In re Pullman Const. Industries, Inc., Bankruptcy No. 87 B 6441-44
| Decision Date | 10 October 1991 |
| Docket Number | Bankruptcy No. 87 B 6441-44,Adv. No. 91 A 452. |
| Citation | 132 BR 359 |
| Parties | In re PULLMAN CONSTRUCTION INDUSTRIES, INC., Debtor. PULLMAN CONSTRUCTION INDUSTRIES, INC., Plaintiff, v. NATIONAL STEEL SERVICE CENTER, Johnson Controls, Inc., and Muller Construction Supply, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Steven B. Towbin, David A. Newby, Towbin & Zazove, Ltd., Chicago, Ill., for plaintiff.
Robert M. Boyack, Joliet, Ill., for Johnson Controls, Inc.
Patrick G. Donnelly, McNeela & Griffin, Ltd., Chicago, Ill., for Muller Const. Supply.
Richard M. Bendix, Jr., Michael E. Hayes, Schwartz, Cooper, Kolb & Gaynor, Chicago, Ill., for Nat. Steel Service Center.
The Plaintiff, Debtor in the related Chapter 11 bankruptcy proceeding, has sued the three Defendants here for alleged preferences. Defendants moved under F.R.Bankr.P. 7012 to dismiss the complaint. For reasons set forth below, the motion was denied by Order entered September 11, 1991.
The Complaint is not time-barred under 11 U.S.C. § 546(a)(1).
The pertinent facts are not in dispute. Debtor's Chapter 11 proceedings were filed May 1, 1987. Debtors have been in possession of their own affairs from that date to the present. The Court has previously found that Wells Fargo Bank N.A. ("Wells Fargo") had a lien on all assets of this Debtor and its related companies in bankruptcy. When Plan confirmation was denied, Wells Fargo was permitted by stay modification order to proceed against Debtor's assets. However, Wells Fargo did not proceed against Debtor's common stock or its preference actions. Despite the clear inability of Debtor to reorganize, the Court has permitted it to assert preference actions against several defendants. With Wells Fargo's agreement, any proceeds will be shared between Wells Fargo and other creditors. No Trustee was ever appointed. The instant Adversary complaint was filed by Debtor four years after the related bankruptcy proceeding was filed. Plaintiff complains about alleged preferences.
Although no trustee was appointed in this case, movants rely on 11 U.S.C. § 546(a):
Movants reason under 11 U.S.C. § 1107(a) that a debtor in possession is to be treated as a trustee, and is therefore limited by the two-year limit in § 546(a). Section 1107(a) provides:
(a) subject to any limitations on a trustee serving in a case under this chapter, and to such limitations or conditions as the Court prescribes, a debtor in possession shall have all the rights, other than the right of compensation under Section 330 of this title, and powers, and shall perform all the functions and duties, except the duties specified in Sections 1106(a)(2), (3), and (4) of this title, of a trustee serving in a case under this chapter.
A split of authority exists as to whether the two-year statute of limitations in 11 U.S.C. § 546(a)(1) applies to debtors in possession. Most courts which have addressed this issue, as well as a leading bankruptcy treatise, hold with persuasive reasoning that debtors in possession are not subject to the two-year statute of limitations that applies to trustees.
A leading case holding that debtors in possession are not subject to the trustee's two-year limitations bar in § 546(a)(1) is In re Korvettes, Inc., 67 B.R. 730 (Bankr. S.D.N.Y.1986). Accord In re Century Brass Products, Inc., 127 B.R. 720 (Bankr. D.Conn.1991); In re AOV Industries, Inc., 62 B.R. 968 (Bankr.D.D.C.1986); In re Alithochrome Corp., 53 B.R. 906 (Bankr. S.D.N.Y.1985); In re Choice Vend, Inc., 49 B.R. 719 (Bankr.D.Conn.1985).
The reasoning in Korvettes is especially persuasive and applies to Pullman's circumstances. Considering the express language of § 546(a)(1), the Korvettes court refused to adopt any construction contrary to the statute's plain words and facial meaning. Id. at 733. It concluded that because no trustee had been appointed, and the case had not been closed or dismissed, the action involved there was not time-barred.
Korvettes relied on Collier on Bankruptcy and the citation of that treatise by several other bankruptcy courts, and concluded:
Note that the two year limitations period runs from the appointment of a trustee under section 702, 1104, 1163 or 1302. Thus if a debtor in possession is serving in a case under chapter 11 and no trustee has been appointed, the two year period will not begin to run unless and until a trustee is appointed. The better view is that §1107(a), which gives the debtor powers of a trustee and subjects the debtor in possession to the limitations placed on a trustee, does not equate service of the debtor in possession with the appointment of a trustee for those purposes of §546(a). If a trustee is appointed in a case under chapter 11 or in a case converted from chapter 11, he will have two years from the date of his appointment to commence actions pursuant 546(a).
Id. (). See also AOV, 62 B.R. at 974; Alithochrome, 53 B.R. at 909; Choice Vend, 49 B.R. at 721.
This view is amply supported by the plain language of § 546(a). In re Korvettes, 67 B.R. at 733. Statutory interpretation must always begin with the statute's plain language. Jennings Water, Inc. v. North Vernon, 895 F.2d 311, 314 (7th Cir.1989). Section 546(a) specifies that the two year time limit begins to run when the trustee is appointed. It also provides an alternate time limit set by the date when the case is closed or dismissed. Section 546(a)(2) applies on its face without regard to whether or not a trustee is appointed. From the wording of both subparts, the two year time limit under § 546(a)(1) is applicable only when a trustee has been appointed.
As in Korvettes, no trustee has been appointed in this case. The only time limitation on Pullman for filing preference claims lies under § 546(a)(2), that the complaint be filed before the related Chapter 11 proceeding is closed or dismissed. Because this proceeding has not been closed or dismissed, Pullman's adversary proceeding was timely filed.
Most courts have correctly recognized a key distinction between trustees and debtors in possession for the purposes of § 546(a). A debtor in possession assumes its role when the Chapter 11 petition is filed, whereas a trustee assumes his role when he is appointed. Section 546(a) clearly focuses in on this distinction by giving two alternative time limits depending on whether or not the party bringing a preference or other specified action was appointed as a trustee.
A debtor in possession under Chapter 11 of the Bankruptcy Code has different powers and duties from a trustee. See generally N.L.R.B. v. Bildisco and Bildisco, 465 U.S. 513, 517, n. 2, 104 S.Ct. 1188, 1192 n. 2, 79 L.Ed.2d 482 (1984) (); In re Schipper, 933 F.2d 513, 516 (7th Cir.1991) () ( )
A debtor in possession is primarily concerned with attempting to reorganize and negotiate with its creditors. Limiting a debtor in possession to a two-year statute of limitations within which to file actions under §§ 544, 545, 547 and 553 would hinder its ability to negotiate a consensual plan of reorganization. See Century Brass, 127 B.R. at 720; Korvettes, 67 B.R. at 734; AOV, 62 B.R. at 974 ( )
Equating a debtor in possession with a trustee under § 546(a) ignores the reality of reorganization. Such a reading would force debtors in possession to sue the very creditors with whom they are trying to negotiate and from whom they are attempting to get credit. This would compel the issue of preferences to the forefront prematurely and impede rather than aid the formulation of a consensual plan of reorganization. In re Korvettes, Inc., 42 B.R. 217, 219 (Bankr.N.D.Ill.1984). This absurd result has been rejected by most authority. Century Brass, 127 B.R. at 721, and cases cited therein.
The only appellate court to address the limitations issue under § 546(a) was the Tenth Circuit in Zilkha Energy Co. v. Leighton, 920 F.2d 1520 (10th Cir.1990). In holding that the statute of limitations applies to a Chapter 11 debtor in possession, that opinion ignored differences between a trustee and a debtor in possession, and disregarded established rules of statutory construction.
First, Zilkha held that a debtor in possession is the functional equivalent of a trustee because of § 1107(a). Hence, it reasoned there is no need to create a different limitation periods for debtors in possession than the one that applies to trustees. Second, Zilkha discussed the express language of § 546. It concluded that "Congress intended for the word `trustee' to apply to a debtor in possession, for every reference to actions brought by a trustee contained in § 546 obviously applies to...
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