Georgian Villa, Inc. v. United States ( 1995 )

  •                  United States Court of Appeals,
                              Eleventh Circuit.
                                No. 94-8384.
                In re:   The GEORGIAN VILLA, INC., Debtor,
             The GEORGIAN VILLA, INC., Plaintiff-Appellant,
        UNITED STATES of America;   Georgia Department of Revenue,
                               June 27, 1995.
    Appeal from the United States District Court for the Northern
    District of Georgia. (No. 1:93-01787-CV-WCO), William C. O'Kelley,
    Before CARNES and BARKETT, Circuit Judges, and GIBSON*, Senior
    Circuit Judge.
         FLOYD R. GIBSON, Senior Circuit Judge:
         Appellant/Debtor The Georgian Villa, Inc. appeals the district
    court's judgment affirming the bankruptcy court's order denying
    Georgian Villa's motion for payment of unclaimed funds.     We have
    jurisdiction over this appeal pursuant to 28 U.S.C. § 158(d)
    (1988), and we reverse.
         The relevant facts are undisputed.     The Georgian Villa, Inc.
    ("Georgian Villa"), is a not-for-profit Georgia corporation which
    built and operated a hospital in Douglas County, Georgia.         On
    September 29, 1977, Georgian Villa filed a petition for voluntary
    Chapter XI bankruptcy.    The hospital property was sold at a price
    in excess of the corporation's total debt, resulting in a surplus
          Honorable Floyd R. Gibson, Senior U.S. Circuit Judge for
    the Eighth Circuit, sitting by designation.
    of over $700,000.00, which was ordered paid into the registry of
    the bankruptcy court pursuant to that court's order of March 29,
    1989.   Following the satisfaction of all administrative costs as
    well as several previously undiscovered claims, the surplus was
    reduced to its current amount of approximately $300,000.00.
         During the pendency of its bankruptcy proceedings, Georgian
    Villa remained dormant from the late 1970's until its subsequent
    reactivation in 1991.     On March 4, 1992, Georgian Villa filed a
    motion to reopen the case and for payment of the unclaimed funds to
    the debtor pursuant to 28 U.S.C. § 2042 (1988).        The bankruptcy
    court denied Georgian Villa's motion for payment of the unclaimed
    funds on October 7, 1992, and ordered the unclaimed funds to be
    paid into the United States treasury.    That order reasoned that,
    although Georgian Villa remained in good standing as a corporation
    with the Georgia Secretary of State, it was no longer a viable
    corporation because it had lain dormant until 1991 and had "failed
    to put forth any evidence that it has any assets or that it is
    operating and conducting itself as a corporation under the laws of
    [Georgia]."     Because    Georgian   Villa   is   a   not-for-profit
    corporation, the bankruptcy court observed that no shareholders
    existed to whom a distribution could be made.      As a result, the
    bankruptcy court ordered the surplus funds deposited into the
    United States treasury, concluding that "to return the surplus to
    the debtor would result in a windfall to the parties in control of
    the debtor corporation."
         Following the bankruptcy court's denial of its subsequent
    motion for reconsideration, Georgian Villa appealed to the United
    States District Court for the Northern District of Georgia.            After
    a   non-evidentiary    hearing,   the    district   court   affirmed    the
    bankruptcy court's order.     This appeal follows.
              "The whole purpose of the bankruptcy system is to make the
    bankrupt's property available to his creditors and to give any
    surplus back to him."    3A Collier on Bankruptcy ¶ 66.03 at 2328, n.
    8 (14th ed. 1971).     Georgian Villa contends that it is entitled to
    the unclaimed funds under § 66 of the Bankruptcy Act of 18981 (11
    U.S.C. § 106 (1976)).2     That section directs the bankruptcy court
    to distribute any unclaimed funds in accordance with 28 U.S.C. §
    2042.3      28 U.S.C. § 2042 provides in relevant part that "[a]ny
           Section 66 (11 U.S.C. § 106):
                 Unclaimed Moneys. a. Dividends or other moneys which
                 remain unclaimed for sixty days after the final
                 dividend has been declared and distributed shall be
                 paid by the trustee into the court of bankruptcy; and
                 at the same time the trustee shall file with the clerk
                 a list of the names and post-office addresses, as far
                 as known, of the persons entitled thereto, showing the
                 respective amounts payable to them. Such moneys and
                 dividends shall be deposited and withdrawn as provided
                 in title 28, United States Code, section 2042, and
                 shall not be subject to escheat under the laws of any
          This case was filed on September 29, 1977, and is governed
    by the Bankruptcy Act of 1898, which was repealed in 1978 and
    replaced by the current Bankruptcy Code. See 11 U.S.C. note
    prec. § 101 (1988).
           28 U.S.C. § 2042.    Withdrawal
               No money deposited under section 2041 of this title
          shall be withdrawn except by order of court.
               In every case in which the right to withdraw money
          deposited in court under section 2041 has been adjudicated
          or is not in dispute and such money has remained so
    claimant entitled to any such money may, on petition to the court
    and upon notice to the United States attorney and full proof of the
    right thereto, obtain an order directing payment to him."
          Georgian Villa argues that it has satisfied the requirements
    of 28 U.S.C. § 2042 and is entitled to the unclaimed funds under
    the plain language of the statute.     The United States, in turn,
    argues that payment of the surplus funds into the United States
    treasury was an appropriate exercise of the bankruptcy court's
    equitable jurisdiction necessary to avoid conferring a windfall on
    the persons in control of Georgian Villa.   As the second court in
    review of the bankruptcy court's judgment, we review the bankruptcy
    court's findings of fact under a clearly erroneous standard, and
    its legal conclusions de novo.     In re Green, 
    31 F.3d 1098
    , 1099
    (11th Cir.1994).
         We recognize that "courts of bankruptcy are essentially courts
    of equity, and their proceedings inherently proceedings in equity."
    Local Loan Co. v. Hunt, 
    292 U.S. 234
    , 240, 
    54 S. Ct. 695
    , 697, 
    78 L. Ed. 1230
     (1934).     Bankruptcy courts have relied on equitable
    principles in "those areas falling within the interstices of the
    [Bankruptcy] Act;    one such area being the proper disposition of
    the surplus."   Matter of First Colonial Corp. of America, 
    693 F.2d 447
    , 450-51 (5th Cir.1983).      The Supreme Court has recognized,
    however, that "whatever equitable powers remain in the bankruptcy
         deposited for at least five years unclaimed by the person
         entitled thereto, such court shall cause such money to be
         deposited in the Treasury in the name and to the credit of
         the United States. Any claimant entitled to any such money
         may, on petition to the court and upon notice to the United
         States Attorney and full proof of the right thereto, obtain
         an order directing payment to him.
    courts must and can only be exercised within the confines of the
    Bankruptcy Code."         Norwest Bank Worthington v. Ahlers, 
    485 U.S. 197
    , 206, 
    108 S. Ct. 963
    , 969, 
    99 L. Ed. 2d 169
            In the absence of any express statutory authority governing
    the disposition of surplus funds, bankruptcy courts have commonly
    recognized the debtor's right to recover surplus bankruptcy funds
    under general equitable principles.             First Colonial, 693 F.2d at
    451;    Hendrie v. Lowmaster, 
    152 F.2d 83
    , 85 (6th Cir.1945);                  Berl
    v. Crutcher, 
    60 F.2d 440
    , 444 (5th Cir.1932), cert. denied, 
    287 U.S. 670
    53 S. Ct. 314
    77 L. Ed. 578
     (1933);                 Johnson v. Norris,
    190 F. 459
    , 462 (5th Cir.1911).           Where the corporate debtor is no
    longer in existence, bankruptcy courts have similarly employed
    their equitable power to distribute the unclaimed funds to the
    shareholders.       First Colonial, 
    693 F.2d 451
    ;        Hendrie, 152 F.2d at
    85;    Berl, 60 F.2d at 444.       Where the corporate debtor is still in
    existence, however, there is no cause to look past the corporate
    entity to the individual shareholders, and the corporate entity is
    clearly entitled to the surplus funds.                In re Witherbee, 
    202 F. 896
    , 899 (1st Cir.1913);           see generally, 6 Remington, Bankruptcy
    Law, § 2890 (5th ed. 1952) ("If the bankrupt is a corporation,
    return    should     be    to   the     corporation    rather    than    to     the
           Based   on   this    line   of    authority,    the    bankruptcy      court
    reasoned, and the district court agreed, that equitable principles
    should    govern    the    disbursement    of   the    excess   funds,   despite
    Georgian Villa's satisfaction of 28 U.S.C. § 2042.                       Georgian
    Villa's     continuing       corporate      existence     was     unchallenged.
    Nevertheless, the district court concluded that Georgian Villa was
    no longer "a viable ongoing entity" because it had lain dormant
    from the late 1970's until its reactivation in September of 1991
    and had failed to come forward with any evidence of its ongoing
    corporate activity.      Because, as a not-for-profit corporation,
    Georgian Villa had no shareholders to whom the surplus could be
    distributed, the district court concluded that "equity prevents a
    distribution of the surplus to the corporation."
           We disagree.     The very cases relied upon by the district
    court demonstrate that the exercise of the bankruptcy court's
    equitable power to disregard the corporate entity is appropriate
    only   where   the   corporate   debtor   is   no   longer    in   existence.
    Georgian Villa, however, is not defunct.        Under Ga.Code Ann. § 14-
    3-128 (Michie 1994), Georgian Villa's certificate of existence is
    "prima-facie evidence that the ... corporation is in existence...."
    The record is utterly devoid of any evidence rebutting the fact of
    Georgian Villa's continuing corporate existence.               The district
    court makes much of the fact that Georgian Villa lay dormant from
    the late 1970's until its reactivation in 1991.                    We do not.
    Georgian Villa's dormancy during the pendency of its bankruptcy
    proceedings does not mean that it is no longer a viable entity and
    as such no longer entitled to its surplus funds.             With all of its
    assets in the hands of the bankruptcy trustee, Georgian Villa had
    little choice but to lay dormant until the resolution of its
    Chapter XI proceedings.     Once those proceedings were resolved and
    its creditors and administrative costs had been paid in full,
    Georgian Villa properly reactivated its corporate status in order
    to claim its surplus funds and resume operations.                   We do not
    believe this course of action can or should preclude a corporate
    debtor from claiming its rightful surplus.
           We conclude instead that the plain language of the Bankruptcy
    Code compels distribution of the surplus to the debtor.               Georgian
    Villa, not its shareholders, is the debtor in this case.                 It has
    fully complied with the requirements of 28 U.S.C. § 2042, and is
    entitled to the surplus under 11 U.S.C. § 106.                 As this Court
    observed in Matter of Grissom, 
    955 F.2d 1440
    , 1449 n. 8 (11th
    Cir.1992), "equitable principles are insufficient to trump the
    clear remedial provisions of a bankruptcy statute."                  Requiring
    Georgian Villa to come forward with evidence of current corporate
    activities and operations is clearly inappropriate where, as here,
    it had no available funds with which to operate, and where, as
    here,    the     continued    existence   of      the   corporate   debtor   is
    unchallenged.      We conclude that the use of the bankruptcy court's
    equitable power to order the deposit of the unclaimed funds into
    the     United    States     treasury   despite     Georgian   Villa's    clear
    entitlement to those funds under 28 U.S.C. § 2042 was in direct
    contravention of the Bankruptcy Code and erroneous as a matter of
    law.     Moreover, we are not in accord with the manner in which
    equitable principles were employed by the bankruptcy court and
    district court, in that the funds clearly belonged to Georgian
    Villa, and not to anyone else at that juncture in time.             It appears
    to us that equitable principles alone, in line with the dictates of
    the Bankruptcy Code, would require that funds belonging to the
    owner be returned to the owner.
         For the reasons above, we REVERSE the order of the district
    court   and   REMAND   this   matter   to   the   district   court   with
    instructions to issue an order directing payment of the unclaimed
    funds to Georgian Villa.