Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-86-01013/USCOURTS-ca10-86-01013-0/pdf.json

Parties Involved:
Citicorp Acceptance Company
Appellant
W. LaMonte Robison
Appellee
Sweetwater
Not Party

Document Text:

P U B L I S H .. FILED 

United s.catet Court Qf Appeals 

fenth Clrcuft 

IN THE UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT SEP 1 .. 1989 

ROBERT L. HOECKER 

Clerk · 

IN RE: 

SWEETWATER, et al., 

Debtors, 

) 

) 

) 

) 

) 

CITICORP ACCEPTANCE COMPANY, INC., ) 

Appel lee/Cross-Appellant 

v. 

w. LaMONTE ROBISON, as trustee 

for administrative claimants as 

assignees of a chose in action 

from Sweetwater, etc., 

Appellant/Cross-Appellee. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

Nos. 85-2933 

86-1013 

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF UTAH,-CENTRAL DIVISION 

(D. C. No. 84-2170J) 

Alan L. 

(Carol 

MacRae, 

Robison 

Smith, LeBoeuf, Lamb, Leiby & MacRae, Salt Lake City, Utah 

Goodman and Steven J. Mccardell of LeBoeuf, Lamb, Leiby & 

were also on the brief) for Appellant/Cross-Appellee 

Randall J. Sunshine, Shearman & Sterling, New York, New York (L. 

Mark Ferre, Clyde & Pratt, Salt Lake City, Utah, George J. Wade 

and Steven E. Sherman of Shearman and Sterling, New York, New 

York, were also on the brief) for Appellee/Cross-Appellant 

Citicorp Acceptance Company, Inc. 

Before HOLLOWAY, Chief Judge, BARRETT and BALDOCK, Circuit Judges 

HOLLOWAY, Chief Judge 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 1 
The court has before it an appeal and a cross-appeal from an 

order of the United States District Court for the District of 

Utah, Robison v. Citicorp Acceptance Co. (In re Sweetwater), 55 

B.R. 724 (D.Utah 1985), which are consolidated. The trustee, 

Robison, appeals a ruling that avoiding powers assigned to him 

were nonassignable and that he cannot maintain suit to avoid a 

transfer made to Citicorp Acceptance Company, Inc. (Citicorp). 

Citicorp cross-appeals a ruling by the district court that the 

Bankruptcy Court had subject matter jurisdiction to entertain the 

avoidance action. 

The basic issues before us thus are: (1) whether the 

bankruptcy court has subject matter jurisdiction over the 

avoidance action, and (2) whether plaintiff Robison may pursue the 

avoidance action pursuant to 11 u.s.c. 1123(b)(3)(B) as a 

representative of the estate under the avoidance authority 

assigned to him. We hold that the bankruptcy court has subject 

matter jurisdiction and that Robison may pursue the avoidance 

action as a representative of the estate. 

I 

Sweetwater and its affiliates (Sweetwater) filed a petition 

for reorganization under chapter 11 of the Bankruptcy Code (the 

Code), 11 u.s.c. §§ 1101-1174. 1 During the bankruptcy proceeding 

Sweetwater continued to operate its business as a debtor in 

possession, incurring debts for "administrative expenses." See 

§§ 503, 1107, 1108. Sweetwater could not pay these administrative 

1 

All statutory references are to title 11 of the United States 

Code, the Bankruptcy Code. 

2 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 2 
claims in cash on the effective date of its reorganization plan 

(the plan) as the Code requires, so the administrative claimants 

"agreed to a different treatment'' of their claims. § 1129 (a)(9). 

This written agreement (the agreement) was included in the plan, 

which -the bankruptcy court confirmed. 2 I R. item 1, exh. A 

Instead of cash the administrative claimants accepted an interest, 

equal to the allowed amount of their claims, in a fund of cash and 

assets. The fund's assets include "the potential proceeds from 

litigation or settlement with First Financial and Citicorp." IR. 

item 1, exh. A, p. 6. 3 The plan provides that "[t]he Bankruptcy 

Court shall retain jurisdiction to hear and determine that 

dispute." Citicorp Acceptance Co. v. Ruti-Sweetwater (In re 

Sweetwater}, 57 B.R. 354, 357 (D.Utah 1985). Robison was named 

trustee of the fund and is responsible for reducing the fund's 

assets to cash and distributing the cash to the administrative 

claimants. If the fund's assets produce more cash than the 

allowed amounts of the administrative claims, the reorganized 

debtor rec~ives the excess. 4 

2 

In Citicorp's appeal to the district court, the bankruptcy 

court's order confirming the plan was affirmed. Citicorp 

Acceptance Co. v. Ruti-Sweetwater (In re Sweetwater), 57 B.R. 354 

(D.Utah 1985). Citicorp's resulting appeal to this court was 

dismissed as moot. Citicorp Acceptance Co. v. Ruti-Sweetwater (In 

re Sweetwater), No. 85-1549, slip op. (10th Cir. Jan. 4, 1988). 

For a more detailed discussion of the confirmation process of 

Sweetwater's reorganization plan, see Heins v. Ruti-Sweetwater (In 

re Sweetwater}, 836 F.2d 1263 (10th Cir. 1988). 

3 

We are advised that First Financial and Robison settled their 

dispute after Robison filed his opening brief. Opening Brief of 

Citicorp at 3, n.2. 

4 

The wording of the agreement in relevant part is as follows: 

(Footnote continued on next page) 

3 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 3 
In accordance with his duties under the plan Robison filed 

this action against Citicorp. Robison's § 544 (strong-arm) claim 

sought to avoid Citicorp's unperfected security interest in 

(Footnote continued): 

1. Debtors in possession .•• are unable to 

pay administrative claims in full on the effective 

date of reorganization. Pursuant to 11 U.S.C. 

§ 1129(a)(9), holders of allowed administrative 

claims must be paid in full on the effective date 

of the plan of reorganization or such parties must 

agree to a "different treatment" of such claims. 

The different treatment proposed by the Debtors 

involves paying certain claims in full and leaving 

all remaining claims to be paid on a prorata basis 

from a pool of cash and assets to be established by 

the debtor. 

2. Administrative claims ••. which would 

participate in the pool, are as follows: 

[The agreement then lists 34 administrative 

claimants with claims totaling $1,807,241.] 

4. The Debtors will create a pool of cash and 

assets from which the remainder [claims totaling 

$317,286 are to be paid on the effective date] of 

the administrative claims listed above will be 

paid. This pool will be co~prised from the 

following sources in the following (in certain 

instances estimated) amou~ts: 

[The agreement then lists 8 sources totaling 

$944,000.] 

5. In addition to the cash and assets listed 

above, the pool shall include the potential 

proceeds from litigation or settlement with First 

Financial and Citicorp. 

9. w. LaMont Robison will be appointed as 

trustee (the Trustee) for the administrative 

claimants • • The Trustee's duties and 

responsibilities shall consist of the following: 

a. Title to the cash and assets listed above 

are hereby vested in the Trustee; provided, 

however, that the causes of action against Citicorp 

and First Financial outlined in paragraph 5 may be 

retained by the Debtors insofar as necessary to 

(Footnote continued on next page) 

4 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 4 
Sweetwater's rights to future payments under some timeshare 

installment sales contracts. His § 547 (preference) and § 549 

(unauthorized post-petition transfer) claims sought to recover 

payments Citicorp had received under those installment contracts. 

Robison's ·§ 553 (set-off) claim requested the amount of a mutual 

debt that Citicorp had improperly offset against Sweetwater's 

debts to Citicorp. 5 II R. 12-15. 

Citicorp filed a motion to dismiss asserting, among other 

things, that ( 1 ) the bankruptcy court lacks subject matter 

jurisdiction over the action, and ( 2 ) the plan provision giving 

Robison the responsibility of enforcing these avoidance actions is 

invalid because avoidance powers may not be assigned. The 

bankruptcy court denied Citicorp's motion. 

As noted, on appeal the district court held that the 

bankruptcy court had subject matter jurisdiction, but that Robison 

could not enforce these avoidance claims because the 

(Footnote continued): 

preserve the causes of action. Notwithstanding the 

Debtor's retention of these causes of action, the 

litigation will be pursued and proceeds of 

litigation will be distributed in accord with this 

document. 

c. In the event the prorata payments from 

the pool after deduction of fees and costs result 

in full payment of all claims listed in paragraph 2 

above any balance thereafter shall be 

remitted to the reorganized debtor. Upon final 

distribution of cash and assets, the Trustee will 

file a closing report with the Court. 

IR. item 1, exh. A. 

5 

plan 

The parties and the district court have not distinguished the 

causes of action, and we will also treat them generically as 

claims based on the debtor in possession's avoiding powers. See 

Robison, 55 B.R. at 729. 

5 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 5 
provision giving. him that power was an invalid assignment. The 

district court vacated the order of the bankruptcy court and 

remanded with instructions to dismiss Robison's complaint. 

II 

A 

On cross-appeal, Citicorp argues that the district judge 

erred when he held that the bankruptcy court and the district 

court have subject matter jurisdiction over this action. For the 

reasons stated by the district judge in his thorough and 

persuasive discussion of the issue, we affirm his ruling on 

jurisdiction. Robison, 55 B.R. at 728-729. 

B 

On appeal, Robison argues that the district judge erred when 

he held that Robison could not enforce these avoidance claims as a 

representative of the estate. Robison contends that the plan 

provision empowering him to enforce these claims is authorized by 

S 1123(b)(3)(B), which provides: 

[A] plan may provide for the retention and 

enforcement by the debtor, by the trustee, or by a 

representative of the estate appointed for such purpose, 

of any [claim or interest of the debtor or the estate]. 

The district judge disagreed, ruling that Robison was 

not a "representative of the estate" and was not effectively 

"appointed" to enforce these claims: 

[A representative of the estate] would not seem to 

include the debtor in possession's assignee, since 

the assignee represents his own interests and hence 

cannot be considered a representative of the 

estate. Furthermore, it would be contrary to the 

6 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 6 
spirit of chapter 11 to hold that the 'appointment' 

of the respresentative could be by a unilateral 

declaration of the debtor in possession. In all 

other code sections that speak of appointments, it 

is the bankruptcy court -- not the debtor who 

makes the appointment. See e.g., 11 u.s.c.A. 

SS 105(b), 303(9), 70l(a), 1102(a), 1104 & 1163. 

In keeping with the consistent meaning of this term 

throughout the Code, the court holds that, under 

section 1123(b)(3)(B), 'a representative of the 

estate appointed' to prosecute these claims means a 

representative appointed by the court and not the 

debtor in possession's assignee. 

Robison, 55 B.R. at 730. (emphasis in original) 

Thus, the district judge ruled that Robison could not qualify 

as a representative of the estate under§ 1123(b)(3)(B) because he 

was the debtor in possession's assignee, representing his own 

interest, and because he was not effectively appointed. We 

disagree. 

We hold that Robison was effectively appointed. We agree 

that the appointment of a representative of the estate under 

§ 1123(b)(3)(B) must be approved by the court, and may not be 

accomplished 

possession. 

declaration 

by a unilateral declaration of the debtor in 

But Robison was not appointed by a unilateral 

of the debtor in possession. Rather, his 

responsibilities were first agreed to by the debtor in possession 

and the adminstrative creditors. Then this agreement was included 

in the plan which was voted on and approved by all the creditors 

and confirmed by the bankruptcy court. This procedure was 

sufficent to appoint Robison for the purpose of enforcing these 

claims. Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 

F.2d 1177, 1180 n.l (11th Cir. 1987); Temex Energy v. Hastie and 

Kirschner (In re Amarex, Inc.), 96 B.R. 330, 334 (W.D.Okla. 1989); 

7 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 7 
Amarex, Inc. v. Marathon Oil Co. (In re Amarex, Inc.), 88 B.R. 

362, 363-364 (W.D.Okla. 1988), aff'g 74 B. R. 378 (Bankr. W.D. 

Okla. 1987); Kroh Brothers Dev. Co. v. United Missouri Bank (In re 

Kroh Brothers Dev. Co.), 100 B.R. 487 (Bankr. W.D.Mo. 1989); 

Perlstein v. Saltzstein (In re AOV Industries), 62 B.R. 968, 970 

and n.l (Bankr.D.Dist.Col. 1986). 

Further, Robison qualifies as a representative of the estate. 

We agree with the courts that have adopted a case-by-case approach 

to determine whether an appointed party's responsibilities and 

authority under a reorganization plan qualify them as a 

"representative of the estate." Temex, 96 B.R. at 334; See 

Tennessee Wheel and Rubber Co. v. Captron Corp. Air Fleet (In re 

Tennessee Wheel And Rubber Co.), 64 B.R. 721, 725-726 

(Bankr.M.D.Tenn 1986). "The primary concern is whether a 

successful recovery by the appointed representative would benefit 

the debtor's estate and particularly, the debtor's unsecured 

creditors." Temex, 96 B.R. at 334; Kroh Brothers, 100 B.R. at 

499-500; Tennessee Wheel, 64 B.R. at 725-726; Duvoisin, 59 B.R. at 

641-643. Here Robison does not merely represent his own 

interests; the only interest Robison has in any recovery is his 

agreed billing rate of $75 per hour. Rather, under the plan 

Robison is responsible for reducing these claims to cash and 

paying the administrative claims. In this respect any recovery by 

Robison will obviously benefit the estate's unsecured 

administrative creditors. Tennessee Wheel 64 B.R. at 726. 

Further, to the extent these avoidance actions have been used 

to satisfy the administrative claimants, who have priority over 

other unsecured creditors, the estate has more funds available to 

8 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 8 
pay other unsecured creditors. And if Robison realizes more cash 

from the fund's assets than the allowed amount of all the 

administrative claims, the remainder will go to the reorganized 

debtor who will then be in a better position to meet its financial 

commitments, if any, under the plan. Thus, any successful 

recovery by Robison will clearly benefit Sweetwater's unsecured 

creditors. 

The plan 

S 1123(b)(3)(B). 

also satisfies the remaining requirements of 

The plan provides for Robison to retain and 

enforce these avoidance claims. Although Robison's pleadings 

style him "Trustee for administrative claimants as assignees of a 

chose in action from Sweetwater,'' the agreement does not use the 

word assignment. To the contrary, the agreement provides that 

"the causes of action against Citicorp and First Financial . • 

may be retained by the Debtors insofar as necessary to preserve 

the causes of action." IR. item 1, app. A, p.8. Thus in effect 

the avoidance claims were not assigned outright to Robison within 

the meaning of th~ term "assign" as it traditionally has been used 

in the case law involving the nonassignability rule. Rather, 

Sweetwater has in effect retained the avoidance claims, Robison 

has been given the responsibility of enforcing them, and the 

adminstrative claimants have been given a right to share in any 

recovery up to the allowed amount of their administrative claims, 

in accordance with the agreement included in the plan. If 

S 1123(b)(3)(B) is to function in such a situation, a 

reorganization plan must empower a representative of the estate to 

enforce claims of the estate. See Tennessee Wheel, 64 B.R. at 

724; Xonics, Inc. v. E & F King & Co. (In re Xonics, Inc.), 63 

9 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 9 
B.R. 785, 788 (Bankr.N.D.Ill. 1986). Sweetwater's plan gives 

Robison no more power than is necessary to do this. 

These avoidance claims are also claims of the estate. A 

claim is defined by S 101(4) as a "right to payment, whether or 

not such right is reduced to judgment, liquidated, unliquidated, 

fixed, contingent, matured, unmatured, disputed, undisputed, 

legal, equitable, secured, or unsecured " This broad 

definition includes the estate's right to payment under§§ 547, 

549 and 553. We also think Robison's § 544 (strong-arm) claim may 

be treated as a claim of the estate for purposes of 

§ 1123(b)(3)(B). Accord Kroh Brothers, 100 B.R. at 496-498. In 

sum, the plan provision naming Robison as a representative of the 

estate for the purpose of enforcing these avoidance claims is 

consistent with§ 1123(b)(3)(B). 

Citicorp nevertheless refers to what it calls "an unbroken 

line of cases" holding that avoidance powers may be exercised only 

by the trustee or the debtor in possession acting as trustee --

that is, that avoiding powers may not be assigned. Hqwever, many 

of these cases were decided before§ 1123(b)(3)(B) was enacted and 

others decided later do not implicate that section. 

The pre-§ 1123(b)(3)(B) cases Citicorp refers to do recite 

the rule that an avoidance action may be enforced only by the 

trustee. Belding Hall Mfg. Co. v. Mercer & Ferndon Lumber Co., 

175 F.335, 340 (6th Cir. 1909); In re Downing, 201 F. 93 (2d Cir. 

1912); Grass v. Osborn, 39 F.2d 461 (9th Cir. 1930); Webster v. 

Barnes Banking Co., 113 F.2d 1003, 1005 (10th Cir. 1940); Mason v. 

Ashback, 383 F.2d 779, 780 (10th Cir. 1967); Texas Consumer 

Finance· Corp. v. First National City Bank, 365 F.Supp. 427 (S.D. 

10 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 10 
N.Y. 1973). However, the Bankruptcy Code is a statutory set of 

rules and Congress can change those rules. And to the extent that 

§ 1123(b)(3)(B) authorizes the bankruptcy court to appoint "a 

.representative of the estate ••• for that purpose," it alters 

the rule recited in these cases that an avoidance claim may be 

pursued only by the trustee or the debtor in possession. Southern 

Commodity Corp. Official Liqidating Comm. v. El Campo Rice Milling 

Co. (in re Southern Commodity Corp.), 78 B.R. 626, 627 

(Bankr.S.D.Fla. 1987); Perlstein, 62 B.R. at 970. 

Furthermore, the post-§ 1123(b)(3)(B) cases Citicorp cites do 

not focus on that statute and· the plan involved here does not 

present concerns identified by those cases. For example, in 

Delgado Oil Co. v. Torres, 785 F.2d 857 (10th Cir. 1986), we held 

that once a bankruptcy petition is filed, preference actions must 

be pursued in the bankruptcy proceeding, not outside it, and we 

noted that the power to pursue them is given by the Code to the 

trustee, as opposed to a single creditor. This procedure ensures 

that "[t]he overriding nature of the bankruptcy action to recover 

a preference cannot be circumvented. When a debtor corporation 

has made a transfer of its assets which results in the preference 

of one or more creditors over others, the purpose of an action 

against those transferees is to return assets to the debtor's 

estate for equitable distribution to all creditors." Id. at 861. 

Thus in Delgado Oil we were primarily concerned with whether 

preference actions must be pursued in the bankruptcy proceeding or 

could be pursued outside it. We held they must be pursued in the 

bankruptcy proceeding "to satisfy the basic bankruptcy purpose of 

treating all similarly situated creditors alike." Id. at 862. 

11 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 11 
Similarly, in Texas General Petroleum Corp. v. Evans (In re 

Texas General Petroleum Corp.), 58 B.R. 357 (Bankr. S.D. Tex. 

1986), in the course of the bankruptcy proceeding, Marmid had been 

assigned mineral leases owned by the debtor. Marmid then filed an 

action to avoid judicial liens on those mineral leases which 

Marmid claimed were avoidable preferences. The court held that 

Marmid had no standing to void the preferences because it was 

neither a debtor, trustee, nor a representative of the creditors 

committee; instead it was "a creditor of the debtor trying to 

exercise the avoidance power for itself as a sole creditor, not 

for the benefit of the debtor's estate or the creditors as a 

whole. • • • [T]he avoidance of any liens by Marmid will not 

benefit the debtor's estate or the general body of creditors of 

the estate. In the absence of that shqwing, Marmid is precluded 

from asserting its claims." Id. at 358. 

Delgado Oil and Texas General reaffirm the principle that 

post-petition avoidance actions should be pursued in a manner that 

will satisfy the basic bankruptcy purpose of treating all 

similarly situated creditors alike; one or more similarly situated 

creditors should not be able to pursue an avoidance action for 

their exclusive benefit. Indeed, this is the principle -- equal 

treatment of similarly situated creditors upon which pres 1123(b)(3)(B) cases that invoked the nonassignability rule were 

based. The reorganization plan in this case does not offend that 

principie. The plan treats all administrative creditors alike; 

they will each receive distributions from the fund in proportion 

to the allowed amount of their administrative claims. 

12 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 12 
Citicorp further argues that allowing Robison to pursue this 

action "would undermine the policies of the Bankruptcy Code.'' 

Appellee's Brief, p.10. We disagree. 

Initially, Citicorp notes the policy discussed above of 

achieving equality of distribution among similarly situated 

creditors. "All of the avoiding powers have the policy of fair 

treatment among creditors at their base. The details of the 

avoiding powers differ and some can be quite complex at points. 

The theoretical underpinning of all of them remains the equal 

treatment among creditors by forcing those who have received an 

unfair advantage to disgorge the ill gotten gains." R. Aaron, 

Bankruptcy Law Fundamentals I 10.01 (Clark Boardman Co.). See 

Delagado Oil, 785 F.2d 861-862; Texas General Petroleum, 58 B.R. 

at 358. As noted, the plan does not undermine this policy because 

it treats all administrative creditors alike. In fact, if the 

transfers from· Sweetwater to Citicorp are found to be avoidable, 

the resulting debt owed by the estate to Citicorp will be 

classified as an unsecured claim. Citicorp Acceptance, 57 B.R. at 

357. To this extent the plan will further the policy of achieving 

equality of distribution among similarly situated creditors by 

preventing Citicorp from receiving better treatment than other 

similarly situated unsecured creditors. See Tennessee Wheel, 64 

B.R. at 726; Duvoisin, 59 B.R. at 643. The plan will also 

increase the funds available to pay all unsecured creditors by 

satisfying the administrative claimants who have priority over 

other unsecured claims. 

Citicorp also refers to the difficult ''valuation problems" 

that will arise if plan provisions like this are allowed. These 

13 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 13 
"valua~ion problems" might allow finagling creditors to get better 

treatment than other similarly situated· creditors and frustrate 

the policy of treating similarly situated creditors alike. While 

it may be true that some plans will create such problems, this one 

does not. The most each administrative creditor can receive under 

the plan is the allowed amount of its administrative claims, the 

most Robison can receive is $75 per hour, and the reorganized 

debtor will receive any remainder. We can discern no "valuation 

problems" in this agreement. 

Citicorp further notes that avoidance actions are "drastic 

remedies" and carry the "potential for great abuse." Citicorp 

therefore argues that they should "only be entrusted to a 

fiduciary of the estate or an officer of the court." As we have 

noted, however, the Code allows a representative of the estate 

such as Robison to enforce an avoidance claim. Thus, Congress has 

decided ·to allow greater flexibility in the use of avoidance 

actions than Citicorp thinks wise. 

Finally, we think. this plan provision will further the 

efficient and fair administration of Sweetwater's chapter 11 

bankruptcy proceeding. Bankruptcy estates like Sweetwater's may 

often lack cash to pay the administrative claimants on the 

effective date of the reorganization plan. Yet these claimants 

can prevent the plan from becoming effective unless they agree to 

a different treatment. Preference claims may be a source of 

future cash that can eventually pay administrative claims. 6 But 

6 

"One method of closing the chapter 11 case and financing 

reorganization plan is to distribute a share in the recovery 

exercise of the avoiding powers. R. Aaron, Bankruptcy 

Fundamentals§ 10.01 (Clark Boardman Co.). 

14 

the 

from 

Law 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 14 
for obvious reasons -- the debtor may have already created the 

appearance of favoring certain creditors over others by making the 

preferential transfer -- the administrative claimants and the 

other creditors may not trust the debtor in possession to enforce 

preference claims. 7 Conversely, conflicts may exist among the 

creditors due to their different priorities, or between the debtor 

in possession and the creditors, that would prevent a creditor's 

committee from efficiently prosecuting preference claims. 8 A 

reasonable solution to this problem is provided by §ll23(b)(3)(B) 

which allows all the interested parties, with the approval of the 

court~ to select a mutually agreeable representative of the estate 

to enforce these pr~ference claims in the best interests of the 

debtor, the adminstrative claimants, and the other creditors. 

7 

"The debtor in possession in chapter 11 may raise the 

avoiding powers •••• The debtor in possession is now wearing 

the hat of the trustee and acting in a fiduciary capacity on 

behalf of the unsecured creditors •••• Practical men and women 

will recognize a serious gap between theory and practice here. 

The purpose of chapter 11 reorganization is the salvage and 

rehabilitation of the financially distressed business. The 

management may be unwilling to set aside an avoidable transfer 

with a supplier or lender with whom it intends to do future 

business after the business is successfully reorganized. 

Friendships develop in business which may make the debtor in 

possession hesitant to sue. Therefore, a major problem in chapter 

11 cases is assuring that the debtor in possession performs the 

duties with the same faithful concern for the interests of 

creditors as would be expected of an independent trustee." 

Bankruptcy Law Fundamentals at§ 10.01. 

8 

The bankruptcy court may authorize a creditor's committee to 

enforce an avoidance claim if the trustee or debtor in possession 

has failed to adequately protect the interests of the creditors. 

See In re Philidelphia Light Supply Co., 39 B.R. 51 

(Bankr.E.D.Penn 1984)(and cases cited therein). 

15 

Appellate Case: 86-1013 Document: 01019896185 Date Filed: 09/01/1989 Page: 15 
III 

The ruling of the district court that the bankruptcy court 

has subject matter jurisdiction is AFFIRMED; the ruling ordering 

Robison's complaint dismissed is REVERSED; and the case is 

REMANDED to the district court for proceedings consistent with 

this opinion. 

16 

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