PBCBA BAR BULLETINS pbcba_bulletin_june 2018 | Page 8

BANKRUPTCY C o r n e r The Trustee’s Ability to Transfer or Sell Avoidance Actions Under § 544(b) JASON S. RIGOLI Whether a trustee can sell or transfer an avoidance action under § 544(b) is question for which a greater majority of courts are finding in the affirmative. This position received further endorsement from the United States District Court for the District of Minnesota. See Cedar Rapids Lodge & Suites, LLC v. Seibert, 14–CV–04839 SRN/ KMM, 2018 WL 747408 (D.Minn. Feb. 7, 2018). Finding the greater weight of authority, when weighing the trustee’s transfer of avoidance claims, focused on the “source” of the avoidance action being transferred - §§ 544(b), 547, or 548 – the Siebert Court found that an avoidance claim under § 544(b) could be transferred. The Siebert Court with the reasoning of the Fifth Circuit in Moore In Siebert the Defendants sought dismissal of certain fraudulent transfer litigation, asserting that the judgment creditor did not have standing because a bankruptcy trustee could not transfer the avoidance action. Seibert, 2018 WL747408 at *8. The judgment creditor received the fraudulent transfer claims as part of a settlement with the bankruptcy trustee and approved by the bankruptcy court. Id. at *4. The court concluded that “[a]llowing a trustee to sell § 544(b) rights of action is in accord with the trustee’s existing powers,” such as the ability to authorize creditor suits under a Chapter 11 plan of reorganization and to authorize derivative exercise of the avoidance powers. Moore, 608 F.3d at 261– 62. Additionally, the trustee’s sale of § 544(b) rights of action is subject to approval by the bankruptcy court, which will consider the “core bankruptcy principles” of “asset value The Siebert Court first addressed maximization and equitable distribution” in whether an avoidance action was “property deciding whether to grant approval. Id. at of the estate.” Id. at *8. Finding that the 262 n.18. avoidance action was property of the estate, although noting that the Third Circuit, in Siebert, at *11. dicta, had found fraudulent transfer claims The Trustee is not transferring a claim were not property of the estate, id. at *9 created from the Bankruptcy Code itself, (citing In re Cybergenics Corp., 226 F.3d but was transferring a claim that could 237 (3d Cir. 2000)), the court moved on to have been brought by a creditor prepetition, analyze several court opinions addressing which the trustee inherited under § 544(b), the Trustee’s ability to transfer different and, therefore, it could be assigned like avoidance actions. other claims of the estate. Siebert, 2017 WL 747408 at * 11. The Siebert Court recognized that courts disagree about whether a trustee can transfer these avoidance actions. “The Ninth Circuit has held that the trustee may * This article submitted by Jason S. Rigoli, Esq., Furr transfer any avoidance claims.” Id. (citing Cohen, 2255 Glades Road, Suite 337W, Boca Raton, FL In re Lahijani, 325 B.R. 282, 287 (B.A.P. 9th 33431, [email protected]. Cir. 2005) (citing In re P.R.T.C., Inc., 177 F.3d 774, 781 (9th Cir. 1999))). “In Moore, the Fifth Circuit held that trustees can transfer claims that they inherit under 11 U.S.C. § 544(b).” Id. at * 10 (citing In re Moore, 608 F.3d 253, 261 (5th Cir. 2010)). And, only two opinions that outright prohibited the transfer, regardless of the source – § 544(b) or § 548. Id. at * 10 (citing In re Waterford Funding, LLC, No. 09–br–22584, 2017 WL 439308, at *3 (Bankr. D. Utah Feb. 1, 2017); In re Clements Mfg. Liquidation Co., LLC, 558 B.R. 187,189 (Bankr. E.D. Mich. 2016)). PBCBA BAR BULLETIN 8 LET’S CREATE A WIN -WIN RELATIONSHIP! If YOU need CLIENTS WE need YOU! Join Today Lawyer Referral for more information visit: www.palmbeachbar.org -or- email: [email protected]