In re Globe Illumination Co.
| Decision Date | 20 January 1993 |
| Docket Number | Bankruptcy No. LA 89-01354 SB,Adv. No. LA 91-06235 SB. |
| Citation | 149 BR 614 |
| Court | U.S. Bankruptcy Court — Central District of California |
| Parties | In re GLOBE ILLUMINATION CO., Debtor. Jeffrey C. COYNE, Trustee, Plaintiff, v. WESTINGHOUSE CREDIT CORPORATION, et al., Defendants. |
David R. Weinstein, Weinstein, Eisen & Doherty, Los Angeles, CA, for plaintiff.
Arnold Quittner of Strook, Strook & Lavan, Los Angeles, CA, for defendants.
In this leveraged buyout case the trustee has brought several causes of action against the former owners of the debtor corporation. Defendants have moved to dismiss the entire complaint, under Fed. R.Bankr.P. 7012(b) and Fed.R.Civ.P. 12(b)(6), on the grounds that these causes of action are barred by the two-year statute of limitations in 11 U.S.C.A. § 546(a)(1).
Since there is a Ninth Circuit Bankruptcy Appellate Panel (BAP) decision directly contrary to defendants' argument on this issue, this motion raises the question whether the BAP's decision is binding precedent on this Court. If BAP decisions are binding precedent on bankruptcy courts in the circuit in which the BAP is located, the trustee's claims are not barred by the statute of limitations. If BAP decisions are not binding, this Court is free to make an independent determination of this issue in this case.
The Court holds that decisions of the Ninth Circuit BAP are binding on bankruptcy courts in this circuit. In consequence, the trustee's claims are not barred by the § 546(a) statute of limitations, and the motion to dismiss is denied.
Westinghouse Credit Corporation ("Westinghouse") purchased the stock of debtor Globe Illumination Co. ("Globe") in a leveraged buyout transaction in July, 1986. On January 23, 1989 Globe filed its chapter 11 petition. In May, 1989 the case was converted to a case under chapter 7 and plaintiff Jeffrey C. Coyne was appointed as interim trustee.
Coyne held a meeting of creditors pursuant to Bankruptcy Code § 341(a)1 on July 21, 1989. However, since no representative of the debtor appeared at the meeting, it was continued to August 11, 1989, at which time Coyne became the permanent trustee.
On August 8, 1991 Coyne filed this adversary proceeding against Globe's former owners to allege that the leveraged buyout was a fraudulent conveyance. The defendants have moved for dismissal under Fed. R.Bankr.P. 7012(b) and Fed.R.Civ.P. 12(b)(6), on the grounds that the claims are barred by the statute of limitations.
Defendants contend that the § 341(a) meeting was held on July 21, 1989, that the trustee was appointed at that meeting, and that the two-year statute of limitations prescribed in § 546(a)2 runs from this date. Thus, because the action was not filed until August 8, 1991, they submit that the claims of the trustee are barred.
The trustee, on the other hand, contends that he was not appointed until the August 11, 1989 meeting, when the debtor was actually present. Since this adversary proceeding was filed on August 8, 1991, the trustee contends that it was timely filed.
The resolution of this issue turns on when the trustee was in fact appointed. Normally this would be a question of fact, to be determined on the evidence presented to the Court. However, in this case the evidence is virtually identical to that before the Ninth Circuit Bankruptcy Appellate Panel in a reported case several years ago, which this Court must consider.
In Kroh v. T.R.M. Mfg. (In re Conco Building Supplies), 102 B.R. 190 (9th Cir. BAP 1989), the Ninth Circuit BAP squarely addressed this issue. In Conco the debtor's counsel failed to appear at a § 341(a) meeting of creditors. The meeting was continued to a later date, at which time the trustee was appointed. The BAP held that the later date was the starting point for the running of the § 546 statute of limitations. It made this determination by examining Bankruptcy Rule 2003(b)(1), which provided:3
Meeting of creditors. The clerk shall preside at the meeting of creditors unless (1) the court designates a different person, or (2) the creditors who may vote for a trustee under § 702(a) of the Code and who hold a majority in amount of claims that vote designate a presiding officer. . . . The business of the meeting shall include the examination of the debtor under oath and, in a chapter 7 liquidation case, may include the election of a trustee. . . .
Id. at 192 (emphasis in original). From this language the Conco court determined:
The mandatory language that the meeting "shall include the examination of the debtor," supports a conclusion that the actual meeting of the creditors was not "held" until the . . . date when the debtor appeared for the examination.
Id. at 192 (emphasis in original). The court also noted the § 343 requirement that the debtor attend the meeting to be examined, and the legislative history to § 343, which indicates that the purpose of the examination is to enable creditors and the trustee to determine if assets have improperly been disposed or concealed. Id. The court concluded by stating:
The Court finds that the facts in this case do not differ in any material respect from those in Conco. The BAP in Conco held that the § 546 statute of limitations does not begin to run until the debtor, or a representative of the debtor, is present at the § 341(a) meeting. Therefore, if the BAP's decision is binding on this Court, the Court must find that the statute of limitations did not begin to run until the meeting held on August 11, 1989, and that the trustee's complaint was filed within the statute of limitations. If the BAP's decision is not binding, on the other hand, the Court is free to consider whether to follow Conco, or whether to make a different determination of the applicable law.
Defendants argue that the BAP decision in Conco is not binding, and furthermore that it is ill-conceived and should not be followed by this Court. The trustee apparently relied on Conco in determining when to file this adversary proceeding.
Courts are bound by the decisions of law by higher courts under the principle of stare decisis. The doctrine of stare decisis derives from the maxim of the common law, "Stare decisis et non quieta movere," which literally means, "Let stand what is decided, and do not disturb what is settled." See 1B Jeremy C. Moore et al., Moore's Federal Practice ¶ 0.4021 (2d ed. 1992). Moore's treatise describes the rule as follows:
The rule, as developed in the English law, is that a decision on an issue of law embodied in a final judgment is binding on the court that decided it and such other courts as owe obedience to its decisions, in all future cases.
Id. Under this principle a decision of a circuit court of appeal is binding on all lower courts in the circuit, including district courts and bankruptcy courts (absent a contrary United States Supreme Court decision). Zuniga v. United Can Co., 812 F.2d 443, 450 (9th Cir.1987); In re Shattuc Cable Corp. 138 B.R. 557, 565 (Bankr. N.D.Ill.1992); In re Summit Ventures, Inc., 135 B.R. 483, 491 (Bankr.D.Vt.1991); Kachanizadeh v. Denlinger (In re Kachanizadeh), 108 B.R. 734, 737 (Bankr. C.D.Cal.1989); Paul B. Lindsey, Stare Decisis—Blessed be the Tie that Binds (Or Does It?), Norton Bankruptcy Law Advisor, July, 1992, at 1. This is true even if there is a split of opinion between the controlling circuit and another circuit court of appeals, and the lower court believes that the controlling circuit court is in error. Zuniga, 812 F.2d at 450; Hasbrouck v. Texaco, Inc., 663 F.2d 930, 933 (9th Cir. 1981), cert. denied, 459 U.S. 828, 103 S.Ct. 63, 74 L.Ed.2d 65 (1982); Taffi v. United States (In re Taffi), 144 B.R. 105, 108 (Bankr.C.D.Cal.1992).4
The binding effect of BAP decisions on bankruptcy courts in this circuit has not been considered by the Ninth Circuit Court of Appeals itself (apart from the BAP). The only Ninth Circuit opinion that addresses this issue is Judge O'Scannlain's concurring opinion in Bank of Maui v. Estate Analysis, Inc., 904 F.2d 470 (9th Cir. 1990), where he stated:
Id. at 472 (citations and footnote omitted). Because the Ninth Circuit has not acted on the recommendation of Judge O'Scannlain in his concurring opinion,5 there is no Ninth Circuit authority on this issue.
The BAP first addressed the issue of the binding authority of its decisions on bankruptcy courts in the circuit in In re Windmill Farms, Inc.,...
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...that BAP decisions are equivalent to the circuit courts and are therefore binding on all lower courts. In re Globe Illumination Co., 149 B.R. 614, 620 (Bkrtcy. C.D. Cal. 1993). In the Ninth Circuit, for example, as a practical matter BAP decisions are regarded as persuasive by the Court of ......