In Re North American Coin & Currency, Ltd

767 F.2d 1573 (9th Cir. 1985)

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Nature of the Case

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Facts

North American Coin (NAC) was an Arizona corporation in the business of buying and selling precious metals. In the weeks prior to September 13, 1982, NAC suffered severe financial losses as a result of certain transactions initiated by the company president, Sherman Unkefer. On September 12, several men responsible for the daily operation of the company ('the principals') met to discuss the situation. The comptroller testified in deposition that the principals perceived ongoing mismanagement by Unkefer which was endangering the company's clients and employees. They believed that NAC was no longer operating soundly, and expressed doubts about the company's continued existence as a going concern. They perceived themselves as faced with two options. One choice was a mass resignation or disaffiliation, which in their view would have caused the immediate collapse of the company. The other choice was to operate the company for one more week in anticipation of a meeting of the NAC directors and stockholders the following weekend. The principals believed that the stockholders might infuse new capital into the company to keep it operating. They created a bank account, labeled a 'Special Trust Account,' into which the company placed all receipts from new transactions during the week of September 13 through September 17. The purpose of the account was to protect new NAC customers in case the company did not survive. The trust account funds were not intended for use as operating money for the company. If the board of directors voted to keep the company alive, then the money was to be used to fill the customers' orders for precious metals in the regular course of business. If the company ceased operations, the principals anticipated that the customers would get their money back. Ps are former customers of NAC who placed orders with the company and paid for them during the week of September 13, 1982, immediately before NAC filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. Ps sued in a class action against the Bankruptcy Trustee, seeking to recover their funds from the bankruptcy estate. Ps never got their orders filled but the funds in the 'Special Trust Account' remain intact. Ps now assert that the trustee for NAC holds those funds in constructive trust for them. Ps claim that the trustee holds the funds in constructive trust for them because NAC obtained the money by fraud or misrepresentation. The bankruptcy court found for the trustee. The district court affirmed.