Ramette v. Digital River, Inc. (In Re Graphics Technologies, Inc.) ( 2004 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-2012
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In re: Graphics Technologies, Inc. *
*
Debtor, *
____________________ *
*
James E. Ramette, Trustee, * Appeal from the United States
* Bankruptcy Appellate Panel.
Appellee, *
* [UNPUBLISHED]
v. *
*
Digital River, Inc., *
*
Appellant. *
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Submitted: November 15, 2004
Filed: November 23, 2004
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Before WOLLMAN, HEANEY, and FAGG, Circuit Judges.
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PER CURIAM.
Paymentech Co., a credit card processing company, agreed to hold three to five
percent of each credit card sale of Tech Squared in reserve for six months to cover
chargebacks. After six months, Paymentech would transfer the funds to Tech
Squared. Digital River, a provider of web-hosting services and a sister company to
Tech Squared, was informally added to the merchant account with Paymentech.
Digital River and Tech Squared arranged to have all their credit card sales processed
through Tech Squared, and Tech Squared would apportion disbursements to Digital
River based on its sales. Digital River was not a party to the credit card processing
agreement with Paymentech.
In late 1999, Graphics acquired all the assets of Tech Squared and assumed
Tech Squared’s credit card processing agreement with Paymentech. Digital River
then entered into a separate agreement with Paymentech in January 2000. In the
preceding six months, several hundred thousand dollars was held by Paymentech for
Digital River’s credit card sales. Under the earlier agreement, the money was
disbursed to Graphics’s bank account, which its secured lender swept daily to apply
to Graphics’s loan balance. Digital River later entered into a repayment agreement
and Graphics began making payments to Digital River. After Graphics filed for
bankruptcy, the bankruptcy trustee brought an adversary proceedings against Digital
River to recover the payments made within ninety days before Graphics filed for
bankruptcy as avoidable preferential transfers under 11 U.S.C. § 547.
The bankruptcy court granted summary judgment for the trustee, finding the
payments were preferential transfers and Digital River was liable to the trustee for
$97,514.44. The Bankruptcy Appellate Panel (BAP) affirmed, concluding the funds
paid to Digital River in the ninety days preceding Graphic’s bankruptcy belonged to
Graphics, even though Graphics never had legal title to the funds. In re Graphics
Technology, Inc., 306 B.R. 630, 635 (8th Cir. BAP 2004). Because the last credit card
transaction that Digital River processed through Tech Squared’s agreement occurred
no later than the end of January 2000, the last disbursement including Digital River’s
funds occurred no later than August 2000. Id. at 636. Because Graphics’s bank
swept its account daily, Graphics had spent all of Digital River’s money by the
beginning of the preference period in September 2000, and none of the funds were
related to Digital River’s credit card transactions. Id. Thus, all the money held in the
reserve account during the preference period belonged to Graphics. Id. The BAP
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also concluded there was no basis to impose a constructive trust in Digital River’s
favor because Graphics never held legal title to the funds and no trust res was clearly
identified in Graphics’s bankruptcy estate. Id. The BAP noted Graphics had not
taken affirmative action to wrongfully acquire Digital River’s property. Id. at 637.
Instead, Graphics acknowledged it owed Digital River the money and the parties
agreed on a method for repayment. The BAP observed Digital River bore some
responsibility because it knowingly consented to having its funds distributed to an
account over which it had no control, and did not effectively communicate with
Graphics about its ownership of the commingled funds in the account from January
to June 2000. Id.On appeal, Digital River argues Graphics converted Digital River’s property,
the money was never a part of the bankruptcy estate, and Digital River is entitled to
a constructive trust. We review the bankruptcy court’s findings of fact for clear error
and review de novo the legal conclusions of the bankruptcy court and the bankruptcy
appellate panel. Blackwell v. Lurie (In re Popkin & Stern), 223 F.3d 764, 765 (8th
Cir. 2000). Having carefully reviewed the case, we see no clearly erroneous findings
and conclude the BAP properly analyzed the issues and properly applied Minnesota
law. We thus affirm on the basis of the BAP’s published opinion. See 8th Cir. R.
47B.
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