In re Ridge II
| Decision Date | 17 September 1993 |
| Docket Number | Adv. No. SA 91-4119JB.,Bankruptcy No. SA 87-06062JB |
| Citation | 158 BR 1016 |
| Court | U.S. Bankruptcy Court — Central District of California |
| Parties | In re The RIDGE II, a California Limited Partnership, Debtor. Richard A. MARSHACK, Chapter 7 Trustee for The Ridge II, a California Limited Partnership, Plaintiff, v. MESA VALLEY FARMS L.P. a limited partnership; Worldwide Finance & Mortgage Corporation, an Illinois Corp., Robert Wenz; Harry J. Burk; Margaret T. Burk; Bruce A. McCandless; Jane McCandless; Chaunce A. "Arlie" Beane; Merrick Consultants, Ltd., a California Corporation and Windsor Investment Company an unknown entity and Horace Lee Walters, aka H. Lee Walters, Defendants. |
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Gary J. Hill, Timothy J. Trager, Hill & Sanford, Santa Barbara, CA, for defendants, except Lee Walters.
John A. Barclay, Barclay Law Corp., Newport Beach, CA, for plaintiff.
Harlene Miller, Pagter Law Corp., Santa Ana, CA, for Lee Walters.
Defendants filed a motion for summary judgment. This court has jurisdiction in this matter pursuant to 11 U.S.C. § 1334(a) (), 28 U.S.C. § 157(a) () and General Order No. 266, dated October 9, 1984 (referring all Title 11 cases and proceedings to the bankruptcy judges for the Central District of California). This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and § 157(b)(2)(E).
In September, 1983, World Wide Finance and Mortgage Corporation ("WWFM"), Harry & Margaret Buck, Bruce & Jane McCandless and Chuance Beane (collectively the "Limited Partners") entered into a limited partnership agreement ("Agreement") with H. Lee Walters ("Walters") and Irving Jordan, as the General Partners ("Partners"), to form the "Ridge II" limited partnership (i.e., the debtor in this bankruptcy case, referred to hereinafter as "the Ridge" or "Debtor"). Apparently, thereafter, defendants Robert Wenz ("Wenz"), Merrick Consultants, Ltd., ("Merrick") and Windsor Investment Company ("Windsor"), became limited partners as well.1
The Ridge was created to acquire, develop, operate and eventually sell 1,155 acres of land, comprised of two separate parcels owned by the Limited Partners. One parcel consisted of 255 acres (the "Truck Stop Parcel"), and the other ("Parcel A") 900 acres. The Limited Partners also held record title to a 160 acre parcel ("Parcel B"), located near but not contiguous to Parcel A and the Truck Stop Parcel. The Ridge's right to purchase Parcel A and the Truck Stop Parcel from the Limited Partners was conditioned on county approval of land use plans for the respective parcels by a date certain and the Limited Partners' approval of the same. The Agreement provided that the Limited Partners would receive $2,650 for each acre they transferred to the Ridge under an approved land use plan.
In September 1984, the Ridge purchased the Truck Stop Parcel from the Limited Partners for $666,210 pursuant to the Agreement, following approval of a land use plan for that parcel. Subsequently, the Ridge improved 15 acres of that parcel with a motel, restaurant and truck and car service center. To that end, the Ridge obtained an $8,000,000 construction loan that was secured by a lien on the Truck Stop Parcel.
Confronted with financial problems, on October 5, 1987, the Ridge filed a Petition for Relief under chapter 11 of the Bankruptcy Code.2 On June 23, 1989, a chapter 11 trustee was appointed. The case was subsequently converted to one under chapter 7 and on August 22, 1990, a chapter 7 trustee was appointed. On November 27, 1991, the chapter 7 trustee ("Trustee") filed the complaint herein seeking (a) to have Parcel A and Parcel B adjudged property of the estate under § 541, (b) turnover of that real property under § 542, and (c) and a judgment declaring the Limited Partners and Walters jointly and severally liable for an undetermined deficiency of estate assets to pay allowed claims against the bankruptcy estate pursuant to § 723(a). The Limited Partners filed a motion for summary judgment, and Walters filed a joinder thereto. At the hearing thereon I took both matters under submission.
The Limited Partners assert that the § 541 and § 542 claims are barred by the statute of limitations as to causes of action for breach of contract, under California Code of Civil Procedure § 337(1), and that the § 723 claim is barred by Corporations Code § 15666 Revised Limited Partnership Act.
The Trustee seeks adjudication of his interest in and right to possession of Parcel A and Parcel B. He seeks no damages for breach of contract. Therefore, California Code of Civil Procedure § 337(1) has no application here. As explained below, because I have determined that Parcel A and Parcel B are not property of the estate, I find it unnecessary to address whether the Trustee's § 542 action is time barred. However, I find persuasive the reasoning of the court in the case of In re De Berry, 59 B.R. 891, 898 (Bankr. E.D.N.Y.1986) in which it concluded that because a § 542 claim has no explicit limitation period, such action must be commenced within a reasonable time.
The Trustee's claim for recovery of alleged pre-bankruptcy payments to the Limited Partners from property of the Ridge, in September, 1985, is not time barred under § 15666(b) of the Revised Limited Partnership Act because such limitations period is inapplicable. By provision, the Agreement was governed by the Uniform Limited Partnership Act. In order for § 15666(b) to be applicable in this instance, there must have been written consent of all partners to operate under the Revised Limited Partnership Act. California Corporations Code § 15712(a)(1). Such unanimous consent did not occur and therefore § 15666(b) does not apply.
The Trustee seeks recovery of ". . . all payments received by said defendants relating to Parcels A and B," as part of his action for "an accounting" as to that real property. Such an action is not time-barred by California law. Still, the only theory espoused by the Trustee to justify an accounting and recovery of such payments is the estate's de facto ownership of Parcel A and Parcel B. Because I have determined that the Trustee has no interest in or right to Parcel A or Parcel B, the accounting action must fail as well, and with it, the claim to any payments "relating to" that property.
The § 723(a) claims are not time barred, either. The Trustee's claim under § 723(a) is a chose in action actionable under § 544(a). In re Downtown Invest. Club III, 89 B.R. 59, 65 (9th Cir. BAP 1988). Section 546(a) provides, in relevant part, that a § 544 action must be commenced the earlier of two years after the appointment of a Trustee under § 702, § 1104, § 1163, § 1302, § 1202 or the time the case is closed or dismissed. Here, the Trustee's complaint was filed within 2 years from when the chapter 7 trustee was appointed. Therefore, the Trustee's § 723 claim is not time barred. I decline to apply In re Softwaire Centre International, 994 F.2d 682 (9th Cir.1993) here because it is distinguishable from the case at bar. In Softwaire Centre the debtor filed a complaint more than two years after it filed chapter 11. The debtor, there, argued that § 546(a)(1) did not apply because no trustee had been appointed. Noting that, under § 1107, a debtor in possession is analogous to a chapter 11 trustee, the Softwaire Centre court concluded that the debtor's § 544 claim was time barred under § 546(a)(1) because the debtor was the functional equivalent of a trustee.
The facts in this case are clearly distinguishable. The Softwaire Centre case was not converted from a chapter 11 to chapter 7 and thus the court in Softwaire Centre was not called upon to address the effect of § 546(a)(1) in a case in which a debtor in possession is succeeded by a chapter 11 trustee who is then succeeded by a chapter 7 trustee as we have here. Section 546(a)(1) textually can be construed to provide a succeeding trustee a fresh two year limitations period in which to commence a § 544 action from the date of appointment. I find further support for that position in the case of In re Downtown Invest. Club III, wherein the appellate court noted that 89 B.R. at 65; See also, In re SSS Enterprises, Inc., 145 B.R. 915, 918 (Bankr. N.D.Ill.1992) (). Furthermore, from a policy standpoint, such construction protects and preserves the cause of action under § 723(a) for it only applies in a chapter 7 case, and cannot be pursued until a case is being administered under that chapter. See § 103(b). In addition, the extent and validity of a given § 723(a) claim cannot be fully assessed unless and until a given case is in a liquidation mode under chapter 7. Accordingly, I conclude that the Trustee's § 723(a) claim is not time barred, for the complaint asserting it was filed within two years after the chapter 7 trustee was appointed.
The existence of a mere scintilla of...
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