presented         in    the
    instant appeal.
    3
    A.
    FirstPay,    Inc.     (“FirstPay”     or     the       “Debtor”)    provided
    payroll   processing      services   pursuant      to    a   Payroll     Processing
    Agreement with each of its clients as well as tax reporting and
    depositing services to a number of its clients in accordance
    with a Tax Reporting Services Agreement (“Services Agreement”).
    Prior to each payroll date, FirstPay would withdraw funds from
    the client’s checking account sufficient to cover the following
    amounts: (1) taxes for which the client was liable; (2) payment
    of the client’s employees’ wages; and (3) fees owed to FirstPay
    for its services. FirstPay deposited the withdrawn funds into a
    FirstPay account that the parties call the “tax account.” The
    Services Agreement provided that FirstPay would hold the tax
    funds until taxes were due and then remit payments to taxing
    authorities.
    Although FirstPay transferred a portion of the funds in the
    tax   account     to   taxing     authorities       toward         satisfying     the
    obligations of some of its clients, not all of the funds in the
    tax   account   were   ultimately    used    for    this      purpose.    FirstPay
    transferred     some   of   the   funds    from    the       tax   account   to    an
    “operating account” used to pay its own business expenses, and
    another portion of the funds were transferred to an “exchange
    and reimbursement account” that was used for lavish personal
    expenditures by FirstPay’s principals. The parties are unaware
    4
    of how FirstPay determined what portions of the funds in the tax
    account    would      be    remitted    to      taxing    authorities            and   what
    portions would be transferred to the operating account or to the
    exchange and reimbursement account.
    FirstPay’s      fraudulent       scheme    continued       without         detection
    for several years, until the death of one of its principals in
    2003. As a result of FirstPay’s misappropriation of its clients’
    funds, a substantial portion of its clients’ tax obligations
    went unpaid and now remain due and owing.
    B.
    Creditors       filed     an     involuntary        Chapter         7      bankruptcy
    petition against FirstPay in the U.S. Bankruptcy Court for the
    District of Maryland in May 2003. Appellant Michael Wolff was
    appointed trustee of the bankruptcy estate.
    In 2005, the Trustee filed a nine-count complaint against
    the United States in the bankruptcy court seeking a declaratory
    judgment that the Government had no claim for taxes or penalties
    against    FirstPay        clients   whose      payroll       taxes       were     paid    to
    FirstPay   but     not     ultimately    remitted        to   the     IRS     (Count      I);
    avoidance of FirstPay’s payments of its clients’ payroll taxes
    to   the   IRS   as      preferences     under    
    11 U.S.C. § 547
     1    and    as
    1
    Section 547(b) provides that a trustee in bankruptcy
    may avoid any transfer of an interest of the debtor in
    property—
    (Continued)
    5
    fraudulent conveyances under 
    11 U.S.C. § 548
     and Maryland law
    (Counts     II     through   VIII);     and       turnover    of    avoided   transfers
    under 
    11 U.S.C. § 550
     2         (Count IX). The bankruptcy court granted
    the Government’s motion for summary judgment as to the Trustee’s
    declaratory judgment and preference claims and, after a one-day
    trial,      entered    judgment    in    favor       of    the     Government     on   the
    fraudulent conveyance claims.
    On appeal, the district court reversed as to the claim to
    avoid as preferences under § 547(b)(4)(A) the payments FirstPay
    made   to    the    IRS   within   90    days      prior     to    the   filing   of   the
    (1) to or for the benefit of a creditor;
    (2) for or on account of an antecedent debt owed by
    the debtor before such transfer was made;
    (3) made while the debtor was insolvent;
    (4) made—
    (A) on or within 90 days before the date of the filing
    of the petition; or
    (B) between ninety days and one year before the date
    of the filing of the petition, if such creditor at the
    time of such transfer was an insider; and
    (5) that enables such creditor to receive more than
    such creditor would receive if—
    (A) the case were a case under chapter 7 of [the
    Bankruptcy Code];
    (B) the transfer had not been made; and
    (C) such creditor received payment of such debt to the
    extent provided by the provisions of this title.
    
    11 U.S.C. § 547
    (b).
    2
    A trustee in bankruptcy may recover, for the benefit of
    the estate, property transferred to the extent that the transfer
    is avoided under § 547 or § 548, or certain other sections of
    the Bankruptcy Code. 
    11 U.S.C. § 550
    (a).
    6
    bankruptcy petition. It is undisputed that, during that 90-day
    period,     the    IRS     received     from    FirstPay,    on     behalf    of    its
    clients,    a     total    of    $27,816,992.50     in    payroll    tax     payments,
    including       $19,853,253.13         in   taxes       withheld    from     clients’
    employees’ wages (i.e., “trust-fund taxes”) and $7,963,739.37 in
    taxes owed by the client (i.e., “non-trust-fund taxes”). The
    district court’s ruling was based in part on its determination
    that “the transfer of funds from the Debtor to the IRS . . . was
    a transfer of an interest of the Debtor in property” under §
    547(b).
    On    remand,       the    bankruptcy     court    granted     the   Trustee’s
    motion for summary judgment on the § 547(b)(4)(A) preference
    claim   (Count     II)     and   the   related    turnover    claim    (Count      IX),
    entered judgment against the Government in the amount of $28
    million plus interest, and denied the Government’s subsequent
    motion to alter or amend the judgment. The Government appealed,
    and   the   district       court    affirmed     the     bankruptcy    court       in   a
    summary order.
    On appeal to this Court, we determined that the district
    court erred in saddling the Government with a concession that
    FirstPay’s transfer of tax funds to the IRS on behalf of its
    clients was a transfer of FirstPay’s own interest in property.
    In re FirstPay I, 391 F. App’x at 267–69. We remanded the matter
    with an instruction that the bankruptcy court reconsider the
    7
    remaining       preference        claim    without        regard      to      any    such
    concession. Id. at 267. We also instructed the bankruptcy court
    to determine the merits of the Government’s “ordinary course of
    business” defense under 
    11 U.S.C. § 547
    (c)(2), which the court
    had refused to consider as untimely. 
    Id. at 270
    .
    The parties stipulated to a set of facts for the bankruptcy
    court    to    consider    on   remand     and    filed      new    summary    judgment
    motions.       The   bankruptcy      court       determined         that     the    funds
    transferred by FirstPay to the IRS were not FirstPay’s property
    and     therefore    not     preferences         but,   if     the    payments      were
    preferences, they would not be protected from avoidance under
    the “ordinary course of business” exception. In re FirstPay,
    Inc. (In re FirstPay II), BK-03-30102-PM, AP-05-1695-PM, 
    2012 WL 3778952
        (Bankr.    D.    Md.    Aug.    30,    2012).      The    court    therefore
    granted summary judgment in favor of the Government, and the
    Trustee       appealed.    After     the       district      court     affirmed      the
    bankruptcy court, the Trustee timely filed a notice of appeal to
    this Court.
    II.
    Summary judgment is appropriate when there is no genuine
    issue of material fact, and the movant is entitled to judgment
    as a matter of law. In re French, 
    499 F.3d 345
    , 351–52 (4th Cir.
    2007) (citing Anderson v. Liberty Lobby, Inc., 
    477 U.S. 242
    , 247
    (1986)); see also Fed. R. Civ. P. 56(c); Fed. R. Bankr. P. 7056.
    8
    This court reviews de novo a bankruptcy court’s award of summary
    judgment and a district court’s affirmance thereof. Hager v.
    Gibson, 
    109 F.3d 201
    , 207 (4th Cir. 1997) (citing In re Ballard,
    
    65 F.3d 367
    , 370 (4th Cir. 1995)).
    III.
    In furtherance of the policy against preferential treatment
    of    creditors     embodied       by    the   Bankruptcy    Code,     a   trustee    in
    bankruptcy is permitted to avoid and recover certain payments
    made by the insolvent debtor preferentially for the benefit of
    some creditors prior to the filing of the bankruptcy petition.
    See 
    11 U.S.C. §§ 547
    (b), 550(a). These avoidable preferences
    include certain transfers made “on or within 90 days before the
    date    of    the   filing    of    the    petition[.]”      
    Id.
       §   547(b)(4)(A).
    However, the trustee can only avoid a “transfer of an interest
    of the debtor in property[,]” id. § 547(b), as only the debtor’s
    property      would    have     been      available    for    distribution      among
    creditors in the absence of the transfer. See Begier v. I.R.S.,
    
    496 U.S. 53
    , 58 (1990). The sole issue in this appeal is whether
    the nearly $28 million FirstPay transferred to the IRS during
    the    90    days   preceding      the    bankruptcy   filing      constituted       “an
    interest of the debtor in property” under § 547(b).
    In Begier, the Supreme Court looked to the scope of the
    postpetition “property of the estate” as defined in 
    11 U.S.C. § 541
    (d) for guidance in determining the scope of the debtor’s
    9
    prepetition property under 
    11 U.S.C. § 547
    (b). See 
    496 U.S. at
    58–59. Property in which the debtor holds only legal title and
    not an equitable interest is property of the debtor “only to the
    extent of the debtor’s legal title, but not to the extent of any
    equitable interest in such property that the debtor does not
    hold.” 
    Id. at 59
     (quoting 
    11 U.S.C. § 541
    (d)). “[T]he debtor
    does not own an equitable interest in property he holds in trust
    for another,” and therefore any such trust property is not the
    debtor’s for purposes of § 547(b). Id.
    Because       property      interests       are    generally      created    and
    defined by state law, we look to state law to determine the
    nature of a debtor’s interest in the property at issue. Butner
    v.    United       States,   
    440 U.S. 48
    ,    54–55    (1979).     “[A]bsent      a
    countervailing federal interest,” state law “determines whether
    a    given    property    falls     within    [the]      federal   framework”      of   a
    bankruptcy estate. Am. Bankers Ins. Co. of Fla. v. Maness, 
    101 F.3d 358
    , 363 (4th Cir. 1996). Given that the agreements that
    govern       the    relationships     between       FirstPay       and   its   clients
    provide that their terms are to be construed in accordance with
    Maryland law, the parties agree that Maryland law applies here.
    See Nat’l Glass, Inc. v. J.C. Penney Props., Inc., 
    650 A.2d 246
    ,
    248 (Md. 1994) (“[I]t is ‘generally accepted that the parties to
    a contract may agree as to the law which will govern their
    10
    transaction[.]’”) (quoting Kronovet v. Lipchin, 
    415 A.2d 1096
    ,
    1104 (Md. 1980)).
    We hold that, under Maryland law, FirstPay held the $28
    million in tax funds in an express trust and therefore lacked
    the   equitable   interest   in   the   property   necessary   for   its
    transfers to be avoidable under 
    11 U.S.C. § 547
    (b); accordingly,
    we affirm the judgment. 3
    A.
    Under Maryland law, “[a] trust exists where the legal title
    to property is held by one or more persons, under an equitable
    obligation to convey, apply, or deal with such property for the
    benefit of other persons.” From the Heart Church Ministries,
    Inc. v. African Methodist Episcopal Zion Church, 
    803 A.2d 548
    ,
    3
    Based on the terms of the relevant agreements, the
    bankruptcy court determined that FirstPay and its clients
    created a “resulting trust” to which the tax funds were subject,
    rather than an express trust. In re FirstPay II, 
    2012 WL 3778952
    , at *7. Under Maryland law, a resulting trust is a form
    of implied trust that “arises upon the presumed intention of the
    parties where the terms of the disposition or accompanying facts
    establish that beneficial interest is not to go with legal
    title.” Siemiesz v. Amend, 
    206 A.2d 723
    , 725 (Md. 1965). A court
    sitting in equity may therefore declare a resulting trust where
    the circumstances surrounding a transfer of property “raise an
    inference, unrebutted by the facts, that the party making the
    transfer did not intend to give the transferee the beneficial
    interest in the property[.]” Levin v. Sec. Fin. Ins. Corp., 
    230 A.2d 93
    , 98 (Md. 1967). Although we are persuaded that the terms
    of the relevant agreements are sufficient to create an express
    trust under Maryland law, we agree with the bankruptcy court
    that an intent to create a trust was, at minimum, implied by
    those terms.
    11
    566 (Md. 2002) (citing Milholland v. Whalen, 
    43 A. 43
    , 43–44
    (Md. 1899)). The existence of a trust must be established by
    clear and convincing evidence. Kelley v. Kelley, 
    13 A.2d 529
    ,
    533 (Md. 1940).
    “Express trusts are created by the direct and willful acts
    of the parties, by some writing, or deed, or words expressly
    evidencing   the   intention            to   create    a    trust.”   From    the    Heart
    Church Ministries, 803 A.2d at 567 (citing Levin v. Sec. Fin.
    Ins. Corp., 
    230 A.2d 93
    , 98 (Md. 1967)). The Maryland Court of
    Appeals has outlined three elements of a valid, express trust:
    “[f]irst, a definite subject-matter within the disposition of
    the   settlor;   second,       a   lawful,        definite     object   to    which   the
    subject-matter     is     to       be     devoted;         [and]   third,    clear    and
    unequivocal words or acts devoting the subject-matter to the
    object of the trust.” Levin, 230 A.2d at 97 (quoting Sieling v.
    Sieling, 
    135 A. 376
    , 381 (Md. 1926)) (internal quotation marks
    omitted).
    All of the elements of a valid, express trust are satisfied
    in this case. The funds at issue comprise a definite subject
    matter    within    the        disposition            of     the   FirstPay     client,
    transferred to FirstPay, and devoted to the lawful and definite
    object of paying the client’s tax obligations by the clear and
    unequivocal terms of the agreements between FirstPay and the
    client. The Services Agreement states that “[c]lient’s checking
    12
    account shall be debited for the aggregate total of all taxes
    and unemployment and credited to FIRSTPAY, Inc. a minimum of
    three days prior to payroll date”; and that “[t]hese tax funds
    will be held by FIRSTPAY, Inc. until such taxes are due, and
    will be submitted by FIRSTPAY, Inc. in accordance with local,
    state and federal regulations.” In short, FirstPay was but an
    intermediary, and there was no intention that it would keep the
    funds or at any point use them for its own purposes or benefit.
    See In re Dameron, 
    155 F.3d 718
    , 722–23 (4th Cir. 1998) (holding
    that debtor held funds subject to express trust under Virginia
    law   where   contractual     language     and   circumstances    under    which
    debtor received funds showed that parties intended debtor “to
    act merely as an intermediary[]” without any expectation that
    debtor would keep the funds or “develop any equitable interest
    in the funds[]”).
    Although the agreements here do not use the term “trust,”
    “[w]hether or not a trust has been created in any given case is,
    in the last analysis, a question of intention[,]” and therefore,
    “[n]o   particular   words     are   necessary     to   create    a   trust[.]”
    Kozlowska v. Napierkowski, 
    170 A. 193
    , 195 (Md. 1934); see also
    Restatement (Third) of Trusts § 13 cmt. b (2003) (“[A] trust may
    be created without the settlor’s use of words such as “trust” or
    “trustee[.]”).     The   language     of     the   Services      Agreement    is
    sufficient    to   evidence    a   clear    intent   by   the    parties     that
    13
    FirstPay would be obligated to handle the tax funds solely for
    the benefit of its clients and of the taxing authorities in
    satisfaction of the clients’ tax obligations. Thus, FirstPay and
    each of its clients expressly created a trust, and the tax funds
    received and transferred by FirstPay pursuant to its obligations
    under    the   Services     Agreement    were   trust   property    in   which
    FirstPay held no equitable interest.
    B.
    The Trustee’s argument that, upon transfer to FirstPay, the
    tax funds became a debt FirstPay owed to its clients and not
    trust property, is without merit.
    The Trustee correctly asserts that a “debt is not a trust.”
    Dunlop Sand & Gravel Corp. v. Hospelhorn, 
    191 A. 701
    , 706 (Md.
    1937) (quoting Restatement (First) of Trusts § 12 (1935)); see
    also Restatement (Third) of Trusts § 5(k). When “one person pays
    money to another, it depends upon the manifested intention of
    the parties whether a trust or a debt is created.” Levin, 230
    A.2d at 96.
    If the intention is that the money shall be kept or
    used as a separate fund for the benefit of the payor
    or a third person, a trust is created. If the
    intention is that the person receiving the money shall
    have the unrestricted use thereof, being liable to pay
    a similar amount whether with or without interest to
    the payor or to a third person, a debt is created.
    Dunlop   Sand,   191   A.    at   706   (quoting   Restatement     (First)   of
    Trusts § 12);     see also Restatement (Third) of Trusts § 5 cmt.
    14
    k. “Where the language of the parties does not clearly show
    their intention, all the circumstances must be considered in
    order to determine whether a trust or a debt was intended.”
    Levin, 230 A.2d at 96.
    The    terms   of    the    agreements     between     FirstPay   and     its
    clients clearly show that the parties did not intend for the
    amount of the tax funds transferred to FirstPay to be a debt.
    These agreements do not permit FirstPay’s unrestricted use of
    the tax funds it received from its clients and in fact leave
    FirstPay with no discretion as to how it could handle the funds.
    FirstPay’s    freedom    to     use   the   funds   is   expressly   limited    to
    holding them until the clients’ taxes are due and then remitting
    them to the taxing authorities. The parties to these agreements
    intended the tax funds to be used separately from other monies
    the clients transferred to FirstPay and used for the separate
    and limited purpose of satisfying the clients’ tax obligations.
    It is clear that a trust was intended, and not a debt.
    The Trustee points to a stipulation the parties entered
    into that each time FirstPay withdrew contractually authorized
    funds from a client’s account, FirstPay became indebted to the
    client for the amount of tax funds included in that withdrawal
    (but not for the fees FirstPay was to retain for its services).
    In   this    regard,     the    parties      have   stipulated   to    what    is
    essentially a legal conclusion, one that we cannot accept. See H
    15
    & R Block E. Enters., Inc. v. Raskin, 
    591 F.3d 718
    , 723 n.10
    (4th Cir. 2010) (“[A] court is not required ‘to accept what in
    effect [is] a stipulation on a question of law.’”) (citation
    omitted). It is immaterial whether the parties knew the precise
    legal characteristics of a trust relationship and whether they
    knew that their intended relationship is called a “trust” under
    the law. Restatement (Third) of Trusts § 13 cmt. a. The terms of
    FirstPay’s     unambiguous      agreements,        which   we     interpret      as    a
    matter of law, see Gresham v. Lumbermen’s Mut. Cas. Co., 
    404 F.3d 253
    , 260 (4th Cir. 2005), clearly establish that the tax
    funds were intended to be held by FirstPay only for payment of
    the clients’ taxes and therefore constituted trust property.
    C.
    The     Trustee   further      argues        that    the    funds     FirstPay
    ultimately     transferred      to    the    IRS    cannot       be    deemed    trust
    property because they had been commingled with other funds and
    therefore     cannot    be    effectively       identified        or   traced.        The
    Trustee points out that the money FirstPay obtained from each
    client’s general operating account was first commingled in the
    client’s account with funds intended and used for other purposes
    by   the    client;   and    after   FirstPay      received      the   money,    those
    funds were again commingled in FirstPay’s “tax account” with
    funds intended for payment of the client’s and other clients’
    employees’ wages, payment of FirstPay for its payroll services,
    16
    and payment of other clients’ taxes. We are not persuaded that
    the commingling of funds that occurred in this case defeated
    creation of a trust.
    The     Trustee     relies      on     the     Maryland        Court     of   Appeals
    decision in Levin v. Sec. Fin. Ins. Corp., 
    230 A.2d 93
     (Md.
    1967).        Levin     involved       claims       by    two        savings     and    loan
    associations to funds they had transferred to Security Financial
    Insurance       Corp.     (“Security        Financial”),        an    insurance      company
    that     subsequently         became     insolvent.       
    Id. at 94
    .    Agreements
    between the parties provided that the associations would make
    payments       into   a   “Trust     Fund”      held     by   Security        Financial    as
    “Trustee”       in    order    “to     better      indemnify      [the     association’s]
    savings account shareholders and to also increase the liquidity
    of     said    association       and     to     set      up   a      reserve     fund     for
    contingencies.” 
    Id.
     at 94–95.
    After Security Financial became insolvent, the associations
    initiated proceedings to secure refunds of their monies, and the
    matter was referred to an auditor. 
    Id. at 94
    . The auditor filed
    a report concluding that the associations were entitled to funds
    upon liquidation of the Trust Funds because Security Financial
    “treated these funds as trust funds . . . and segregated them
    from its general assets in all accounting,” which allowed them
    to be traced. 
    Id.
     at 95–96. Receivers of insolvent creditors of
    the insurance company excepted to the report, arguing that the
    17
    funds were general assets of Security Financial and therefore
    available for distribution to all creditors. 
    Id. at 94
    .
    The Maryland Court of Appeals affirmed the denial of the
    creditors’         exceptions    to     the    auditor’s       report     based   on    the
    parties’ intention that the funds would be subject to a trust.
    See 
    id.
     at 96–99. 4 To be sure, the court specifically rejected
    the auditor’s conclusion “that the mere segregation of the funds
    plus       their    traceability        will    permit     an        original   owner   of
    property to recover it from his insolvent transferee.” 
    Id. at 96
    .    Nevertheless,      the    court        stated    that    “[i]dentification        of
    trust      property,    either     in    its        original    or    altered   form,    is
    essential to its recovery by the cestui que trust.” 
    Id.
     5
    4
    The court determined that the elements of an express trust
    were present except that the trust had an unlawful purpose but,
    given the parties’ intent that Security Financial not hold an
    equitable interest in the funds, they had created a resulting
    trust. 
    Id. at 98
    .
    5
    Other cases cited by the Trustee are not directly
    applicable as they involved “constructive trusts,” an equitable
    remedy imposed by Maryland courts “where property has been
    acquired by fraud, misrepresentation, or other improper method,”
    or to otherwise “prevent the unjust enrichment of the holder of
    the property.” Wimmer v. Wimmer, 
    414 A.2d 1254
    , 1258 (Md. 1980);
    see also Brown v. Coleman, 
    566 A.2d 1091
    , 1097 (Md. 1989).
    “[U]nlike either a resulting trust or an express trust, a
    constructive trust is remedial in character.” Restatement
    (Third) of Trusts § 7 cmt. d (2003). Although lack of
    identification and traceability may prevent a court sitting in
    equity from imposing a constructive trust, the existence of an
    express trust or a resulting trust will depend only on the
    intentions of the parties.
    18
    We do not read Levin to have held, as the Trustee here
    suggests, that funds must be segregated in order to be traceable
    and subject to a trust. “[C]ourts have consistently rejected the
    notion     that   commingling     of    trust    property,         without    more,    is
    sufficient to defeat tracing.” In re Dameron, 
    155 F.3d at
    723–24
    (4th Cir. 1998). In another case, the Maryland Court of Appeals
    held that “[i]t is not essential to a sufficient identification
    that the fund or property delivered to the trustee be traced in
    the precise or identical form in which it was received[.]” Cnty.
    Comm’rs of Frederick Cnty. v. Page, 
    164 A. 182
    , 190 (Md. 1933);
    see also MacBryde v. Burnett, 
    132 F.2d 898
    , 900 (4th Cir. 1942)
    (holding     that,   under   Maryland      law,      “it    is     not   necessary    in
    asserting the rights of the cestui que trust that the trust
    funds be specifically traced”).
    A   beneficiary’s     entitlement        to   a     trust    fund     fails    for
    insufficiency of identification “where it appears that the trust
    fund   has   been    dissipated    or    so     mingled     and     merged    with    the
    general assets of the insolvent estate as not to be separable or
    distinguishable therefrom[.]” Page, 167 A. at 191. However, “if
    a trustee or fiduciary mixes trust funds with his own, the whole
    will be treated as trust property, except so far as he may be
    able to distinguish what is his from that which belongs to the
    trust[.]” MacBryde, 132 F.2d at 900 (4th Cir. 1942) (quoting
    Englar v. Offutt, 
    16 A. 497
    , 499 (Md. 1889)). “So long as a
    19
    trust fund can be traced, the court will always attribute the
    ownership thereof to the cestui que trust, and will not allow
    the right to be defeated by the wrongful act of the trustee or
    fiduciary in mixing or confusing the trust fund with funds of
    his own, or even those of a third party.” Englar, 16 A. at 499.
    Thus,     Maryland     law     does    not     countenance     FirstPay’s
    frustration of the Government’s entitlement to the benefits of
    the trust by simply mingling the tax funds with other funds in
    the tax account. The commingling that occurred while the nearly
    $28 million in tax funds at issue were in FirstPay’s possession
    was not so severe that it prevented the funds from fulfilling
    the   purpose    of   the   trust.    The    funds    were   not   “mingled   and
    merged”   with    FirstPay’s       general   assets    or    “dissipated”     but,
    rather, were received from FirstPay’s clients, held in the tax
    account, and then transferred to the IRS as intended under the
    terms of FirstPay’s agreements with its clients. 6 These tax funds
    can thus be traced and connected to the trust.
    The Supreme Court examined an analogous situation involving
    a federal statutory trust and drew the same conclusions. See
    6
    Funds withdrawn from the tax account and moved either                   to
    the “operating account” to pay FirstPay’s operating expenses                   or
    to the “exchange and reimbursement account” to be squandered                   by
    FirstPay’s principals are not at issue in this appeal. There                   is
    no contention here that those funds are identifiable                           or
    traceable as trust property.
    20
    Begier, 
    496 U.S. at
    58–67. In Begier, a trustee in bankruptcy
    sought to avoid under § 547(b) tax payments the debtor airline,
    American International Airways, Inc. (“AIA”), had made to the
    IRS during the 90 days prior to the bankruptcy filing. Id. at
    57. AIA was required to hold excise taxes collected from its
    customers     and     federal      income        taxes   and     Federal    Insurance
    Contributions Act taxes withheld from its employees’ wages in “a
    special fund in trust for the United States[.]” Id. at 55–56
    (quoting 
    26 U.S.C. § 7501
    (a)). AIA’s payments of these “trust-
    fund taxes” were made from both its general operating funds and
    from a separate bank account devoted to the withheld taxes. 
    Id. at 56
    .
    The    Court     determined     that        AIA’s   prepetition       payment     of
    payroll    taxes     from   its    general       operating     accounts    was   not    a
    transfer of its own property but a transfer of trust property to
    which it held no equitable interest. See 
    id. at 67
    . First, the
    Court     rejected    the     trustee’s      argument        that    the   trust     was
    defeated by AIA’s failure to segregate the tax funds from its
    general operating funds, noting that a requirement to segregate
    the funds “would mean that an employer could avoid the creation
    of a trust simply by refusing to segregate.” 
    Id. at 61
    .
    Next,    the     Court     turned      to    the    issue      of   “whether    the
    particular dollars that AIA paid to the IRS from its general
    operating    accounts       were   ‘property       of    the   debtor[]’”     under    §
    21
    547(b). Id. at 62. Upon examination of legislative history of §
    541,    Justice         Marshall     stated     that     courts      should       permit
    “reasonable assumptions” in determining whether particular funds
    in the debtor’s possession are tax funds held in trust for the
    Government in both prepetition and postpetition contexts. Id. at
    65.    One   such       reasonable    assumption,        based      on   the    Court’s
    examination        of   legislative    history,        was   that    “any      voluntary
    prepetition        payment    of   trust-fund    taxes       out    of   the    debtor’s
    assets is not a transfer of the debtor’s property[]” but rather
    a transfer of funds held in trust for payment to the Government.
    Id. at 66–67.
    Common-law principles provide a basis for a court to make
    similar reasonable assumptions in the context of a common-law
    trust. One such principle provides that if a trustee holds trust
    funds in an account where those funds are mingled with non-trust
    funds and then makes a withdrawal from the account for a trust
    purpose,     the    trustee    will   be   deemed      to    have   withdrawn     trust
    funds. George Gleason Bogert & George Taylor Bogert, The Law of
    Trusts and Trustees § 926 (2d ed. rev. 1995). Another principle
    provides that if a trustee holds funds subject to one trust in
    an account mingled with funds subject to a separate trust and
    then makes a withdrawal for the express purpose or benefit of
    the first trust, the withdrawn funds will be deemed subject to
    the first trust and distinct from other trust funds. Id. § 927.
    22
    Under       these   principles,         a    court   may     presume    that      funds
    received, held, and conveyed by a trustee in accordance with the
    purpose and for the benefit of a trust, although commingled with
    funds not subject to that trust, are indeed funds subject to the
    trust.      In   the   context     of    a    preference         avoidance    claim,       the
    burden rests with the party claiming ownership of the funds to
    rebut the presumption.
    This position comports with both the Maryland law of trusts
    and the Bankruptcy Code. As previously stated, when a trustee
    mingles trust funds with its own funds, Maryland law places the
    burden on the trustee to distinguish its property from the trust
    property.        MacBryde,   132   F.2d       at    900;   Englar,       16   A.   at     499.
    Further, under 
    11 U.S.C. § 547
    (g), a bankruptcy trustee “who
    seeks to reclaim for the estate a pre-petition transfer . . . as
    a   voidable       preference     bears       the    burden      of    demonstrating      the
    presence of all elements of a preference, as established in §
    547(b).” In re Virginia-Carolina Fin. Corp., 
    954 F.2d 193
    , 196
    (4th Cir. 1992). The Trustee in the instant case, therefore,
    bears the burden of proving that the nearly $28 million he seeks
    to reclaim from the Government was FirstPay’s own property and
    not   the    tax    funds    it   held       in    trust   for    the    benefit     of   its
    clients     and    the    Government.        The    Trustee      has    not   carried     his
    burden here.
    23
    In sum, we hold that, in the absence of contrary proof, the
    law will presume that any funds received, held, and ultimately
    transferred by a trustee in accordance with the trust purpose
    are indeed trust funds. The burden rests with the trustee to
    rebut that presumption and establish that the funds so held and
    transferred, or any portion thereof, were not subject to a trust
    but were the trustee’s own property prior to transfer. Here, the
    Trustee has not met this burden on behalf of FirstPay’s estate
    with respect to the approximately $28 million at issue in this
    appeal. Summary judgment was therefore properly granted in favor
    of the Government on the Trustee’s claim to recover these funds
    under § 547(b) and § 550(a).
    D.
    It is regrettable that the employer-clients entrusted their
    money to a fraudster and, as a result of the fraudulent conduct
    and apparently not any action by the employers themselves, some
    of those employers are now better off than others; indeed some
    face the real prospect of double liability. As noted previously,
    FirstPay’s   remission   of   clients’   tax   funds   to   the   IRS   only
    satisfied the tax obligations of some of its clients while it
    only partially satisfied the obligations of others and a third
    set of clients had no tax payments applied on their behalf. We
    do not know how FirstPay decided which clients’ taxes it would
    pay and which it would not, and we regret that some of the
    24
    clients       remain   liable    to   the    IRS   for     tax    payments    they    had
    entrusted funds to FirstPay to make. But the employers assumed
    the    risk    of   FirstPay’s     mishandling       of    their    funds    when    they
    selected the firm for vital payroll processing and tax reporting
    services.
    We     recognize   that     the      Government      has    made     efforts    to
    minimize distress to those employers who remain liable for taxes
    by,    for    instance,   waiving      otherwise      applicable      penalties        and
    other measures. We expect that responsible government officials
    will continue to proceed with sensitivity to the realities of
    this     painful       situation      in     which        these    businesses         find
    themselves.
    IV.
    For the reasons set forth above, the judgment is
    AFFIRMED.
    25