Snyder et al v. The Bank Of New York Co. Inc. et al

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re No. 02-46284 T to
02-46282 T
WESTERN ASBESTOS COMPANY, Chapter 11
et al.,
Debtors.
___________________________/
STEPHEN SNYDER, et al., A.P. No. 04-4372 AT
Plaintiffs,
vs.
THE BANK OF NEW YORK
COMPANY, INC., et al.,
Defendants.
___________________________/
MEMORANDUM OF DECISION
In the above-captioned adversary proceeding, Plaintiffs
Stephen Snyder, Sandra Hernandez, and John Luikart, trustees of
the Western Asbestos Settlement Trust (“Plaintiffs”), seek partial
summary judgment on the sixth claim for relief in the First
Amended Complaint (the “Complaint”). For the reasons stated
below, the motion is denied.
Signed: September 28, 2005
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
September 30, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 1 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
2
SUMMARY OF FACTS
The above-captioned chapter 11 cases were filed in November
2002. The Debtors were former distributors of asbestos-containing
products. As such, for many years, they had been sued by
individuals claiming illness as the result of exposure to those
products. The filing of the chapter 11 cases was prompted by the
Debtors’ settlement of coverage litigation with USF&G, an
insurance company. The settlement was negotiated with the
participation of counsel for certain asbestos claimants
(“Claimants’ Counsel”) and an unofficial futures representative
(the “Futures Representative”). It contemplated the confirmation
of a chapter 11 plan (the “Plan”) and issuance of an injunction
pursuant to 11 U.S.C. § 524(g) protecting USF&G from any further
liability. The bulk of the settlement payment of nearly a billion
dollars was to be paid into a trust (the “Trust”) to be
established upon confirmation of the Plan.
A settlement agreement (the “Settlement Agreement”) was
executed by the Debtors, USF&G, and the Claimants’ Counsel in June
2002, approximately five months before the chapter 11 case was
filed. Section 3.1 of the Settlement Agreement provides that
USF&G will pay a total of $975 million, plus interest, into an
escrow or trust to be established pursuant to 11 U.S.C. § 524(g).
It was agreed that USF&G’s liability would not exceed this amount
except with respect to reimbursable fees and costs as forth in
Section 3.2(a) of the Settlement Agreement.
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 2 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
1The phrase “Other Insurers” is defined as General Accident
Insurance Company of America, The Hartford Accident and
Indemnity Company and their related entities, The Home Insurance
Company, individually and as successor in interest to The Home
Indemnity Company, Argonaut Insurance Company, Continental
Casualty Company and related entities, among others.
3
Section 3.2(a) of the Settlement Agreement provides, in
pertinent part, as follows:
(a) In addition to the payments in Section
3.1, the USF&G Parties shall advance, in the
ordinary course as billed:
(i) All Debtors’ fees and
costs from and including May 17, 2002, as
incurred, in connection with the handling and
defense of asbestos-personal injury claims
brought against any of the Debtors, in
connection with the bankruptcy proceedings and
efforts to seek Plan Approval and the
negotiation of this Agreement and transactions
contemplated by it, including work in
connection with preparing the bankruptcy
filing documentation and the bankruptcy cases
and any escrows described herein or escrows or
trusts created in connection with the
bankruptcy cases (except for the 524(g) Trust
after Plan Approval) [emphasis added].
Section 3.2(c) provides, in pertinent part:
(c) All amounts advanced...under Section
3.2(a)(i) through (iii)...shall be reimbursed
to the USF&G Parties by the 524(g) Trust, with
interest at the 30-day T bill rate accrued
from the date of payment by the USF&G Parties,
within fifteen (15) days following the 524(g)
Trust’s recovery from any of the Other
Insurers1 of any amounts, whether by judgment,
settlement or otherwise, but in no event shall
such fees exceed the amounts recovered by the
Trust [emphasis added].
In order to effectuate the Settlement Agreement, in June 2002,
the Debtors, USF&G, and the Claimants’ Counsel entered into two
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 3 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
4
escrow agreements (the “Escrow Agreements”) with the BNY Western
Trust Company (the “Bank”), one in June 2002, about the time the
Settlement Agreement was executed, and the other in mid-January
2003, shortly after the chapter 11 cases were filed. The Escrow
Agreements were identical in form. On the first page, they recite
that the Debtors, USF&G, and the Claimants’ Counsel (referred to
therein collectively as the “Parties”) have entered into a
Settlement Agreement to resolve insurance coverage litigation,
that the Debtors have agreed to petition for chapter 11
reorganization so as to create a trust for payment of asbestos
claims, and that the Settlement Agreement provides that the
settlement funds will be placed in various escrow accounts pending
their distribution in accordance with the Settlement Agreement.
They provide that the purpose of the Escrow Agreements is to
arrange for the escrow accounts and to appoint the Bank as the
escrow agent.
Section 1 of the Escrow Agreements states that the Escrow
Agreements are being executed and delivered pursuant to Section 3
of the Settlement Agreement, that their provisions should not be
construed to enlarge or diminish the rights of the parties under
the Settlement Agreement, and that capitalized terms used in the
Escrow Agreements and not otherwise defined therein would have the
meanings given them in the Settlement Agreement.
Section 2 of the Escrow Agreements is entitled “Appointment
and Compensation of Escrow Agent.” It provides as follows:
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 4 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
5
The Escrow Agent is hereby appointed by the
Parties to act as the escrow agent to
administer the Escrow Accounts (as defined
below) in accordance with the terms hereof,
and the Escrow Agent hereby accepts such
appointment. The Escrow Agent shall have all
the rights, powers, duties and obligations
provided herein. The USF&G Parties shall be
responsible for payment of the Escrow Agent’s
fees, as determined in accordance with the fee
letter attached hereto as Exhibit A, and for
reimbursement of the reasonable costs and
expenses suffered or incurred by the Escrow
Agent in connection with the performance of
its duties and obligations hereunder. The
Parties agree and acknowledge that such fees
and costs will be paid by the USF&G pursuant
to Section 3.2(a)(i) of the Settlement
Agreement [emphasis added].
The fee letter (the “Fee Schedule”) attached as Exhibit A was
drafted by the Bank. It provides for various fees, including
Investment Charges. Although the heading refers to an Investment
Charge of $35 on a per transaction basis, below the heading the
following language is set forth:
An investment charge of (35 Basis Points) will
be assessed on the average monthly balance by
the Trustee for government money market
(sweep) investments in lieu of the $35.00
investment charge on a per transaction basis.
The Trustee may also receive a service fee
from the money market fund for administrative
services that would otherwise be performed by
the fund administrator.
Section 3 of the Escrow Agreements gives the Bank instructions
concerning the establishment of the Escrow Accounts, the deposit
of the funds being contributed by USF&G, and the Bank’s duty to
invest them. Section 4 gives the Bank instructions concerning how
funds from the Escrow Accounts may be disbursed. Before funds can
be disbursed, it states, the Bank must receive a written request
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 5 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
2The Complaint alleges otherwise.
6
from the designated party or parties or a final court order of a
court of competent jurisdiction.
Section 7 is entitled “Limitations on Liability of the Escrow
Agent. Section 7(a) provides, in pertinent part, that: “[t]he
Escrow Agent shall not be liable for any action taken or omitted
by it in connection with the performance of its duties and
obligations hereunder, except for its own gross negligence or
willful misconduct.” Section 7(f) provides that “[t]he Escrow
Agent shall be responsible only for the performance of its duties
as specified in...[the] Escrow Agreement.” Section 9(b) requires
the Escrow Agent to keep accurate and detailed records of all
investments, receipts, and disbursements and to deliver to the
Parties, within 10 days following the close of the month, a
written account of its administration of the Escrow Accounts
during the preceding month. Section 19 of the Escrow
Agreements, entitled “Integration” provides that:
This Escrow Agreement and the Settlement
Agreement constitute the entire agreement and
understanding of the Parties and the Escrow
Agent with respect to the subject matter of
this Escrow Agreement and supersede all prior
agreements and understandings with respect
thereto.
The Bank contends that it was not provided with a copy of
the Settlement Agreement when the Escrow Agreements were executed
and did not see a copy until the disputes concerning the
Investment Charges arose.2 The settlement funds were deposited and
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 6 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
7
invested as required by the Escrow Agreements in the Wells Fargo’s
Treasury Plus Institutional Money Market Fund (the “Wells Fargo
Fund”). The Bank immediately began “assessing” monthly Investment
Charges in accordance with the Fee Schedule. However, rather than
sending a bill to USF&G for the charges so that USF&G could pay
them, the Bank withdrew the amounts in question from the Escrow
Accounts. The withdrawals were reflected on the statements of
account activity issued during the following month as “Wells Fargo
Trsry M Market #... Investment Sweep Fee Collected.” Copies of these
statements were sent to USF&G, the Debtors, and the Claimants’ Counsel.
The withdrawals amounted to approximately $200,000 per month.
None of the parties who received the statements contacted the Bank
to complain about the withdrawals until after the Plan was confirmed in
January 2004. By that time, the Bank had withdrawn over $4 million in
Investment Charges from the Escrow Accounts. In or about March of 2004,
counsel for the Futures Representative took note of the withdrawals and
challenged them as unreasonable in amount. No complaint was made at that
time about the fact that funds were withdrawn from the Escrow Accounts to
pay the Investment Charges rather than USF&G being billed for them.
However, during the course of the litigation, Plaintiffs, the trustees of
the Trust, raised this issue, asserting that the withdrawals constituted
a breach of contract.
After some months of negotiation, the Bank paid into the Escrow
Accounts an amount equal to the funds withdrawn plus an amount that it
calculated those funds would have “earned” if left in the Escrow
Accounts. The “earnings” amounted to an approximate amount of $21,000.
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 7 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
8
The Plaintiffs contend that the withdrawals constituted a breach of
contract and that, as a result, they are entitled to pre-judgment
interest on the amounts withdrawn, not simply “earnings.” The difference
between these two amounts is approximately $700,000.
DISCUSSION
The Complaint asserts eight causes of action. The Plaintiffs
seek partial summary judgment on the Sixth Cause of Action: i.e.,
for Breach of Fiduciary Duty - Escrow Agent’s Failure to Follow
Escrow Instructions. It is essentially a claim for breach of the
Escrow Agreements. It alleges that the Escrow Agreements required
the Bank to bill USF&G for the Investment Charges and that the
Bank breached the Escrow Agreements by instead withdrawing funds
from the Escrow Accounts to pay the Investment Charges.
The Sixth Cause of Action seeks damages in excess of $4
million. However, at present, because the Bank had repaid the
principal of the withdrawals plus the “earnings,” it is undisputed
that the Plaintiffs seek damages on this claim only in the amount
representing the difference between pre-judgment interest at the
legal rate on the amounts withdrawn until they were repaid and the
amount calculated by the Bank as the “earnings.” The amount of
the difference is calculated to be $701,875.96.
The Bank asserts six arguments in opposition to the
Plaintiffs’ motion. First, the Bank contends it was not a party
to the Escrow Agreements. Second, it asserts that the Settlement
Agreement was not part of the Escrow Agreement. Third, it argues
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 8 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
3According to the Plaintiffs’ reply brief, the Bank has
challenged its standing to assert these claims. The Bank did
not include this argument in its opposition brief. Therefore,
the Court will not discuss it.
4This argument was not included in the Bank’s opposition
brief. However, it was advanced in oral argument at the hearing
on the Plaintiffs’ motion. Therefore, the Court will address
it.
9
that the Escrow Agreements did not prohibit the Bank from
withdrawing the Investment Charges from the Escrow Accounts.
Fourth, the Bank contends that it is protected from liability for
the breach Section 7 of the Escrow Agreements. Fifth, it asserts
that the claim has been waived and, sixth, that the Trust should
be estopped from asserting the claim. The Court addresses each of
these arguments below.3
1. Was the Bank a Party to the Escrow Agreements?
The Bank contends that it may not be held liable for breach
of the Escrow Agreements because it was not a party to these
agreements.4 It bases this contention on the fact that the
preamble to the agreement identifies USF&G, the Debtors, and the
Claimants’ Counsel as the Parties and does not include the Bank
within that definition. This argument has no merit. The preamble
to the Escrow Agreements states, in pertinent part, that: “This
ESCROW AGREEMENT is made...by and among...collectively...the
“Parties” and BNY Western Trust Company”: i.e., the Bank.
Moreover, the Bank signed the Escrow Agreements. Regardless of
whether the Escrow Agreements referred to the Bank as a party, the
Bank is clearly bound by the terms of those agreements.
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 9 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
5Declarations are provided in support of this factual
contention. The Complaint alleges otherwise. However, no
evidence has been provided by the Plaintiffs that a copy of the
Settlement Agreement was provided to the Bank at any time before
the dispute arose.
10
2. Was the Settlement Agreement Incorporated into the Escrow
Agreements?
The Bank’s next argument is that, even if it was a party to
the Escrow Agreements, it was not a party to the Settlement
Agreement and thus is not bound by its terms. The Bank notes that
it did not sign the Settlement Agreement and that the Settlement
Agreement was executed before it was approached to act as escrow
agent. As noted above, the Bank claims that it did not even see
a copy of the Settlement Agreement until after the dispute arose
concerning the amount of the Investment Charges.5
This argument also has no merit. Clearly, the Bank was not
bound by any of the terms of the Settlement Agreement before it
executed the Escrow Agreements. However, by signing the Escrow
Agreements, the Bank agreed to be bound by any provisions in the
Settlement Agreement relevant to its obligations under the Escrow
Agreements. Section 19 of the Escrow Agreements expressly
incorporated the Settlement Agreement into the Escrow Agreement.
Moreover, the Escrow Agreements contain numerous references
to the Settlement Agreement. Assuming the Bank read the Escrow
Agreements, it could not reasonably have concluded that its duties
were not prescribed, at least in part, by the terms of the
Settlement Agreement. As noted above, the recitals in the Escrow
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 10 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
11
Agreement make it clear that the purpose of the Escrow Agreements
is to facilitate the performance of the Settlement Agreement.
Section 1 of the Escrow Agreements states that the Escrow
Agreements are being executed and delivered pursuant to Section 3
of the Settlement Agreement and that capitalized terms used in the
Escrow Agreements and not otherwise defined therein have the
meanings given them in the Settlement Agreement. Most important,
Section 2 of the Escrow Agreements provides that the Escrow
Agent’s fees and costs will be paid by USF&G pursuant to Section
3.2(a)(i) of the Settlement Agreement.
3. Do the Escrow Agreements Permit the Bank To Deduct the
Investment Charges Fees from the Funds in the Escrow
Accounts?
The heart of the Bank’s opposition is that the Escrow
Agreements do not require the Bank to bill USF&G for the
Investment Charges. Thus, according to the Bank, it did not
breach the Escrow Agreements for them to do so. The Bank notes
that the Escrow Agreements merely state that USF&G will be
“responsible” for the Bank’s fees. It does not state how the
Investment Charges would be paid. The Bank notes that the Fee
Schedule attached to the Escrow Agreements stated that the
Investment Charges would be “assessed.” It contends that the word
“assessed” could reasonably be interpreted to permit the
Investment Charges to be withdrawn by the Bank from the funds in
the Escrow Accounts. In support of this contention, they provide
a copy of a dictionary definition of the word “assess” which
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 11 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
12
includes the definition “to determine the amount of and
impose...according to an established rate or apportionment....”
The Court is not persuaded by this argument. At best, the
meaning of the word “assess” is ambiguous. It is not clear that
the dictionary definition quoted by the Bank means by the word
“impose” cause to be paid. The Bank drafted this language. Thus,
any ambiguity must be construed against its interest. More
important, the meaning of “assess” advanced by the Bank is
inconsistent with the remaining language of the sentence. The
sentence states that the Investment Charges will be “assessed on
an average monthly balance[.]” An average monthly balance is not
a pot of money from which the Investment Charges may be withdrawn.
It is an abstract concept permitting the determination of the
amount of the Investment Charges. A common meaning of “assess” is
to determine the amount. That is the only reasonable construction
of the word in this context.
The Bank concedes that Section 2 of the Escrow Agreements
provides that the Escrow Agent’s fees will be paid by USF&G
pursuant to Section 3.2(a)(i) of the Settlement Agreement and that
Section 3.2 states that USF&G “shall advance, in the ordinary
course as billed” certain of the Debtors’ fees and costs.
However, it contends that the fees and costs described in Section
3.2(a)(i) do not include the Investment Charges. As noted above,
Section 3.2(a)(i) describes those fees and costs as:
All Debtors’ fees and costs from and including
May 17, 2002, as incurred, in connection with
the handling and defense of asbestos-personal
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 12 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
13
injury claims brought against any of the
Debtors, in connection with the bankruptcy
proceedings and efforts to seek Plan Approval
and the negotiation of this Agreement and
transactions contemplated by it, including
work in connection with preparing the
bankruptcy filing documentation and the
bankruptcy cases and any escrows described
herein or escrows or trusts created in
connection with the bankruptcy cases (except
for the 524(g) Trust after Plan Approval).
The Bank reads the relevant portion of this provision as the
“Debtors’ fees and costs...in connection with preparing...any
escrows described herein....” The Investment Charges were not for
preparing the escrows. Thus, according to the Bank, they were not
governed by Section 3.2(a)(i).
However, the relevant portion of Section 3.2(a)(i) can also
be read as the “Debtors’ fees and costs...in connection with...any
escrows described herein....” The Court concludes that the latter
reading is the only one that makes sense in the context of the
Settlement Agreement as a whole. The Settlement Agreement makes
it clear that USF&G agreed to bear the cost of the chapter 11
cases and any related transactions, including the ongoing expenses
of the Escrow Accounts, pending confirmation of a plan. USF&G
agreed that it would only be entitled to be reimbursed for these
advances if the Debtors (or the Trust) were successful in
recovering any additional amounts from other insurers. No such
recoveries were obtained until after the Plan was confirmed in
early 2004. The Investment Charges began accruing and the Bank
began deducting them in or before September 2003. Thus, for over
a year while the Bank was deducting the Investment Charges, USF&G
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 13 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
14
was the only party responsible for them and was not entitled to be
reimbursed.
Moreover, even if Section 3.2(a)(i) is read in the manner
argued for by the Bank, the Court would still conclude that the
Bank’s withdrawal of the Investment Charges breached the Escrow
Agreements. Section 2 of the Escrow Agreements stated that the
Escrow Agent’s fees would be paid as set forth in Section
3.2(a)(i). The Fee Schedule described the components of the
Escrow Agent’s fees which included the Investment Charges.
Section 3.2(a)(i) of the Settlement Agreement dictated how those
fees would be paid.
4. Is the Bank Protected From Liability By Section 7 of the
Escrow Agreements?
As set forth above, Section 7 of the Escrow Agreements
limited the Bank’s liability to acts or omissions committed
through gross negligence or willful misconduct. Based on this
provision, in its opposition brief, the Bank contended that, even
if did breach the Escrow Agreements, it may not be held liable for
any damages. The Plaintiffs did not respond to this argument in
their reply brief. The Bank did not make this argument at the
hearing on the motion. Nevertheless, the Court will address it.
This argument appears to assume that the Sixth Cause of
Action asserts a tort claim. In fact, as the Plaintiffs note and
the allegations of the Complaint make clear, it asserts a breach
of contract claim. As noted above, Section 7(f) of the Escrow
Agreement provides that “[t]he Escrow Agent shall be responsible
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 14 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
15
only for the performance of its duties as specified in...[the]
Escrow Agreement.” Thus, Section 7's limitation of the Bank’s
liability does not protect the Bank from liability for a breach of
contract claim.
5. Has the Claim Been Waived?
The Bank contends that the breach of contract claim has been
waived. It acknowledges that waiver requires the “voluntary
relinquishment, expressly or impliedly, of a known right.” See
Morgan v. Int’l Aviation Underwriters, Inc., 240 Cal. App. 2d 176,
180 (1967). It concedes that neither the other parties to Escrow
Agreements nor the Plaintiffs have expressly waived their right to
require the Bank to bill USF&G for the Investment Charges rather
than deducting them from the Escrow Accounts. Rather, it contends
that they have impliedly waiver this right by continuing to accept
the Bank’s performance notwithstanding their receipt of the
monthly statements disclosing the Bank’s withdrawal of the
Investment Charges from the Escrow Accounts. The Bank contends
that, if the Court is unable to conclude that there has been an
implied waiver based on the undisputed facts presented here, at a
minimum, the issue presents a material factual dispute so that
summary judgment should be denied on the Sixth Cause of Action.
The Court concludes that the evidence presented is
insufficient to establish a waiver on the part of the Bank as a
matter of law. There is no evidence that any of the parties to
the Escrow Agreement (other than the Bank) of the Plaintiffs knew
that the Bank was withdrawing the Investment Charges from the
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 15 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
6The references in the statements themselves did not
telegraph their nature: i.e., “Wells Fargo Trsry M Market #...
Investment Sweep Fee Collected.”
16
Escrow Accounts. The only evidence is that they received monthly
statements containing a reference to the withdrawals, among other
things, that did not even include the term “Investment Charge.”6
Because the Escrow Agreements required the Bank to bill
USF&G, there was no reason for USF&G to scrutinize the monthly
statements to determine whether any inappropriate withdrawals had
been made. Until recoveries were obtained by the bankruptcy
estate from other insurers, there was no reason for the other
parties to anticipate any request for reimbursement from USF&G.
Given the strict limitations on the circumstances under which the
Bank could make any disbursements from the Escrow Accounts, there
was no reason for the other parties to the Escrow Agreements to
anticipate any dissipation of the funds in the Escrow Accounts.
If the Bank were able to establish through discovery that
the other parties to the litigation actually knew about the Bank’s
withdrawals of the Investment Charges during the preceding year,
the Court might conclude that there had been an implied waiver.
Otherwise, it would find in favor of the Plaintiffs on this issue.
However, it appears to be undisputed that the Plaintiffs did not
assert the Sixth Cause of Action until somewhat later in the
litigation. Therefore, the Bank may not have had an adequate
opportunity to conduct discovery on this issue. For this reason,
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 16 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
17
the Court will not summarily adjudicate the availability of this
defense.
6. Are the Plaintiffs Estopped From Asserting the Breach of
Contract Claim?
The Bank’s final argument is that the Plaintiffs, as the
successors to the other parties to the Escrow Agreements, are
estopped from asserting the Sixth Cause of Action. The Bank notes
that, to establish an estoppel defense, ordinarily, four things
must be established: (1) the party to be estopped knew the facts;
(2) the party to be estopped intended that its conduct be acted
upon (or acted in such a manner that the party asserting the
estoppel reasonably believed that it did); (3) the party asserting
the estoppel was ignorant of the true state of the facts; and (4)
the party asserting the estoppel relied on the other party’s
conduct to its injury. See Lemat Corp. V. American Basketball
Assn’n, 51 Cal. App. 3d 267, 275 (1975); Morgan v. Int’l Aviation
Underwriters, Inc., 250 Cal. App. 2d 176, 180 (1967).
The Bank contends that a reasonable trier of fact could find
that the other parties to the Escrow Agreements knew that: (1) the
Bank was deducting the Investment Charges from the Escrow
Accounts, (2) the Bank reasonably believed that their failure to
object to the fact that the Investment Charges were being deducted
meant that they had no objection to this procedure, (3) the Bank
had no way to anticipate that the successor in interest to the
other parties to the Escrow Agreements would construe the Escrow
Agreements as prohibiting the deduction of the Investment Charges
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 17 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
7In Lemat Corp., the American Basketball Association was
held to be estopped from denying liability under an indemnity
agreement reflected by a resolution which it believed had been
validly adopted by its board but which had not received the
required number of votes after the other party to the agreement
had relied on the agreement to its detriment.
18
from the Escrow Accounts, and (4) the Bank relied on the silence
of the other parties to the Escrow Agreements by continuing to
perform as Escrow Agent. Therefore, it contends, summary judgment
on the Sixth Cause of Action is inappropriate.
The difficulty with this argument is the same as with the
waiver defense. There is no evidence that the other parties to
the Escrow Agreements knew that the Bank was deducting the
Investment Charges from the Escrow Accounts. As the Court
observed above, there is no evidence that the other parties to the
Escrow Agreements actually knew that the Bank was deducting the
Investment Charges from the Escrow Accounts. All the evidence
establishes is that monthly statements were sent to the other
parties with a line item containing no reference to Investment
Charges. The Bank notes that California cases have not always
required all elements of an estoppel to be established. See Lemat
Corp. v. American Basketball Ass’n, 51 Cal. App. 3d. 267, 276
(1975).7
As with the waiver defense, based on the evidence presented
to date, the Court is unable to find that the Plaintiffs are
estopped from asserting the Sixth Cause of Action as a matter of
law and, if no further evidence is presented, would find in favor
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 18 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
19
of the Plaintiffs. However, the Bank may need additional time to
conduct discovery on this issue. Therefore, the Court will defer
summarily adjudicating the issue at this time.
CONCLUSION
The Court will summarily adjudicate the following issues:
1. The Bank is a party to the Escrow Agreements.
2. The Settlement Agreement was incorporated into the Escrow
Agreements and the Bank is therefore bound by its terms.
3. The Escrow Agreements required the Bank to bill USF&G for
the Investment Charges and did not permit the Bank to withdraw the
Investment Charges from the Escrow Accounts.
4. Section 7 of the Escrow Agreements does not protect the
Bank from liability on the Sixth Cause of Action.
The Court will not summarily adjudicate at this time:
1. Whether the Plaintiffs (or their predecessors in
interest) waived their right to assert that the Bank’s withdrawal
of the Investment Charges from the Escrow Accounts breached the
Escrow Agreements.
2. Whether the Plaintiffs are estopped from asserting that
the Bank’s withdrawal of the Investment Charges from the Escrow
Accounts breached the Escrow Agreements.
Counsel for the Plaintiffs is directed to submit a proposed
form of order in accordance with this decision.
END OF DOCUMENT
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 19 of
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
20
COURT SERVICE LIST
Matthew J. Shier
Pinnacle Law Group LLP
425 California St., Ste. 1800
San Francisco, CA 94104
Jack R. Nelson
Reed Smith LLP
1999 Harrison St., Ste. 2400
Oakland, CA 94612-3572
Case: 04-04372 Doc# 37 Filed: 09/28/05 Entered: 09/30/05 10:26:48 Page 20 of
20