## F I LED United States C ourt of Appeals Tenth Circuit 

### F e b r u ary13,2007 Elisab eth A. Shumaker C l erk of C ourt PU BL I SH UNI TED S TATES CO URT O F AP PEALS

T E N T H C IR C U IT
In re : M S 5 5 , IN C .,

D eb tor.

--- --- --- --- --- --- --- --- - J E FFR E Y H I L L , T rus t ee,

A p p e llan t, v. A K A M A I T E C H N O L O G IE S , IN C ., a D el aw ar e corpor at i on,

A ppel l ee. N o. 05- 1389

AP P EA L F ROM THE UNI TE D S TA TE S DI S TR I CT COURT

F OR THE DI S TR I CT OF COLORA DO ( D. C. NO. 0 4 - c v - 0 2 6 9 8 - EW N) D . B ru c e C o les , F ish & C o les , D e n v e r, C o lo ra d o , fo r P lain tiff-A p p e llan t. B ar tB . B ur net t , Pear s on, H or ow i t z, & B ur net t , P. C . ( R ober tM . H or ow i t z, Pear s on, H or ow i t z, & B ur net t , P. C . , D enver , C ol or ado, and G eor ge B . H ofm ann, P arso n s K ing h o rn H arris, P . C . , S altL ak e C ity , U tah, w ith h im o n the b ri ef), D enver , C ol or ado, forD efe ndant - A ppel l ee.T he H onor abl e C l ai r e V . E agan, D i s t r i ctJ udge, U ni t ed St at es D i s t r i ct * C our tfort he N or t hern D i s t r i ctof O kl ahoma, s i t t i ng bydes i gnat i on. -2- B efo re TY M KOVI CH , Mc WI L L I A MS , C i r cui tJ udges , and EA GAN, * D i s t r i ctJ udge. TY M KOVI CH , C i r cui tJ udge.

T he ques t i on i n t hi s bankrupt cyappea l i s w hethera C hapt er7 t rus t ee may br i ng cl ai m s t hata C hapt er11 debt or - i n- pos s es s i on coul d not . W e conc l ude that t he trus t ee i s barr ed i n t he ci r cumst ance s of thi s cas e fr om br i ngi ng a der i vat i ve c la im o n b e h a lf

o f a c re d ito rs ’ c o m m itte e a f te r c o n v e rs io n to C h a p te r 7 . A c c o rd in g ly , w e A F F IR M th e d e c isio n o f th e d istric t co u rt. I . Backg r ound D ebt orm s 55, I nc. ( know n underi t s tr ade na m e M SH O W . com) pr ovi ded in ter n e t-b a se d m e e tin g a n d c o n fe re n c e tec h n o lo g yto c o rp o ra te c lien ts. In Ju ly 2001, aft era s er i es of fi nanci al s etbacks , M SH O W fi l ed forbankrupt cyunder Ch a p t e r1 1 . 1 1 U. S . C. § 1 1 0 1 . S h o r t l ya f t e rt h e b a n k ru p t c yc a s e wa s fi l e d , s o me of M SH O W ’ s uns ecur ed cr edi t or s for m ed a c r edi t or s ’ comm i t t ee t o r epr es ent t hei ri nt er es t s i n t he pr ocee di ngs . A boutt he s ame t i m e, M SH O W s ought emer gencyauthor i t yfr om t he bankrupt cycour tt o us e i t s cas h on hand as co ll ateral, incu r ad d it ion al po st- p eti ti o n d eb t, an d p rotec t po st- p eti ti o n lend ers from exis t i ng credi t ors.“A deb t or- i n-possessi on i s a debtor w ho , du ri ng t he p end encyof the case 1 p ri o r t o co n firm ati o n o f th e re o rga n izati o n p lan, retai n s the b an k rup tcyestate’s pr oper t yi n t he fi duci arycapa ci t yof a trus t ee. ” P et ers v. P i kes P eak Mus i ci ans A ss’n . , 462 F. 3d 1265, 1271 n. 3 ( 10t h C i r . 2006) ( i nt ernal quot at i on and ci t at i ons o m itte d ). -3- T h e b a n k ru p tc yc o u rt is s u e d a fin a n c in g o rd e r g ra n tin g M S H O W ’s re q u e s t. T hi s pos t - pet i t i on fi nanci ng or dergave M SH O W , as t he debt or - i n- pos s es s i on, 1 authori t yt o u se cer t ai n o f i t s ass et s subj ectt o p re- peti t i on securi t yi nter est s, in c lu d in g a ss e ts h e ld b yse c u re d c re d ito rs. A k a m a i T e c h n o lo g ies h a d p re v io u sly hel ped fi nance M SH O W and w as one of i t s s ecur ed cr edi t or s hol di ng a pr ep e tit io n se c u rityin ter e st. T he financing o rdercon t ai ned a provis i on prot ect i ng t he secu red cr edit ors, i ncl udi ng A kamai , fr om “anyand al l cl ai m s ” exc eptt hos e thatcoul d be br ought byt he uns ecur ed cr edi t or s ’ comm i t t ee. Par agr aph 7 of the fi nanci ng or der , w hi ch is atthe h ea rto f th is dispu te, set o u t th e p rotec ti v e b ar: D ebtor ’s est at e, credi t ors, ho l ders of cl ai m s ag a in st or equ i t yi nter est i n, debt or , anyoffi ci al orunoffi ci al co m m it tee of hol der s of cl ai m s or e qu i t yi nter est s and all such an d o t her persons and enti t i es s hal lbe f orever ba rredf

rom assert i ngany an d a l lcl aim s on a ny b asis or theo ry ag ainstthe secu red creditors . R . a t 3 6 , ¶ 7 (e m p h a s is a d d e d ). T he fi nanci ng or der , how ever , carved outa narr ow exce pt i on t o t hi s barfor a n u n se c u re d c re d ito rs’ c o m m itt e e : T he C om m i t t ee s hal l have unt i l t he fi r s tdat e s etbyt he C our tforobj ect i ons t o confi r m at i on of a r eor gani zat i on pl an i n t he B ankrupt cyC as e t o del i ver t o Secur ed C r edi t or s . . . [i t s ] w r i t t en not i ce of i nt ent. . . t o comm ence anT h e d e b to r-in -p o ss e ss io n c re d it ag re e m e n t th a t w a s e n ter e d p u rsu a n t to 2 t h e fi n a n c i n g o r d e ra l s o ( 1 ) “ c o n t a i n e d De b t o r ’ s a c k n o wl e d g me n tt h a tt h e c l a i ms of the Secur ed C r edi t or[i . e. , A kamai ] agai ns ti tw er e val i d, ” and ( 2) “cont ai ned an expr es s ‘ r el eas e’ of cl ai m s byt he D ebt oragai ns tt he [de bt or - i n- pos s es s i on] L ender s as Secur ed C r edi t or s , w i t houtr efe r ence t o cl ai m s agai ns tot herSecur ed C red it o rs. ” A p lt . B r. at 12

– 1 3 (cit ing R . at 97 ). -4- act i on againstanyS ecured C redi t or ass ert i ng anycl ai m , l i abil i t y , or cause of ac t i on, bas ed on anygr ounds ort heoryw hat s oever. . . buti ncl udi ng, w i t houtl i m i t at i on, anycl ai m , l i abi l i t yorcaus e of a ct i on s eeki ng t o avoi d, [e tc. ]. R . a t 3 7 . I n addi t i on t o t he expl i ci tl anguage of ¶ 7, t he fi nanci ng or dercont ai ned o t h e rp r o v i s i o n s c o n fi r mi n g t h a ti tb o u n d p a r t i e s o t h e rt h a n M S HOW and w as in te n d e d to s u rv iv e c o n v e rs io n to C h a p te r 7 . P a ra g ra p h 1 5 , fo r e x a m p le , s tip u la te d its p ro v is io n s w e re to s u rv iv e c o n v e rs io n to C h a p te r 7 b a n k ru p tc y . A nd ¶ 16 s t i pul at ed thatt he pr ot ect i ons of ¶ 7 w oul d bi nd par t i es t o a debt or - i npos s es s i on cr edi tagr eementt hati ncl uded r el eas es and otherpr ot ect i ons for secured credi t ors. 2 T he fi nanci ng or deral s o r equi r ed M SH O W t o pr epar e and s erve a not i ce on its c re d ito rs th a t d e sc rib e d th e a g re e m e n ts c o n tain e d in ¶ 7 . A c c o rd in g ly , in A u g u st 2 0 0 1 , M S H O W se rv e d n o tice in c lu d in g th e fo llo w in g lan g u a g e : If the C om m i t t ee t akes no act i on against t he S ecured C redi t ors byt hese d ea d li n es [ w h ich it est im ated to be 90 d ay s fro m the da te o f th e n o ti ce ], anycl ai m s t hatm ayexi s tagai ns tt he Secur ed C r edi t or s w i l l be for ever barr ed. T hi s bari s bi n d i ng notonl yon M SH O W and i t s cr edi t or s , but al s o on anys ubs equent l yappoi nt ed bankrupt cyt rus t ee. R . at43, ¶ 8. T he not i ce f ur t heracknow l edged:S in c e th e n o tice w a s p re p a re d b yM S H O W , the tru ste e a rg u e s th a t it s 3 lan g u a g e h a s q u e stio n a b le r e lev a n c e . W e h a v e o n lyre lied u p o n th e n o tice to es t abl i s h effect i ve not i ce w as confe r r ed. W e do notr el yupon i tfori nt erpr et at i on o f th e finan cing o rde r. T he trus t ee w r i t es , “I m pl i ci ti n t hatM ot i on w as an under s t andi ng t hat 4 a v o id a n c e rig h ts fo r th e b e n e fit o f th e e sta te w o u ld n o t ex p ire o n c o n v e rsio n ; if cl ai m s expi r ed, a pos t - convi ct i on t rus t ee c oul d notpur s ue them. ” A pl t . B r . at14. -5- A l l of the pr ovi s i ons of the l oan agr eement s and the O r ders hal l be bi ndi ng on . . . anyt rus t ee s ubs equent l yappoi nt ed i n t he bankrupt cycas e for M SH O W and i ncl udi ng upon di s m i s s al , conver s i on t o C hapt er7, orcl os i ng t he M S H O W case. A s a r esul t , t hese prov i si on s m ay l i m i tt he r ecove r yof bo t h p re- peti t i on and po st -pet i t i on un secured credi t ors i n the even tt he case is c o n v e rt e d to o n e u n d e r C h a p te r 7 . R . at 44 , ¶ 9 (em p h asis ad d ed ). 3 Fol l ow i ng t hi s not i ce, t he bankrupt cycour tappr oved the fi nanci ng or deron A ug ust20 , 20 01 . O ver the n ext y ear- and -a- half, ho w ever, t he credit ors’ c o m m itte e to o k n o a c tio n to a s s e rt c la im s a g a in s t th e s e c u re d c re d ito rs . C ons equent l y , t he part i es deci ded t o convertt he ca s e t o C hapt er7. I n i t s m ot i on t o convertt he ca s e t o C hapt er7, t he trus t ee s t at ed thatone of the purpos es of conver s i on w as “t o i ni t i at e avoi dance and othert ypes of l i t i gat i on . . . . byan in d e p e n d e n t C h a p te r 7 tru s te e .” R . a t 2 0 5

– 8 . 4 T hr ee da y s befor e the conve r s i on or derw as ent er ed, on J une 17, 2003, M S H O W a n d th e u n se c u re d c re d ito rs’ c o m m itt e e filed a stip u late d se ttl e m e n t, rel easi ng cert ai n lenders. T he set t l em ent s ai d n othi ng abo ut cl ai m s agai nst s ecur ed cr edi t or s , s uch as A kamai , exce ptt hat“al l par t i es t o t hi s agr eement her ebyexpr es s l yr es erve thei rr i ght s , cl ai m s , and ca us es of ac t i on agai ns tany-6-

t hi r d- par t i es w ho ar e notR el eas ed part i es . ” R . at218–19, §§ 9, 14. A kamai w as n o ta r e l e a s e d p a r t y. T he bankrupt cycour tent er ed the conve r s i on or deron J une 20, 2003. T he C h a p ter 7 tru ste e su b se q u e n tlyc o m m e n c e d a n a v o id a n c e a c tio n a g a in st A k a m a i to rec o v er trans fe rs fo r th e b en efito f th e e stat e. A k am ai m o v ed fo r sum m ary j udgm enton t he gr ound t hatt he cl ai m w as barr ed byt he t erm s of the fi nanci ng or der . T he bankrupt cycour tdeni ed thi s m ot i on, and A kamai appea l ed t o t he di s t r i ctcour t . T he di s t r i ctcour tr ever s ed on the gr ound t hatt he fi nanci ng or der b a rr e d th e tru s te e ’s c la im s . T he trust ee no w app eal s. II . A n a ly sis A bankrupt cyt rus t ee ha s gener al author i t yt o avoi d cert ai n t r ans fer s “for t he bene fi tof the es t at e. ” 11 U . S. C . §§ 544, 547, 548, 550. U ndert he b a n k ru p tc yc o d e , a d e b to r- in -p o s s e s s io n h a s th e p o w e rs o f a tru s te e , i d. § 1 1 0 7 (a), a n d , a s s u c h , th e a u th o ri ty to b ri n g a v o id a n c e a c tio n s . Zi lkha Energy C o. v. Leight on , 9 2 0 F .2 d 1 5 2 0 , 1 5 2 3 (1 0 th C ir. 1 9 9 0 ) (d e b to r-in -p o ss e ss io n ’s a u th o rity u n d e r§ 1 1 0 7 ( a ) i n c l u d e s t h e r i g h tt o b r i n g § 5 4 4 a v o i d a n c e a c t i o n ) . I m p o r t a n t l y, how ever , w her e a de bt or - i n- pos s es s i on s erves as t he trus t ee i n a C hapt er11 b a n k ru p tcy, a C h a p ter 7 tru ste e m a yn o t as se rt a n yrig h ts th a t w e re p re v io u sly w a iv e d b yth e d e b to r- in -p o s s e s s io n p ri o r t o c o n v e rs io n . P a u l v. Mo n ts , 906 F. 2d 1 4 6 8 , 1 4 7 3 (10 th C ir . 1 9 9 0 ).T he trus t ee a l s o ar gues t hatavoi dance act i ons forw ar d t he funda m ent al 5 bankrupt cypr i nci pl e of e qual i t yof di s t r i but i on and thatt hi s pr i nci pl e does not evapor at e undert he B ankrupt cyC ode s i m pl ybeca us e a c as e i s convert ed fr om C hapt er11 t o C hapt er7. N o one di s agr ees . E qual i t yof di s t r i but i on i s pr ot ect ed b yth e d e b to r-in -p o ss e ss io n , tru ste e , an d ju d icia l o v e rsig h t o f th e a g re e m e n ts m a d e b yd e b to rs a n d tru ste e s. A s w e d isc u ss b e lo w , the fin a n c in g o rd e r a g re e d to byM SH O W and appr oved bya bankrupt cycour ti n t hi s cas e had the effec tof barr i ng l i t i gat i on agai ns tcert ai n cr edi t or s once c onver s i on t o C hapt er7 di s s ol ved th e o n e e n titya v a ilab le to b rin g su it, th e c re d ito rs’ c o m m itt e e . T h e e q u a lity pr i nci pl e di d notevapor at e, buti t s appl i cabi l i t yw as at t enuat ed byt he fi nanci ng or derbefor e conve r s i on t o C hapt er7. I tw as fur t herat t enuat ed af t erconver s i on d u e to th e fin a n c in g o rd e r’s re v o c a tio n o f th e e sta te’ s a b ili tyto b rin g su it. -7- A ccor di ngl y , w e mustfi r s tdet erm i ne i f M SH O W , as t he debt or - i npos s es s i on, w ai ved i t s r i ghtal ong w i t h t he r i ghtof the C hapt er7 t rus t ee t o br i ng an avoi dance act i on agai ns tA kamai . I f i tdi d, w e mustt hen cons i derw hethert he tru ste e c a n still ex e rc ise th e a u th o rityre se rv e d to th e c re d ito rs’ c o m m itt e e to b ri n g s u c h a c la im . A . Wai verby D ebt or - i n- pos s es s i on T he fir sti ssue i s r eadil yres olved byt he financing o rder . Itcl earl yst at es: “D ebt or ’ s es t at e . . . [and] debt or. . . s hal l be for everbarr ed fr om as s er t i ng any a n d a ll c la im s o n a n yb a s is o r t h e o ry a g a in s t th e s e c u re d c re d ito rs .” R . a t 3 6 , ¶ 7 . I ti s di ffi cul tt o cons t rue the l anguage of thi s l egal baranyw ayot hert han a w aive r of

M S H O W ’s ri g h t t o b ri n g an av o idan ce ac ti o n ag ains t secu red cre d it o rs s u c h a s A k a m a i. N evert hel es s , t he trus t ee s ugges t s s ever al t heor i es i n s uppor tof hi s pos i t i on th a t h e is n o t b a rre d f

ro m b rin g in g su it. T h e tru ste e a rg u e s (1 ) a f u ll rele a se d id 5-8-

notoccurbeca us e the cr edi t or s ’ comm i t t ee r et ai ned a r i ghtof ac t i on; ( 2) i ncl us i on of the w or d “trus t ee” i n ¶ 5, butnot¶ 7 of the or der , excl uded the trus t ee f r om t he ¶ 7 l egal bar ; ( 3) i ti s unr eas onabl e t o concl ude the agr eementi nt ended conver s i on t o actas an uns t at ed l i m i t at i on on t he cr edi t or s ’ comm i t t ee r i ghtof act i on; and ( 4) par ol evi dence s houl d be admi t t ed t o es t abl i s h t he i nt entof the p a rt ie s . A ll o f

th e s e a rg u m e n ts a re w ith o u t m e ri t. (1) Th e R e le a s e . T h e tru ste e first a rg u e s th a t b e c a u se th e o rd e r “ e x p re ss ly preserves avo i dan ce cl ai m s t o b e pu rs ued byt he [c redi t ors’ c]om m i t t ee aga i nst t he Secur ed C r edi t or s , ” i tcannotbe a f ul l r el eas e. A pl t . B r . at23. T he bas i s for t hi s ar gum enti s t he pr opos i t i on t hata r el eas e i s an “outr i ghtdi s char ge of the ent i r e obl i gat i on. ” Sym ons v. Muel l erC o. , 5 2 6 F .2 d 1 3 , 1 7 (1 0 th C ir . 1 9 7 5 ). T hus , t he trus t ee a r gues , t he r et ent i on of anyr i ghtt o s ue i m pl i es t he fi nanci ng or derdi d notcons t i tut e a f ul l r el eas e and, t her efor e, t he trus t ee mays t i l l s ue. B u t th e re al qu esti o n is no t w h ethe r a f u ll release ex ist s, b u t r athe r w ho r et ai ned anyexi s t i ng r i ghtt o br i ng an avoi dance act i on. I ti s w el l es t abl i s hed that a C hapt er7 t rus t ee s ucce eds t o t he r i ght s of the debt or - i n- pos s es s i on and i s bound b yp ri o r a c tio n s o f

th e d e b to r- in -p o s s e s s io n to th e e x te n t a p p ro v e d b yth e c o u rt . P a u l v. Mo n ts , 906 F. 2d 1468, 1473 ( 10t h C i r . 1990) . E ven the trus t ee c oncede s h e is “ b o u n d b yc o u rt a p p ro v e d stip u latio n s o f a [ d e b to r-in -p o ss e ss io n ] p rio r to conver s i on. ” A pl t . B r . at22. T he cr edi t or s ’ comm i t t ee mayhave r et ai ned a r i ght of ac t i on, butt hatdoes notr emove t he exi s t i ng baragai ns tt he debt or - i n-Par agr aph 5 pr ovi des t hatobl i gat i ons i ncurr ed byt he debt orundert he 6 fi nanci ng agr eement“[S] hal l atal l t i m es be s eni or , i n t hi s and anys ubs equent cas e undert he B ankrupt cyC ode, t o t he r i ght s of debt or , anys ucce s s ort rus t ee

. . . . ” -9- pos s es s i on or , pos t - conver s i on, t he trus t ee e nfor ci ng t hos e r i ght s . M SH O W and, pos t - conver s i on, t he trus t ee a r e barr ed fr om br i ngi ng an avoi dance act i on r egar dl es s of w hethert he r i ghtt o an avoi dance act i on exi s t s . B ot h t he bankrupt cy cour tand di s t r i ctcour tagr eed the fi nanci ng or derbarr ed M SH O W fr om br i ngi ng an avoi dance act i on and thatt he trus t ee w as s i m i l ar l ybarr ed. T he onl yr eas on t he bankrupt cycour tdeni ed s um m aryj udgm entw as i t s concl us i on t hatt he trus t ee s ucce eded t o t he cr edi t or s ’ comm i t t ee r i ghtof ac t i on. (2) Th e F in a n c in gO r d e r . T u rnin g to the lang u ag e o f th e finan cing o rde r, t he trust ee con t end s di fferi ng l ang uag e used in differ ent par agraph s suppo rt s a te x tu a l a rg u m e n t th a t th e tru s te e is n o t b a rr e d f ro m a s s e rt in g a v o id a n c e c la im s . H e ar gues ¶ 7 does nots peci fi cal l ys t at e thatt he trus t ee i s bound byt he a g re e m e n t, w h ile ¶ 5 o f th e o rd e r m e n tio n s th a t a s u c c e ss o r tru ste e is s u bjec t to th e o rd e r’s su p e rio rity to o th e r u n d e rly in g rig h ts o f th e p a rties . F ro m th is 6 l i ngui s t i c var i at i on, t he trus t ee a r gues t hatw e s houl d under s t and ¶ 7, unl i ke ¶ 5, a llo w s tru s te e a c tio n s . W e di s agr ee. T he l anguage i n ¶ 7 expl i ci t l yappl i es t o bot h t he debt orand th e d e b to r’s e sta te. T h e tru ste e sta n d s in th e p lac e o f th e d e b to r a n d re p re se n ts t he i nt er es tof the es t at e. I tfol l ow s t hatt hi s baron t he debt oral s o appl i es t o t he-10-

t rus t ee. I tdoes notm at t ert hat¶ 7 of the or derdi d notexpr es s l yi ncl ude a trus t ee; t he trus t ee w as i nevi t abl yi ncl uded as s ucce s s ort o t he debt or - i n- pos s es s i on under t he fi nanci ng or der ’ s pr ovi s i on t hati t s t erm s w oul d s ur vi ve conve r s i on. ( 3) Li m i t at i on on the C r edi t ors ’C om m i t t ee Rightt o B r i ng an A voi dance A c tio n . N ext , t he trus t ee a r gues t hati tw oul d be unr eas onabl e t o t r eatt he fi nanci ng or derl anguage as an effec t i ve barbeca us e conve r s i on w oul d oper at e as an uns t at ed l i m i t at i on on t he cr edi t or s ’ comm i t t ee r i ghtt o br i ng an avoi dance act i on. Forexampl e, t he trus t ee a r gues conver s i on coul d t heor et i cal l yoccurat M SH O W ’ s s ol e di s cr et i on j us tone dayaft ert he debt or - i n- pos s es s i on fi nanci ng or derbeca m e fi nal , i . e. , one dayaft eri t s appr oval , M SH O W coul d have c onver t ed t he C hap t er 11 acti on t o a C hap t er 7 act i on , t herebycl osi ng off t he credit ors’ c o m m itt e e rig h t o f

a c tio n b e fo re th e c o m m itt e e h a d tim e to in v e stig a te th e n e e d to br i ng an ac t i on. B utt he fa ctt hatC hapt er7 conver s i on coul d di s s ol ve the comm i t t ee i m m edi at el yaft ert he or derbeca m e effec t i ve demonstr at es onl yt hat M SH O W fai l ed t o r et ai n a meani ngful r i ghtt o enfor ce a voi dance act i ons fort he c re d ito rs’ c o m m itt e e . It d o e s n o t m e a n th a t M S H O W ’s w a iv e r o f its o w n rig h ts (and t ho se of t he C hap t er 7 trust ee) t o en force t he ag reem ent w ere s o unr eas onabl e as t o be unenfor cea bl e. I ti s notunr eas onabl e fort he debt or - i np o ss e ss io n to g iv e a w a yc e rta in rig h ts o f th e e sta te in o rd e r to re c e iv e th e b e n e fit o f a d d it ion al fina n cing . If the cre d it o rs’ co m m ittee feltM S H O W ’s ac ti o n s w ere eith er u n rea so n ab le or a n effo rtto u njusti fiab lyp rotec t certai n sec u red cre d it o rsA s t he fi nanci ng or deri m pl ement ed an a gr eementbetw een the part i es t hat 7 s t i pul at ed C ol or ado l aw w oul d govern di s put es , w e appl yt he C ol or ado l aw s of contr acti nt erpr et at i on. -11- fr om an avoi dance act i on, i tcoul d have c hal l enged the fi nanci ng or deror o bjec ted a t th e c o n v e rsio n h e a rin g a n d so u g h t fo re sta llm e n t o f c o n v e rsio n u n til t he avoi dance act i ons had bee n under t aken. T he not i ce i s s ued t o compl yw i t h t he fi nanci ng or derexpl i ci t l yw arned thos e w hos e l egal r i ght s m i ghtbe affec t ed by t he or derof the dea dl i ne t o fi l e a mot i on forr econs i der at i on. (4 ) P a r o l E v id e n c e . F in a lly , the tru ste e c laim s th e fin a n c in g o rd e r is ambi guous , r equi r i ng par ol evi dence t o i nt erpr eti t . H e cont ends t he part i es s oughtconver s i on fort he pr i m arypurpos e of a l l ow i ng t he trus t ee t o br i ng avoi dance act i ons , s o i tm akes l i t t l e s ens e t o concl ude thatt heyi nt ended t o w ai ve s u c h c la im s in th e irfin a n c in g a g re e m e n t. H is a rg u m e n t h a s tw o flaw s. F irst, th e o rd e r is n o t am b ig u o u s. It c lea rly bar s t he debt or - i n- pos s es s i on ( and the es t at e) fr om br i ngi ng any act i on . T hus , t he p a ro le e v id e n c e ru le p re c lu d e s u s f ro m e x a m in in g e x trin sic e v id e n c e in in te rp re tin g th e a g re e m e n t. B oyerv. Kar akehi an , 915 P. 2d 1295, 1299 ( C ol o. 1996) ( “A cour ts houl d onl yadmi tpar ol evi dence w hen the contr actbetw een the par t i es i s s o ambi guous t hat t hei r i nt ent i s uncl ear . ”) . Fur t herm or e, t he 7 conver s i on or derw as ent er ed l ong aft ert he fi nanci ng or der , s o t he i nt entof the par t i es att he t i m e of c onver s i on i s notevi dence of w hatt heyi nt ended w hen they m ade the agr eement . T he fa ctt hats om e part i es l at erhoped the trus t ee w oul d be-12-

a b l e t o s t e p i n t o t h e u n s e c u r e d c r e d i t o r s ’ r i g h tt o s u e u p o n c o n v e r s i o n s a ys not hi ng aboutt he part i es ’ i nt ent i ons r egar di ng t he fi nanci ng or derw hen i tw as d ra f ted a n d e n ter e d . T h e 2 0 -2 0 n a tu re o f h in d sig h t sh o u ld b e m o st p a lp a b le in b a n k ru p tc yp ro c e e d in g s . In su m , n o n e o f th e trustee ’s arg u m en ts un d erm ine th e finan cing o rde r’s l ang uag e t hat M S H O W i s barr ed from bri ng i ng an av oidance acti on against Ak a ma i . Bo t h t h e b a n k ru p t c yc o u r ta n d d i s t r i c tc o u r tr e a c h e d t h i s s a me concl us i on, and w e agr ee. A s a C hapt er7 t rus t ee ha s no r i ght s gr eat ert han the debt or - i n- pos s es s i on, and her e, M SH O W had no r i ghtt o br i ng an avoi dance act i on t o pas s on t o t he trus t ee, t hen the trus t ee w as notent i t l ed t o br i ng an a v o id a n c e a c tio n in its o w n rig h t. B . Independe ntR ightt o an A voi dance Act i on T he trus t ee ne xtar gues t hathe i nher i t ed the unexha us t ed r i ghtr et ai ned by t he cr edi t or s ’ comm i t t ee t o br i ng an avoi dance act i on. A kamai r es ponds t hatt he t rus t ee c oul d noti nher i tanyr i ght s fr om t he cr edi t or s ’ comm i t t ee thathe di d not in h e ri t f ro m th e d e b to r- in -p o s s e s s io n . T h is i s a m att er o f fir st i m p ression fo r th is ci rcu it : w h ethe r a C h ap ter 7 t rus t ee c an s ucce ed t o t he r i ght s of a Chapt er11 cr edi t or s ’ comm i t t ee upon conver s i on. T he di s t r i ctcour tconcl uded the trus t ee di d nots ucce ed t o t he c re d ito rs ’ c o m m itte e ri g h t b e c a u s e th e c o m m itte e w a s d is s o lv e d u p o n c o n v e rs io n .-13-

I tfound the trus t ee bound byt he ac t s of the debt or - i n- pos s es s i on and, as M S H O W w a s b a rre d f ro m b rin g in g su it ag a in st A k a m a i, th e tru ste e is s im ilarly b o u n d . W e a g re e o n th e la tte r g ro u n d . C hap t er 11 ex press l yprovides for the creat i on of an un secured credi t ors’ comm i t t ee, 11 U . S. C . § 1102, buti s l es s cl earaboutt he di s s ol ut i on of a comm i t t ee. M os tcour t s have c oncl uded thatconver s i on of a Chapt er11 cas e t o a C h a p te r 7 c a s e re s u lts in d is s o lu tio n o f a C h a p te r 1 1 c o m m itte e . S e e , e .g ., 4 N or t on B ankr . L . & Pr ac. 2d § 78: 10. 5. A nd w i t h di s s ol ut i on of the comm i t t ee, its ri g h ts a ls o e x p ir e . O f f i ci alC om m . of

Uns ecur ed C r edi t ors v. B elgr avi a P aper C o . (In r e G r e a t No r th e r n P ap e r, In c .) , 299 B . R . 1, 5 ( D . M e. 2003) ( “O nce the C hapt er11 cas e w as convert ed t o a C hapt er7 cas e, t he C r edi t or s C om m i t t ee c e a se d to e x ist; th e C re d ito rs C o m m itt e e ’s a tto rn e yth e re fo re h a d n o a u th o rityto m a k e a n a ss ig n m e n t, no r d id th e C re d ito rs C o m m itt e e h a v e a n yrig h ts to a ss ig n .”). T h e tru ste e a rg u e s h e re th a t th e rig h t to b rin g a n a v o id a n c e a c tio n is nota r i ghtof the cr edi t or s ’ comm i t t ee, butr atherder i vat i ve of the r i ght s of the debt orand the es t at e. T hus , he cont ends t he r i ght s have notexpi r ed. A kamai c o n c e d e s a s m u c h : “ A k a m a i d o e s n o t c o n te n d . . . th a t a v o id a n c e a c tio n s . . . ‘e v a p o ra te ’ w h e n a c a s e is c o n v e rt e d to C h a p te r 7 .” A p le . B ri e f a t 1 9

– 2 0 . A s a prel i m i narym at t er, w e do no tqu arr el t hat the ri gh tof the credi t ors’ comm i t t ee t o br i ng an avoi dance act i on i s der i vat i ve. B utthatconcl us i on doesW e has t en t o add cr edi t or s , t he trus t ee, and the debt or - i n- pos s es s i on have 8 num er ous oppor tuni t i es t o chal l enge orm odi fyunfavor abl e pr ovi s i ons i n a fi nanci ng or der . Par t i es coul d al s o s eek pr es ervat i on of the cl ai m s dur i ng conver s i on t o C hapt er7. -14- notaffectt he r es ul ther e. E ven though t he avoi dance act i on r i ght s have not exp i red, t he co m m i t t ee no l on ger exi st s t o en force t ho se r i gh t s. T he trus t ee i s al s o pr event ed fr om br i ngi ng a cl ai m on t he exi s t i ng d e riv a tiv e rig h ts. A s w e a lre a d ye x p lain e d , a C h a p ter 7 tru ste e su c c e e d s o n lyto t he r i ght s of the debt or - i n- pos s es s i on, s o t he trus t ee i s bound bypr i oract i ons of t he debt or - i n- pos s es s i on t o t he ext entappr oved byt he bankrupt cycourt . I n P aul v . Mo n ts , 906 F. 2d 1468 ( 10t h C i r . 1990) , w e conc l uded: T h e tru ste e , as su c c e ss o r to th e d e b to r in p o ss e s s io n , is b o u n d b yh is pr edec es s or ’ s author i zed a ct i ons . W hen as s er t i ng r i gh t s of ac t i on a g a in s t a n o th e r, the bankr upt cy tr us tee h a s n o gr eat err ights than the debt orhas . T h e tru ste e is . . . su bje c t to th e sa m e d e fe n se s a s c o u ld have be en as s er t ed byt he defendanthad the ac t i on been i ns t i tut ed by t he debt or. . . . H e maynotm ai nt ai n a posi t i on r egar di ng a tr ans act i on wh o l l yi n c o n s i s t e n twi t h h i s p r e v i o u s a c t s i n c o n n e c t i o n wi t h t h a ts a me tr a n s a c tio n . Id. at1473 ( emphasi s added) ( i nt ernal quot at i ons & ci t at i ons om i t t ed) . T hus , t he t rus t ee— l i ke the debt or - i n- pos s es s i on M SH O W

— i s al s o barr ed fr om br i ngi ng an av o idan ce ac ti o n , ev en if su ch an ac ti o n h as n o t bee n ex ti n g u ishe d . T h e trustee ’s author i t yi s cur t ai l ed byt he t erm s agr eed t o byM SH O W and appr oved byt he co u rtin the fin an cing o rde r. 8-15-

T he onl yauthor i t yci t ed byt he trus t ee thats ugges t s he mi ghts ucce ed t o t he ri gh t s of t he credit ors’ com m i t t ee i s In r e Rachl es , Inc. , 1 3 1 B . R . 7 8 2 (B an k r. D . N . J . 1991) , a ca s e des ervi ng s om e di s cus s i on. I n R achl es , t he debt orm ade fr audul entt r ans fer s w hi l e underC hapt er11 pr ot ect i on. T he cr edi t or s ’ comm i t t ee fi l ed an a dver s arypr ocee di ng agai ns tt he tr ans fer ee t o avoi d t he tr ans fer s . T he pet i t i on w as s ubs equent l yconvert ed t o C hapt er7, and the trus t ee a l s o fi l ed an a d v e rsa ryp ro c e e d in g se tti n g fo rth id e n tica l cla im s. A f ter a q u e stio n a ro se a s to t he ti m el i ness of the trust ee’s com plai nt, the trust ee soug ht t o co nsoli date i t s case w ith the c o m m ittee’s ea rl ier fil ed ac ti o n . A ll o w ing the c o n so li d ati o n , the c o u rt concl uded: U pon conver s i on and appoi nt m ent , a trus t ee s t eps i nt o the shoes of the debt or - i n- pos s es s i on w i t h r es pectt o al l r i ght s , r es pons i bi l i t i es and li ab il it ies. L o g ic all ythen , itis en ti relyap p rop ri ate fo r th e C h ap ter 7 T rus t ee t o be subs t i tut ed as pl ai nt i ff i n t he i ns t antadver s arypr ocee di ng i n t he pl ace o f t he C r edi t or s ’ C om m i t t ee w hi ch i ni t i al l y f i l ed the a dv e rs a ry c o mp la in t o n b e h a lf o f th e D e b to r a n dth is e sta te . Id. a t 7 8 5 (e m p h a sis a d d e d ). T h u s, th e c re d ito rs’ c o m m itt e e c laim s w e re re a lly cl ai m s of the debt orand hi s es t at e— cl ai m s t hats t i l l bel onged t o t he es t at e af t er conver s i on— s o i tw as l ogi cal t o perm i tt he trus t ee t o carr yforw ar d t he ca us e of act i on i ni t i at ed byt he comm i t t ee. T he trus t ee w as perm i t t ed t o t ake hol d of the r ei ns and l i t i gat e the der i vat i ve r i ght s pr evi ous l yas s er t ed byt he comm i t t ee. R achl es shou l d n ot be r ead to st and for a propo si t i on t hat the credit ors’ comm i t t ee ha s i ndepende ntavoi dance cl ai m s of i t s ow n t o w hi ch the trus t eeW e not e the comm i t t ee’ s r i ghtt o br i ng an avoi dance act i on i s notw i t hout 9 ques t i on. A l t hough w e ar e among t hos e court s t o al l ow a comm i t t ee t o br i ng s uch a n a c tio n , see St arzynski v. Seq uo i a ForestIndus. , 7 2 F . 3 d 8 1 6 , 8 2 1 (10 th C ir . 1995) , r ece ntSupr eme C our tpr ece dentm ayunderm i ne thi s pr act i ce. I n Hart f ord Und e r wr i t e rs In s . Co. v . Uni o n Pl a n t e rs Ba n k, N. A. , 530 U . S. 1, 7–8 ( 2000) , t he Supr eme C our thel d t hats t atut or yl anguage gr ant i ng cert ai n pow er s on behal f of t rust ees di d n ot gr ant the sam e po w ers t o u nn am ed en t i t i es, such as a credi t ors’ (c o n tin u e d ...) -16- i nevi t abl ys ucce eds . T he trus t ee i n R achl es w as nots ucce edi ng t o t he ind ep en d en t r igh ts of

the c red it o rs’ co m m ittee, bu t r athe r j o ining the c o m m ittee’s al r eadyi ni t i at ed der i vat i ve cl ai m of the debt or ’ s r i ght s i n a ca s e w her e the trus t ee w as notot herw i s e barr ed bypr evi ous arr angement s m ade byt he debt or - i np o s s e s s io n . A s a m a tter o f

law , a c re d ito rs’ c o m m itt e e d o e s n o t h a v e its o w n rig h t to b ri n g a v o id a n c e a c tio n s . See, e. g. O f f i ci alC om m . of

Uns ecur ed C r edi t ors of C yberge nics C orp. ex rel
. C yberge nics C orp. v. C hinery , 330 F. 3d 548, 563 ( 3d C ir. 2 0 0 3 ) (s tatin g th a t “§ 1 1 0 3 (c )(5 ) d o e s n o t co n fe r th e so rt o f b lan k e t au th o rity nece s s aryfort he C om m i t t ee i ndepende nt l yt o i ni t i at e an a dver s ar i al pr ocee di ng, i ncl udi ng one under§ 544( b) ”) . B utcour t s have “ perm i t t ed cr edi t or s ’ comm i t t ees t o b ri ng act i on s i n the nam e of the debtor ,” u su a llyo n ly“ in c o n n e c tio n w ith act i ons agai ns ti ns i der s orot herper s ons t hatt he debt ori n pos s es s i on has r efus ed o r i s re lu c ta n t to s u e .” C o llie r o n B a n k ru p tc y¶ 1 1 0 3 .0 5 [ 6 ][ a ] ( e m p h a s is a d d e d ). T hus , as t he trus t ee not ed, anyr i ght s t he cr edi t or s ’ comm i t t ee ha s t o an avoi dance act i on ar e der i vat i ve of t he debt or and t he es t at e’ s cl ai m s . I n R achl es , t he trus t ee 9( . . . cont i nued) 9 comm i t t ee. O n thi s author i t y , A kamai ar gues , t he cr edi t or s ’ comm i t t ee he r e had no r i ghtt o br i ng an avoi dance act i on. Si nce Hart f ord , h o w e v e r, o th e r c irc u its h a v e c o n tin u e d to a llo w c o m m itte e s to b ri n g a v o id a n c e a c tio n s . See, e. g, C hinery , 3 3 0 F .3 d 5 4 8 ; Je ff erso n C o u n ty B d
. o

f C o u n ty C o m m ’rs v. Vo ino vich ( In r e V C o s .) , 2 9 2 B .R . 2 9 0 (B .A .P . 6 th C ir. 2 0 0 3 ); G l i nka v. Feder alP l as t i cs M f g. (In r e Ho u s e c r a

ft In d u s . US

A , In c .) , 3 1 0 F .3 d 6 4 (2 d C ir . 2 0 0 2 ). B e c a u se w e c o n c lu d e th e tru ste e d o e s n o t su c c e e d to th e c o m m itt e e ’s r ig h ts i n anycas e, w e nee d notdi s cus s t he ava i l abi l i t yof thes e r i ght s s i nce Hart f ord . It is e n o u g h to n o te th a t to th e e x ten t th e c re d ito rs’ c o m m itt e e h a s a rig h t to in iti a te an avoi dance act i on, i t s r i ghti s der i vat i ve of the debt or - i n- pos s es s i on’ s r i ghtand i s exer ci s ed on beha l f of the bankrupt cyes t at e. -17- succeed ed to j ustsuch d eri vati ve est at e cl ai m s. T o the ext ent the credit ors’ comm i t t ee ha d been br i ngi ng t hos e cl ai m s on behal f of the debt or , t he trus t ee r emai ned fr ee t o di r ectt he cl ai m s forw ar d. In r e G r eatNor ther n P aper, Inc. , 299 B . R . 1, al s o tur ned on the der i vat i ve natur e of the r i ght s as s er t ed byt he cr edi t or s ’ comm i t t ee. A ccor di ng t o G r eat Northern , w her e the i nt er es t s of the cr edi t or s ’ comm i t t ee w er e al l i ed w i t h t he d eb tor so that the c o m m ittee w as sim p lyb ri n g ing claim s o n b eh alf o f th e d eb tor, t he trus t ee w as fr ee t o cont i nue di r ect i ng t he cl ai m s forw ar d— es s ent i al l yt aki ng overt he r ei ns of the es t at e’ s cl ai m as w as done i n R achl es . Id
. a t 7

– 8 . B u t in G r eatNor ther n, t he i nt er es t s of the es t at e, as r epr es ent ed byt he debt or , and the c re d ito rs’ c o m m itt e e w e re n o t alig n e d . A s th e c re d ito rs’ c o m m itt e e w ish e d to ste e r its c laim c o n tra ryto th e d e b to r’s in ten tio n s, th e c o m m itt e e c o u ld n o t b e sa id t o acton behal f of the debt orand the es t at e, s o t he comm i t t ee w as notbr i ngi ng r i ght s der i vat i ve of the debt or . A nd, as w e di s cus s ed, a trus t ee a ct s onl yon-18-

cl ai m s der i vat i ve of the debt or ’ s r i ght s s o t he trus t ee i n G r eatNor ther n coul d not g u id e th e c re d ito rs ’ c o m m itte e c la im s fo rw a rd . G r eatNor ther n i s i nappl i cabl e i n t hi s cas e. T he cr edi t or s ’ comm i t t ee cl ai m s her e ar e der i vat i ve of the debt orbeca us e M SH O W s peci fi cal l ygr ant ed t hem t o t he comm i t t ee i n t he fi nanci ng agr eement , s o t he trus t ee c oul d n o rm a lly br i ng t hos e cl ai m s forw ar d aft erconver s i on as i n R a c h le s . B ut M S H O W al so us ed the fi nanci ng agr eementt o bari t s el f and, pos t - conver s i on, t he trus t ee f r om t aking ov er the rei ns and act i ng on t ho se deri vati ve ri gh t s. In su m , the o n lyrig h ts a tru ste e in h e rits f ro m a c re d ito rs’ c o m m itt e e to br i ng an avoi dance act i on ar e der i vat i ve of the debt or ’ s r i ght s . I n t hi s cas e, t he t rus t ee i s barr ed fr om act i ng on t hos e der i vat i ve r i ght s beca us e the debt or - i npos s es s i on w as barr ed i n t he fi nanci ng or der . T he der i vat i ve r i ght s exi s tl i ke a s w o rd in a s to n e , b u t th e re is n o A rt h u r t o c la im th e m . I I I . C oncl usi on F o rt h e r e a s o n s s e tfo r t h a b o v e , we AFF I RM .