Court Opinion

ID: 2646263
Source: CourtListenerOpinion
Date Created: 2013-12-17 21:27:57.139867+00
Date Added: 2024-06-11T12:52:24.862704
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                        Pursuant to Sixth Circuit I.O.P. 32.1(b)
                               File Name: 13a0345p.06

             UNITED STATES COURT OF APPEALS
                             FOR THE SIXTH CIRCUIT
                               _________________

                                                 X
                                                  -
 In re: STEVE A. MCKENZIE,
                                                  -
                                Debtor.
 _____________________________________            -
                                                  -
                                                       Nos. 12-6374/6375

                                                  ,
                                                   >
                                   Appellant, -
 GRANT, KONVALINKA & HARRISON, P.C.,

                                                  -
                                                  -
                                                  -
          v.
                                                  -
                                                  -
                                     Appellee. -
 C. KENNETH STILL,
                                                 N
                   Appeal from the United States District Court
              for the Eastern District of Tennessee at Chattanooga.
              Nos: 1:11-cv-00192; 1:11-cv-00274; 1:12-cv-00025.
                      Curtis L. Collier, Chief District Judge.
                              Argued: October 8, 2013
                     Decided and Filed: December 17, 2013
             Before: BOGGS, CLAY, and GILMAN, Circuit Judges.

                               _________________

                                    COUNSEL
ARGUED: Harry R. Cash, GRANT, KONVALINKA & HARRISON, P.C.,
Chattanooga, Tennessee, for Appellant. Jerrold D. Farinash, KENNEDY, KOONTZ &
FARINASH, Chattanooga, Tennessee, for Appellee. ON BRIEF: Harry R. Cash, John
P. Konvalinka, GRANT, KONVALINKA & HARRISON, P.C., Chattanooga,
Tennessee, for Appellant. Jerrold D. Farinash, KENNEDY, KOONTZ & FARINASH,
Chattanooga, Tennessee, for Appellee.

                                         1
Nos. 12-6374/6375      Grant, Konvalinka & Harrison v. Still                          Page 2

                                  _________________

                                        OPINION
                                  _________________

        RONALD LEE GILMAN, Circuit Judge. Grant, Konvalinka & Harrison, P.C.
(GKH), a Tennessee-based law firm, seeks relief from the automatic stay of adversary
proceedings resulting from the bankruptcy of one of its former clients, Steve A.
McKenzie. GKH contends that it is entitled to an equity interest in certain assets that
McKenzie pledged to the firm shortly before he was placed into bankruptcy. The
bankruptcy trustee, C. Kenneth Still (Trustee), opposes GKH’s motion for relief from
the automatic stay on the basis that the pledges constitute preferential transfers.

        After conducting multiple hearings on the matter, the bankruptcy court issued
orders denying in part GKH’s motion for relief from the stay. The district court
affirmed. For the reasons set forth below, we AFFIRM the judgment of the district
court. In the course of doing so, we resolve the following two issues of first impression
in the Sixth Circuit: (1) which party bears the burden of establishing the validity of a
creditor’s security interest in the debtor’s property, and (2) whether a trustee may use his
hypothetical lien-creditor status and avoidance powers to oppose a motion for relief from
the automatic stay after the expiration of the two-year statutory limitation on avoidance
actions under 11 U.S.C. § 546(a)(1)(A).

                                  I. BACKGROUND

A.      Factual background

        McKenzie was a prominent entrepreneur in Cleveland, Tennessee. A group of
McKenzie’s creditors filed an involuntary bankruptcy petition against him under Chapter
7 of the Bankruptcy Code in November 2008. When McKenzie filed a voluntary
Chapter 11 petition the following month, the bankruptcy cases were consolidated. The
bankruptcy court approved the appointment of a Chapter 11 trustee in February 2009,
and the case was converted to a Chapter 7 bankruptcy in June 2010.
Nos. 12-6374/6375      Grant, Konvalinka & Harrison v. Still                      Page 3

        A flurry of lawsuits between GKH and the Trustee followed. Indeed, this is not
the first appeal by GKH involving the McKenzie bankruptcy. See In re McKenzie,
716 F.3d 404 (6th Cir. 2013). GKH alleged in that appeal that the Trustee and his
attorneys maliciously prosecuted several lawsuits against GKH. See id. at 408-09
(discussing the facts of the case). This court resolved the prior appeal in the Trustee’s
favor. See id. at 409 (affirming the bankruptcy court’s dismissal of GKH’s adversary
complaints against the Trustee and his attorneys).

        Several weeks before the Chapter 7 involuntary bankruptcy petition was filed
against him, McKenzie executed a promissory note and a pledge agreement in favor of
GKH for the purpose of securing legal fees owed to the law firm. The pledge agreement
listed almost two dozen entities in which McKenzie held an ownership interest.
McKenzie later executed an amended pledge agreement listing several additional
entities. These entities ranged from a so-called “auto mall” to a farm.

B.      Procedural history

        GKH initially filed a proof of claim for $406,829 against McKenzie’s bankruptcy
estate in April 2009. The proof of claim listed the basis for the claim as “[s]ervices
performed” and described the collateral as “Real Estate.” McKenzie objected to the
proof of claim in February 2011 because GKH had failed to attach certain documents to
its claim.

        GKH filed an amended proof of claim for $750,000 shortly after McKenzie’s
objection. In its amended claim, GKH described the collateral as “Real Estate” and
“Other.” GKH subsequently filed a motion for relief from the automatic stay. The
Trustee opposed the motion on the ground that the equity interests pledged by McKenzie
to GKH constituted preferential transfers.

        Two hearings were held on GKH’s motion for relief from the automatic stay in
May 2011. Three days after the second hearing, the bankruptcy court issued an order
granting in part and denying in part GKH’s motion for relief from the automatic stay.
Nos. 12-6374/6375      Grant, Konvalinka & Harrison v. Still                        Page 4

       In its order, the bankruptcy court granted relief from the automatic stay with
respect to certain real estate collateral previously pledged by McKenzie, but denied relief
as to the pledged equity interests and reserved ruling on several other issues. Another
evidentiary hearing was held in October 2011, after which the bankruptcy court issued
a second order denying the remainder of GKH’s motion for relief.

       The second order from the bankruptcy court addressed (1) whether McKenzie
validly conveyed his equity interests in certain entities, including Cleveland Auto Mall,
LLC (CAM), to GKH, (2) whether the Trustee could use his hypothetical lien-creditor
status and avoidance powers defensively to defeat GKH’s security interest even though
the two-year statute of limitations for commencing avoidance actions had expired in
January 2011, and (3) whether the statute of limitations should be equitably tolled
because of GKH’s conduct during the McKenzie bankruptcy. All three issues were
resolved in the Trustee’s favor.

       As to the first issue, the bankruptcy court concluded that, among other things,
GKH failed to carry its burden of showing that it possessed a valid security interest in
CAM. The court resolved the second issue by holding that the Trustee was not bound
by the statute of limitations and could therefore use his avoidance powers defensively
after the expiration of the limitations period. Finally, with respect to equitable tolling,
the bankruptcy court held in the alternative that tolling was warranted because of GKH’s
misleading conduct during the pendency of the case.

       GKH appealed both bankruptcy court orders to the district court. The district
court affirmed in a memorandum opinion. This timely appeal by GKH followed.

       GKH contends on appeal that the bankruptcy court erred in (1) extending the
automatic stay for more than 60 days after GKH filed its motion for relief from the
automatic stay, (2) requiring GKH to establish the validity of its security interest in the
pledged equity interests, (3) concluding that a valid transfer of McKenzie’s interest in
CAM had not occurred, (4) allowing the Trustee to use his hypothetical lien-creditor
status and avoidance powers defensively despite the expiration of the statute of
Nos. 12-6374/6375       Grant, Konvalinka & Harrison v. Still                         Page 5

limitations, and (5) equitably tolling the statute of limitations. The Trustee, for his part,
urges us to blanketly affirm the judgments of both lower courts in all respects.

                                     II. ANALYSIS

A.      Standard of review

        In bankruptcy appeals, findings of fact are upheld unless they are clearly
erroneous, In re Federated Dep’t Stores, Inc., 328 F.3d 829, 832 (6th Cir. 2003),
whereas legal conclusions are reviewed de novo. Id. A bankruptcy court’s use of its
equitable powers, on the other hand, is reviewed under the abuse-of-discretion standard.
In re Nichols, 440 F.3d 850, 856 (6th Cir. 2006); In re Maughan, 340 F.3d 337, 344 (6th
Cir. 2003).

B.      The bankruptcy court did not err in extending the automatic stay

        GKH contends that the bankruptcy court erred in extending the automatic stay
for more than 60 days after GKH filed its motion for relief from the stay. In the absence
of a contrary court ruling, the automatic stay terminates 60 days after a creditor’s motion
for relief. See 11 U.S.C. § 362(e)(2). GKH filed its motion on March 7, 2011. The
bankruptcy court, in its April 4, 2011 order granting the Trustee’s motion to extend the
automatic stay, referenced the “preliminary hearing required by 11 U.S.C. § 362(e)(1)”
despite not conducting such a hearing. GKH seizes on the quoted language to argue that
the bankruptcy court should have held a preliminary hearing before it found good cause
for extending the automatic stay beyond 60 days.

        The fatal flaw in GKH’s argument is that no preliminary hearing was required
because McKenzie is an individual debtor. See 11 U.S.C. § 362(e)(2) (“Notwithstanding
paragraph (1), in a case . . . in which the debtor is an individual, the stay under
subsection (a) shall terminate on the date that is 60 days after a request is made by a
party in interest under subsection (d), unless . . . such 60-day period is extended . . . by
the court for such specific period of time as the court finds is required for good cause,
as described in findings made by the court.”) (emphasis added). Section 362(e)(2)—and
not § 362(e)(1)—is therefore the applicable provision in this case despite the bankruptcy
Nos. 12-6374/6375      Grant, Konvalinka & Harrison v. Still                       Page 6

court’s mistaken reference to § 362(e)(1). Moreover, § 362(e)(2), unlike § 362(e)(1),
does not require a preliminary hearing. Compare 11 U.S.C. § 362(e)(1) (“A hearing
under this subsection may be a preliminary hearing . . . .”), with 11 U.S.C. § 362(e)(2)
(containing no preliminary hearing requirement). The bankruptcy court, in sum, did not
err in failing to hold a preliminary hearing on GKH’s motion for relief.

       GKH next argues that the bankruptcy court erred in finding good cause for
extending the automatic stay beyond 60 days. In its order extending the stay, the
bankruptcy court concluded that “issues related to the employment of counsel for the
[T]rustee should be resolved before proceeding to the merits of the Motion for Relief.”
These issues, in the bankruptcy court’s view, constituted “compelling circumstances
. . . which require that the final hearing on the Motion for Relief be held beyond 60 days
as required by 11 U.S.C. § 362(e)(2) . . . .”

       We agree. The Trustee had little choice but to hire new counsel to defend against
GKH’s motion for relief from the automatic stay because GKH had earlier sued the
Trustee and his attorneys for malicious prosecution. Extending the automatic stay so
that the Trustee would have adequate time to retain new counsel and prepare for the
hearing on GKH’s motion did not constitute an abuse of discretion by the bankruptcy
court. See In re M.J. Waterman & Assocs., Inc., 227 F.3d 604, 608 (6th Cir. 2000)
(explaining that an abuse of discretion occurs only if no reasonable person could agree
with the bankruptcy court’s decision).

C.     The bankruptcy court properly required GKH to establish the validity of
       its security interest in the pledged collateral

       A bankruptcy court may grant a motion for relief from the automatic stay if,
among other things, the debtor “does not have an equity [interest] in [the] property.”
11 U.S.C. § 362(d)(2)(A). GKH relies on a stipulation between the parties—namely, “to
the extent [that] GKH has a valid security interest in any property of the debtor, the
parties stipulate that the debtor does not have any equity in such property”—as
conclusive evidence that McKenzie lacked an equity interest in the collateral. The
bankruptcy court, however, required GKH to establish the validity of its security interest
Nos. 12-6374/6375       Grant, Konvalinka & Harrison v. Still                           Page 7

in the pledged property. GKH contends that the bankruptcy court erred in placing this
burden of proof on GKH.

        Whether a creditor has the burden of establishing the validity of its security
interest is an issue of first impression in the Sixth Circuit. The parties themselves have
cited no circuit or district court decisions from other jurisdictions on point, but numerous
bankruptcy courts in other jurisdictions have imposed this requirement on creditors
seeking relief under 11 U.S.C. § 362(d)(2). See, e.g., In re Elmira Litho, Inc., 174 B.R.
892, 900 (Bankr. S.D.N.Y. 1994) (noting that “[t]he secured creditor who seeks relief
from the automatic stay under § 362(d)(2) must demonstrate . . . that its claim is secured
by a valid, perfected lien in property of the estate”); In re Cabrillo, 101 B.R. 443, 450-51
(Bankr. E.D. Pa. 1989) (denying relief under 11 U.S.C. § 362(d)(2) because the creditor
failed to prove that it held a valid security interest in the collateral); In re Playa Dev.
Corp., 68 B.R. 549, 553 (Bankr. W.D. Tex. 1986) (“In considering a motion for relief
from the stay, it is necessary to observe that the moving party has the burden of
establishing the validity and perfection of its security interest . . . .”); In re Dahlquist,
34 B.R. 476, 481 (Bankr. D.S.D. 1983) (“[A] creditor must establish the validity and
perfection of its security interest . . . and must carry the ultimate burden of proof with
respect to equity.”); United Cos. Fin. Corp. v. Brantley, 6 B.R. 178, 184 (Bankr. N.D.
Fla. 1980) (explaining that a creditor must “establish the validity and perfection of its
security interest . . . and . . . must carry the ultimate burden of proof with respect to
equity”). But see In re Allstar Bldg. Prods., Inc., 834 F.2d 898, 899-900 (11th Cir. 1987)
(en banc) (per curiam) (noting that the debtor bears the burden of establishing that a
creditor has failed to perfect its security interest).

        The bankruptcy court, in imposing such a requirement on GKH in this case,
explained that “[i]mplicit in a determination that a party is entitled to lift the stay . . . is
a determination that the party is a creditor who has a lien against [the] property of the
debtor and that the lien existed prepetition.” Contrary to GKH’s argument, the parties’
stipulation does not help its cause. The stipulation is conditional. It states only that
McKenzie lacks equity “to the extent [that] GKH has a valid security interest.” Thus,
Nos. 12-6374/6375        Grant, Konvalinka & Harrison v. Still                        Page 8

if GKH does not possess a valid security interest, then the stipulation establishes nothing
at all.

          GKH does not dispute that it would, in the absence of the stipulation, bear the
burden of proof on McKenzie’s lack of equity in the pledged collateral. It instead
contends that the Trustee has the burden of proof on all other issues, including the
validity (or invalidity) of GKH’s security interest. In advocating this position, GKH
relies on the following language set forth in 11 U.S.C. § 362(g):

          (g) In any hearing under subsection (d) or (e) of this section concerning
          relief from the stay of any act under subsection (a) of this section —
                 (1) the party requesting such relief has the burden of
                 proof on the issue of the debtor’s equity in [the] property;
                 and
                 (2) the party opposing such relief has the burden of proof
                 on all other issues.

GKH argues that the plain language of § 362(g) does not permit the bankruptcy court to
alter the parties’ burdens.

          Although this plain-language argument by GKH has some surface appeal, the
argument ignores the fact that the validity of a creditor’s security interest is often
determinative of the debtor’s lack of equity in the property, and consequently affects the
ultimate issue—whether the bankruptcy court should terminate the automatic stay. As
the bankruptcy court in United Companies explained, “leave to foreclose should not be
granted to any mortgagee who has not perfected its mortgage,” and “it would be an
abuse of discretion to permit foreclosure . . . when the perfection and validity of the
security interest sought to be foreclosed cannot be established.” 6 B.R. at 184 (emphasis
added). This view appears to be the majority view among bankruptcy courts that have
considered the issue.

          The only case cited by GKH for the minority view, In re Johnson, 422 B.R. 183
(Bankr. E.D. Ark. 2010), simply states its conclusion without any meaningful analysis.
See id. at 185 (declaring that “[t]he Trustee had the initial burden of proof to show that
Nos. 12-6374/6375       Grant, Konvalinka & Harrison v. Still                         Page 9

the creditor did not have a perfected security interest”). GKH further argues in its reply
brief that the validity of its security interest was established by the filing of an amended
proof of claim in February 2011 because a proof of claim is deemed allowed unless an
interested party objects. 11 U.S.C. § 502(a); Fed. R. Bankr. P. 3001(f). But this
argument overlooks an important point—namely, that this appeal does not involve a
proof of claim, but rather a motion for relief from the automatic stay.

        Finally, requiring a creditor to establish the validity of its security interest makes
sense as a matter of sound judicial policy because the creditor will likely be in the best
position to show that its interest is valid. See Frank R. Kennedy, The Automatic Stay in
Bankruptcy, 11 U. Mich. J.L. Reform 175, 227 (1978) (observing that the “facts
providing a justification for modifying the stay will ordinarily be more easily provable
by the creditor than disprovable by the [debtor]”) (internal quotation marks omitted); cf.
In re Nutri*Bevco, Inc., 117 B.R. 771, 784 (Bankr. S.D.N.Y. 1990) (explaining in the
context of a scheduled claim that the “creditor is in the best position to determine if its
claim is accurately listed”). The bankruptcy court therefore properly required GKH to
establish the validity of its security interest in the pledged collateral.

D.      The bankruptcy court correctly concluded that GKH failed to establish a
        valid transfer of McKenzie’s ownership interest in CAM

        GKH next contends that the bankruptcy court erred in concluding that McKenzie
failed to effectuate a valid transfer of his ownership interest in CAM. After examining
the operating agreement for CAM, the bankruptcy court noted that § 8.1(a) of the
agreement prohibits transfers of ownership interests without the prior written consent of
the Board. The operating agreement further provides that transfers in violation of the
agreement are “null and void and shall not operate to transfer any interest or title to the
Membership Interest to the purported transferee.”

        CAM had two members at the time of the putative transfer of McKenzie’s
ownership interest in CAM to GKH: McKenzie and Nelson Bowers. GKH produced
an undated consent form signed by Bowers, wherein he “consents . . . to the grant to
[GKH] of a security interest in the ownership interest of Steve A. McKenzie in
Nos. 12-6374/6375      Grant, Konvalinka & Harrison v. Still                       Page 10

Cleveland Auto Mall, LLC by pledge agreement dated October 13, 2008 and amended
October 29, 2008.” Bowers testified that his written consent to the transfer was effective
“as of October 13 and October 24, [sic] 2008.” He could not recall, however, whether
he executed the consent form before or after McKenzie attempted to transfer his
ownership interest to GKH.

        The operating agreement expressly requires Bowers’s prior written consent. In
the absence of such consent, any transfer is null and void under the terms of the
agreement. Although GKH argues that Bowers has no objection to the transfer, GKH
fails to offer any support for its argument that Bowers’s undated ratification cures
GKH’s failure to provide proof of Bowers’s pretransfer written consent. Indeed, the
language of the operating agreement squarely forecloses GKH’s argument. The
bankruptcy court therefore correctly concluded that GKH failed to establish a valid
transfer of McKenzie’s ownership interest in CAM.

E.      The bankruptcy court properly allowed the Trustee to use his avoidance
        powers defensively to defeat GKH’s motion for relief

        Because a bankruptcy trustee acquires the status of a hypothetical lien creditor,
a trustee may affirmatively set aside certain liens on a debtor’s property. 11 U.S.C.
§ 547(b). A trustee, however, must take such action no later than two years after the
bankruptcy court enters an order for relief. Id. § 546(a)(1)(A). In this case, the statutory
limitation on the filing of avoidance actions expired in January 2011. GKH asserts that
the bankruptcy court erred when it allowed the Trustee to use his avoidance powers
defensively in December 2011 to defeat GKH’s motion for relief, even though the time
for filing avoidance actions had expired 11 months earlier.

        Section 502(d) of the Bankruptcy Code “requires disallowance of a claim of a
transferee of a voidable transfer in toto if the transferee has not paid the amount or
turned over the property received as required under the sections under which the
transferee’s liability arises.” 4 Collier on Bankruptcy ¶ 502.05 (16th ed. 2011). This
court has not previously addressed whether a trustee may use his avoidance powers
defensively following the expiration of the statutory limitation on filing avoidance
Nos. 12-6374/6375      Grant, Konvalinka & Harrison v. Still                       Page 11

actions. The majority view among bankruptcy courts is that a trustee may exercise his
avoidance powers in such instances. See In re McLean Indus., Inc., 196 B.R. 670, 676
(Bankr. S.D.N.Y. 1996) (explaining that “the majority [of courts] have permitted [the]
defensive use of [s]ection 502(d)”). We have also found one circuit court that has
adopted this view. See In re Am. W. Airlines, Inc., 217 F.3d 1161, 1168 (9th Cir. 2000)
(“We therefore . . . conclude that the limitations period in § 546 does not apply to
§ 502(d).”). To our knowledge, no circuit or district court has held to the contrary.

        GKH urges us to adopt the minority position, which prohibits trustees from using
their avoidance powers defensively after the expiration of the statute of limitations. See,
e.g., In re Mktg. Assocs. of Am., Inc., 122 B.R. 367, 370 (Bankr. E.D. Mo. 1991)
(applying the two-year statute of limitations to the defensive use of a trustee’s avoidance
powers). Quoting heavily from Marketing Associates, GKH argues that the bankruptcy
court’s decision to allow the Trustee to use his avoidance powers defensively in this case
results in a “procedural windfall” to the Trustee. GKH also attempts to distinguish the
cases relied upon by the bankruptcy court and the Trustee on the ground that those cases
involved claim objections rather than opposition to motions for relief from the automatic
stay, but GKH fails to explain why this distinction matters.

        The minority view advocated by GKH, moreover, suffers from several flaws.
First, it fails to account for the distinction between avoidance actions, in which a trustee
seeks affirmative relief from the bankruptcy court, and defenses, in which a trustee seeks
no affirmative relief. See Am. W. Airlines, 217 F.3d at 1167 (noting the distinction).
Although GKH characterizes the Trustee’s defensive use of his avoidance powers as a
“procedural windfall,” the Trustee in fact receives no such windfall. He is instead
“limited under . . . § 502(d) to offsetting the claim asserted by the creditor.” In re Mid
Atl. Fund, Inc., 60 B.R. 604, 611 (Bankr. S.D.N.Y. 1986). Section 502(d) does not
permit any additional recovery by the trustee. See id. (explaining that “[w]hen . . . the
creditor also receive[s] a preference beyond that amount, the trustee remains unable to
recover the additional preference without the commencement of an action or adversary
proceeding, which commencement is barred by the statute of limitations”).
Nos. 12-6374/6375      Grant, Konvalinka & Harrison v. Still                      Page 12

       The key case relied upon by GKH for the minority view, Marketing Associates,
also distorts the prior caselaw on the subject. In its analysis, the court in Marketing
Associates asserts that the bankruptcy court in Mid Atlantic Fund “allowed the trustee
to prosecute his preference action.” Marketing Assocs., 122 B.R. at 370. But the
procedural history of Mid Atlantic Fund belies this assertion. See Mid Atl. Fund, 60 B.R.
at 607 (explaining that “the Trustee is not commencing an action or proceeding but [is]
merely relying on Code § 502(d) to cause the disallowance of the Creditors’ claim”)
(footnote omitted).

       The holding in Marketing Associates suffers from an additional flaw in that it
overlooks the text of § 502(d) and persuasive pre-Bankruptcy Code precedent. Section
502(d) does not refer to § 546(a)(1)(A)’s two-year statute of limitations, nor does
§ 502(d) contain a limitations period of its own. See 11 U.S.C. § 502(d); see also
McLean Indus., 196 B.R. at 676-77 (“‘If such a limitations period on claim objections
under section 502(d) was intended by Congress, it easily could have included a reference
to section 502(d) in section 546(a).’”) (quoting In re Stoecker, 143 B.R. 118, 132 (Bankr.
N.D. Ill. 1992)). At bottom, nothing in the text of § 502(d) prevents a trustee from using
his avoidance powers defensively after the expiration of the statute of limitations set
forth in § 546(a)(1)(A).

       Moreover, two circuit-court decisions construing the predecessor to § 502(d)
permitted trustees to object to claims after the limitations period had run. See In re
Meredosia Harbor & Fleeting Serv., Inc., 545 F.2d 583, 590 (7th Cir. 1976) (explaining
that the trustee’s defense “was in the nature of recoupment and therefore not barred” by
the statute of limitations); In re Cushman Bakery, 526 F.2d 23, 36 (1st Cir. 1975)
(“[T]here are no affirmative reasons for holding that [the statute of limitations] applies
to objections to the allowance of a claim.”). The outcome in these circuit-court decisions
also comports with the general principle that limitations periods do not apply to
defenses. See In re KF Dairies, Inc., 143 B.R. 734, 737-38 (B.A.P. 9th Cir. 1992)
(explaining that “statutory time-bars are inapplicable to matters of defense, where no
affirmative relief is sought”).
Nos. 12-6374/6375       Grant, Konvalinka & Harrison v. Still                     Page 13

         Finally, the majority view, unlike the minority view, furthers one of the central
purposes of the Bankruptcy Code—to ensure the “equality of distribution among
creditors of the debtor.” Union Bank v. Wolas, 502 U.S. 151, 161 (1991) (internal
quotation marks omitted). Accordingly, we conclude that the bankruptcy court properly
adopted the majority view in holding that the Trustee was entitled to use his avoidance
powers defensively without regard to the two-year statute of limitations under 11 U.S.C.
§ 546(a)(1)(A).

F.       We need not decide whether equitable tolling was warranted

         GKH’s final contention is that the bankruptcy court erred in holding in the
alternative that the statute of limitations should be equitably tolled due to GKH’s
conduct during the proceedings.        In the bankruptcy court’s view, GKH “made
affirmative representations in the record which contradict its . . . position that it has a
security interest” in the collateral pledged by McKenzie. The bankruptcy court also
noted that GKH repeatedly failed to disclose its security interest in certain entities
despite several opportunities to do so during the pendency of the case. It further
observed that GKH did not expressly assert its security interest in the pledged collateral
until after the statute of limitations expired. These factors led the bankruptcy court to
toll the statute of limitations. But because we have concluded that the bankruptcy court
properly allowed the Trustee to use his avoidance powers defensively after the expiration
of the statute of limitations, we need not decide whether the bankruptcy court’s
alternative holding constitutes reversible error. See Ashtabula Cnty. Med. Ctr. v.
Thompson, 352 F.3d 1090, 1094 (6th Cir. 2003) (declining to address an alternative
holding because the main holding was affirmed).

                                  III. CONCLUSION

         For all of the reasons set forth above, we AFFIRM the judgment of the district
court.