In re Art & Co., Inc., Bankruptcy No. 92-18825-JNF. Adv. No. 94-1646.

• Decision Date: 21 March 1995
• Docket Number: Bankruptcy No. 92-18825-JNF. Adv. No. 94-1646.
• Parties: In re ART & COMPANY, INC., Debtor. Paul GRELLA, Chapter 7 Trustee, Plaintiff, v. Peter ZIMMERMAN and Silverman & Kudisch, P.C., Defendants.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

179 B.R. 757 (1995)

In re ART & COMPANY, INC., Debtor.

Paul GRELLA, Chapter 7 Trustee, Plaintiff, v. Peter ZIMMERMAN and Silverman & Kudisch, P.C., Defendants.

Bankruptcy No. 92-18825-JNF. Adv. No. 94-1646.

United States Bankruptcy Court, D. Massachusetts.

March 21, 1995.

Paul Grella, Grella & Murphy, Boston, MA, for Paul Grella, Chapter 7 Trustee, plaintiff.

Albert Cullen, Cullen & Butters, Boston, MA, for Peter Zimmerman and Silverman & Kudisch, P.C., defendants.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I. INTRODUCTION

The matters before the Court for determination are: 1) the Motion of the Defendants, Peter Zimmerman ("Zimmerman") and Silverman & Kudisch, P.C. ("S & K") (collectively the "defendants"), to Dismiss Complaint to Avoid and Recover Transfers (the "Motion to Dismiss"); and 2) the Motion of Paul Grella, the Chapter 7 Trustee of the above-referenced debtor (the "trustee" or the "plaintiff") for Leave to File Amended Complaint (the "Motion to Amend"). The Court held a hearing on both matters on January 18, 1995 at which the parties agreed to submit to the Court the transcripts of two § 341 meetings held in the Chapter 7 case. As the parties have requested the Court to consider materials outside of the pleadings, the Court will treat the Motion to Dismiss as a motion for summary judgment in accordance with Fed.R.Civ.P. 56, as made applicable to this proceeding by Fed.R.Bankr.P. 7056. The parties have filed memoranda of law with respect to both matters.

II. FACTS

The relevant facts are undisputed. The debtor, a Massachusetts corporation, filed a voluntary Chapter 7 petition on August 7, 1992. On August 27, 1992, the Clerk of this Court issued a notice of commencement of case which, among other things, scheduled a meeting of creditors under 11 U.S.C. § 341 for October 7, 1992 at 9:30 A.M. On August 28, Paul Grella was appointed interim trustee by the United States trustee. The appointment of the trustee was noted on the Bankruptcy Court docket on August 31, 1992. On September 29, 1992, Business Funding Group, a creditor of the debtor, filed a Motion to Remove Trustee, which it withdrew on October 19, 1992.

On October 7, 1992, the trustee commenced the § 341 meeting of creditors. The debtor's principal, Rosalie Anjoorian ("Mrs. Anjoorian"), and attorneys for two creditors were present. Wayne Morrison, the attorney for the debtor, however, was not present. A legal assistant from his office was in attendance and reported that Attorney Morrison would not be present because of the Jewish holiday. Accordingly, she requested that the meeting be continued to October 19, 1992, the next regularly scheduled date of meetings to be conducted by the trustee.

At the § 341 meeting, Mrs. Anjoorian indicated that she did not wish to proceed without counsel. The attorneys for the two creditors objected to a continuance of the § 341 meeting. The trustee stated that he was uncomfortable going forward without debtor's counsel present, but that he would not continue the meeting to October 19. He continued the meeting to an unspecified date prior to October 19, 1992 and stated that he would notify the parties of the continued date. Nevertheless, the trustee administered the oath to the debtor's principal and asked her several questions about the accounts receivable listed on the schedule of assets. At this meeting, the creditors neither voted for a trustee nor did the trustee state that he would continue as permanent trustee.

Thereafter, the trustee notified the parties that the continued § 341 meeting would be held at his office on October 13, 1992. At that meeting, the trustee again administered the oath to and examined the debtor's principal. Several creditors also questioned the debtor's principal. At the conclusion of the examination by one of the creditors, the trustee continued the meeting generally, refused to adjourn the meeting, and did not specify a new date. The subject of an election of a trustee did not arise at this meeting.

By letter dated February 5, 1993 to the Assistant United States Trustee concerning the invocation of the Fifth Amendment privilege by debtor's principal, the trustee stated that "... the regularly scheduled 341(a) sic meeting was held on October 7, 1992." He further indicated in the letter that the continued meeting was held on October 13, 1992.

On September 2, 1994, the trustee filed a Motion to Extend Time for Trustee to Bring Avoidance Actions (the "Motion to Extend"). In the Motion to Extend, the trustee represented that he had been selected as interim trustee on August 28, 1992, that he became trustee on September 2, 1994 pursuant to Fed.R.Bankr.P. 2008, and that the statute of limitations for avoidance actions under 11 U.S.C. § 546(a) was due to expire on September 2, 1994. After a hearing on November 15, 1994, the Court denied the Motion to Extend.

The trustee filed the complaint commencing this adversary proceeding on October 7, 1994. In the complaint, the plaintiff alleged that Zimmerman, an attorney and partner of S & K, served as incorporator, clerk, and attorney for the debtor corporation from its inception to 1992. The trustee further alleged that the defendants received payments from the debtor totalling in excess of $67,000 on numerous dates in 1991 and 1992, and other compensation on unspecified dates which exceeded the value of the services performed by the defendants and rendered the debtor insolvent. In count one of his complaint, the trustee sought to recover payments made while the debtor was insolvent to the defendants in exchange for services worth less than reasonably equivalent value. Although the trustee did not indicate the particular provision of bankruptcy or state law under which he was proceeding in count one, presumably count one was brought under either 11 U.S.C. § 548(a)(2) or Mass.Gen. Laws Ann. Ch. 109A, the state fraudulent conveyance statute.

In count two of his complaint, entitled "Reservation of Right to Amend Complaint to Bring Count for Preferential Payments and/or avoid transfers under the Trustee's strong arm powers", the trustee repeated and incorporated the allegations of count one, and purported to reserve his right to amend the complaint, stating "Plaintiff/Trustee specifically reserves his rights to exercise his avoidance powers under 11 U.S.C. §§ 544 and/or 547 if facts so warrant in the future of this adversary proceeding." The defendants filed a joint motion to dismiss the complaint on November 28, 1994.

The Plaintiff filed an amended complaint, with exhibits, on January 9, 1995. In the Amended Complaint, the plaintiff repeated the factual allegations of the original complaint, and added allegations that between 1987 and 1991 the debtor paid Zimmerman in excess of $728,000 and paid S & K in excess of $353,000. In the amended complaint, the plaintiff designates the following counts:

Count I Violation of 11 U.S.C. 548(a)(2) sic Transfers Made for Less than Equivalent Value;

Count II Violation of M.G.L. Chapter 109A, Section 4 Conveyances by Insolvent;

Count III Violation of 11 U.S.C. 548(a)(1) sic Transfers Made with Intent to Hinder, Delay or Defraud;

Count IV Violation of M.G.L. Chapter 109A, Section 5 Conveyances by Persons Engaged or About to Engage in Business;

Count V Violation of M.G.L. Chapter 109A, Section 6 Conveyances by Person About to Incur Debts Beyond Ability to Pay;

Count VI Violation of M.G.L. Chapter 109A, Section 7 Conveyances Made with Intent to Hinder or Delay.

On January 25, 1995, the plaintiff filed the motion to amend. On February 6, 1995, the defendants filed a memorandum in opposition to the motion to amend.

III. ARGUMENTS

A. Statute of Limitations

In support of their motion to dismiss, the defendants argue that the trustee's complaint is time-barred under the applicable statute limitations of 11 U.S.C. § 546(a)¹ as the complaint was not filed within two years after the date of his appointment as interim trustee. The defendants emphasize that in prior pleadings filed with the Court the trustee stated that he became permanent trustee on September 5, 1992. In the alternative, the defendants submit that even if the Court adopts the view that the statute of limitations did not begin to run until the date of the permanent appointment of the trustee at the first § 341 meeting, the limitations period expired on October 6, 1994, and, therefore, the complaint filed on October 7, 1994 was too late. The defendants, citing In re Butcher, 829 F.2d 596 (6th Cir.1987), urge the Court to include the date of appointment in the computation of time and not to apply Fed.R.Bankr.P. 9006(a)², which excludes the date of an event from the computation. Finally, the defendants request dismissal of count one of the complaint on two additional grounds: 1) pursuant to Fed.R.Civ.P. 12(b)(6)³ for failure to state a claim upon which relief may be granted, and 2) pursuant to Fed.R.Civ.P. 9,⁴ as made applicable to this proceeding by Fed.R.Bankr.P. 7009, for plaintiff's failure to state his claim with particularity.

In response to the motion to dismiss, the plaintiff argues that the complaint was timely commenced within the statute of limitations under 11 U.S.C. § 546(a) because it was filed within two years after his permanent appointment under 11 U.S.C. § 702(d).⁵ He argues that the date of his permanent appointment was October 13, 1992, when the continued § 341 meeting was held. Alternatively, the trustee argues that the date of his permanent appointment was at the earliest October 7, 1992, the date of the first § 341 meeting. With respect to the computation of time issue, relying on Fed.R.Bankr.P. 9006(a), the trustee argues that in calculating the two year limitations period, the date of his appointment is not included, that the statute began to run on October 8, 1992, and thus expired on October 7, 1994, the date his complaint was filed. The trustee submits that the decision of the Court of Appeals in Butcher...