Chiasson v. J. Louis Matherne & Associates , 4 F.3d 1329 ( 1993 )

United States Court of Appeals,
Fifth Circuit.
No. 93-3013.
In the Matter of OXFORD MANAGEMENT, INC., Debtor.
Michael CHIASSON, Trustee of Chapter 7 Bankruptcy Estate of Oxford Management, Inc.,
Appellants,
v.
J. LOUIS MATHERNE AND ASSOCIATES, Appellees.
In the Matter of OXFORD MANAGEMENT INC., Debtor.
Michael CHIASSON, Trustee of Chapter 7 Bankruptcy Estate of Oxford Management, Inc.,
Appellant,
v.
Katherine A. BINGLER, Appellee.
Oct. 27, 1993.
Appeal from the United States District Court for the Eastern District of Louisiana.
Before WIENER and EMILIO M. GARZA, Circuit Judges and LITTLE*, District Judge.
LITTLE, District Judge:
The petitioner, Oxford Management, Inc. ("Oxford"), filed for bankruptcy under Chapter 11
of the Bankrupt cy Code. Thereafter, the appellees, Katherine A. Bingler ("Bingler") and J. Louis
Matherne & Associates ("Matherne"), each brought suit against Oxford to collect monies owed from
the lease of commercial office space. The bankruptcy court found that each appellee was entitled to
its fee and ordered the funds harbored in an escrow account. The order was affirmed on appeal by
the United States District Court following consolidation of the two separate proceedings. The
petitioner now appeals the district court's ruling, asserting that the order was erroneous as a matter
of law because the fees or commissions are the property of the bankruptcy estate and may only be
disbursed in accordance with the provisions of the Bankruptcy Code. Because we find that the
bankruptcy court abused its discretion under 11 U.S.C. § 105(a) when it required the appellant to pay
*
District Judge of the Western District of Louisiana, sitting by designation.
the appellees their claims, we reverse.
I.
Oxford Management, Inc.1 is a broker which provides commercial leasing services. In
February 1983, Oxford and appellee Bingler entered into a contract whereby Bingler agreed to act
as an independent contractor and bring to Oxford commercial leases. On December 6, 1984, Oxford
entered into a rental agreement with Fidinam U.S.A., Inc. ("Fidinam") in which Oxford agreed to
furnish commercial leasing services to Fidinam relative to the Place St. Charles office project in New
Orleans, which Fidinam owned. Bingler and Oxford agreed that Bingler would be the leasing
specialist to the project.
In return for her services, Bingler received a commission equal to 47 of the monthly rent
owned to Fidinam under leases generated by Bingler. In accordance with the agreement between
Oxford and Fidinam, Fidinam would pay 67 of the rental value to Oxford, who placed the money in
its general operating account. Oxford would then retain 27 of the commission and forward the
remaining 47 to Bingler. The funds received from Fidinam were not segregated in any respect from
Oxford's other funds.
Soon after the execution of the rental agreement between Oxford and Fidinam, the law firm
of Plauche & Maselli became interested in leasing space in the Place St. Charles. Plauche & Maselli
enlisted the brokerage services of appellee Matherne, who negotiated the terms of a lease.2 Oxford
1
Oxford is the successor-in-interest to Latter & Blum's commercial leasing division as of
September 30, 1986. The rental agreements with Katherine A. Bingler and J. Louis Matherne
were executed under the name of Latter & Blum, but Oxford is bound by the conditions of these
agreements. For clarity, Latter & Blum and/or Oxford will hereinafter be collectively referred to
as "Oxford."
2
Under Louisiana Real Estate License Law, La.Rev.Stat.Ann. §§ 37:1430-1468 (West 1988 &
Supp.1993) and the rules and regulations promulgated by the Louisiana Real Estate Commission,
where property is leased or sold by someone other than its owner, a lease or sale must take place
through a licensed broker. The broker representing the lessor or owner is known as the "listing
broker" or "listing agent." In the case of commercial leases, potential lessees or tenants are often
represented by a "tenant's broker" or "tenant's agent." In this case, Matherne served as a tenant's
broker, while Oxford served as the listing broker. Bingler, as an independent contractor, had a
somewhat different relationship with Oxford. Nonetheless, since the manner in which the
appellees were paid their commissions was the same, the bankruptcy court has treated the
appellees as similarly situated. We will follow that lead, as did the district court.
and Matherne agreed that Matherne's commission would be governed by the Oxford/Fidinam rental
agreement and would equal 47 of the total net rent of the Plauche & Maselli lease. As with Bingler,
Oxford was to pay Matherne its commission upon receipt of the money from Fidinam.3
This method of payment was in operation until July 1990, at which time Oxford discontinued
payments to the appellees despite the fact that Fidinam continued to send the entire 67 commission
to Oxford. On November 2, 1990, Oxford filed for bankruptcy under Chapter 11 of the Bankruptcy
Code. The appellees then filed separate complaints for injunctive relief, declaratory relief and
turnover of funds, and motions for temporary restraining orders and injunctive relief.
The bankruptcy court reviewed the contracts between Oxford and Fidinam, Oxford and
Bingler, and Oxford and Matherne and denied the appellees' motions on the grounds that the
appellees had a debtor-creditor relationship with the appellant and, as such, ruled that the
commissions belonged to Oxford. Nonetheless, the court employed its equitable powers under 11
U.S.C. § 105(a) to order the appellant to comply with the appellees' demands for payment.4
Oxford appealed the decision to the district court. The district court affirmed the bankruptcy
court's order compelling Oxford to pay the appellees the commissions and agreed with the bankruptcy
court's use of its equity powers under 11 U.S.C. § 105(a) to implement the order.
Oxford then filed this appeal, challenging whether the bankruptcy court erred in ordering
Oxford to pay to appellees post-petition funds in satisfaction of obligations that arose by pre-petition
agreement, and whether the bankruptcy court abused its equity powers under 11 U.S.C. § 105(a) in
ordering the payments.
II.
A bankruptcy court's finding of fact are subject to the clearly erroneous standard of review.
In re Young, 995 F.2d 547, 548 (5th Cir.1993). This court will strictly apply this standard when the
3
This method of payment is the industry practice since, under La.Rev.Stat.Ann. § 37:1446,
associate brokers shall not accept a commission except from their sponsoring broker.
4
The bankruptcy court originally commanded payment of the funds from an escrow account.
This account was terminated upon request of the appellant. At the same time, however, as the
court terminated the account, the court ordered the appellant to pay the commissions since the
funds had been set aside for the appellees.
district court has affirmed the bankruptcy court's findings and will reverse only when this court is left
with "the definite and firm conviction that a mistake has been made." Id. Conclusions of law are
reviewed de novo. Id.; see also In re Allison, 960 F.2d 481, 483 (5th Cir.1992).
A.
The appellant objects to the bankruptcy court's determination that post-petition funds be used
to satisfy the appellees claims. The appellant argues that the court, having determined that Oxford
and the appellees have a debtor-creditor relationship, erroneously used its equitable powers under 11
U.S.C. § 105(a) to compel payment. We agree with the appellant and hold that the bankruptcy court
abused its discretion in the application of this statute.
Section 105(a) authorizes a bankruptcy court to fashion such orders as are necessary to
further the substantive provisions of the Bankruptcy Code.5 For instance, the section permits
bankruptcy courts to issue injunctions. But, the powers granted by that statute must be exercised in
a manner that is consistent with the Bankruptcy Code. See United States v. Sutton, 786 F.2d 1305,
1308 (5th Cir.1986); In re Texas Consumer Finance Corp., 480 F.2d 1261, 1265 (5th Cir.1973).
The "statute does not authorize the bankruptcy courts to create substantive rights that are otherwise
unavailable under applicable law, or constitute a roving commission to do equity." United States v.
Sutton, 786 F.2d at 1308.
The bankruptcy court concluded that the commissions are part of the bankruptcy estate and
that the appellees have the status of general unsecured creditors. At the same time, the court decided
that Oxford "owed" the appellees their commissions and that equity necessitated payment. We
observe, however, that the Bankruptcy Act did not give bankruptcy courts the authority to grant
compensation of post-petition funds except as provided by the Bankruptcy Code. Matter of
Hammers, 988 F.2d 32, 34 n. 1 (5th Cir.1993). Neither the appellees nor the bankruptcy court cited
a specific provision of the Code that would allow the payment of post-petition funds to satisfy
5
Section 105(a) provides: "The court may issue any order, process, or judgement that is
necessary or appropriate to carry out the provisions of this title. No provision of this title
providing for the raising of an issue by a party in interest shall be construed to preclude the court
from, sua sponte, taking any action or making any determination necessary or appropriate to
enforce or implement court orders or rules, or to prevent an abuse of process."
pre-petition claims. By commanding payment, the bankruptcy court elevated the status of the
appellees above that of the other general unsecured creditors and deviated from the pro rata scheme
of distribution envisioned by the Code. See 11 U.S.C. § 726(b) (Law.Co-op.1987). This order
effectuated an impermissible substantive alteration of the Code's provisions. For this reason, we find
that the bankruptcy court was in error when it used its equity powers to command the payment of
the appellees' commissions.
B.
Having concluded that the bankruptcy court acted beyond the equitable powers granted by
section 105(a), we now turn to whether the bankruptcy court was correct in concluding that the
commissions were part of the bankruptcy estate. Oxford renews its assertion that the bankruptcy
court properly found that the funds are part of the debtor's estate. Bingler and Matherne, on the other
hand, advance numerous arguments in support of the position that the pre-petition agreements
rendered the appellees the equitable owners of the funds. In other words, the bankruptcy court's
conclusion was correct, but for the wrong reasons.
11 U.S.C. § 541(d) is the general provision addressing property of the bankruptcy estate.
It provides that the estate is comprised of "all legal or equitable interests of the debtor in property as
of the commencement of the case." 11 U.S.C. § 541(d) (Law.Co-op.1986). The section does not,
however, create or define property interests. Therefore, in the absence of controlling federal
bankruptcy law, the substantive nature of property rights is defined by reference to state law. Butner
v. United States, 440 U.S. 48, 55-56, 99 S. Ct. 914, 918, 59 L. Ed. 2d 136 (1979).6 The bankruptcy
court properly looked to Louisiana law to determine whether Oxford's estate owned the commissions
under the terms of the contracts between the parties. An interpretation of an unambiguous contract
is a question of law and will be reviewed de novo. Calpetco 1981 v. Marshall Exploration, Inc., 989
F.2d 1408, 1413 (5th Cir.1993).
6
See also Lewis v. Manufacturers National Bank, 364 U.S. 603, 609, 81 S. Ct. 347, 350, 5
L. Ed. 2d 323 (1961) (Non-uniform treatment of property interests by both State and federal courts
within a state enables parties to receive windfalls "by reason of the happenstance of bankruptcy.");
Matter of Ford, 967 F.2d 1047, 1050 n. 6 (5th Cir.1992).
The appellant argues that the terms of the contracts between the parties explicitly created a
debtor-creditor relationship. The contract between Oxford and Fidinam provides that the whole 67
commission is to be paid directly to Oxford, with Oxford then obligated to pay the appellees their
shares. Since Bingler and Matherne were not parties to the contract between Oxford and Fidinam,
they could not directly receive their payments from Fidinam but were dependant upon Oxford for
payment pursuant to the terms of their respective agreements with Oxford. The bankruptcy court
interpreted these contracts to mean that the commissions paid to Oxford by Fidinam were Oxford's
property, and that while Oxford had an obligation to pay the appellees under separate and distinct
contracts, the relationship between the parties was that of debtor and creditor. We agree with these
conclusions and concur in the judgment that the appellees claims arose pre-petition,7 that the funds
are part of the debtor's estate, and the relationship between the appellant and the appellees is that of
debtor-creditor.
1.
The appellees advance several arguments in opposition to these conclusions, the first of which
is based on a constructive trust theory. The appellees maintain that under Louisiana law governing
real estate licenses, a scheme was created that forms the basis of an equitable interest or trust. See
La.Rev.Stat.Ann. §§ 37:1430-1468 (West 1989 & Supp.1993). For instance, § 37:1446(B) requires
associate brokers to receive commissions through the sponsoring broker, in this case Oxford.
Moreover, § 37:1455(A)(5) permits a broker to be censured or to have his license revoked for
"failure to remit money coming into his possession belonging to others." The appellees maintain that
since direct receipt of the commissions is made impossible by this scheme, and since sanctions for
failure to remit are permitted by the statute, the commissions received by the sponsoring broker, in
7
A "claim" is defined under 11 U.S.C. § 101(4)(A) (Law.Co-op.Supp.1993) as a "right to
payment" and includes those rights that are unliquidated, contingent, and unmatured. If a right to
payment becomes vested prior to commencement of the bankruptcy case, the claim becomes a
pre-petition claim. A claim is not rendered a post-petition claim simply by the fact that time for
payment is triggered by an event that happens after the filing of the petition. In re Murray
Industries, Inc., 110 B.R. 585, 588-89 (Bankr.M.D.Fla.1990). All pre-petition unsecured claims
are paid pro-rata along with all claims of that kind in accordance with the provisions of 11 U.S.C.
§ 726(b). All funds acquired by the debtor that are received post-petition are to be used only in
accordance with the provisions of the Bankruptcy Code. 11 U.S.C. § 363 (Law.Co-op.1985).
this case Oxford, are meant to "pass-through" the sponsoring broker to the associate brokers, Bingler
and Matherne. As such, Oxford merely holds the funds in trust for the associate brokers.
When the property of an estate is alleged to be held in trust, the burden of establishing the
trust's existence rests with the claimants.8 "Additionally, where the recipient of the funds can by
agreement use them as his own and commingle them with his own monies, a debtor-creditor
relationship exists, not a trust."9 In our case, the commissions remitted by Fidinam to Oxford were
placed in Oxford's general operating account and commingled with Oxford's other funds. No
agreement existed which prohibited Oxford from using the funds for other purposes. Therefore, the
appellees argument in favor of the creation of a trust is insupportable.
The appellees also suggest that a constructive trust was created, and they rely on section
541(d) of the Bankruptcy Code and its legislative history for support of that proposition. The
appellees assert that section 541(d) recognizes that some property ostensibly owned by the debtor
in possession is not the property of the debtor's estate.10 Further, they direct our attention to the
section's legislative history, which includes an example of property that is held in constructive trust
for the true owner.11 The appellees also note that although Louisiana law does not recognize
8
See 4 Collier on Bankruptcy, § 541.13, at 541-76 to -78 (15th ed. 1993). In addition to
proving his title, the claimant must identify the trust fund or property and, where the fund or
property has been mingled with the general property of the debtor, trace the property. Id. at 541-
77.
9
Id. at 541-77.
10
11 U.S.C. § 541(d) reemphasizes the principle of section 541(a)(1), which establishes that
the debtor's estate encompasses all legal or equitable interests of the debtor as of the
commencement of the case. Subsection (d) also sets forth the concept that property limited in the
hands of the debtor is similarly limited in the hands of the debtor's estate, and provides the
example of "a mortgage secured by real property, or an interest in such a mortgage, sold by the
debtor but as to which the debtor retains legal title in order to service or supervise the servicing of
the mortgage or interest." While the appellees use this provision to support their theory that
Oxford retains only legal interest in the commissions such that the commissions are not part of the
debtor's estate, it is clear that this section was written as a concession to the secondary mortgage
industry. See 4 Collier on Bankruptcy ¶ 541.24, at 541-116 to -118 (15th ed. 1993).
11
The appellees rely on the following example discussed in the legislative history of § 541(d):
"Situations occasionally arise where property ostensibly belonging to the debtor will not actually
be the property of the debtor, but will be held in trust for another. For example, if the debtor has
incurred medical bills that were covered by insurance, and the insurance company had sent the
payment of the bills to the debtor before the debtor had paid the bill for which the payment was
constructive trusts, the concept is an equitable one and is applicable in situations such as this one,
where funds are "earmarked" for a specific creditor.
While it is true that the Bankruptcy Code recognizes situations in which some property
ostensibly owned by the debtor is not the property of the debtor's estate, the examples raised by the
appellees are inapplicable here. First, section 541(d) refers to secondary mortgages, not commissions.
Second, Louisiana does not recognize constructive trusts. See In re Emerald Oil Co., 807 F.2d 1234,
1238 (5th Cir.1987). Section 541 defines those interests of the debtor that are transferrable to the
debtor's estate, but it leaves to state law the task of defining the extent of the debtor's interest.12
Therefore, while the legislative history mentions the possibility of a constructive trust under certain
circumstances, the final resolution is made by nonbankruptcy law. In our case, that law is Louisiana
law. Addit ionally, we reject the appellees contention that the funds were "earmarked" for them.
Rather, the funds were placed in an escrow account by the bankruptcy court pending resolution of
the case. This account was later terminated. Finally, the appellees' reliance on section 541's
legislative history is misplaced. It is well established that where a statute is unambiguous, reference
to legislative history is unnecessary. See, e.g., Barnhill v. Johnson, 503 U.S. ----, ----, 112 S. Ct.
1386, 1391, 118 L. Ed. 2d 39 (1992) ("[A]ppeals to statutory history are well-taken only to resolve
"statutory ambiguity.' "); Toibb v. Radloff, 501 U.S. ----, ----, 111 S. Ct. 2197, 2200, 115 L. Ed. 2d
145 (1991).
2.
The appellees' next argument is that the contractual arrangement between the parties created
an agency relationship. Specifically, the appellees allege that Oxford, by collecting the commissions
on the appellees' behalf, acted as their agent. Under Louisiana law, an agency relationship is created
either by express appointment of a mandatary under Civil Code Article 2985 or by implied
appointment arising from apparent authority. Civil Code Article 2985 (West 1979); see also Richard
reimbursement, the payment would actually be held in constructive trust for the person to whom
the bill was owed." S.Rep. No. 989, 95th Cong., 2d Sess. 82 (1978), reprinted in 1978
U.S.C.C.A.N. 5787, 5868.
12
See 4 Collier on Bankruptcy ¶ 541.02[1], at 541-10.1 to -13 (15th ed. 1993).
A. Cheramie Enterprises, Inc. v. Mt. Airy Refining Co., 708 F.2d 156 (5th Cir.1983). An agency
relationship is created by implication "when, from the nature o f the principal's business and the
position of the agent within that business, the agent is deemed to have permission from the principal
to undertake certain acts...." AAA Tire & Export, Inc. v. Big Chief Truck Lines, Inc., 385 So. 2d 426,
429 (La.App.1980). In other words, implied agency involves permission to act, even though
permission is not explicitly established orally or in writing. Id. An implied agency is frequently
established by the conduct and communication of the parties and the circumstances of the particular
case. Busby v. Walker, 84 So. 2d 304 (La.App.1955).
Under Louisiana law, an agency relationship cannot be presumed, it must be clearly
established. Patrick v. Patrick, 230 So. 2d 759, 762 (La.App.1970). The appellees fail to establish
that an express appointment of Oxford as a mandatary was contemplated by the agreements between
the parties. The unambiguous language of the contracts between Oxford and the appellees provides
that Oxford agreed to pay the outside broker a commission. Again, this is language of indebtedness
that connotes a creditor-debtor relationship. In so far as the record does not support the finding that
an implied appointment was intended by the parties, we decline to create a relationship between the
parties that they themselves did not intend.
3.
Third, the appellees maintain that the agreements between the parties created a contract of
deposit. Specifically, the appellees assert that Oxford, upon receipt of the commissions from Fidinam,
became the depositary of the appellees' 47 commissions. La.Civ.Code Ann. art. 2926 defines
"deposit" as "an act by which a person receives the property of another, binding himself to preserve
it and return it in kind." A deposit is a nominate contract created by mutual consent of the parties,
whether express or implied. La.Civ.Code Ann. arts. 2932-2933 (West 1979). The main requisites
for the creation of a depositor-depositary relationship are "the mutual consent of the parties and the
delivery of the property." Harper v. Brown & Root, Inc., 391 So. 2d 1170, 1172 (La.1980). See also
Michael H. Rubin, Bailment & Deposit in Louisiana, 35 La.L.Rev. 825, 828 (1975).
With these principles in mind, we conclude that a deposit was not created. In order for a
deposit to have occurred, it must be shown that Oxford consented, either expressly or impliedly, to
act as a depositary on the appellees behalf, followed by receipt of the property in question. The
situation here does not apply. Certainly there was no explicit agreement between Oxford and Fidinam
providing for Oxford's fulfillment of this role, nor was there any delivery of property to Oxford by
the appellees from which an implied deposit can be inferred. As discussed above, Oxford and the
appellees had a debtor-creditor relationship. Their arrangement falls short, however, of
demonstrating either consent or intent to form a depositor-depositary relationship.
4.
Finally, the appellees suggest that they are entitled to their commissions as third party
beneficiaries of the brokerage commission agreement between Oxford and Fidinam. La.Civ.Code
Ann. arts. 1978-1982 (West 1993) govern third-party beneficiary contracts, or stipulations pour
autrui. Article 1978 provides that "[a] contracting party may stipulate a benefit for a third person
called a third party beneficiary." A third party beneficiary contract is created when the party entitled
to receive the benefit, the promisee, instructs the promisor to confer the benefit upon a third party,
and the promisor then agrees to do so. Wagner & Truax Co. v. Barnett Enterprises, Inc., 447 So. 2d
1255 (La.App.1984); see also Miller v. Pick, 467 So. 2d 74 (La.App.), writ denied, 472 So. 2d 36
(La.1985).
In this case, there was no agreement between Oxford and Fidinam instructing Fidinam to pay
the appellees their co mmissions. Rather, Fidinam agreed to pay Oxford the entire commission,
leaving to Oxford the task of forwarding to the appellees their portions. Furthermore, at the time
Oxford and Fidinam signed their contract, there was no way Fidinam could have known that Oxford
would be affiliated with Bingler and Matherne. Thus, Fidinam's only obligation was to pay Oxford.
Since a stipulation pour autrui must be agreed upon by the promisor, this argument must also fail.
III.
For the foregoing reasons, we conclude that the bankruptcy court erred in ordering the
appellant to pay to the appellees post-petition funds in satisfaction of pre-petition obligations.
Accordingly, the bankruptcy court's order, as affirmed by the district court, is REVERSED. This
matter is REMANDED to the bankruptcy court for further administration not inconsistent with this
opinion.