-
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 ELECTRONIC CITATION: 2000 FED App. 0191P (6th Cir.) File Name: 00a0191p.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _________________ ; In re: DUBLIN SECURITIES, Debtor. INC., Nos. 99-3337/3344 ______________________ > MYRON N. TERLECKY, Trustee of the Consolidated Bankruptcy Estate of Dublin Securities, Inc., Dublin Management, Inc., & Dublin Stock Transfer, Inc., Plaintiff-Appellant, v. SARAH HELMER (99-3337); HELMER, LUGBILL, MARTINS & NEFF COMPANY, LPA Defendants-Appellees. (99-3344), 1 Appeal from the United States District Court for the Southern District of Ohio at Columbus. Nos. 98-00646; 98-00647—Edmund A. Sargus, Jr., District Judge. 1 2 In re Dublin Securities, Inc. Nos. 99-3337/3344 Argued: April 18, 2000 Decided and Filed: June 7, 2000 Before: MERRITT and DAUGHTREY, Circuit Judges; CAMPBELL, District Judge.* _________________ COUNSEL ARGUED: Mark W. Iannotta, STRIP, FARGO, HOPPERS & LEITHART, Columbus, Ohio, for Appellant. Frederick M. Morgan, Jr., HELMER, LUGBILL, MARTINS & NEFF, Cincinnati, Ohio, for Appellees. ON BRIEF: Mark W. Iannotta, Myron N. Terlecky, STRIP, FARGO, HOPPERS & LEITHART, Columbus, Ohio, for Appellant. Frederick M. Morgan, Jr., HELMER, LUGBILL, MARTINS & NEFF, Cincinnati, Ohio, Irving Harris, STATMAN, HARRIS & BARDACH, Cincinnati, Ohio, for Appellees. _________________ OPINION _________________ MERRITT, Circuit Judge. The facts in this bankruptcy statute of limitations case are not in dispute. Dublin Securities, Inc., the debtor in this case, filed a Chapter 11 bankruptcy petition in August 1993. Under 11 U.S.C. § 1107(a), Dublin Securities continued the operation of the business and served the bankruptcy estate as a debtor in possession. Nearly one year later the bankruptcy was converted from a Chapter 11 reorganization to a Chapter 7 liquidation. Plaintiff, Myron Terlecky, was appointed trustee for the estate on August 25, 1994. On May 29, 1996, approximately twenty-one months later, the trustee filed * The Honorable Todd J. Campbell, United States District Judge for the Middle District of Tennessee, sitting by designation. 6 In re Dublin Securities, Inc. Nos. 99-3337/3344 Nos. 99-3337/3344 In re Dublin Securities, Inc. 3 limitations against the trustee before one is appointed and separate adversary proceedings against Sarah Helmer and before there is in fact any conversion to a straight bankruptcy Helmer, Lugbill, Martins & Neff Co., LPA alleging that from a Chapter 11 proceeding. A rule that runs the statute out defendants were recipients of fraudulent and preferential before the trustee has an opportunity to act makes no sense. transfers in violation of 11 U.S.C. § 544(b). Both defendants moved to dismiss the complaints on the basis that the trustee Based on these reasons, we hold that § 546(a)’s statute of brought the avoidance actions beyond the two-year statute of limitations for bringing avoidance actions, as it existed prior limitations set forth in 11 U.S.C. § 546(a). Both motions to the 1994 amendments, begins to run upon the actual were denied by the bankruptcy court, which held that the appointment of a trustee. We, therefore, reverse the judgment limitations period did not begin to run until the appointment of the district court and remand to the bankruptcy court for of the trustee. Afterwards, the defendants each filed an further proceedings. interlocutory appeal to the district court from the bankruptcy court’s order denying their motions to dismiss. Granting defendants’ motions for leave to appeal, the district court reversed the decision of the bankruptcy court and dismissed the trustee’s complaints on the basis that the limitations period began to run when the debtor filed its Chapter 11 petition and became the debtor in possession. Since more than two years had passed since the filing of the Chapter 11 petition, the district court found that the statute of limitations had run against the trustee who had been in office for only twenty-one months. The trustee appealed to this court. We now reverse. 11 U.S.C. § 546(a), as it existed prior to the 1994 amendments to the Bankruptcy Code, contains the applicable statute of limitations. It provides that: An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced . . . two years after the appointment of a trustee under section 702, 1104, 1163, 1302, or 1202 of this title . . . . 11 U.S.C.A. § 546(a) (West 1993). On its face, the plain language of § 546(a) provides the trustee, Terlecky, who was appointed pursuant to 11 U.S.C. § 702, two years from the date of his appointment to bring adversary actions on behalf of the estate against recipients of allegedly fraudulent and preferential transfers. Defendants argue on the basis of a complication added by 11 U.S.C. § 1107(a), which confers upon a debtor in 4 In re Dublin Securities, Inc. Nos. 99-3337/3344 Nos. 99-3337/3344 In re Dublin Securities, Inc. 5 possession the same authority of a Chapter 11 trustee. That there is no limitations period running under § 546(a)(1). The section provides: statute does not run against a trustee yet to be in existence. If nothing else, the equitable doctrine of laches would provide Subject to any limitations on a trustee serving in a case a viable defense to bar avoidance actions when there is under this chapter, and to such limitations or conditions inexcusable delay by a debtor in possession. as the court prescribes, a debtor in possession shall have all the rights, . . . and powers, and shall perform all the For a number of reasons – other than the obvious paradox functions and duties . . . of a trustee serving in a case of running a statute of limitations against a nonexistent person under this chapter. who has as yet delayed nothing – it would be bad policy to start a statute running before the trustee assumes office. 11 U.S.C. § 1107(a). The defendants argue that a debtor in Debtors in possession are less likely to commence avoidance possession not only has the same power as a trustee to avoid actions than appointed trustees because they are typically preferences and fraudulent transfers, but also has all of the “more interested in preserving relationships with their limitations that the Code imposes upon trustees as well. creditors than in maximizing the size of the estate.” In re Defendants then conclude that the language in § 1107(a) Maxway Corp.,
27 F.3d 980, 984 (4th Cir. 1994); see also means that a debtor in possession is bound by § 546(a)(1)’s Gleischman Sumner Co. v. King, Weiser, Edelman & Bazar, two-year limitations period, and further – and here is the rub
69 F.3d 799, 801 (7th Cir. 1995); In re W.M. Cargile – that the statute accrues and begins run against a later Contractor, Inc.,
145 F.3d 1335(6th Cir. 1998) appointed trustee at the time the debtor in possession is (unpublished). A debtor in possession’s goal is to appointed. In other words, the statute would have already run successfully reorganize, creating incentives to accommodate against a trustee if the debtor remains in possession for the vendors to continue business, which may mean forbearing first two years or more. But this is not what the statute says. from legal action against those who were paid in the months First, nowhere does § 546(a) mention that a debtor in preceding a bankruptcy. Any exercise of avoiding powers by possession is limited by the same two-year statute of a debtor in possession does not assist in the goal of limitations. Section 546(a)(1) clearly states that its two-year reorganization because there is no increase in the net wealth statute of limitations applies to certain types of trustees who of the firm; rather, use of avoiding powers simply reallocates are appointed under specifically enumerated code sections. claims among creditors at the potential cost of business Second, even if we were to find that §1107(a) imposes a two- prospects. See Gleischman Sumner
Co., 69 F.3d at 801. year limitations period on debtors in possession, it does not Interpreting § 546(a)(1)’s limitations period to begin running change the plain meaning of § 546(a)(1). As found by an upon appointment of a trustee thus “prevents any delay from earlier panel of this court, “it would simply mean that a commencement of [an avoidance] action from penalizing second two-year period begins to run ‘after the appointment unsecured creditors who would benefit from the recovery of of a trustee under section 702, 1104, 1163, 1302, or 1202 a preferential or fraudulent transfer.” In re Maxway Corp., 27 . . . .’” In re W.M. Cargile Contractor, Inc.,
145 F.3d 1335F.3d at 984. Moreover, a debtor in possession may have (6th Cir. 1998) (unpublished) (quoting 11 U.S.C.A. friends or family members he would like to prefer or enrich § 546(a)(1) (West 1993)). We need not here decide when the before or during the reorganization. Under the defendants’ limitations period runs against the debtor in possession. argument all he would have to do to accomplish such a scam Instead, we conclude only that the plain meaning of the statute is to let the statute run before converting to a straight is that a two-year limitations period begins on the bankruptcy. It is not a good idea to create such a set of appointment of a trustee. If there is no appointed trustee, then incentives for shady dealing by accruing the statute of
Document Info
Docket Number: 99-3344
Citation Numbers: 214 F.3d 773
Filed Date: 6/7/2000
Precedential Status: Precedential
Modified Date: 1/13/2023