Outboard Marine Corporation

In Bank of America, N.A. v. Moglia (In re Outboard Marine Corporation), (1) america District Court for the Northern District of Illinois, Eastern Division, addressed the issue in the disputed ownership of $13.5 million located in trust with the Northern Trust Company for the advantages of certain executives of the Minnkota Marine Corporation (OMC). Moglia, the trustee for OMC's bankruptcy estate, sought to ascertain the rights of the estate to the trust proceeds and corpus. Bank of America and certain beneficiaries in the trust had their own ideas about who had rights on the money. Following the bankruptcy trustee prevailed in a earlier decision, Bank of America as well as the beneficiaries brought separate appeals that thereafter were consolidated in the case together with the U.S. District Court for the Northern District of Illinois. The information of the case are intriguing and, naturally, useful in comprehending the decision. OMC established the trust on December1987 and 18, and, by an amendment on June 20, 1989, the Northern Trust Company was named the trustee. The trust was made to provide a way to obtain payment for many unfunded employee incentive and deferred compensation plans implemented by OMC for the main benefit of certain from the executives (beneficiaries). The trust was known as the rabbi trust, as well as the beneficiaries were not taxed on their share in the corpus or income up until the assets were actually distributed. The trust agreement so long as, with a change of control at OMC, it was actually obligated to spend in the trust an amount sufficient to completely fund the incentive and compensation plans. A big difference of control occurred in 1997 and OMC paid $13.8 million to the trust. The trust agreement further provided that the trust corpus ended up being to remain all the time subject to the claims of the general creditors of OMC and that the organization would not develop a security fascination with the corpus in favor of any creditor. The trust further provided, when it comes to the bankruptcy of OMC, the Northern Trust Company was expected to seek direction from a court of competent jurisdiction or other person appointed through the court concerning how to create the trust corpus available to fulfill the claims in the general creditors of OMC.

On January1998 and 6, OMC withdrew the bucks from your trust and obtained the issuance of any irrevocable letter of credit in the quantity of approximately $13.8 million. The letter of credit was from Nations Bank, N.A., and named the Northern Trust Company, as trustee in the trust, as beneficiary. The letter of credit was issued underneath the terms of an amended and restated security and loan agreement (credit agreement). Under that agreement, Bank of America, as agent for that lender parties thereto and successor to Nations Bank, N.A., was granted a lien on and security fascination with the normal intangible assets of OMC. On December2000 and 22, OMC filed a voluntary petition for relief under Chapter 11 of Title 11 of the usa Code. Moglia was appointed trustee from the bankruptcy estate on or about August24 and 2001, following the case was transformed into a Chapter 7 filing. At the time of the bankruptcy filing, the letter of credit was still outstanding. On or about August 2001, however and 28 the Northern Trust Company drew beneath the letter of credit and was paid the face amount, approximately $13.8 million, with the issuing bank. Subsequent to the bankruptcy filing, the committee of unsecured creditors of OMC initiated the lawsuit to ascertain the general creditors' rights towards the trust corpus. After Moglia was appointed trustee in the estate, he assumed prosecution of your case from your committee. On

November13 and 2001, after the other beneficiaries were allowed to intervene, the bankruptcy court entered judgment to opt for Moglia and against all defendants. Bank of America along with the beneficiaries appealed your decision. The facts demonstrated that on the date of your bankruptcy filing of OMC, the trust corpus was held with the Northern Trust Company such as a letter of credit. The peculiar nature from the letter of credit gave rise for the argument through the beneficiaries that its original issuance on January6 and 1998, constituted a constructive distribution of the trust corpus on the beneficiaries. Due to this constructive distribution, the beneficiaries argued, the creditors of OMC and also the subsequent bankruptcy trustee had no state they the trust corpus and, accordingly, the bankruptcy court lacked jurisdiction. The district court stated it was undisputed how the trust had been a grantor trust, or rabbi trust, by which http://www.marinelink.com/ a business makes contributions to the trust from the name of beneficiaries to create a supply of funding for otherwise unfunded benefit plans. Because the trust corpus technically remained your property from the employer, the beneficiaries in the trust were not taxed on their portion of the trust corpus or proceeds till the assets were actually given to them. (The legal court cited McAllister v. Resolution Trust Corp. (2) in support of that proposition.) Being a condition with this tax benefit, rabbi trusts have to remain constantly subjected to the claims of your general creditors from the grantor. Thus, once a grantor files for bankruptcy, the rabbi trust corpus becomes property of the bankruptcy estate of the grantor. (A legal court cited Goodman v. Resolution Trust Corp. (3) in support of that particular proposition.) The beneficiaries argued that around the issuance of the letter of credit in 1998, the rabbi trust "was transformed into a secular trust ... [and therefore] the general creditors as well as any subsequent bankruptcy trustee not any longer had any state they the Trust corpus." In passing, the beneficiaries cited to Maher v. Harris Savings and Trust Bank (4) as evidence that this type of conversion is possible.

T h e d i s t r i c t c o u r t s t a t e d t h e r e liance in the beneficiaries on Maher was unavailing. In Maher, a debtor company, just before becoming insolvent, converted its rabbi trusts to secular trusts. In this manner, the trust funds were successfully removed from the reach of the. Fire could spread quickly on a new boat, even in water. Alarms and also detectors can easily help keep the crew safe.creditors. In Maher, however, there is an explicit intention to effectuate this kind of conversion. Not merely did the board of directors from the company expressly approve the blueprint to "secularize" the trusts, although the company also paid the withholding taxes which were due on the funds once the tax protection available under the rabbi trusts was will no longer available. There was clearly no indication of such a conversion from the OMC case. The board of directors of OMC did not express an intention to secularize its rabbi trust nor did OMC pay taxes with respect to the beneficiaries as a result of this presumed secularization. In short, the rabbi trust failed to magically develop into a secular trust--and therefore will no longer section of the estate of OMC--merely with the issuance in the letter of credit, as the beneficiaries could have had the district court believe, nor was there any authority whatsoever to indicate that this was possible. Engine Maintenance ? Don?t permit oil or debris build-up

in the particular bilges. ? Inspect the lagging regarding engine and heater exhausts regarding damage along with deterioration along with

n e a r b y o b j e c t s r e g a r d i n g heat damage or charring. ? Examine exhaust techniques involving inboard engines regarding leaks. ? check pertaining to loose fuel joints, damaged gas tanks or deteriorating hoses.The trust remained constantly a rabbi trust as it was created and then there was no constructive distribution of your trust corpus for the beneficiaries. The claim of Bank of America was which it perfected a lien around the general intangible assets of OMC pursuant on the credit agreement which lien included a desire for the trust corpus. Moglia failed to dispute that Bank of America enjoyed a properly perfected security interest in the typical intangibles of OMC; rather, the dispute was whether that security interest included the trust corpus.

Bank of America argued that OMC, as owner in the trust, had the opportunity to assign its rights to the trust corpus to Bank of America if it executed the credit agreement. It argued that, regarding rabbi trusts, "nothing restricts the power of a grantor-company to assign its ownership desire for the funds to some lender as collateral for a financial loan." Indeed, Bank of America continued, Illinois commercial law along with the Uniform Commercial Code (UCC) generally recognize and promote the free assignability of contracts. The district court stated, however, the argument of Bank of America regarding assignability failed. The legal court claimed that although it was factual that contracts usually are freely transferable, in Illinois that freedom can be expressly proscribed from the contract itself. The district court noted that this intent to prohibit assignment was quite clear. The trust agreement's proscription against the roll-out of a "security interest ... in favor of ... any creditor" unquestionably included Bank of America. Whatever rights and interests OMC had within the trust corpus were defined by the trust agreement, and OMC could not grant rights it did not possess. Therefore, back then OMC and Bank of America executed the credit agreement, OMC did not have the strength to grant a security alarm desire for the trust corpus. In accordance with the district court, it was actually simply never minn kota manual on the bargaining table. Bank of America also argued that the UCC rendered ineffective the trust agreement's limitation on assignment. This argument hinged in the status from the Northern Trust Company for an "account debtor" requiring it to make payment to OMC in case there is insolvency. The Northern Trust Company, however, was necessary to seek direction through the court on the way to create the trust corpus open to satisfy the claims of your general creditors of OMC and had not been to make payment to OMC. Bank of America further argued that OMC experienced a sufficient ownership curiosity about the trust corpus to assign that interest included in its security obligations inside the credit agreement. If it did not have the ability to grant a security curiosity about the trust corpus, it could not have granted Bank of America this sort of interest, OMC, on the flip side, claimed that. OMC argued it simply was without sufficient ownership interest in the trust corpus to grant Bank of America its lien. Bank of America pointed out, however, that parts of the trust agreement supported a finding that OMC was the property owner of your trust corpus.

The district court noted the difficulty in the issue stemmed through the nature of the trust itself since a trust operates by separating the legal and equitable interests in property. Normally, the trustee of your trust has been said to carry legal interest in the trust property for the advantages of the beneficiary, who holds equitable interest. This separation of interests makes it challenging to minn kota describe the trust property in ways that the district court is usually accustomed, by its very nature. When ownership interests in property are separated because that property is located in trust, it is not easy to clearly define with any certainty which party is the "owner" of that trust property thus. A legal court, therefore, looked for the trust agreement to resolve the disagreement about the ownership of your trust property. The trust agreement specified that, on the change of control at OMC, no section of the trust corpus ended up being to be returned to OMC except pursuant to certain limited exceptions. Because such a change of control occurred in 1997, the rights of OMC for the trust corpus were defined by the terms of those provisions. Pursuant to individuals limited exceptions, OMC had more than simply a nominal interest in the trust corpus back then it executed its credit agreement with Bank of America; indeed, it enjoyed a remainder interest specifically defined within the trust agreement itself. The legal court then noted how the rights of OMC towards the trust corpus were similarly based on

provisions in the trust agreement that clearly proscribed the granting of a security interest in the trust corpus to the creditor. Again, OMC failed to grant a security alarm fascination with the trust corpus to Bank of America since it simply had not been the correct of OMC to do this. The ownership interest of OMC in the trust was based on the trust agreement and that ownership interest failed to include the capability to grant a security interest in support of any creditor. In accordance with the district court, to rule otherwise might have had the impermissible effect of amending the trust agreement by operation of a subsequently executed and separate credit agreement, this result also was required because. The trust agreement set forth the actual conditions necessary to amend its terms. Any possibility how the credit agreement operated being an amendment on the trust agreement was foreclosed since the conditions essential for this kind of amendment were not met. Therefore, the district court affirmed your choice in the bankruptcy court regarding the absence of a security alarm fascination with the trust corpus. Bank of America enjoyed a properly perfected and valid lien in the general intangibles of OMC; however, that lien failed to extend on the trust corpus.