Kelley v. Stone & Baxter, LLP (In re Brownlee)
| Decision Date | 30 July 2019 |
| Docket Number | Adversary Proceeding No. 19-07010,Case No. 17-70283-JTL |
| Citation | 606 B.R. 109 |
| Parties | IN RE: Kenneth E. BROWNLEE, and Janice J. Brownlee, Debtors. Walter W Kelley, Trustee, Plaintiff, v. Stone & Baxter, LLP, Defendant. |
| Court | U.S. Bankruptcy Court — Middle District of Georgia |
Thomas D. Lovett, Kelley, Lovett, Blakey and Sanders, P.C., Valdosta, GA, for Plaintiff.
David L. Bury, Jr., Ward Stone, Jr., Gregory D. Taylor, Stone & Baxter, LLP, Macon, GA, for Defendant.
Before the Court is the Defendant's Motion to Dismiss under Federal Rule of Civil Procedure 12, made applicable to this proceeding under Federal Rule of Bankruptcy Procedure 7012.1 The Defendant's motion raises the issue of whether the Trustee's causes of action in this case, transfer avoidance under 11 U.S.C. §§ 547 & 548, are time barred under 11 U.S.C. § 542(a).
For the reasons stated below, the Court concludes that the Trustee filed this action within the applicable statute of limitations. Therefore, the Defendant's motion is denied. The Court will enter a separate order consistent with this memorandum opinion.
A bankruptcy court, through referral from the district court, has subject matter jurisdiction over all matters (1) "arising under" the Bankruptcy Code, (2) "arising in" a bankruptcy case, and (3) those "related to" a bankruptcy case. 28 U.S.C. § 1334(b). The Eleventh Circuit has previously explained that an action "arising under" the Code is one that involves "a substantive right created by the Bankruptcy Code." Cont'l Nat'l Bank v. Sanchez (In re Toledo) , 170 F.3d 1340, 1345 (11th Cir. 1999). This action, brought under authority granted in the Bankruptcy Code, clearly meets this standard.
The question of jurisdiction, however, is separate from the question of whether this Court has the authority to enter a final order. See Stern v. Marshall , 561 U.S. 1058, 131 S.Ct. 63, 177 L.Ed.2d 1152 (2010). Here, the Defendant has not consented to this Court entering a final order. (Def.'s Answer; AP Doc. No. 7, ¶ 3). Moreover, the Defendant demands a jury trial and does not consent to this Court conducting that trial, as are its rights in a fraudulent transfer action.2 28 U.S.C. § 157(e) ; Granfinanciera v. Nordberg , 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989). The order adopting this opinion's conclusions, however, is not a final order, as it does not finally resolve the issue before the Court. See In re Wisz , 778 F.2d 762, 764 (11th Cir. 1985) () (internal quotations omitted). Therefore, in accordance with this district's general practice under these circumstances, the Court will enter preliminary orders on all pre-trial disputes before referring the case back to the district court to conduct the final pre-trial conference and trial. Once turned over, the district court may review the determinations made by this Court.
The Debtors in the case, Kenneth and Janice Brownlee, originally filed the underlying bankruptcy case on March 21, 2017 as a Chapter 11 proceeding. (Pet.; Bk. Doc. No. 1). The Court converted the case to a Chapter 7 proceeding on March 7, 2018. (Order Converting Case; Bk. Doc. No. 125). Upon conversion, the United States Trustee appointed the Trustee as the interim trustee. The Trustee conducted the § 341 meeting on April 10, 2018 without creditors requesting an election. (Trustee's Docket Entry; Bk. Doc. No. 145).
The Trustee filed this action on April 9, 2019, one day less than a year after conducting the § 341 meeting. The complaint alleges that the Debtors made pre-petition payments to the Defendant—which is also the firm representing the Debtors in the bankruptcy case—on account of an antecedent debt. (Compl.; AP Doc. No. 1, ¶ 5). The complaint seeks to avoid the payments and recover the funds for the Chapter 7 estate on the theories that the payments were preferences under § 547 and/or were constructively fraudulent under § 548. (Id.; Counts I & II).
This Court must determine when the § 546(a) statute of limitations began in this case. That subsection provides:
11 U.S.C. § 546.
To synthesize the subsection, a two year limitation applies unless "the first trustee" is "appoint[ed] or elect[ed]" under one of the subsections enumerated in § 546(a)(1)(B) more than a year (but before two-years) from the petition date. If elected or appointed within this time, the trustee is entitled to a one-year extension from his appointment. In the instant case, there is no dispute that the Trustee was entitled to an additional year to file his avoidance action.
The issue here is the date from which the extension period began under § 546(a). This is a question of statutory interpretation. A court's analysis should begin with the plain language of the statute. U.S. v. Ron Pair Enters. Inc. , 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). Only when the statute is susceptible to more than one reasonable interpretation can a court look beyond the statute to assist its interpretation. Villarreal v. R.J. Reynolds Tobacco Co. , 839 F.3d 958, 970 (11th Cir. 2016). Where the language is unambiguous and the statutory scheme is coherent and consistent, judicial inquiry ends and courts must interpret the statute according to its plain meaning. McCarthan v. Dir. of Goodwill Indus.-Suncoast , 851 F.3d 1076, 1123 (11th Cir. 2017).
Applying the relevant language in § 546(a) to this case, the Court must determine when "the first trustee" was appointed under § 702. That is, did the statute of limitations begin to run when the trustee was appointed as the interim trustee (which is governed by § 701)? Or, did it begin after the creditors declined to elect a trustee at the § 341 meeting (governed by § 702(d))? On one hand, § 546(a) clearly references appointment or election under § 702 not § 701. Seemingly then, the later interpretation must be correct. But the Defendant makes a reasoned argument that § 546(a) —although referencing § 702 and not § 701—implicitly refers to the appointment of the interim trustee, considering other Code provisions and the Code's scheme of Chapter 7 administration.
Reading § 701 and § 702 together, the Defendant argues that § 702 does not appoint a new trustee, but rather acknowledges the interim trustee's continuing obligations after conducting the § 341 meeting. As the Defendant notes, the word "appointment" is not used in § 702. Subsection 702(d), the only subsection addressing the trustee's status if no election occurs, states "[i]f a trustee is not elected under this section, then the interim trustee shall serve as trustee in the case." 11 U.S.C. § 702(d). Although the word "appointment" is not used in § 702, the Defendant emphasizes that it is used in § 701. 11 U.S.C. § 701(a)(1) () (emphasis added).
Therefore, when creditors decline or are unable to elect a trustee, the Defendant argues that § 546(a)'s reference to appointment under § 702 must refer to the trustee's continued appointment as the trustee, which began when he was appointed interim trustee. In further support, the Defendant notes that § 546(a) uses appointment as a noun, which implies that an entity—in this district, the United States Trustee—must act to appoint the trustee. Section 702, the argument continues, does not designate an entity to make an appointment; however, § 701 does. Compare 11 U.S.C. § 701(a)(1) () with 11 U.S.C. § 702(d) () Further, the Defendant argues that conceiving of the "interim trustee" as a separate position from the "permanent trustee" has no statutory support. The Code does not use the phrase "permanent trustee" and the Defendant argues that there are no meaningful distinctions between the interim trustee before § 341 meeting and the case trustee afterward.
Notably, nearly all of the cases addressing this issue have rejected the result for which the Defendant argues. Many of these cases note that applying the appointment of the interim trustee under § 701 as the date from which the statute of limitations runs impermissibly reads the reference to § 702 out of § 546(a). E.g., Fogel v. Shabat (In re Draiman) , 714 F.3d 462, 465 (7th Cir. 2013) ; Singer v. Kimberly-Clark Corp. (In re Am. Pad & Paper Co.) , 478 F.3d 546, 552 (3rd Cir. 2007) ; Georgia-Pacific Corp. v. Burtch (In re Allied Digital Techs. Corp. , 341 B.R. 171, 175 (D. Del. 2006) ; In re Crowe Rope Industries, LLC , 311 B.R. 313, 315 (Bankr. D. Me. 2004) ; In re Young , 97 B.R. 679, 680 (Bankr. N.D. Ga. 1988) ; In re O'Neill , 94 B.R. 739, 741 (Bankr. M.D. Fla. 1988). While there is no controlling law governing the Court on this specific issue, the Eleventh Circuit has often stated that, where Congress has specifically "enumerated a list or series of related items" (such as the appointment statutes...
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