GLAMOURETTE / OG ,INC. v. RIVERA SIACA et al

OCR transcription for search; preserved printed pages are authoritative

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THR DISTRICT OF PUERTO RICO

In re:
GLAMCURETTE/OG, INC., : Case No. 01-13025 (GAC)

Debtor : Chapter 7

WIGBERTO LUGO MENDER,
Chapter 7 trustee,

Plaintiff
Vv. : Adv. No. 03-0189

LUIS RIVERA SIACA,
ENERY P. ORTIZ JEMENEZ a/k/a
ENERY P. ORTIZ DE RIVERA a/k/a
ENERY P. ORTIZ RIVERA, and their
CONJUGAL PARTNERSHIP; X and Y,

Defendants

DECTSTON AND ORDER

On November 26, 2001, the debtor filed a voluntary petition
under Chapter 11. On November 22, 2002, the debtor filed a motion
to convert to Chapter 7 (dkt. #188). On December 9, 2002, the U.S.
Trustee filed a notice of appointment of Wigberto Lugo Mender as
the interim trustee (dkt. #191). On December 19, 2002, the Court
entered an order granting the debtor’s motion for conversion to
Chapter 7, The first meeting of creditors pursuant to 11 U.$.c. §
341 was held on February 5, 2003. No trustee was elected at the
meeting of creditors.

On December 15, 2003, the trustee filed this adversary

complaint alleging that the defendants had received preferences

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

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under 11 0.8.C. § 547 or fraudulent transfers under 11 U.S.C. § 548
and that the amounts received are subject to turnover pursuant to
11 U.S.C. § 542. The defendants filed a motion to dismiss,
alleging that the statute of limitations found in 11 U.S.C. §
546(a) had expired, barring relief under 11 U.S.C. §§ 547 and 548

and that the request for turnover under 11 U.S.C. § 542 is barred

by the doctrine of laches (dkt. #16). The trustee opposed the
motion {dkt. #20) and the defendants filed a reply (dkt. #24). The
Court held a hearing on the matter.
DISCUSSTON

The statute of limitations related to preference and
fraudulent transfer actions, provides in relevant part that these
actions may not be commenced after:

(1) the later of -

(A) 2 years after the entry of the order for
relief; or

(B) 1 year after the appointment or election

of the first trustee under section 702

of this title if such appointment or such

election occurs before the expiration of the

period specified in subparagraph (A).
11 U.S.C. §$ 546(a) (1). As the defendants admit, the trustee had to
file his complaint under Sections 547 and 548 within the Later of
two years after entry of the order for relief or within one year of
his appointment as trustee.

As the order for relief was entered on November 26, 2001, the

complaint, filed on December 15, 2003, was not filed within two

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years after the entry of the order for relief. Thus, the
proceeding hinges on when the trustee was appointed. The
defendants claim that the trustee was appointed when the U.S.
Trustee filed the notice of appointment on December 9, 2002. The
trustee claims that he was officially appointed after the Court
granted the motion for conversion on December 19, 2002 or when the
first meeting of creditors was heid on February 5, 2003.
DISCUSSION

The Court recognizes that there is a split of authority as to
whether the trustee is appointed for purposes of the statute of
limitations when he is appointed as the interim trustee or when he
becomes the permanent trustee pursuant to 11 U.S.C. § 702{(d),
stating that “[i]f a trustee is not elected under this section [at
the 341 meeting of creditors], then the interim trustee shall serve
as trustee in the case.” The defendants cite to decisions by the
9th Circuit Court of Appeals and the bankruptcy court in the
District of Delaware for the proposition that the trustee is
“appointed” when he is named as interim trustee. See Avalanche

Maritime, Ltd. v. Parekh (In re Parmetex, Inc.), 199 F.3d 1029 (9th

Cir. 1999) and Burtch v. Georgia-Pacific Corp. (In re Allied

Digital Technologies Corp.), 300 B.R. 616 (Bankr. D.Del. 2003),

Nonetheless, a leading bankruptcy treatise and two bankruptcy
courts that have ruled on this matter in this circuit, conclude

that the statute of limitations commences to run when the interim

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trustee becomes the permanent trustee at the first meeting of
creditors, if no trustee is elected. See 5 Collier on Bankruptcy

{@ 546.02[2}; In re Crowe Rope Industries, LLC, 311 B.R. 313 (Bankr,

D.Me. 2004); In re Art & Company, Inc., 179 B.R. 757 (Bankr.

D.Mass. 1995).
As explained in Collier:

The limitations period under section 546(a)(1)(B) is one
year “after the appointment or election of the first
trustee under section 702, 1104, 1163, 1202, or 1302" of
the Bankruptcy Code. Subparagraph (B}) refers only to
appointment or election of a trustee under section 702
and not to section 701 [which provides for the
appointment of the interim trustee]. Since section
546(a) (1) (B} refers to appointment or election, the later
date of these two events should control.

5 Collier on Bankruptcy 7 546.02[2] [a] (footnotes omitted).

In chapter 7 cases, the trustee is “appointed” when the
permanent trustee, as opposed to the interim trustee, is
appointed. The interim trustee, who is appointed
promptly after entry of the order for relief under
section 701, automatically becomes the permanent trustee
at the meeting of creditors pursuant to section 341 if
creditors do not elect a trustee under section 702.
Since trustee elections under section 702 are rare, the
date of the section 341 meeting usually will be the date
of appointment of the trustee for purposes of section
546 (a) (1) (B).

Id. at [2] [a] [i] (footnotes omitted).
The Court in Crow Rope, Likewise stated that:

[T]he one year statute of Limitations contained in §
546(a) (1) (B) commences upon “the apointment or election
of the first trustee under section 702 ...” There is
no need to look to § 701 for an appointment under § 546,
because § 702 has its own appointment provision.

The appointment of the interim trustee as trustee under
§ 702(d) occurs by operation of law and becomes effective

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when there has been no election at the § 341 meeting.

That the interim trustee who becomes the trustee under §

702 had previously been appointed interim trustee under

§ 701 is of no consequence under § 546(a) (1) (B).

Crow Rope, 311 B.R. at 315.

This Court finds this reasoning highly persuasive and hereby
adopts it. Thus, this Court concludes that in Chapter 7 cases, the
trustee is “appointed” for purposes of § 702 and § 546(a)(1)(B), at
the time that a permanent, as opposed to interim trustees, is
appointed. In the absence of an election of a trustee by
creditors, the appointment of the permanent trustee takes place
automatically at the meeting of creditors pursuant to section 341
of the Code. Thus, in the absence of an election, the limitations
period commences from the date of the section 341 meeting.

In this case, the first meeting of creditors pursuant to 11
U.S.C. § 341 was held on February 5, 2003, at which time the
creditors did not elect a trustee pursuant to 11 U.S.C. § 702, and
the interim trustee became the permanent trustee pursuant to 11
U.S.C. § 7O02(d). The trustee was appointed for purposes of 11
U.S.C. § 546(a) (1) (B}) on this date, and this occurred within two
years of the entry of the order for relief on November 26, 2001,
Because the trustee’s appointment occurred within two years after
entry of the order for relief, the trustee is entitled to the
additional one year extension provided in 11 U.S.C. § 546(a) (1) (B).
The trustee’s action had to be filed within one year of his

appointment on February 5, 2003 and it was filed on December 15,

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2003. Thus, the Court concludes that the trustee’s causes of
action under 11 U.S.C. § 547 and § 548 were filed prior to the
expiration of the statute of limitations. Accordingly, the
defendants’ motion to dismiss these causes of action will be
denied.

The defendants also seek dismissal of the trustee’s claim for
turnover under 11 U.S.C. § 542 as being barred by laches. The
primary basis for the claim of unreasonable delay is their
contention that the causes of action under § 547 and § 548 were
time barred. As argued by the defendants, the claim under § 542 is
equitable in nature and must be commenced within a reasonable time.
Likewise, the Court accepts that in analyzing whether there has ben
unreasonable delay, the Court should consider whether the action
was filed after the expiration of the statute of limitations for
analogous claims. The defendants argue that if the plaintiff files
a complaint within an analogous statutory period, the burden of
proving unreasonable delay and prejudice falis on the defendant.
The Court adopts this and concludes that the defendants have failed
to prove unreasonable delay and prejudice, because the trustee’s
action was filed within the statute of limitations of 11 U.S.c. §
546(a) and the defendants fail to make any other allegations as to
unreasonable delay. Accordingly, the defendants’ request for
dismissal of the trustee’s claim under 11 U.S.C. § 542 will be

denied.

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ORDER
WHEREFORE IT IS ORDERED that the defendants’ motion to dismiss
(dkt. #16) shall be, and hereby is, DENIED. The Clerk to schedule
a pre-trial hearing.
SO ORDERED.

San Juan, Puerto Rico, this 13th day of January, 2006.

/s/ Gerardo A. Carlo

GERARDO A. CARLO
Chief, U.S. Bankruptcy Judge