Appointment of Interim Trustee Does Not Toll Statute of Limitations Under 11 U.S.C. § 546(a); Avoidance Actions Brought By Trustee Were Time-Barred When Commenced More Than Two Years After Petition Date
In re Am. Pad & Paper Co., 478 F.3d 546 (3d Cir. 2007) (Circuit Judge Dolores Korman Sloviter)
Steven Singer, the Chapter 7 Trustee of American Pad & Paper Co. and its co-debtors, was elected under 11 U.S.C. § 702 more than two years after the entry of the order for relief in the debtors’ cases. Singer was elected subsequent to the appointment of an interim trustee under section 701, who was appointed eleven days before the two-year anniversary of the entry of the order for relief.
Singer thereafter commenced avoidance actions against approximately 150 defendants, many of whom moved to dismiss on the basis that such actions were time-barred by 11 U.S.C. § 546(a), which requires that such avoidance actions by filed by the later of two years after the entry of the order for relief, or one year after the appointment of a trustee under section 702, 1104, 1163, 1202 or 1302, if that appointment occurred before the two years after the entry of the order for relief. The Bankruptcy Court dismissed those actions, and the District Court affirmed. The Third Circuit affirmed, finding that under the plain language of the statute, the actions were time-barred.
On January 10, 2000 a number of creditors filed involuntary Chapter 11 petitions against American Pad & Paper Co. and six related companies. On January 14, 2000, each of those debtors filed a voluntary Chapter 11 petition. On that same day, the United States Bankruptcy Court for the District of Delaware entered an order for relief as to each of those debtors. On December 21, 2001, the Court granted a motion by the creditors committee to convert the cases to cases under Chapter 7, with the conversion to be effective on January 3, 2002. On January 3, 2002, Jeoffrey L. Burtch was appointed interim Chapter 7 trustee under 11 U.S.C. § 701. The date of the trustee’s appointment was significant because it was eleven days prior to the two-year anniversary of the entry of the order for relief. On February 13, 2002, a new trustee, Steven Singer, was elected under 11 U.S.C. § 702.
Thereafter, between August and December 2002, Singer filed approximately 150 avoidance actions. A number of defendants in those actions moved to dismiss on the basis that these avoidance actions were time-barred under 11 U.S.C. § 546(a), contending that, under that section of the Bankruptcy Code, the deadline to file the avoidance actions was January 14, 2002.
Singer argued, however, that because Burtch was appointed as interim trustee under section 701 prior to January 14, 2002, Singer should have had an additional year to commence the avoidance actions. As the Bankruptcy Court and the District Court had already decided, the Third Circuit pointed out the absence of any textual support for Singer’s position. The appointment of a trustee under section 701 was not included in the statute as an event that extends the statute of limitations by an additional year. To hold otherwise would require the court to ignore the plain meaning of section 546(a). The Court also discussed the statutory history of section 546(a), and noted that Congress, when revising the statutes of limitations for such actions in 1994, omitted section 701 trustees from the tolling statute. Also, in other sections of the Bankruptcy Code, Congress included section 701 trustees, so Congress apparently included section 701 trustees where it intended to do so.
Finally, the Court rejected Singer’s argument that the statute, as written, produced absurd results, and provided no notice of when avoidance actions must be commenced, nor a reasonable period of time within which to bring such actions. The Court pointed out that the plain language of section 546(a) made the statutes of limitations for avoidance actions clear, and put all parties on notice. While the court did not dispute that Singer had no time to bring the avoidance actions, the court noted that other parties in interest could have done so prior to the expiration of the two-year statute of limitations. The mere fact that the actions were time-barred by the time Singer was appointed did not make the application of the statute absurd as written. The statute was clear on its face, and there was no basis to read the section 701 trustee into other sections of the Bankruptcy Code where such a trustee was excluded.
