Markel Ins. Co. v. Origin Bancorp, Inc.

663 F.Supp.3d 670

MARKEL INSURANCE COMPANY, Plaintiff, v. ORIGIN BANCORP, INC., Defendant.

Bankr. No. 21-01001

Civ. No. 1:21-CV-151

United States District Court, N.D. Texas, Abilene Division

Signed March 21, 2023

Duane J. Brescia, Clark Hill, PLC, Austin, TX, Stephen Anthony Roberts, Stephen A. Roberts, PC, Austin, TX, Audrey Lorene Hornisher, Ryan Brent DeLaune, Christopher R. Ward, Clark Hill Strasburger, Dallas, TX, Phillip Wayne Pemberton, Clark Hill PLC, Frisco, TX, for Plaintiff.

Penn C. Huston, Jeffrey Robin Elkin, MouerHuston PLLC, Houston, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

JAMES WESLEY HENDRIX, UNITED STATES DISTRICT JUDGE

The Lauren Corporation, an engineering and construction company, obtained a loan from Origin in 2013. In exchange, Origin obtained a perfected security interest in Lauren's accounts receivable. Years later, Lauren entered into an agreement with Markel for surety bonds, which included a provision giving Markel a security interest in Origin's accounts receivable and another allegedly placing certain accounts receivable in a trust for the benefit of Markel. In 2021, Lauren defaulted on the Origin loan. Acting pursuant to its agreement, Origin seized the funds in Lauren's bank account. Lauren then filed for bankruptcy.

Now, the parties dispute who is entitled to the accounts receivable. Both have filed motions for summary judgment. Alleging that a trust had been established, which would shield the funds from Origin's security interest, Markel asserts that it is entitled to those funds. Origin argues, however, that a trust was not created. Therefore, under the rules of priority between creditors, Origin holds the superior interest.

The Court concludes that a trust was not created because the language of the trust provision and the agreement as a whole demonstrate a lack of intent to create a trust, indicating instead an attempt to circumvent superior security interests. Because Origin's security interest is superior, the Court grants Origin's motion and denies Markel's motion.

1. Factual and Procedural Background

The Lauren Corporation (Lauren Co.) was an independent, privately owned company based out of Abilene, Texas that provided "professional engineering and construction services across the United States." Dkt. No. 20 at 6. Lauren Co.'s "work encompassed projects across the power (including renewables), chemical and polymer, and oil and gas sectors." Id. Lauren Co. had several subsidiary companies, including Lauren Engineers and Constructors, Inc. (LEC) (collectively with Lauren Co., Lauren).

A. Origin enters into a security agreement with Lauren, naming Lauren's accounts receivable as the collateral for the loan, and files financing statements in October 2013.

On October 15, 2013, Lauren Co. and Origin Bancorp, Inc.¹ entered into the Letter Loan Agreement,² which provided the terms and conditions under which Origin agreed to loan money to Lauren Co. Dkt. No. 14 at 4. The Letter Loan Agreement allowed Lauren Co. to borrow from Origin "an amount [ ] equal to 80% of the net amount of certain eligible accounts" so long as "the total loan did not exceed in the aggregate of more than $20,000,000." Id. at 4-5, 8.

That same day, in connection with the Loan Agreement, Lauren Co. executed a promissory note in favor of Origin. Id. at 5. LEC also executed a Guaranty Agreement in which LEC guaranteed the obligations under the Loan Agreement. Id.

On October 15, 2013, Origin, Lauren, and other Lauren subsidiary corporations entered into the Security Agreement. Id. at 5, 157-66. The Security Agreement purported to give Origin a security interest in all accounts receivable:

All of Debtor's Accounts . . . now owned or existing, as well as any and all that may hereafter arise or be acquired by Debtor, and all the proceeds and products thereof, including without limitation, all notes, drafts, acceptances, instruments, and chattel paper arising therefrom, and all returned or repossessed goods arising from or relating to any such accounts, or other proceeds of any sale or other disposition of inventory or other property of debtor.

Id. at 157.

In an effort to perfect its interest in Lauren's present and after-acquired accounts receivable, on October 22, 2013, Origin filed UCC-1 Financing Statements with the Texas Secretary of State and the Delaware Department of State. Id. at 5, 171-77. The Financing Statements expressly cover Lauren's accounts receivable:

Accounts. All accounts now owned or existing, as well as any and all that may hereafter arise or be acquired by [Lauren], and all the proceeds and products thereof, including without limitation, all notes, drafts, acceptances, instruments and chattel paper arising therefrom, and all returned or repossessed goods arising from or relating to any such accounts, or other proceeds of any sale or other disposition of inventory or other property of [Lauren].

Id. at 174.

Five years later, in August and October 2018, Origin filed continuation statements with both the Texas Secretary of State and the Delaware Department of State, respectively, to ensure that its interest in Lauren's accounts receivable would remain perfected for an additional five years. Id. at 179-83. Thus, Origin's interest in Lauren's accounts has allegedly remained perfected since its initial filing in October 2013. See id.

B. Markel and Lauren enter into a general indemnity agreement in June 2018 so that Lauren can obtain surety bonds from Markel.

Given the nature of Lauren's projects, it was often required to obtain surety bonds in the form of bid, performance, payment, or maintenance bonds. Dkt. No. 20 at 6. To obtain these bonds, Lauren established a relationship with and sought surety bonds from Markel. Id.

On June 19, 2018, Lauren and other related individuals and entities executed a general agreement of indemnity (the GAI) in favor of Markel.³ Id. at 10-18. The GAI sets forth various requirements for Lauren. See id. For instance, it requires that Lauren pay all premiums, fees, and other charges related to the bonds; cover all underwriting, inspection fund disbursement, escrow, special handling filing, recording, and similar fees; and pay interest on all unpaid indebtedness. Id. at 10-12.

Paragraph 9 of the GAI states that it "shall constitute a Security Agreement and a Financing Statement for the benefit of the Company in accordance with the Uniform Commercial Code and all similar statutes." Id. at 12. It provides that, "[a]s further security, [Lauren] hereby grant[s] to [Markel] a security interest in, and lien on, all of their . . . accounts receivable . . . due or to become due in connection with any contract, whether or not bonded by [Markel]." Id.

Critically here, paragraph 24 of the GAI purports to create a trust for Markel's benefit:

Indemnitors declare that all monies due and to become due under any contract or contracts covered by Bonds issued by [Markel] are trust funds, whether in the possession of [Lauren] or otherwise, for the benefit of and for payment of all obligations for which [Markel] would be liable under any of said Bonds, and this Agreement shall constitute notice of such trust. Said trust also inures to the benefit of [Markel] for any liability or loss it may have or sustain under any of said Bonds, and this Agreement shall constitute notice of such trust.

Id. at 14. Relying on the Indemnity Agreement, Markel issued payment and performance bonds for two of Lauren's construction projects (the Projects). Id. at 7.

It was not until March 10, 2021—nearly three years after executing the GAI—that Markel filed a UCC-1 Financing Statement in Texas. Dkt. No. 14 at 185-87. The financing statement contains a long list of covered collateral, including "accounts receivable." Id. at 185.

C. Following Lauren's default, Origin seizes the accounts receivable in Lauren's account.

In February 2020, the President and CEO of Lauren passed away. Dkt. No. 20 at 7. Shortly after, Lauren began suffering financial difficulties. Id. In January 2021, Lauren defaulted on its obligations under Loan Agreement. Dkt. No. 14 at 5, 168-69. Origin gave written notice to Lauren that it was in default, notifying Lauren that it would need to "enter[ ] into discussions with [Origin] as to the actual amount of weekly payments . . . , an immediate pay-down of the outstanding indebtedness, and the identification of additional collateral to be pledged to the [l]oan." Id. at 168. By March 8, 2021, Lauren had not cured the defaults, and the amount owed and unpaid on the loan was approximately $10,338,330.79. Id. at 5. Based on Lauren's existing default, Origin exercised its security rights according to the Loan Agreement and swept—or seized—the money in Lauren's accounts on several occasions between March 9, 2021 and April 5, 2021, to offset a portion of Lauren's debt.⁴ Id. at 5-6; see id. at 21. Lauren obtained a total of $2,343,722.22 from these sweeps (id. at 6), including a total of $1,383,156.54 of accounts receivable from the Projects. Id. at 8.

When Markel became aware of Origin's actions, Markel sent a letter to Origin, demanding that Origin return the $1,383,156.54 in accounts receivable from the Projects because that money was allegedly being held in trust by Lauren for the benefit of Markel.⁵ Id. Nevertheless, Origin refused to give the funds to Markel. Id.

D. Markel files suit, and the parties file cross-motions for summary judgment.

Lauren filed for Chapter 7 bankruptcy in April 2021. Bankr. Dkt. 1.⁶ Markel filed a lawsuit against Origin in the Texas District Court in the 350th Judicial District in Taylor County, Texas. Id. at 1. Origin removed the case to the U.S. Bankruptcy Court for the Northern District of Texas, creating an adversary proceeding. Id. at 2. Markel then filed a motion seeking an "order withdrawing the reference to the United States Bankruptcy Court for the Northern District of Texas." Bankr. Dkt. No. 11; Dkt. No. 1-1 at 2. The bankruptcy court filed a Report and...