John T. Laney, III, United States Bankruptcy Judge.
Before the Court is the Defendant's Motion to Dismiss under Federal Rule of Civil Procedure 12, made applicable to this proceeding under Federal Rule of Bankruptcy Procedure 7012.
For the reasons stated below, the Court concludes that the Trustee filed this action within the applicable statute of limitations. Therefore, the Defendant's motion is denied. The Court will enter a separate order consistent with this memorandum opinion.
A bankruptcy court, through referral from the district court, has subject matter jurisdiction over all matters (1) "arising under" the Bankruptcy Code, (2) "arising in" a bankruptcy case, and (3) those "related to" a bankruptcy case. 28 U.S.C. § 1334(b). The Eleventh Circuit has previously explained that an action "arising
The question of jurisdiction, however, is separate from the question of whether this Court has the authority to enter a final order. See Stern v. Marshall, 561 U.S. 1058, 131 S.Ct. 63, 177 L.Ed.2d 1152 (2010). Here, the Defendant has not consented to this Court entering a final order. (Def.'s Answer; AP Doc. No. 7, ¶ 3). Moreover, the Defendant demands a jury trial and does not consent to this Court conducting that trial, as are its rights in a fraudulent transfer action.
The Debtors in the case, Kenneth and Janice Brownlee, originally filed the underlying bankruptcy case on March 21, 2017 as a Chapter 11 proceeding. (Pet.; Bk. Doc. No. 1). The Court converted the case to a Chapter 7 proceeding on March 7, 2018. (Order Converting Case; Bk. Doc. No. 125). Upon conversion, the United States Trustee appointed the Trustee as the interim trustee. The Trustee conducted the § 341 meeting on April 10, 2018 without creditors requesting an election. (Trustee's Docket Entry; Bk. Doc. No. 145).
The Trustee filed this action on April 9, 2019, one day less than a year after conducting the § 341 meeting. The complaint alleges that the Debtors made pre-petition payments to the Defendant—which is also the firm representing the Debtors in the bankruptcy case—on account of an antecedent debt. (Compl.; AP Doc. No. 1, ¶ 5). The complaint seeks to avoid the payments and recover the funds for the Chapter 7 estate on the theories that the payments were preferences under § 547 and/or were constructively fraudulent under § 548. (Id.; Counts I & II).
This Court must determine when the § 546(a) statute of limitations began in this case. That subsection provides:
11 U.S.C. § 546.
To synthesize the subsection, a two year limitation applies unless "the first trustee" is "appoint[ed] or elect[ed]" under one of the subsections enumerated in § 546(a)(1)(B) more than a year (but before two-years) from the petition date. If elected or appointed within this time, the trustee is entitled to a one-year extension from his appointment. In the instant case, there is no dispute that the Trustee was entitled to an additional year to file his avoidance action.
The issue here is the date from which the extension period began under § 546(a). This is a question of statutory interpretation. A court's analysis should begin with the plain language of the statute. U.S. v. Ron Pair Enters. Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). Only when the statute is susceptible to more than one reasonable interpretation can a court look beyond the statute to assist its interpretation. Villarreal v. R.J. Reynolds Tobacco Co., 839 F.3d 958, 970 (11th Cir. 2016). Where the language is unambiguous and the statutory scheme is coherent and consistent, judicial inquiry ends and courts must interpret the statute according to its plain meaning. McCarthan v. Dir. of Goodwill Indus.-Suncoast, 851 F.3d 1076, 1123 (11th Cir. 2017).
Applying the relevant language in § 546(a) to this case, the Court must determine when "the first trustee" was appointed under § 702. That is, did the statute of limitations begin to run when the trustee was appointed as the interim trustee (which is governed by § 701)? Or, did it begin after the creditors declined to elect a trustee at the § 341 meeting (governed by § 702(d))? On one hand, § 546(a) clearly references appointment or election under § 702 not § 701. Seemingly then, the later interpretation must be correct. But the Defendant makes a reasoned argument that § 546(a)—although referencing § 702 and not § 701—implicitly refers to the appointment of the interim trustee, considering other Code provisions and the Code's scheme of Chapter 7 administration.
Reading § 701 and § 702 together, the Defendant argues that § 702 does not appoint a new trustee, but rather acknowledges the interim trustee's continuing obligations after conducting the § 341 meeting. As the Defendant notes, the word "appointment" is not used in § 702. Subsection 702(d), the only subsection addressing the trustee's status if no election occurs, states "[i]f a trustee is not elected under this section, then the interim trustee shall serve as trustee in the case." 11 U.S.C. § 702(d). Although the word "appointment" is not used in § 702, the Defendant emphasizes that it is used in § 701. 11 U.S.C. § 701(a)(1) ("Promptly after the order for relief under this chapter, the United States trustee shall appoint one disinterested person that is a member of the panel of private trustees established under section 586(a)(1)....") (emphasis added).
Therefore, when creditors decline or are unable to elect a trustee, the Defendant argues that § 546(a)'s reference to appointment under § 702 must refer to the trustee's
Notably, nearly all of the cases addressing this issue have rejected the result for which the Defendant argues. Many of these cases note that applying the appointment of the interim trustee under § 701 as the date from which the statute of limitations runs impermissibly reads the reference to § 702 out of § 546(a). E.g., Fogel v. Shabat (In re Draiman), 714 F.3d 462, 465 (7th Cir. 2013); Singer v. Kimberly-Clark Corp. (In re Am. Pad & Paper Co.), 478 F.3d 546, 552 (3rd Cir. 2007); Georgia-Pacific Corp. v. Burtch (In re Allied Digital Techs. Corp., 341 B.R. 171, 175 (D. Del. 2006); In re Crowe Rope Industries, LLC, 311 B.R. 313, 315 (Bankr. D. Me. 2004); In re Young, 97 B.R. 679, 680 (Bankr. N.D. Ga. 1988); In re O'Neill, 94 B.R. 739, 741 (Bankr. M.D. Fla. 1988). While there is no controlling law governing the Court on this specific issue, the Eleventh Circuit has often stated that, where Congress has specifically "enumerated a list or series of related items" (such as the appointment statutes listed in § 546(a)(1)(B)), courts should interpret the statute to "exclude similar items not specifically included in the list" (such as appointment under § 701). Christian Coalition of Fla., Inc. v. U.S., 662 F.3d 1182, 1193 (11th Cir. 2011).
The Defendant responds that it does not ignore the reference to § 702. Rather under the Defendant's interpretation, § 702(d) acknowledges the interim trustee's continued appointment as the case trustee and adopts the appointment under § 701. The Defendant's interpretation rests on two arguments: (1) that § 702(d) does not independently make an appointment and (2) that the interim trustee continues the § 701 appointment after the § 341 meeting.
The Court does not believe that these arguments have statutory support. To begin with, the language of § 702(d) clearly makes an appointment. The subsection states that the interim trustee "shall serve as trustee in the case." 11 U.S.C. § 702(d) (emphasis added). The word "shall" in a statute is ordinarily instructive and indicative of a command. In re Tennyson, 611 F.3d 873, 877 (11th Cir. 2010) ("The use of the word `shall' `normally creates an obligation impervious to judicial discretion.'") (quoting Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 35, 118 S.Ct. 956, 140 L.Ed.2d 62 (1998)). With that in mind, a court should read § 546(a) as instructing the interim trustee to "serve" in a particular capacity, i.e. as the case trustee after the § 341 meeting.
That § 702(d) does not use the word "appoint" or "appointment" does not weaken the Court's determination that the subsection nevertheless makes an appointment. As other courts have noted, the term should be interpreted broadly to include
Neither does the fact that § 702(d) does not designate an entity to appoint the interim trustee as the case trustee undermine the Court's interpretation. The appointment under § 702(d) is statutory. In re Allied Digital Techs. Corp., 341 B.R. at 175 ("Section 702 provides a mechanism both for the election of a permanent trustee and, failing that, for the appointment of one by operation of law.")
Secondly, the interim trustee does not continue his original appointment when creditors decline to elect a trustee, as the Defendant argues. Rather, the Code creates a clear point of transition upon conducting the § 341 meeting. At that point, the interim trustee is terminated and the permanent trustee assumes his obligations. Although it is true that an interim trustee has all the powers and obligations of a permanent case trustee (see 11 U.S.C. § 701(c)), the interim trustee's role has a defining limitation: the duration of his service is limited. The title of the position, the "interim trustee," is indicative of this fact. The word "interim" means occurring within "an intervening time." Interim,
Moreover, the Code expressly limits the time in which the interim trustee serves the estate. Section 701(b) states "[t]he service of an interim trustee under this section terminates when a trustee elected or designated under section 702 of this title to serve as trustee in the case qualifies under section 322 of this title." (emphasis added). As § 702 only provides for election (under § 702(c)) or appointment (under § 702(d)), § 701(b)'s reference to "designa[tion]" must refer to § 702(d). Therefore, the Defendant is incorrect in arguing that the Code does not terminate the service of the interim trustee. Subsection 702(d) clearly does so.
The Court is aware of only one court that has adopted the Defendant's position.
As the dissent in Parmetex explained and other courts subsequently noted, the Parmetex majority over-extended the holdings in San Joaquin Roast Beef and Softwaire Centre. First, San Joaquin Roast Beef did not hold that the first appointment of any trustee has implications on the § 546(a) statute of limitations. That case concerned appointments of a Chapter 11 trustee under § 1104 and, subsequently, of a Chapter 7 trustee under § 702. San Joaquin Roast Beef, 7 F.3d at 1414. Both of the appointments involved in that case are listed in § 546(a)(1)(B) as those that trigger the one-year extension of the statute of limitations. The issue in San Joaquin Roast Beef was whether the Chapter 7 trustee, the second trustee appointed, was entitled to an additional year to file his avoidance action. The court applied a "plain reading" of the statute and held that the first of the appointments listed in § 546(a) governs the statute of limitations. Id. at 1416. San Joaquin Roast Beef, however, does not address whether appointment under § 701 has any implications on § 546(a). Parmetex, Inc., 199 F.3d at 1036 (McKeown, J., dissenting); see also Mender v. Rivera Siaca (In re Glamourette/OG, Inc.), 01-13025-GAC, 2006 WL 3898322, *1-2, 2006 Bankr. LEXIS 3819, *4-5 (Bankr. D.P.R. Jan. 13 2006) (finding the reasoning in Parmetex unpersuasive given the volume of contrary authority).
And neither does Softwaire Centre support the proposition for which the Parmetex majority cites it, that the § 546(a) statute of limitations begins to run when the "functional equivalent" of a trustee is appointed. In Softwaire Centre, the Ninth Circuit was tasked with determining whether the § 546(a) statute of limitations applies to a debtor in possession. The court held that it did, concluding that § 1107(a) grants debtors in possession the powers of a trustee subject, however, to the corresponding limitations, including the § 546(a) statute of limitations. Softwaire Ctr., 994 F.2d at 683 ("[Section] 546(a) must be read in conjunction with § 1107(a).") Again, as the Parmetex Dissent highlights, this holding "is neither controlling nor instructive" to the issue of whether § 701 appointment implicates § 546(a). Parmetex, Inc., 199 F.3d at 1036 (McKeown, J., dissenting). Further, it ignores § 546(a)'s explicit reference to appointment under § 702. Id. ("Although the [Parmetex] majority attempts to extrapolate Sofwaire Centre's `functional equivalency" approach to this Chapter 7 case, analogy is no substitute for the clear statutory language."); see also, In re Am. Pad & Paper Co., 478 F.3d at 553 ("[T]he similarities in function between section 701 and section 702 trustees do not warrant interposing `section 701' where it does not appear in [section 546(a)].")
In this case, the Trustee was appointed between the first and second year after the petition date, entitling him to an additional year extension to file any avoidance actions in the case. That extension began upon concluding the § 341 meeting, when the Trustee's appointment as the interim trustee was terminated and he was appointed the permanent case trustee as
This case is in such a procedural posture. The Trustee has pled adequate facts to present the legal issue of whether the Trustee's action is time-barred. (Trustee's Compl., A.P. Doc No. 1, ¶ 4).