Mid Ohio Petroleum Company et al v. Travelers Express Company, Inc.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re
MID OHIO PETROLEUM
COMPANY
Debtor-in-Possession
LEONARD Z. EPPEL OF
FINANCIAL RESOURCE
ASSOCIATES, INC., AS ESTATE
REPRESENTATIVE OF MID OHIO
PETROLEUM COMPANY
Plaintiff
vs.
TRAVELERS EXPRESS COMPANY,
INC.
Defendant
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Case No. 02-16768
Chapter 11
Judge Hopkins
Adversary Case No. 04-1255
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: February 28, 2007
____________________________________________________________
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Case No. 02-16768
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1 Travelers limited its argument to the Self-Use Money Orders because it believes that Eppel has conceded
that the debits on account of the Third-Party Money Orders are not subject to avoidance and recovery. See Doc. 39
at 5-6. To the contrary, Eppel contends that he never made such a concession. See Doc. 43 at 5, note 6. Because
the issue has not been fully briefed by the parties, nor addressed at all in oral argument, the Court will limit its
analysis of the Motion to the Self-Use Money Orders.
2 Although the quoted statutory language differs between § 547(b) and § 549(a), the ultimate inquiry is the
same. Compare Begier v. Internal Revenue Service, 496 U.S. 53, 58 (1990) (To prevail under § 547(b), the movant
must prove that the property transferred would have been property of the estate had it not been transferred prior to
the filing of the bankruptcy petition.), with Devan v. Phoenix American Life Ins. Co. (In re Merry-Go-Round Enters.
Inc.), 400 F.3d 219, 224 (4th Cir. 2005) (Under § 549(a), the movant must prove that the property transferred was
property of the estate.).
2
MEMORANDUM OF DECISION ON ORDER PARTIALLY
GRANTING MOTION FOR SUMMARY JUDGMENT
I NTRODUCTION
This is an action to recover alleged preferential and postpetition transfers pursuant to 11
U.S.C. § 547(b) and § 549(a). The Defendant, Travelers Express Company, Inc. ("Travelers"), is
in the business of selling money orders to the public through third party retailers. The Debtor, Mid
Ohio Petroleum Company ("Mid Ohio"), was in the business of operating convenience stores in
Ohio and Kentucky. Travelers contracted with Mid Ohio to sell Travelers' money orders at Mid
Ohio stores. Subsequent to the issuance of Travelers' money orders by Mid Ohio, Travelers debited
Mid Ohio's general operating account for the face value of the money orders. The Plaintiff, estate
representative Leonard Z. Eppel ("Eppel"), seeks to recover all of the debits made by Travelers
during the preference and postpetition periods. The money orders corresponding to these debits fall
into two groups: (1) those issued to Mid Ohio customers ("Third-Party Money Orders"); and (2)
those issued to Mid Ohio for its own use ("Self-Use Money Orders").
PROCEDURAL POSTURE
Presently before the Court is a summary judgment motion ("Motion") (Doc. 38) filed by
Travelers. By its Motion, Travelers seeks a determination that the debits on account of the Self-Use
Money Orders (the "Debited Funds") cannot be avoided by Eppel.1
I SSUES PRESENTED
Travelers contends that the Debited Funds are not avoidable because they do not constitute
an "interest of the debtor in property" under § 547(b) or "property of the estate" under § 549(a).2
Travelers predicates its position on two arguments: (1) Mid Ohio was a mere disbursing agent that
did not exercise dominion and control over the Debited Funds; or (2) the Debited Funds were subject
to express and/or statutory trusts.
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3
Consequently, the issues presented are whether: (1) Mid Ohio possessed dominion and
control over the Debited Funds; (2) the Debited Funds are exempt from recovery because of an
express trust in favor of Travelers; or (3) the Debited Funds were subject to a statutory trust in favor
of Travelers.
SUMMARY OF HOLDING
For the reasons set forth below, the Court holds as follows: (1) Mid Ohio possessed
dominion and control over the Debited Funds; (2) the Debited Funds are not exempt from recovery
because of an express trust in favor of Travelers; and (3) the Debited Funds were subject to a limited
statutory trust in favor of Travelers and as such did not constitute property of the estate.
ANALYSIS
I. Dominion and Control
Travelers contends that this proceeding is analogous to Lyon v. Contech Constr. Prods., Inc.,
(In re Computrex, Inc.), 403 F.3d 807 (6th Cir. 2005). In Computrex, the Sixth Circuit affirmed the
dismissal of a preference action because the debtor did not possess dominion and control over the
funds that it transferred. The defendant ("Contech") hired the debtor ("Computrex") to process and
pay the freight charges for the shipment of Contech's finished goods. Computrex processed the bills,
invoiced Contech for the same, received payment from Contech, and used the funds from Contech
to pay the bills. Following the commencement of an involuntary chapter 7 case, the trustee sued
Contech to recover the value of the transfers made for the benefit of Contech during the preference
period. The Sixth Circuit held that Computrex did not possess an interest in the funds because it was
a mere disbursing agent that did not exercise dominion and control over the funds.
Computrex is distinguishable from this proceeding because it "involve[d] the transfer of
money between three parties." See Id. at 811. Contech forwarded funds to Computrex. Computrex
then forwarded the funds to Contech's creditors. 	In the instant proceeding, Travelers never
forwarded funds to Mid Ohio. Instead, by issuing the Self-Use Money Orders, Mid Ohio induced
Travelers to forward funds to the payees of the Self-Use Money Orders.
This distinction is very important. 	The question before the Court is whether Mid Ohio
possessed dominion and control over the Debited Funds. Travelers contends that Mid Ohio never
possessed dominion and control over the Debited Funds because they belonged to Travelers and Mid
Ohio was a mere disbursing agent. However, the Debited Funds did not belong to Travelers because
Travelers' funds, being the only funds in which Travelers claims an interest, were sent to the payees
of the Self-Use Money Orders ("Travelers' Funds"). Because Travelers' Funds were never sent to
Mid Ohio, the Court concludes that Mid Ohio possessed dominion and control over the Debited
Funds.
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3 In Begier v. Internal Revenue Service, 496 U.S. 53 (1990), the Supreme Court of the United States
employed a presumption to trace commingled funds to a statutory trust. Specifically, the Court reasoned that
voluntary payments from the commingled funds were presumed to have been made from the statutory trust res. Id.
at 65-67. At oral argument, Travelers expressed its belief that Begier, although a statutory trust case, is equally
applicable to express trusts. Travelers has not cited any authority for this proposition. As to the tracing issue, this
Court is aware of at least one circuit that holds to the contrary. See In re MJK Clearing, Inc., 371 F.3d 397, 402 (8th
Cir. 2004) (concluding that Begier's tracing presumption does not apply to common law trusts because, unlike
statutory trusts, common law trusts create a trust of specific property as opposed to an "amount" of money).
4 Eppel argues that Ohio law does not govern the statutory trust issue because the contract between
Travelers and Mid Ohio provides that it is governed by Minnesota law. The Court disagrees. Choice of law
provisions in a contract govern only the contractual rights of the parties. See Rayle Tech, Inc. v. Dekalb Swine
Breeders, Inc., 133 F.3d 1405, 1409 (11th Cir. 1998) ("choice of law provision simply allows the contracting parties
to choose the law of the state to govern their contractual rights and duties"); see also The Promotion Co., Inc. v.
Sweeney, 150 Ohio App.3d 471, 477 (Ohio Ct. App. 2002) ("Indiana law was contractually designated as the law to
be applied when interpreting the contract in this case. Nonetheless . . . whether or not an Ohio corporation existed
would be a matter of Ohio law rather than Indiana law.").
4
This holding is further supported by the Sixth Circuit's reasoning in Computrex. The court
analogized the facts in Computrex to a bailment. Id. at 812 ("The Debtor here is in essentially the
same position as a bailee: Contech (the bailor) directed the Debtor (the bailee) to take possession
of Contech's money and subsequently disburse it to Contech's creditors."). The instant proceeding
does not resemble a bailment because Travelers never entrusted Mid Ohio with its own funds, nor
was the relationship between the parties the same - that of a bailee disbursing funds at the direction
and for the benefit of the bailor.
II. Express Trust
Travelers alternatively takes the position that the Debited Funds were subject to an express
trust in favor of Travelers. However, even if an express trust exists under state law, the proponent
must be able to trace the trust funds if they are commingled. First Federal v. Barrow, 878 F.2d 912,
915 (6th Cir. 1989); Jacobs v. Matrix Capital Bank (In re Apponline.com, Inc.), 315 B.R. 259, 276
(Bankr. E.D.N.Y. 2004). In the instant proceeding, all of Mid Ohio's funds were commingled in one
commercial checking account. Because Travelers has not traced the Debited Funds to the alleged
express trust res it is not entitled to summary judgment based upon an express trust theory. 3
III. Statutory Trust
Lastly, Travelers argues that the Debited Funds were subject to a statutory trust. The Court
agrees. Ohio Rev. Code § 1315.08(D) 4 provides in relevant part:
. . . If any agent or subagent of a licensee commingles any proceeds received
from the sale of Ohio instruments issued by the licensee with any other funds or
property owned or controlled by the agent or subagent, all of the commingled
proceeds and other property shall be impressed with a trust in favor of the licensee
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5 Travelers' brief suggests that a "sale" may not be necessary as long as there was a "delivery" of the "Ohio
instrument[s]." In support, Travelers relies upon the first sentence of Ohio Rev. Code § 1315.08(D), which provides:
"An agent or subagent shall hold in trust from the moment of receipt the proceeds of a sale or delivery of the
licensee's Ohio instruments." However, as noted earlier, a money order is not an "Ohio instrument" unless it is
"sold." See Ohio Rev. Code § 1315.01(D).
5
in an amount equal to the amount of the proceeds due the licensee from the sale of
Ohio instruments, less the amount due the agent or subagent from the sale.
The record reflects that Travelers is a "licensee" as defined under Ohio Rev. Code § 1315.01(C).
Money orders are "Ohio instruments" if "sold" in Ohio. See Ohio Rev. Code § 1315.01(A)&(D).
Thus, the only issue is whether a "sale" of the Self-Use Money Orders occurred. 5
The statute does not define the term "sale." When faced with a word that is not defined by
the statute at hand, the Supreme Court of Ohio accords such words their common, customary
meaning. State v. Industrial Comm. of Ohio, 110 Ohio St. 3d 54, 55 (2006); MP Star Fin., Inc. v.
Cleveland State Univ., 107 Ohio St. 3d 176, 178 (2005). To do so, the Supreme Court consistently
references dictionary definitions. Campus Bus Service v. Zaino, 98 Ohio St. 3d 463, 465 (2003);
see also State v. Industrial Comm., 110 Ohio St. 3d at 55; MP Star Fin., 107 Ohio St. 3d at 178.
Black's Law Dictionary defines the term sale as "the transfer of property or title for a price."
Black's Law Dictionary1337 (8 th ed. 2004); cf. Ohio Rev. Code § 1302.01(A)(11) (for purposes of
Ohio Rev. Code § 1302.01-.98, defining "sale" as "the passing of title from the seller to the buyer
for a price"). Similarly, the Oxford English Dictionary defines the term "sale" as "the exchange of
a commodity for money or other valuable consideration." Oxford English Dictionary (2d ed. 1989).
Based upon these definitions, the only question that remains is whether Mid Ohio paid for
the Self-Use Money Orders. 	The Court concludes that it did. 	First, by debit from Mid Ohio's
checking account, Travelers was actually compensated for each of the Self-Use Money Orders at
issue. Second, with only one exception, the process by which Mid Ohio obtained the Self-Use
Money Orders was identical to the process by which its customers purchased the Third-Party Money
Orders. The only difference being that Mid Ohio probably did not take money from the cash drawer
and tender the same to itself before issuing the Self-Use Money Orders. The Court does not believe
that this distinction removes the transaction from the definition of a sale. Mid Ohio was wearing
two hats, figuratively speaking, when it purchased the Self-Use Money Orders. On the one hand,
it was the seller, acting in its capacity as Travelers' agent ("Seller"). On the other hand, it was the
purchaser, acting on its own behalf ("Purchaser"). 	Although it is unlikely that Purchaser
contemporaneously handed Seller cash for the Self-Use Money Orders, the end result was the same
as if Purchaser had done so. Purchaser divested itself of the funds and Seller, assuming control over
the same, made sure they were available for Travelers' semi-weekly debits. 	Thus, the Court
concludes that Mid Ohio, the purchaser, paid Mid Ohio, the seller, for the Self-Use Money Orders.
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6 Section 1315.01(D) limits the definition of "Ohio instrument" to qualifying instruments "sold in this
state."
6
Consequently, based upon the plain language of § 1315.08(D), the value of the Self-Use
Money Orders issued in the Debtor's Ohio stores is impressed with a statutory trust in favor of
Travelers. However, the statutory trust does not extend to the value of the Self-Use Money Orders
issued in the Debtor's Kentucky stores. 6
CONCLUSION
For the foregoing reasons, the Motion will be GRANTED to the extent the Court finds that
the Debited Funds were impressed with a statutory trust for the value of the Self-Use Money Orders
issued in the Debtor's Ohio stores. The Motion will be DENIED in all other respects. An order to
this effect will be entered.
Copies to:
James C. Frooman
jfrooman@fbtlaw.com
Kathryn J. Bergstrom
kathryn.bergstrom@gpmlaw.com
Phillip Bohl
phillip.bohl@gpmlaw.com
Donald W. Mallory
donald.mallory@dinslaw.com
U.S. Trustee
ustpregion09.ci.ecf@usdoj.gov
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