Deposit Funds Held by a Non-Debtor Third Party Under Its Sole Control is Not An Estate Property, Alleges Plaintiff in Figueroa Mountain Brewing Bankruptcy Case
March 19, 2021, Central District of California – Plaintiff Pacific Beverage Company (“PBC”) sues a private equity and debt investment firm to seek a declaratory judgment under Sec. 541 of the Bankruptcy Code in the bankruptcy case of Figueroa Mountain Brewing, LLC (“FMB”). Plaintiff alleges that the deposit funds of $171,730.09 held with Defendant White Winston Select Asset Funds, LLC are not the property of the estate and must be returned to the Plaintiff.
PBC is a wholesale distributor of FMB under a distribution agreement between the parties. Allegedly, under the agreement, PBC submitted deposit funds and any balance owed on associated purchase orders directly to a segregated account (“Lockbox Account”) held by a third party, i.e., White Winston. White Winston reportedly had exclusive control over the Lockbox Account. As per the complaint, when FMB filled an order, White Winston would credit the applicable deposit to FMB in partial satisfaction of the amount due on the purchase order delivery. PBC would then remit payment of the balance due on the purchase order. FMB filed its Chapter 11 bankruptcy petition and later informed PBC that it was unable to fulfill the prepetition purchase orders.
Under the agreement, upon cancellation of the prepetition purchase orders, White Winston was apparently obligated to return the deposit balance to PBC, which was alleged as $171,730.09. Plaintiff alleges that White Winston did not contact PBC in any manner after the last prepetition deposit was made to it and did not provide PBC with an updated invoice or statement regarding the status of deposit funds after deliveries, as was its usual practice. The complaint states that PBC requested White Winston to remit payment of the deposit funds to it, but White Winston refused, indicating either that no deposit funds are remaining in its possession; that the funds have been used to reduce FMB’s loan balance owed to White Winston, or that White Winston has fulfilled its obligation to PBC through FMB’s delivery of the post-petition product to PBC.
Thus, PBC alleges that the $171,730.09 deposit fund balance owed to PBC by White Winston is not estate property as the deposit funds were held by White Winston, a non-debtor third party, in a segregated Lockbox Account under its sole control, and the funds were ultimately for the benefit of PBC (to be credited to invoices for related deliveries). Through its complaint, PBC requests the Court to enter an order directing White Winston to remit $171,730.09 to PBC, representing the value of the deposit balance owed to PBC as per the terms of the agreement between the parties.