* This order and judgment is not binding precedent, e xcept under the

doctrines of law of the case, res judicata, and col lateral estoppel. The court generally disfavors the citation of orders and judg ments; nevertheless, an order and judgment may be cited under the terms and condi tions of 10th Cir. R. 36.3. 

## F I L E D United States Court of Appeals Tenth Circuit 

### FEB 24 1998 

### PATRICK FISHER Clerk UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

In re: LARRY LLOYD HALL,

Debtor.

LARRY LLOYD HALL,

Plaintiff-Appellee,

v. PATRICIA WALTER and REUBEN ALAN WALTER,

Defendants-Appellants, and ROBERTA EARLEY,

Appellant. No. 96-1542 (D.C. No. 96-S-11) (D. Colo.)

ORDER AND JUDGMENT *-2-

Before BRORBY , BARRETT , and BRISCOE , Circuit Judges.

After examining the briefs and appellate record, th is panel has determined unanimously that oral argument would not materiallyassist the determination of this appeal. See Fed. R. App. P. 34(a); 10th Cir. R. 34.1.9. The c ase is therefore ordered submitted without oral argument. Appellants Patricia and Reuben Alan Walter (the Wal ters), who were creditors in the underlying bankruptcy, attempted t o implead in an adversary proceeding certain third-party defendants in an eff ort to round up putative additional assets owing to the bankruptcy estate. The issue here is whether creditors can do this and, if so, whether third-party impleader is the proper procedural vehicle to achieve this goal. On December 17, 1994, the Walters obtained a judgme nt against Larry Hall and others in state court. The Walters quickl y recorded their judgment in various Colorado counties. On January 9, 1995, Hall filed a petition under Chapter 13 of the Bankruptcy Code which was e ventually converted to a Chapter 11 proceeding. Later in 1995, Hall fi led an adversary proceeding to avoid the Walters’ judgment liens as preferences . That adversary proceeding is the subject of this appeal.1 In order for the transfer of an interest of the deb tor in property to

be a preference, it must have been made while the d ebtor was insolvent. See 11 U.S.C. § 547(b)(3). -3- In response to the complaint in the adversary proce eding, the Walters filed a pleading captioned “Answer and Counterclaims.” A lthough not referred to as a third-party complaint, the pleading names three t hird-party defendants who held title to property allegedly belonging to the bankruptcy estate and included fifteen counterclaims based on various sections of the Bankruptcy Code. The Walters’ theory of defense to the avoidance action was to de monstrate that, at the time they secured their judgment, Hall was not insolvent and, therefore, the judgment liens were not preferences. 1 The claims against the third-party defendants inc luded charges of fraudulent conveyance and preferential t ransfer. In short, the Walters contended that Hall, when assessing his assets, fai led to include his interest in property owned by the third-party defendants. At the hearing before the bankruptcy court, the thi rd-party defendants argued that two of the counterclaims violated Bankr uptcy Rule 9011, that several of the claims failed to state a cause of action, an d that the Walters, as creditors, had no standing to press avoidance claims based on preferential transfer or fraudulent conveyance, those claims being reserved exclusively for the trustee or debtor-in-possession. They also argued that the Wa lters’ attempt to use the-4-

third-party impleader procedure set out in Bankrupt cy Rule 7014 was improper under the circumstances. The Walters’ counsel, appellant Roberta Earley, res ponded that 11 U.S.C. § 1109(b) provided the authority for her strategy. That section provides: “A party in interest, including the debtor, the tru stee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter.” 11 U.S.C. § 1109(b). The bankruptcy judge, characterizing all of the cou nterclaims as avoidance actions, ruled that the Walters did not have standi ng to bring their counterclaims. He directed the parties to Consolidated Pet Foods, Inc. v. Millard Refrigerated Services, Inc. (In re S&D Foods, Inc.) , 110 B.R. 34 (Bankr. D. Colo. 1990) (citing Delgado Oil Co. v. Torres , 785 F.2d 857 (10th Cir. 1986) and Citicorp Acceptance Co. v. Robison (In re Sweetwater) , 884 F.2d 1323 (10th Cir. 1989), and stating “[t]he Courts have consistently held th at only the trustee, the debtor in possession, or other representative of the estat e under § 1123(b)(3)(B), may enforce the avoidance powers under §§ 547 and 548.” ). The bankruptcy judge further explained that “you may, when the question of solvency comes up at this trial, show by proper evidence that these properties that you’re talking about are indeed properties that should be included in the-5-

estate and, therefore, the values included in the c alculations. But you don’t have the standing to bring the avoidance actions.” Appe llants’ App. at 21. The judge instructed Ms. Earley how to proceed if the Walters insisted on bringing the avoidance actions: “The only way you would have st anding to bring those avoidance actions is to make demand upon the debtor -in-possession to bring those, have that demand refused and then obtain per mission . . . from [the judge in the main case] to bring these. That’s the only way you have standing or authority to bring the avoidance actions.” Id. The judge then dismissed the counterclaim/third-party complaint as “totally improper procedurally” and “totally legally deficie nt.” Id. at 28. Because he further found the complaint to have been filed in v iolation of Bankruptcy Rule 9011, the court also levied sanctions in the form o f reasonable attorney’s fees against Ms. Earley personally. Id. Both the Walters and Ms. Earley appealed to the district court. The appellants’ opening brief to the district courtargued the propriety of their actions with reference to Bankruptcy Rule 702 4 (Intervention); the district court, therefore, analyzed the case on that basis a nd concluded that “Congress did not create an absolute right to intervene in bankruptcy adversary proceedings through sec. 1109(b).” Id. at 35. Because the Walters had not sought permiss ion-6-

to intervene under Rule 7024(b), the district courtfound no error in the bankruptcy court’s dismissal of the third-party complaint. Id. at 36. In addressing the propriety of the imposition of sanctions against Ms. Earley, the district court stated: Ms. Earley filed a similar third party complaint in a companion case involving the same Defendants. Procedural deficien cies were pointed out to Ms. Earley, and the third party comp laints were subsequently dismissed. That court also addressed how, procedurally, Ms. Early [sic] should pursue such cl aims. Ms. Earley has continued to pursue the third party complaints in this case disregarding the ruling set forth in t he companion case. The legal issues in her third party complaints are different but her procedural deficiencies are the same. Her actions have amounted to an unnecessary delay and needless increase in the c ost of litigation and administration of the case. The court conclude s that sufficient basis existed for the imposition of sanctions. Id. at 37-38. The court further affirmed the finding of the bankruptcy court that the fees and costs incurred by appellees were reaso nable. Id. at 38. The Walters and Ms. Earley then appealed to this court. On appeal, appellants frame the issues as: (I) “do es a creditor who is being sued have standing to bring property into an estate pursuant to Federal Rule of Bankruptcy Procedure 7014?;” and (II) “was the bankruptcy court correct in assessing sanctions against the attorney for the cr editors?” In reviewing the decision of a bankruptcy court, the district court and the court of appeals apply the same standards of review that govern appellate review in other cases.-7-

Therefore, we review the bankruptcy court’s legal d eterminations de novo and its factual findings for clear error. See Phillips v. White (In re White) , 25 F.3d 931, 933 (10th Cir. 1994). As an initial matter, we note that the Walters have argued three different statutory bases to three different courts in order to support their actions. 11 U.S.C. § 1109(b) was argued to the bankruptcy co urt; Bankruptcy Rule 7024 informs the district court’s memorandum decision; and Bankruptcy Rule 7014 is the basis for the Walters’ argument to this court. The district court opinion makes no mention of Rule 7014, and we wondered whether that theory had been raised below. Normally, we will not address on app eal an argument not presented to the district court. See Walker v. Mather (In re Walker) , 959 F.2d 894, 896 (10th Cir. 1992). Our review of the briefs filed i n the district court, however, reveals that the answer briefs for two of the third -party defendants made an argument based on Rule 7014. The Walters responded to the Rule 7014 argument in their reply brief. We therefore deem the Rule 7 014 argument to have been raised below. See Sadeghi v. INS , 40 F.3d 1139, 1143 (10th Cir. 1994) (court considered issue argued for the first time in replybrief because petitioner was responding to issue respondent raised in its brief) . “Although the issue was not ruled on below, we ‘may’ still resolve it.” Nation al Commodity & Barter Ass’n v. Archer , 31 F.3d 1521, 1532 (10th Cir. 1994).-8-

As mentioned above, the bankruptcy court concluded that the Walters did not have standing to bring their avoidance acti ons. We review this decision de novo, see United States v. Colorado Supreme Court , 87 F.3d 1161, 1164 (10th Cir. 1996), and we affirm. Our review of the answer and counterclaims filed bythe Walters confirms the bankruptcy court’s conclusion that the actions contemplated by that pleading were, in fact, avoidance actions. The complaint is replete with charges that various property transfers involving Hall and the third-party defendants were preferential, fraudulent, and otherwise voidable an d that said property should be turned over to the estate. See Appellants’ App. at 88-103. As creditors, the Walters could not bring those claims in the guise o f a third-party complaint in the adversary action. See Delgado Oil , 785 F.2d at 860. The right to bring avoidance claims at this stage of the proceedings w as reserved to Hall, the debtor-in-possession. See id. A debtor-in-possession under Chapter 11 has the sam e powers as a trustee. See id. Among the trustee’s powers are the power to avoidpreferences, see 11 U.S.C. § 547, and the power to avoid fraudulent transfers and obligations,

see id. at § 548. “As a creature of statute, the trustee possesses only those powers conferred upon him by the Code, and he alone can ex ercise those rights to the exclusion of all others.” Delgado Oil , 785 F.2d at 860 (holding that only-9-

debtor-in-possession “could maintain a postbankrupt cy action to recover a preferential transfer”); see also In re S&D Foods , 110 B.R. at 36. The Walters’ claim that 11 U.S.C. § 1109(b) extends the avoidanc e power to creditors is without merit. The only way the Walters could have brought an avoidance action was to proceed as the bankruptcy court explained--b y making demand on the debtor-in-possession (Hall), having that demand ref used, and then obtaining permission from the judge in the main case to proce ed. See Starzynski v. Sequoia Forest Indus. , 72 F.3d 816, 821 (10th Cir. 1995). In Starzynski , this court explained: [C]reditors are not helpless when a debtor-in-posse ssion refuses to bring avoidance actions and the statute of limitati ons is nearing expiration. Under 11 U.S.C. § 1104 (1993), any party in interest may request appointment of a trustee, and under 11 U.S. C. § 1109(b) (1993), a creditors’ committee or even an individua l creditor may, with leave of the bankruptcy court, initiate avoida nce and other actions when the debtor-in-possession has failed to do so . . . . Alternatively, parties could seek an order extendin g the deadline for filing. Id. at 821; see also 5 Collier on Bankruptcy ¶ 548.06[2] (Lawrence P. K ing ed., 15th ed. rev. 1997). Starzynski sets out the procedure which the Walters should have employed and, by implication, rules out a dire ct attempt to bring an avoidance action under the auspices of § 1109(b) as was attempted here. The fact that the Walters were defendants in the ad versary proceeding does not change this result. While they would not have to intervene in the adversary-10-

proceeding because they were already parties, and w hile they could bring certain third-party claims via Rule 7014 if such existed, t hose claims could not include avoidance actions. The law is clear on this point. Reservation of the right to bring avoidance actions to the trustee or the debto r-in-possession, as the case may be, furthers the goal of the bankruptcy laws to ensure equal estate distribution among creditors. The Walters’ status as defendants in an adversary action does not change this policy rationale. The Walters could not bring their avoidance claims in the adversary proceeding by way of Rule 7014 or any other rule. The bankruptcy court was correct to dismiss the counterclaims and third-party complaint. We now address the propriety of the levy of sanctio ns against Ms. Earley in the form of reasonable fees and costs incurred b y the putative third-party defendants in defending this action. After conclud ing that the counterclaims filed by Ms. Earley were totally improper both procedural ly and legally, the bankruptcy court assessed the penalty. The court noted that M s. Earley had attempted the same procedural end run around the prohibition agai nst creditors bringing avoidance actions in a related case and had been to ld by the judge in that case that her methods were improper. Further, the courtfound that Ms. Earley had failed to allege a proper basis for six of the clai ms, had failed to serve one of the third-party defendants properly, and had made nonse nsical allegations involving-11-

a statutory lien. The court agreed with defendants ’ counsel that Ms. Earley “just took a shotgun to this thing and hoped that one of [the allegations] would hit.” Appellants’ App. at 28. The district court affirmed the imposition of sanct ions, finding that a sufficient basis existed for their levy and that there was no error in finding that the fees and costs were reasonable. Ms. Earle y does not dispute the latter conclusion; she argues, instead, that the sanction should not have been imposed at all. An award of attorney’s fees is reviewed for abuse o f discretion. See Mann v. Reynolds , 46 F.3d 1055, 1062 (10th Cir. 1995). “A court ha s abused its discretion when it based its decision on an erroneo us conclusion of law or where there is no rational basis in evidence for the ruli ng.” Id. at 1062 (quotation omitted). We find no such abuse here. Contrary to Ms. Earley’s contention, the law was no t unclear as to whether creditors could bring avoidance actions. Indeed, t o Ms. Earley, the law should have been especially clear because she had tried he r tactic before a different bankruptcy judge and had failed to prevail. As the district court observed, “[t]he legal issues in her third party complaints a re different but her procedural deficiencies are the same.” Appellants’ App. at 37

.-12-

The judgment of the United States District Court fo r the District of Colorado is AFFIRMED.

Entered for the Court

Wade Brorby Circuit Judge