Court Opinion

ID: 2969434
Source: CourtListenerOpinion
Date Created: 2015-09-22 15:48:47.741802+00
Date Added: 2024-06-11T15:02:02.225820
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
            Pursuant to Sixth Circuit Rule 206
   ELECTRONIC CITATION: 2000 FED App. 0191P (6th Cir.)
               File Name: 00a0191p.06

UNITED STATES COURT OF APPEALS
              FOR THE SIXTH CIRCUIT
                _________________

                                   ;
                                    
In re: DUBLIN SECURITIES,

                        Debtor. 
INC.,
                                    
                                    
                                       Nos. 99-3337/3344
______________________
                                    
                                     >
MYRON N. TERLECKY,                  
                                    
                                    
Trustee of the Consolidated

                                    
Bankruptcy Estate of Dublin
                                    
Securities, Inc., Dublin
                                    
Management, Inc., & Dublin
Stock Transfer, Inc.,               
            Plaintiff-Appellant, 
                                    
                                    
                                    
            v.
                                    
                                    
SARAH HELMER (99-3337);
HELMER, LUGBILL, MARTINS            
                                    
                                    
& NEFF COMPANY, LPA

         Defendants-Appellees. 
(99-3344),
                                    
                                   1
       Appeal from the United States District Court
      for the Southern District of Ohio at Columbus.
   Nos. 98-00646; 98-00647—Edmund A. Sargus, Jr.,
                       District Judge.

                           1
2        In re Dublin Securities, Inc.        Nos. 99-3337/3344

                     Argued: April 18, 2000
                 Decided and Filed: June 7, 2000
    Before: MERRITT and DAUGHTREY, Circuit Judges;
              CAMPBELL, District Judge.*
                       _________________
                            COUNSEL
ARGUED: Mark W. Iannotta, STRIP, FARGO, HOPPERS
& LEITHART, Columbus, Ohio, for Appellant. Frederick M.
Morgan, Jr., HELMER, LUGBILL, MARTINS & NEFF,
Cincinnati, Ohio, for Appellees. ON BRIEF: Mark W.
Iannotta, Myron N. Terlecky, STRIP, FARGO, HOPPERS &
LEITHART, Columbus, Ohio, for Appellant. Frederick M.
Morgan, Jr., HELMER, LUGBILL, MARTINS & NEFF,
Cincinnati, Ohio, Irving Harris, STATMAN, HARRIS &
BARDACH, Cincinnati, Ohio, for Appellees.
                       _________________
                           OPINION
                       _________________
   MERRITT, Circuit Judge. The facts in this bankruptcy
statute of limitations case are not in dispute. Dublin
Securities, Inc., the debtor in this case, filed a Chapter 11
bankruptcy petition in August 1993. Under 11 U.S.C.
§ 1107(a), Dublin Securities continued the operation of the
business and served the bankruptcy estate as a debtor in
possession. Nearly one year later the bankruptcy was
converted from a Chapter 11 reorganization to a Chapter 7
liquidation. Plaintiff, Myron Terlecky, was appointed trustee
for the estate on August 25, 1994. On May 29, 1996,
approximately twenty-one months later, the trustee filed

     *
     The Honorable Todd J. Campbell, United States District Judge for
the Middle District of Tennessee, sitting by designation.
6    In re Dublin Securities, Inc.        Nos. 99-3337/3344       Nos. 99-3337/3344            In re Dublin Securities, Inc.      3

limitations against the trustee before one is appointed and       separate adversary proceedings against Sarah Helmer and
before there is in fact any conversion to a straight bankruptcy   Helmer, Lugbill, Martins & Neff Co., LPA alleging that
from a Chapter 11 proceeding. A rule that runs the statute out    defendants were recipients of fraudulent and preferential
before the trustee has an opportunity to act makes no sense.      transfers in violation of 11 U.S.C. § 544(b). Both defendants
                                                                  moved to dismiss the complaints on the basis that the trustee
  Based on these reasons, we hold that § 546(a)’s statute of      brought the avoidance actions beyond the two-year statute of
limitations for bringing avoidance actions, as it existed prior   limitations set forth in 11 U.S.C. § 546(a). Both motions
to the 1994 amendments, begins to run upon the actual             were denied by the bankruptcy court, which held that the
appointment of a trustee. We, therefore, reverse the judgment     limitations period did not begin to run until the appointment
of the district court and remand to the bankruptcy court for      of the trustee. Afterwards, the defendants each filed an
further proceedings.                                              interlocutory appeal to the district court from the bankruptcy
                                                                  court’s order denying their motions to dismiss. Granting
                                                                  defendants’ motions for leave to appeal, the district court
                                                                  reversed the decision of the bankruptcy court and dismissed
                                                                  the trustee’s complaints on the basis that the limitations
                                                                  period began to run when the debtor filed its Chapter 11
                                                                  petition and became the debtor in possession. Since more
                                                                  than two years had passed since the filing of the Chapter 11
                                                                  petition, the district court found that the statute of limitations
                                                                  had run against the trustee who had been in office for only
                                                                  twenty-one months. The trustee appealed to this court. We
                                                                  now reverse.
                                                                     11 U.S.C. § 546(a), as it existed prior to the 1994
                                                                  amendments to the Bankruptcy Code, contains the applicable
                                                                  statute of limitations. It provides that:
                                                                    An action or proceeding under section 544, 545, 547,
                                                                    548, or 553 of this title may not be commenced . . . two
                                                                    years after the appointment of a trustee under section
                                                                    702, 1104, 1163, 1302, or 1202 of this title . . . .
                                                                  11 U.S.C.A. § 546(a) (West 1993). On its face, the plain
                                                                  language of § 546(a) provides the trustee, Terlecky, who was
                                                                  appointed pursuant to 11 U.S.C. § 702, two years from the
                                                                  date of his appointment to bring adversary actions on behalf
                                                                  of the estate against recipients of allegedly fraudulent and
                                                                  preferential transfers.
                                                                    Defendants argue on the basis of a complication added by
                                                                  11 U.S.C. § 1107(a), which confers upon a debtor in
4      In re Dublin Securities, Inc.        Nos. 99-3337/3344      Nos. 99-3337/3344           In re Dublin Securities, Inc.      5

possession the same authority of a Chapter 11 trustee. That        there is no limitations period running under § 546(a)(1). The
section provides:                                                  statute does not run against a trustee yet to be in existence. If
                                                                   nothing else, the equitable doctrine of laches would provide
    Subject to any limitations on a trustee serving in a case      a viable defense to bar avoidance actions when there is
    under this chapter, and to such limitations or conditions      inexcusable delay by a debtor in possession.
    as the court prescribes, a debtor in possession shall have
    all the rights, . . . and powers, and shall perform all the       For a number of reasons – other than the obvious paradox
    functions and duties . . . of a trustee serving in a case      of running a statute of limitations against a nonexistent person
    under this chapter.                                            who has as yet delayed nothing – it would be bad policy to
                                                                   start a statute running before the trustee assumes office.
11 U.S.C. § 1107(a). The defendants argue that a debtor in         Debtors in possession are less likely to commence avoidance
possession not only has the same power as a trustee to avoid       actions than appointed trustees because they are typically
preferences and fraudulent transfers, but also has all of the      “more interested in preserving relationships with their
limitations that the Code imposes upon trustees as well.           creditors than in maximizing the size of the estate.” In re
Defendants then conclude that the language in § 1107(a)            Maxway Corp., 27 F.3d 980, 984 (4th Cir. 1994); see also
means that a debtor in possession is bound by § 546(a)(1)’s        Gleischman Sumner Co. v. King, Weiser, Edelman & Bazar,
two-year limitations period, and further – and here is the rub     69 F.3d 799, 801 (7th Cir. 1995); In re W.M. Cargile
– that the statute accrues and begins run against a later          Contractor, Inc., 145 F.3d 1335 (6th Cir. 1998)
appointed trustee at the time the debtor in possession is          (unpublished). A debtor in possession’s goal is to
appointed. In other words, the statute would have already run      successfully reorganize, creating incentives to accommodate
against a trustee if the debtor remains in possession for the      vendors to continue business, which may mean forbearing
first two years or more. But this is not what the statute says.    from legal action against those who were paid in the months
First, nowhere does § 546(a) mention that a debtor in              preceding a bankruptcy. Any exercise of avoiding powers by
possession is limited by the same two-year statute of              a debtor in possession does not assist in the goal of
limitations. Section 546(a)(1) clearly states that its two-year    reorganization because there is no increase in the net wealth
statute of limitations applies to certain types of trustees who    of the firm; rather, use of avoiding powers simply reallocates
are appointed under specifically enumerated code sections.         claims among creditors at the potential cost of business
Second, even if we were to find that §1107(a) imposes a two-       prospects. See Gleischman Sumner Co., 69 F.3d at 801.
year limitations period on debtors in possession, it does not      Interpreting § 546(a)(1)’s limitations period to begin running
change the plain meaning of § 546(a)(1). As found by an            upon appointment of a trustee thus “prevents any delay from
earlier panel of this court, “it would simply mean that a          commencement of [an avoidance] action from penalizing
second two-year period begins to run ‘after the appointment        unsecured creditors who would benefit from the recovery of
of a trustee under section 702, 1104, 1163, 1302, or 1202          a preferential or fraudulent transfer.” In re Maxway Corp., 27
. . . .’” In re W.M. Cargile Contractor, Inc., 145 F.3d 1335       F.3d at 984. Moreover, a debtor in possession may have
(6th Cir. 1998) (unpublished) (quoting 11 U.S.C.A.                 friends or family members he would like to prefer or enrich
§ 546(a)(1) (West 1993)). We need not here decide when the         before or during the reorganization. Under the defendants’
limitations period runs against the debtor in possession.          argument all he would have to do to accomplish such a scam
Instead, we conclude only that the plain meaning of the statute    is to let the statute run before converting to a straight
is that a two-year limitations period begins on the                bankruptcy. It is not a good idea to create such a set of
appointment of a trustee. If there is no appointed trustee, then   incentives for shady dealing by accruing the statute of