Opinion ID: 1850658
Heading Depth: 1
Heading Rank: 1

Heading: The Federal Statute of Limitations.

Text: Section 548 of 11 U.S.C. provides that [t]he trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor [meets certain conditions]. Section 546 of 11 U.S.C., in turn, provides this with respect to such actions: (a) An action or proceeding under § [548] of this title may not be commenced after the earlier of (1) two years after the appointment of a trustee ...; and (2) the time the case is closed or dismissed. It is unquestioned that in this case the trustee did not pursue the action within the time provided by § 546. Section 548 provides that a trustee may pursue such an action; it does not require him to do so. Furthermore, any right the trustee had to pursue such a cause of action in this case was abandoned by the trustee. The bankruptcy judge anticipated that the action would be pursued in postbankruptcy proceedings, presumably in state court. It ruled that even assuming without deciding that the Kenkels' various transfers were fraudulent, the fact remains there is no evidence indicating the transfers cannot be undone. The only direct evidence on point was the testimony of [the] bookkeeper for INNK, indicating that she had no knowledge of whether the transfers could be undone in a manner that would protect the rights of creditors of the transferors. Further, it seems reasonable to assume the aggrieved parties [INNK Land] could take action to undo any transfer of stock or real estate that was improper. The court further stated: In the case at bar, the prejudice to INNK resulting from the continued separation of the estates [INNK Land had unsuccessfully attempted to consolidate its claims against the transferees with the bankruptcy matter] is that it will need to complete its tracing of [the] transfers and then take appropriate steps to undo any improper transfers. However, INNK has already demonstrated it can trace the transfers. Thus, the prejudice to INNK is not severe. The Kenkels contend that the remedy for INNK Land in such a case was to bring an action to force the trustee to bring the action against the transferees to set aside the fraudulent transfer. We disagree. In the first place, whether to pursue such a claim is apparently left to the discretion of the trustee. See 11 U.S.C. § 548. If the bankruptcy court had refused to force the trustee to bring such an action, under the defendant's theory INNK would have no remedy in bankruptcy court. We do not believe this is a fair reading of §§ 546 and 548. In addition, once the bankruptcy trustee abandoned the claim against these transferees, INNK Land was free to pursue its remedies in state court. Cf. FDIC v. Davis, 733 F.2d 1083, 1085 (4th Cir.1984) (right of lien holder to pursue fraudulent transfer after closing of bankruptcy). The cases principally relied on by the Kenkels to support their argument that the trustee had the exclusive right to pursue such transfers are distinguishable. They involved conflicts between the bankruptcy trustee and plaintiffs attempting to set aside the fraudulent transfer. There is no such conflict here; the trustee abandoned any claim to those assets.