Shields v. Crel, Inc. (In re Dartco, Inc.)

203 B.R. 285, 1996 Bankr. LEXIS 1782
CourtUnited States Bankruptcy Court, D. Minnesota
DecidedDecember 9, 1996
DocketBankruptcy No. 3-91-416; Adv. No. 3-95-002
StatusPublished

This text of 203 B.R. 285 (Shields v. Crel, Inc. (In re Dartco, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Minnesota primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Shields v. Crel, Inc. (In re Dartco, Inc.), 203 B.R. 285, 1996 Bankr. LEXIS 1782 (Minn. 1996).

Opinion

ORDER GRANTING MOTION OF PLAINTIFF FOR LEAVE TO FILE AMENDED COMPLAINT AND DENYING MOTION OF CREL PETROLEUM, INC. FOR DISMISSAL AND FOR IMPOSITION OF SANCTIONS

GREGORY F. KISHEL, Bankruptcy Judge.

This adversary proceeding came on before the Court for hearing on the motion of Crel Petroleum, Inc. (“CPI”) for dismissal and for imposition of sanctions, and upon the Plaintiffs motion for leave to file an amended complaint and to join additional parties-defendant. CPI appeared by its attorney, Garrett M. Vail. The Plaintiff appeared personally and by her attorney, Timothy J. Ewald. Upon the moving and responsive documents and the arguments of counsel, the Court makes the following order.

NATURE OF PROCEEDING

Though the Debtor’s case was commenced as one under Chapter 11, it is presently pending as one for liquidation under Chapter 7. The Plaintiff is the trustee of the Debt- or’s Chapter 7 estate. She commenced suit against the named Defendant seeking relief under two theories of recovery.

In Count I of her complaint, she alleged that the named Defendant had received payments by check from the Debtor within 90 days of the commencement of the Debtor’s Chapter 11 case, which were avoidable as preferential transfers within the contemplation of 11 U.S.C. § 547(b). To effectuate the avoidance, she requested a money judgment against the named Defendant in “at least the amount of $279,128.07”, plus such other amounts as she could prove at trial, and “prejudgment interest from the date of the filing of the Complaint” in these adversary proceedings.

In Count II, the Plaintiff alleged that, shortly after the Debtor’s Chapter 11 filing, the named Defendant had received funds in the amount of $81,281.18 or more, when the Debtor’s bank honored checks that the Debt- or had issued immediately before or immediately after its Chapter 11 filing. All of these transfers were made in payment for pre-petition deliveries of petroleum products to the Debtor. The Plaintiff alleged that the transfers identified in Count II were unauthorized post-petition transfers of the Debt- or’s assets, avoidable under 11 U.S.C. § 549. She requested a money judgment in the stated amount, or such greater amount as she proved at trial, to effectuate such an avoidance.

MOTIONS AT BAR

An entity calling itself “Crel Petroleum, Inc.” filed the first motion at bar. In the text of the motion, CPI “contends that it is the real party defendant in interest,” and seeks dismissal of the Plaintiffs complaint. It argues several alternative theories to support this request:

1. 11 U.S.C. § 546(a) bars this proceeding because it was not commenced within two years of the commencement ’ of the Debtor’s Chapter 11 case.
[288]*2882. 11 U.S.C. § 546(a) bars this proceeding because it was not commenced within two years of the date on which a disbursing agent, denominated as a “trustee” under the Debtor’s confirmed plan, formally assumed that status.
3. The complaint is time-barred under the terms of the order that the Court entered to confirm the Debtor’s Fourth Amended Plan of Reorganization, before the case was converted to one under Chapter 7.
4. The doctrines of laches and/or estoppel bar the bankruptcy estate from now prosecuting this proceeding against CPI, given the estate’s failure to commence it earlier in either phase of the underlying case.

In addition, CPI raises a fifth defense against Count III of the Plaintiffs complaint:

5. Because the terms of the Debtor’s confirmed plan do not preserve causes of action under § 549 in favor of the reorganized debtor and its creditors, the Plaintiff lacks standing to sue anyone under that statute.

Maintaining that the procedural history of the case unequivocally establishes that the Plaintiff had no right to commence this proceeding, CPI seeks the imposition of sanctions on the Plaintiff pursuant to Fed. R.BaNKR.P. 9011.

Shortly after CPI filed its motion, the Plaintiff filed a motion for leave to amend her complaint, to add CPI and another party named “Crel Investments, Inc.” (“CII”) as additional parties-defendant, pursuant to Fed.R.BaNKR.P. 7015(a), 7015(c), and 7018(a). As the grounds for allowing such relief, the Plaintiff states:

The [Plaintiffs] failure to join the proper named corporations at the time of the filing of the original Complaint is justified because the defendant [sic] Crel Petroleum, Inc. and Crel Investments, Inc. issued invoices in the name of Crel, Inc'., without regard to corporate formalities.

After that — and on the day before the scheduled hearing — the Plaintiff filed a response to CPI’s motion, strenuously opposing it.

PROCEDURAL HISTORY OF UNDERLYING BANKRUPTCY CASE

To support its motion, CPI relies mainly on the procedural history of the Debtor’s bankruptcy case, in both of its phases.

The Debtor filed a petition for relief under Chapter 11 on January 24,' 1991. In August, 1991, the Debtor’s Committee of Unsecured Creditors moved in the alternative for appointment of a trustee or an examiner pursuant to 11 U.S.C. § 1104. The parties produced substantial evidence on the motion. Via an order entered on September 13, 1991, the Court declined to grant the relief requested. After protracted and involved confirmation proceedings, the Court confirmed what the Debtor styled as a “Modified Fourth Amended Plan” of reorganization on July 17,1992.

The Court ordered the Debtor to comply with certain formalities to evidence the substantial consummation of the plan. Even after the Court granted an extension of the deadline, the Debtor did not comply. The Court entered an Order to Show Cause to ascertain the reasons for the delay; almost simultaneously, the U.S. Trustee served a motion for conversion of the case. On January 13, 1993, the Court granted the U.S. Trustee’s motion and converted the case to one under Chapter 7.

On January 15, 1993, the United States Trustee appointed the Plaintiff as Trustee of the Debtor’s Chapter 7 estate. On January 4, 1995, she filed the complaint that, commenced this adversary proceeding.

DISCUSSION

The motions at bar raise a half-dozen issues,, which should be treated separately and seriatim.

I. The Plaintiff’s Motion

The Plaintiff seeks leave to amend her complaint pursuant to Fed.R.Civ.P. 15(a), as incorporated by Fed.R.Bankr.P. 7015.1 [289]*289The proposed amendments add CPI and CII as parties-defendant to this adversary proceeding. In explanation of this change, the Plaintiff alleges at ¶¶5 through 7 of her amended complaint:

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203 B.R. 285, 1996 Bankr. LEXIS 1782, Counsel Stack Legal Research, https://law.counselstack.com/opinion/shields-v-crel-inc-in-re-dartco-inc-mnb-1996.