Fifth Third Bank v. Wright-Patt Credit Union, Inc et al

UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
In re: 	M OTORWERKS , I NC.,
Debtor
Case No. 	05-32116
Adv. No. 	05-3201
FIFTH THIRD BANK,
Plaintiff
v.
WRIGHT -PATT CREDIT UNION , ET AL .,
Defendants
Judge L. S. Walter
Chapter 7
DECISION OF THE COURT GRANTING IN PART AND DENYING IN PART
DEFENDANT WRIGHT-PATT CREDIT UNION’S MOTION TO DISMISS
On May 11, 2005, Plaintiff Fifth Third Bank (“Fifth Third”) filed a complaint in this
adversary proceeding against several defendants including Defendant Wright-Patt Credit Union
(“WPCU”). [Adv. Doc. 1.] Fifth Third seeks to recover funds from WPCU that WPCU
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: September 14, 2005
____________________________________________________________
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withdrew and/or administratively froze from a WPCU deposit account of Debtor Motorwerks,
Inc. (“Debtor”) prior to the involuntary bankruptcy filing. Fifth Third alleges that WPCU
withdrew and/or froze the funds from the Debtor’s deposit account at WPCU in order to setoff
against an alleged debt that the Debtor owes to WPCU. Fifth Third asserts that it can recover the
funds (termed the “setoff funds”) from WPCU because the setoff funds were not owned by the
Debtor and, consequently, are not subject to setoff against a debt owed by the Debtor to WPCU.
Instead, Fifth Third argues that it owns the funds, that the funds were intended as loans to
Debtor’s customers, and that the Debtor held the funds in trust for the beneficiaries of the loans.
On June 15, 2005, WPCU filed a motion to dismiss Fifth Third Bank’s complaint
alleging that the complaint fails to state any claim upon which relief may be granted. [Adv. Doc.
34.] Specifically, WPCU asserts that Fifth Third Bank has failed to allege facts supporting its
assertion that the setoff funds were held in trust by the Debtor or that the setoff funds were held
in a designated trust account. Furthermore, WPCU asserts that Fifth Third Bank lacks standing
to challenge WPCU’s setoff rights or to assert a request for turnover of the funds on this basis.
The court has reviewed the relevant documents referenced above as well as Fifth Third
Bank’s responsive memoranda and WPCU’s reply. [Adv. Docs. 35 and 37.] The court is now
prepared to render its decision.
FACTUAL ALLEGATIONS FROM THE COMPLAINT
The following are factual allegations from Plaintiff Fifth Third Bank’s complaint that the
court construes as true for purposes of WPCU’s motion to dismiss:
On March 11, 2005, three creditors of Debtor Motorwerks, Inc. filed an involuntary
petition against the Debtor. [Adv. Doc. 1, ¶ 5.] On April 8, 2005, the court entered the Order for
Relief on Involuntary Petition and Requiring Filing of Schedules. [Id., ¶ 6.]
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Prior to the involuntary petition filing date, Fifth Third had a business relationship with
the Debtor memorialized in the Fifth Third Motor Vehicle Dealer Agreement, a copy of which is
attached to the Complaint. [Id., ¶ 19 and Ex. A.] 	The purpose of the agreement was to set up
procedures for the Debtor to offer its customers leasing and financing services through Fifth
Third for the purchase or lease of vehicles. [Id., Ex. A, Part I and II.] Pursuant to the
agreement’s terms, Debtor’s customers submitted consumer loan applications to Fifth Third
which would then make a determination as to whether to extend credit and offer a loan to the
Debtor’s customers for the purchase of a particular vehicle at a given price. [Id, ¶ 19 and Ex. A.]
The agreement contemplates that Fifth Third would provide loans directly to the Debtor’s
customers who would repay the loans directly back to Fifth Third. [Id., Ex. A, Part II (B) and
Part III (A)(1).]
Between the dates of January 18, 2005 and January 27, 2005, Fifth Third made four
consumer loans to Debtor’s customers. [Id., ¶ 21.] The loans totaled $164,569.45. [Id.] All
four loans were wire transferred by Fifth Third Bank into a bank account in the Debtor’s name at
WPCU. [Id., ¶¶ 20 and 21.] 	Documentation of each wire transfer, attached as exhibits to the
complaint, indicates exactly which customer was to receive the loaned funds. [Id., Exs. B-F.]
The specifics of each loan are as follows:
On January 18, 2005, Fifth Third loaned $46,119.80 to James Labor (also a defendant)
pursuant to a loan application signed on January 10, 2005. [Id., ¶ 21(a).] The funds were wire
transferred into Debtor’s account at WPCU. [Id.] The wire transfer documentation specifically
identified that it was for a loan in the name of James Labor and stated the specific loan number.
[Id.] Debtor should have forwarded the funds to Causeway Ford (also a defendant). [Id.] Fifth
Third attaches to the complaint copies of the wire transfer document, promissory note, the
purchase agreement with the Debtor, and the application for title. [Id. and Ex. B.]
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On January 25, 2005, Fifth Third loaned $40,272.75 to Maugueritte Rydlewski (also a
defendant) pursuant to a loan application signed on January 13, 2005. [Id., ¶ 21(b).] The funds
were wire transferred into Debtor’s account at WPCU. [Id.] The wire transfer specifically
identified that it was for a loan in the name of Maugueritte Rydlewski and stated the specific
loan number. [Id.] Debtor should have forwarded the funds to Freedom Motors (also a
defendant). [Id.] Fifth Third attaches to the complaint copies of the wire transfer document,
promissory note, the purchase agreement with the Debtor, and the application for title. [Id. and
Ex. C.]
On January 27, 2005, Fifth Third loaned $50,054.15 to Carmelle Hanson (also a
defendant) pursuant to a loan application signed on January 19, 2005. [Id., ¶ 21(c).] The funds
were wire transferred into Debtor’s account at WPCU. [Id.] The wire transfer documentation
specifically identified that it was for a loan in the name of Carmelle Hanson and stated the
specific loan number. [Id.] Debtor should have forwarded the funds to Rollx Vans (also a
defendant). [Id.] Fifth Third attaches to the complaint copies of the wire transfer document,
promissory note, the purchase agreement with the Debtor, and the application for title. [Id. and
Ex. D.]
On January 26, 2005, Fifth Third loaned $28,119.75 to Lindsey Hennessee (also a
defendant) pursuant to a loan application signed on January 20, 2005. [Id., ¶ 21(d).] The funds
were wire transferred into Debtor’s account at WPCU. [Id.] The wire transfer documentation
specifically identified that it was for a loan in the name of Carmelle Hanson and stated the
specific loan number. [Id.] Debtor should have forwarded the funds to AMS Vans (also a
defendant). [Id.] Fifth Third attaches to the complaint copies of the wire transfer document,
promissory note, the purchase agreement with the Debtor, and the application for title. [Id. and
Ex. E.]
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On February 9, 2005, Fifth Third sent a request to WPCU for the return of the wire
transfers. [Id., ¶ 22.] Fifth Third requested the return of the funds due to the Debtor’s failure to
make the payments to Defendants Rollx Vans, Freedom Motors, Causeway Ford and AMS Vans
which are the dealership/manufacturers of the vehicles purchased by the individuals who applied
for the loans. [Id.] 	WPCU refused to turnover the wire transferred funds to Fifth Third. [Id.]
Fifth Third believes that on or about January 27, 2005, WPCU placed an administrative
freeze on the Debtor’s account. [Id., ¶ 23.] Fifth Third further believes that this administrative
freeze caused the Debtor’s failure to forward the respective loan proceeds to the
dealer/manufacturers. [Id., ¶ 24.] Fifth Third asserts that the administrative freeze caused
damage to Fifth Third by the fact that the vehicle purchases and subsequent liens on the vehicle
titles in favor of Fifth Third were not completed. [Id.] Fifth Third asserts causes of action
against WPCU for turnover of the funds under trust theories as well as a claim to invalidate or
disallow WPCU’s setoff. [Adv. Doc. 1, ¶¶ 25-51.]
LEGAL ANALYSIS
A. 	Legal Standard
Defendant WPCU requests dismissal of Plaintiff Fifth Third’s complaint under Fed. R.
Civ. P. 12(b)(6), incorporated in bankruptcy adversary proceedings by Fed. R. Bankr. P. 7012.
WPCU argues that Fifth Third has failed to state any claim upon which relief can be granted.
To survive WPCU’s motion, Fifth Third’s complaint “must contain either direct or inferential
allegations respecting all the material elements to sustain a recovery under some viable legal
theory.” Varljen v. Cleveland Gear Co., Inc., 250 F.3d 426, 429 (6th Cir. 2001) (noting that for
a dismissal to be proper, “it must appear beyond a doubt that the plaintiff would not be able to
recover under any set of facts that could be presented consistent with the allegations of the
complaint”). See also In re Cadillac by DeLorean, 262 B.R. 711, 714 n.3 (Bankr. N.D. Ohio
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2001). 	In considering the bank’s motion to dismiss, the court “must consider true the well-
pleaded allegations of the complaint and construe them in the light most favorable to the
plaintiff.” Varljen, 250 F.3d at 429. However, the court “need not accept as true legal
conclusions or unwarranted factual inferences” in the complaint. Id.
B. 	Claims for Recovery under Trust Theories
Fifth Third Bank’s complaint alleges several claims for recovery of the funds
administratively frozen and/or setoff by WPCU under theories of an express, constructive and
resulting trust. Fifth Third Bank alleges that the setoff funds in the Debtor’s account with
WPCU were held in trust by the Debtor and its fiduciary duties toward the funds included
forwarding the funds to the appropriate dealership for the benefit of the consumers who applied
for loans. 	Fifth Third argues that because the Debtor was not the equitable owner of the funds
but only held them in trust, WPCU had no right to freeze the WPCU deposit account for
purposes of using the funds to setoff against the Debtor’s debt to WPCU. 	Instead, Fifth Third
alleges that the setoff funds are legally owned by Fifth Third. The court will address each of
Fifth Third’s trust theories separately to determine whether they state a claim sufficient to
withstand WPCU’s motion to dismiss.
1. 	Express Trust
In its motion to dismiss, WPCU takes issue with the sufficiency of Fifth Third’s claim
that the setoff funds were held in an express trust. Pursuant to Ohio law, the creation of an
express trust requires: 1) a manifestation of intent to create a trust; 2) the establishment of a trust
corpus; and 3) a fiduciary relationship between the trustee and the beneficiary. Indiana
Lumbermens Mutual Ins. Co., Inc. v. Construction Alternatives, Inc. (In re Construction
Alternatives, Inc.), 2 F.3d 670, 677 (6 th Cir. 1993) (citing Brown v. Concerned Citizens for
Sickle Cell Anemia, Inc., 382 N.E.2d 1155, 1158 (Ohio 1978)).
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As long as these elements are present, no other formalities are required to create an
express trust. In re Ward, 300 B.R. 692, 696-97 (Bankr. S.D. Ohio 2003); Dayton Title Agency,
Inc. v. White Family Companies (In re Dayton Title Agency, Inc.), 292 B.R. 857, 869 (Bankr.
S.D. Ohio 2003). For example, an express trust may be created when a person accepts
possession of funds for another with the express or implied understanding that he is not to hold it
as his own absolute property, but is to hold and apply it for specific purposes. Dayton Title, 292
B.R. at 869 (citing Norris v. Norris, 57 N.E.2d 254, 258-59 (Ohio Ct. App. 1943)). See also
Stevenson v. J.C. Bradford & Co. (In re Cannon), 277 F.3d 838, 850 (6th Cir. 2001) (noting that
under similar Tennessee law, a person who has accepted possession of personal property with the
express or implied understanding that he is not to hold it as his own property but is to hold and
apply it for the benefit of certain specific persons creates an enforceable express trust).
Taking the allegations in Fifth Third’s complaint as true, Fifth Third establishes that it
wire transferred consumer loans totaling $164,569.45 into the Debtor’s account at WPCU. [Adv.
Doc. 1, ¶ 21.] However, those funds were not loans to the Debtor itself but to four consumers
who had applied for the loans to purchase vehicles. [Id., ¶ 21(a)-(d).] This is substantiated by
Fifth Third’s documentation of each wire transfer indicating which specific customer is to
receive the loaned funds. [Id., Exs. B-F.] 	Following the deposits, the Debtor was to forward
the funds to the dealerships that were selling the vehicles to these consumers. [Id., ¶21(a)-(d).]
The agreement attached to Fifth Third’s complaint further demonstrates an understanding
between the Debtor and Fifth Third that the Debtor was not the owner nor intended beneficiary
of the loaned funds. Fifth Third and the Debtor entered into a Fifth Third Motor Vehicle Dealer
Agreement so that the Debtor could offer its customers leasing and financing services through
Fifth Third. [Doc. 1, Ex. A, Part I and II.] Although the agreement does not mention any trust
agreement between Fifth Third and the Debtor, it contemplates that Fifth Third’s loans would be
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made directly to the customers who repay the loans directly back to Fifth Third. [Id., Ex. A, Part
II (B) and Part III (A)(1).]
Fifth Third has provided no evidence that the account into which Fifth Third’s funds were
deposited was a trust or escrow account, but an express trust can be created without such
formalities. The court concludes that Fifth Third has stated a claim for the existence of an
express trust sufficient to overcome WPCU’s motion to dismiss.
2. 	Constructive Trust
WPCU further argues that Fifth Third has failed to state an alternative claim for
imposition of a constructive trust on the setoff funds. 	In Ohio, a constructive trust is defined as:
A trust by operation of law which arises contrary to intention and in invitum, against one
who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of
wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable
means, or who in any way against equity and good conscience, either has obtained or
holds the legal right to property which he ought not, in equity and good conscience, hold
and enjoy. It is raised by equity to satisfy the demands of justice.
Poss v. Morris (In re Morris), 260 F.3d 654, 667 (6 th Cir. 2001) (quoting Ferguson v. Owens,
459 N.E.2d 1293, 1295 (Ohio 1984)). 	Generally, a constructive trust is a remedy “used by
courts for the prevention of fraud, unjust enrichment or other inequitable conduct.” Id.
However, fraudulent conduct is not a prerequisite. A constructive trust may also be imposed,
“where it is against the principles of equity that the property be retained by a certain person even
though the property was acquired without fraud.” Id.
Although Fifth Third’s claim may appear to meet the prerequisites for a constructive trust
under Ohio law, the use of such a theory is severely limited within a bankruptcy case. The Sixth
Circuit has held that the distribution of assets within a bankruptcy case is based on the
identification of the debtor’s assets and liabilities “as of the commencement of the case.”
XL/Datacomp, Inc. v. Wilson (In re Omegas Group, Inc.), 16 F.3d 1443, 1449 (6th Cir. 1994).
Consequently, for a creditor to assert a constructive trust with regard to an asset, the constructive
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trust must have been impressed upon the asset, by operation of a court judgment or by operation
of statutory law, prior to commencement of the bankruptcy case. Id. 	If the creditor was not the
beneficiary of a constructive trust imposed pre-petition, the creditor has only a claim against the
estate and nothing more. Id.
In this case, Fifth Third cites no prior court judgment nor statutory law impressing a
constructive trust on the setoff funds prior to the Debtor’s bankruptcy filing. Consequently, the
holding of Omegas Group prevents this court from imposing a constructive trust post-petition.
Fifth Third correctly notes that the Omegas Group holding has been relaxed to a limited
extent. Following Omegas Group, the Sixth Circuit concluded that a constructive trust may be
imposed on property in a bankruptcy proceeding if the property would not otherwise be subject
to ratable distribution among creditors. McCafferty v. McCafferty (In re McCafferty), 96 F.3d
192, 196 (6th Cir. 1996). In McCafferty, the court concluded that a constructive trust should be
impressed upon a portion of a debtor’s STRS pension benefits that had been awarded to his
former spouse because the debtor’s STRS benefits would not have been subject to the reach of
creditors under Ohio statutory law even without the imposition of the constructive trust. Id. at
196-97 (citing Ohio Rev. Code § 3307.71 protecting STRS benefits from the reach of execution,
garnishment, attachment, the operation of bankruptcy or insolvency laws, or any other process of
law). For this reason, the bankruptcy court’s recognition of a constructive trust in that case
would not diminish the ratable distribution to other creditors of the debtor. Id. at 197.1
1 Another limited exception to the Omegas Group holding has been found when a state court action seeking the
imposition of a constructive trust had been initiated prepetition. See Poss v. Morris (In re Morris), 260 F.3d 654,
667 (6 th Cir. 2001). In such circumstances, a bankruptcy court may lift the automatic stay to allow the state court
litigation to continue and, later, may enforce a judgment imposing the constructive trust even though the state court
judgment was not entered until after the bankruptcy filing. Id. In this case, however, Fifth Third has alleged no
facts supporting that it initiated any state court proceeding for the imposition of a constructive trust prior to the
bankruptcy filing. Consequently, the court determines that this limited exception has no application to the case at
hand.
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Contrasting this case to McCafferty, Fifth Third has alleged no facts or basis in state law
supporting the conclusion that the setoff funds would remain outside the reach of creditors in
bankruptcy unless the court impresses a constructive trust upon the assets. Without a separate
legal basis keeping the funds out of the reach of the debtor’s creditors, the imposition of a
constructive trust in this case would diminish funds otherwise available to unsecured creditors.2
The McCafferty exception does not apply and the court is without the power to impose a
constructive trust post-petition.3
Fifth Third has failed to state a claim for imposition of a constructive trust on the setoff
funds. The court concludes that this claim must be dismissed.
3. 	Resulting Trust
Fifth Third’s complaint includes a third alternative claim based on a trust theory. Fifth
Third requests a determination that the setoff funds in the hands of WPCU be impressed with a
resulting trust in favor of Fifth Third. In Ohio:
A resulting trust arises where property is transferred under circumstances that raise an
inference that the transferor, or person who caused the transfer, did not intend the
transferee to take a beneficial interest in the property. . . . By employing its equitable
powers in creating a resulting trust, a court seeks to enforce the parties' intentions.
Belfance v. Bushey (In re Bushey), 210 B.R. 95, 104 (B.A.P. 6th Cir. 1997) (quoting Union Sav.
& Loan Ass’n v. McDonough, 655 N.E.2d 426, 428 (Ohio Ct. App. 1995)). See also First Nat’l
Bank of Cincinnati v. Tenney, 138 N.E.2d 15, 17 (Ohio 1956). Resulting trusts have been
imposed in three general situations: 1) where an express trust fails in whole or in part; 2) where
2 Of course, if Fifth Third is successful with respect to one of its other trust theories, the funds will remain outside
the hands of creditors. However, if successful on one of its alternative theories, Fifth Third’s claim for a
constructive trust is moot.
3 Fifth Third relies on First Federal of Michigan v. Barrow in which the Sixth Circuit described when it is
appropriate for a bankruptcy court to impose a constructive trust on funds commingled in a debtor’s general account.
878 F.2d 912 (6 th Cir. 1989). However, this case was decided prior to Omegas Group in which the Sixth Circuit
curtailed the ability of a bankruptcy court to impress a constructive trust on property unless the property was subject
to a statutory or court imposed constructive trust prior to the bankruptcy filing.
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an express trust is performed without exhausting the trust estate; and 3) purchase money trusts.
NPF IV, Inc. v. Transitional Health Servs., 922 F.Supp. 77, 84 (S.D. Ohio 1996).
A resulting trust is based on the intent of the parties when property is transferred or
acquired by one party under facts and circumstances that indicate that the beneficial interest is
not to be enjoyed by the holder of the legal title. Amedisys, Inc. v. JP Morgan Chase Manhattan
Bank (In re National Century Financial Enterprises, Inc.), 310 B.R. 580, 601 (Bankr. S.D. Ohio
2004). Consequently, unlike an express trust, that arises from the transferor’s manifestation of
an intention to create it, a resulting trust arises from “an intention that is legally attributed to a
transferor based on the nature of the transaction rather than from manifested intent.” In re Ward,
300 B.R. 692, 697 (Bankr. S.D. Ohio 2003) (quoting Restatement (Third) of Trusts § 7 cmt. a).
In addition, a resulting trust differs from a constructive trust in that a resulting trust “seeks to
carry out a donative intent rather than to thwart an unjust scheme.” National Century Financial
Enterprises, Inc., 310 B.R. at 600. Thus, it is the intent of the parties at the time of the transfer
that determines whether a resulting trust arises. Id. at 601.
Like constructive trusts, resulting trusts are disfavored in bankruptcy because they
represent a creditor’s attempt to exclude or allocate assets in a manner inconsistent with
bankruptcy principles leading to the diminishment of estate assets for other creditors. Ward, 300
B.R. at 699. However, unlike constructive trusts, the Sixth Circuit’s holding in Omegas Group
has not been extended to actually prevent a bankruptcy court from determining that a resulting
trust arises.
In this case, Fifth Third has alleged sufficient facts to withstand WPCU’s motion to
dismiss its resulting trust claim. Many of the same factual allegations supporting the existence of
an express trust also support the determination that neither the Debtor nor Fifth Third intended
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the Debtor to receive the beneficial enjoyment of the setoff funds.4 Instead, the complaint
allegations, if taken as true, support that the setoff funds were intended by Fifth Third and the
Debtor as loans to individual vehicle purchasers. [Doc. 1, ¶¶ 19-21; Exs. A-F.] The court
concludes that complaint’s allegations are sufficient to give rise to an inference of intent
necessary for a resulting trust.
C. 	Fifth Third’s Claim Challenging WPCU’s Setoff Rights
WPCU asserts that Fifth Third lacks standing to assert its final claim, a challenge to
WPCU’s right to use the deposited funds to initiate a setoff against the Debtor’s debt to WPCU.
The right of setoff, although created under state law, is preserved in bankruptcy to the extent
permitted by 11 U.S.C. § 553. This section states:
(a) Except as otherwise provided in this section and in sections 362 and 363 of
this title, this title does not affect any right of a creditor to offset a mutual debt
owing by such creditor to the debtor that arose before the commencement of the
case under this title against a claim of such creditor against the debtor that arose
before the commencement of the case, except to the extent that--
(1) the claim of such creditor against the debtor is disallowed;
(2) such claim was transferred, by an entity other than the debtor, to such
creditor-
(A) after the commencement of the case; or
(B) (i) after 90 days before the date of the filing of the petition; and
(ii) while the debtor was insolvent; or
(3) the debt owed to the debtor by such creditor was incurred by such
creditor--
(A) after 90 days before the date of the filing of the petition;
(B) while the debtor was insolvent; and
(C) for the purpose of obtaining a right of setoff against the debtor.
(b)(1) Except with respect to a setoff of a kind described in section 362(b)(6),
362(b)(7), 362(b)(14), 365(h), 546(h), or 365(i)(2) of this title, if a creditor offsets
a mutual debt owing to the debtor against a claim against the debtor on or within
90 days before the date of the filing of the petition, then the trustee may recover
4 WPCU argues that the mere lending of funds to a borrower does not create a trust relationship allowing for the
imposition of a resulting trust, but, instead, creates a debtor-creditor relationship between the borrower and lender.
However, taking the facts alleged in Fifth Third’s complaint as true, the Debtor is not the borrower in this case, but
is holding the funds for the vehicle purchasers who are the ultimate borrowers. Consequently, the Debtor may well
have fiduciary obligations with respect to the funds and WPCU’s argument is without merit.
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from such creditor the amount so offset to the extent that any insufficiency on the
date of such setoff is less than the insufficiency on the later of--
(A) 90 days before the date of the filing of the petition; and
(B) the first date during the 90 days immediately preceding the
date of the filing of the petition on which there is an insufficiency.
(2) In this subsection, "insufficiency" means amount, if any, by which a
claim against the debtor exceeds a mutual debt owing to the debtor by the
holder of such claim.
(c) For the purposes of this section, the debtor is presumed to have been insolvent
on and during the 90 days immediately preceding the date of the filing of the
petition.
11 U.S.C. § 553. 	This statute does not create a federal right of setoff, but, instead, preserves
setoff rights that otherwise exist under non-bankruptcy federal or state law. See Citizens Bank of
Maryland v. Strumpf, 516 U.S. 16, 18 (1995); In re Kleather, 208 B.R. 406, 413 (Bankr. S.D.
Ohio 1997).
WPCU argues that Fifth Third lacks standing to challenge WPCU’s setoff under § 553
because such a turnover action is a claim of the trustee on behalf of the estate. WPCU argues
that the clear language of § 553(b) permits only the trustee to recover under this provision. 11
U.S.C. § 553(b).
The court agrees with WPCU that, in most circumstances, it is the trustee as
representative of the estate who brings actions for avoidance and recovery on behalf of the estate.
11 U.S.C. §§ 542, 549 and 550. See also Society Bank, N.A. v. Sinder (In re Sinder), 102 B.R.
978, 982 (Bankr. S.D. Ohio 1989) (noting that courts have unwaveringly foreclosed attempts by
other parties to share or appropriate for themselves the statutory avoidance and turnover powers
of the trustee). In the same vein, a trustee is prohibited from asserting claims belonging to
individual creditors and not the bankruptcy estate. AgriBioTech Creditors’ Trust v. Thomas (In
re AgriBioTech, Inc.), 319 B.R. 216, 219-21 (D. Nev. 2004); Fisher, Hecht & Fisher v. D.H.
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Overmyer Telecasting Co., Inc. (In re D.H. Overmyer Telecasting Co., Inc.), 56 B.R. 657, 660-
61 (Bankr. N.D. Ohio 1986).
In this case, it will not be clear whether a challenge to the validity of WPCU’s setoff is a
claim of the estate properly brought by the trustee or an individual claim of Fifth Third until the
trial in this matter settles the property interests in the setoff funds. To the extent that the funds
are found to be subject to a valid trust in Fifth Third’s favor, Fifth Third may challenge WPCU’s
setoff in order to recover the trust funds in its own right. 	However, it cannot pursue any action
under § 553(b) because this action is reserved to a trustee by the clear language of the Code. 11
U.S.C. § 553(b). Instead, Fifth Third may challenge the underlying validity of the setoff under
applicable state law. See Federal Ins. Co. v. Fifth Third Bank, 867 F.2d 330, 335 (6th Cir. 1989)
(describing how Ohio law limits a bank’s ability to exercise a setoff against funds held in trust);
Kopp v. Bank One, N.A., 2003 WL 102609, at *3 (Ohio Ct. App. Jan. 10, 2003) (describing the
requirements of mutuality for a bank to setoff a bank account of a depositor against a debt of the
depositor including that the depositor must be the owner of the funds).
On the other hand, if the court concludes that the funds are not subject to a valid trust,
any action for turnover of the funds from WPCU, pursuant to a setoff challenge or other theory
of recovery, is properly brought by the trustee on behalf of the estate. 5
At this time, the court determines that Fifth Third has stated a claim, in its own right,
challenging WPCU’s setoff rights respecting the funds at issue. The claim withstands WPCU’s
motion to dismiss to the extent described within this decision.6
5 The Chapter 7 Trustee in this case has filed a cross-claim against Defendant WPCU challenging WPCU’s right of
setoff under § 553(a) and § 553(b) among other theories of recovery. [Doc. 30.]
6 As a final matter, WPCU challenges Fifth Third’s fifth cause of action for turnover. Specifically, WPCU argues
that Fifth Third has no standing to assert a turnover action for recovery of property of the estate under 11 U.S.C. §
542. While that may be true, WPCU misconstrues Fifth Third’s claim. Fifth Third is not attempting to recover
property of the estate under § 542, but is, instead, attempting to recover its own property to the extent it establishes
its property rights in the setoff funds under the other causes of action pleaded in the complaint. The court concludes
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CONCLUSION
WPCU’s motion to dismiss is granted, in part and denied in part. The court holds that
Fifth Third’s cause of action asserting a constructive trust fails to state a claim and is hereby
dismissed. Fifth Third has stated claims for an express and a resulting trust sufficient to
withstand the dismissal motion. With respect to Fifth Third’s claim challenging WPCU’s setoff
rights, the court concludes that Fifth Third has standing to pursue such a claim in its own right,
but may not pursue a claim specifically reserved to the trustee under 11 U.S.C. § 553(b).
SO ORDERED.
cc:
Fifth Third
110 N. Main Street Ste. 1520
Dayton, OH 45402
937-222-1090
Tina F Woods
110 North Main Street
Suite 1520
Dayton, OH 45402
(937) 222-1090
Email: notices@shsedayton.com
Wright Patt Credit Union
2455 Executive Park Blvd
Fairborn, OH 45324-6219
Matthew T Schaeffer
10 West Broad St
Suite 2100
Columbus, OH 43215
(614) 229-3289
Email: matthew.schaeffer@baileycavalieri.com
Timothy B McGranor
Bailey Cavalieri LLC
10 West Broad Street
that this fifth cause of action is not an independent claim, but is instead, only a request for relief pursuant to the
other claims pleaded in the complaint. It withstands WPCU’s motion to dismiss.
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Suite 2100
Columbus, OH 43215
(614) 221-3155
Fax : (614) 221-0479
Email: timothy.mcgranor@baileycavalieri.com
Motorwerks Inc.
6635 Centerville Business Pkwy.
Centerville, OH 45459
AMS Vans, Inc.
555 Oakbrook Pkwy. Ste. 555
Norcross, GA 30093
Freedom Motors USA, Inc.
923 E. Michigan Ave.
Battle Creek, MI 49014
Rollx Vans
6591 W. Highway 13
Savage, MN 55378
Causeway Ford & Mercury
Route 72, Box 547
Manahawkin, NJ 08050
James Labor
1221 Elwood Rd.
Hammonton, NJ 08037
Margueritte Rydlewski
94 Bybees Church Road
Palmyra, VA 22963
Lindsey Hennessee
1425 Kennerly Road
Lemo, SC 29063
Sandra Hennessee
1425 Kennerly Road
Lemo, SC 29063
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Carmelle Hanson
15358 Radium Street NW
Ramsey, MN 55303
Paul H Spaeth, Paul H. Spaeth, Trustee
12 W Monument Avenue
Suite 100
Dayton, OH 45402-1202
(937) 223-1655
United States Trustee
# # #
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