Furr's Supermarkets, Inc.

1All statutory and rule references are to the Bankruptcy
Code as it existed before the effective date of the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005.
2The SCA is between Amplex and Furr’s, as consignee. 	Furr’s
agreed to accept an average weekly amount of $57,600 in stamps to
sell on a consignment basis to the public for face value. 	Furr’s
had to remit payments for the full face value of the stamps
within 30 calendar days from the stamps’ receipt. 	Furr’s could
also return stamps and, if they had been previously paid for,
receive a refund. 	Payments were made to the United States Postal
Service (“USPS”) at a lockbox in Illinois. 	Furr’s agreed to be
(continued...)
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
FURRS SUPERMARKETS, INC.
Debtor. 	No. 11-01-10779 SA
MEMORANDUM OPINION ON AMPLEX’S APPLICATION FOR
ORDER TO PAY SECURED AND/OR ADMINISTRATIVE EXPENSE
CLAIMS RESULTING FROM CONVERSION OF CONSIGNED COLLATERAL
This matter came before the Court for trial on the merits of
Amplex Corporation’s (“Amplex”) Application for Order to Pay
Secured and/or Administrative Expense Claims Resulting from
Conversion of Consigned Collateral (“Application”)(doc 2498) and
the Trustee’s Objection, Amended Objection and Second Amended
Objection thereto (docs 2508, 2517, 2556), Amplex’s post-trial
Memorandum of Law (doc 3226), the Trustee’s post-trial Memorandum
of Law (doc 3227) and Amplex’s Reply (doc 3233). 	This is a core
proceeding. 	28 U.S.C. § 157(b)(2)(A) and (B). 1
On March 1, 1996, Amplex, a Texas corporation, entered into
a “Stamp Consignment Agreement” (“SCA”) with Furr’s Supermarkets,
Inc. (“Furr’s”) 2. 	(Exhibit A). 	As part of the transaction,
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2(...continued)
responsible for the stamps from their receipt until their sale,
and for payments derived from sales until their deposit in the
lockbox. 	Furr’s agreed to allow the USPS to examine the
inventory and any documents while the Agreement was in effect and
for three years thereafter. 	Furr’s had a duty to notify Amplex
in writing within 5 days of any bankruptcy filing and accompany
it with a report describing the stock and sales payments for
which Furr’s was responsible on the date of notice. 	Amplex
agreed to invoice Furr’s with each shipment. 	The parties agreed
that the Agreement involves consignment sales and that neither
Amplex nor Furr’s would receive title to the stamps. 	The parties
also agreed that the Agreement could only be modified with the
approval of the USPS, and that it was the entire agreement of the
parties reflecting all rights and obligations.
3The SA describes Furr’s as “Debtor” and Amplex as “Secured
Party.” 	Furr’s granted a security interest in all USPS stamps
now or hereafter provided or consigned by Amplex pursuant to the
SCA, and all substitutes, replacements, proceeds, and returns of
stamps. 	The security interest secured payment and performance of
all obligations of Furr’s to Amplex in connection with the SCA or
any renewals, extensions or modifications, and costs and expenses
and attorneys fees. 	Furr’s represented that the collateral was
free of all other claims and liens and no defenses existed with
respect to the collateral. 	Furr’s also agreed to execute Uniform
Commercial Code documents as requested. 	Default is defined as
any default under the SA or the SCA, or if Amplex’s security
interest should become unenforceable or cease to be a first
priority security interest. 	After default, Amplex may require
Furr’s to deposit funds into a specially established “Collateral
account” which would be impressed with Amplex’s lien, or Amplex
may take the collateral and proceeds. 	The SA was entered into
and governed by the laws of Texas. 	The SA could only be amended
in writing signed by both parties.
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Furr’s executed a “Security Agreement” (“SA”) 3. 	(Exhibit B)
(Together, the SCA and SA are referred to as the “Agreement.”)
Amplex filed a Texas Financing Statement with the Texas Secretary
of State on May 25, 1996. 	(Exhibit C). 	Amplex filed a New
Mexico Financing Statement with the New Mexico Secretary of State
on November 25, 1996. 	(Exhibit C).
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4Trustee argues, however, that based on average sales for
prior periods, there would have been no stamps left on hand on
the petition date. 	The SCA anticipated weekly sales of $57,600.
Approximately 20 days had passed from the last stamp delivery of
$61,200 to the filing of the bankruptcy petition.
5Under Texas law, actual fraud has the following elements:
1) that a false, material representation was made, 2) that was
either known to be false when made or was made without knowledge
of its truth, 3) that was intended to be acted upon, 4) that was
relied upon, and 5) that caused injury. 	Hubbard v. Shankle, 138
S.W. 3d 474, 482-83 (Tex. Ct. App. 2004).
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On January 5, 2001, Amplex supplied Furr’s with $61,200.00
of stamps, payable February 4, 2001. 	(Exhibit 6, invoice
535293). 	On January 19, 2001, Amplex supplied Furr’s with
another $61,200.00 of stamps, payable February 18, 2001.
(Exhibit 6, invoice 543341). 	Both invoices were unpaid when
Furr’s filed a voluntary Chapter 11 petition on February 8, 2001.
Amplex provided no more stamps after the filing. 	On February 26,
2001, Amplex filed a secured proof of claim in the amount of
$122,400 in the Furr’s bankruptcy case, as Claim 27. 	The Chapter
11 case converted to Chapter 7 on December 19, 2001. 	The
invoices remain unpaid, and the stamps are gone. 	Neither party
produced any records, if such records even exist, of the stamp
inventory on the petition or conversion date 4. 	Depositions of
witnesses also did not suggest any possible inventory figures for
these dates. 	At trial, Amplex provided no evidence that the
stamps were fraudulently obtained, or that the Agreement was
entered into fraudulently. 5 	Amplex also provided no evidence
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6Section 503(a) states “An entity may timely file a request
for payment of an administrative expense, or may tardily file
such request if permitted by the court for cause.”
7There is no section 507(b)(1).
8Section 507(a)(1) states “ (a) The following expenses and
claims have priority in the following order:
(1) First, administrative expenses allowed under section 503(b)
of this title, and any fees and charges assessed against the
estate under chapter 123 of title 28.”
9Section 503(b) provides, in relevant part:
After notice and a hearing, there shall be allowed,
administrative expenses, other than claims allowed
under section 502(f) of this title, including--
(1)(A) the actual, necessary costs and expenses of
preserving the estate, including wages, salaries, or
commissions for services rendered after the
commencement of the case; ...
10 Section 364(b) states: “The court, after notice and a
hearing, may authorize the trustee to obtain unsecured credit or
to incur unsecured debt other than under subsection (a) of this
section, allowable under section 503(b)(1) of this title as an
administrative expense.”
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that it had previously done any business with Furr’s before the
Agreement.
In its Application, Amplex seeks payment of the $122,400
plus interest and attorneys fees and costs. 	Amplex relies on
several theories: 1) as damages for breach of the consignment
agreements and misappropriation of consigned goods; 2) as a
priority administrative expense under §§ 503(a) 6 and 507(b)(1) 7
[sic, probably 507(a)(1) 8]; 3) as an administrative claim under §
503(b) 9
; 4) as an administrative expense under § 364(b) 10 ; 5) as
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11 Section 507(b) states:
If the trustee, under section 362, 363, or 364 of this
title, provides adequate protection of the interest of
a holder of a claim secured by a lien on property of
the debtor and if, notwithstanding such protection,
such creditor has a claim allowable under subsection
(a)(1) of this section arising from the stay of action
against such property under section 362 of this title,
from the use, sale, or lease of such property under
section 363 of this title, or from the granting of a
lien under section 364(d) of this title, then such
creditor's claim under such subsection shall have
priority over every other claim allowable under such
subsection.
12 Section 105(a) provides:
The court may issue any order, process, or judgment
that is necessary or appropriate to carry out the
provisions of this title. No provision of this title
providing for the raising of an issue by a party in
interest shall be construed to preclude the court from,
sua sponte, taking any action or making any
determination necessary or appropriate to enforce or
implement court orders or rules, or to prevent an abuse
of process.
13 	[A]n expense is administrative only if it
arises out of a transaction between the
(continued...)
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an administrative priority under § 507(b) 11 ; 6) as a
superpriority expense of administration under § 105 12 because the
stamps were fraudulently converted; and/or 7) trust theories.
ADMINISTRATIVE CLAIM
Administrative claims allowed under Section 503(b) are given
priority by Sections 507(a)(1) and 726(a)(1). 	Isaac v. Temex
Energy, Inc. (In re Amarex, Inc.), 853 F.2d 1526, 1530 (10 th Cir.
1988). 	This treatment is only available for claims that arise
against the estate after the filing of the bankruptcy petition 13 .
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13 (...continued)
creditor and the bankrupt's trustee or debtor
in possession (citations omitted) and “only
to the extent that the consideration
supporting the claimant's right to payment
was both supplied to and beneficial to the
debtor-in-possession in the operation of the
business.” 	A debt is not entitled to
priority simply because the right to payment
arises after the debtor in possession has
begun managing the estate. 	Trustees of
Amalgamated Ins. Fund v. McFarlin's, 789 F.2d
98, 101 (2d Cir. 1986) (quoting In re Mammoth
Mart, Inc., 536 F.2d 950, 954 (1st Cir.
1976))(citations omitted)
Amarex, 853 F.2d at 1530.
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The policy behind priority treatment of certain post-petition
claims is to encourage creditors to extend credit post-petition
in order to increase the likelihood of a successful
reorganization, which would benefit all creditors. 	Bachman v.
Commercial Financial Services, Inc. (In re Commercial Financial
Services, Inc.), 246 F.3d 1291, 1293 (10 th Cir. 2001). 	Giving
special treatment to one class of creditors goes against a
fundamental policy underlying bankruptcy, that of equal
distributions to creditors. 	Id. (quoting Amarex, 853 F.2d at
1530). 	Therefore, priorities are narrowly construed. 	Id.;
Amarex, 853 F.2d at 1530. 	The party claiming that an expense has
administrative priority has the burden of proving it. 	General
American Transportation Corp. V. Martin (In re Mid Region
Petroleum, Inc.), 1 F.3d 1130, 1132 (10 th Cir. 1993); Amarex, 853
F.2d at 1530. 	To prevail on an administrative claim, the
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creditor must prove an actual benefit to the estate; potential
benefit does not satisfy the requirement. 	Mid Region Petroleum,
1 F.3d at 1133.
Amplex also argued that under Reading Co. v. Brown, 391 U.S.
471 (1968) it should be entitled to an administrative claim for
the disappearance of the stamps and cash during the course of the
case. 	The Court disagrees. 	While it is true that in Brown the
court awarded an administrative claim for negligence on the part
of the receiver, the full amount of the claim was identifiable.
In this case, Amplex cannot establish an amount for the claim.
Amplex’s request for administrative treatment must fail
because Amplex did not prove that the estate received a benefit
from the stamps. 	It is most likely that the stamps were all gone
by the end of January. 	In any event, there is no evidence of the
value of stamps on hand on February 8, 2001. 	Therefore, there is
no proof of the amount of the benefit. 	The administrative
expense claim should be denied. 	See also In re Dart Drug Stores,
Inc., 144 B.R. 299, 304 (Bankr. D. Md. 1991)(Consignment creditor
not entitled to administrative expense because it could not show
the inventory as of the petition date.)
SECTION 364(b)
Amplex advanced no new credit after the bankruptcy was
filed. 	Nor did Amplex give notice and request a hearing on its
claim that stamps used post-petition should be afforded
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administrative priority treatment. 	Amplex provided no proof of
the amount of collateral that was used after the petition, so it
is impossible to determine the amount of a Section 364(b) claim
even if it were allowable.
SECTION 507(b)
Section 507(b) does not apply because the Trustee did not
have an adequate protection agreement with Amplex. 	Amplex
provided no proof of the amount of collateral that was used after
the petition, so it is impossible to determine the amount of a
Section 507(b) claim even if it were allowable.
SECTION 105
[I]t should be universally recognized that the power
granted to the bankruptcy courts under section 105 is
not limitless and should not be employed as a panacea
for all ills confronted in the bankruptcy case. Section
105 does not allow the bankruptcy court to override
explicit mandates of other sections of the Bankruptcy
Code or mandates of other state and federal statutes.
Collier, supra at 105-5. 	See also In re Hoffman Bros.
Packing Co., Inc., 173 B.R. 177 (9th Cir. BAP 1994) ( “
Section 105 must in all cases be carefully construed so
as to implement and fit the specific provisions of the
Bankruptcy Code” ); In re Barney's Inc., 197 B.R. 431,
438 (Bankr. S.D. N.Y. 1996) (section “105(a) cannot
create substantive rights not otherwise found in the
Bankruptcy Code” ); In re First RepublicBank Corp., 95
B.R. 58, 60 (Bankr. N.D. Tex. 1988) ( “court may not
invoke § 105(a) to create substantive rights that are
not provided by the Code” ); In re Gates Engineering
Co., 104 B.R. 653 (Bankr. D. Del. 1989) ( “However, the
court cannot under the provisions of § 105 circumvent
the unambiguous language of [ section 1102] in light of
the deletion of subsection (c) in 1986.” )
In re New Life Fellowship, Inc., 202 B.R. 994, 997 (Bankr. W.D.
Okl. 1996). 	The Bankruptcy Code regarding administrative expense
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treatment and the Tenth Circuit Court of Appeals’ cases
interpreting it are clear. 	There is a “benefit to the estate
rule” that limits administrative expenses to those that benefit
the bankruptcy estate, not the pre-petition debtor. 	The Court
cannot use Section 105 to circumvent this rule. 	Furthermore, it
would not be equitable to pay Amplex with funds that would
otherwise go to administrative creditors or possibly first
priority wage claimants who are innocent of any wrongdoing with
respect to Amplex’s collateral. 	This is not meant to condone the
actions of the Debtor in this case. 	It is clear that, to the
extent there may have been stamps or proceeds on hand on the
petition date, Furr’s violated the Bankruptcy Code’s cash
collateral provisions by using proceeds from the stamps. 	But the
proper remedy, if there is one, should not punish the unsecured
creditors.
TRUST
Just as medieval alchemists bent all their energies to
discovering a formula that would transmute dross into
gold, so too do modern creditors' lawyers spend
prodigious amounts of time and effort seeking to
convert their clients' general, unsecured claims
against a bankrupt debtor into something more
substantial. ... Under our Bankruptcy Code, such
sorcery demands the highest attention to the
requirements of pleading and proof by its practitioner.
Haber Oil Co., Inc. v. Swinehart (In re Haber Oil Co., Inc.), 12
F.3d 426, 431 (5 th Cir. 1994). 	In this passage, the Fifth
Circuit Court of Appeals was referring to trust claims made in
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bankruptcy proceedings. 	Under Bankruptcy Code Section 541(a)(1)
the filing of a bankruptcy petition creates an estate comprised
of all legal or equitable interests of the debtor in property as
of the commencement of the case wherever located and by whomever
held. 	An exception to this broadly encompassing estate is found
in Section 541(d), which provides:
Property in which the debtor holds, as of the
commencement of the case, only legal title and not an
equitable interest, such as a mortgage secured by real
property, or an interest in such a mortgage, sold by
the debtor but as to which the debtor retains legal
title to service or supervise the servicing of such
mortgage or interest, becomes property of the estate
under subsection (a)(1) or (2) of this section only to
the extent of the debtor's legal title to such
property, but not to the extent of any equitable
interest in such property that the debtor does not
hold.
Therefore, if a debtor holds property as a trustee only the
debtor’s bare legal title passes to the bankruptcy estate. 	This
means that if a creditor can establish that a claim is really an
amount held in trust for his or her benefit, the creditor in
effect gets paid in full ahead of the debtor’s creditors outside
of the bankruptcy process.
Amplex claims that it is the beneficiary of either an
express trust created by the Agreement or a constructive trust
that arose from Furr’s violation of the Agreement. 	Each will be
addressed in turn.
EXPRESS TRUST
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There are 3 elements to a trust: 1) a trustee, who holds the
trust property and is subject to equitable duties to deal with it
for the benefit of another; 2) a beneficiary, to whom the trustee
owes equitable duties to deal with the trust property for his
benefit; and 3) trust property, which is held by the trustee for
the beneficiary. 	Restatement (2 nd ) of Trusts § 2 cmt. h. 	Texas
law is the same. 	City of Wichita Falls v. Kemp Public Library
Board of Trustees, 593 S.W.2d 834, 836 (Tex. Ct. App. 1980). 	In
addition, Texas requires a stated intention of the grantor to
create a trust. 	Id. 	If any of the elements are vague, general
or equivocal, the trust fails for want of certainty. 	Id. 	If
language in a document purporting to create a trust does not
clearly show an intention to create a trust, both the language of
the instrument and all the circumstances surrounding it must be
considered to determine whether a trust was intended. 	Gonzales
v. Gonzales, 457 S.W.2d 440, 447-448 (Tex. Ct. App. 1970). 	It is
the intention of the settlor at the time of the creation of the
trust that is determinative. 	Coffee v. William Marsh Rice
University, 408 S.W.2d 269, 273 (Tex. Ct. App. 1966).
“A debt is not a trust.” 	Restatement (2 nd ) of Trusts § 12;
Farah v. Mafrige & Kormanik, P.C., 927 S.W.2d 663, 675 (Tex. Ct.
App. 1996)(“A relationship between a borrower and lender is
usually neither a fiduciary relationship nor a special
relationship.”); Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex.
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14 Amplex testified that under its agreement with the USPS
any amounts not paid by its “consignees” were guaranteed by
Amplex.
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1962)(In a debtor/creditor relationship no fiduciary relationship
arises.) 	The intention of the parties to create a debt versus a
trust is ascertained by a consideration of their words and
conduct in light of all the circumstances. 	Restatement (2 nd ) of
Trusts § 12 cmt. g.
If the intention is that the money shall be kept or
used as a separate fund for the benefit of the payor or
the third person, a trust is created. 	If the intention
is that the person receiving the money shall have the
unrestricted use thereof, being liable to pay a similar
amount whether with or without interest to the payor or
to a third person, a debt is created.
Id.
The Agreement does not clearly state an intention to create
a trust. 	The document evidences an intent for Amplex to provide
stamps to Furr’s on 30 day terms, with payments being directed to
the USPS 14 . 	To secure payment, Amplex had a security interest in
the stamps being sold and their proceeds. 	The Agreement does not
impose fiduciary-like duties on Furr’s. 	For example, Furr’s had
no duty to account on a regular basis, had no duty to segregate
proceeds unless a default were declared and Amplex required such
segregation, had no duty to protect the property (Furr’s was
fully liable for any losses, however) and had no duty to make the
property generate income. 	The Agreement also does not impose a
duty of utmost good faith, trust, confidence, and candor (such as
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a lawyer or corporate officer) to the beneficiary (such as a
lawyer's client or a shareholder) or a duty to act with the
highest degree of honesty and loyalty toward another person and
in the best interests of the other person (such as the duty that
one partner owes to another). 	The intent of the Agreement is to
create a secured transaction under the Uniform Commercial Code.
Therefore, the Court finds that there was no express trust
created by the Agreement.
The Court garners further support for this finding by
examining the difference between contract actions and tort
actions. 	Failure to pay a debt is a breach of contract. 	See,
e.g., Mead v. Johnson Group, Inc., 615 S.W.2d 685, 686 (Tex.
1981). 	Willful breach of a fiduciary duty is a tort. 	See, e.g.
Lesikar v. Rappeport, 33 S.W.3d 282, 311 (Tex. Ct. App. 2000).
Although the principles of tort and contract
causes of action are well settled, it is often
difficult to determine the type of action that is
brought. 	To do so we look to the substance of the
cause of action rather than the manner in which it was
pleaded.
Tort obligations are those imposed by law when a
person breaches a duty which is independent from
promises made between the parties to a contract;
contractual obligations are those that result from an
agreement between parties, which is breached. 	If the
defendant's conduct would give rise to liability only
because it breaches the parties' agreement, the
plaintiff's claim ordinarily sounds only in contract.
If the defendant's conduct would give rise to liability
independently of the fact that a contract exists
between the parties, the plaintiff's claim may also
sound in tort.
In determining whether the plaintiff may recover
on tort as well as contract, it is also helpful to
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examine the nature of the plaintiff's loss. 	When the
only loss or damage is the subject matter of the
contract, the plaintiff's action is ordinarily on the
contract. 	When the loss or damage is not the subject
of the contract, the plaintiff's action is one in tort.
Farah, 927 S.W.2d at 674 (Citations omitted.)
Amplex’s damages in this case result from Furr’s failure to
pay according to the contract. 	Amplex suffered no damages not
covered by or anticipated by the contract. 	Amplex has a contract
action, not an action for breach of fiduciary duty. 	Therefore,
there was no express trust, just a contract.
CONSTRUCTIVE TRUST
Under Texas law, a constructive trust “is an
equitable remedy created by the courts to prevent
unjust enrichment.” 	Unlike trusts usually encountered
under conventional trust doctrine, constructive trusts
are not created by an express agreement. 	Rather, a
constructive trust is an equitable device “imposed by
law because the person holding the title to property
would profit by a wrong or would be unjustly enriched
if he were permitted to keep the property.”
Where, as here, there is no formal trust in the
traditional sense nor any special legal relationship
between the parties, Texas courts generally require the
following three elements before applying the equitable
remedy of a constructive trust:
(1) Breach of an informal relationship of special
trust or confidence arising prior to and apart
from the transaction in question, or actual
fraud.;
(2) Unjust enrichment of the wrongdoer.; and
(3) Tracing to an identifiable res.
Monnig’s Department Stores, Inc. v. Azad Oriental Rugs, Inc. (In
re Monnig’s Department Stores, Inc.), 929 F.2d 197, 201 (5 th Cir.
1991)(Citations omitted). 	See also Hubbard v. Shankle, 138
S.W.3d 474, 485 (Tex. Ct. App. 2004)(The elements of a
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constructive trust are 1) breach of a special trust, fiduciary
relationship, or actual fraud; 2) unjust enrichment; and 3)
tracing an identifiable res.)
In recognizing a constructive trust, the critical
requirement for purposes of this case is that the
parties have a confidential or fiduciary relationship
prior to and apart from the transaction in question.
This relationship may be established through prior
joint business ventures, or other types of close,
confidence-inducing relationships. It need not arise
from a strict, formal fiduciary relationship. However,
mere subjective confidence among business associates or
the like is insufficient to support a constructive
trust.
Monnig’s at 201-02 (quoting Harris v. Sentry Title Co., Inc., 715
F.2d 941 (5th Cir. 1983), modified on other grounds, 727 F.2d
1368 (5th Cir. 1984), cert. denied sub nom. Ward v. Sentry Title
Co., 469 U.S. 1037 (1984))(Emphasis added by Monnig’s
court)(Citations omitted). 	See also Hubbard, 138 S.W.3d at 483
(“In other words, there must be a preexisting special
relationship of trust and confidence that is betrayed in later
dealings.”); Swinehart v. Stubbeman, McRae, Sealy, Laughlin &
Browder, Inc., 48 S.W.3d 865, 880 (Tex. Ct. App. 2001)(“To impose
an informal fiduciary duty in a business transaction, the
requisite special relationship of trust and confidence must exist
prior to, and apart from, the agreement made the basis of the
suit.”)(Citations omitted.)
As noted above, Amplex introduced no evidence at trial of
actual fraud. 	Likewise, Amplex introduced no evidence of any
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relationship between Amplex and Furr’s prior to the Agreement.
Therefore, Amplex has not met its burden of proof to establish a
constructive trust. 	The Court does not need to address whether
Furr’s was unjustly enriched, or whether Amplex needed to trace
funds to identify a res.
The Court will enter an Order denying Amplex’s Application.
Honorable James S. Starzynski
United States Bankruptcy Judge
copies to:
United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
Shay E Meagle
PO Box 30707
Albuquerque, NM 87190-0707
David T Thuma
500 Marquette Ave NW Ste 650
Albuquerque, NM 87102-5309
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