Court Opinion

ID: 9004793
Source: CourtListenerOpinion
Date Created: 2022-11-27 13:22:03.836859+00
Date Added: 2024-06-11T17:11:15.328235
License: Public Domain

WILKINSON, Circuit Judge,
dissenting:
I disagree with the majority’s conclusion that the reconveyance of the accounts receivable by Consolidated to Coliseum Cartage allows Coliseum as a debtor-in-possession to use § 108(a) to extend the time period in which an action to recover the freight undercharges may be brought. The majority’s result cannot be squared with the basic aims of bankruptcy law— aims that are embodied in the plain language of the statute.
*1027The issue in this ease arises from the intersection of two bedrock principles of bankruptcy. The first principle is that filing for bankruptcy acts as a “time-out” for the debtor or the trustee, stopping the clock running against him. This applies to actions brought against the debtor, see 11 U.S.C. § 362 (automatic stay), as well as to actions brought by the trustee or debtor-in-possession, see 11 U.S.C. § 108(a); 11 U.S.C. § 1107 (granting debtor-in-possession the rights and powers of trustee). Section 108(a) grants the debtor-in-possession or the trustee time to evaluate claims held by the estate and to sort out the affairs of the estate in an orderly fashion. See H.Rep. No. 595, 95th Cong., 1st Sess. 318 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6275. This reprieve from the statute of limitations clock is especially important where the management of a business has allowed matters to slide as the business entered its downward spiral. Management may not have adequate incentives to bring lawsuits in a timely fashion when it expects the recovery to be delayed and the benefits to accrue to creditors rather than shareholders. Section 108(a) allows the trustee to counteract the possibility that management was not adequately serving the creditors’ interests in the period before filing.
The second principle, ignored by the majority, is that the debtor must do business post-petition on the same terms as solvent businesses, with no bankruptcy subsidy. See, e.g., Midlantic Nat’l Bank v. New Jersey Dep’t of Envtl. Prot., 474 U.S. 494, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986). The protection of the bankruptcy code is not intended to subsidize business failures. Debtors continuing to do business under the protection of the bankruptcy court must obey the criminal laws, 11 U.S.C. § 362(b)(1), pay taxes, 28 U.S.C. § 960, comply with regulations, 28 U.S.C. § 959— and bring suits within the time periods specified by statutes of limitations. Subsidizing debtors in bankruptcy will only disadvantage solvent firms and encourage wasteful forum-shopping as debtors and creditors seek to gain the benefits of the bankruptcy court.
The decision of the majority moves beyond the time-out authorized by § 108(a) and into the forbidden ground of subsidy. The language of § 108(a) makes clear that its time extension is only available for claims arising pre-petition. That section by its terms applies only when the statute of limitations on a bankrupt’s claim “has not expired before the date of the filing of the petition ...” (emphasis added). The time extension is simply unavailable for claims obtained by the estate post-petition. 2 Collier on Bankruptcy 11108.02 (Supp.1992); see, e.g., Independent Fire Ins. Co. v. Pender (In re Phillip), 948 F.2d 985, 987 (5th Cir.1991). The amended agreement, dated November 1, 1987, clearly transferred any interest that Coliseum now has after the date of the filing of the petition (July 9, 1986).
The majority asserts that the amended agreement “preserved” the status of the undercharges as Coliseum claims, but there was nothing left to preserve. According to the terms of the 1986 purchase agreement between Coliseum and Consolidated, Coliseum relinquished all “right, title and interest” in the accounts receivable covering the freight undercharges. Coliseum retained nothing. Up until the time of that agreement, Coliseum was entitled to the extension of the statute of limitations provided by § 108(a). At the point the claims were sold, the purposes of § 108(a) had been completely served. Coliseum had the opportunity to evaluate the merits of its claims and had determined that its best course was to sell the accounts receivable, for which it received one hundred and thirty thousand dollars. This breathing room was all that § 108(a) was intended to confer. Once the sale was complete, Coliseum no longer had any cause of action to bring on these undercharges and the § 108(a) extension was irretrievably lost.
The amended agreement purports to re-convey the claims to Coliseum “as though no prior conveyance had ever been made,” but the reconveyance of the accounts receivable to Coliseum in 1987 could not and did not resuscitate the § 108(a) extension. Outside of bankruptcy, Consolidated would *1028have taken the accounts receivable subject to the applicable statute of limitations; it should not receive a bonus because Coliseum is in bankruptcy. Moreover, Coliseum was required to conduct its business post-petition on the same terms as solvent businesses. No one would dispute that Coliseum could not take the benefit of § 108(a) if in the post-petition period it had been assigned a promissory note whose holder had allowed the applicable statute of limitations to expire; this would be an obvious subsidy to the debtor. The majority fails to recognize that the collusive 1987 agreement between Consolidated and Coliseum seeks to accomplish an equivalent feat.
The ex parte approval of the bankruptcy court does not save this agreement. The bankruptcy court specifically found that the agreement was a collusive attempt to manufacture subject matter jurisdiction. That court concluded:
The November 10, 1986 sale of the Debt- or’s undercharge claims to Consolidated/Mark was a final and absolute sale. Upon completion of the sale, the Bankruptcy Court no longer had jurisdiction over the undercharge claims or over the proceedings to collect such claims. As of November 10, 1986 the undercharge claims were no longer property of the Debtor’s estate, (emphasis added).
Given the bankruptcy court’s conclusion that it had no jurisdiction over the undercharge claims at the time of the amended agreement, the amended agreement, and that court’s approval, had no effect whatsoever.
The majority’s position means that a cause of action involving a bankrupt is, like the proverbial cat, to have nine lives. Through collusive arrangements, a cause of action for which the statute of limitations has expired may be magically restored to life by allocating to a bankrupt some minimal interest in the subject matter of the litigation. This sort of alteration of the statutory scheme must be left to Congress. The statutory framework should have been clear to Consolidated in 1986 when it agreed to an outright purchase of the accounts receivable. Had Consolidated initially assumed the role of Coliseum's collection agent instead of purchasing the relevant accounts, the § 108(a) extension would have remained in effect, and the problem of the expired statute of limitations would never have arisen. The majority manipulates the statute in order to correct Consolidated’s mistake, and in the process, confers upon itself the clear prerogatives of Congress.
I would reverse the judgment of the district court and hold that plaintiffs’ action for the disputed undercharges was time barred. ■