Richard Myers v. Douglas Cty. Bank ( 1996 )

____________
No. 95-1158
____________
In re: Rine & Rine Auctioneers, *
Inc., *
*
Debtor *
________________________ *
*
Rine & Rine Auctioneers, Inc., *
*
Plaintiff, *
*
v. * Appeal from the United States
* District Court for the
Douglas County Bank & Trust * District of Nebraska
Company; David Huddle, *
*
Defendants-Appellees. *
________________________ *
*
Richard D. Myers, *
*
Trustee-Appellant. *
____________
Submitted: September 13, 1995
Filed: January 22, 1996
____________
Before McMILLIAN, HEANEY and MURPHY, Circuit Judges.
____________
McMILLIAN, Circuit Judge.
Richard D. Myers (Trustee), trustee of the bankruptcy estate
of Rine & Rine Auctioneers, Inc. (Debtor), appeals from an order
entered in the United States District Court for the District of
Nebraska, affirming the bankruptcy court's judgment in favor of
Douglas County Bank & Trust Company (Bank) in an adversary
proceeding brought by the Trustee pursuant to 11 U.S.C. § 547,
alleging that a payment in the amount of $6,761.48 made by Debtor
to David Huddle and the Bank was an avoidable preferential
transfer. Myers v. Douglas County Bank & Trust Co. (In re Rine &
Rine Auctioneers, Inc.), No. 8:CV94-269 (D. Neb. Dec. 7, 1994),
aff'g No. BK92-80770/A93-8098 (Bankr. D. Neb. Apr. 18, 1994). For
reversal, the Trustee argues that the bankruptcy court erred in
holding that the money paid by Debtor to Huddle and the Bank was
held by the Debtor as an agent for its principal, Huddle, and it
was therefore not property of the estate which the Trustee could
recover under § 547. For the reasons discussed below, we reverse
the order of the district court and remand the case to the district
court with instructions.
Background
The underlying facts are summarized as follows. Debtor was
a corporation in the business of auctioning personal property for
its customers. Debtor orally agreed with Huddle, an auto repair
business owner, that Debtor would conduct an auction sale to
dispose of Huddle's business assets. Huddle's business assets were
the security for a loan which had been made by the Bank to Huddle.
Debtor agreed to conduct the sale, collect the proceeds, deduct
advertising expenses and its commission, and distribute the
remainder to the financial institutions holding security interests
in the assets sold; the remainder, if any, would be paid to Huddle.
The Huddle sale occurred on December 18, 1991, and earned
$23,737.50, which was deposited in Debtor's general bank account.
Thereafter, Debtor issued a check in the amount of $6,761.48
payable to the Bank and Huddle. Huddle endorsed the check to the
Bank, which received the full amount of the check as payment for
Huddle's outstanding loan.1
1
Because the Bank received the full amount of the $6,761.48
payment from Debtor, Huddle has no real interest in this
controversy and therefore has not participated in the litigation.
-2-
On April 27, 1992, Debtor filed for relief under Chapter 7 of
the United States Bankruptcy Code. The Trustee filed an adversary
proceeding against the Bank and Huddle, seeking to set aside the
payment made by Debtor to the Bank and Huddle on grounds that the
payment was an avoidable preferential transfer under 11 U.S.C.
§ 547(b).2 The Trustee maintained that Huddle was a creditor and
the money in dispute was property of the bankruptcy estate which
should be distributed in the normal course of the bankruptcy
proceedings. Following a hearing, the bankruptcy court entered a
written order in which it concluded that, under Nebraska law,
Debtor and Huddle were in an agent-principal relationship, not a
debtor-creditor relationship, and therefore the money was, at all
relevant times, the property of Huddle. Because Huddle owned the
2
Section 547(b) (emphasis added) provides:
Except as provided in subsection (c) of this
section, the trustee may avoid any transfer of an
interest of the debtor in property --
(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 this title;
(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.
-3-
money, the bankruptcy court reasoned, the money was never the
property of Debtor and therefore the Trustee had failed to satisfy
the threshold requirement that there be a transfer of "an interest
of the debtor in property." 11 U.S.C. § 547(b). Thus, the
bankruptcy court held that Debtor's payment to the Bank and Huddle
was not an avoidable preferential transfer. Slip op. at 2-3. The
Trustee appealed the bankruptcy court's ruling to the district
court. Upon review, the district court agreed with the bankruptcy
court's analysis and affirmed. This appeal followed.
Discussion
Under the Bankruptcy Code, a trustee may avoid a pre-petition
transfer of property by the debtor to a third party upon proof of
several criteria. 11 U.S.C. § 547(b). A threshold requirement of
§ 547(b), however, is that the property transferred be "an interest
of the debtor in property." Id. This requirement is satisfied in
the present case if the money transferred to Huddle and the Bank
was property of Debtor's estate at the time of the transfer. See
Bergquist v. Anderson-Greenwood Aviation Corp. (In re Bellanca
Aircraft Corp.), 850 F.2d 1275, 1279 & n.8 (8th Cir. 1988)
(Bellanca I) (the phrase "property of the debtor" in the pre-1984
version of § 547(b), which was replaced by "an interest of the
debtor in property," is equivalent to "property of the estate" for
purposes of determining whether the transfer of proceeds derived
from the debtor's sale of transferee's assets constituted a
voidable preference); see also 4 Lawrence P. King et al., Collier
on Bankruptcy ¶ 547.03, at 547-25 ("[t]he fundamental inquiry is
whether the transfer diminished or depleted the debtor's estate"),
547-24 n.18 (citing cases), 547-25 n.20 (citing cases) (15th ed.
1995) (hereinafter Collier). Under 11 U.S.C. § 541(a)(1), property
of the estate is generally defined to include all legal or
equitable interests of the debtor in property.
-4-
When a bankruptcy court's judgment is appealed to the district
court, the district court acts as an appellate court and reviews
the bankruptcy court's legal determinations de novo and findings of
fact for clear error. Wegner v. Grunewaldt, 821 F.2d 1317, 1320
(8th Cir. 1987). As the second court of appellate review, we
conduct an independent review of the bankruptcy court's judgment,
applying the same standards of review as the district court. Id.
In the present case, the controlling legal issue that was before
the district court, and is now before this court on appeal, is
whether the bankruptcy court erred in holding that the transfer did
not involve an interest of the debtor in property, as required by
§ 547(b). Central to this statutory issue is the question of
whether the relationship between Debtor and Huddle, vis-a-vis the
money transferred, was that of agent and principal or debtor and
creditor at the time of the transfer. As a general rule, if
property is in the debtor's hands as agent, the property or
proceeds therefrom are not treated as property of the debtor's
estate. 4 Collier ¶ 541.08, at 541-42 to 541-42.1. State law
controls questions concerning the nature and extent of the debtor's
interest in property. N.S. Garrott & Sons v. Union Planters Nat'l
Bank (In re N.S. Garrott & Sons), 772 F.2d 462, 466 (8th Cir.
1985) (Garrott). Therefore, Nebraska law governs the question of
whether or not an agency relationship existed at the time of the
transfer. Accord 4 Collier ¶ 547.03, at 547-24 to 547-25 ("The
term `interest of the debtor in property' is not defined in the
Bankruptcy Code . . . and thus, `[w]e look to state law to
determine whether property is an asset of debtor.'") (quoting
Kallen v. Ash, Anos, Freedman & Logan (In re Brass Kettle
Restaurant, Inc.), 790 F.2d 574, 575 (7th Cir. 1986)). Once that
state law determination is made, however, we must still look to
federal bankruptcy law to resolve the statutory issue. See
Garrott, 772 F.2d at 466 (once a determination is made regarding
the nature and extent of the debtor's interest in property, federal
-5-
bankruptcy law dictates the extent to which that interest is
property of the estate).3
The bankruptcy court in the present case held that, because
Debtor was the agent of Huddle, the Trustee had failed to meet his
burden of proving that the money transferred to the Bank and Huddle
was property of Debtor's estate. The bankruptcy court reasoned:
In Nebraska, the relationship between an
auctioneer and the party who has employed the services
of the auctioneer to sell personal property is that of
principal and agent. Edwin Bender & Sons v. Ericson
Livestock [Comm'n Co.], 228 Neb. 157, 421 N.W.2d 766
(1988). Under the law of agency when an agent is
entrusted with care of a principal's property, ownership
remains in the principal. Edmondson v. Aladdin
Synergetics, Inc. (In re Tinnell Traffic Services,
Inc.), 43 B.R. 277, 279 (Bankr. M.D. Tenn. 1984).
Additionally, when there exists a true agency
relationship, a transfer by the agent of agency property
to the principal is not a voidable preference. The
reason is that the transfer is not property of the
debtor but is property of the principal. Jensen-McLean
Co. v. Crouthamel Potato Chip Co. (In re Crouthamel
Potato Chip Co.), 6 B.R. 501 (Bankr. E.D. Pa. 1980).
In this case, the debtor entered into an oral
contract with Mr. Huddle. The contract provided that
Mr. Huddle would make his personal property available
for sale and that the debtor would conduct an auction.
Following the auction, the debtor would collect the
proceeds of the sale and, after deducting sale expenses,
including commission, would deliver the balance to
[Huddle] or to [Huddle's] secured creditors.
The debtor did conduct the auction and collect the
proceeds. The fact that the debtor deposited the
3
We note that both the bankruptcy court and the district court
considered the state law agency issue and the federal statutory
issue as one and the same under the facts of the present case.
While we agree that, in many cases (as in the present case), the
two issues will be closely intertwined, we caution that disposition
of the state law agency issue will not, in every instance,
conclusively decide whether or not property retained by the debtor
shall be treated as property of the estate under the Bankruptcy
Code. Each case will depend on its specific facts.
-6-
proceeds into the debtor's own account does not change
the ownership of the proceeds. The relationship of the
parties was that of agent and principal. The agent, the
debtor, held the property, the proceeds of the sale, for
the principal, Mr. Huddle. Mr. Huddle did not at any
time agree that the proceeds of the sale would become
the property of the debtor.
Slip op. at 2.
Citing Wright & Souza, Inc. v. DM Properties, 510 N.W.2d 413
(Neb. Ct. App. 1993) (Wright & Souza), the Trustee argues that the
bankruptcy court erred in holding that Debtor and Huddle were in an
agency relationship at the time the money was transferred. The
Trustee also maintains that Edwin Bender & Sons v. Ericson
Livestock Comm'n Co., 421 N.W.2d 766 (Neb. 1988) (Bender & Sons),
relied upon by the Bank and cited in both the bankruptcy court and
the district court opinions, is inapplicable. The Trustee further
argues that, even if an agent-principal relationship between Debtor
and Huddle had existed at the time of the auction, that
relationship terminated upon conclusion of the auction sale and
thereafter became a debtor-creditor relationship. In support of
these arguments, the Trustee highlights the fact that, after the
auction sale, the proceeds received by Debtor were deposited in
Debtor's general bank account where they were commingled with other
funds in Debtor's possession and control. The Trustee further
maintains that evidence presented to the bankruptcy court showed
that during the period between the date of the auction sale and the
date the net proceeds were paid over to Huddle and the Bank,
Debtor's general bank account had a negative balance on several
occasions. The Trustee argues that this evidence proved that the
money paid to Huddle and the Bank could not have been the actual
proceeds from the auction sale of Huddle's business assets; in
other words, the funds paid to Huddle and the Bank could not be
traced. The Trustee also maintains that evidence presented to the
bankruptcy court demonstrated that Debtor bore the risk of loss if
the successful bidders failed to pay for assets they purchased.
-7-
Based upon all these factors, the Trustee argues, an agency
relationship did not exist under Nebraska law at the time the
$6,761.48 payment was delivered to Huddle and the Bank. For the
reasons stated below, we agree.
In Bender & Sons, the Nebraska Supreme Court noted generally
that an auctioneer, in selling property for another at an auction,
acts as the agent for its customer, and therefore the auctioneer's
rights and liabilities arising out of the auction sale are governed
by the general principles of agency law. 421 N.W.2d at 770-71.
The question of law regarding the relationship between an
auctioneer and auction customer arose because the auctioneer had
made a materially false statement regarding auctioned property and
was being sued for misrepresentation. The Nebraska Supreme Court
held that the auctioneer's statements regarding the attributes of
the auctioned property were made as an agent for its principal
(i.e., the customer) and therefore the potential liability of the
auctioneer depended on whether the misrepresentation had been
authorized by the customer. Id. at 771-72. Thus, the holding in
Bender & Sons is limited to its context: an auctioneer ordinarily
acts as the agent for its customer in making representations
regarding the customer's assets before or during the sale of those
assets. So limited, the holding in Bender & Sons is inapplicable
to the facts of the present case.
Wright & Souza, on the other hand, although factually not on
point, is more instructive in its statement of the applicable law.
In Wright & Souza, a loan broker sued a prospective borrower for
anticipatory breach of contract and prevailed before a jury. 510
N.W.2d at 415-16. On appeal, the borrower argued that the trial
court erred in failing to give a jury instruction regarding the
loan broker's alleged duties as the borrower's agent. The Nebraska
Court of Appeals held that no error had occurred because the
borrower had failed to establish the existence of an agency
relationship. Id. at 417. In reaching its decision, the Nebraska
-8-
appellate court identified several factors to be considered in
determining whether an agency relationship exists: (1) the extent
of control the alleged principal exercises over the details of the
alleged agent's work; (2) whether the work is done with or without
the supervision of the alleged principal; (3) whether payment is by
the hour or by the job; (4) whether the work performed by the
alleged agent is part of the regular business of the alleged
principal; (5) whether the alleged principal is in the type of
business performed by the alleged agent; and (6) whether the
alleged agent is engaged in a distinct occupation or business. Id.
In applying the above factors to the facts of the case before it,
the Nebraska Court of Appeals held that no agency relationship
existed because the borrower exercised no control over the loan
broker; the loan broker was engaged in a distinct occupation which
was usually done without supervision; the method of payment was not
based on an hourly rate; and the services performed by the loan
broker were not a regular part of the borrower's business. Id.
Likewise, in the case before us, application of the Wright &
Souza factors indicates that Debtor was not Huddle's agent at the
time the auction proceeds were deposited in Debtor's account and
subsequently paid over to Huddle and the Bank. Debtor was engaging
in a distinct occupation, unsupervised by Huddle and entirely
independent of Huddle's business. The method of payment was not
based on an hourly rate but was determined by the extent to which
Debtor successfully performed its services. Debtor kept the
auction proceeds in its general bank account, where the money
lacked any indicia of Huddle's ownership, was intermingled with
other funds, and was subject to any claims by Debtor's creditors.
Certainly, at that point, Huddle exercised no control over Debtor's
conduct with respect to the auction proceeds. We therefore hold
that the bankruptcy court erred in concluding that, at the time
Debtor paid Huddle and the Bank the $6,761.48 in proceeds from the
auction sale, Debtor was acting as Huddle's agent under Nebraska
law. Accord Restatement (Second) of Agency § 398 cmt. c (1958)
-9-
("In the case of certain professional agents, such as auctioneers
and factors, it is customary, and hence ordinarily understood, that
the agent can properly mingle his funds with those of his
principal. . . . If the funds are properly mingled, the inference
is that the agent becomes a debtor to the amount received for the
principal, but that he agrees to maintain enough in the fund to pay
the principal, who has a charge upon the fund to the amount of the
debt.").
Having determined that the bankruptcy court erred in holding
that, under Nebraska law, Debtor acted as Huddle's agent at the
time the payment was made, we consider an alternative theory
advanced by the Bank to support its claim that the money
transferred was nevertheless not "an interest of the debtor in
property," within the meaning of § 547(b). The Bank suggests that,
even if Debtor was not acting as Huddle's agent when it retained
and delivered the proceeds from the auction sale, the Trustee still
cannot establish a transfer of an interest of Debtor in property
because the money that was transferred to Huddle and the Bank was
presumably derived from later auctions and therefore belonged to
other auction customers. In other words, the Bank argues that,
regardless of whether the property actually belonged to the
transferees or some other party, the money was not property of the
estate at the time of the transfer and therefore cannot be
recovered.
The Trustee, on the other hand, urges us to follow the
reasoning in Franzwa v. KNEZ Building Material Co. (In re Walker
Indus. Auctioneers, Inc.), 38 B.R. 8, 12-13 (Bankr. D. Or. 1983)
(Walker), in which the Bankruptcy Court for the District of Oregon
held on summary judgment that the debtor, an auctioneer, was in a
debtor-creditor relationship, not an agent-principal relationship,
with its customers at the time payments were made to the customers
and therefore those payments were avoidable preferential transfers.
The Trustee argues that the decision in Walker represents the only
-10-
fair approach in this type of case because, otherwise, the ability
of auction customers to recover auction proceeds from the
bankruptcy estate of the debtor-auctioneer would depend entirely
upon a race to the courthouse, which directly contradicts the goal
of the bankruptcy laws to impose a fair and orderly distribution of
property among equal creditors and permits a "robbing Peter to pay
Paul" result. Brief for Appellant at 37.
In analyzing the issue of whether the transfer involved an
interest of the debtor in property, for purposes of applying
§ 547(b), we agree with the reasoning in Walker. In Walker, the
bankruptcy court considered, among other things, that, under the
relevant auction contracts, the auctioneer had the right to deposit
auction proceeds in its general account and to use funds derived
from an auction sale during the time between the date of the sale
and the date when the net proceeds would become due to the
customer, twenty days after the sale. 38 B.R. at 12. The court in
Walker also relied on the broad meanings of the terms "creditor"
and "claim" under the Bankruptcy Code, 11 U.S.C. § 101(10)(A),(5),
and held that the customers became "creditors" of the debtor
immediately after the auction. Id. ("[u]nder the above
definitions [of `creditor' and `claim'], [the customers] were
creditors of the debtor immediately after the June 12th auction").
Therefore, even if the relationship between the auctioneer and its
customers were characterized as that of principal and agent, the
Walker court held, once the funds were commingled and it became
impossible to actually trace the principal's own money, the
relationship had to be treated as a creditor-debtor relationship
under the Bankruptcy Code with respect to those disputed funds.
Accord 4 Collier ¶ 541.08, at 541-47 ("In a true consignment
arrangement, bailment, or agency, recovery by the bailor,
principal, or consignor rests upon identification. When the
property involved, or its proceeds, has been intermingled with
other goods or funds of the debtor's, the owner must definitely
trace that which he claims as contained in the assets of the
-11-
estate."). Finally, the Walker court observed that "[a] major goal
of the Bankruptcy Code is to treat equal classes of creditors
equally," and that "[o]ne of the tools to effect this goal is the
preference statute." 38 B.R. at 13.
Similarly, in Salem v. Lawrence Lynch Corp. (In re Farrell &
Howard Auctioneers, Inc.), 172 B.R. 712 (Bankr. D. Mass. 1994)
(Farrell & Howard), the trustee brought an adversary proceeding
under 11 U.S.C. § 547 to avoid a pre-petition payment made by the
debtor-auctioneer to one of its customers. The defendant-customer
moved for summary judgment arguing, among other things, that it
owned the money transferred and therefore the money was not
property of the debtor's estate at the time of the transfer.4 Id.
at 715-16. In holding that the debtor had an equitable interest in
the money transferred, for purposes of applying § 547(b), the
bankruptcy court in Farrell & Howard reasoned:
The wording of the contract, as well as the
Debtor's actions, are conclusive on ownership of the
sales proceeds. The contract imposed no obligation to
segregate the proceeds or hold them in trust. It merely
required the Debtor to pay the [customer] the net
proceeds, less commission, within fourteen business days
following the auction. Consistent with these terms, the
Debtor deposited the proceeds in its general operating
account, intermingling them with other sales proceeds
and drawing checks upon the account for the Debtor's
expenses and payments to other sellers. All of this,
particularly the agreement's terms, establishes that the
parties' relationship following the auction was that of
debtor and creditor rather than trustee and beneficiary.
This is so even though the arrangement with the property
prior to sale was a consignment.
Id. at 716 (footnotes omitted).
4
As in the present case, the defendant-customer also argued,
in the alternative, that the transfer occurred in the ordinary
course of business under 11 U.S.C. § 547(c)(2) and therefore the
trustee could not recover the funds. Salem v. Lawrence Lynch Corp.
(In re Farrell & Howard Auctioneers, Inc.), 172 B.R. 712, 717-18
(Bankr. D. Mass. 1994).
-12-
Finally, although neither party has cited Bellanca I, a
decision from this circuit, or the bankruptcy court's decision on
remand, 96 B.R. 913 (Bankr. D. Minn. 1989) (Bellanca II), we
believe those decisions are apposite in the present case and
provide strong support for the conclusion that the $6,671.48
payment was an avoidable preferential transfer. The pertinent
facts underlying Bellanca I and Bellanca II are as follows. The
debtor, Bellanca Aircraft Corporation (Bellanca), sold three
airplanes to Anderson-Greenwood & Company (AGCO) and then later
sold the airplanes to third parties on behalf of AGCO. The third
parties paid Bellanca, which deposited the payments into its
general corporate bank account and then drew its own checks to pay
AGCO. Bellanca II, 96 B.R. at 15. The bankruptcy court initially
held that the payments by Bellanca to AGCO were not preferential
transfers because the proceeds from the airplane resales never
became Bellanca's property, as required under § 547(b), and the
district court affirmed. See Bellanca I, 850 F.2d at 1278. On
appeal, this court remanded to the bankruptcy court on grounds that
the bankruptcy court's findings of fact were insufficient to make
a determination of whether an avoidable preferential transfer had
occurred. This court explained "[a] finding that the planes did
not belong to Bellanca does not automatically mean that proceeds of
the plane sales were not 'property of the debtor' within the
meaning of the Bankruptcy Code. Whether the proceeds became
property of the debtor is initially a question of state law that
depends on several unresolved factual issues." Id. at 1278-79.
This court went on to note that "[t]he [bankruptcy] court did not
explicitly make a finding that Bellanca sold the planes as AGCO's
agent, nor did the court find whether Bellanca segregated the funds
pending payment to AGCO." Id. at 1279.
On remand, the bankruptcy court stated:
A preferential transfer must involve a transfer of
property in which the debtor has an interest. . . . To
-13-
avoid the transfer, it must be shown that the transfer
deprived the debtor's estate of something of value which
could have been used to satisfy claims of the
creditors. . . .
Bellanca was ultimately successful in selling the
three AGCO-owned aircraft to third parties. The funds
received in payment of the sales were transmitted to
Bellanca who deposited the funds in its general
corporate account. These deposited funds became the
property of Bellanca since it had legally unrestricted
use of the funds and the funds were commingled with
other funds. . . . "[A]ny funds under the control of
the debtor, regardless of the source, are properly
deemed to be the debtor's property, and transfers that
diminish that property are subject to avoidance." In re
Chase & Sanborn Corp. (Nordberg v. Sanchez), 813 F.2d
1177, 1181 (11th Cir. 1987).
Bellanca II, 96 B.R. at 915 (internal citations omitted).
The bankruptcy court then observed that AGCO had not
instructed Bellanca to segregate the payments received from the
third-party purchasers of the aircraft, and, moreover, the facts
clearly indicated that AGCO consented to Bellanca's conduct. Id.
The bankruptcy court also noted that the funds had been deposited
in Bellanca's corporate account, were commingled with other funds,
and were subject to the claims of Bellanca's creditors; thus, no
third party inspecting Bellanca's bank account could have known
that a certain portion of the funds were ultimately to be paid to
AGCO, nor could it be determined how much was owed to AGCO. Id. at
915-16. Accordingly, the bankruptcy court concluded that
Bellanca's transfer of the payments to AGCO was a transfer of
property of the debtor and constituted a voidable preference.5 Id.
5
We note that, in Bergquist v. Anderson-Greenwood Aviation
Corp. (In re Bellanca Aircraft Corp.), 850 F.2d 1275 (8th Cir.
1988) (Bellanca I), and the bankruptcy court's decision on remand,
96 B.R. 913 (Bankr. D. Minn. 1989) (Bellanca II), the courts were
interpreting the pre-1984 version of § 547(b), which contained the
language "property of the debtor" instead of the current language
"an interest of the debtor in property." See Bellanca I, 850 F.2d
at 1278-79. Because the current version is, if anything, broader
-14-
at 915, 917. Accord Carlson v. Farmers Home Admin. (In re
Newcomb), 744 F.2d 621, 626 (8th Cir. 1984) ("[t]o be avoidable a
transfer must deprive the debtor's estate of something of value
which could otherwise be used to satisfy creditors"). Based upon
these findings, and the nature of the third-party purchasers'
direct dealings with Bellanca, the bankruptcy court also rejected
AGCO's contention that Bellanca acted as its agent, or that an
equitable constructive trust could be found under Minnesota law.
Bellanca II, 96 B.R. at 916.
In the present case, the bankruptcy court's factual findings
indicate that Huddle had not instructed Debtor to segregate the
payments received from the auction sale and that the payments were
deposited in Debtor's general bank account where they were
commingled with other funds and were subject to the claims of
Debtor's creditors. No third party inspecting Debtor's bank
account could have determined that some of the funds were owed to
Huddle or Huddle's creditors, or how much was owed. In view of
these facts, we hold that the auction proceeds retained by Debtor
were property of the estate once they were deposited in Debtor's
general bank account and, therefore, the transfer of the check in
the amount of $6,761.48 from Debtor to Huddle and the Bank
constituted a transfer of an interest of the debtor in property,
within the meaning of § 547(b).6
in scope than its predecessor, the bankruptcy court's findings in
Bellanca II, supporting the conclusion that the sale proceeds
transferred were "property of the debtor," would also have resulted
in a finding that "an interest of debtor in property" was
transferred.
6
Our decision in the present case is not inconsistent with
Dolph Clothiers, Inc. v. Salomon (In re Martin Fein & Co.), 34 B.R.
333 (Bankr. S.D.N.Y. 1983) (Fein I), in which the bankruptcy court
held that, under New York law, an auctioneer acted as agent for its
auction customers at all relevant times and funds physically
segregated by the auctioneer in envelopes marked with the auction
customers' names were not part of the bankruptcy estate. Fein I is
distinguishable for several reasons; for example, not only were the
-15-
Conclusion
The bankruptcy court erred in holding that, under Nebraska
law, Debtor was Huddle's agent at the time the check for $6,761.48
was transferred to Huddle and the Bank and that the payment was not
a transfer of an interest of Debtor in property, within the meaning
of 11 U.S.C. § 547(b). The order of the district court affirming
the judgment of the bankruptcy court is therefore reversed and the
case is remanded to the district court. Because the findings of
the bankruptcy court are not sufficient to make a full
determination of whether the Trustee should prevail under § 547,7
customers' funds physically segregated by the debtor, they were
recovered in the original form of cash and checks received by the
debtor from the auction bidders. Id. at 335. Nor is our holding
today directly at odds with the later decision in Varon v. Salomon
(In re Martin Fein & Co.), 43 B.R. 623 (Bankr. S.D.N.Y. 1984) (Fein
II), despite the bankruptcy court's determination in Fein II that
proceeds from an auction sale which were deposited in the
auctioneer's general corporate account were not part of the
auctioneer's bankruptcy estate. The decision in Fein II rested on
the holding that, under New York law, the auctioneer acted as agent
for its auction customers at all relevant times and therefore the
auction proceeds were held in a constructive trust. As a result,
the commingling of funds was wrongful and the auction customer, as
beneficiary of the constructive trust, had an equitable lien or
charge upon the entire bank account in which the trust res was
wrongfully deposited. Id. at 626-28. By contrast, in the present
case, Debtor was not Huddle's agent under Nebraska law at the time
the auction proceeds were collected from the bidders, deposited in
Debtor's bank account, and subsequently transferred to Huddle and
the Bank. Therefore, no constructive trust was implied by the
relationship and Debtor did not act wrongfully in depositing the
funds in its bank account.
7
The Bank additionally argued on appeal that the Trustee
failed to prove one or more of the criteria for a voidable
preferential transfer enumerated in subsections (1) through (5) of
§ 547(b) and that, in any case, the limitations on recovery of
preferential transfers under 11 U.S.C. §§ 547(c)(2), 550(b)
preclude the Trustee from recovering the funds received by the
Bank. Because the bankruptcy court did not reach these issues, and
did not make sufficient factual findings upon which we could
address them, we leave them to the bankruptcy court's initial
consideration on remand. See Wegner v. Grunewaldt, 821 F.2d 1317,
1320 (8th Cir. 1987) (neither the district court nor the court of
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the district court is instructed to remand this case to the
bankruptcy court for further proceedings consistent with this
opinion.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
appeals may make findings of fact; if the bankruptcy court's
findings are silent or ambiguous as to a material issue, the proper
disposition on appeal is to remand to the bankruptcy court to make
the necessary factual determinations).
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