Compuadd Corp. v. Texas Instruments Inc. , 137 F.3d 880 ( 1998 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 97-50368
In Re: CompuAdd Corporation, Debtor,
COMPUADD CORPORATION,
Appellee,
VERSUS
TEXAS INSTRUMENTS INC.; LEXMARK INTERNATIONAL, INC.; HART
GRAPHICS, INC.; DIAMOND FLOWER ELECTRIC INSTRUMENT COMPANY, LTD.,
Appellants.
Appeal from the United States District Court
For the Western District of Texas
April 8, 1998
Before REYNALDO G. GARZA, DUHÉ, and STEWART, Circuit Judges.
DUHÉ, Circuit Judge:
The Defendants appeal the district court’s remand of a
preferential avoidance action. That court determined that the two-
year statute of limitations in 11 U.S.C. §546(a)(1) governing
trustees does not apply to such action brought by a debtor-in-
possession. For reasons that follow, we reverse the district
court’s decision and affirm the Bankruptcy Court’s dismissals on
statutory limitations grounds.
I.
CompuAdd Corporation (“CompuAdd”) filed a Chapter 11
bankruptcy petition June 22, 1993. Because no trustee was
appointed, it became the debtor-in-possession (“DIP”) at that time.
Over two years later, CompuAdd sought to recover payments it had
made earlier to several creditors, claiming that they were
preferential payments under 11 U.S.C. § 547(b).1 The Bankruptcy
Court granted summary judgment to all defendants on the ground that
the preference actions were time barred by the two-year statute of
limitations provision contained in 11 U.S.C. § 546(a)(1).
CompuAdd appealed the bankruptcy court’s decisions to the
district court, which, relying on the plain language of the
statute, decided in CompuAdd’s favor and remanded the preferential
avoidance actions.2 The defendants now appeal, claiming that the
limitations period of §546(a)(1) applies to debtors-in-possession.
II.
We apply the same standards of review to the bankruptcy
court’s findings of fact and conclusions of law as applied by the
district court. Kennard v. Mbank Waco N.A. (In re Kennard) 970
F.2d 1455 (5th Cir. 1992). A bankruptcy court’s findings of fact
are reviewed under the clearly erroneous standard and its
conclusions of law are reviewed de novo. Traina v. Whitney
1
The relevant portion reads as follows:
(b) Except as provided in subsection (c) of this section, the
trustee may avoid any transfer of an interest of the debtor in
property -
(4) made -
(A) on or within 90 days before the date of the filing
of the petition;
11 U.S.C. §547(b)(4)(A).
2
In re CompuAdd Corp., No. A-96-CA-558-SS (W.D.Tex. October
24, 1996).
2
National Bank 109 F.3d 244, 246 (5th Cir. 1997). The issue on
appeal is a purely legal one.
III.
Whether the two-year statute of limitations imposed in 11
U.S.C. §546(a)(1) on transfer avoidance actions by trustees
applies to such actions brought by a debtor-in-possession is an
issue of first impression in this Circuit. Of the Circuits that
have considered the question, four have ruled in the affirmative.
U.S. Brass & Copper Co. v. Caplan (In re Century Brass Products,
Inc.), 22 F. 3d 37 (2d Cir. 1994); Construction Management Servs.,
Inc. v. Manufacturers Hanover Trust Co. (In re Coastal Group,
Inc.), 13 F. 3d 81 (3rd Cir. 1994); Mosier v. Kroger Co. (In re
IRFM, Inc.), 65 F. 3d 778 (9th Cir. 1995) cert. den., 116 S.Ct.
1848 (1996); and Zilkha Energy Co. v. Leighton, 920 F.2d 1520 (10th
Cir. 1990). Two Circuits have held that the limit applies only to
trustees. Maurice Sporting Goods, Inc. v. Maxway Corp. (In re
Maxway Corp.) 27 F.3d 980 (4th Cir. 1994) and Gleischman Sumner Co.
v. King, Weiser, Edelman & Bazar, 69 F.3d 799 (7th Cir. 1995).
Within this circuit, bankruptcy and district courts reviewing the
issue have ruled both ways.3 Compelling textual, legislative
history and public policy arguments support both sides. Although
3
See e.g. In re Hunt, 136 B.R. 437, 447-48 (Bankr. N.D.Tex.
1991)(holding that the two-year limitations period in §546(a)(1)
does not apply to a debtor in possession under any circumstances);
and In re Emergency Networks, Inc., 188 B.R. 227, 233 (N.D.Tex.
1995) (holding that the pre-1994 version of § 546(a)(1) read with
§1107(a) provides that a debtor in possession is subject to a two-
year limitations period - measured from the petition date - for
commencing a preference action.)
3
the district court’s opinion is well-reasoned, we are persuaded
that the same limitations period applies to a DIP and a trustee.4
A.
We begin our construction of the statute with the language
itself. Kelly v. Robinson, 479 U.S. 36, 43 (1986)(internal
citations omitted). The Supreme Court cautions, however, against
an overly literal interpretation of the Bankruptcy Code. “‘[W]e
must not be guided by a single sentence or member of a sentence,
but look to the provisions of the whole law, and to its object and
policy.’” Id., quoting United States v. Heirs of Boisdoré, 8 How.
113, 122, 12 L.Ed. 1009 (1849). The strict language of the
Bankruptcy Code does not control, though the statutory language has
a “plain” meaning, if the application of that language “will
produce a result demonstrably at odds with the intention of its
drafters.” United States v. Ron Pair Enterprises, Inc., 489 U.S.
235, 242 (1989)(citing Griffin v. Oceanic Contractors, Inc., 458
U.S. 564 (571 (1982)).
We examine first the language of the provision in effect when
CompuAdd filed its petition:
An action or proceeding under Section 544,
545, 547, 548, or 553 of this title may not be
commenced after the earlier of --
(1) two years after the appointment of a
trustee under §702, 1104, 1163, 1302, or
1202 of this title; or
(2) the time the case is closed or dismissed.
4
We acknowledge that our decision here has limited impact
because the Bankruptcy Reform Act of 1994 has legislatively settled
this issue. See text IIIB infra.
4
11 U.S.C. §546(a)(1).
Clearly this section places a time restriction upon certain
appointed trustees and does not mention DIPs. Should we rely upon
the statutory interpretative doctrine of inclusio unius est
exclusio alterius, we would be forced to agree that §546(a)(1) does
not apply to anyone other than the enumerated trustees.
Considering only the plain language, we would decide that
CompuAdd’s preference avoidance action was timely filed: CompuAdd
is not one of the listed appointed trustees and it filed the
action before the close or dismissal of the case.
Heeding the advice of the Supreme Court to look to the
provisions of the whole law, we conclude, however, that the
omission of DIPs cannot be dispositive. In re Century Brass, 22
F.3d at 39. We note that the preference avoidance provision alone
does not expressly empower DIPs to bring preference avoidance
actions. Rather it affords the trustee an action to avoid “any
transfer of an interest of the debtor in property” made under
certain conditions that constitute an unlawful transfer within
prescribed time limits. 11 U.S.C. §547. Authorization for DIPs to
bring an avoidance action is provided in §1107, which states, in
pertinent part:
Subject to any limitations on a trustee
serving in a case under this chapter ..., a
debtor in possession shall have all the
rights, other than the right to compensation
under section 330 of this title, and powers,
and shall perform all the functions and duties
... of a trustee serving in a case under this
chapter.
5
11 U.S.C. §1107(a). That language plainly allows DIPs to exercise
the same power trustees have to bring preference avoidance actions.
The Code plainly imposes upon DIPs who exercise the powers of
trustees “any” restrictions that regulate trustees. Although
CompuAdd argues that the limitations referred to in §1107(a) are
restrictions solely upon the powers granted trustees, we reject
this argument.5 We agree with other circuits that have construed
this particular provision that “limitations” encompasses any
restrictions that the Bankruptcy Code imposes on trustees,
including the limitations period applicable to a trustee in an
avoidance action. See In re Century Brass, 22 F.3d at 39 and In re
Coastal Group Inc., 13 F.3d at 84.
We reach this determination by relying upon the ordinary
meaning of “limitation.” Webster’s definitions of “limitations”
include “statute of limitations”...“a time assigned for something;
specif: a certain period limited by statute after which actions,
suits or prosecutions cannot be brought in the courts.” Webster’s
Third New International Dictionary 1312 (3d ed. 1981).
Additionally, Black’s defines “limitation” as “a certain time
allowed by a statute for bringing litigation.” Black’s Law
Dictionary 835 (5th ed. 1991). We see no reason to exclude
“statute of limitations” from the meaning of “limitations” in the
5
But see Gleischman, 69 F.3d at 801(holding that §546(a)(1)
does not purport to define the scope of the trustee’s powers but
rather simply designates different time periods for the exercise of
the power to avoid preferential transfers).
6
context of §1107(a)6 and we apply its common usage.
In determining that DIPs are subject to the two-year
limitation on preference avoidance actions, we necessarily must
establish the point from which this period is measured. Although
CompuAdd argues that because a DIP is not appointed it cannot be
treated as a trustee for whom the limitations period runs from the
time of “appointment,” we reject this reasoning. Because §1107(a)
gives a DIP powers exercised by a trustee (see text supra), we
conclude that the limitations period for DIPs begins when the
debtor files its petition and becomes a DIP under §1107. We find
persuasive the argument that the “appointment of a trustee” in
§546(a)(1) is the equivalent to the filing of a petition in debtor-
in-possession cases. In re Century Brass Products, Inc., 22 F.3d
at 40. See also Zilkha, 920 F.2d at 1524 and In re IFRM, Inc., 65
F.3d at 780-81. The bankruptcy petition filing is, in essence, an
appointment by law for the DIP and initiates the powers and duties
it enjoys in that position. Logically, the filing constitutes the
onset of the limitations period within which a power such as a
preference avoidance action must be exercised. Thus, because the
Bankruptcy Code affords DIPs the powers enjoyed by trustees,
including the ability to bring transfer avoidance actions, and
expressly imposes upon DIPs the limitations that restrict trustees,
we find the preference avoidance actions brought by CompuAdd time
barred.
B.
6
See text IIIB, infra.
7
In statutory construction not only do we consider the whole
law, even when the language is plain, but we also consider whether
the plain language contravenes the drafter’s intent. Ron Pair
Enterprises, 489 U.S. at 242. We find further support for our
conclusion that the §546(a)(1) two-year limitation period applies
to DIPs in the legislative history of the previously discussed
provisions. The first comes from legislative discussions on the
scope of §1107(a). A Senate Report noted that
[t]his section places a debtor in possession
in the shoes of a trustee in every way. The
debtor is given the rights and powers of a
chapter 11 trustee. He is required to perform
the functions and duties of a chapter 11
trustee (except the investigative duties). He
is also subject to any limitations on a
chapter 11 trustee.
S. Rep. No. 95-989, 95th Cong., 2d Sess. 116 (1978) (emphasis
added), reprinted in 1978 U.S.C.C.A.N. 5787, 5902. These comments
indicate to us that the language in §1107(a) is all encompassing.
We agree with the Century Brass court that Congress has given us no
basis for carving out of this blanket provision an exception for
the limitations period imposed by §546(a)(1). In re Century Brass
Products Co., 22 F.3d at 39. We do not find from these comments
any indication that Congress intended to depart from the
provision’s precise language and remove DIPs from the statute of
limitations restricting actions by trustees.
A second source of support for our interpretation of the
statute in effect at the time of the preference avoidance actions
comes from the changes and comments Congress made to §546(a)(1) in
8
the Bankruptcy Reform Act of 1994.7 Congress rewrote the statute
so that preference actions must begin within two years of the order
for relief or one year after the appointment of a trustee if that
trustee is appointed within the two-year period.
This current version indicates Congress’ present intent to
apply equally the two-year limitations period to all given the
power to bring preference avoidance actions. By creating a
separate period for trustees whose duties do not begin with the
filing of the order for relief, Congress does not limit only
appointed trustees to the two-year period.
The reasons for these changes, found in the Comment to the
revised provision, reflect Congress’ original intent underlying
§546(a)(1). We have observed that “[a]lthough a committee report
written with regard to a subsequent enactment is not legislative
history with regard to a previously enacted statute, it is entitled
to some consideration as a secondarily authoritative expression of
expert opinion.” Sykes v. Columbus Greenville Ry., 117 F.3d 287,
7
Section 546(a)(1) now provides:
(a) An action or proceeding under section
544, 545, 547, 548, or 553 of this title may
not be commenced 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, 1101, 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)(1) (West Supp. 1997).
9
293, 294 (5th Cir. 1997) (internal citation omitted). One purpose
for the amendment was to “clarify” §546(a)(1) by setting the entry
of the order of relief as the starting point for the two-year
statute of limitations.8 Congress then specifically acknowledged
the split of authority as courts struggled to interpret §546(a)(1)
in commenting that the purpose of a statute of limitations is to
define the period of time that a party is at risk of suit.9 This
legislative history evidences that the Bankruptcy Reform Act sought
to resolve the conflict in the cases and create uniformity in the
applicability in Chapter 11 cases of the two year statute of
limitations for preference avoidance actions.
By amending the statute, Congress has indicated that the
appellate courts that applied the two-year statute of limitations
to DIPs as well as to trustees had correctly decided. In light of
these comments, that the amendment was intended to “clarify” and
“to resolve” the conflicting opinions, we conclude that applying
the two-year limitations period to a DIP best effectuates the will
of Congress in the pre-amendment version of §546(a)(1).
C.
If we read §546(a)(1) literally, DIPs could bring preference
avoidance actions until close or dismissal of the case. Given that
many bankruptcies linger for over a decade, creditors who may have
received preferential payments could be vulnerable to suit long
8
H.R. Rep. No. 103-835, §217, 103rd Cong. 2d Sess. (1994),
reprinted in U.S.C.C.A.N. 3340, 3358.
9
Id.
10
after they have closed their books on their debtor’s account. We
can discern no sound reason for exposing creditors for a
conceivably lengthy period to keeping their financial records open
and, in effect, losing the use of the payment amount until the case
is closed or dismissed.
We understand that an argument can be made that DIPS, unlike
trustees, are not likely to begin preference avoidance action,
preferring instead to preserve relationships with their creditors,
and are thus at a disadvantage when the two-year period expires.
We need not characterize DIPs as the functional equivalent of
trustees to reach our decision today. Cf. Zilkha, 920 F.2d at
1524. We note that nothing prevents DIPs from including a longer
time limit in which to bring these actions in their Chapter 11
Reorganization Plan. As the court stated in Softwaire Centre, DIPs
have “two years to negotiate before filing suit, and ...nothing
prevents further negotiations leading to a settlement after suit is
filed.” Upgrade Corp. v. Government Tech. Servs., Inc. (In re
Softwaire Centre Int’l., Inc.), 994 F.2d 682, 684 (9th Cir.
1993)(per curiam). Restricting DIPs to the two-year period will
not deter them in their duties.
The facts in this case do not mirror those in Gleischman, 69
F.3d at 800-801, where the party seeking a preference avoidance
action was not a “trustee” within the meaning of the Bankruptcy
Code. That action was brought pursuant to an amended plan, to
which creditors had failed to object, that allowed a longer period
in which to bring avoidance actions. Nor is this a situation in
11
which a DIP first controlled the reorganization for two years and
then an official committee of unsecured creditors took over and
sought to bring a preference avoidance action. In re Maxway Corp.,
27 F.3d at 982. Rather, we are faced here with a DIP that assumed
its duties when it filed an order of relief, did not seek an
extended period from its creditors in which to bring preference
avoidance actions, and then filed these four suits after the two-
year statute of limitations had expired. We see no reason that
CompuAdd should not be bound by the two-year statute of limitations
restricting preference avoidance actions.
IV
After a careful review of the statutory language, legislative
history, and public policy considerations, we hold that CompuAdd’s
preference action was not brought within the applicable two-year
limitations period. Although there are solid arguments for a
different reading of §546 (a)(1), we find a holistic reading of
the Bankruptcy Code more persuasive. We, therefore, REVERSE the
judgment of the district court, uphold the decision of the
bankruptcy court, and REMAND to that court for proper disposition.
12