In re Delta Group
| Decision Date | 09 October 2003 |
| Docket Number | Bankruptcy No. 01-23052-svk.,Adversary No. 03-2066.,Adversary No. 02-2405.,Adversary No. 02-2401.,Adversary No. 03-2141.,Adversary No. 03-2065.,Adversary No. 03-2075.,Adversary No. 02-2397.,Adversary No. 03-2063.,Adversary No. 02-2402.,Adversary No. 03-2114.,Adversary No. 02-2403.,Adversary No. 02-2399.,Adversary No. 03-2079. |
| Parties | In re DELTA GROUP, Debtor. Michael Dubis, Trustee, Plaintiff, v. B.W. Supply, Ben Shinn Trucking, Inc., General Iron Industries, Inc., Huron Valley Steel Corp., I.C.D. Group Metals, LLC, Kormet Enterprises, Inc., Kripke Enterprises, Inc., Metal Exchange Corp., Molten Metal Equipment, Nextel West Corp., Rockford Trading Company, Inc., Shinn Brokerage, WPS Energy Services, Inc., Defendants. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Eastern District of Wisconsin |
Bryan M. Becker, Esq., Milwaukee, WI, Robert E. Hankel, Racine, WI, for Plaintiff.
Dennis L. Simon, Appleton, WI, Jeffrey A. Cooper, Floyd A. Harris, Samuel C. Wisotzkey, Leonard G. Leverson, Milwaukee, WI, David M. Unseth, St. Louis, MO, Robert D. Nachman, Miriam R. Stein, Chicago, IL, for Defendants.
The Chapter 7 Trustee instituted these adversary proceedings to recover avoidable transfers made by the debtor to various creditors. What is novel about this case is the Trustee's attempt to avoid the transfers under a state statute that allows preferences to be avoided up to four months before state court receivership proceedings. A number of the defendant-creditors have filed motions to dismiss under Bankruptcy Rule 7012(b)(6) — incorporating Fed.R.Civ.P. 12(b)(6) — arguing that, as to any transfers more than 90 days prior to the bankruptcy petition, the Trustee has failed to state a claim upon which relief can be granted.
For the reasons discussed below, the Court grants the Defendants' motions to dismiss and holds that § 544(b) of the Code does not allow the Trustee to avail himself of the avoidance powers granted to receivers and assignees under Wis. Stat. § 128.07.
Based on the Complaints and Answers, the Court finds that the following facts are undisputed: On February 2, 2001, a state court receivership was filed against the Debtor under Chapter 128 of the Wisconsin Statutes. Between October 1, 2000 and February 2, 2001, the Debtor made various payments to the defendants in these adversary proceedings. On March 23, 2001, an involuntary Chapter 7 petition was filed against the Debtor under Title 11 of the United States Code (Bankruptcy Code). Plaintiff is the duly appointed and acting Chapter 7 Trustee in the Debtor's bankruptcy case.
The Trustee filed complaints against the Defendants, seeking to avoid and recover transfers made by the Debtor within four months prior to the Chapter 128 proceeding pursuant to the provisions of Wis. Stat. § 128.07 (the "Chapter 128 transfers"). Some of the adversary proceedings also sought avoidance and recovery of transfers made by the Debtor within three months of the involuntary petition under § 547 of the Bankruptcy Code. The Defendants have moved to dismiss the claims for relief related to the Chapter 128 transfers.1
A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint for failure to state a claim upon which relief can be granted. Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir.1997). Dismissal is appropriate only if "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). When ruling on a 12(b)(6) motion, the court accepts as true all well pleaded facts alleged in the complaint, and draws all reasonable inferences from those facts in the plaintiff's favor. Dixon v. Page, 291 F.3d 485, 486 (7th Cir.2002).
The Bankruptcy Code arms the trustee with numerous powers to avoid transfers made by the debtor prior to and during the bankruptcy case.2 Among these powers is § 544, which provides the trustee with the ability to avoid transfers of the debtor's property that could have been avoided by a creditor under applicable state law. This so-called "strong arm power" gives the creditors access to what they would have had outside of bankruptcy. See In re Tri-State Mechanical Servs., Inc., 141 B.R. 488, 494 (Bankr.W.D.Pa.1992).
In this case, the Trustee contends that the applicable state law is Wis. Stat. § 128.07(2), which states in pertinent part:
If the debtor has given a preference within four months before the filing of a petition ... and the recipient has reasonable cause to believe that the enforcement of the judgment or transfer would effect a preference, the judgment shall be voidable by the receiver or assignee, and the receiver or assignee may recover the property or its value from the recipient.
At issue is whether the trustee in bankruptcy may avail himself of this state law avoidance power. Two arguments exist for this proposition: either the trustee may utilize the state law power directly, without reference to the Bankruptcy Code, or the trustee may avail himself of the state law avoidance powers through § 544(b) of the Bankruptcy Code.
The first argument (direct application of state law regardless of the federal Bankruptcy Code) fails on constitutional grounds. Congress' power to establish uniform laws on the subject of bankruptcy throughout the United States is unrestricted and paramount. Int'l. Shoe Co. v. Pinkus, 278 U.S. 261, 265, 49 S.Ct. 108, 73 L.Ed. 318 (1929). States may not pass or enforce laws that interfere with or complement federal bankruptcy law, or provide additional or auxiliary regulations. Id.; In re Wis. Builders Supply Co., 239 F.2d 649, 656 (7th Cir.1956) (). Therefore, any argument that a trustee in bankruptcy may avail himself of state law avoidance powers independently of what is proscribed by the federal Bankruptcy Code, must fail.
Consequently, the dispositive issue is whether the state law avoidance power of Wis. Stat. § 128.07 may be reached by the bankruptcy trustee through § 544(b)(1) of the Bankruptcy Code, which states in pertinent part:
[T]he trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under § 502 of this title ...
The Seventh Circuit Court of Appeals has summarized this section as follows: "In other words, if any unsecured creditor could reach an asset of the debtor outside of bankruptcy, the Trustee can use § 544(b) to obtain the asset for the estate." In re Leonard, 125 F.3d 543, 544 (7th Cir.1997). Stated simply, for the Trustee to succeed in this case, an unsecured creditor must be able to avoid transfers under Wis. Stat. § 128.07(2).
In analyzing the statute, the Court should bear in mind that the purpose of statutory construction is to determine the legislature's intent, and the first resort is the language of the statute itself. Kelley Co. v. Marquardt, 172 Wis.2d 234, 247, 493 N.W.2d 68 (1992). If the language of the statute clearly and unambiguously sets forth the legislative intent, the court will apply that intent and not look beyond the statutory language to ascertain its meaning. Id. However, if the language of the statute does not clearly and unambiguously set forth the legislative intent, the court will resort to judicial construction of the statute to ascertain and carry out the legislative intent. Id."Where one of several interpretations of a statute is possible, the court must ascertain the legislative intent from the language of the statute in relation to its context, subject matter, scope, history, and object intended to be accomplished." Id. at 248, 493 N.W.2d 68.
In this case, the Defendants claim that Wis. Stat. § 128.07(2) specifically mentions only a "receiver or assignee" as parties able to recover property under the section. They argue that since Chapter 128 does not provide powers for an individual creditor to avoid and recover transfers, the Trustee cannot utilize § 128.07(2) under the provisions of Bankruptcy Code § 544.
The Trustee counters that § 128.07(2) does not expressly exclude unsecured creditors from avoiding transfers, and points out that the language specific to avoidance by receivers and assignees only applies to judgments:
If the debtor has given a preference within four months before the filing of a petition ... and the recipient has reasonable cause to believe that the enforcement of the judgment or transfer would effect a preference, the judgment shall be voidable by the receiver or assignee, and the receiver or assignee may recover the property or its value from the recipient.
Wis. Stats. § 128.07(2) (emphasis supplied). According to the Trustee, as the statute fails to include "transfers" — a term defined in § 128.07(c)(1) — in addition to "judgments" prior to the phrase "voidable by the receiver or assignee," preferential transfers are avoidable by the debtor's general unsecured creditors.
However, the Wisconsin legislature certainly would have been clearer about providing this important right to a single creditor. The Court can imagine the mischief that could be caused by a single creditor suing its fellow creditors to avoid alleged preferential transfers. Moreover, assuming that the Trustee's interpretation of the statute is correct, it is curious that an individual creditor would have been given the power to exercise an avoiding power in a chapter concerning receiverships and assignments for the benefit of all creditors. The legislature certainly knew how to empower a single creditor with avoiding powers; in Chapter 242, the Uniform Fraudulent Transfer Act, single...
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