Court Opinion

ID: 14472
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:36:05+00
Date Added: 2024-06-11T16:46:34.708149
License: Public Domain

UNITED STATES COURT OF APPEALS
                        For the Fifth Circuit

                             No.    97-50368

                In Re:   CompuAdd Corporation, Debtor,

                         COMPUADD CORPORATION,

                                                                    Appellee,

                                   VERSUS

    TEXAS INSTRUMENTS INC.; LEXMARK INTERNATIONAL, INC.; HART
GRAPHICS, INC.; DIAMOND FLOWER ELECTRIC INSTRUMENT COMPANY, LTD.,

                                                                  Appellants.

           Appeal from the United States District Court
                 For the Western District of Texas
                           April 8, 1998

Before   REYNALDO G. GARZA, DUHÉ, and STEWART, Circuit Judges.

DUHÉ, Circuit Judge:

     The   Defendants    appeal    the    district   court’s     remand   of   a

preferential avoidance action. That court determined that the two-
year statute of limitations in 11 U.S.C. §546(a)(1) governing

trustees does not apply to such action brought by a debtor-in-

possession.     For reasons that follow, we reverse the district

court’s decision and affirm the Bankruptcy Court’s dismissals on

statutory limitations grounds.

                                     I.

     CompuAdd    Corporation      (“CompuAdd”)       filed   a    Chapter      11
bankruptcy      petition      June    22,     1993.           Because    no   trustee      was

appointed, it became the debtor-in-possession (“DIP”) at that time.

Over two years later, CompuAdd sought to recover payments it had

made       earlier   to    several    creditors,          claiming       that     they    were

preferential payments under 11 U.S.C. § 547(b).1                          The Bankruptcy

Court granted summary judgment to all defendants on the ground that

the preference actions were time barred by the two-year statute of

limitations provision contained in 11 U.S.C. § 546(a)(1).

       CompuAdd appealed the bankruptcy court’s decisions to the

district court,           which,    relying       on    the    plain    language     of    the

statute, decided in CompuAdd’s favor and remanded the preferential

avoidance actions.2          The defendants now appeal, claiming that the

limitations period of §546(a)(1) applies to debtors-in-possession.

                                            II.

       We apply the same standards of review to the bankruptcy

court’s findings of fact and conclusions of law as applied by the

district court.           Kennard v. Mbank Waco N.A. (In re Kennard) 970

F.2d 1455 (5th Cir. 1992).            A bankruptcy court’s findings of fact

are    reviewed      under    the     clearly          erroneous       standard    and     its

conclusions of law are reviewed de novo.                            Traina v. Whitney

       1
       The relevant portion reads as follows:
   (b) Except as provided in subsection (c) of this section, the
trustee may avoid any transfer of an interest of the debtor in
property -
      (4) made -
           (A) on or within 90 days before the date of the filing
of the petition;
11 U.S.C. §547(b)(4)(A).
           2
      In re CompuAdd Corp., No. A-96-CA-558-SS (W.D.Tex. October
24, 1996).

                                              2
National Bank 109 F.3d 244, 246 (5th Cir. 1997). The issue on

appeal is a purely legal one.

                                  III.

     Whether the two-year statute of limitations imposed in 11

U.S.C.   §546(a)(1)   on   transfer       avoidance   actions   by   trustees

applies to such actions brought by a debtor-in-possession is an

issue of first impression in this Circuit.            Of the Circuits that

have considered the question, four have ruled in the affirmative.

U.S. Brass & Copper Co. v. Caplan (In re Century Brass Products,

Inc.), 22 F. 3d 37 (2d Cir. 1994); Construction Management Servs.,

Inc. v. Manufacturers Hanover Trust Co. (In re Coastal Group,

Inc.), 13 F. 3d 81 (3rd Cir. 1994); Mosier v. Kroger Co. (In re

IRFM, Inc.), 65 F. 3d 778 (9th Cir. 1995) cert. den., 116 S.Ct.

1848 (1996); and Zilkha Energy Co. v. Leighton, 920 F.2d 1520 (10th

Cir. 1990).    Two Circuits have held that the limit applies only to

trustees.     Maurice Sporting Goods, Inc. v. Maxway Corp. (In re

Maxway Corp.) 27 F.3d 980 (4th Cir. 1994) and Gleischman Sumner Co.

v. King, Weiser, Edelman & Bazar, 69 F.3d 799 (7th Cir. 1995).

Within this circuit, bankruptcy and district courts reviewing the

issue have ruled both ways.3          Compelling textual, legislative

history and public policy arguments          support both sides. Although

     3
      See e.g. In re Hunt, 136 B.R. 437, 447-48 (Bankr. N.D.Tex.
1991)(holding that the two-year limitations period in §546(a)(1)
does not apply to a debtor in possession under any circumstances);
and In re Emergency Networks, Inc., 188 B.R. 227, 233 (N.D.Tex.
1995) (holding that the pre-1994 version of § 546(a)(1) read with
§1107(a) provides that a debtor in possession is subject to a two-
year limitations period - measured from the petition date - for
commencing a preference action.)

                                      3
the district court’s opinion is well-reasoned, we are persuaded

that the same limitations period applies to a DIP and a trustee.4

                                      A.

     We begin our construction of the statute with the language

itself.      Kelly   v.   Robinson,   479   U.S.   36,   43   (1986)(internal

citations omitted).       The Supreme Court cautions, however, against

an overly literal interpretation of the Bankruptcy Code.              “‘[W]e

must not be guided by a single sentence or member of a sentence,

but look to the provisions of the whole law, and to its object and

policy.’”    Id., quoting United States v. Heirs of Boisdoré, 8 How.

113, 122, 12 L.Ed. 1009 (1849).             The strict language of the

Bankruptcy Code does not control, though the statutory language has

a “plain” meaning, if the application of that language “will

produce a result demonstrably at odds with the intention of its

drafters.”    United States v. Ron Pair Enterprises, Inc., 489 U.S.

235, 242 (1989)(citing Griffin v. Oceanic Contractors, Inc., 458

U.S. 564 (571 (1982)).

     We examine first the language of the provision in effect when

CompuAdd filed its petition:

            An action or proceeding under Section 544,
            545, 547, 548, or 553 of this title may not be
            commenced after the earlier of --
            (1) two years after the appointment of a
                 trustee under §702, 1104, 1163, 1302, or
                 1202 of this title; or
            (2) the time the case is closed or dismissed.

      4
       We acknowledge that our decision here has limited impact
because the Bankruptcy Reform Act of 1994 has legislatively settled
this issue. See text IIIB infra.

                                       4
11 U.S.C. §546(a)(1).

      Clearly this section places a time restriction upon certain

appointed trustees and does not mention DIPs.                 Should we rely upon

the   statutory     interpretative        doctrine    of     inclusio    unius   est

exclusio alterius, we would be forced to agree that §546(a)(1) does

not   apply    to    anyone     other      than   the      enumerated    trustees.

Considering    only       the   plain     language,     we   would   decide      that

CompuAdd’s preference avoidance action was timely filed:                  CompuAdd

is not one of the listed appointed trustees                    and it filed the

action before the close or dismissal of the case.

      Heeding the advice of the Supreme Court to look to the

provisions    of    the    whole   law,    we   conclude,     however,    that    the

omission of    DIPs cannot be dispositive.              In re Century Brass, 22

F.3d at 39.    We note that the preference avoidance provision alone

does not expressly empower DIPs to bring preference avoidance

actions.     Rather it affords the trustee an action to avoid                    “any

transfer of an interest of the debtor in property” made under

certain conditions that constitute an unlawful transfer within

prescribed time limits. 11 U.S.C. §547. Authorization for DIPs to

bring an avoidance action is provided in §1107, which states, in

pertinent part:

           Subject to any limitations on a trustee
           serving in a case under this chapter ..., a
           debtor in possession shall have all the
           rights, other than the right to compensation
           under section 330 of this title, and powers,
           and shall perform all the functions and duties
           ... of a trustee serving in a case under this
           chapter.

                                           5
11 U.S.C. §1107(a).            That language plainly allows DIPs to exercise

the same power trustees have to bring preference avoidance actions.

       The Code plainly imposes upon DIPs who exercise the powers of

trustees “any” restrictions that regulate                       trustees.        Although

CompuAdd argues that the limitations referred to in §1107(a) are

restrictions solely upon the powers granted trustees, we reject

this argument.5         We agree with other circuits that have construed

this    particular       provision         that    “limitations”     encompasses      any

restrictions          that    the    Bankruptcy       Code    imposes     on   trustees,

including the limitations period applicable to a trustee in an

avoidance action.            See In re Century Brass, 22 F.3d at 39 and In re

Coastal Group Inc., 13 F.3d at 84.

       We reach this determination                  by relying upon the ordinary

meaning of “limitation.”                  Webster’s definitions of “limitations”

include “statute of limitations”...“a time assigned for something;

specif: a certain period limited by statute after which actions,

suits or prosecutions cannot be brought in the courts.”                        Webster’s

Third       New   International            Dictionary        1312   (3d    ed.     1981).

Additionally, Black’s defines “limitation” as “a certain time

allowed by        a    statute      for    bringing    litigation.”        Black’s    Law

Dictionary 835 (5th ed. 1991).                     We see no reason to exclude

“statute of limitations” from the meaning of “limitations” in the

        5
      But see Gleischman, 69 F.3d at 801(holding that §546(a)(1)
does not purport to define the scope of the trustee’s powers but
rather simply designates different time periods for the exercise of
the power to avoid preferential transfers).

                                               6
context of §1107(a)6 and we apply its common usage.

     In    determining   that   DIPs    are   subject   to   the   two-year

limitation on preference avoidance actions, we necessarily must

establish the point from which this period is measured.            Although

CompuAdd argues that because a DIP is not appointed it cannot be

treated as a trustee for whom the limitations period runs from the

time of “appointment,” we reject this reasoning.         Because §1107(a)

gives a DIP powers exercised by a trustee (see text supra), we

conclude that the limitations period for DIPs begins when the

debtor files its petition and becomes a DIP under §1107.           We find

persuasive the argument that the “appointment of a trustee” in

§546(a)(1) is the equivalent to the filing of a petition in debtor-

in-possession cases.     In re Century Brass Products, Inc., 22 F.3d

at 40.    See also Zilkha, 920 F.2d at 1524 and In re IFRM, Inc., 65

F.3d at 780-81.   The bankruptcy petition filing is, in essence, an

appointment by law for the DIP and initiates the powers and duties

it enjoys in that position.     Logically, the filing constitutes the

onset of the limitations period within which a power such as a

preference avoidance action must be exercised.          Thus, because the

Bankruptcy Code affords DIPs the powers enjoyed by trustees,

including the ability to bring transfer avoidance actions, and

expressly imposes upon DIPs the limitations that restrict trustees,

we find the preference avoidance actions brought by CompuAdd time

barred.

                                   B.

     6
      See text IIIB, infra.

                                    7
      In statutory construction not only do we consider the whole

law, even when the language is plain, but we also consider whether

the plain language contravenes the drafter’s intent.               Ron Pair

Enterprises, 489 U.S. at 242.        We find further support for our

conclusion that the §546(a)(1) two-year limitation period applies

to DIPs in the legislative history of the previously discussed

provisions.   The first comes from legislative discussions on the

scope of §1107(a).   A Senate Report noted that

          [t]his section places a debtor in possession
          in the shoes of a trustee in every way. The
          debtor is given the rights and powers of a
          chapter 11 trustee. He is required to perform
          the functions and duties of a chapter 11
          trustee (except the investigative duties). He
          is also subject to any limitations on a
          chapter 11 trustee.

S. Rep. No. 95-989, 95th Cong., 2d Sess. 116 (1978)                (emphasis

added), reprinted in 1978 U.S.C.C.A.N. 5787, 5902.           These comments

indicate to us that the language in §1107(a) is all encompassing.

We agree with the Century Brass court that Congress has given us no

basis for carving out of this blanket provision an exception for

the limitations period imposed by §546(a)(1).            In re Century Brass

Products Co., 22 F.3d at 39.     We do not find from these comments

any   indication   that   Congress       intended   to    depart   from   the

provision’s precise language and remove DIPs from the statute of

limitations restricting actions by trustees.

      A second source of support for our interpretation of the

statute in effect at the time of the preference avoidance actions

comes from the changes and comments Congress made to §546(a)(1) in

                                     8
the Bankruptcy Reform Act of 1994.7     Congress rewrote the statute

so that preference actions must begin within two years of the order

for relief or one year after the appointment of a trustee if that

trustee is appointed within the two-year period.

     This current version indicates Congress’ present intent to

apply equally the two-year limitations period to all given the

power to   bring   preference   avoidance   actions.   By   creating   a

separate period for trustees whose duties do not begin with the

filing of the order for relief, Congress does not limit only

appointed trustees to the two-year period.

     The reasons for these changes, found in the Comment to the

revised provision, reflect Congress’ original intent underlying

§546(a)(1).   We have observed that    “[a]lthough a committee report

written with regard to a subsequent enactment is not legislative

history with regard to a previously enacted statute, it is entitled

to some consideration as a secondarily authoritative expression of

expert opinion.”   Sykes v. Columbus Greenville Ry., 117 F.3d 287,

     7
      Section 546(a)(1) now provides:
          (a)    An action or proceeding under section
          544, 545, 547, 548, or 553 of this title may
          not be commenced after the earlier of-
             (1) the later of-
                (A) 2 years after the entry of the order
          for relief; or
                (B)   1 year after the appointment or
          election of the first trustee under section
          702, 1101, 1163, 1202, or 1302 of this title
          if such appointment or such election occurs
          before the expiration of the period specified
          in subparagraph (A); or
             (2)    the time the case is closed or
          dismissed.

11 U.S.C. §546(a)(1) (West Supp. 1997).

                                   9
293, 294 (5th Cir. 1997) (internal citation omitted).     One purpose

for the amendment was to “clarify” §546(a)(1) by setting the entry

of the order of relief as the starting point for the two-year

statute of limitations.8   Congress then specifically acknowledged

the split of authority as courts struggled to interpret §546(a)(1)

in commenting that the purpose of a statute of limitations is to

define the period of time that a party is at risk of suit.9     This

legislative history evidences that the Bankruptcy Reform Act sought

to resolve the conflict in the cases   and create uniformity in the

applicability in Chapter 11 cases of the two year statute of

limitations for preference avoidance actions.

     By amending the statute, Congress has indicated that the

appellate courts that applied the two-year statute of limitations

to DIPs as well as to trustees had correctly decided.     In light of

these comments, that the amendment was intended to “clarify” and

“to resolve” the conflicting opinions, we conclude that applying

the two-year limitations period to a DIP best effectuates the will

of Congress in the pre-amendment version of §546(a)(1).

                                C.

     If we read §546(a)(1) literally, DIPs could bring preference

avoidance actions until close or dismissal of the case.    Given that

many bankruptcies linger for over a decade, creditors who may have

received preferential payments could be vulnerable to suit long

         8
      H.R. Rep. No. 103-835, §217, 103rd Cong. 2d Sess. (1994),
reprinted in U.S.C.C.A.N. 3340, 3358.
     9
      Id.

                                10
after they have closed their books on their debtor’s account.                   We

can   discern   no    sound   reason     for      exposing   creditors    for    a

conceivably lengthy period to keeping their financial records open

and, in effect, losing the use of the payment amount until the case

is closed or dismissed.

      We understand that an argument can be made that DIPS, unlike

trustees, are not likely to begin preference avoidance action,

preferring instead to preserve relationships with their creditors,

and are thus at a disadvantage when the two-year period expires.

We need not characterize DIPs as the functional equivalent of

trustees to reach our decision today.               Cf. Zilkha, 920 F.2d at

1524.   We note that nothing prevents DIPs from including a longer

time limit in which to bring these actions in their Chapter 11

Reorganization Plan. As the court stated in Softwaire Centre, DIPs

have “two years to negotiate before filing suit, and ...nothing

prevents further negotiations leading to a settlement after suit is

filed.”     Upgrade Corp. v. Government Tech. Servs., Inc. (In re

Softwaire    Centre   Int’l.,   Inc.),      994    F.2d   682,   684   (9th   Cir.

1993)(per curiam).      Restricting DIPs to the two-year period will

not deter them in their duties.

      The facts in this case do not mirror those in Gleischman, 69

F.3d at 800-801, where the party seeking a preference avoidance

action was not a “trustee” within the              meaning of the Bankruptcy

Code.     That action was brought pursuant to an amended plan, to

which creditors had failed to object, that allowed a longer period

in which to bring avoidance actions.              Nor is this a situation in

                                       11
which a DIP first controlled the reorganization for two years and

then an official committee of unsecured creditors took over and

sought to bring a preference avoidance action.         In re Maxway Corp.,

27 F.3d at 982.       Rather, we are faced here with a DIP that assumed

its duties when it filed an order of relief, did not seek an

extended period from its creditors in which to bring preference

avoidance actions, and then filed these four suits after the two-

year statute of limitations had expired.            We see no reason that

CompuAdd should not be bound by the two-year statute of limitations

restricting preference avoidance actions.

                                     IV

     After a careful review of the statutory language, legislative

history, and public policy considerations, we hold that CompuAdd’s

preference action was not brought within the applicable two-year

limitations period.        Although there are solid arguments for a

different reading of §546 (a)(1),          we find a holistic reading of

the Bankruptcy Code more persuasive.          We, therefore, REVERSE the

judgment   of   the    district   court,   uphold   the   decision   of   the

bankruptcy court, and REMAND to that court for proper disposition.

                                     12