Sweetwater, In re, s. 85-2933

• Decision Date: 01 September 1989
• Docket Number: 86-1013,Nos. 85-2933,s. 85-2933
• Citation: 884 F.2d 1323
• Parties: 21 Collier Bankr.Cas.2d 1034, 19 Bankr.Ct.Dec. 1232, Bankr. L. Rep. P 73,093 In re SWEETWATER, et al., Debtors. CITICORP ACCEPTANCE COMPANY, INC., Appellee/Cross-Appellant, v. W. LaMonte ROBISON, as trustee for administrative claimants as assignees of a chose in action from Sweetwater, etc., Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1323

884 F.2d 1323

21 Collier Bankr.Cas.2d 1034, 19 Bankr.Ct.Dec. 1232,

Bankr. L. Rep. P 73,093

In re SWEETWATER, et al., Debtors CITICORP ACCEPTANCE COMPANY, INC., Appellee/Cross-Appellant, v. W. LaMonte ROBISON, as trustee for administrative claimants as assignees of a chose in action from Sweetwater etc., Appellant/Cross-Appellee.

Nos. 85-2933, 86-1013.

United States Court of Appeals, Tenth Circuit.

Sept. 1, 1989.

Alan L. Smith, LeBoeuf, Lamb, Leiby & MacRae, Salt Lake City, Utah (Carol Goodman and Steven J. McCardell of LeBoeuf, Lamb, Leiby & MacRae, were also on the brief), for appellant/cross-appellee Robison.

Randall J. Sunshine, Shearman & Sterling, New York City (L. Mark Ferre, Clyde & Pratt, Salt Lake City, Utah, George J. Wade and Steven E. Sherman of Shearman and Sterling, New York City, were also on the brief), for appellee/cross-appellant Citicorp Acceptance Co., Inc.

Before HOLLOWAY, Chief Judge, and BARRETT and BALDOCK, Circuit Judges.

HOLLOWAY, Chief Judge.

The court has before it an appeal and a cross-appeal from an order of the United States District Court for the District of Utah, Robison v. Citicorp Acceptance Co. (In re Sweetwater), 55 B.R. 724 (D.Utah 1985), which are consolidated. The trustee, Robison, appeals a ruling that avoiding powers assigned to him were nonassignable and that he cannot maintain suit to avoid a transfer made to Citicorp Acceptance Company, Inc. (Citicorp). Citicorp cross-appeals a ruling by the district court that the Bankruptcy Court had subject matter jurisdiction to entertain the avoidance action.

The basic issues before us thus are: (1) whether the bankruptcy court has subject matter jurisdiction over the avoidance action, and (2) whether plaintiff Robison may pursue the avoidance action pursuant to 11 U.S.C. Sec. 1123(b)(3)(B) as a representative of the estate under the avoidance authority assigned to him. We hold that the bankruptcy court has subject matter jurisdiction and that Robison may pursue the avoidance action as a representative of the estate.

I

Sweetwater and its affiliates (Sweetwater) filed a petition for reorganization under chapter 11 of the Bankruptcy Code (the Code), 11 U.S.C. Secs. 1101-1174. ¹ During the bankruptcy proceeding Sweetwater continued to operate its business as a debtor in possession, incurring debts for "administrative expenses." See Secs. 503, 1107, 1108. Sweetwater could not pay these administrative claims in cash on the effective date of its reorganization plan (the plan) as the Code requires, so the administrative claimants "agreed to a different treatment" of their claims. Sec. 1129(a)(9). This written agreement (the agreement) was included in the plan, which the bankruptcy court confirmed. ² I R. item 1, exh. A. Instead of cash the administrative claimants accepted an interest, equal to the allowed amount of their claims, in a fund of cash and assets. The fund's assets include "the potential proceeds from litigation or settlement with First Financial and Citicorp." I R. item 1, exh. A, p. 6. ³ The plan provides that "[t]he Bankruptcy Court shall retain jurisdiction to hear and determine that dispute." Citicorp Acceptance Co. v. Ruti-Sweetwater (In re Sweetwater), 57 B.R. 354, 357 (D.Utah 1985). Robison was named trustee of the fund and is responsible for reducing the fund's assets to cash and distributing the cash to the administrative claimants. If the fund's assets produce more cash than the allowed amounts of the administrative claims, the reorganized debtor receives the excess. ⁴

In accordance with his duties under the plan Robison filed this action against Citicorp. Robison's Sec. 544 (strong-arm) claim sought to avoid Citicorp's unperfected security interest in Sweetwater's rights to future payments under some timeshare installment sales contracts. His Sec. 547 (preference) and Sec. 549 (unauthorized post-petition transfer) claims sought to recover payments Citicorp had received under those installment contracts. Robison's Sec. 553 (set-off) claim requested the amount of a mutual debt that Citicorp had improperly offset against Sweetwater's debts to Citicorp. ⁵ II R. 12-15.

Citicorp filed a motion to dismiss asserting, among other things, that (1) the bankruptcy court lacks subject matter jurisdiction over the action, and (2) the plan provision giving Robison the responsibility of enforcing these avoidance actions is invalid because avoidance powers may not be assigned. The bankruptcy court denied Citicorp's motion.

As noted, on appeal the district court held that the bankruptcy court had subject matter jurisdiction, but that Robison could not enforce these avoidance claims because the plan provision giving him that power was an invalid assignment. The district court vacated the order of the bankruptcy court and remanded with instructions to dismiss Robison's complaint.

II

A

On cross-appeal, Citicorp argues that the district judge erred when he held that the bankruptcy court and the district court have subject matter jurisdiction over this action. For the reasons stated by the district judge in his thorough and persuasive discussion of the issue, we affirm his ruling on jurisdiction. Robison, 55 B.R. at 728-729.

B

On appeal, Robison argues that the district judge erred when he held that Robison could not enforce these avoidance claims as a representative of the estate. Robison contends that the plan provision empowering him to enforce these claims is authorized by Sec. 1123(b)(3)(B), which provides:

[A] plan may provide for the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any [claim or interest of the debtor or the estate].

The district judge disagreed, ruling that Robison was not a "representative of the estate" and was not effectively "appointed" to enforce these claims:

[A representative of the estate] would not seem to include the debtor in possession's assignee, since the assignee represents his own interests and hence cannot be considered a representative of the estate. Furthermore, it would be contrary to the spirit of chapter 11 to hold that the 'appointment' of the representative could be by a unilateral declaration of the debtor in possession. In all other code sections that speak of appointments, it is the bankruptcy court--not the debtor--who makes the appointment. See e.g., 11 U.S.C.A. Secs. 105(b), 303(g), 701(a), 1102(a), 1104 & 1163. In keeping with the consistent meaning of this term throughout the Code, the court holds that, under section 1123(b)(3)(B), 'a representative of the estate appointed' to prosecute these claims means a representative appointed by the court and not the debtor in possession's assignee.

Robison, 55 B.R. at 730. (emphasis in original)

Thus, the district judge ruled that Robison could not qualify as a representative of the estate under Sec. 1123(b)(3)(B) because he was the debtor in possession's assignee, representing his own interest, and because he was not effectively appointed. We disagree.

We hold that Robison was effectively appointed. We agree that the appointment of a representative of the estate under Sec. 1123(b)(3)(B) must be approved by the court, and may not be accomplished by a unilateral declaration of the debtor in possession. But Robison was not appointed by a unilateral declaration of the debtor in possession. Rather, his responsibilities were first agreed to by the debtor in possession and the administrative creditors. Then this agreement was included in the plan which was voted on and approved by all the creditors and confirmed by the bankruptcy court. This procedure was sufficient to appoint Robison for the purpose of enforcing these claims. Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177, 1180 n. 1 (11th Cir.1987); Temex Energy v. Hastie and Kirschner (In re Amarex, Inc.), 96 B.R. 330, 334 (W.D.Okla.1989); Amarex, Inc. v. Marathon Oil Co. (In re Amarex, Inc.), 88 B.R. 362, 363-364 (W.D.Okla.1988), aff'g 74 B.R. 378 (Bankr.W.D. Okla.1987); Kroh Brothers Dev. Co. v. United Missouri Bank (In re Kroh Brothers Dev. Co.), 100 B.R. 487 (Bankr.W.D. Mo.1989); Perlstein v. Saltzstein (In re AOV Industries), 62 B.R. 968, 970 and n. 1 (Bankr.D.Dist.Col.1986).

Further, Robison qualifies as a representative of the estate. We agree with the courts that have adopted a case-by-case approach to determine whether an appointed party's responsibilities and authority under a reorganization plan qualify them as a "representative of the estate." Temex, 96 B.R. at 334; See Tennessee Wheel and Rubber Co. v. Captron Corp. Air Fleet (In re Tennessee Wheel And Rubber Co.), 64 B.R. 721, 725-726 (Bankr.M.D.Tenn 1986). "The primary concern is whether a successful recovery by the appointed representative would benefit the debtor's estate and particularly, the debtor's unsecured creditors." Temex, 96 B.R. at 334; Kroh Brothers, 100 B.R. at 499-500; Tennessee Wheel, 64 B.R. at 725-726; DuVoisin v. East Tennessee Equity, Ltd. (In re Southern Industrial Banking Corp.), 59 B.R. 638 at 641-643 (Bankr.E.D.Tenn.1986). Here Robison does not merely represent his own interests; the only interest Robison has in any recovery is his agreed billing rate of $75 per hour. Rather, under the plan Robison is responsible for reducing these claims to cash and paying the administrative claims. In this respect any recovery by Robison will obviously benefit the estate's unsecured administrative creditors. Tennessee Wheel, 64 B.R. at 726.

Further, to the extent these avoidance actions have been used to satisfy the administrative claimants, who have priority over other unsecured creditors, the estate has more funds available to pay other unsecured creditors. And if Robison realizes more cash from the fund's assets than the allowed amount of all the administrative claims, the remainder will go to the reorganized debtor who will then be in a better position to meet its financial...