Opinion
Case No. 02-81906-RGM, Contested Matter
September 23, 2002
Ronald Willian Stren, Alexandria, VA, for Movant.
Kevin M. O'Donnel, Henry O'Donnell, P.C. Fairfax, Virginia, for Debtor.
MEMORANDUM OPINION
This matter was before the court on September 18, 2002, on the motion of CompuCom Systems, Inc., for relief from the automatic stay imposed by Section 362 of the United States Bankruptcy Code and the debtor's opposition.
Vingage Corporation and CompuCom Systems, Inc., entered into a sublease for office space in Maitland, Florida. Vingage failed to pay rent as required under the sublease and CompuCom filed suit in state court. The parties reached a settlement that Vingage failed to completely honor. On December 6, 2001, they reached a second settlement whereby Vingage agreed to wire $18,117.00 to CompuCom's counsel's trust account in full satisfaction of the claim. The funds were agreed to be released when CompuCom signed a release in favor of Vingage releasing all claims that were or could have been raised in the litigation and the state court entered an order dismissing the suit with prejudice and expressly terminating the writ of distress previously entered by the state court. Motion for Relief from Stay, ¶ 6 and Exhibit C (Letter from R. Kimbark Lee to Mickey R.E. Ware dated December 6, 2001). The funds were transferred on December 6, 2001.
Vingage filed a voluntary petition in bankruptcy pursuant to chapter 11 of the Bankruptcy Code in this court n April 19, 2002. At that time, Mr. Ware, CompuCom's attorney, was still holding the $18,117.00 in escrow and the release had not been executed. It is not clear from the pleadings whether the state court order had been entered. Motion for Relief from Stay, ¶ 9.
CompuCom filed a motion for relief from stay to enable it to transfer the $18,117.00 from its attorney's escrow account to it. It asserts that the escrowed funds belong to it and are not property of the estate. The debtor asserts that the escrowed funds belong to it until the conditions satisfying the escrow have been satisfied and, therefore, that the motion should be denied. It further seeks to have the funds turned over to the debtor.
Escrowed funds remain property of the depositor until the conditions necessary to satisfy the escrow have satisfied. Only then may the funds be released. In re Berkley Multi-Units, Inc., 69 B.R. 638 (Bankr.M.D.Flor. 1987). Until the terms of the escrow have been satisfied, both parties have an interest in the escrowed funds. The debtor's interest is sufficient to constitute property of the estate as that term is defined in the Bankruptcy Code. 11 U.S.C. § 541(a) ("all legal or equitable interests of the debtor in property as of the commencement of the case"). In re Royal Business School, Inc., 157 B.R. 932 (Bankr.E.D.N.Y. 1993). The escrow created in this case is different from the express trust in In re Dameron, 155 F.3d 718 (4th Cir. 1998). In Dameron, the debtor, a settlement agent, received loan proceeds from lenders in trust to be disbursed in accordance with the settlement instructions. While Dameron had legal title to the trust funds, he himself never had an equitable interest in the trust funds. The funds were always to be disbursed to third parties by him. In this case, CompuCom's attorney is the stakeholder and, like Dameron, has only legal title to the funds. Both the debtor and CompuCom have an equitable interest. If the terms of the escrow were never satisfied, the debtor would be entitled to the escrowed funds. If the terms of the escrow are satisfied, CompuCom would be entitled to the escrowed funds. The conditions to the release of the escrow are significant. CompuCom may have a lien on other property of the debtor. Consequently, under Florida law, the debtor has an equitable interest in the escrowed funds and the funds are property of the estate. As such, CompuCom's premise, that the escrowed funds are not property of the estate, fails and the motion cannot be granted on that basis.
The debtor's request that the funds be turned over to it must also fail. First, the turnover request must be made in a separate motion. It may not be made in the nature of a counterclaim in a motion for relief from the automatic stay. More importantly, however, the debtor does not have a present right to the funds and fails to account for CompuCom's equitable interest in the escrowed funds.
The motion and the cross-motion will be denied without prejudice.