## Facts

- Omegas Group, Inc. and XL/Datacomp, Inc. were “industry remarketers” of IBM mid-range computers operating under IBM discount resale arrangements.
- The companies entered a relationship in which Omegas would place IBM orders on Datacomp’s behalf without IBM’s knowledge; Datacomp sent customer orders and funds to Omegas, and Omegas was to pay IBM upon delivery.
- Datacomp paid Omegas about $1.1 million intended for IBM purchases.
- On September 12, 1990, Omegas stopped making payments to IBM for computers on order but continued invoicing Datacomp.
- On October 15, 1990, Omegas asked IBM to cancel pending deliveries without informing Datacomp, despite having received Datacomp’s funds for those machines.
- Omegas later filed bankruptcy (Chapter 11, then converted to Chapter 7), and a trustee was appointed for the estate.
- Datacomp alleged Omegas’s conduct was fraudulent and claimed the paid funds were held for Datacomp in constructive trust and therefore excluded from the bankruptcy estate.

## Issues

1. Whether a bankruptcy court may impose a post-petition constructive trust based on pre-petition misconduct to remove assets from the estate and give one creditor priority over other unsecured creditors.
2. Whether allegations of fraud, without a pre-petition adjudication or an established pre-petition trust res and vested equitable interest, are sufficient to treat the disputed funds as not estate property under 11 U.S.C. § 541.

## Decision

- The Sixth Circuit reversed the district court and bankruptcy court.
- The court held the bankruptcy court erred by imposing a constructive trust on any portion of the funds Datacomp paid to Omegas.
- The funds remained property of the bankruptcy estate, and Datacomp’s rights were those of a general unsecured creditor.

## Legal Principles

- Under 11 U.S.C. § 541, estate property includes the debtor’s legal and equitable interests as of the petition date; property is excluded only to the extent another party held a vested equitable interest at that time.
- A constructive trust is a remedial device that does not exist as a property interest until declared; absent pre-petition imposition or a recognized pre-petition trust relationship with an identifiable res, it is not an existing equitable interest that automatically excludes property from the estate.
- Post-petition imposition of a constructive trust for a single creditor is generally disfavored because it removes assets from the estate and disrupts the Bankruptcy Code’s ratable distribution scheme.
- Fraud allegations may support a claim for damages but do not, by themselves, establish segregated trust property or confer priority over similarly situated creditors in bankruptcy.

## Conclusion

The Sixth Circuit rejected using a post-petition constructive trust to elevate a defrauded creditor over other unsecured creditors, holding that without a pre-petition vested trust interest or adjudicated trust, the disputed funds remain estate property subject to bankruptcy distribution.


In re Omegas Grp., Inc., 16 F.3d 1443 (6th Cir. 1994)