In re Cecil

488 B.R. 200, 24 Fla. L. Weekly Fed. B 3, 2013 WL 837592, 2013 Bankr. LEXIS 841
CourtUnited States Bankruptcy Court, M.D. Florida
DecidedMarch 7, 2013
DocketNo. 8:11-bk-00498-MGW
StatusPublished
Cited by2 cases

This text of 488 B.R. 200 (In re Cecil) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, M.D. Florida primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Cecil, 488 B.R. 200, 24 Fla. L. Weekly Fed. B 3, 2013 WL 837592, 2013 Bankr. LEXIS 841 (Fla. 2013).

Opinion

MEMORANDUM OPINION ON TRUSTEE’S EMERGENCY APPLICATION TO RETAIN SPECIAL COUNSEL

MICHAEL G. WILLIAMSON, Bankruptcy Judge.

Creditors Melissa West and The Tradesman Group, Inc. (collectively, “Creditors”) object to the Chapter 13 Trustee’s application 1 to employee special counsel to pursue an avoidance action.2 The primary argument in support of the Objection is that a chapter 13 trustee does not have statutory authority under § 1302(b)(1) of the Bankruptcy Code to pursue avoidance actions.3 However, because § 103(a) of the Bankruptcy Code extends a trustee’s chapter 5 avoidance powers to chapter 13 cases, the Court concludes that the Chapter 13 Trustee does have authority to bring avoidance actions.4 The Court also rejects Creditors’ argument that the failure of the Debtor to list the avoidance action in her schedules or to assert it in a previously pending adversary proceeding between the Debtor and Melissa West somehow precludes the Chapter 13 Trustee from now bringing an avoidance action as a representative of the estate. Aecord-[202]*202ingly, the Court will overrule the Objection and approve the Application.

Procedural Background

On January 29, 2013, the Court ruled that Melissa West (“West”) held an unsecured non-priority claim against her sister, Heidi Cecil (“Debtor”), in the amount of $100,000.5 Around the same time, the Chapter 13 Trustee filed the Application seeking approval for the retention of special counsel to bring an action against West to avoid an alleged fraudulent transfer of approximately $400,000 that took place within two years of the filing of this case.6 In addition to avoidance of the transfer, in the adversary proceeding the Trustee seeks a determination of the liability of West under § 550 and disallowance of West’s claim under § 502(d). The net effect of a ruling in the adversary proceeding in favor of the Trustee would be either disallowance or payment in full of all allowed unsecured claims in the case, including the $75,144.30 in unsecured claims not owned by West.7

Because the statute of limitations period under § 546 had nearly elapsed on any potential avoidance claims, the Court granted the Application on an. interim basis, subject to objection by any creditors.8 Shortly thereafter, Creditors objected to the interim order principally on the grounds that the Chapter 13 Trustee lacks authority to bring the actions for which he seeks to hire special counsel.

Conclusions of Law 9

The primary argument advanced by Creditors in support of the proposition that a chapter 13 trustee does not have the right to bring avoidance actions under Chapter 5 of the Bankruptcy Code is based on § 1302(b)(1). That section provides that a chapter 13 trustee shall “perform the duties specified in §§ 704(a)(2), 704(a)(3), 704(a)(4), 704(a)(5), 704(a)(6), 704(a)(7), and 704(a)(9)-” In this respect, Creditors point to the omission of any reference to § 704(a)(1) in § 1302(b)(2). Section 704(a)(1) provides that, “The trustee shall ... collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest....”10

The underlying premise upon which Creditors base their argument is that the language contained in § 704(a)(1) is the source of a trustee’s power to bring avoidance actions. But a review of the Bankruptcy Code, case law, and bankruptcy treatises makes clear that there is no authority to support this premise. In fact, if Creditors were correct, then neither trustees nor debtors in possession in Chapter 11 cases would have the authority to bring avoidance actions under Chapter 5 — something which, of course, occurs routinely in Chapter 11 cases.

This is because § 1106 — which specifies the duties of a trustee in a Chapter 11— also omits any reference to § 704(a)(1). Thus, a chapter 13 trustee is not required to collect or reduce to money all property of the estate. This is because in a chapter 13 case, the debtor normally • remains in [203]*203possession of estate property.11 This is consistent with the statutory scheme embodied in a chapter 13 case that does not typically contemplate the liquidation of property of the estate.12 The same is true of the other operating chapters. Accordingly, there is no such reference to § 704(a)(1) in either chapters 9, 11, 12, or 13.

Instead, the power to bring an avoidance action under Chapter 5 of the Bankruptcy Code is found in other Bankruptcy Code sections. First, it is specifically found in § 103, which provides that chapters 1, 3, and 5 apply in a case under Chapter 7, 11, 12 or 13 of the Bankruptcy Code. Second, § 323 — also applicable in chapters 7, 11, 12, and 13 — provides that the trustee in a bankruptcy ease is a representative of the estate and has the capacity to sue.13 Third, § 548 — again, applicable to all operating chapters under § 103 — specifically provides that “the trustee may avoid any transfer” that otherwise qualifies as a fraudulent transfer under that section.14

Notably, there is nothing in § 548 that limits its applicability to trustees in chapter 7 cases. In fact, the only limitations on a trustee’s avoiding powers are set forth in the particular avoidance provisions and in § 546.15 Relevant to this case is § 546(a)(1)(B) that requires that avoidance actions be brought within “the later of 2 years after the entry of the order for relief or 1 year after the appointment or election of the first trustee under section 702, 1104, 1163, 1202, or 1302.”16 If chapter 13 trustees lacked standing to bring avoidance actions in the first place, there would be no need to limit their time for bringing them. Accordingly, if the Court were to sustain the Objection, it would render the last portion of § 546(a)(1)(B) superfluous.17

Not only does the language of the Bankruptcy Code plainly support a trustee’s right to bring avoidance actions in chapter 13 cases, but there is also no case law support for Creditors’ argument. At most, there is a split of authority as to whether, in addition to a chapter 13 trustee, a chapter 13 debtor may also bring an avoidance action with some cases holding that only chapter 13 trustees have standing to bring such actions18 and other cases holding that a chapter 13 debtor may also utilize the trustee’s avoiding powers.19

Finally, all of the treatises that deal with the issue support the proposition that a chapter 13 trustee may bring avoidance [204]*204actions.20 These treatises reject the proposition that the omission of § 704(a)(1) from the Chapter 13 trustee’s duties, as enumerated in § 1302(b)(1), can be read so far as to preclude the use of the avoidance powers by the trustee.21 Rather, it is left to the Chapter 13 trustee’s judgment to determine when it is feasible and efficient to exercise the avoidance powers.22

The other arguments advanced by Creditors are also unavailing.

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Cite This Page — Counsel Stack

Bluebook (online)
488 B.R. 200, 24 Fla. L. Weekly Fed. B 3, 2013 WL 837592, 2013 Bankr. LEXIS 841, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-cecil-flmb-2013.