Opinion ID: 796935
Heading Depth: 2
Heading Rank: 1

Heading: Waiver by Debtor-in-possession

Text: 22 The first issue is readily resolved by the financing order. It clearly states: Debtor's estate ... [and] debtor ... shall be forever barred from asserting any and all claims on any basis or theory against the secured creditors. R. at 36, ¶ 7. It is difficult to construe the language of this legal bar any way other than a waiver of MSHOW's right to bring an avoidance action against secured creditors such as Akamai. 23 Nevertheless, the trustee suggests several theories in support of his position that he is not barred from bringing suit. 5 The trustee argues (1) a full release did not occur because the creditors' committee retained a right of action; (2) inclusion of the word trustee in ¶ 5, but not ¶ 7 of the order, excluded the trustee from the ¶ 7 legal bar; (3) it is unreasonable to conclude the agreement intended conversion to act as an unstated limitation on the creditors' committee right of action; and (4) parol evidence should be admitted to establish the intent of the parties. All of these arguments are without merit. 24 (1) The Release. The trustee first argues that because the order expressly preserves avoidance claims to be pursued by the [creditors' c]ommittee against the Secured Creditors, it cannot be a full release. Aplt. Br. at 23. The basis for this argument is the proposition that a release is an outright discharge of the entire obligation. Symons v. Mueller Co., 526 F.2d 13, 17 (10th Cir.1975). Thus, the trustee argues, the retention of any right to sue implies the financing order did not constitute a full release and, therefore, the trustee may still sue. 25 But the real question is not whether a full release exists, but rather who retained any existing right to bring an avoidance action. It is well established that a Chapter 7 trustee succeeds to the rights of the debtor-in-possession and is bound by prior actions of the debtor-in-possession to the extent approved by the court. Paul v. Monts, 906 F.2d 1468, 1473 (10th Cir.1990). Even the trustee concedes he is bound by court approved stipulations of a [debtor-in-possession] prior to conversion. Aplt. Br. at 22. The creditors' committee may have retained a right of action, but that does not remove the existing bar against the debtor-in-possession or, post-conversion, the trustee enforcing those rights. MSHOW and, post-conversion, the trustee are barred from bringing an avoidance action regardless of whether the right to an avoidance action exists. Both the bankruptcy court and district court agreed the financing order barred MSHOW from bringing an avoidance action and that the trustee was similarly barred. The only reason the bankruptcy court denied summary judgment was its conclusion that the trustee succeeded to the creditors' committee right of action. 26 (2) The Financing Order. Turning to the language of the financing order, the trustee contends differing language used in different paragraphs supports a textual argument that the trustee is not barred from asserting avoidance claims. He argues ¶ 7 does not specifically state that the trustee is bound by the agreement, while ¶ 5 of the order mentions that a successor trustee is subject to the order's superiority to other underlying rights of the parties. 6 From this linguistic variation, the trustee argues that we should understand ¶ 7, unlike ¶ 5, allows trustee actions. 27 We disagree. The language in ¶ 7 explicitly applies to both the debtor and the debtor's estate. The trustee stands in the place of the debtor and represents the interest of the estate. It follows that this bar on the debtor also applies to the trustee. It does not matter that ¶ 7 of the order did not expressly include a trustee; the trustee was inevitably included as successor to the debtor-in-possession under the financing order's provision that its terms would survive conversion. 28 (3) Limitation on the Creditors' Committee Right to Bring an Avoidance Action. Next, the trustee argues that it would be unreasonable to treat the financing order language as an effective bar because conversion would operate as an unstated limitation on the creditors' committee right to bring an avoidance action. For example, the trustee argues conversion could theoretically occur at MSHOW's sole discretion just one day after the debtor-in-possession financing order became final, i.e., one day after its approval, MSHOW could have converted the Chapter 11 action to a Chapter 7 action, thereby closing off the creditors' committee right of action before the committee had time to investigate the need to bring an action. But the fact that Chapter 7 conversion could dissolve the committee immediately after the order became effective demonstrates only that MSHOW failed to retain a meaningful right to enforce avoidance actions for the creditors' committee. It does not mean that MSHOW's waiver of its own rights (and those of the Chapter 7 trustee) to enforce the agreement were so unreasonable as to be unenforceable. It is not unreasonable for the debtor-in-possession to give away certain rights of the estate in order to receive the benefit of additional financing. If the creditors' committee felt MSHOW's actions were either unreasonable or an effort to unjustifiably protect certain secured creditors from an avoidance action, it could have challenged the financing order or objected at the conversion hearing and sought forestallment of conversion until the avoidance actions had been undertaken. The notice issued to comply with the financing order explicitly warned those whose legal rights might be affected by the order of the deadline to file a motion for reconsideration. 29 (4) Parol Evidence. Finally, the trustee claims the financing order is ambiguous, requiring parol evidence to interpret it. He contends the parties sought conversion for the primary purpose of allowing the trustee to bring avoidance actions, so it makes little sense to conclude that they intended to waive such claims in their financing agreement. 30 His argument has two flaws. First, the order is not ambiguous. It clearly bars the debtor-in-possession (and the estate) from bringing any action. Thus, the parole evidence rule precludes us from examining extrinsic evidence in interpreting the agreement. Boyer v. Karakehian, 915 P.2d 1295, 1299 (Colo.1996) (A court should only admit parol evidence when the contract between the parties is so ambiguous that their intent is unclear.). 7 Furthermore, the conversion order was entered long after the financing order, so the intent of the parties at the time of conversion is not evidence of what they intended when they made the agreement. The fact that some parties later hoped the trustee would be able to step into the unsecured creditors' right to sue upon conversion says nothing about the parties' intentions regarding the financing order when it was drafted and entered. The 20-20 nature of hindsight should be most palpable in bankruptcy proceedings. 31 In sum, none of the trustee's arguments undermine the financing order's language that MSHOW is barred from bringing an avoidance action against Akamai. Both the bankruptcy court and district court reached this same conclusion, and we agree. As a Chapter 7 trustee has no rights greater than the debtor-in-possession, and here, MSHOW had no right to bring an avoidance action to pass on to the trustee, then the trustee was not entitled to bring an avoidance action in its own right.