United States Bankruptcy Appellate Panel
                                FOR THE EIGHTH CIRCUIT




                                     No. 00-6055 WA


In re:                                        *
                                              *
Ronald Bodenstein and                         *
Barbara Bodenstein,                           *
                                              *
         Debtors.                             *
                                              *
John T. Lee, Trustee,                         *          Appeal from the United States
                                              *          Bankruptcy Court for the
         Plaintiff-Appellant,                 *          Western District of Arkansas
                                              *
                 v.                           *
                                              *
National Home Centers, Inc.,                  *
                                              *
         Defendant-Appellee.                  *



                                 Submitted: August 10, 2000
                                  Filed: September 25, 2000


Before KOGER, Chief Judge, KRESSEL and SCHERMER, Bankruptcy Judges


SCHERMER, Bankruptcy Judge
        Trustee John T. Lee (“Chapter 7 Trustee”) appeals the bankruptcy court1 order granting summary
judgment in favor of Defendant National Home Centers, Inc. (“Defendant”) in connection with the Chapter
7 Trustee’s avoidance action. In his complaint, the Chapter 7 Trustee seeks to avoid as preferential
pursuant to 11 U.S.C. § 547 certain mortgages granted by debtors Ronald Bodenstein and Barbara
Bodenstein (“Debtors”) to the Defendant. The bankruptcy court dismissed the complaint as untimely. We
have jurisdiction over this appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b).
For the reasons set forth below, we affirm.

                                                    ISSUE

        The issue on appeal is whether the Chapter 7 Trustee’s complaint to avoid preferential transfers
to the Defendant is time barred by the statute of limitations set forth in 11 U.S.C. § 546(a) where the
adversary proceeding was initiated more than two years after the commencement of the bankruptcy case,
which was filed under Chapter 13 and later converted to Chapter 7, or whether the statute of limitations
was equitably tolled during the pendency of the Debtors’ Chapter 13 case. We conclude that the statute
of limitations was not equitably tolled during the pendency of the Debtors’ Chapter 13 case and the
adversary proceeding is time barred by 11 U.S.C. § 546(a).

                                              BACKGROUND

        On November 21, 1996, the Debtors filed a voluntary petition for relief under Chapter 13 of Title
11 of the United States Code (the “Bankruptcy Code”) in the Western District of Arkansas. Shortly before
filing their bankruptcy petition, the Debtors executed several mortgages in favor of the Defendant
encumbering various parcels of real estate.

         In the Statement of Financial Affairs filed by the Debtors in connection with their Chapter 13
petition, in response to the request to disclose all payments aggregating more than $600 to any creditor
made within ninety days immediately preceding the filing of the bankruptcy petition, the Debtors inserted
the following language: “Numerous payments fitting this category have been made, and due to their volume
they are not available at filing[.] As Debtor intends to pay all creditors in full, it is expected that avoidance


        1
       The Honorable Robert F. Fussell, United States Bankruptcy Judge for the Eastern and
Western Districts of Arkansas.

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of preferences will not be an issue in this case.” In response to a request to disclose property repossessed,
foreclosed, transferred in lieu of foreclosure, or returned within one year immediately preceding the
commencement of the case, the Debtors disclosed that “NHC . . . ha[s] picked up certain property and
ha[s] reduced [its] debt by that amount” and that “Other returns have been made to NHC and are simply
too numerous to prepare before filing as Debtor has done $400,000 in business with them over the last
year.” In response to a request to disclose all assignments of property for the benefit of creditors within
120 days preceding the bankruptcy filing, the Debtors disclosed that “National Home Center has been
assigned $200,000 in mortgages on a debt of 190,000, which was to have satisfied their claim” and
identified the terms of the assignment as “to be paid upon sale of houses.”

        David D. Coop served as trustee in the Debtor’s Chapter 13 case. As a result of his prior
appointment as standing Chapter 13 Trustee in the Eastern and Western Districts of Arkansas, Mr. Coop’s
(hereinafter “Chapter 13 Trustee”) appointment as Chapter 13 Trustee in the Debtors’ case became
effective on November 21, 1996, the date the Debtors’ Chapter 13 petition was filed.

         The Debtors owned numerous parcels of real estate. They intended to sell the properties and to
use the sale proceeds to pay their creditors. During the course of the Chapter 13 case, the Debtors filed
a series of plans before ultimately confirming a plan. One version of the Debtors’ plan contained a
provision that all mortgages which may potentially be avoided as preferential shall not be paid at closing
and instead the funds shall be paid to the Chapter 13 Trustee pending an adjudication of the potential
preferences.2 Six later versions of the Debtors’ plan, including the plan which was ultimately confirmed,
each indicate that all creditors will be paid in full and therefore no preference actions can be brought.3


        2
         The Debtors’ plan dated February 18, 1997, contains the following language:

        All mortgages after 8/21/96 that are not for value given at time of mortgage for antecedent
        debts shall not be paid at closing of sale, but shall be paid into the Chapter 13 Trustee pending
        adjudication of preference issues.
        3
          Each of the Debtors’ plans dated July 10, 1997, September 5, 1997, November 24, 1997,
January 30, 1997, March 13, 1997, and March 26, 1997, contains either the following or virtually
identical language:

        NOTE THAT DUE TO 11 U.S.C. 547(b)(5), AND THE FACT THAT THERE ARE
        SUFFICIENT ASSETS TO PAY ALL CREDITORS 100% (WHICH IS AS MUCH OR

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Three later versions of the Debtors’ plan, including the confirmed plan, contain additional language that
expressly states that in the event all creditors are not paid in full by a certain date, all available causes of
action including preference avoidance actions shall be available to any party in interest who has legal
standing to pursue such causes of action.4

         During the course of Chapter 13 case, the Debtors obtained authority from the bankruptcy court
to sell various parcels of real estate. The sale proceeds from the properties encumbered by mortgages in
favor of the Defendant were held by the Chapter 13 Trustee pending a determination as to whether the
Defendant’s mortgages were valid. Ultimately, the bankruptcy court entered three consent judgments
relating to the sales of three separate properties in which the Defendant asserted a security interest. Each
judgment provided for the payment of the Defendant’s mortgage on the respective property from the
respective sale proceeds and contained the following finding of fact: “That pursuant to 11 U.S.C.
§ 547(b)(5)(A), there are no preference issues to litigate because no creditor should receive less than full
payment on allowed claims.”5

       The Chapter 13 Trustee did not file any preference actions against the Defendant. By order dated
August 25, 1998, the Debtors’ case was converted from Chapter 13 of the Bankruptcy Code to Chapter


        MORE THAN THEY WOULD BE PAID IN A CHAPTER 7 CASE), NO PREFERENCES
        CAN BE AVOIDED IN THIS CASE, AND ALL PREPETITION MORTGAGES WILL
        BE HONORED AND PAID AT FUTURE CLOSINGS.


The March 26, 1998, plan was ultimately confirmed.
        4
         The Debtors plans dated January 30, 1998, March 13, 1998, and March 26, 1998, each
contain the following language:

        IN THE EVENT THAT ALL CREDITORS ARE NOT PAID 100% OUT OF THE
        PROPERTIES SOLD BY 4/1/98, ALL AVAILABLE CAUSES OF ACTION UNDER
        THE BANKRUPTCY CODE OR CASE LAW INCLUDING BUT NOT LIMITED TO
        PREFERENCE AVOIDANCE ACTIONS SHALL BE AVAILABLE TO ANY PARTY IN
        INTEREST WHO HAS LEGAL STANDING TO PURSUE SUCH CAUSES OF
        ACTION.
        5
         Each of these orders is dated August 28, 1997, and relates to the distribution of proceeds of
sales previously authorized by the bankruptcy court.

                                                       4
7. The Chapter 7 Trustee was appointed as interim trustee for the Debtors’ converted Chapter 7 case on
August 25, 1998. On February 12, 1999, the Chapter 7 Trustee initiated this adversary proceeding by
filing his complaint to avoid preferential transfers to the Defendant.

                                      STANDARD OF REVIEW

        We review the bankruptcy court’s grant of summary judgment de novo. Clark v. Kellogg Co., 

, 1082 (8th Cir. 2000); First Bank of Marietta v. Hogge, 

, 510 (8th Cir. 1998).
Summary judgment in favor of the Defendant is appropriate where there is no genuine issue of material fact
and the Defendant is entitled to judgment as a matter of law. 

; Hogge, 

at 510.

                                             DISCUSSION

         Pursuant to Section 547 of the Bankruptcy Code, a trustee can avoid certain preferential transfers
made by a debtor to a creditor prior to the filing of the debtor’s bankruptcy petition. Pursuant to Section
546(a) of the Bankruptcy Code, an avoidance action under Section 547 may not be commenced until after
the earlier of
         (1)    the later of –

                (A)     2 years after the entry of the order for relief; or

                (B)     1 year after the appointment or election of the first trustee under section 702,
                        1104, 1163, 1202, or 1302 of this title if such appointment or such election occurs
                        before the expiration of the period specified in subparagraph (A); or

        (2)     the time the case is closed or dismissed.


11 U.S.C. §546(a).

        In order to determine if the Chapter 7 Trustee initiated the adversary proceeding against the
Defendant in a timely manner, we apply the formula set forth in Section 546(a) of the Bankruptcy Code
to the facts at hand. The Debtors filed their petition on November 21, 1996 and the order for relief was

                                                     5
entered that same day. In accordance with Section 547(a)(1)(A), the period of two years after the entry
of the order for relief expired on November 21, 1998. The first trustee in this case, the Chapter 13
Trustee, was appointed on the petition date; therefore the alternate period enumerated in Section
547(a)(1)(B) of one year after the appointment of the first trustee expired on November 21, 1997. The
later of these two dates is November 21, 1998. Accordingly, the time to initiate an avoidance action
pursuant to Section 547 expired on November 21, 1998.

        The Chapter 7 Trustee did not initiate this adversary proceeding against the Defendant until
February 12, 1999, after the limitations period expired. Therefore the Chapter 7 Trustee’s complaint is
time barred.6

         Notwithstanding the foregoing, the Chapter 7 Trustee asserts that the statute of limitations set forth
in Section 546(a) of the Bankruptcy Code was equitably tolled during the pendency of the Debtor’s
Chapter 13 proceeding. Equitable tolling prevents the limitations period of Section 546(a) from expiring
when the trustee, despite the exercise of due diligence, is prevented from asserting a cause of action
because the trustee is unaware of the cause of action as a result of fraud or because of extraordinary
circumstances beyond the trustee’s control which make it impossible to file the action within the limitations
period. Jobin v. Boryla (In re M & L Business Machine Company, Inc.), 

, 591 (10th Cir.
1996); Ernst & Young v. Matsumoto (In re United Insurance Management Inc.), 

, 1385 (9th
Cir. 1994); see also Holmberg v. Ambrecht, 

, 397 (1946)(“This equitable doctrine [of tolling]
is read into every federal statute of limitation.”). The key to when the limitations period begins is the time
when the plaintiff has reasonable notice of the cause of action. One who fails to act diligently cannot evoke
equitable principles to excuse a lack of diligence. Baldwin County Welcome Center v. Brown, 

, 151 (1984); United Insurance 

.

         The bankruptcy court properly concluded that no fraud or other extraordinary circumstances
existed which would cause the statute of limitations to be equitably tolled. Lee v. National Home Centers,
Inc. ( In re Bodenstein), 

, 816-19 (Bankr. W.D. Ark. 2000). The Debtors clearly did not

        6
          The plain language of Section 546(a) makes it clear that the statute of limitations runs from the
date the first trustee is appointed. Any subsequently appointed trustee is subject to the original statute
of limitations and does not receive a new period within which to initiate avoidance actions. McCusky v.
Central Trailer Services, Ltd., 

, 1332 (8th Cir. 1994)(citing Ford v. Union Bank (In re
San Joaquin Roast Beef), 

, 1416 (9th Cir. 1993)).

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conceal the potential preferential transfers to the Defendant. To the contrary, the Debtors disclosed the
transfers in their original statement of financial affairs. The Chapter 13Trustee was thus aware of the
potential causes of action and simply chose not to pursue them. The plan language does not alter this result,
especially where the confirmed plan expressly provided that preference avoidance actions shall be available
to any party in interest in the event all creditors are not paid one hundred percent by April 1, 1998, more
than seven months before the expiration of the statute of limitations period. Furthermore, at the time the
Chapter 7 Trustee was appointed, almost three months remained before the expiration of the statute of
limitations period. He likewise had notice of the potential causes of action before the expiration of the
statute of limitations period and failed to timely act.

        Summary judgment in favor of the Defendant is appropriate where the evidence irrefutably
demonstrates that the Chapter 13 Trustee and then the Chapter 7 Trustee discovered or should have
discovered the cause of action but failed to file a timely complaint. Ernst & Young v. Matsumoto (In re
United Insurance Management Inc.), 

, 1385-86 (9th Cir. 1994). The existence of the
potential preference avoidance actions against the Defendant was clearly disclosed in the Debtors’
statement of financial affairs so both trustees were clearly on notice before the expiration of the limitations
period.

                                              CONCLUSION

        The bankruptcy court properly concluded that the statute of limitations of 11 U.S.C. § 546(a) was
not equitably tolled during the course of the Debtors’ Chapter 13 case. Accordingly the bankruptcy court’s
order granting summary judgment in favor of the Defendant and dismissing the Chapter 7 Trustee’s
complaint as untimely is affirmed.

        A true copy.

                 Attest:

                           CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
                           EIGHTH CIRCUIT




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