Daniel W. Allen, Sr. v.

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______
No. 13-3543
______
In re: DANIEL W. ALLEN, SR.,
Debtor
ADVANCED TELECOMMUNICATION NETWORK,
INC.,
Appellant
______
On Appeal from the United States District Court
for the District of New Jersey
(D. N.J. 1-12-cv-03793)
District Judge: Honorable Renee M. Bumb
______
Argued on April, 7, 2014
Before: FISHER, SCIRICA and COWEN, Circuit Judges.
(Opinion Filed: September 26, 2014)
Jason H. Baruch, Esq. ARGUED
Trenam Kemker
101 East Kennedy Boulevard
Suite 2700
Tampa, FL 33601-0000
Michael A. Katz, Esq.
Pfaltz & Woller
382 Springfield Avenue
The Bassett Building
Summit, NJ 07901
Edward L. Paul, Esq.
Sklar & Paul
701 White Horse Road
Adams Place, Suite 5
Voorhees, NJ 08043
Counsel for Appellant
Daniel W. Allen, Sr. ARGUED
18 East Aberdeen Road
Ocean City, NJ 08226
Pro Se Appellee
2
______
OPINION OF THE COURT
______
FISHER, Circuit Judge.
Although the facts of this case include details of
money transfers and offshore asset protection trusts in sunny
South Pacific locales, its ultimate resolution involves nothing
more exotic than the interpretation of the Bankruptcy Code.
We consider the Code’s provisions defining the property of a
bankruptcy estate and determine what is required for a trustee
to “recover” that property for the benefit of the estate, as
provided in 11 U.S.C. § 550. The property at issue here is $6
million that was fraudulently transferred by Appellant
Advanced Telecommunication Network (“ATN”) to two of
its former owners, including Appellee Daniel W. Allen, Sr.
(“Allen”), as part of a shareholder litigation settlement in
1999. ATN avoided that transfer and obtained a recovery
order in its separate bankruptcy proceedings in the United
States Bankruptcy Court for the Middle District of Florida
(the “Florida Bankruptcy Court”). Allen subsequently filed
the present bankruptcy case in the District of New Jersey, and
argues that the funds were never recovered and are therefore
property of his estate subject to the Code’s automatic stay
provision. We conclude that the District Court applied too
narrow a definition of “recover” and hold that where a debtor
(like ATN) avoids a fraudulent transfer and obtains a
recovery order, it has sufficiently “recovered” those funds
such that they are a part of that debtor’s estate under the
3
Code. Accordingly, we will reverse and remand this case to
the District Court.
I.
In 1989, Allen and Gary Carpenter (“Carpenter”)
founded ATN, a company engaged in reselling long distance
telephone service. Allen and Carpenter each owned 50% of
the voting stock in ATN, while Allen’s brother David Allen
and Carpenter’s father Robert Carpenter owned the remaining
non-voting stock. Allen and Carpenter had a falling out in the
spring of 1996, and Carpenter ultimately terminated Allen’s
employment with ATN on August 14, 1996.
A. The Allen-Carpenter shareholder litigation
Allen sued Carpenter and ATN in New Jersey state
court in April 1996, asserting several claims pertaining to the
management of ATN. During trial, Daniel and David Allen
(the “Allens”) and Carpenter (along with their respective
attorneys) entered into a handwritten settlement agreement
that relieved Carpenter of any liability to the Allens in
exchange for, inter alia, a $1.25 million payment to the
Allens’ attorneys, a $6.25 million payment to the Allens in
two installments ($250,000 and $6 million), and a stipulation
of dismissal with prejudice upon execution. A formal written
agreement outlining substantially the same terms was signed
on January 12, 1999, and the $6 million transfer (at issue in
the present case) was made on June 1, 1999. 1
1
In 1995, ATN also became involved in a contract
dispute with a competitor, WATS/800, Inc. We need not
discuss that litigation at length, except to note that Carpenter
relinquished control of ATN to two companies controlled by
WATS president Damian Freeman as part of settling that
case. Freeman remains in control of ATN.
4
B. The ATN bankruptcy
On January 10, 2003, ATN filed for Chapter 11
bankruptcy protection in the Florida Bankruptcy Court. ATN
also filed an adversary proceeding against the Allens on April
28, 2003, seeking, inter alia, to avoid the $6 million transfer
pursuant to §§ 544 and 550 2 of the Bankruptcy Code, as well
as the New Jersey Uniform Fraudulent Transfer Act (the
“New Jersey UFTA”), N.J. Stat. Ann. § 25:2-20 et seq. The
adversary complaint alleged that the $6 million payment to
the Allens on June 1, 1999, was fraudulent insofar as ATN
did not receive reasonably equivalent value in exchange.
After commencing the adversary proceeding in the
Florida Bankruptcy Court, ATN sought a preliminary
injunction to freeze the funds at issue. The Allens moved for
a continuance, which the court granted. In the interim, the
Allens took the following actions: “Daniel Allen transferred
the the [sic] Assets under his control to a Cook Islands self-
settled asset protection trust known as the Shingle Oak
Family Trust . . . and . . . David Allen . . . transferred
approximately $150,000 to a Cook Islands self settled [sic]
asset protection trust known as the Southern Breeze Trust.”
App. at 124. The Florida Bankruptcy Court found that, as a
result of these actions, “[g]ood cause exists to believe that
2
Section 544 of the Bankruptcy Code allows a trustee
to “avoid any transfer of an interest of the debtor in property .
. . that is voidable under applicable law by a creditor holding
an unsecured claim . . . .” 11 U.S.C. § 544(b)(1). Section
550 provides: “to the extent that a transfer is avoided under
section 544 . . . the trustee may recover, for the benefit of the
estate, the property transferred, or, if the court so orders, the
value of such property, from . . . the initial transferee of such
transfer.” 11 U.S.C. § 550(a).
5
Defendants acted in bad faith in twice requesting a
continuance of the Preliminary Injunction Hearing,” thus
allowing them time to transfer the money to the Cook Islands
trusts. App. at 129. The court granted preliminary injunctive
relief and ordered that the funds be repatriated. When the
Allens failed to comply with the court order, the Florida
Bankruptcy Court twice held Daniel Allen in contempt of
court.
When the case proceeded to trial, the Allens prevailed.
The Florida Bankruptcy Court found that ATN’s claim was
barred by the applicable statute of limitations and that its
fraudulent transfer claims failed on the merits under the New
Jersey UFTA. The Court of Appeals for the Eleventh Circuit
reversed. Advanced Telecomm. Network, Inc. v. Allen (In re
Advanced Telecomm. Network, Inc.), 490 F.3d 1325 (11th
Cir. 2007). The Eleventh Circuit held that ATN had proved a
fraudulent transfer under the New Jersey UFTA insofar as:
(1) it was insolvent at the time of the $6 million transfer; and
(2) it received no reasonably equivalent value for the transfer.
Id. at 1332-38. On remand, the Florida Bankruptcy Court
avoided the transfers to the Allens and entered a $6 million
judgment on January 15, 2010, in favor of ATN on its
fraudulent transfer claims. ATN then sought to collect on its
judgment pursuant to Federal Rule of Bankruptcy Procedure
7069. In response, the Florida Bankruptcy Court entered an
order directing Daniel Allen: “(i) to repatriate all monies
currently held in his Shingle Oak Trust to counsel for ATN
within 30 days of the entry of [the] order, (ii) to provide an
accounting of all monies deposited in and transferred from the
Shingle Oak Trust within 60 days of the entry of [the] order,
and (iii) to otherwise immediately freeze any other use or
transfer of any monies in the Shingle Oak Trust.” App. at
208. When Allen failed to comply with the second
6
repatriation order, ATN brought a motion to hold Allen in
contempt on August 30, 2011. No action was taken on that
motion because on September 21, 2011, Allen filed a Chapter
7 bankruptcy petition in the Bankruptcy Court for the District
of New Jersey (the “Bankruptcy Court”).
C. Proceedings in the present case
ATN filed the instant adversary proceeding in the
Bankruptcy Court shortly after Allen filed his Chapter 7
petition. ATN sought an order “determining that the
ATN/Allen Litigation [in the Florida Bankruptcy Court] was
not stayed pursuant to [Allen’s] bankruptcy filing because
ATN was seeking to collect its own estate assets and not
those of [Allen];” or, in the alternative, “granting ATN relief
from the automatic stay to continue with the ATN/Allen
Litigation and collection of the Judgment and waiving the 14
day stay of effectiveness of order.” App. at 288. ATN
maintains that the funds at issue should not be subject to the
automatic stay 3 in Allen’s bankruptcy case pursuant to §
3
The automatic stay provisions of the Bankruptcy
Code provide that:
[A] petition filed under section
301, 302, or 303 of this title . . .
operates as a stay, applicable to
all entities, of—
7
362(d) of the Code, which allows a court to grant relief from
the stay “for cause.” 11 U.S.C. § 362(d)(1).
(1) the commencement or
continuation, including the
issuance or employment of
process, of a judicial,
administrative, or other
action or proceeding
against the debtor that was
or could have been
commenced before the
commencement of the case
under this title, or to
recover a claim against the
debtor that arose before the
commencement of the case
under this title;
(2) the enforcement,
against the debtor or
against property of the
estate, of a judgment
obtained before the
commencement of the case
under this title;
(3) any act to obtain
possession of property of
the estate or of property
from the estate or to
exercise control over
property of the estate . . .
11 U.S.C. § 362.
8
Following a hearing, the Bankruptcy Court denied
ATN’s motions by concluding that: (1) any property in the
Cook Islands trusts was not property of ATN’s bankruptcy
estate pursuant to 11 U.S.C. § 541, 4 but was instead property
of Allen’s estate and thus subject to the automatic stay upon
Allen’s bankruptcy filing; and (2) the funds were not held by
Allen in constructive trust for the benefit of ATN under New
Jersey law. As is relevant here, the Bankruptcy Court
concluded that the funds did not fit within the Bankruptcy
Code’s definition of “property of the estate” because ATN—
despite having avoided the transfer—did not actually recover
tangible possession of the funds under § 550. Absent actual
tangible recovery, Allen had a superior interest in the funds,
which were thus the property of his estate (not ATN’s) and
subject to the automatic stay. The Bankruptcy Court entered
its opinion on March 2, 2012, and ATN appealed.
On July 19, 2013, the District Court affirmed for
essentially the same reasons. It also rejected ATN’s
argument that the New Jersey Bankruptcy and District Courts
(the “New Jersey Federal Courts”) lacked jurisdiction to hear
the adversary proceeding. ATN filed a timely notice of
appeal to this Court on August 19, 2013. On October 11,
2013, the Bankruptcy Court entered an order discharging
Allen’s debts pursuant to 11 U.S.C. § 727.
4
Section 541 of the Bankruptcy Code provides, in
relevant part, that “[t]he commencement of a case under
section 301, 302, or 303 of this title creates an estate. Such
estate is comprised of all the following property, wherever
located and by whomever held: . . . (3) Any interest in
property that the trustee recovers under section . . . 550 . . . of
this title.” 11 U.S.C. § 541(a).
9
II.
The District Court had jurisdiction to hear the appeal
below pursuant to 28 U.S.C. § 158(a), and we have
jurisdiction pursuant to 28 U.S.C. § 158(d). “Our review of
the District Court’s decision effectively amounts to review of
the bankruptcy court’s opinion in the first instance.” In re
Hechinger Inv. Co. of Del., 298 F.3d 219, 224 (3d Cir. 2002).
Because this issue involves interpretation of the Bankruptcy
Code, it is a question of law subject to plenary review. Id.
III.
We address two issues in this appeal. First, we
consider whether the New Jersey Federal Courts had subject
matter jurisdiction over ATN’s adversary proceeding.
Second, we consider whether the $6 million payment was a
part of ATN’s bankruptcy estate in Florida such that it was
not affected by the automatic stay provisions triggered by
Allen’s bankruptcy proceedings in the present case. We
consider each issue below.
A. Subject matter jurisdiction
ATN argues that the New Jersey Federal Courts lacked
jurisdiction under the doctrine set forth in Princess Lida of
Thurn and Taxis v. Thompson, 305 U.S. 456 (1939), on the
ground that the New Jersey Federal Courts’ decisions could
conflict with the Florida courts’ disposition of the funds in the
offshore trust. The District Court concluded that it had
jurisdiction because the judgment in the Florida case was in
personam, and therefore the New Jersey Federal Courts were
not required to exercise control over property already under
the control of the Florida courts. We agree. “We exercise
plenary review in determining whether the district court was
vested with subject matter jurisdiction.” Brown v. Francis,
75 F.3d 860, 864 (3d Cir. 1996).
10
The Princess Lida doctrine “prevents a court in which
an action is filed from exercising jurisdiction when a court in
a previously filed action is exercising control over the
property at issue and the second court must exercise control
over the same property in order to grant the relief sought.”
Dailey v. Nat’l Hockey League, 987 F.2d 172, 175 (3d Cir.
1993). As discussed by the Supreme Court:
. . . [T]he principle applicable to
both federal and state courts that
the court first assuming
jurisdiction over property may
maintain and exercise that
jurisdiction to the exclusion of the
other, is not restricted to cases
where property has been actually
seized . . . but applies as well
where suits are brought to marshal
assets, administer trusts, or
liquidate estates, and in suits of a
similar nature where, to give
effect to its jurisdiction, the court
must control the property.
Princess Lida, 305 U.S. at 466. The Princess Lida doctrine
“applies when: (1) the litigation in both the first and second
fora are in rem or quasi in rem in nature, and (2) the relief
sought requires that the second court exercise control over the
property in dispute and such property is already under the
control of the first court.” Dailey, 987 F.2d at 176 (citing
Princess Lida, 305 U.S. at 466). Because the test is
elucidated in the conjunctive, we need only discuss the first
element to reject ATN’s jurisdictional argument.
11
The crux of the jurisdictional question in this case is
whether the Florida Bankruptcy Court exercised in rem
jurisdiction over the trust funds or in personam jurisdiction
over Allen. Although “[b]ankruptcy jurisdiction, at its core,
is in rem,” Central Virginia Community College v. Katz, 546
U.S. 356, 362 (2006), “[t]he Framers would have understood
that laws on the subject of [b]ankruptcies included laws
providing, in certain limited respects, for more than simple
adjudications of rights in the res,” id. at 370 (internal
quotation marks omitted). Historically, this additional
judicial authority included the power to imprison third parties
who possessed the bankruptcy estate’s assets and the power to
grant in personam writs of habeas corpus ordering the release
of individuals from debtors’ prison. Id. at 370-71. Apropos
of the present case, the Katz Court also recognized that “the
trustee, in order to marshal the entirety of the debtor’s estate,
will need to recover the subject of the transfer pursuant to §
550(a). A court order mandating turnover of the property,
although ancillary to and in furtherance of the court’s in rem
jurisdiction, might itself involve in personam process.” Id. at
371-72. Thus the Supreme Court drew a distinction between
the bankruptcy proceedings themselves (which are in rem)
and ancillary orders entered in the course of those
proceedings—including those pursuant to § 550—which may
be in personam.
In United States v. Nordic Village, Inc., 503 U.S. 30
(1992), the Supreme Court addressed a postpetition transfer
of property that had been avoided pursuant to 11 U.S.C. §
549(a), recovered pursuant to § 550(a), and reduced to a
monetary judgment. Id. at 31. In dictum, the Court rejected
an argument based upon in rem jurisdiction: “As an initial
matter, the premise for [the argument based upon in rem
jurisdiction] is missing here, since respondent did not invoke,
12
and the Bankruptcy Court did not purport to exercise, in rem
jurisdiction. Respondent sought to recover a sum of money,
not ‘particular dollars,’ . . . so there was no res to which the
court’s in rem jurisdiction could have attached.” Id. at 38
(citations omitted).
The statements in Katz and Nordic Village demonstrate
that the judgment rendered by the Florida Bankruptcy Court
was not directed at particular property. Cf. Black’s Law
Dictionary 700 (8th ed. 2005) (defining “judgment in rem” as
“[a] judgment that determines the status or condition of
property and that operates directly on the property itself.”
(emphasis added)). The Florida Bankruptcy Court explicitly
entered the judgment at issue here against individuals by
stating that “[j]udgment is entered . . . against the defendants,
Daniel W. Allen and David D. Allen . . . in the amount of
$6,000,000.” App. 194. This order, which granted relief
pursuant to Bankruptcy Code sections 544 (avoidance) and
550 (recovery), 5 falls into that area identified in Katz—a
court’s ancillary power to utilize “in personam process” in
order to effectuate its in rem bankruptcy jurisdiction. Katz,
546 U.S. at 372. Like in Nordic Village, the recovery order
was aimed at recovering “a sum of money, not ‘particular
dollars,’” therefore taking the order outside the Florida
Bankruptcy Court’s in rem jurisdiction. See 503 U.S. at 38.
5
While the judgment order did not explicitly refer to
those two sections, it granted relief on “Counts 2 and 6
asserted in the Amended Complaint.” App. at 194. Both of
those counts explicitly sought relief pursuant to Code sections
544 and 550.
13
ATN argues that the repatriation order exercised in
rem jurisdiction over the trust funds in particular. 6 This
argument disregards the underlying judgment, however, and
looks solely to an ancillary order entered in aid of execution.
The repatriation order was entered pursuant to Federal Rule
of Bankruptcy Procedure 7069, which applies Federal Rule of
Civil Procedure 69 to adversary proceedings. Fed. R. Bankr.
P. 7069. Rule 69 in turn provides the procedure for executing
on a judgment by way of proceedings ancillary to the court’s
primary basis for jurisdiction. See IFC Interconsult, AG v.
Safeguard Int’l Partners, LLC, 438 F.3d 298, 311 (3d Cir.
2006) (noting that a garnishment action pursuant to Rule 69
fell under a court’s ancillary jurisdiction). Thus, the
repatriation orders were ancillary to the exercise of the court’s
in personam jurisdiction, not an exercise of new in rem or
quasi in rem jurisdiction. The Florida Bankruptcy Court
judgment was, therefore, an in personam judgment against
Allen, not the funds themselves. Absent a showing that both
the Florida Bankruptcy Court and the New Jersey Federal
Courts exercised such control, ATN fails to meet the first
prong of the Princess Lida test. We thus conclude that we
have jurisdiction to consider the merits of ATN’s appeal.
B. Property of the estate
The New Jersey Federal Courts found that the
fraudulently transferred funds were not property of ATN’s
bankruptcy estate in the Florida litigation under § 541
6
It is unclear what ATN hopes to gain by challenging
the New Jersey Federal Courts’ jurisdiction, because a
successful challenge would presumably leave it with limited
means to collect on its judgment. Because we conclude that
jurisdiction exists, however, we need not delve further into
ATN’s choice of strategy at this time.
14
because they were never “recovered” by ATN pursuant to §
550. We reject this analysis because it failed to address the
central issue in this case—what it means to “recover”
property (or the value of such property) for the benefit of the
estate. With respect to that issue, the New Jersey Federal
Courts applied too restrictive a definition of “recover”—a
definition that required ATN to recover actual tangible
possession of the funds before considering them part of its
estate. That definition does not comport with the provisions
of the Bankruptcy Code, as we discuss below.
1. Circuit split
The New Jersey Federal Courts identified a split
between the Fifth Circuit and the Second and Tenth Circuits
in addressing whether “recovery” of funds is required before
they can be considered property of a bankruptcy estate.
Compare Am. Nat’l Bank of Austin v. MortgageAmerica
Corp. (In re MortgageAmerica Corp.), 714 F.2d 1266 (5th
Cir. 1983), with FDIC v. Hirsch (In re Colonial Realty Co.),
980 F.2d 125 (2d Cir. 1992), and Rajala v. Gardner, 709 F.3d
1031 (10th Cir. 2013). The courts in both MortgageAmerica
and Colonial Realty interpreted § 541(a)(1), which defines
property of the estate as all property, “wherever located and
by whomever held,” including “all legal or equitable interests
of the debtor in property as of the commencement of the
case.” 11 U.S.C. § 541(a)(1).
MortgageAmerica addressed whether property
fraudulently transferred by a debtor remains the property of
the debtor’s estate under § 541(a)(1) even though that
property remains in the hands of third parties. 714 F.2d at
1275. The Fifth Circuit held that it does, noting that
“[p]roperty fraudulently conveyed and recoverable under the
Texas Fraudulent Transfers Act remains, despite the
15
purported transfer, property of the estate within the meaning
of section . . . 541(a)(1) of the new Code.” Id. at 1277. The
court noted that the debtor in such situations retains a “‘legal
or equitable interest[]’” in the fraudulently transferred
property. Id. at 1275 (citing 4A Collier on Bankruptcy, ¶
70.14[1] (14th ed. 1978)). Importantly, the court focused on
the broad language in § 541(a)(1), and declined to decide
“whether the phrase ‘[a]ny interest in property that the trustee
recovers’ may be read ‘might recover’ at some time in the
future.” MortgageAmerica, 714 F.2d at 1273 n.7.
The Second Circuit in Colonial Realty disagreed and
concluded that the Fifth Circuit’s reading of § 541(a)(1) in
MortgageAmerica essentially rendered § 541(a)(3)
meaningless. Colonial Realty, 980 F.2d at 131. The Colonial
Realty court noted:
“If property that has been
fraudulently transferred is
included in the § 541(a)(1)
definition of property of the
estate, then § 541(a)(3) is
rendered meaningless with respect
to property recovered pursuant to
fraudulent transfer actions.” . . .
Further, “the inclusion of property
recovered by the trustee pursuant
to his avoidance powers in a
separate definitional subparagraph
clearly reflects the congressional
intent that such property is not to
be considered property of the
estate until it is recovered.”
16
Id. (quoting In re Saunders, 101 B.R. 303, 305 (Bankr. N.D.
Fla. 1989)). In a more recent decision addressing the split
between the Second and Fifth Circuits, the Tenth Circuit
concluded that the Second Circuit’s holding in Colonial
Realty was correct, because otherwise “a mere allegation [of a
fraudulent transfer] without any showing of merit” could
bring property into the estate. Rajala v. Gardner, 709 F.3d
1031, 1038 (10th Cir. 2013). The New Jersey Federal Courts
in this case also agreed with the Second Circuit’s approach in
Colonial Realty and concluded that, absent actual recovery of
the fraudulently transferred funds, those funds are not
considered “property of the estate” under § 541.
2. Recovering the fraudulently transferred funds
The problem that arises from the New Jersey Federal
Courts’ reliance on Colonial Realty is that neither the Second,
Fifth, nor Tenth Circuit decisions addressed the crucial
question in this case—what it means to “recover”
fraudulently transferred property for purposes of § 541(a)(3).
Instead, the courts in Colonial Realty, MortgageAmerica, and
Rajala looked to whether funds remained property of the
debtor’s estate under § 541(a)(1) absent the recovery
provision in § 541(a)(3). Because this case involves a
recovery insofar as the Florida Bankruptcy Court entered a
recovery order pursuant to § 550, the rationale set forth by the
Second Circuit and adopted by the New Jersey Bankruptcy
Court is not helpful. This is particularly true here where the
only impediment to actual tangible recovery was Allen’s own
conduct.
Rather than simply interpreting the plain language of §
541(a)(3), the Bankruptcy Court introduced the phrase
“actually recovered” to ostensibly require actual tangible
possession of the fraudulently transferred funds before they
17
could be considered a part of ATN’s estate. The New Jersey
Federal Courts identified no decision, however, that includes
such language, and in fact many of the decisions they cited
specified that no recovery action had been taken at all. 7 We
reject the New Jersey Federal Courts’ strained interpretation
of § 541(a)(3) for two reasons: first, the facts of this case
support a finding that ATN did, in fact, recover the funds at
issue; and second, the New Jersey Federal Courts’
interpretation would render § 541 internally inconsistent.
First, with respect to whether the funds were
recovered, ATN has, in a legal sense, recovered the funds for
its estate by securing a § 550 recovery order. The Eleventh
7
See, e.g., Murrietta v. Fehrs (In re Fehrs), 391 B.R.
53, 71 (Bankr. D. Idaho 2008) (acknowledging that “[t]his is
not a case where Trustee avoided a transfer and established a
§ 550 recovery . . .”); Moyer v. ABN Amro Mortg. Grp., Inc.
(In re Feringa), 376 B.R. 614, 625 n.10 (Bankr. W.D. Mich.
2007) (noting that “it is difficult to read Section 541(a)(1) so
broadly as to include potential recoveries of fraudulent
conveyances, especially in light of subparagraph[] (a)(3) . . .”
(emphasis added)); Wagner v. Christiana Bank & Trust Co.
(In re Wagner), 353 B.R. 106, 112-13 (Bankr. W.D. Pa.
2006) (where a Chapter 7 trustee took no action to avoid an
allegedly fraudulent transfer, the court noted that “for a claim
to become ‘property of the estate’ a trustee must actually
exercise her avoiding powers and make a tangible recovery of
the property before it can be transformed into ‘property of the
estate’ as envisioned by Section 541(a)(3)”); Grossman v.
Murray (In re Murray), 214 B.R. 271, 279 (Bankr. D. Mass.
1997) (finding the reasoning in Saunders to be “particularly
compelling where, as here, no affirmative action had been
taken to recover the funds at the relevant time”).
18
Circuit and the Florida Bankruptcy Court on remand both
concluded that the transfer at issue here was fraudulent under
the New Jersey UFTA. 8 The Florida Bankruptcy Court then
entered a judgment in favor of ATN and granted recovery
relief pursuant to § 550. All that now stands between ATN
and actual possession of the funds is Allen’s dilatory conduct.
Contrary to the holdings below, none of the decisions cited by
the New Jersey Federal Courts required a debtor to recover
actual tangible possession of the funds at issue in order to
make those funds part of the debtor’s estate under §
541(a)(3). We will not impose such a high hurdle,
particularly where doing so would allow Allen to continue
avoiding the judgment against him.
Second, the New Jersey Federal Courts’
interpretation of “recovers” renders § 541 internally
inconsistent. Subsection (a) provides that the estate includes
property “wherever located and by whomever held.” 11
U.S.C. § 541(a). If “recovers” is interpreted as requiring
actual possession, it would render the “wherever located and
by whomever held” language superfluous, since actual
8
We note that the New Jersey Federal Courts did not
appear to doubt that a fraudulent transfer took place. See
App. at 11 (District Court noted: “Here, while the Florida
Court found the transfer of money in 1999 was an avoidable
fraudulent transfer and issued a recovery order pursuant to §
550 . . .”); App. at 302 (Bankruptcy Court noted: “While it is
true that the Bankruptcy Court for the Middle District of
Florida, on remand, found that the transfers were avoidable
under both New Jersey Statutes 25:2-25(b)(2) and 25:2-27(a)
. . .”). Because the fraudulent transfer issue was fully
litigated in the Florida courts and is not challenged on appeal,
we defer to the Florida courts’ determination on that issue.
19
possession would mean that no one but the trustee could ever
possess estate property. Courts should avoid interpretations
of statutory language that render other portions of the statute
superfluous. Rosenberg v. XM Ventures, 274 F.3d 137, 141
(3d Cir. 2001). We therefore reject the New Jersey Federal
Courts’ interpretation because it would render subsection (a)
and subsection (a)(3) inconsistent—an untenable result.
In reaching our conclusion, we also reject two
arguments Allen raises for the first time in his pro se brief.
First, he argues that ATN’s appeal was rendered moot by the
Bankruptcy Court’s entry of a bankruptcy discharge order in
this case on October 11, 2013. Second, he argues that he has
satisfied “both items that were at issue with the Florida
Bankruptcy Court that were the subject of contempt
proceedings.” Appellee’s Br. at 4. Neither argument is yet
ripe for our review.
The discharge order does not render ATN’s claims
moot at this point. Section 727 of the Bankruptcy Code
provides for a discharge under certain circumstances, but it
also provides a window of opportunity for creditors, among
others, to request a revocation of such discharge within one
year of the order (under certain circumstances) or before the
close of the case (in others). 11 U.S.C. § 727(e). 9 Thus, to
9
Section 727(e) provides in full:
The trustee, a creditor, or the United States
trustee may request a revocation of a
discharge—
(1) under subsection (d)(1) of this section
within one year after such discharge is
granted; or
20
the extent that ATN could seek to revoke Allen’s discharge at
least before October 11, 2014, the discharge itself does not
render ATN’s arguments moot.
With respect to Allen’s argument that he has satisfied
“both items that were at issue with the Florida Bankruptcy
Court,” and that “Judge Burns would not have granted a
Discharge had Appellee not performed [the two items
referenced above] fully, completely and to her satisfaction,”
the New Jersey Federal Courts were never given an
opportunity to pass on them. Appellee’s Br. at 4. Moreover,
the Bankruptcy Court’s discharge order provides no basis for
the court’s decision, and makes no reference to any
requirements having been satisfied. See Order Discharging
Debtor, Case No. 11-37671, Docket Entry No. 109 at 1
(Bankr. D.N.J. Oct. 11, 2013) (providing only that “[i]t
appearing that the debtor is entitled to a discharge . . . The
debtor is granted a discharge under section 727 of title 11,
United States Code.”). Because remand is necessary in this
case, Allen may seek to develop a further factual record and
make those arguments at that time, but we will not consider
his arguments for the first time on this appeal.
In light of these considerations, we conclude that the
New Jersey Federal Courts erred in interpreting “recover” as
requiring actual possession of the funds at issue. By contrast,
ATN obtained a § 550 recovery order, thus bringing the funds
within its estate in the Florida proceedings. The mere fact
(2) under subsection (d)(2) or (d)(3) of
this section before the later of—
(A) one year after the granting of
such discharge; and
(B) the date the case is closed.
11 U.S.C. § 727(e).
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that Allen’s dilatory conduct has foiled ATN’s past attempts
to recover actual possession of the funds does not preclude a
finding that the funds are properly part of ATN’s estate and,
accordingly, not subject to the automatic stay. Because we
find it necessary to reverse and remand on this ground, we
need not address ATN’s alternative argument that Allen holds
the funds in constructive trust under New Jersey law.
IV.
For the foregoing reasons, we will REVERSE the
judgment of the District Court and REMAND for further
proceedings consistent with this opinion.
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