Patricia Dzikowski v. NASD Regulation, Inc., (11th Cir. 2001)
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United States Court of Appeals,
Eleventh Circuit.
Jan. 22, 2001.
Appeal from the United States District Court for the Southern District of Florida. (No. 00-08097-CV-WPD),
William P. Dimitrouleas, Judge.
Before TJOFLAT, DUBINA and HULL, Circuit Judges.
PER CURIAM:
Patricia Dzikowski ("Trustee Dzikowski"), in her capacity as trustee to Brian Scanlon ("the Debtor"),
appeals the district court's grant of summary judgment to NASD Regulation on the issue of whether certain
funds in a temporary escrow account constituted estate property under 11 U.S.C. § 541. Upon review, we
affirm.
BACKGROUND
The Debtor was a licensed securities dealer. In December 1997, the Department of Enforcement of
NASD Regulation filed a disciplinary proceeding against the Debtor after receiving information that he was
involved in actionable violations of its rules and procedures. In June 1998, the Debtor and the National
Association of Securities Dealers ("NASD") entered into a settlement agreement.
The settlement agreement required the Debtor, among other things, to forward funds to a temporary
escrow account maintained by his counsel pending the establishment of an independent escrow agency. The
settlement agreement then required that the funds be transferred to the independent escrow agent for
distribution, according to instructions provided by NASD Regulation, to NASD customers harmed by the
Debtor's securities violations. In partial compliance with the settlement agreement, the Debtor's
mother-in-law, at the request of the Debtor's wife, forwarded $650,000 to the temporary escrow account. The
Debtor's wife repaid this loan from a line of credit on her and her husband's personal residence in June 1998.
Before these funds could be transferred to the independent escrow agent, however, on August 11,
1998 the Debtor filed a voluntary bankruptcy proceeding. Dzikowski was ultimately appointed trustee of the
bankruptcy estate. (1) As a result of the bankruptcy filing, no distributions of the settlement funds have been
made. On April 5, 1999, NASD Regulation filed an adversary proceeding seeking a declaratory judgment
that the funds in the escrow account did not belong to the Debtor and thus were not the property of the
bankruptcy estate. (2) While the Debtor agreed with the position of NASD Regulation, Trustee Dzikowski
responded that the $650,000 in the temporary escrow account constituted estate property under 11 U.S.C. §
541.
On November 12, 1999, the bankruptcy court granted summary judgment to NASD Regulation,
finding that the settlement funds were never owned or controlled by the Debtor and thus were not part of the
bankruptcy estate. See In re Scanlon, 242 B.R. 533, 536 (Bankr.S.D.Fla.1999) ("Scanlon I"). The bankruptcy
court denied Trustee Dzikowski's motion for reconsideration. On April 14, 2000, the district court affirmed
the bankruptcy court's order. See Dzikowski v. NASD Regulation, Inc., 247 B.R. 867, 870 (S.D.Fla.2000)
("Scanlon II").
STANDARD OF REVIEW
This Court conducts a de novo review of determinations of law by the bankruptcy court and by the
district court. See General Trading, Inc. v. Yale Materials Handling Corp., 119 F.3d 1485, 1494 (11th
Cir.1997) (citing In re Bilzerian,
are reviewed for clear error. See Id.
DISCUSSION
On appeal, Trustee Dzikowski argues that there are genuine issues of material fact as to whether the
funds in the temporary escrow account are part of the bankruptcy estate and that these factual disputes
preclude summary judgment for NASD Regulation. She thus asks that this Court either reverse the district
court's grant of summary judgment to NASD Regulation or vacate the order and remand the matter for further
consideration by the district court.
In determining that NASD Regulation satisfied its summary judgment burden, both the bankruptcy
court and the district court focused--the former implicitly, the latter explicitly--on the degree of control
exercised by the Debtor over the funds in the temporary escrow account. The bankruptcy court held that "the
affidavits and deposition testimony support [NASD Regulation's] contention that the $650,000.00 in question
were never funds of the Debtor and, thusly, are not estate funds." Scanlon I, 242 B.R. at 536. Specifically,
the bankruptcy court found that the funds originated from the Debtor's mother-in-law, that the Debtor had no
authority to disburse those funds, and that the Debtor did not plan the escrow arrangement. See id. at 536-37.
Similarly, the district court found that "[t]he evidence in the record, the prevailing law and the determination
by the Bankruptcy Court, all support the proposition that Debtor did not have control over the funds."
Scanlon II, 247 B.R. at 870. The district court noted that the funds "were transferred to an account, by a third
party, for disbursement to a specific group" and that the Debtor "did not have control over the funds that were
in the trust account, and could not direct who would receive the funds." Id. It thus held that NASD Regulation
had satisfied its burden of "setting forth uncontradicted evidence that the funds were not the estate's" and was
thus entitled to summary judgment. Id.
Upon review, we readily conclude that the bankruptcy court's and the district court's factual findings
are supported by the evidence. (3) Both the bankruptcy court and the district court extensively summarized the
evidence submitted in support of the parties' positions, and we have no need to repeat those discussions here.
We do, however, address whether the determinative factors used by those courts--the original source of the
funds and the extent of the Debtor's control over them--provided the proper basis for assessing whether the
$650,000 in the escrow account was estate property.
"A debtor's estate in bankruptcy consists of 'all legal and equitable interests of the debtor in property
as of the commencement of the case.' " T&B Scottdale Contractors, Inc. v. United States, 866 F.2d 1372,
1376 (11th Cir.1989) (quoting 11 U.S.C. § 541(a)(1)). "The extent and validity of the debtor's interest in
property is a question of state law." Id. Under Florida law, (4) "legal title to property placed in an escrow
account remains with the grantor until the occurrence of the condition specified in the escrow agreement."
Dickerson v. Central Fla. Radiation Oncology Group, 225 B.R. 241, 244 (M.D.Fla.1998) (citing In the
Matter of Berkley Multi-Units, Inc., 69 B.R. 638, 641 (Bankr.M.D.Fla.1987)). Nonetheless, "funds that are
deposited into an escrow account by a debtor, for the benefit of others, cannot be characterized as property
of the estate." In re S.E.L. Maduro, 205 B.R. 987, 990-91 (Bankr.S.D.Fla.1997) (citing In re AGSY, Inc., 120
B.R. 313, 317-20 (Bankr.S.D.N.Y.1990)).
Neither the bankruptcy court nor the district court expressly addressed these principles. While the
bankruptcy court did not cite any precedent guiding its analysis of the bankruptcy estate, it did conclude that
the funds deposited in the escrow account belonged to the Debtor's mother-in-law. See Scanlon I, 242 B.R.
at 537. In affirming the judgment of the bankruptcy court, the district court relied on previous decisions from
this Court and district courts that focused on the degree of control exercised by the Debtor in determining
whether certain funds were part of the bankruptcy estate. See Scanlon II, 247 B.R. at 869 (citing In re Safe-T-Brake of South Fla., Inc., 162 B.R. 359, 365 (Bankr.S.D.Fla.1993)).
Nonetheless, the two opinions below inform the analysis of who possessed legal title to the funds in
the temporary escrow account and who were the intended beneficiaries of those funds, and those discussions
support the conclusion that Trustee Dzikowski did not satisfy her burden on summary judgment of presenting
"some significant probative evidence which makes it necessary to resolve the parties' differing versions of the
dispute at trial." Scanlon I, 242 B.R. at 536 (citing Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1116 (11th
Cir.1993)). While the issue of who possessed legal title to the funds in the escrow account is not free of
ambiguity, (5) it is clear that the $650,000 was not intended to benefit the Debtor. Although Trustee Dzikowski
argues that the settlement funds were meant to benefit the Debtor by precluding any further litigation against
him by the NASD, the true beneficiaries of the settlement funds were clearly the NASD customers defrauded
by the Debtor. Indeed, the district court found that the temporary escrow account "was established to satisfy
the settlement agreement, not to benefit Debtor." Scanlon II, 247 B.R. at 870. Furthermore, the Debtor's
mother-in-law placed the funds in the temporary escrow account "with the implicit instructions that they were
to be used to satisfy the settlement agreement." Id. Additionally, the Debtor "did not have control over the
funds that were in the trust account, and could not direct who would receive the funds." Id. As the bankruptcy
court noted, even the Debtor's counsel could not release the funds in the escrow account "to any entity without
directions and approval of the U.S. Bankruptcy Court or by the consent of all parties involved." Scanlon I,
242 B.R. at 537. Thus, even if the Debtor could be deemed the legal owner of the funds by virtue of his
repayment of his mother-in-law's loan, the fact that those funds experienced a temporary layover in an account
maintained by his counsel while en route to compensating others without any oversight by the Debtor hardly
converts them into property of the bankruptcy estate.
CONCLUSION
For these reasons, we conclude that the funds in the temporary escrow account are not part of the
bankruptcy estate and that summary judgment for NASD Regulation on this issue was appropriate.
AFFIRMED.
FOOTNOTES
1. Dzikowski succeeded Adriano Gonzales, who was the trustee as of the time of the bankruptcy court's
decision. Dzikowski's appointment occurred at some point prior to the issuance of the district court's
decision.
2. While NASD Regulation's amended complaint in the bankruptcy court sought other, related
determinations, see In re Scanlon, 242 B.R. 533, 533 (Bankr.S.D.Fla.1999), the orders below and the
briefs on appeal focus only on the threshold question of whether the funds in the temporary escrow
account constituted estate property. Accordingly, our decision only addresses that issue.
3. In making their factual findings the bankruptcy court and the district court relied on affidavits
submitted by NASD Regulation with its motion for summary judgment and deposition testimony that
NASD Regulation counter-designated. We therefore reject Trustee Dzikowski's claim that the affidavits
alone did not support those factual findings.
4. Although the apparent assumption below was that Florida law was controlling in this case, we note
that the escrow account at issue was located in the state of New York. Neither the bankruptcy court nor the
district court analyzed what the governing law should be, however, and both appear to have assumed,
without deciding, that Florida law determines the issue presented in this appeal. In her reply brief Trustee
Dzikowski raises the possibility, but does not argue, that New York law applies. (See Reply Br. at 4 &
n.1.) Because no argument to the contrary has been presented, we conduct our review according to
principles of Florida law.
5. The district court stated that while the Debtor had reimbursed his mother-in-law for the loan, "[t]he
facts show ... that the funds were placed in the trust account, by the mother-in-law with the implicit
instructions that they were to be used to satisfy the settlement agreement." Scanlon II, 247 B.R. at 870.
The district court's implicit conclusion is that the Debtor's mother-in-law retained legal title to the funds,
and the funds were thus not a part of the bankruptcy estate. The bankruptcy court's statement of the facts,
however, creates some uncertainty concerning the legal effect, if any, of the repayment of the loan from
the Debtor's mother-in-law. While the district court stated that the Debtor repaid this loan, see id., the
bankruptcy court stated that the loan was repaid by the Debtor's wife from a line of credit on their personal
residence, and it further noted that the Debtor's wife was the title owner of all residences owned by herself
and the Debtor. See Scanlon I, 242 B.R. at 538.
Sponsored links
This document cites
- U.S. Code - Title 11: Bankruptcy - 11 USC 541 - Sec. 541. Property of the estate
- U.S. Court of Appeals for the Eleventh Circuit - Walter Fitzpatrick, Wayne E. Hall, William J. Hutchinson, Thomas Jones, Darryl J. Levette, Miguelito Marcelli, Andre D. Mitchell, Dennis Bernard Thomas, Melvin Whitehead, Gregory Wilkinson, Alfonzo L. Williams, and Elton M. Worthy, Plaintiffs-Appellants, v. City of Atlanta, Defendant-Appellee., 2 F.3d 1112 (11th Cir. 1993)
- U.S. Court of Appeals for the Eleventh Circuit - Bankr. L. Rep. P 72,739 T & B Scottdale Contractors, Inc., Plaintiff-Appellant, v. United States of America, Defendant-Appellee, Richard D. Ellenberg, Trustee for Rodger & Rodger, Inc., Trust Company Bank, Intervenors-Defendants-Appellees., 866 F.2d 1372 (11th Cir. 1989)
- U.S. Court of Appeals for the Eleventh Circuit - 47 Fed. R. Evid. Serv. 670, 11 Fla. L. Weekly Fed. C 349 General Trading Incorporated, Plaintiff-Counterclaim-Defendant-Appellant-Cross-Appellee. v. Yale Materials Handling Corporation, Defendant-Counterclaim-Plaintiff-Appellee-Cross-Appellant, Jose M. Baeza, Sr., Counterclaim Defendant-Appellant, Jose M. Baeza, Jr., Et Al., Counterclaim Defendants. General Trading Incorporated, Plaintiff-Counterclaim-Defendant-Appellant, v. Yale Materials Handling Corporation, Defendant-Counterclaim-Plaintiff-Appellee, Jose M. Baeza, Sr., Counterclaim Defendant-Appellant, Jose M. Baeza, Jr., Et Al., Counterclaim Defendants. General Trading Incorporated, Plaintiff-Counterclaim-Defendant-Appellee Cross-Appellant, v. Yale Materials Handling Corporation, Defendant-Counterclaim-Plaintiff-Garnishor- Appellant-Appellant-Cross-Appellee, Gonzalez Trading, Inc., a Foreign Corporation, Jose M. Jose Manuel Baeza, Sr., Jose M. Baeza, Jr., Javier Baeza, Counterclaim-Defendants- Appellees-Cross-Appellants, Power Depot, Inc., a Florida ..., 119 F.3d 1485 (11th Cir. 1997)
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