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Bankruptcy Court Finds "Resulting Trust" in Pooled Accounts of Wilmington Diocese

By Francis G.X. Pileggi

In Re: Catholic Diocese of Wilmington, Inc., Adv. Proc. No. 09-52866, Case No. 09-13560 (CSS) (Bankr. D. Del. June 28, 2010),  read opinion here.         

This decision  of the Bankruptcy Court in Delaware applies the state law of trusts, and involves the attempt by creditors to access pooled investment accounts that the Diocese of Wilmington, Delaware, administers on behalf of various Diocesan affiliates, such as other charitable entities within the Diocese, including parishes and the Catholic Youth Organization, Inc. 

For purposes of this blog, readers might be interested in that part of the 44-page decision that discusses the Delaware law of 'resulting trusts.' The Court found that a resulting trust did exist to the extent that the Diocese was maintaining and administering the accounts on behalf of other affiliated entities. However, based on federal law relating to bankruptcy cases, the Court also held that the defendants in large measure failed to meet their burden of establishing that the funds in the pooled investments account held in trust were specifically identifiable, or traceable in specific amounts to those who contributed to the accounts, and therefore, the Court allowed the creditors access to those pooled accounts as "assets of the bankruptcy estate of the Diocese. The Diocese is appealing.

For purposes of reciting the Delaware law of "resulting trusts", the United States Bankruptcy Court for the District of Delaware in this opinion cited to a 1946 decision of the Delaware Court of Chancery for the statement of Delaware law that 'a resulting trust is one implied by law from the supposed intentions of the parties and the nature of the particular transaction.' (citing Greenly v. Greenly, 49 A.2d 126, 129 (Del. Ch. 1926)). The Court also emphasized that whether or not a trust existed was a matter of state law and not federal law.

Moreover, the Court ruled that a resulting trust arises where a person 'conveys property under circumstances that raise an inference that the person does not intend the person taking or holding the property to have a beneficial interest in the property.' See footnote 23. Although this type of situation may more often occur in smaller cases, the pooled investment accounts at issue in this case have an agreed value of over $100 million. See generally an article written by reknowned corporate law professor Stephen Bainbridge available here, on "enterprise liability" issues involved in the attempts of creditors to attach assets of the various corporate affiliated entities in connection with the bankruptcy of a Catholic diocese.

 

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on June 28, 2010 (boomark / email).