Caryn C. Merrifield v. John Benda ( 1997 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
_________
No. 97-6043
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Caryn Merrifield, *
*
Plaintiff - Appellant, *
*
John V. LaBarge, * Appeal from the United
States Bankruptcy
* Court for the Eastern District of
Missouri
Plaintiff, *
*
v. *
*
John Benda, *
*
Defendant - Appellee. *
__________________
Submitted: October 9, 1997
Filed: November 21, 1997
_________________
Before KRESSEL, HILL and DREHER, Bankruptcy Judges.
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KRESSEL, Bankruptcy Judge
The debtor, Caryn Merrifield, appeals an order of the bankruptcy
court1 denying her request to avoid a pre-petition transfer pursuant to
11 U.S.C. § 548. Since we conclude that the debtor lacks standing, we
dismiss her appeal.
1
The Honorable Barry S. Schermer, United States Bankruptcy Judge for the Eastern
District of Missouri.
1
BACKGROUND
The debtor filed a Chapter 13 case on April 9, 1996. On February
10, 1997, she filed a complaint against John Benda, alleging that her
pre-petition transfer to him of a condominium unit was fraudulent in
fact under 11 U.S.C. § 548(a)(1), and was for less than reasonably
equivalent value under § 548(a)(2). The bankruptcy court granted the
motion of John V. LaBarge, the trustee, to join the proceeding as a
plaintiff. At trial, the debtor withdrew the allegation that the
transfer was fraudulent in fact and pursued only her claim that the
transfer was for less than reasonably equivalent value. The bankruptcy
court found that the transfer was for reasonably equivalent value and
entered judgment for the defendant. The debtor has appealed but the
trustee has not. We dismiss the appeal because the debtor lacked
standing to avoid the transfer and therefore lacks standing to pursue
this appeal.
DISCUSSION
Statutory Standing
In this appeal, the debtor invokes 11 U.S.C. § 548 as the basis
for avoiding her pre-petition transfer of a condominium unit. Section
548 of the Bankruptcy Code expressly confers avoidance powers on
trustees. 11 U.S.C. § 548.2 Therefore, we must preliminarily
2
Section 548 provides, in pertinent part:
(a) The trustee may avoid any transfer of an interest of the debtor in property . . . that was
made . . . on or within one year before the date of the filing of the petition, if the debtor
voluntarily or involuntarily--
(2)(A) received less than a reasonably equivalent value in exchange for such
transfer . . . and
(B)(I) was insolvent on the date that such transfer was made . . . or became
insolvent as a result of such transfer. . . .
11 U.S.C. § 548(a)(2)(A) & (B)(I).
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determine whether a debtor enjoys standing to bring an avoidance action
under § 548.
While Chapter 11 and Chapter 12 debtors in possession enjoy the
powers of a trustee,3 with one limited exception, the Bankruptcy Code
contains no provision conferring avoidance powers on debtors. “There is
no specific statutory provision generally authorizing Chapter 13 debtors
to exercise trustees’ avoidance powers.” Hamilton v. Realty Portfolio,
Inc. (In the Matter of Hamilton), 125 F.3d 292 (5th Cir. 1997).4
While we acknowledge that some courts have allowed Chapter 13
debtors to exercise the trustee’s avoidance powers, see Freeman v. Eli
Lilly Fed. Credit Union (In re Freeman), 72 B.R. 850 (Bankr. E.D. Va.
1987); Ottaviano v. Sorokin & Sorokin (Matter of Ottaviano), 68 B.R. 238
(Bankr. D. Conn. 1986); Einoder v. Mount Greenwood Bank (In re Einoder),
55 B.R. 319 (Bankr. N.D. Ill. 1985); In re Boyette, 33 B.R. 10 (Bankr.
N.D. Tex. 1983), we think those cases are inconsistent with the
Bankruptcy Code.
The Eighth Circuit has determined that the statutory language of §
548 expressly confers avoidance powers exclusively on the trustee. See
Nangle v. Lauer (In re Lauer), 98 F.3d 378, 388 (8th Cir. 1996)
3
11 U.S.C. § 1107(a) provides that “a debtor in possession shall have all the rights . . .
and powers, and shall perform all the functions and duties . . . of a trustee. . . .” 11 U.S.C. § 1203
provides that “a debtor in possession shall have all the rights . . . and powers, and shall perform all
the functions and duties . . . of a trustee. . . .”
4
11 U.S.C. § 1303 authorizes debtors to exercise certain powers otherwise reserved for
the trustee. Section 1303 provides that “[s]ubject to any limitations on a trustee under this
chapter, the debtor shall have, exclusive of the trustee, the rights and powers of a trustee under
sections 363(b), 363(d), 363(e), 363(f) and 363(l), of this title.” 11 U.S.C. § 1303. A Chapter 13
debtor who is engaged in business also has some of the trustee’s rights and powers under § 363(l)
and § 364. Notably, section 548 powers are not among the enumerated powers.
3
(“Section 548 by its terms provides that certain transfers by the
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debtor prior to bankruptcy may be voided only by ‘the trustee.’”)
(emphasis added); Saline State Bank v. Mahloch, 834 F.2d 690, 694 (8th
Cir. 1987) (holding that “only the trustee or debtor in possession can
invoke the avoidance powers. . . .”); see also Realty Portfolio, Inc. v.
Hamilton (In re Hamilton), 125 F.3d 292, 296 (5th Cir. 1997) (“There is
no specific statutory provision generally authorizing Chapter 13 debtors
to exercise trustees’ avoidance powers.”); Hansen v. Finn (In re Curry &
Sorenson, Inc.), 57 B.R. 824, 827 (B.A.P. 9th Cir. 1986) (holding that §
548 actions “may only be asserted by a trustee. . . .”). Where Congress has
promulgated specific rules about who can exercise avoidance powers and under what circumstances, it is not
within the province of courts to confer those powers on others.
§ 522(h)
Despite section 548's reservation of avoidance powers solely to
trustees, the Code allows debtors to avoid transfers in limited
circumstances. In re Hamilton, 125 F.3d at 297 (“Congress has
specifically authorized narrow exceptions to the general rule that
Chapter 13 debtors lack standing to exercise the strong-arm powers of
Chapter 13 trustees.”). 11 U.S.C. § 522(h) permits a debtor to avoid a
transfer of the debtor’s property “to the extent that the debtor could
have exempted such property under subsection (g)(1) of this section if
the trustee had avoided such transfer. . . .” 11 U.S.C. § 522(h).
In DeMarah v. United States (In re DeMarah), 62 F.3d 1248 (9th
Cir. 1995), the Ninth Circuit articulated a five-part test to determine
whether a debtor may exercise avoidance powers under § 522(h). Under
the test, a debtor may avoid the transfer if: (1) the debtor’s transfer
of property was involuntary; (2) the debtor did not conceal the
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property; (3) the
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trustee did not attempt to avoid the transfer; (4) the debtor seeks to
exercise an avoidance power enumerated under § 522(h); and (5) the
transferred property could have been exempted if the trustee had avoided
the transfer under the provisions of § 522(g). Id. at 1250.
In this case, the debtor fails to satisfy the first, third and
final DeMarah factors since she voluntarily transferred the condominium
unit, the trustee attempted to avoid the transfer and the debtor would
not have been able to exempt the unit if the transfer were successfully
avoided. Therefore, § 522(h) does not give the debtor standing to avoid
the transfer.
Standing to Appeal
Since the debtor lacked standing to bring the avoidance action,
she also lacks standing to appeal the decision of the bankruptcy court.
In order to have appellate standing, courts require that a party make an
independent showing that he or she is aggrieved by the challenged order.
McGuirl v. White, 86 F.3d 1232, 1234 (D.C.Cir. 1996); Travelers Ins. Co.
v. H. K. Porter Co., Inc., 45 F.3d 737, 741 (3d Cir. 1995); Lopez v.
Behles (In re Am. Ready Mix, Inc.), 14 F.3d 1497, 1500 (10th Cir. 1994),
cert. denied, 115 S. Ct. 77 (1994); In re El San Juan Hotel, 809 F.2d
151, 154 (1st Cir. 1987); Cosmopolitan Aviation Corp. v. New York State
Dep’t of Transp. (In re Cosmopolitan Aviation Corp.), 763 F.2d 507, 513
(2d Cir. 1985). In adopting the “person aggrieved” standard, courts
have substantially followed the limitation on standing established under
section 39(c) of the former Bankruptcy Act.5 In re Am. Ready Mix, Inc.,
14 F.3d at 1500. An aggrieved party is defined as one who is “directly
5
11 U.S.C. § 67(c) (1976) (repealed 1978).
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and adversely affected pecuniarily by the order of the bankruptcy
court.” Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 443
(9th Cir. 1983). Thus, a party is a person aggrieved if an order
“diminishes their property, increases their burdens, or impairs their
rights.” General Motors Acceptance Corp. v. Dykes (In re Dykes), 10
F.3d 184, 187 (3d Cir. 1993); In re Fondiller, 707 F.2d at 442.
In this case, the bankruptcy court judgment had no negative effect
on the debtor’s pecuniary interests, nor did it diminish her property,
increase her burdens or impair her rights. If the transfer were
avoided, Merrifield would gain nothing. Returning the condominium unit
to the estate might increase the amount received by Merrifield’s
creditors, but it would not provide any benefit to her. Therefore, she
is not a person aggrieved for purposes of appealing the order.
CONCLUSION
We conclude that Merrifield did not have standing to pursue the
avoidance action and lacks standing to appeal the bankruptcy court’s
judgment. We therefore dismiss Merrifield’s appeal.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
EIGHTH CIRCUIT.
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