In re Luria Steel and Trading Corp., Bankruptcy No. 91 B 9694. Adv. No. 93 A 614.
| Decision Date | 22 June 1994 |
| Docket Number | Bankruptcy No. 91 B 9694. Adv. No. 93 A 614. |
| Citation | 168 BR 913 |
| Parties | In re LURIA STEEL AND TRADING CORPORATION, d/b/a Erman-Howell Division, Debtor. William B. GRABSCHEID, Trustee, Plaintiff, v. KNOX METALS CORPORATION, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Ellis Rosenzweig, Sachnoff & Weaver, Chicago, IL, for trustee.
David R. Carlson, Mora & Baugh, Ltd., Local Counsel, Chicago, IL, Robert Bailey, Frantz McConnel & Seymour, Knoxville, TN, for Knox Metals.
The matter before the Court is the motion of Knox Metals Corporation ("Knox" or "Defendant") to dismiss William H. Grabscheid's ("Plaintiff" or "Trustee") adversary complaint to recover preferential transfers pursuant to 11 U.S.C. §§ 547(b) and 550(a). Knox contends the statute of limitations set forth in § 546(a)1 forbids the Trustee from pursuing this action. For the reasons stated herein, the Court denies Knox's Motion to Dismiss.
With respect to the Motion To Dismiss, the facts are not disputed. On May 3, 1991, Debtor, Luria Steel and Trading Corp., d/b/a Erman-Howell Division ("Luria") filed its petition for relief under chapter 11 of the Bankruptcy Code. On August 28, 1991, the Plaintiff was appointed the chapter 11 trustee. Subsequently, on October 9, 1991, the case was converted to a chapter 7 case and the Plaintiff was appointed the chapter 7 trustee. On May 21, 1993, the Plaintiff commenced the instant adversary action pursuant to §§ 547(a) and 550(a), to recover payments made to Knox by Luria within the ninety days prior to Luria's filing of its chapter 11 petition. Knox asserts that the two year statute of limitations contained in § 546(a)(1) bars the Trustee from pursuing his complaint.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and General Rule 2.33 of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(F).
Statute of limitations defenses may properly be raised in either a responsive pleading or in a motion to dismiss. Ledesma v. Jack Stewart Produce, Inc., 816 F.2d 482, 484 n. 1 (9th Cir.1987). A complaint should be dismissed for failure to state a claim if it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). When evaluating a motion to dismiss, the Court must assume that all of the factual allegations in the pleadings are true, and must construe the pleadings and all reasonable inferences which derive therefrom in favor of the nonmoving party. Prince v. Rescorp Reality, 940 F.2d 1104, 1106 (7th Cir.1991).
This complaint was filed within two years of the time that the Plaintiff was appointed chapter 11 trustee (the first trustee appointed in this bankruptcy case) but more than two years after the voluntary case was commenced. This is the sequel to this Court's opinion in Grabscheid v. Denbo Iron Metal, Inc. (In re Luria Steel and Trading Corp.), 164 B.R. 293 (Bankr.N.D.Ill.1994) ("Luria I"). There the complaints were filed more than two years after the Trustee was appointed chapter 11 trustee but less then two years after he was appointed trustee in the converted chapter 7 case. The issue in Luria I was whether § 546(a)(1) contemplated a new two year limitations period with each appointment of a trustee in a case or whether there is only one limitations period beginning with the appointment of the first trustee. In deciding that the § 546(a)(1) statute of limitations expired two years after the appointment of the first trustee (regardless of whether the case is later converted under a different chapter of the Bankruptcy Code), the Court expressly refrained from determining whether this limitations period may start even earlier, i.e. on the date the petition was filed and Luria became the debtor-in-possession. Id. at 296 n. 3.
Several circuit courts2 have determined that, in cases where a trustee has not been appointed, the statute of limitations in § 546(a)(1) applies to the debtor-in-possession. However, the holdings in Zilkha, Coastal Group, and Century Brass were explicitly limited to chapter 11 cases where a trustee had not been appointed. Zilkha, 920 F.2d at 1524 n. 11 (); Coastal Group, 13 F.3d at 86 n. 7 (); Century Brass, 22 F.3d at 41 (). This unusual reticence on the part of the Courts of Appeal is caused by the consequences of deciding that there is a limitations period applicable to debtors-in-possession. If § 546(a)(1) embodies a policy determination that there is but one limitations period per case, then concluding that there is a limitations period applicable to debtors-in-possession would seem to make § 546(a)(1) superfluous.
Knox's Motion to Dismiss forces the Court to address these thorny issues. When interpreting a statute, the natural point of embarkment is the language of the statute itself. Pennsylvania Dep. of Pub. Welfare v. Davenport, 495 U.S. 552, 557-58, 110 S.Ct. 2126, 2130-31, 109 L.Ed.2d 588 (1990). Section 546(a) provides that:
11 U.S.C. § 546(a). Where a statute is clear on its face, the plain meaning of the language should apply. Estate of Cowart v. Nicklos Drilling Co., ___ U.S. ___, ___, 112 S.Ct. 2589, 2594, 120 L.Ed.2d 379 (1992); United States v. Ron Pair Enterprises, 489 U.S. 235, 242, 109 S.Ct. 1026, 1031-32, 103 L.Ed.2d 290 (1989). A court departs from the literal meaning of a statute only where the literal application of a statute will produce a result demonstratively at odds with the intentions of the drafters. Ron Pair, 489 U.S. at 242, 109 S.Ct. at 1030-31. If a court finds no ambiguity in the express language of the statute, then it is bound to apply the statute as written without resort to other tools of interpretation. Tidwell v. Bank South (In re Denver/Robins Venture Partners, Ltd.), 166 B.R. 769, 771-72 (M.D.Ga.1994), citing, Reves v. Ernst & Young, ___ U.S. ___, ___, 113 S.Ct. 1163, 1169, 122 L.Ed.2d 525 (1993).
The limitation period of § 546(a) commences with "the appointment of a trustee under section 702, 1104, 1163, 1302 or 1202" of the Bankruptcy Code. Thus, if § 546 was the only relevant statutory provision, this Court would conclude that there was no statute of limitations applicable to debtors-in-possession and that the two year limitations period of § 546(a)(1) began running with the appointment of a trustee.
Under the holding of Luria I, that time began when the first trustee was appointed in the chapter 11 case. While a debtor-in-possession may be the functional equivalent of a trustee3, there is nothing even remotely akin to an appointment event for debtors-in-possession. However, it would be premature to conclude that a debtor-in-possession is not bound by a limitations period. Bankruptcy law is set forth in a Code and, as is often the case in reviewing codes, resort to only one section leads to incorrect conclusions. Dill v. Dime Savings Bank, FSB (In re Dill), 163 B.R. 221, 226 (E.D.N.Y.1994) (), citing, United Savings Assoc. v. Timbers of Inwood Forest, 484 U.S. 365, 371, 108 S.Ct. 626, 630, 98 L.Ed.2d 740 (1988). In discussing the rights, powers, and duties of the entity that is the primary actor in chapter 11 cases, the provisions of chapter 11 refer to a "trustee." Yet, the default rule for chapter 11 provides that there will be no trustee, but rather a debtor-in-possession, unless and until the court affirmatively orders the appointment of a trustee.
The powers, rights and duties of the debtor-in-possession are described in § 1107.4 Among the powers of a trustee conferred in a debtor-in-possession are the avoiding powers of § 547, the preference section. But, § 1107 not only confers rights, powers, and duties to the debtor in possession, it also imposes limitations and conditions on those rights, powers, and duties. For purposes of the issue presently before the Court, the most important limitation is that the powers of the debtor-in-possession are subject to the same limitations as are imposed on trustees. One of the limitations imposed on trustees is the two year limitations period of § 546(a)(1). Therefore, by its terms, § 1107 imposes a two year limitations period on the debtor-in-possession's power to exercise its avoiding powers.
Having decided that a limitations period commenced with the creation of the debtor-in-possession, the question remains as to how to integrate the limitations period of § 1107 with that of § 546(a)(1). One possible way to read those provisions is that there is a total of two years within which to bring actions under the avoiding powers, and taken together, §§ 1107 and 546(a)(1) simply mean that regardless of who has the power to exercise those powers, they must do so, if at all, within two years of the commencement of the case. That is how Knox would have this Court read the Code. Knox argues that the rationale of...
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