In Re Century Brass Products, Inc., Debtor. U.S. Brass & Copper Company v. Jerome E. Caplan, 22 F.3d 37, 2d Cir. (1994)

22 F.
3d 37
62 USLW 2687, 25 Bankr.Ct.Dec. 824, Bankr.
L. Rep. P 75,861
In Re CENTURY BRASS PRODUCTS, INC., Debtor.

U.S. BRASS & COPPER COMPANY, Appellant,
v.
Jerome E. CAPLAN, Appellee.
No. 900, Docket No. 93-5077.
United States Court of Appeals,

Second Circuit.
Argued Jan. 3, 1994.
Decided April 13, 1994.
Robert C. Reichert, Hartford, CT (Robert U. Sattin, Reid & Riege, on the

brief), for appellant.
Lissa J. Paris, Hartford, CT (Everett E. Newton, Frank A. Appicelli,
Murtha, Cullina, Richter & Pinney, on the brief), for appellee.
Before MESKILL, KEARSE and LEVAL, Circuit Judges.
KEARSE, Circuit Judge:
United States Brass & Copper Company ("U.S. Brass") appeals from a
judgment of the United States District Court for the District of Connecticut,
Alan H. Nevas, Judge, affirming a judgment of the bankruptcy court, Robert L.
Krechevsky, Chief Judge, in favor of appellee Jerome Caplan, administrator of
a bankruptcy liquidation plan for debtor-in-possession Century Brass Products,
Inc. ("Century"), for $11,845.56 against U.S. Brass on the ground that Century,
just prior to filing for bankruptcy, had made a preferential payment to U.S.
Brass. The district and bankruptcy courts rejected U.S. Brass's contention that
the complaint should be dismissed in light of the two-year statute of limitations
provided by 11 U.S.C. Sec. 546(a) (1988), ruling that that section, which states
the time within which a bankruptcy trustee must bring suit to set aside a
preference, is not applicable to such suits when brought instead by debtors in
possession. U.S. Brass contends that these rulings are erroneous. We agree and
reverse.
I. BACKGROUND
2
For purposes of the present appeal, the relevant facts are not in dispute. On
March 15, 1985, Century filed a petition for reorganization pursuant to Chapter
11 of the United States Bankruptcy Code ("Code"), 11 U.S.C. Sec. 1101 et seq.
(1988). No bankruptcy trustee, see 11 U.S.C. Sec. 1104, was ever appointed,
and Century continued in control of the company as a debtor in possession
("DIP") pursuant to 11 U.S.C. Sec. 1101.
During the 90-day period before filing its petition for reorganization, Century
had made a payment of $11,845.56 to U.S. Brass for an antecedent debt;
because the payment was made during that period and while Century was
insolvent, it constituted an avoidable preference under 11 U.S.C. Sec. 547.
Century made no attempt to avoid the preference for more than four years. It
first wrote U.S. Brass demanding repayment in June 1989. Its demand was
ignored.
In September 1989, the bankruptcy court confirmed a Chapter 11 liquidating

plan for Century and appointed Jerome E. Caplan as plan administrator (the
"administrator"). In June 1990, the administrator made another demand on U.S.
Brass for repayment of the preference. That demand was likewise ignored.
On September 12, 1990, the administrator filed the present complaint under 11
U.S.C. Sec. 547, seeking to avoid the preference. U.S. Brass moved for
summary judgment dismissing the complaint, arguing that Sec. 546, which
provides that a bankruptcy trustee must bring any Sec. 547 action within two
years of the date of his appointment or before the case is closed or dismissed,
whichever is earlier, barred Century's claim. U.S. Brass argued that, though
Sec. 546(a) speaks in terms of trustees, a Chapter 11 DIP is the functional
equivalent of a trustee and thus must likewise bring any preference-avoidance
action within the period specified in that section.
The bankruptcy court, relying principally on In re Korvettes, Inc., 67 B.R. 730

(S.D.N.Y.1986), denied the motion for summary judgment, ruling that a DIP
may bring an action to set aside a preference at any time before the
reorganization proceeding is closed or dismissed, see 11 U.S.C. Sec. 546(a)(2)
127 B.R. 720. The court noted that DIPs had been allowed that freedom in early
cases under the Bankruptcy Code and that Congress had not introduced any
greater restriction when it amended the Code after those cases were decided.
The court also reasoned that imposing a statute of limitations on a DIP would
impede the DIP's efforts at reorganization.
7
Following the bankruptcy court's denial of the statute-of-limitations motion, the

parties stipulated to the entry of judgment against U.S. Brass for $11,845.56
plus interest and costs, and U.S. Brass appealed to the district court. The district
court found the bankruptcy court's rationale persuasive and affirmed. The
present appeal followed.
II. DISCUSSION
8
On appeal, U.S. Brass pursues its statute-of-limitations contention. In

opposition, Century argues principally that because the "plain language" of
Sec. 546(a)(1) dates the running of the limitations period from "the
appointment of a trustee," and a DIP is not a trustee, Sec. 546(a)(1) cannot
apply to a DIP. We conclude that, in light of the statutory scheme as a whole,
Sec. 546(a) applies to preference-avoidance actions brought by DIPs as well as
to those brought by trustees.
Section 546(a) provides, in pertinent part, as follows:
10
(a) An action or proceeding under section 544, 545, 547, 548, or 553 of this title
may not be commenced after the earlier of--
11 two years after the appointment of a trustee under section 702, 1104, 1163, 1302,
(1)
or 1202 of this title; or
(2) the time the case is closed or dismissed.
12
13
11 U.S.C. Sec. 546(a). Though this section itself does not mention DIPs, that
omission cannot be dispositive, for neither does Sec. 547 itself permit a DIP to
bring a preference-avoidance action. See, e.g., 11 U.S.C. Sec. 547(b) ("trustee"
may avoid preferential payment); id. Sec. 547(d) ("trustee" may avoid
preferential grant of security interest); see also id. Sec. 553(b) ("trustee" may
recover setoff); id. Sec. 544(a) ("trustee" may avoid transfer of property).
14
Rather, authorization for a preference-avoidance action by a DIP is found in

Sec. 1107, which states, in pertinent part, as follows:
15
Subject
to any limitations on a trustee serving in a case under this chapter, and to
such limitations or conditions as the court prescribes, a debtor in possession shall
have all the rights ... and powers, and shall perform all the functions and duties ... of
a trustee serving in a case under this chapter.
16
11 U.S.C. Sec. 1107(a). This language plainly allows a DIP to exercise the
same power a trustee would have to bring a preference-avoidance action. It
equally plainly, however, subjects the DIP exercising the powers of a trustee to
"any" restrictions that the Code imposes on trustees. We see no basis in the
Code for carving out of this blanket provision an exception for Sec. 546(a)'s
statute of limitations. Accordingly, we read Sec. 1107(a)'s authorization for a
DIP to act "[s]ubject to any limitations on a trustee" to mean that the statute of
limitations applicable to a trustee also applies to a DIP.
17
The legislative history of the Code is consistent with this interpretation. The
Senate Report that discussed the then-proposed Sec. 1107 stated, in pertinent
part, that[t]his section places a debtor in possession in the shoes of a trustee in
every way. The debtor is given the rights and powers of a chapter 11 trustee.
He is required to perform the functions and duties of a chapter 11 trustee
(except the investigative duties). He is also subject to any limitations on a
chapter 11 trustee....
18
S.Rep. No. 989, 95th Cong., 2d Sess. 116 (1978) (emphasis added), reprinted in
1978 U.S.C.C.A.N. 5787, 5902. Thus, the language of the report, like that
enacted in Sec. 1107(a), was all-encompassing. We have found no indication in
the legislative history that Congress, contrary to its precise language, intended
DIPs not to be bound by the statutes of limitations restricting actions by
trustees.
19
Though a number of lower courts have ruled to the contrary, see, e.g., In re
Pullman Construction Industries, Inc., 132 B.R. 359, 360 (Bankr.N.D.Ill.1991)
(citing cases); In re Korvettes, Inc., 67 B.R. 730, every other court of appeals
that has considered this issue has concluded, as we do, that Sec. 546(a)'s twoyear limitations period applies to DIPs. See In re Coastal Group Inc., 13 F.3d
81, 86 (3d Cir.1994) ("Coastal"); In re Softwaire Centre International, Inc., 994
F.2d 682, 683-84 (9th Cir.1993) ("Softwaire Centre") (per curiam); Zilkha
Energy Co. v. Leighton, 920 F.2d 1520, 1524 (10th Cir.1990) ("Zilkha Energy
").
20
In opposition to this interpretation, Century argues principally (1) that a DIP is

not appointed and hence cannot be treated the same as a trustee for whom the
limitations period runs from the time of "appointment"; (2) that after several
bankruptcy courts had ruled that Sec. 546(a)'s two-year limitations period did
not apply to DIPs, Congress, though amending the Code, did nothing to disturb
those rulings; and (3) that DIPs should not be subjected to the two-year
limitations period for policy reasons. We find these arguments unpersuasive.
21
We reject the contention that Sec. 546(a)(1)'s reference to "the appointment" of

the trustee as a starting point for its two-year period logically excludes DIPs
from the two-year restriction. Reading Sec. 1107(a) as giving a DIP powers
paralleling those of a trustee, we conclude that for the DIP, the limitations
period begins when the debtor files its petition and becomes a DIP under Sec.
1101. Accord Coastal, 13 F.3d at 84 ("emphasis on the word 'appointment' is
too literal," as "[t]hat term has been construed as general enough to include
elected trustees" as well); Zilkha Energy, 920 F.2d at 1524.
22
We also decline Century's invitation to rule that Congress's failure to clarify

what statutes of limitations it intended to be applicable to DIPs when it enacted
amendments to the Code in 1984 and 1986 implied its adoption of lower-court
decisions that DIPs were not subject to Sec. 546(a)'s two-year limitations
period. Though there is a presumption in some circumstances that when
Congress reenacts a statute without change it is aware of a judicial
interpretation of that statute and intends to adopt it, see Lorillard v. Pons, 434
U.S. 575, 580-81, 98 S.Ct. 866, 869-70, 55 L.Ed.2d 40 (1978), that
presumption applies only to "settled judicial constructions," Air Transport
Association of America v. PATCO, 667 F.2d 316, 321 (2d Cir.1981). We
cannot conclude that such statute-of-limitations decisions as had been rendered
prior to the Code amendments sufficed to settle the law. Prior to the 1984
amendments there had been only two decisions holding that DIPs were not
subject to the two-year limitations period, both by bankruptcy courts, see
Edleman v. Gleason (In re Silver Mill Frozen Foods, Inc.), 23 B.R. 179
(Bankr.W.D.Mich.1982); In re One Marketing Co., 17 B.R. 738
(Bankr.S.D.Tex.1982), and Congress did not mention them. And though there
was a technical amendment to Sec. 1107 in 1984, that amendment did not
concern this issue, and we have seen no indication in the legislative history that
Congress focused at all on the question of what statute of limitations applied to
DIPs. There had been no decisions on that issue by any district court or any
court of appeals, and absent any mention by Congress of the two prior
bankruptcy-court decisions, we cannot regard those two cases as establishing
the law sufficiently to impute those courts' views to Congress. Accord Coastal,
13 F.3d at 85. Further, though there were additional similar bankruptcy-court
decisions prior to the amendments enacted in 1986, those amendments did not
concern Sec. 546, or Sec. 1107, or DIPs, see Bankruptcy Judges, United States
Trustees, and Family Farmer Bankruptcy Act of 1986, Pub.L. No. 99-554, 100
Stat. 3088, 1986 U.S.C.C.A.N. 5227, and they provide no basis for imputing to
Congress either an awareness of the decisions or an intent to adopt them.

23
Nor are we persuaded by Century's argument that DIPs and trustees should be
treated differently because a DIP is generally involved in attempts to reorganize
and continue the debtor's business whereas a trustee is generally involved in
attempts to liquidate it, and that subjecting a DIP to the two-year limitations
period would unduly hobble its efforts to reorganize or to negotiate with
creditors for further extensions of credit. Neither the distinction between
trustees and DIPs nor the alleged impediment is so clear. Trustees, like DIPs,
may attempt negotiation and reorganization. And, as the Softwaire Centre court
noted, "the debtor in possession has two years to negotiate before filing suit,
and ... nothing prevents further negotiations leading to a settlement after suit is
filed." 994 F.2d at 684. The provision for a two-year limitations period
represents Congress's balancing of the interests of the debtor in negotiation and
attention to other bankruptcy matters, against the interests of other persons in
the repose of claims that may be made against them. Since we read the statute
and its legislative history as subjecting the DIP to the same limitations as the
trustee, we are not entitled to reweigh those interests.
24
Century's additional argument that subjection of a DIP to Sec. 546(a)'s two-year

statute of limitations would create an anomaly if a bankruptcy trustee were
appointed more than two years after the petition was filed is an interesting one.
Cf. In re San Joaquin Roast Beef, 7 F.3d 1413, 1416 (9th Cir.1993) (after twoyear period expired with respect to chapter 11 trustee, preference claims not
resurrected by subsequent appointment of a chapter 7 trustee). However, since
no trustee was ever appointed in the present case, we need not decide whether
such an appointment might revive a claim that the DIP itself would have been
barred from bringing.
CONCLUSION
25
We have considered all of Century's arguments in support of the decisions

below and have found them to be unpersuasive. The judgment of the district
court is reversed.

In Re Century Brass Products, Inc., Debtor. U.S. Brass & Copper Company v. Jerome E. Caplan, 22 F.3d 37, 2d Cir. (1994)

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22 F.

In Re CENTURY BRASS PRODUCTS, INC., Debtor.

United States Court of Appeals,

Robert C. Reichert, Hartford, CT (Robert U. Sattin, Reid & Riege, on the

In September 1989, the bankruptcy court confirmed a Chapter 11 liquidating

The bankruptcy court, relying principally on In re Korvettes, Inc., 67 B.R. 730

Following the bankruptcy court's denial of the statute-of-limitations motion, the

On appeal, U.S. Brass pursues its statute-of-limitations contention. In

Section 546(a) provides, in pertinent part, as follows:

Rather, authorization for a preference-avoidance action by a DIP is found in

In opposition to this interpretation, Century argues principally (1) that a DIP is

We reject the contention that Sec. 546(a)(1)'s reference to "the appointment" of

We also decline Century's invitation to rule that Congress's failure to clarify

Congress either an awareness of the decisions or an intent to adopt them.

Century's additional argument that subjection of a DIP to Sec. 546(a)'s two-year

We have considered all of Century's arguments in support of the decisions

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