United States Court of Appeals,
Eleventh Circuit.
No. 94-8384.
In re: The GEORGIAN VILLA, INC., Debtor,
The GEORGIAN VILLA, INC., Plaintiff-Appellant,
v.
UNITED STATES of America; Georgia Department of Revenue, Defendants-Appellees.
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, Judge.
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.
I. BACKGROUND
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.
II. DISCUSSION
"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
1 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 State. 2 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). 3 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
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United States Court of Appeals,
Eleventh Circuit.
No. 94-8384.
In re: The GEORGIAN VILLA, INC., Debtor,
The GEORGIAN VILLA, INC., Plaintiff-Appellant,
v.
UNITED STATES of America; Georgia Department of Revenue, Defendants-Appellees.
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, Judge.
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.
I. BACKGROUND
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.
II. DISCUSSION
"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
1 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 State. 2 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). 3 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 (1988).
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
stockholders....").
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. III. CONCLUSION
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.