Opinions of the United
2000 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-6-2000

In Re: Cybergenics Corporation
Precedential or Non-Precedential:

Docket 99-5592




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Recommended Citation
"In Re: Cybergenics Corporation" (2000). 2000 Decisions. Paper 187.
http://digitalcommons.law.villanova.edu/thirdcircuit_2000/187


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Filed September 6, 2000

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

NO. 99-5592

IN RE: CYBERGENICS CORPORATION,
       Debtor

THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS OF CYBERGENICS CORPORATION,
On behalf of Cybergenics Corporation,
Debtor in Possession,
       Appellant

v.

SCOTT CHINERY; L&S RESEARCH CORPORATION; FIRST
UNION NATIONAL BANK OF NORTH CAROLINA; BANQUE
INDOSUEZ; SUNAMERICA LIFE INSURANCE COMPANY;
LINCOLNSHIRE MANAGEMENT INC; LINCOLNSHIRE
EQUITY FUND, L.P.

On Appeal From the United States District Court
For the District of New Jersey
(D.C. No. 98-cv-03109)
District Judge: Honorable Garrett E. Brown, Jr.

Argued June 12, 2000
Before: BECKER, Chief Judge,
RENDELL, and ALDISERT, Circuit Judges

(Filed: September 6, 2000)
Gary D. Sesser [ARGUED]
James Gadsden
Carter, Ledyard & Milburn
2 Wall Street
New York, NY 10005
Counsel for Appellant

Brian J. Molloy [ARGUED]
Wilentz, Goldman & Spitzer
90 Woodbridge Center Drive
Woodbridge, NJ 07095
Counsel for Appellee
Scott Chinery

Dennis F. Dunne [ARGUED]
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, NY 10005
Counsel for Appellees
First Union National Bank of
North Carolina; Banque Indosuez;
Sunamerica Life Ins.

Michael A. Zindler
Teich, Groh, Frost & Zindler
691 State Highway 33
Trenton, NJ 08619
Counsel for Appellees
First Union National Bank of
North Carolina; Banque Indosuez;
Sunamerica Life Ins.

Scott A. Eggers [ARGUED]
Proskauer Rose
1585 Broadway
New York, NY 10036
Counsel for Appellees
Lincolnshire Mgt. Inc.;
Lincolnshire Equity

                           2
OPINION OF THE COURT

RENDELL, Circuit Judge:

In this appeal, we consider whether certain fraudulent
transfer claims arising from transfers made by Cybergenics
Corporation were included in a sale of all assets of
Cybergenics so as to foreclose its creditors from thereafter
pursuing those claims on behalf of its bankruptcy estate.
For the reasons explained below, we conclude that the sale
of all of Cybergenics' assets did not encompass these claims
and we therefore will reverse the District Court's dismissal
of the creditors' complaint.

We have jurisdiction under 28 U.S.C. S 1291. We exercise
plenary review over the District Court's dismissal of this
action under Rule 12(b)(1) of the Federal Rules of Civil
Procedure. See United States Securities and Exchange
Comm'n v. Infinity Group Co., 

, 186 n. 6 (3d
Cir. 2000).

Facts and Procedural History

Cybergenics, originally known as L&S Research
Corporation, was a successful marketer of body-building
and weight loss products under the Cybergenics name. In
1994, L&S was sold in a leveraged buyout, and the newly
formed Cybergenics Corporation became burdened with
more than $60 million of debt that was secured by
substantially all of Cybergenics' assets.1 In August 1996,
Cybergenics filed a petition for relief under chapter 11 of
the Bankruptcy Code, operating as a debtor in possession.
See 11 U.S.C. SS 1101(1), 1108.

Shortly after filing for bankruptcy, Cybergenics entered
into an agreement to sell nearly all of its assets to a third
party for $2.5 million. At the ensuing auction sale, held
under the auspices of the Bankruptcy Court in October
_________________________________________________________________

1. The original purchase price was over $110 million, but as the result
of a settlement of a dispute between the parties, the purchase price was
later reduced to approximately $60 million.

                                3
1996, another party who bid $2.65 million was the
successful purchaser of all Cybergenics' assets.

The sale agreement and the sale order approving the
1996 asset sale made clear that the purchaser bought"all
of the rights, title, and interest of Cybergenics in and to all
of the assets and business as a going concern of
Cybergenics." App. 77. The sale order provided that the
acquired assets included, without limitation, a variety of
categories of business-related property such as trade
accounts receivable, inventory, and various types of
intellectual property. The sale order was not appealed and
the sale was consummated.

Thereafter, Cybergenics moved to dismiss its bankruptcy
case, averring that dismissal would be in the best interest
of the bankruptcy estate because it "has no employees, no
ongoing business operations, has liquidated its assets and
disbursed the Sale Proceeds, has no ability to reorganize
and has no estate to administer." App. 202. The chair of
the Committee of Unsecured Creditors ("Committee")
objected to the dismissal, contending that the transactions
comprising the 1994 leveraged buyout should be
investigated and could give rise to causes of action to avoid
the transactions that Cybergenics could bring on behalf of
the bankruptcy estate in its capacity as debtor in
possession. Although Cybergenics agreed to adjourn its
motion to dismiss to permit the Committee chair's counsel
to investigate potential fraudulent transfer claims arising
from the 1994 leveraged buyout, Cybergenics decided not to
exercise its power as debtor in possession to pursue such
an action itself, explaining that it doubted that such
actions would benefit the bankruptcy estate.2

Based on its investigation, and Cybergenics' refusal to
pursue these claims, the Committee sought leave from the
Bankruptcy Court to bring a state law fraudulent transfer
action on behalf of the bankruptcy estate in Cybergenics'
_________________________________________________________________

2. Cybergenics provided an additional reason for not pursuing claims
against the other parties to the leveraged buyout, namely, that it already
had released any claims that Cybergenics itself might have against them
pursuant to the settlement of a lawsuit it had filed alleging, inter alia,
fraud, breach of contract, and breach of fiduciary duty.

                               4
stead.3 In opposition, those who would be named
defendants in the Committee's suit took the position that
the Committee could not bring the action because the
claims asserted therein had been sold in the 1996 asset
sale. The Bankruptcy Court authorized the Committee to
pursue the fraudulent transfer action without deciding
whether the underlying claims had been transferred in the
1996 asset sale; it equivocated on this point, noting that
"[c]ontrary to the Banks' assertion, the sale of the business
assets of the Debtor did not necessarily include the sale of
avoidance rights of the debtor-in-possession." App. 369. In
March of 1998, the Committee filed its complaint alleging
that Cybergenics made transfers and incurred obligations
in connection with the 1994 leveraged buyout that were
constructively fraudulent under New Jersey law. The
defendants filed motions to dismiss the complaint,
reiterating their argument that the fraudulent transfer
claims asserted by the Committee had been sold in the
1996 asset sale.

The District Court4 granted the defendants' motions and
dismissed the Committee's complaint for lack of subject
matter jurisdiction under Rule 12(b)(1) of the Federal Rules
of Civil Procedure. Opining that the fraudulent transfer
claims were "property of the estate" under 11 U.S.C. S 541,
the District Court concluded that Cybergenics had sold
them to the purchaser in the 1996 asset sale. The District
Court reasoned that the concept of "property of the estate"
under section 541(a) includes causes of action existing at
the time a petition for bankruptcy relief is filed. The District
_________________________________________________________________

3. Only a trustee (or debtor in possession) is authorized to exercise the
power to avoid certain transfers or obligations. However, as the
Bankruptcy Court explained in this case, see App. 362, courts have at
times authorized individual creditors or creditors' committees to exercise
avoidance powers under certain circumstances, particularly when the
debtor in possession is unwilling to pursue a colorable claim that would
benefit the bankruptcy estate. See, e.g., Canadian Pacific Forest Prods.,
Ltd. v. J.D. Irving, Ltd. (In re Gibson Group, Inc.) , 

, 1438
(6th
Cir. 1995).

4. The District Court resolved the motion instead of the Bankruptcy
Court because the District Court withdrew the reference of this
proceeding from the Bankruptcy Court. See 28 U.S.C. 157(a), (d).

                               5
Court decided as well that fraudulent transfer claims were
in the nature of contract claims, as opposed to tort claims,
and therefore were assignable. Thus, the District Court
concluded that the Committee's complaint must be
dismissed because the claims asserted therein had been
sold to the successful purchaser in the 1996 asset sale.

Discussion

To resolve this appeal, we must determine whether the
fraudulent transfer claims asserted in the action dismissed
by the District Court were, in fact, transferred in the 1996
asset sale, and, accordingly, must construe the sale order
in accordance with its terms. The Bankruptcy Court's order
authorized and directed Cybergenics to "sell and transfer
the assets under the Agreement" to the purchaser, and set
forth a nonexhaustive list of examples, which included
business-related assets such as trade accounts receivable,
inventory, fixed assets, and various types of intellectual
property. It noted further that "any references in the
Agreement or in the Schedules attached thereto to any
assets to be excluded from the sale are hereby deleted as it
is acknowledged that all of the assets of the Debtor[defined
to include Cybergenics as debtor and debtor in possession]
are being conveyed to the Purchaser." App. 187. Like the
sale order, the underlying sale agreement referred to the
sale of all assets of Cybergenics as debtor and debtor in
possession.

Our reading of these documents, which clearly
authorized the sale of all assets of Cybergenics, directs our
focus to one inquiry: were fraudulent transfer claims, which
arose from transfers made and obligations incurred by
Cybergenics in the 1994 leveraged buyout, assets of
Cybergenics? If not, the 1996 asset sale is not an
impediment to the Committee's lawsuit.5
_________________________________________________________________

5. We will restrict our discussion to this one issue because we view it as
dispositive. We reject Appellees' other arguments-- namely, that the
claim is barred by one or more of the following: res judicata, releases
previously given, absence of an actual creditor who could avoid the
transfer, impropriety of collapsing the transaction, and existence of a
recoupment defense -- because they lack merit and do not warrant
discussion.

                               6
Determining the "ownership" of a claim or cause of action
would seem to be a relatively straightforward inquiry
requiring that we evaluate the nature of the cause of action
at issue. However, the overlay of bankruptcy complicates
our analysis. Thus, we will explore the nature of the
fraudulent transfer claim, but we also will review
fundamental bankruptcy principles regarding the status
and powers of the debtor in possession in relationship to
such a claim, including the legal fiction -- the avoidance
power provided in 11 U.S.C. S 544(b) -- that enables a
debtor in possession to bring certain causes of action that
actually belong to its creditors.

Fraudulent Transfer Action

The Committee's complaint challenges transfers that
Cybergenics made to the defendants, and obligations that
Cybergenics incurred for the defendants' benefit, in
connection with the 1994 leveraged buyout. The complaint
accordingly seeks recovery from the defendants based on
New Jersey fraudulent transfer law. If state law provided
that this cause of action actually belonged to, and inured to
the benefit of, the transferor, Cybergenics, we might readily
conclude that it was Cybergenics' asset and was sold in the
1996 asset sale. However, that is not the case. As we
explain below, fraudulent transfer claims have long
belonged to a transferor's creditors, whose efforts to collect
their debts have essentially been thwarted as a
consequence of the transferor's actions, and that tradition
continues today.

The Uniform Fraudulent Transfer Act, as adopted into
New Jersey law, authorizes Cybergenics' creditors to seek
avoidance of a fraudulent transfer or obligation that it has
made to or incurred for the benefit of a third party.6 One
provision, for example, which addresses transfers and
obligations that may be fraudulent as to present and future
creditors, states as follows:

       A transfer made or an obligation incurred by a debtor
_________________________________________________________________

6. Other remedies are available as well in addition to avoidance, such as
attachment or other provisional remedies against the asset transferred.
See N.J. STAT. ANN.S 25:2-29.

                               7
       is fraudulent as to a creditor, whether the creditor's
       claim arose before or after the transfer was made or the
       obligation was incurred, if the debtor made the transfer
       or incurred the obligation . . .

N.J. STAT. ANN. S 25:2-25 (emphasis added).7

This creditors' remedy is age-old. See Orr v. Kinderhill
Corp., 

, 34-35 (2d Cir. 1993) (citing Twyne's
Case, 76 Eng. Rep. 809 (Star Chamber 1601)); Barry L.
Zaretsky, The Fraudulent Transfer Law as the Arbiter of
Unreasonable Risk, 

. REV. 1165, 1168 (1995)
(citations omitted) (explaining that fraudulent transfer law
started as part creditor protection and part criminal law,
but evolved into a law primarily for creditor protection). See
generally Granfinanciera, S.A. v. Nordberg, 

, 43
(1989) (tracing the history of fraudulent transfer actions to
determine whether they historically were considered actions
at law or at equity). A preeminent scholar in this area of the
law emphasized the creditor focus of fraudulent transfers
as he commenced his well-known treatise:

       The fraudulent conveyance, as known in our law, may
       be roughly defined as an infringement of the creditor's
       right to realize upon the available assets of his debtor.
       That, and none other, is the meaning that should
       attach to the word "fraud," as used in the synonymous
       term, "conveyance in fraud of creditors." It follows that
       an appreciation of this form of wrongdoing involves,
       first of all, a clear understanding of the right which is
       impaired.

GARRARD GLENN, THE LAW OF FRAUDULENT CONVEYANCES S 1
(1931). See also; PETER A. ALCES, THE LAW OF FRAUDULENT
TRANSACTIONS P 1.01[2] at 1-3, P 5.04 at 5-112 (1989)
(citations omitted). The precise requirements for
_________________________________________________________________

7. Similarly, a provision addressing transfers that may be fraudulent as
to only present creditors also states:

       A transfer made or obligation incurred by a debtor is fraudulent as
       to a creditor whose claim arose before the transfer was made or the
       obligation was incurred if the debtor made the transfer or incurred
       the obligation . . .

N.J. STAT. ANN. S 25:2-27(a) (emphasis added). See also id.SS 25:2-27(b).

                               8
successfully alleging that a transfer or obligation is
fraudulent have evolved over time, see United States v.
Green, 

, 254 (3d Cir. 2000), but the
fundamental creditors' rights premise, reflected in New
Jersey's enactment of the Uniform Fraudulent Transfer Act,
has not.

Thus, at least outside of the context of bankruptcy, it is
clear that a fraudulent transfer claim arising from
Cybergenics' transfers and obligations belongs to
Cybergenics' creditors, not to Cybergenics. Other applicable
nonbankruptcy laws may give Cybergenics various causes
of action with which to challenge its own transactions and
obligations, but a fraudulent transfer action is not among
them. Having established this, we will examine if the
answer changes when the transferor becomes a chapter 11
debtor in possession.

Status and Duties of a Debtor in Possession and the
Avoidance Powers

There would be no appeal before us were it not for the
fact that the Bankruptcy Code empowers trustees as well
as chapter 11 debtors in possession to avoid transfers as
fraudulent using causes of action that state law provides to
creditors. Does this mean that the chapter 11 debtor in
possession actually acquires its creditors' fraudulent
transfer claims against third parties as a result offiling for
bankruptcy? As explained below, the answer is clearly "no."

The term "debtor in possession" refers to a debtor in a
chapter 11 case for which no trustee has been appointed.
See 11 U.S.C. S 1101(1). When no trustee is appointed, the
Bankruptcy Code gives a debtor in possession the powers
and duties of a trustee. 

FED. R. BANKR. P.
9001(10). See also In re Marvel Entertainment Group, Inc.,

, 474 (3d Cir. 1998). The terms "trustee" and
"debtor in possession," as used in the Bankruptcy Code,
are thus essentially interchangeable. See L.R.S.C. Co. v.
Rickel Home Centers, Inc. (In re Rickel Home Centers, Inc.),

, 297 & n. 7 (3d Cir. 2000). Hence, by virtue
of being a debtor in possession, Cybergenics operated not
only as a business entity, but essentially as a trustee as
well. See Commodity Futures Trading Comm'n v. Weintraub,

                                9


, 355 (1985) (citing Wolf v. Weinstein, 

, 649-652 (1963)).

A paramount duty of a trustee or debtor in possession in
a bankruptcy case is to act on behalf of the bankruptcy
estate, that is, for the benefit of the creditors. See 

, 473-474. See generally 

. To fulfill this duty, trustees and debtors in
possession have a variety of statutorily created powers,
known as avoidance powers, which enable them to recover
property on behalf of the bankruptcy estate.

Section 544(b) is the operative avoidance power at issue
here. Specifically, this provision authorizes the avoidance of
"any transfer of an interest of the debtor in property or any
obligation incurred by the debtor that is voidable under
applicable law by a creditor holding an [allowable]
unsecured claim." 11 U.S.C. S 544(b) (emphasis added). The
avoidance power provided in section 544(b) is distinct from
others because a trustee or debtor in possession can use
this power only if there is an unsecured creditor of the
debtor that actually has the requisite nonbankruptcy cause
of action.8 Yet, once avoidable pursuant to this provision,
the transfer is avoided in its entirety for the benefit of all
creditors, not just to the extent necessary to satisfy the
individual creditor actually holding the avoidance claim.
See Moore v. Bay (In re Sassard & Kimball, Inc.), 

, 5 (1931). See also 11 U.S.C. S 551 (automatically
preserving an avoided transfer for the benefit of the estate).

The fact that section 544(b) authorizes a debtor in
possession, such as Cybergenics, to avoid a transfer using
_________________________________________________________________

8. Section 548 of the Bankruptcy Code also authorizes a trustee (or
debtor in possession) to avoid fraudulent transfers and obligations, and,
unlike section 544(b), is not contingent upon the identification of an
actual unsecured creditor with a state law cause of action. However,
among other differences, section 548 can be used to avoid only transfers
or obligations by the debtor that were made or incurred on or within one
year before the filing of the bankruptcy petition. Thus, the District
Court
determined that a fraudulent transfer action arising from transfers and
obligations associated with the 1994 leveraged buyout could not be
pursued under section 548 and the Committee did not appeal that
determination.

                               10
a creditor's fraudulent transfer action does not mean that
the fraudulent transfer action is actually an asset of the
debtor in possession, nor should it be confused with the
separate authority of a trustee or debtor in possession to
pursue the prepetition debtor's causes of action that
become property of the estate upon the filing of the
bankruptcy petition. See, e.g., Sender v. Simon, 

, 1304 (10th Cir. 1996) (explaining the difference
between these separate grants of authority). Rather, it
simply enables a debtor in possession to carry out its
trustee-related duties.

The power to avoid the debtor's prepetition transfers and
obligations to maximize the bankruptcy estate for the
benefit of creditors has been called a "legalfiction" by one
court. See Zilkha Energy Co. v. Leighton, 

,
1523 (10th Cir. 1990). It puts the debtor in possession "in
the overshoes" of a creditor. See Benjamin Weintraub and
Alan N. Resnick, BANKRUPTCY LAW MANUAL P 7.04, 7-15 (3d
Ed. 1992) (quoting Schneider v. O'Neal, 

, 918
(8th Cir. 1957)). This attribute is no more an asset of
Cybergenics as debtor in possession than it would be a
personal asset of a trustee, had one been appointed in this
case. Much like a public official has certain powers upon
taking office as a means to carry out the functions
bestowed by virtue of the office or public trust, the debtor
in possession is similarly endowed to bring certain claims
on behalf of, and for the benefit of, all creditors.

As further evidence that the avoidance powers neither
shift ownership of the fraudulent transfer action to the
debtor in possession, nor are themselves a debtor's assets,
we note that courts have limited a debtor's exercise of
avoidance powers to circumstances in which such actions
would in fact benefit the creditors, not the debtors
themselves. See, e.g., Wellman v. Wellman (In re Wellman),

, 218 (4th Cir. 1991) (holding that the
avoidance powers provide for recovery only if the recovery is
for the benefit of the estate); Vintero Corp. v. Corporacion
Venezolana (In re Vintero Corp.), 

, 742 (2d Cir.
1984) ("Vintero was given the right to avoid CVF 's security
interest in order to protect such third parties, not to create
a windfall for Vintero itself . . . To the extent that other

                               11
creditors of Vintero are not affected adversely by
enforcement of CVF 's security interest, there is no reason
why such interest should not be enforced."). 9 Rather than
improving the debtor's own bottom line, empowering the
trustee or debtor in possession to avoid a transaction by
pursuing an individual creditor's cause of action is a
method of forcing that creditor to share its valuable right
with other unsecured creditors. See Thomas H. Jackson,
Avoiding Powers in Bankruptcy, 36 STAN. L. REV. 725, 749
(1984); Charles Jordan Tabb, THE LAW OF BANKRUPTCY S 6.2 at
336 (1997); American Nat'l Bank of Austin v.
MortgageAmerica Corp. (In re MortgageAmerica Corp.) , 

, 1278 (5th Cir. 1983) (holding that the automatic
stay prevents an individual creditor from pursuing an
avoidance action for its own exclusive benefit rather than
for the benefit of all creditors, noting that"the principle of
first-come-first-served has no place in bankruptcy law
except to the very limited extent that specific provisions
give it a place"). The use of this authorization for the benefit
of creditors is at the heart of the avoiding powers.

Appellees urge that we should conclude that Cybergenics
did, in fact, sell the right to pursue the claim in the 1996
asset sale based on their interpretation of cases from other
courts, including one of our sister courts of appeals,
involving express assignments of avoidance powers to third
_________________________________________________________________

9. The trustee's power to assert a creditor's state law fraudulent
transfer
action through section 544(b) stands in sharp contrast to other statutory
entitlements in the Bankruptcy Code that do work to the direct benefit
of the debtor, not the creditors. One prime example is section 522(f) of
the Bankruptcy Code, which permits an individual debtor to avoid
certain liens on household goods to the extent that they impair the
debtor's property exemption. While debtor protection is the express goal
of provisions such as section 522(f), bolstering creditors' rights is the
primary objective of avoidance powers such as section 544(b). See
Thomas H. Jackson, Avoiding Powers in Bankruptcy , 36 STAN. L. REV.
725, 730 n. 16 (1984). See generally Citicorp Acceptance Co. v. Robison
(In re Sweetwater), 

, 1329 (10th Cir. 1989) ("All of the
avoiding powers have the policy of fair treatment among creditors at
their base. . . . The theoretical underpinning of all of them remains the
equal treatment among creditors by forcing those who have received an
unfair advantage to disgorge the ill gotten gains.") (citing R. Aaron,
BANKRUPTCY LAW FUNDAMENTALS S 10.01 (Rev'd 1999)).

                               12
parties. In Briggs v. Kent (In re Professional Inv. Properties
of America), 

, 626 (9th Cir. 1992), the Court of
Appeals for the Ninth Circuit stated it was faced with the
issue of whether a trustee's so-called strong-arm powers
provided by section 544(a) were "transferrable" to a creditor
who purchased the estate's right to certain sale proceeds.
The Court then decided, however, that "if a creditor is
pursuing interests common to all creditors or is appointed
for purposes of enforcement of the plan [of reorganization],
he may exercise the trustee's avoidance powers." 

(emphasis added). This holding was reaffirmed and
extended to the context of a chapter 7 case in Duckor
Spradling & Metzger v. Baum Trust (In re P.R.T.C., Inc.), 

, 782 (9th Cir. 1999).10 Appellees cite these cases
as standing for the proposition that avoidance powers may
be sold. We do not necessarily agree with their assessment
of these cases, but we need not reach this issue because
the 1996 transaction was not an assignment of avoidance
powers (or even an authorization of the right to exercise the
avoidance powers), but rather, it was a sale of Cybergenics'
"assets."11 As we have already determined, neither the
fraudulent transfer claim nor the avoidance power was an
asset of Cybergenics. Clearly, therefore, that fact pattern
bears no resemblance to the situation in the instant case.
We similarly find little relevance in the cases cited by the
parties from various courts of appeals that deal with the
appointment of estate representatives in a plan of
_________________________________________________________________

10. In P.R.T.C., the Court of Appeals upheld an express assignment to
the debtor's largest creditor to pursue a variety of claims and rights
actionable under Bankruptcy Code sections 541 through 552 arising out
of a series of specified transactions. 

The trustees proposed
the assignment after concluding that the estate lacked sufficient funds
to pursue those claims or rights, but believed that they might have
significant value. The creditor was required by the agreement to remit to
the bankruptcy estate 50% of the net proceeds in the event that the
creditor pursued the claims.

11. Had the sale order explicitly provided for the assignment of the
avoidance powers, we would have no occasion to scrutinize its legality at
this juncture, as the sale order was never appealed and has long since
been consummated. See Pittsburgh Food and Beverage, Inc. v. Ranallo,

, 650 (3d Cir. 1997).

                               13
reorganization based on section 1123(b)(3)(B) of the
Bankruptcy Code.12

Based on the foregoing analysis, we reach the
inescapable conclusion that the fraudulent transfer claims,
which state law provided to Cybergenics' creditors, were
never assets of Cybergenics, and this conclusion is not
altered by the fact that a debtor in possession is
empowered to pursue those fraudulent transfer claims for
the benefit of all creditors. The avoidance power itself,
which we have analogized to the power of a public official
to carry out various responsibilities in a representative
capacity, was likewise not an asset of Cybergenics, just as
this authority would not have been a personal asset of a
trustee, had one been appointed. Thus, we conclude that
the fraudulent transfer claims asserted in the Committee's
complaint were not sold in the 1996 asset sale.

Although it is not a basis for our reasoning or result, we
note that if the fraudulent transfer claim had been an asset
of Cybergenics, it should have been reflected as an asset on
Cybergenics' bankruptcy schedules. It was not so listed.
See Voluntary Petition of Cybergenics, 96-37203 Schedule
B.13 It is also curious that there is no evidence in the record
_________________________________________________________________

12. Section 11 U.S.C. S 1123(b)(3)(B) of the Bankruptcy Code permits a
plan of reorganization to designate a representative to enforce certain
claims, such as avoidance claims, for the estate's benefit. See, e.g.,
Retail
Marketing Co. v. King (In re Mako, Inc.), 

, 1055-1056 (10th
Cir. 1993) (refusing to allow a "stranger to the estate" to bring an
avoidance action without clear evidence of the reservation of the
avoidance power for that party and explaining that postconfirmation
avoidance actions are to be exercised for the benefit of all creditors);
Citicorp Acceptance Co. v. Robison (In re Sweetwater), 

,
1327-1328 (10th Cir. 1989); McFarland v. Leyh (In re Texas General
Petroleum Corp.), 

, 1335 (5th Cir. 1995). The instant appeal
clearly involves no plan of reorganization and there is no suggestion that
the purchaser of Cybergenics' assets is acting as, or wishes to be
appointed to act as, a representative of the estate in any event.

13. It also was not contained on the Statement of Financial Affairs list
of
all suits to which the debtor is or was a party within one year preceding
the bankruptcy filing, although that list includes only those lawsuits
that actually have been filed, not inchoate lawsuits. See Statement of
Financial Affairs at 8.

                               14
that the successful purchaser of Cybergenics' assets ever
took the position that he bought the fraudulent transfer
claims or the power to avoid the transfers provided by the
Bankruptcy Code.14

Our reasoning and conclusion are different from that of
the District Court. In considering the nature of the
fraudulent transfer claims, the District Court focused on
when they arose and whether they were transferrable as a
general matter, but did not consider the determinative
issue of whether they ever belonged to Cybergenics in the
first place. The District Court also concentrated on whether
the fraudulent transfer claims were "property of the estate,"
a term of art under the Bankruptcy Code, see 11 U.S.C.
S 541(a), notwithstanding the fact that the sale order and
sale agreement authorized the sale of all assets of
Cybergenics, not all property of Cybergenics' bankruptcy
estate. "Cybergenics' assets" and "property of the estate"
have different meanings, evidenced in part by the
numerous provisions in the Bankruptcy Code that
distinguish between property of the estate and property of
the debtor, or refer to one but not the other.15 See also In
re Doemling, 

, 957 (W.D. Pa. 1991)
("Obviously, after the commencement of the case, the estate
has an existence that is completely separate from that of
the debtor."); Thomas E. Plank, The Outer Boundaries of the
Bankruptcy Estate, 47 EMORY L. J. 1193, 1215 n. 94 (1998).
_________________________________________________________________

14. Neither Cybergenics nor the purchaser is a party to this appeal.

15. Examples include sections 362(a)(3), (4) & (5) (separately protecting
property of the debtor and property of the estate with the automatic
stay), section 541(a)(7) (providing that property of the estate includes
interests in property acquired by the estate itself following the
commencement of the bankruptcy case), section 543(a) (preventing a
custodian from taking action in the administration of property of the
debtor or property of the estate), and section 552(a) (limiting effect of
security interests in property acquired postpetition by the estate or by
the debtor). Further bolstering this distinction by negative implication,
property of the estate is separately and distinctly defined for purposes
of
chapter 9 municipal bankruptcy cases to mean property of the debtor.
11 U.S.C. S 902(1). See also 

(defining property of the
estate,
for purposes of chapter 13 only, to include the debtor's postpetition
earnings).

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Issues relating to property of the estate are simply not
relevant to the inquiry into whether the fraudulent transfer
claims in the Committee's complaint were assets of
Cybergenics as debtor or debtor in possession.16
Accordingly, we reject the District Court's analysis and
conclusion.

For the foregoing reasons, we will REVERSE the order of
the District Court.

A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________

16. Even if we agreed that an analysis of property of the estate was
necessary to resolve this dispute, our outcome would not change due to
the cause of action at issue here. Subject to a few specifically
enumerated exceptions, the bankruptcy estate contains only the
interests of the debtor in property as of the time of the bankruptcy
filing,
"no more, no less." In re Jones, 

, 927 (7th Cir. 1985)
(citation omitted). As we already have explained, the fraudulent transfer
action belonged to Cybergenics' creditors as of the time of the
bankruptcy filing. It bears emphasis that we focus here on the cause of
action to avoid the transfer, not on any sort of"equitable interest" that
some courts have said may be retained by a debtor in fraudulently-
transferred property. See, e.g., Cullen Center Bank & Trust v. Hensley (In
re Criswell), 

, 1417 (5th Cir. 1997) (citing Mortgage

). That issue is not before us in this case, and
we must take care not to conflate these two distinct questions. In
addition, although at least one Bankruptcy Court-- and the very judge
who presided over Cybergenics' bankruptcy case -- has stated that the
avoidance power provided by the Bankruptcy Code is, itself, property of
the estate, see In re Becker, 

, 116 (Bankr. D. N.J. 1992),
this is hardly a universally accepted view. See, e.g., In re Saunders, 

, 305 (Bankr. N.D. Fla. 1989); 5 COLLIER ON BANKRUPTCY P 541.14
n. 1 (Lawrence P. King, ed., 1999) (stating that avoiding powers are not
property of the estate, but, rather, statutorily created powers to recover
property).

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