Omega Consulting v. R. Deryl Edwards, Sr. ( 2008 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 07-6071
In re: *
*
Future Trust, Inc., *
*
Debtor. *
*
Omega Consulting as assignee of * Appeal from the United States
Table Rock Business Services, Inc., * Bankruptcy Court for the
* Western District of Missouri
Movant - Appellant, *
*
v. *
*
R. Deryl Edwards, Sr., *
*
Trustee - Appellee. *
Submitted: April 22, 2008
Filed: May 8, 2008
Before KRESSEL, Chief Judge, SCHERMER and MAHONEY, Bankruptcy
Judges
SCHERMER, Bankruptcy Judge
Omega Consulting (“Omega”) as assignee of Table Rock Business Services,
Inc. (“Table Rock”) appeals the order of the bankruptcy court1 denying Omega’s
application for payment of unclaimed funds from the Chapter 11 bankruptcy estate of
Future Trust, Inc. (“Debtor”). We have jurisdiction over this appeal from the final
order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth
below, we affirm.
ISSUE
The issue on appeal is whether the bankruptcy court erred when it denied
Omega’s Motion for Payment of Unclaimed Funds pursuant to Sections 347(b) and
1143 of the Bankruptcy Code as the assignee of the Debtor. We conclude that the
bankruptcy court did not err when it denied Omega’s request for payment of
unclaimed funds from the Debtor’s Chapter 11 estate.
BACKGROUND
In the 1980's, the Debtor operated a pre-need burial business pursuant to
which customers paid the Debtor money to cover the costs of the customers’ future
burial services. The Debtor was supposed to hold the customers’ money in trust;
however, the Debtor, its parent company Table Rock, and others misappropriated
funds received from customers for future burial services. On July 1, 1985, at the
request of the Missouri Attorney General, the Stone County Circuit Court
appointed a receiver to hold and administer the assets of the Debtor and Table
Rock. On September 23, 1985, an involuntary petition for relief under Chapter 11
of the Bankruptcy Code was filed against the Debtor. R. Deryl Edwards, Sr.
(“Trustee”) was appointed Trustee of the Debtor’s Chapter 11 estate. On
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The Honorable Jerry W. Venters, United States Bankruptcy Judge for the
Western District of Missouri.
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October 17, 1988, the bankruptcy court entered its order confirming a liquidating
plan proposed by the Trustee and directed the Trustee to begin making
distributions to the Debtor’s creditors pursuant to the plan. The Trustee attempted
to distribute the Debtor’s assets to creditors pursuant to the plan. Certain checks
were never cashed and others were returned as undeliverable. On July 30, 1998,
the court ordered the Trustee to deposit the unclaimed funds into the registry of the
court which currently holds $167,504.51 in unclaimed funds associated with the
Debtor’s case (“Unclaimed Funds”).
On July 16, 2007, Omega filed a motion seeking payment of the Unclaimed
Funds to itself as successor in interest to the Debtor’s sole shareholder, Table
Rock. Omega attached to its motion the following exhibits: (1) a copy of an
assignment to recover unclaimed assets executed by Boyd Simons in his capacity
as Statutory Director & Former Corporate Director on behalf of Table Rock as sole
shareholder of the Debtor; (2) a list of officers and directors of Table Rock filed
with the Missouri Secretary of State on August 9, 1984; (3) a copy of an envelope
and letter from Boyd Simons addressed to Mr. Eric Dangerfield of Omega; (4) a
photocopy of the driver’s license and social security card of Eric Dangerfield; (5) a
copy of an assumed name certificate for Omega; (6) a 2005 form 941 for Eric
Dangerfield and Omega; (7) a copy of a Certificate of Amendment of Articles of
Incorporation of the Debtor dated May 12, 1982, and an acknowledgment thereof
from the Missouri Secretary of State dated May 12, 1982; and (8) a copy of
Articles of Incorporation for Table Rock dated September 25, 1979.
The Trustee opposed Omega’s motion. The Trustee attached the following
documents to his opposition to Omega’s motion: (1) the notice of the Debtor’s
Chapter 11 bankruptcy case; (2) a stipulation between the State of Missouri and the
Trustee pursuant to which the State of Missouri agreed to deliver all funds
collected on account of its lawsuit against the Debtor, Table Rock and others to the
Trustee as property of the Debtor’s bankruptcy estate for distribution to creditors;
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(3) a bankruptcy court order approving the stipulation between the Trustee and the
State of Missouri; (4) certified copies of the docket sheet, interlocutory judgment
of default, temporary restraining order and appointment of receiver, first amended
petition, and order approving the receiver’s final report dated April 22, 2002, in the
state court litigation filed by the State of Missouri against the Debtor, Table Rock,
and others; (5) a copy of the 1996 Annual Registration Report for the Debtor filed
with the Missouri Secretary of State showing the state court appointed receiver as
the sole officer and director of the Debtor; and (6) a copy of the Administration
Dissolution or Revocation for a For-Profit Corporation for the Debtor issued by the
Missouri Secretary of State dated October 6, 1997.
The court conducted a hearing on the Motion. Omega presented no
witnesses in support of its claim to be the successor in interest to the Debtor; nor
did it present a copy of the Debtor’s confirmed plan. Omega’s counsel admitted
that the assignment to recover unclaimed assets executed by Boyd Simons in his
capacity as Statutory Director & Former Corporate Director on behalf of Table
Rock as sole shareholder of the Debtor which Omega attached to its motion did not
accurately represent the agreement between Omega and Mr. Simons. Omega is an
asset locator which entered into a contingency fee agreement with Mr. Simons
pursuant to which Omega is entitled to keep forty percent of any amount recovered
and Mr. Simons and other shareholders of Table Rock are entitled to the other sixty
percent.
The court took the matter under advisement. After reviewing the Debtor’s
case file, the court located the confirmed plan. The plan stated, “[t]hat the plan is a
plan of liquidation and there shall be no successors, officers or directors, of the
debtor, . . . and that no holders of equity interests will receive any distribution
under the plan.” [Plan, pp. 10-11.] This latter sentiment was repeated when the
plan again stated, “No equity security holder nor any insider as defined in U.S.C.
Sec [sic] 101 will receive any distribution.” [Plan, p. 12.] The Plan further
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provided that all classes are impaired except the Culver Funeral Services, Inc.
Trust. [Plan, p. 12.] The court ultimately denied Omega’s request, finding that
Omega failed to establish either the right of the Debtor to the Unclaimed Funds nor
a chain of title linking Omega to the Debtor. Omega appealed the denial of its
motion.
STANDARD OF REVIEW
The facts are not in dispute. We review the bankruptcy court’s conclusions of
law de novo. Americredit Fin. Servs., Inc. v. Moore, 517 F.3d 987, 989 (8th Cir.
2008); Capital One Auto Fin. v. Osborn, 515 F.3d 817, 821 (8th Cir. 2008).
DISCUSSION
Sections 347 and 1143 of the Bankruptcy Code
Omega claims entitlement to the Unclaimed Funds pursuant to Sections 347(b)
and 1143 of the Bankruptcy Code. Section 347(b) provides that any security, money,
or other property remaining unclaimed at the expiration of the time allowed in a case
under Chapter 11 for the presentation of a security or the performance of any other act
as a condition to participation in the distribution under any confirmed plan becomes
property of the debtor or of the entity acquiring the assets of the debtor under the plan.
11 U.S.C. § 347(b). Section 1143 states that if a plan requires the presentment or
surrender of a security or the performance of any other act as a condition to
participation in distribution under the plan, such action shall be taken no later than
five years after the date of the entry of the confirmation order. 11 U.S.C. § 1143.
Section 1143 further provides that any entity that has not within such time presented
or surrendered such entity’s security or taken any such other action that the plan
requires may not participate in distributions under the plan. Id. These sections of the
Bankruptcy Code are akin to a statute of limitations and are designed to promote
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finality and judicial economy and to avoid disruptive, wasteful litigation over
unclaimed funds. TLI, Inc. v. Lynn (In re TLI, Inc.), 213 B.R. 946, 950 (N.D. Tex.
1997), aff’d 159 F.3d 1355 (5th Cir. 1998); In re Entire Supply, Inc., 2008 WL 336316,
at *2 (Bankr. N.D. Ohio); In re Goldblatt Bros., Inc., 132 B.R. 736, 738 (Bankr. N.D.
Ill. 1991).
Burden of Proof
Omega as the claimant bears the burden of full proof of the right to the
unclaimed funds and must establish such right on petition to the court with notice to
the United States Attorney. 28 U.S.C. § 2042; In re Entire Supply, Inc., 2008 WL
336316, at *4; In re Chochos, 2007 WL 1810556, at *2 (Bankr. N.D. Ind.). Omega
failed to serve notice of its motion on the United States Attorney thus forming one
basis for the denial of the motion. Omega also failed to meet its burden of proof as
set forth more fully below.
Impact of Plan on Right to Recover Unclaimed Funds
The determination of a right to unclaimed funds under Sections 347 and 1143
of the Bankruptcy Code cannot be made without reference to the confirmed plan. The
confirmed plan controls what if any actions or conditions to participation in plan
distributions are required. The plan also controls what happens when distributions are
attempted via checks which are not cashed or via checks which are returned as
undeliverable. Without the plan, the court has no idea if any conditions were imposed
upon participation in plan distributions nor what is supposed to happen to funds
associated with uncashed distributions. Without presenting the plan, Omega cannot
establish that the Unclaimed Funds fall within Section 1143. Furthermore, without
the Plan, Omega cannot establish that no entity acquired the assets of the Debtor under
the Plan. Even if the court were to assume the Unclaimed Funds fall within the ambit
of Section 347, the court cannot determine whether such funds would revert to the
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Debtor or to another entity under Section 347 without reviewing the plan.
Accordingly, without presenting the plan, Omega cannot establish an entitlement of
the Debtor to the Unclaimed Funds. The court did not err in denying Omega’s motion
and could have done so based on Omega’s failure to make a prima facie case.
The Debtor’s Confirmed Plan Prohibits
Omega’s Recovery of Unclaimed Funds
Rather than merely denying the motion on the basis of its inadequacies, the
court took the extra step of locating and reviewing the plan to determine if the Debtor
might be entitled to the Unclaimed Funds under Sections 347 and 1143. The court
correctly concluded that the plan prevents Omega from recovering the Unclaimed
Funds. The plan expressly provides that no holders of equity interests in the Debtor
will receive any distribution under the plan. Therefore, Table Rock is not entitled to
receive anything under the plan as the sole shareholder of the Debtor. Accordingly,
any distribution of the Unclaimed Funds to Table Rock (or to Omega as its assignee)
is expressly prohibited by the plan. See In re Entire Supply, Inc., 2008 WL 336316.
The same result was reached by the court in the Entire Supply, Inc. case where
the former president of a corporate debtor sought unclaimed funds after confirmation
of a liquidating plan pursuant to which the shareholders’ interests were extinguished
and no employees, officers, or directors of the debtor corporation remained. The court
denied the former president’s petition for turnover of unclaimed funds and noted that
“from a policy standpoint, this result is presumably preferable to the alternative of
giving the unclaimed funds to an officer of a corporation, which no longer exists,
which received no discharge, and whose creditors were never paid in full.” Id. at *5.
This statement is even more true where the improper actions of the Debtor and its
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former officers, shareholders, and directors contributed to the Debtor’s demise in the
first place.2
Omega relies on TLI, Inc. v. Lynn (In re TLI, Inc.), 213 B.R. 946, 950 (N.D.
Tex. 1997), aff’d 159 F.3d 1355 (5th Cir. 1998), in which the court held that once
funds are paid into the registry of the court, the plan ceases to control the disposition
of such funds; instead the funds become unclaimed funds under Sections 347 and
1143 of the Bankruptcy Code. We disagree with the reasoning of the TLI court and
instead agree with that of the Entire Supply court and of the bankruptcy court herein.
The plan prohibits any recovery by the former Debtor or its assignee under
Sections 347 and 1143.
Omega Failed to Establish Itself as an Assignee of the Debtor
Even if Omega could establish the Debtor’s entitlement to the Unclaimed
Funds, Omega has failed to link its alleged ownership rights to those of the Debtor,
providing another basis for the denial of the motion. Omega asserts that it is the
successor in interest to the Debtor pursuant to an assignment signed by Boyd Simons
whom Omega claims is the Statutory Director and Former Corporate Director of Table
Rock which in turn is the sole shareholder of the Debtor. In support of this statement,
Omega attached to its motion a list of officers and directors of Table Rock filed with
the Missouri Secretary of State on August 9, 1984. It is undisputed that a receiver was
appointed for the Debtor and Table Rock on July 1, 1985. Additionally, the Debtor’s
1996 Annual Registration Report filed with the Missouri Secretary of State lists the
receiver as the Debtor’s sole officer and director, superceding any earlier documents
upon with Omega relies. Omega has simply not presented evidence that Boyd Simons
has authority to act on behalf of the Debtor.
2
We note that there is no evidence before us that Mr. Boyd Simons – the
individual who entered into the agreement with Omega – was involved with the
misappropriations which occurred during the 1980's.
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CONCLUSION
The bankruptcy court correctly concluded that Omega is not entitled to the
Unclaimed Funds associated with the Debtor’s bankruptcy estate pursuant to
Sections 347 and 1143 of the Bankruptcy Code. Accordingly, the order denying
Omega’s motion for disbursement of the Unclaimed Funds is AFFIRMED.
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