Summary
The Seventh Circuit granted petitions for leave to appeal directly from the bankruptcy court and addressed whether appointment of an interim Chapter 7 trustee extends the limitations period for bankruptcy avoidance actions under 11 U.S.C. § 546(a). The court held that the statutory extension applies only when the first trustee under 11 U.S.C. § 702 is appointed or elected before the two-year period expires, and that appointment as an interim trustee under § 701 did not qualify. The court reversed the bankruptcy court’s ruling.
Topics
Practice areas
Questions Presented
- Whether the appointment of an interim trustee under 11 U.S.C. § 701 can extend the limitations period for avoidance actions under 11 U.S.C. § 546(a)(1)(B) when the interim trustee later becomes the permanent trustee by operation of § 702(d).
- Whether the Bankruptcy Code's statutory limitations period should be extended based on an asserted contextual ambiguity, concerns about creditors' ability to preserve avoidance claims, or equitable tolling.
Holdings
- The appointment of an interim trustee under 11 U.S.C. § 701 does not trigger the one-year extension in § 546(a)(1)(B). The extension applies only when the first trustee under § 702 is appointed or elected before the original two-year period expires.
- Policy concerns about a debtor's delaying conversion from Chapter 11 to Chapter 7 do not justify disregarding the clear statutory language of § 546(a).
Key quotations
“But that reading reads the reference to section 702 right out of section 546(a)(1)(B).” (466)
“Thus the statute can be read as written without prejudice to the rights of the legitimate creditors of a Chapter 11 bankrupt.” (469)
Factual background
Nachshon Draiman filed for Chapter 11 bankruptcy on May 14, 2009, and converted the case to Chapter 7 on May 13, 2011. On the conversion date, Richard Fogel was appointed interim Chapter 7 trustee. Creditors failed to elect a permanent trustee at their June 30, 2011 meeting, so Fogel became permanent trustee under § 702(d), after the two-year period for commencing avoidance actions had expired.
Procedural history
Nachshon Draiman's Chapter 11 case was converted to Chapter 7, and Richard Fogel was appointed interim trustee before the two-year limitations period in 11 U.S.C. § 546(a)(1)(A) expired. Creditors later failed to elect a permanent trustee, causing Fogel to become permanent trustee by operation of 11 U.S.C. § 702(d). The bankruptcy court ruled that Fogel's interim appointment extended the limitations period under § 546(a)(1)(B), and the defendants sought direct appellate review. The Seventh Circuit reversed.
Remand instructions
None stated; the bankruptcy court's ruling was reversed.