In re: DUBLIN SECURITIES, INC. v. Sarah Helmer (99-3337); Helmer, Lugbill, Martins & Neff Company , Lpa (99-3344)

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0191P (6th Cir.)
File Name: 00a0191p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
In re: DUBLIN S ECURITIES,
INC.,
Debtor.
______________________
M YRON N. TERLECKY ,
Trustee of the Consolidated
Bankruptcy Estate of Dublin
Securities, Inc., Dublin
Management, Inc., & Dublin
Stock Transfer, Inc.,
Plaintiff-Appellant,
v.
S ARAH HELMER (99-3337);
HELMER, LUGBILL, M ARTINS
& NEFF C OMPANY , LPA
(99-3344),
Defendants-Appellees.
;>

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Nos. 99-3337/3344
Appeal from the United States District Court
for the Southern District of Ohio at Columbus.
Nos. 98-00646; 98-00647—Edmund A. Sargus, Jr.,
District Judge.

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2 In re Dublin Securities, Inc. Nos. 99-3337/3344
*The Honorable Todd J. Campbell, United States District Judge for
the Middle District of Tennessee, sitting by designation.
Argued: April 18, 2000
Decided and Filed: June 7, 2000
Before: MERRITT and DAUGHTREY, Circuit Judges;
CAMPBELL, District Judge.*
_________________
COUNSEL
ARGUED: Mark W. Iannotta, STRIP, FARGO, HOPPERS
& LEITHART, Columbus, Ohio, for Appellant. Frederick M.
Morgan, Jr., HELMER, LUGBILL, MARTINS & NEFF,
Cincinnati, Ohio, for Appellees. ON BRIEF: Mark W.
Iannotta, Myron N. Terlecky, STRIP, FARGO, HOPPERS &
LEITHART, Columbus, Ohio, for Appellant. Frederick M.
Morgan, Jr., HELMER, LUGBILL, MARTINS & NEFF,
Cincinnati, Ohio, Irving Harris, STATMAN, HARRIS &
BARDACH, Cincinnati, Ohio, for Appellees.
_________________
OPINION
_________________
MERRITT, Circuit Judge. The facts in this bankruptcy
statute of limitations case are not in dispute. Dublin
Securities, Inc., the debtor in this case, filed a Chapter 11
bankruptcy petition in August 1993. Under 11 U.S.C.
§ 1107(a), Dublin Securities continued the operation of the
business and served the bankruptcy estate as a debtor in
possession. Nearly one year later the bankruptcy was
converted from a Chapter 11 reorganization to a Chapter 7
liquidation. Plaintiff, Myron Terlecky, was appointed trustee
for the estate on August 25, 1994. On May 29, 1996,
approximately twenty-one months later, the trustee filed

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6 In re Dublin Securities, Inc. Nos. 99-3337/3344
limitations against the trustee before one is appointed and
before there is in fact any conversion to a straight bankruptcy
from a Chapter 11 proceeding. A rule that runs the statute out
before the trustee has an opportunity to act makes no sense.
Based on these reasons, we hold that § 546(a)’s statute of
limitations for bringing avoidance actions, as it existed prior
to the 1994 amendments, begins to run upon the actual
appointment of a trustee. We, therefore, reverse the judgment
of the district court and remand to the bankruptcy court for
further proceedings.
Nos. 99-3337/3344 In re Dublin Securities, Inc. 3
separate adversary proceedings against Sarah Helmer and
Helmer, Lugbill, Martins & Neff Co., LPA alleging that
defendants were recipients of fraudulent and preferential
transfers in violation of 11 U.S.C. § 544(b). Both defendants
moved to dismiss the complaints on the basis that the trustee
brought the avoidance actions beyond the two-year statute of
limitations set forth in 11 U.S.C. § 546(a). Both motions
were denied by the bankruptcy court, which held that the
limitations period did not begin to run until the appointment
of the trustee. Afterwards, the defendants each filed an
interlocutory appeal to the district court from the bankruptcy
court’s order denying their motions to dismiss. Granting
defendants’ motions for leave to appeal, the district court
reversed the decision of the bankruptcy court and dismissed
the trustee’s complaints on the basis that the limitations
period began to run when the debtor filed its Chapter 11
petition and became the debtor in possession. Since more
than two years had passed since the filing of the Chapter 11
petition, the district court found that the statute of limitations
had run against the trustee who had been in office for only
twenty-one months. The trustee appealed to this court. We
now reverse.
11 U.S.C. § 546(a), as it existed prior to the 1994
amendments to the Bankruptcy Code, contains the applicable
statute of limitations. It provides that:
An action or proceeding under section 544, 545, 547,
548, or 553 of this title may not be commenced . . . two
years after the appointment of a trustee under section
702, 1104, 1163, 1302, or 1202 of this title . . . .
11 U.S.C.A. § 546(a) (West 1993). On its face, the plain
language of § 546(a) provides the trustee, Terlecky, who was
appointed pursuant to 11 U.S.C. § 702, two years from the
date of his appointment to bring adversary actions on behalf
of the estate against recipients of allegedly fraudulent and
preferential transfers.
Defendants argue on the basis of a complication added by
11 U.S.C. § 1107(a), which confers upon a debtor in

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4 In re Dublin Securities, Inc. Nos. 99-3337/3344
possession the same authority of a Chapter 11 trustee. That
section provides:
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.
11 U.S.C. § 1107(a). The defendants argue that a debtor in
possession not only has the same power as a trustee to avoid
preferences and fraudulent transfers, but also has all of the
limitations that the Code imposes upon trustees as well.
Defendants then conclude that the language in § 1107(a)
means that a debtor in possession is bound by § 546(a)(1)’s
two-year limitations period, and further – and here is the rub
– that the statute accrues and begins run against a later
appointed trustee at the time the debtor in possession is
appointed. In other words, the statute would have already run
against a trustee if the debtor remains in possession for the
first two years or more. But this is not what the statute says.
First, nowhere does § 546(a) mention that a debtor in
possession is limited by the same two-year statute of
limitations. Section 546(a)(1) clearly states that its two-year
statute of limitations applies to certain types of trustees who
are appointed under specifically enumerated code sections.
Second, even if we were to find that §1107(a) imposes a two-
year limitations period on debtors in possession, it does not
change the plain meaning of § 546(a)(1). As found by an
earlier panel of this court, “it would simply mean that a
second two-year period begins to run ‘after the appointment
of a trustee under section 702, 1104, 1163, 1302, or 1202
. . . .’” In re W.M. Cargile Contractor, Inc., 145 F.3d 1335
(6th Cir. 1998) (unpublished) (quoting 11 U.S.C.A.
§ 546(a)(1) (West 1993)). We need not here decide when the
limitations period runs against the debtor in possession.
Instead, we conclude only that the plain meaning of the statute
is that a two-year limitations period begins on the
appointment of a trustee. If there is no appointed trustee, then
Nos. 99-3337/3344 In re Dublin Securities, Inc. 5
there is no limitations period running under § 546(a)(1). The
statute does not run against a trustee yet to be in existence. If
nothing else, the equitable doctrine of laches would provide
a viable defense to bar avoidance actions when there is
inexcusable delay by a debtor in possession.
For a number of reasons – other than the obvious paradox
of running a statute of limitations against a nonexistent person
who has as yet delayed nothing – it would be bad policy to
start a statute running before the trustee assumes office.
Debtors in possession are less likely to commence avoidance
actions than appointed trustees because they are typically
“more interested in preserving relationships with their
creditors than in maximizing the size of the estate.” In re
Maxway Corp., 27 F.3d 980, 984 (4th Cir. 1994); see also
Gleischman Sumner Co. v. King, Weiser, Edelman & Bazar,
69 F.3d 799, 801 (7th Cir. 1995); In re W.M. Cargile
Contractor, Inc., 145 F.3d 1335 (6th Cir. 1998)
(unpublished). A debtor in possession’s goal is to
successfully reorganize, creating incentives to accommodate
vendors to continue business, which may mean forbearing
from legal action against those who were paid in the months
preceding a bankruptcy. Any exercise of avoiding powers by
a debtor in possession does not assist in the goal of
reorganization because there is no increase in the net wealth
of the firm; rather, use of avoiding powers simply reallocates
claims among creditors at the potential cost of business
prospects. See Gleischman Sumner Co., 69 F.3d at 801.
Interpreting § 546(a)(1)’s limitations period to begin running
upon appointment of a trustee thus “prevents any delay from
commencement of [an avoidance] action from penalizing
unsecured creditors who would benefit from the recovery of
a preferential or fraudulent transfer.” In re Maxway Corp., 27
F.3d at 984. Moreover, a debtor in possession may have
friends or family members he would like to prefer or enrich
before or during the reorganization. Under the defendants’
argument all he would have to do to accomplish such a scam
is to let the statute run before converting to a straight
bankruptcy. It is not a good idea to create such a set of
incentives for shady dealing by accruing the statute of

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