                                PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT


                               No. 13-2116


In Re: FIRSTPAY, INC.,

                Debtor.

-------------------------

MICHAEL G. WOLFF, Trustee,

                Plaintiff – Appellant,

           v.

UNITED STATES OF AMERICA, IRS,

                Defendant - Appellee.



Appeal from the United States District Court for the District of
Maryland, at Greenbelt.     Peter J. Messitte, Senior District
Judge. (8:12-cv-02952-PJM; BK-03-30102; AP-05-01695)


Argued:   September 17, 2014            Decided:   December 12, 2014


Before MOTZ and DIAZ, Circuit Judges, and DAVIS, Senior Circuit
Judge.


Affirmed by published opinion.     Senior Judge Davis wrote the
opinion, in which Judge Motz and Judge Diaz joined.


ARGUED: Jeffrey Mitchell Orenstein, GOREN, WOLFF & ORENSTEIN,
LLC, Rockville, Maryland, for Appellant.   Michael J. Haungs,
UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
Appellee.    ON BRIEF: Kathryn Keneally, Assistant Attorney
General, Ivan C. Dale, Tax Division, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C.; Rod J. Rosenstein, United States
Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Baltimore,
Maryland, for Appellee.




                               2
DAVIS, Senior Circuit Judge:

       In this adversary bankruptcy proceeding, the trustee of the

bankruptcy estate of a payroll processing firm seeks a judgment

against the United States for an amount of payroll tax payments

the firm made on behalf of its employer-clients to the Internal

Revenue    Service.        After      a     series     of    decisions         by     the       United

States Bankruptcy Court for the District of Maryland and appeals

to   the   U.S.      District        Court    and      to    this        Court,      this    appeal

presents      one     issue:       whether     the         trustee       in    bankruptcy         may

reclaim as property of the debtor the approximately $28 million

transferred         by   the       debtor    to       the    IRS    during        the      90    days

preceding the filing of the bankruptcy petition. We agree with

the bankruptcy court and the district court that, as a matter of

law, the debtor lacked an equitable interest in the funds paid

over to the IRS, and therefore we affirm the judgment.

                                               I.

       A detailed description of the facts and procedural history

of this case is provided in the opinion we issued the last time

this   case    came      before      us.     See      In    re    FirstPay,         Inc.    (In     re

FirstPay    I),      391      F.   App’x     259,      262–67      (4th       Cir.    2010)      (per

curiam).      Here,      we    provide       only       those      facts       and    procedural

history    necessary          to    understand         the       issue    presented         in    the

instant appeal.



                                                  3
                                      A.

      FirstPay,    Inc.     (“FirstPay”     or     the       “Debtor”)    provided

payroll   processing      services   pursuant      to    a   Payroll     Processing

Agreement with each of its clients as well as tax reporting and

depositing services to a number of its clients in accordance

with a Tax Reporting Services Agreement (“Services Agreement”).

Prior to each payroll date, FirstPay would withdraw funds from

the client’s checking account sufficient to cover the following

amounts: (1) taxes for which the client was liable; (2) payment

of the client’s employees’ wages; and (3) fees owed to FirstPay

for its services. FirstPay deposited the withdrawn funds into a

FirstPay account that the parties call the “tax account.” The

Services Agreement provided that FirstPay would hold the tax

funds until taxes were due and then remit payments to taxing

authorities.

      Although FirstPay transferred a portion of the funds in the

tax   account     to   taxing     authorities       toward         satisfying     the

obligations of some of its clients, not all of the funds in the

tax   account   were   ultimately    used    for    this      purpose.    FirstPay

transferred     some   of   the   funds    from    the       tax   account   to    an

“operating account” used to pay its own business expenses, and

another portion of the funds were transferred to an “exchange

and reimbursement account” that was used for lavish personal

expenditures by FirstPay’s principals. The parties are unaware

                                      4
of how FirstPay determined what portions of the funds in the tax

account    would      be    remitted    to      taxing    authorities            and   what

portions would be transferred to the operating account or to the

exchange and reimbursement account.

      FirstPay’s      fraudulent       scheme    continued       without         detection

for several years, until the death of one of its principals in

2003. As a result of FirstPay’s misappropriation of its clients’

funds, a substantial portion of its clients’ tax obligations

went unpaid and now remain due and owing.

                                          B.

      Creditors       filed     an     involuntary        Chapter         7      bankruptcy

petition against FirstPay in the U.S. Bankruptcy Court for the

District of Maryland in May 2003. Appellant Michael Wolff was

appointed trustee of the bankruptcy estate.

      In 2005, the Trustee filed a nine-count complaint against

the United States in the bankruptcy court seeking a declaratory

judgment that the Government had no claim for taxes or penalties

against    FirstPay        clients   whose      payroll       taxes       were     paid    to

FirstPay   but     not     ultimately    remitted        to   the     IRS     (Count      I);

avoidance of FirstPay’s payments of its clients’ payroll taxes

to   the   IRS   as      preferences     under    11     U.S.C.       §    547 1    and    as


      1
       Section 547(b) provides that a trustee in bankruptcy
     may avoid any transfer of an interest of the debtor in
     property—
(Continued)
                                          5
fraudulent conveyances under 11 U.S.C. § 548 and Maryland law

(Counts     II     through   VIII);     and       turnover    of    avoided   transfers

under 11 U.S.C. § 550 2         (Count IX). The bankruptcy court granted

the Government’s motion for summary judgment as to the Trustee’s

declaratory judgment and preference claims and, after a one-day

trial,      entered    judgment    in    favor       of    the     Government     on   the

fraudulent conveyance claims.

       On appeal, the district court reversed as to the claim to

avoid as preferences under § 547(b)(4)(A) the payments FirstPay

made   to    the    IRS   within   90    days      prior     to    the   filing   of   the




     (1) to or for the benefit of a creditor;
     (2) for or on account of an antecedent debt owed by
     the debtor before such transfer was made;
     (3) made while the debtor was insolvent;
     (4) made—
     (A) on or within 90 days before the date of the filing
     of the petition; or
     (B) between ninety days and one year before the date
     of the filing of the petition, if such creditor at the
     time of such transfer was an insider; and
     (5) that enables such creditor to receive more than
     such creditor would receive if—
     (A) the case were a case under chapter 7 of [the
     Bankruptcy Code];
     (B) the transfer had not been made; and
     (C) such creditor received payment of such debt to the
     extent provided by the provisions of this title.
11 U.S.C. § 547(b).
       2
       A trustee in bankruptcy may recover, for the benefit of
the estate, property transferred to the extent that the transfer
is avoided under § 547 or § 548, or certain other sections of
the Bankruptcy Code. 11 U.S.C. § 550(a).



                                              6
bankruptcy petition. It is undisputed that, during that 90-day

period,     the    IRS     received     from    FirstPay,    on     behalf    of    its

clients,    a     total    of    $27,816,992.50     in    payroll    tax     payments,

including       $19,853,253.13         in   taxes       withheld    from     clients’

employees’ wages (i.e., “trust-fund taxes”) and $7,963,739.37 in

taxes owed by the client (i.e., “non-trust-fund taxes”). The

district court’s ruling was based in part on its determination

that “the transfer of funds from the Debtor to the IRS . . . was

a transfer of an interest of the Debtor in property” under §

547(b).

      On    remand,       the    bankruptcy     court    granted     the   Trustee’s

motion for summary judgment on the § 547(b)(4)(A) preference

claim   (Count     II)     and   the   related    turnover    claim    (Count      IX),

entered judgment against the Government in the amount of $28

million plus interest, and denied the Government’s subsequent

motion to alter or amend the judgment. The Government appealed,

and   the   district       court    affirmed     the     bankruptcy    court       in   a

summary order.

      On appeal to this Court, we determined that the district

court erred in saddling the Government with a concession that

FirstPay’s transfer of tax funds to the IRS on behalf of its

clients was a transfer of FirstPay’s own interest in property.

In re FirstPay I, 391 F. App’x at 267–69. We remanded the matter

with an instruction that the bankruptcy court reconsider the

                                            7
remaining       preference        claim    without        regard      to      any    such

concession. Id. at 267. We also instructed the bankruptcy court

to determine the merits of the Government’s “ordinary course of

business” defense under 11 U.S.C. § 547(c)(2), which the court

had refused to consider as untimely. Id. at 270.

      The parties stipulated to a set of facts for the bankruptcy

court    to    consider    on   remand     and    filed      new    summary    judgment

motions.       The   bankruptcy      court       determined         that     the    funds

transferred by FirstPay to the IRS were not FirstPay’s property

and     therefore    not     preferences         but,   if     the    payments      were

preferences, they would not be protected from avoidance under

the “ordinary course of business” exception. In re FirstPay,

Inc. (In re FirstPay II), BK-03-30102-PM, AP-05-1695-PM, 2012 WL

3778952    (Bankr.    D.    Md.    Aug.    30,    2012).      The    court    therefore

granted summary judgment in favor of the Government, and the

Trustee       appealed.    After     the       district      court     affirmed      the

bankruptcy court, the Trustee timely filed a notice of appeal to

this Court.

                                          II.

      Summary judgment is appropriate when there is no genuine

issue of material fact, and the movant is entitled to judgment

as a matter of law. In re French, 499 F.3d 345, 351–52 (4th Cir.

2007) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247

(1986)); see also Fed. R. Civ. P. 56(c); Fed. R. Bankr. P. 7056.

                                           8
This court reviews de novo a bankruptcy court’s award of summary

judgment and a district court’s affirmance thereof. Hager v.

Gibson, 109 F.3d 201, 207 (4th Cir. 1997) (citing In re Ballard,

65 F.3d 367, 370 (4th Cir. 1995)).

                                           III.

       In furtherance of the policy against preferential treatment

of    creditors     embodied       by    the   Bankruptcy    Code,     a   trustee    in

bankruptcy is permitted to avoid and recover certain payments

made by the insolvent debtor preferentially for the benefit of

some creditors prior to the filing of the bankruptcy petition.

See 11 U.S.C. §§ 547(b), 550(a). These avoidable preferences

include certain transfers made “on or within 90 days before the

date    of    the   filing    of    the    petition[.]”      Id.   §   547(b)(4)(A).

However, the trustee can only avoid a “transfer of an interest

of the debtor in property[,]” id. § 547(b), as only the debtor’s

property      would    have     been      available    for    distribution      among

creditors in the absence of the transfer. See Begier v. I.R.S.,

496 U.S. 53, 58 (1990). The sole issue in this appeal is whether

the nearly $28 million FirstPay transferred to the IRS during

the    90    days   preceding      the    bankruptcy   filing      constituted       “an

interest of the debtor in property” under § 547(b).

       In Begier, the Supreme Court looked to the scope of the

postpetition “property of the estate” as defined in 11 U.S.C. §

541(d) for guidance in determining the scope of the debtor’s

                                               9
prepetition property under 11 U.S.C. § 547(b). See 496 U.S. at

58–59. Property in which the debtor holds only legal title and

not an equitable interest is property of the debtor “only to the

extent of the debtor’s legal title, but not to the extent of any

equitable interest in such property that the debtor does not

hold.” Id. at 59 (quoting 11 U.S.C. § 541(d)). “[T]he debtor

does not own an equitable interest in property he holds in trust

for another,” and therefore any such trust property is not the

debtor’s for purposes of § 547(b). Id.

       Because       property      interests       are    generally      created    and

defined by state law, we look to state law to determine the

nature of a debtor’s interest in the property at issue. Butner

v.    United       States,   440    U.S.     48,    54–55    (1979).     “[A]bsent      a

countervailing federal interest,” state law “determines whether

a    given    property    falls     within    [the]      federal   framework”      of   a

bankruptcy estate. Am. Bankers Ins. Co. of Fla. v. Maness, 101

F.3d 358, 363 (4th Cir. 1996). Given that the agreements that

govern       the    relationships     between       FirstPay       and   its   clients

provide that their terms are to be construed in accordance with

Maryland law, the parties agree that Maryland law applies here.

See Nat’l Glass, Inc. v. J.C. Penney Props., Inc., 650 A.2d 246,

248 (Md. 1994) (“[I]t is ‘generally accepted that the parties to

a contract may agree as to the law which will govern their



                                           10
transaction[.]’”) (quoting Kronovet v. Lipchin, 415 A.2d 1096,

1104 (Md. 1980)).

      We hold that, under Maryland law, FirstPay held the $28

million in tax funds in an express trust and therefore lacked

the   equitable   interest   in   the   property   necessary   for   its

transfers to be avoidable under 11 U.S.C. § 547(b); accordingly,

we affirm the judgment. 3

                                   A.

      Under Maryland law, “[a] trust exists where the legal title

to property is held by one or more persons, under an equitable

obligation to convey, apply, or deal with such property for the

benefit of other persons.” From the Heart Church Ministries,

Inc. v. African Methodist Episcopal Zion Church, 803 A.2d 548,

      3
        Based on the terms of the relevant agreements, the
bankruptcy court determined that FirstPay and its clients
created a “resulting trust” to which the tax funds were subject,
rather than an express trust. In re FirstPay II, 2012 WL
3778952, at *7. Under Maryland law, a resulting trust is a form
of implied trust that “arises upon the presumed intention of the
parties where the terms of the disposition or accompanying facts
establish that beneficial interest is not to go with legal
title.” Siemiesz v. Amend, 206 A.2d 723, 725 (Md. 1965). A court
sitting in equity may therefore declare a resulting trust where
the circumstances surrounding a transfer of property “raise an
inference, unrebutted by the facts, that the party making the
transfer did not intend to give the transferee the beneficial
interest in the property[.]” Levin v. Sec. Fin. Ins. Corp., 230
A.2d 93, 98 (Md. 1967). Although we are persuaded that the terms
of the relevant agreements are sufficient to create an express
trust under Maryland law, we agree with the bankruptcy court
that an intent to create a trust was, at minimum, implied by
those terms.



                                   11
566 (Md. 2002) (citing Milholland v. Whalen, 43 A. 43, 43–44

(Md. 1899)). The existence of a trust must be established by

clear and convincing evidence. Kelley v. Kelley, 13 A.2d 529,

533 (Md. 1940).

      “Express trusts are created by the direct and willful acts

of the parties, by some writing, or deed, or words expressly

evidencing   the   intention            to   create    a    trust.”   From    the    Heart

Church Ministries, 803 A.2d at 567 (citing Levin v. Sec. Fin.

Ins. Corp., 230 A.2d 93, 98 (Md. 1967)). The Maryland Court of

Appeals has outlined three elements of a valid, express trust:

“[f]irst, a definite subject-matter within the disposition of

the   settlor;   second,       a   lawful,        definite     object   to    which   the

subject-matter     is     to       be     devoted;         [and]   third,    clear    and

unequivocal words or acts devoting the subject-matter to the

object of the trust.” Levin, 230 A.2d at 97 (quoting Sieling v.

Sieling, 135 A. 376, 381 (Md. 1926)) (internal quotation marks

omitted).

      All of the elements of a valid, express trust are satisfied

in this case. The funds at issue comprise a definite subject

matter    within    the        disposition            of     the   FirstPay     client,

transferred to FirstPay, and devoted to the lawful and definite

object of paying the client’s tax obligations by the clear and

unequivocal terms of the agreements between FirstPay and the

client. The Services Agreement states that “[c]lient’s checking

                                             12
account shall be debited for the aggregate total of all taxes

and unemployment and credited to FIRSTPAY, Inc. a minimum of

three days prior to payroll date”; and that “[t]hese tax funds

will be held by FIRSTPAY, Inc. until such taxes are due, and

will be submitted by FIRSTPAY, Inc. in accordance with local,

state and federal regulations.” In short, FirstPay was but an

intermediary, and there was no intention that it would keep the

funds or at any point use them for its own purposes or benefit.

See In re Dameron, 155 F.3d 718, 722–23 (4th Cir. 1998) (holding

that debtor held funds subject to express trust under Virginia

law   where   contractual     language     and   circumstances    under    which

debtor received funds showed that parties intended debtor “to

act merely as an intermediary[]” without any expectation that

debtor would keep the funds or “develop any equitable interest

in the funds[]”).

      Although the agreements here do not use the term “trust,”

“[w]hether or not a trust has been created in any given case is,

in the last analysis, a question of intention[,]” and therefore,

“[n]o   particular   words     are   necessary     to   create    a   trust[.]”

Kozlowska v. Napierkowski, 170 A. 193, 195 (Md. 1934); see also

Restatement (Third) of Trusts § 13 cmt. b (2003) (“[A] trust may

be created without the settlor’s use of words such as “trust” or

“trustee[.]”).     The   language     of     the   Services      Agreement    is

sufficient    to   evidence    a   clear    intent   by   the    parties     that

                                      13
FirstPay would be obligated to handle the tax funds solely for

the benefit of its clients and of the taxing authorities in

satisfaction of the clients’ tax obligations. Thus, FirstPay and

each of its clients expressly created a trust, and the tax funds

received and transferred by FirstPay pursuant to its obligations

under    the   Services     Agreement    were   trust   property    in   which

FirstPay held no equitable interest.

                                        B.

     The Trustee’s argument that, upon transfer to FirstPay, the

tax funds became a debt FirstPay owed to its clients and not

trust property, is without merit.

     The Trustee correctly asserts that a “debt is not a trust.”

Dunlop Sand & Gravel Corp. v. Hospelhorn, 191 A. 701, 706 (Md.

1937) (quoting Restatement (First) of Trusts § 12 (1935)); see

also Restatement (Third) of Trusts § 5(k). When “one person pays

money to another, it depends upon the manifested intention of

the parties whether a trust or a debt is created.” Levin, 230

A.2d at 96.

     If the intention is that the money shall be kept or
     used as a separate fund for the benefit of the payor
     or a 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.

Dunlop   Sand,   191   A.    at   706   (quoting   Restatement     (First)   of

Trusts § 12);     see also Restatement (Third) of Trusts § 5 cmt.

                                        14
k. “Where the language of the parties does not clearly show

their intention, all the circumstances must be considered in

order to determine whether a trust or a debt was intended.”

Levin, 230 A.2d at 96.

     The    terms   of    the    agreements     between     FirstPay   and     its

clients clearly show that the parties did not intend for the

amount of the tax funds transferred to FirstPay to be a debt.

These agreements do not permit FirstPay’s unrestricted use of

the tax funds it received from its clients and in fact leave

FirstPay with no discretion as to how it could handle the funds.

FirstPay’s    freedom    to     use   the   funds   is   expressly   limited    to

holding them until the clients’ taxes are due and then remitting

them to the taxing authorities. The parties to these agreements

intended the tax funds to be used separately from other monies

the clients transferred to FirstPay and used for the separate

and limited purpose of satisfying the clients’ tax obligations.

It is clear that a trust was intended, and not a debt.

     The Trustee points to a stipulation the parties entered

into that each time FirstPay withdrew contractually authorized

funds from a client’s account, FirstPay became indebted to the

client for the amount of tax funds included in that withdrawal

(but not for the fees FirstPay was to retain for its services).

In   this    regard,     the    parties      have   stipulated   to    what    is

essentially a legal conclusion, one that we cannot accept. See H

                                        15
& R Block E. Enters., Inc. v. Raskin, 591 F.3d 718, 723 n.10

(4th Cir. 2010) (“[A] court is not required ‘to accept what in

effect [is] a stipulation on a question of law.’”) (citation

omitted). It is immaterial whether the parties knew the precise

legal characteristics of a trust relationship and whether they

knew that their intended relationship is called a “trust” under

the law. Restatement (Third) of Trusts § 13 cmt. a. The terms of

FirstPay’s     unambiguous      agreements,        which   we     interpret      as    a

matter of law, see Gresham v. Lumbermen’s Mut. Cas. Co., 404

F.3d 253, 260 (4th Cir. 2005), clearly establish that the tax

funds were intended to be held by FirstPay only for payment of

the clients’ taxes and therefore constituted trust property.

                                        C.

      The     Trustee   further      argues        that    the    funds     FirstPay

ultimately     transferred      to    the    IRS    cannot       be    deemed    trust

property because they had been commingled with other funds and

therefore     cannot    be    effectively       identified        or   traced.        The

Trustee points out that the money FirstPay obtained from each

client’s general operating account was first commingled in the

client’s account with funds intended and used for other purposes

by   the    client;   and    after   FirstPay      received      the   money,    those

funds were again commingled in FirstPay’s “tax account” with

funds intended for payment of the client’s and other clients’

employees’ wages, payment of FirstPay for its payroll services,

                                        16
and payment of other clients’ taxes. We are not persuaded that

the commingling of funds that occurred in this case defeated

creation of a trust.

       The     Trustee     relies      on     the     Maryland        Court     of   Appeals

decision in Levin v. Sec. Fin. Ins. Corp., 230 A.2d 93 (Md.

1967).        Levin     involved       claims       by    two        savings     and    loan

associations to funds they had transferred to Security Financial

Insurance       Corp.     (“Security        Financial”),        an    insurance      company

that     subsequently         became     insolvent.       Id.        at   94.    Agreements

between the parties provided that the associations would make

payments       into   a   “Trust     Fund”      held     by   Security        Financial    as

“Trustee”       in    order    “to     better      indemnify      [the     association’s]

savings account shareholders and to also increase the liquidity

of     said    association       and     to     set      up   a      reserve     fund     for

contingencies.” Id. at 94–95.

       After Security Financial became insolvent, the associations

initiated proceedings to secure refunds of their monies, and the

matter was referred to an auditor. Id. at 94. The auditor filed

a report concluding that the associations were entitled to funds

upon liquidation of the Trust Funds because Security Financial

“treated these funds as trust funds . . . and segregated them

from its general assets in all accounting,” which allowed them

to be traced. Id. at 95–96. Receivers of insolvent creditors of

the insurance company excepted to the report, arguing that the

                                              17
funds were general assets of Security Financial and therefore

available for distribution to all creditors. Id. at 94.

       The Maryland Court of Appeals affirmed the denial of the

creditors’         exceptions    to     the    auditor’s       report     based   on    the

parties’ intention that the funds would be subject to a trust.

See id. at 96–99. 4 To be sure, the court specifically rejected

the auditor’s conclusion “that the mere segregation of the funds

plus       their    traceability        will    permit     an        original   owner   of

property to recover it from his insolvent transferee.” Id. at

96.    Nevertheless,      the    court        stated    that    “[i]dentification        of

trust      property,    either     in    its        original    or    altered   form,    is

essential to its recovery by the cestui que trust.” Id. 5


       4
       The court determined that the elements of an express trust
were present except that the trust had an unlawful purpose but,
given the parties’ intent that Security Financial not hold an
equitable interest in the funds, they had created a resulting
trust. Id. at 98.
       5
        Other cases cited by the Trustee are not directly
applicable as they involved “constructive trusts,” an equitable
remedy imposed by Maryland courts “where property has been
acquired by fraud, misrepresentation, or other improper method,”
or to otherwise “prevent the unjust enrichment of the holder of
the property.” Wimmer v. Wimmer, 414 A.2d 1254, 1258 (Md. 1980);
see also Brown v. Coleman, 566 A.2d 1091, 1097 (Md. 1989).
“[U]nlike either a resulting trust or an express trust, a
constructive trust is remedial in character.” Restatement
(Third) of Trusts § 7 cmt. d (2003). Although lack of
identification and traceability may prevent a court sitting in
equity from imposing a constructive trust, the existence of an
express trust or a resulting trust will depend only on the
intentions of the parties.



                                               18
       We do not read Levin to have held, as the Trustee here

suggests, that funds must be segregated in order to be traceable

and subject to a trust. “[C]ourts have consistently rejected the

notion     that   commingling     of    trust    property,         without    more,    is

sufficient to defeat tracing.” In re Dameron, 155 F.3d at 723–24

(4th Cir. 1998). In another case, the Maryland Court of Appeals

held that “[i]t is not essential to a sufficient identification

that the fund or property delivered to the trustee be traced in

the precise or identical form in which it was received[.]” Cnty.

Comm’rs of Frederick Cnty. v. Page, 164 A. 182, 190 (Md. 1933);

see also MacBryde v. Burnett, 132 F.2d 898, 900 (4th Cir. 1942)

(holding     that,   under   Maryland      law,      “it    is     not   necessary    in

asserting the rights of the cestui que trust that the trust

funds be specifically traced”).

       A   beneficiary’s     entitlement        to   a     trust    fund     fails    for

insufficiency of identification “where it appears that the trust

fund   has   been    dissipated    or    so     mingled     and     merged    with    the

general assets of the insolvent estate as not to be separable or

distinguishable therefrom[.]” Page, 167 A. at 191. However, “if

a trustee or fiduciary mixes trust funds with his own, the whole

will be treated as trust property, except so far as he may be

able to distinguish what is his from that which belongs to the

trust[.]” MacBryde, 132 F.2d at 900 (4th Cir. 1942) (quoting

Englar v. Offutt, 16 A. 497, 499 (Md. 1889)). “So long as a

                                         19
trust fund can be traced, the court will always attribute the

ownership thereof to the cestui que trust, and will not allow

the right to be defeated by the wrongful act of the trustee or

fiduciary in mixing or confusing the trust fund with funds of

his own, or even those of a third party.” Englar, 16 A. at 499.

      Thus,     Maryland     law     does    not     countenance     FirstPay’s

frustration of the Government’s entitlement to the benefits of

the trust by simply mingling the tax funds with other funds in

the tax account. The commingling that occurred while the nearly

$28 million in tax funds at issue were in FirstPay’s possession

was not so severe that it prevented the funds from fulfilling

the   purpose    of   the   trust.    The    funds    were   not   “mingled   and

merged”   with    FirstPay’s       general   assets    or    “dissipated”     but,

rather, were received from FirstPay’s clients, held in the tax

account, and then transferred to the IRS as intended under the

terms of FirstPay’s agreements with its clients. 6 These tax funds

can thus be traced and connected to the trust.

      The Supreme Court examined an analogous situation involving

a federal statutory trust and drew the same conclusions. See


      6
       Funds withdrawn from the tax account and moved either                   to
the “operating account” to pay FirstPay’s operating expenses                   or
to the “exchange and reimbursement account” to be squandered                   by
FirstPay’s principals are not at issue in this appeal. There                   is
no contention here that those funds are identifiable                           or
traceable as trust property.



                                       20
Begier, 496 U.S. at 58–67. In Begier, a trustee in bankruptcy

sought to avoid under § 547(b) tax payments the debtor airline,

American International Airways, Inc. (“AIA”), had made to the

IRS during the 90 days prior to the bankruptcy filing. Id. at

57. AIA was required to hold excise taxes collected from its

customers     and     federal      income        taxes   and     Federal    Insurance

Contributions Act taxes withheld from its employees’ wages in “a

special fund in trust for the United States[.]” Id. at 55–56

(quoting 26 U.S.C. § 7501(a)). AIA’s payments of these “trust-

fund taxes” were made from both its general operating funds and

from a separate bank account devoted to the withheld taxes. Id.

at 56.

     The    Court     determined     that        AIA’s   prepetition       payment     of

payroll    taxes     from   its    general       operating     accounts    was   not    a

transfer of its own property but a transfer of trust property to

which it held no equitable interest. See id. at 67. First, the

Court     rejected    the     trustee’s      argument        that    the   trust     was

defeated by AIA’s failure to segregate the tax funds from its

general operating funds, noting that a requirement to segregate

the funds “would mean that an employer could avoid the creation

of a trust simply by refusing to segregate.” Id. at 61.

     Next,    the     Court     turned      to    the    issue      of   “whether    the

particular dollars that AIA paid to the IRS from its general

operating    accounts       were   ‘property       of    the   debtor[]’”     under    §

                                          21
547(b). Id. at 62. Upon examination of legislative history of §

541,    Justice         Marshall     stated     that     courts      should       permit

“reasonable assumptions” in determining whether particular funds

in the debtor’s possession are tax funds held in trust for the

Government in both prepetition and postpetition contexts. Id. at

65.    One   such       reasonable    assumption,        based      on   the    Court’s

examination        of   legislative    history,        was   that    “any      voluntary

prepetition        payment    of   trust-fund    taxes       out    of   the    debtor’s

assets is not a transfer of the debtor’s property[]” but rather

a transfer of funds held in trust for payment to the Government.

Id. at 66–67.

       Common-law principles provide a basis for a court to make

similar reasonable assumptions in the context of a common-law

trust. One such principle provides that if a trustee holds trust

funds in an account where those funds are mingled with non-trust

funds and then makes a withdrawal from the account for a trust

purpose,     the    trustee    will   be   deemed      to    have   withdrawn     trust

funds. George Gleason Bogert & George Taylor Bogert, The Law of

Trusts and Trustees § 926 (2d ed. rev. 1995). Another principle

provides that if a trustee holds funds subject to one trust in

an account mingled with funds subject to a separate trust and

then makes a withdrawal for the express purpose or benefit of

the first trust, the withdrawn funds will be deemed subject to

the first trust and distinct from other trust funds. Id. § 927.

                                           22
      Under       these   principles,         a    court   may     presume    that      funds

received, held, and conveyed by a trustee in accordance with the

purpose and for the benefit of a trust, although commingled with

funds not subject to that trust, are indeed funds subject to the

trust.      In   the   context     of    a    preference         avoidance    claim,       the

burden rests with the party claiming ownership of the funds to

rebut the presumption.

      This position comports with both the Maryland law of trusts

and the Bankruptcy Code. As previously stated, when a trustee

mingles trust funds with its own funds, Maryland law places the

burden on the trustee to distinguish its property from the trust

property.        MacBryde,   132   F.2d       at    900;   Englar,       16   A.   at     499.

Further, under 11 U.S.C. § 547(g), a bankruptcy trustee “who

seeks to reclaim for the estate a pre-petition transfer . . . as

a   voidable       preference     bears       the    burden      of    demonstrating      the

presence of all elements of a preference, as established in §

547(b).” In re Virginia-Carolina Fin. Corp., 954 F.2d 193, 196

(4th Cir. 1992). The Trustee in the instant case, therefore,

bears the burden of proving that the nearly $28 million he seeks

to reclaim from the Government was FirstPay’s own property and

not   the    tax    funds    it   held       in    trust   for    the    benefit     of   its

clients     and    the    Government.        The    Trustee      has    not   carried     his

burden here.



                                              23
     In sum, we hold that, in the absence of contrary proof, the

law will presume that any funds received, held, and ultimately

transferred by a trustee in accordance with the trust purpose

are indeed trust funds. The burden rests with the trustee to

rebut that presumption and establish that the funds so held and

transferred, or any portion thereof, were not subject to a trust

but were the trustee’s own property prior to transfer. Here, the

Trustee has not met this burden on behalf of FirstPay’s estate

with respect to the approximately $28 million at issue in this

appeal. Summary judgment was therefore properly granted in favor

of the Government on the Trustee’s claim to recover these funds

under § 547(b) and § 550(a).

                                   D.

     It is regrettable that the employer-clients entrusted their

money to a fraudster and, as a result of the fraudulent conduct

and apparently not any action by the employers themselves, some

of those employers are now better off than others; indeed some

face the real prospect of double liability. As noted previously,

FirstPay’s   remission   of   clients’   tax   funds   to   the   IRS   only

satisfied the tax obligations of some of its clients while it

only partially satisfied the obligations of others and a third

set of clients had no tax payments applied on their behalf. We

do not know how FirstPay decided which clients’ taxes it would

pay and which it would not, and we regret that some of the

                                   24
clients       remain   liable    to   the    IRS   for     tax    payments    they    had

entrusted funds to FirstPay to make. But the employers assumed

the    risk    of   FirstPay’s     mishandling       of    their    funds    when    they

selected the firm for vital payroll processing and tax reporting

services.

       We     recognize   that     the      Government      has    made     efforts    to

minimize distress to those employers who remain liable for taxes

by,    for    instance,   waiving      otherwise      applicable      penalties        and

other measures. We expect that responsible government officials

will continue to proceed with sensitivity to the realities of

this     painful       situation      in     which        these    businesses         find

themselves.

                                            IV.

       For the reasons set forth above, the judgment is

                                                                              AFFIRMED.




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