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If your motor carrier goes bankrupt, do you know what happens to your escrow?

If you are leased to a motor carrier that suddenly goes bankrupt, what happens to your escrow money? Are those general escrow funds deducted from your compensation (A) the property of the bankruptcy estate or (B) should the money be refunded to you? A - your money is now their money. B - your money goes back in your pocket. A? B? The answer can’t be that hard.

It seems pretty obvious that if the motor carrier is holding your money for you, it’s a trust, say OOIDA’s attorneys. It’s maintained for your benefit and the bankruptcy estate has no claim to that money.

However, a year ago, more than 1,000 owner-operators leased to the four motor carrier subsidiaries of a company known as Intrenet Inc found out what happens to their escrow funds when the motor carrier goes bankrupt. The company ceased operation on Jan. 2, 2001, and all owner-operators leased to Roadrunner Dist., Roadrunner Trucking, Advanced Dist. System, and Eck Miller Transportation were terminated as of that date. None have seen a dime of their escrow accounts.

It was this dilemma that drew OOIDA into the ring on behalf of owner-operator members on the double. The association filed an adversary proceeding in the bankruptcy of Intrenet Inc. (the four motor carriers). OOIDA also filed claims against Huntington National Bank, which served Intrenet and the motor carrier subsidiaries prior to the bankruptcy. The lawsuit is filed as a class action on behalf of all owner-operators under lease to any of the four motor carriers. In its complaint, OOIDA seeks to separate from the bankruptcy estate the escrow funds held by the defendants at the time of the bankruptcy. The suit also requests the return of all escrow funds to individual owner-operators, prior to the payment of the amounts due to creditors.

Escrow funds are created and regulated by the federal truth-in-leasing regulations, says OOIDA. Motor carriers hold money that belongs to the owner-operator in order to satisfy certain obligations and by regulation, the motor carrier must account for this money to the owner-operator. The escrow regs require the agreement between the owner-operator and the motor carrier to specify just how escrow funds can be used and allows the carrier to deduct amounts from the escrow fund as specified by the agreement.

In the case of Intrenet, the company’s attorneys say because the escrow funds were not segregated or handled by a third party, it really isn’t a “true” escrow per Ohio state law. Late last fall, the bankruptcy judge agreed to make a summary judgment on these “threshold” issues. Before Christmas, OOIDA filed several additional briefs in the U.S. Bankruptcy Court for the Southern District of Ohio in support of the association’s argument that no matter how state law may be interpreted, the federal leasing regulations supercede. As we were nearing LL’s press deadline, the good news on this ruling was delivered. In his ruling, Judge J. Vincent Aug Jr. ruled that escrow funds are subject to a statutory trust created by the federal regulations regardless of who holds the funds. He rejected the carriers’ and Huntington’s argument that trust funds must be held by a third party, citing the federal regulation’s definition of escrow funds as “money deposited by the lessor with either a third party or the lessee...”

Judge Aug went on to declare these statutory trusts could not be included in Intrenet’s bankruptcy estate.

This case isn’t OOIDA’s first trip to town regarding the escrow issue. In OOIDA vs. Arctic Express, the court found that a maintenance fund is an “escrow fund.” In OOIDA vs. Mayflower, the court found that a cash account created with deductions from owner-operator compensation to repay advances, cover repairs, licenses, state permit costs and the like was an escrow fund. In OOIDA vs. Ledar Transport, the court found a security deposit to be an escrow fund.

This first edict from Judge Aug’s order in the Intrenet Inc. case does not mean the case is over, but his ruling is of momentous significance in defining who is the rightful owner of escrow monies.

While OOIDA has made tremendous advances in court regarding escrow accounts, if you must sign on with a company that requires setting up an escrow fund, OOIDA wants you to be fully aware that the escrow funds collected from you belong to you. It is essential you know precisely how the money is handled.

Importantly, you must know that the money they are holding for you be separated out, so should anything happen, the motor carrier can’t find a way to lay claim to your money. The return of your escrow must be top priority of a motor carrier — a higher priority than paying its bank, a higher priority than paying its rent, a higher priority than paying its investors, and a higher priority than paying any of its creditors.
—by Sandi Soendker, managing editor