Luper v. Action Industries, Inc. (In re Lee Way Holding Co.)

113 B.R. 410, 1990 Bankr. LEXIS 2158, 20 Bankr. Ct. Dec. (CRR) 676
CourtUnited States Bankruptcy Court, S.D. Ohio
DecidedApril 10, 1990
DocketBankruptcy No. 2-85-00661; Adv. No. 2-87-0089
StatusPublished
Cited by1 cases

This text of 113 B.R. 410 (Luper v. Action Industries, Inc. (In re Lee Way Holding Co.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Ohio primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Luper v. Action Industries, Inc. (In re Lee Way Holding Co.), 113 B.R. 410, 1990 Bankr. LEXIS 2158, 20 Bankr. Ct. Dec. (CRR) 676 (Ohio 1990).

Opinion

FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION

DONALD E. CALHOUN, Jr., Bankruptcy Judge.

This cause came on for trial on February 6, 1990, on the Plaintiff’s Complaint against Defendants, Teamsters Union Lo[411]*411cals 135, 413, 637 and 957 and Truckdrivers Union Local 407. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the General Order of Reference entered in this District. This matter is a core proceeding under 28 U.S.C. § 157(b)(2). At the commencement of the hearing, counsel advised the Court that only certain transfers to Union Locals 135, 957 and 407 (collectively the “Defendants” or “Union Locals”) remain at issue.

Prior to commencement of this Chapter 11 case, Commercial Lovelace Motor Freight, now known as Lee Way Holding Company (“Lee Way” or the “Debtor”), entered into a collective bargaining agreement (the “agreement”). The “dues checkoff provision” of the agreement provided that union dues would be deducted from the employees’ wages and forwarded by Lee Way to the local chapter/division of the union (Tr. 16). On March 7, 1985, Lee Way filed a Chapter 11 Bankruptcy petition and continued doing business for a short time. The Trustee seeks recovery in accordance with Section 549 of the Bankruptcy Code of three transfers made to the union locals by the Debtor after March 7, 1985 in payment of dues obligations incurred prior to March 7, 1985.

The first transfer, check No. 632411 (exhibit 1) payable to Truckdrivers Union Local 407 in the amount of $1,187.00, was dated February 28, 1985, but not negotiated until March 21, 1985. The check was payment of union dues for the week ending February 9,1985 (Tr. 9). The second transfer was check No. 634846 (exhibit 2) payable to Teamster’s Local 135 in the amount of $1,376.00. The check was paid by the bank on April 2, 1985, and was in payment of union dues for the week ending March 2, 1985 (Tr. 11). The third transfer was a check to Teamsters Local 957 in the amount of $702.00 (exhibit 3) in payment of union dues for employees of the Dayton office for the week ending March 2, 1985, and dues for employees of the Greenville office for the week ending March 9, 1985. The portion attributable to Dayton, $594.00, was all in payment of dues accrued prior to filing. The remainder, $108.00 attributable to Greenville, was only partially in payment of prepetition dues because filing occurred on the third day, March 7, 1985, of the five-day work week. The pre-petition portion of the $108.00 is $64.80. The total amount recoverable under Check No. 634851 is the sum of $594.00 and $64.80 which is $658.80 (Tr. 12).

The Defendant/union locals do not disagree that these three payments were post-petition transfers in payment of prepetition debt. Rather, they argue that the Debtor did not transfer property of the estate; rather, when the Debtor deducted the dues from its employees’ wages, the Debtor held those funds in trust for the benefit of a third-party, the union locals. The Defendants allege that these monies were effectively held in constructive trust (Tr. 17-18). Additionally, the Defendants argue that Section 1113 of the Bankruptcy Code constrains the Trustee’s authorization to recover the transfers under Section 549 of the Bankruptcy Code.

In order to properly analyze this first issue, a brief summary of the law of trusts is necessary. As the nature of a trust is equitable, Fulton v. Gardiner, 127 Ohio St. 77, 186 N.E. 724 (1933), determining whether a trust exists is a matter of state common law. Jaffke v. Dunham, 352 U.S. 280, 77 S.Ct. 307,1 L.Ed.2d 314 (1957). In Ohio, there are two classifications of trust: express and implied. Within that classification, implied trusts are categorized as either resulting or constructive. Hartwell v. Schlarb, 16 O.L.Abs. 728, 729 (Ct.App.1934), aff’d., 129 Ohio St. 493, 196 N.E. 273 (1935).

An understanding of express and constructive trusts is pertinent to the issue at hand. The often repeated characteristics of an express trust were originally stated by an Ohio court in Norris v. Norris, 40 O.L.Abs. 293, 57 N.E.2d 254 (Ct.App.1943), appeal dismissed, 142 Ohio St. 634, 53 N.E.2d 647 (1944), as follows:

(1) A trust is a relationship;
(2) It is a relationship of a fiduciary character;
(3) It is a relationship with respect to property; not one involving merely personal duties;
[412]*412(4) It involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of another; and
(5) It arises as a result of a manifestation of an intention to create the relationship.

A constructive trust, on the other hand, arises “where confidential relations exist but with persons and where some wrong has been done or fraudulent act committed which authorizes chancellor to declare a trust to prevent great injustice or fraud from being accomplished.” Koletich v. Rozman, 17 O.L.Abs. 26, 29 (Ct.App.1934).

The Defendant alleges that the money the Debtor withheld from its employees’ wages was held in constructive trust for the unions. (Tr. 17-18). “When property of an estate is alleged to be held in trust, the claimant has the burden of establishing the original trust relationship.” 4 L.King, Collier on Bankruptcy para. 541.13 (15th ed.1988). In the absence of fraudulent conduct or wrongdoing, of which there is no evidence here, there can be no finding of a constructive trust.

Whether an express trust exists between the parties requires a greater analysis. According to the Norris case, a trust is a fiduciary relationship with regard to property that imposes equitable duties upon the holder of the property. There must also be some manifestation of intention by the parties to create this relationship. Norris, 40 O.L.Abs. at 300, 57 N.E.2d 254. The relationship between the Debtor and the Teamsters Union fails to meet two of the necessary requirements of an express trust. First, this relationship was not one of a fiduciary character, and second, there is no evidence of intent to form such a relationship.

A fiduciary relationship exists when a special confidence is bestowed upon one “who in equity and good conscience is bound to act in good faith and with due regard to interests of one reposing the confidence.” Neagle v. McMullen, 334 Ill. 168, 165 N.E. 605, 608 (1929). A fiduciary relationship is entered into purposefully and with knowledge.

In the case cited by the Plaintiff, In re Columbia Packing Company, 35 B.R. 447 (Bankr.D.Mass.1983), the debtor in Chapter 11 bankruptcy sought authority to pay dues to the union accrued prepetition, claiming that it could trace the funds. As in the instant case, the checkoff provision of the union contracts did not require that a separate fund be created nor was one created by the parties.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
113 B.R. 410, 1990 Bankr. LEXIS 2158, 20 Bankr. Ct. Dec. (CRR) 676, Counsel Stack Legal Research, https://law.counselstack.com/opinion/luper-v-action-industries-inc-in-re-lee-way-holding-co-ohsb-1990.