IN RE MIZUNO, 9955237
U.S. 9th Circuit Court of Appeals
IN RE MIZUNO
9955237
IN RE: KEN MIZUNO,
Debtor.
No. 99-55237
DUKE SALISBURY, Trustee,
Plaintiff-Appellee, D.C. No.
CV-98-00750-LHM
v.
OPINION
MIRAGE RESORTS, INC.; MIRAGE
HOTEL-CASINO; THE GOLDEN
NUGGET CASINO INC.,
Defendants-Appellants.
Appeal from the United States District Court
for the Central District of California
Linda H. McLaughlin, District Judge
Argued and Submitted
April 12, 2000--Pasadena, California
Filed September 11, 2000
Before: Ferdinand F. Fernandez, Kim McLane Wardlaw,
Circuit Judges, and Charles R. Weiner, 1
Senior District Judge.
Opinion by Judge Weiner
SUMMARY
The summary, which does not constitute a part of the opinion of the court,
is copyrighted C 2000 by West Group.
_________________________________________________________________
Bankruptcy/Litigation & Procedure
The court of appeals affirmed an order of the district court.
The court held that in a Chapter 11 involuntary bankruptcy in
which the bankruptcy court permits a creditor to act as the
functional equivalent to a debtor in possession prior to the
appointment of a trustee, the statute of limitations governing
an adversary action by the trustee begins to run on the date of
the appointment.
On October 14, 1991, debtor Ken Mizuno's creditors
brought an involuntary bankruptcy proceeding against him
and his affiliated corporation in Japan. The Japanese court
appointed creditor Kengo Ohashi as administrator of the
bankruptcies.
Under the authority conferred by the Japanese court,
Ohashi filed an involuntary bankruptcy petition against
Mizuno on June 9, 1992 in the Northern District of California.
He also filed an answer to the petition on Mizuno's behalf,
admitting insolvency and consenting to the order for relief.
The bankruptcy court treated Ohashi variously as the debtor,
a debtor-in-possession, or a de facto trustee; Ohashi exercised
plenary control over Mizuno's property.
In a separate action, the district court ruled that Ohashi
lacked standing to bring an action in the name of the estate
against Mizuno and others for violating the automatic stay.
The court of appeals reversed, holding that due to collateral
estoppel, the district court erred in addressing the standing
issue because Mizuno had not appealed from a prior order that
Ohashi could act as debtor. The court concluded that Ohashi
had standing, and that appellee Duke Salisbury had succeeded
to Ohashi's interests when he was appointed as trustee of the
estate on December 15, 1995.
Salisbury brought an adversary action against appellee
Mirage Resorts and other casinos (Mizuno had used investors'
funds to pay gambling debts) on December 12, 1997, within
two years of his appointment, but more than two years after
the filing of the involuntary petition. The defendants asserted
that the action was barred by the governing statute of limita-
tions because it was filed more than two years after the filing
of the involuntary petition.
Based on its prior ruling in the automatic stay action that
Ohashi had standing as a de facto trustee, the bankruptcy
court ruled that the adversary action was time-barred because
it was filed more than two years from the date of the involun-
tary petition. Salisbury appealed.
The district court reversed and remanded for further pro-
ceedings. The court held that regardless of what term the
bankruptcy court used to denote Ohashi's status, he was never
appointed as trustee, Salisbury was the first and only trustee
to be appointed, and the two-year limitation period com-
menced on the date of his appointment. The casinos appealed.
[1] Ohashi's status was the key to determining when the
statute began to run: if he was a trustee, the statute began to
run at the outset of the case; if he was either the debtor, a
debtor in possession, or an agent of the estate, and not a
trustee, the statute began to run when Salisbury was
appointed. Ohashi was never a trustee. [2] Whether Ohashi
was an agent, debtor, or debtor in possession, was of little
import. The determinative issue was that he was never a
trustee.
[3] Ohashi merely administered the estate, being permitted
by the bankruptcy court to exercise the powers of a trustee as
a debtor in possession. This did not make him a de facto
trustee. Otherwise, every debtor in possession would be a de
facto trustee. Such an interpretation reads the "appointment of
a trustee" language out of the statute. [4] When a chapter 11
trustee is actually appointed, the statute of limitations restarts,
and the trustee gets two years from appointment. Since the
limitations period applicable to Salisbury was distinct from
the one applicable to Ohashi, it was immaterial that Ohashi's
two-year period expired. The adversary action was timely
filed.
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COUNSEL
Barry B. Langberg, Gregory A. Bray, Deborah Drooz,
Stroock & Stroock & Lavan LLP for appellants Mirage
Resorts, Inc., Mirage Hotel-Casino, and The Golden Nugget
Casino Inc.
James J. Feder, John W. Mills, Feder & Mills Professional
Corporation, Patrick E. Hoog for appellees Duke Salisbury,
Chapter 11 Trustee.
_________________________________________________________________
OPINION
WEINER, Senior District Judge:
I.
This appeal arises out of the extensively litigated bank-
ruptcy of Ken Mizuno, a Japanese land developer who
defrauded thousands of Japanese investors in a golf course
and country club development, and used some of the money
to pay gambling debts and make preferential transfers in the
United States. Mirage Resorts, Inc., Mirage Hotel-Casino, and
Golden Nugget Casino, Inc. (collectively Mirage) appeal from
an order of the District Court reinstating the adversary pro-
ceeding instituted against them by the Chapter 11 Trustee
Duke Salisbury. The Bankruptcy Court had determined that
the adversary proceeding was barred by the applicable statute
of limitations. Salisbury appealed and the District Court
reversed, finding that the action was timely filed. We have
jurisdiction over the appeal under 28 U.S.C. SS 158(d) and
1291. We affirm.
II.
The history of Mizuno's bankruptcy proceedings is some-
what complicated, but necessary to an understanding of the
central issue in this appeal. On October 14, 1991, Mizuno's
Japanese tort claimants filed an involuntary bankruptcy action
against him in Japan. On April 28, 1992, Kengo Ohashi, one
of Mizuno's creditors, was appointed by the Japanese court to
be administrator of Mizuno's personal bankruptcy and that of
his affiliated company, Ken International. On June 9, 1992,
acting under the authority given him by the Japanese court,
Ohashi filed an involuntary Chapter 11 petition against
Mizuno in the United States Bankruptcy Court for the Central
District of California. He also filed an answer to the petition
on Mizuno's behalf, admitting insolvency and consenting to
the order for relief. From that time until the appointment of
Salisbury as trustee, Ohashi exercised control over the debt-
or's property, and was treated by the bankruptcy judge as,
alternately, the debtor, a debtor-in-possession, or a de facto
trustee.
On November 30, 1995, in a separate appeal of an action
to enforce the automatic stay against Mizuno, the district
court determined on a motion made by Mizuno, that Ohashi
was neither the trustee, debtor, or debtor-in-possession of the
Mizuno estate and lacked any standing to bring an action in
the name of the estate against Mizuno and others for violation
of the automatic stay. On appeal of that order, we determined
that the District Court erred in reaching the issue of whether
Ohashi lacked standing because Mizuno had not appealed a
prior order finding Ohashi could act as the debtor. As he had
not appealed the prior order, we determined that Mizuno was
collaterally estopped from relitigating Ohashi's standing. We
concluded that Ohashi had standing to initiate the action for
the automatic stay violation and that Salisbury succeeded to
Ohashi's interests when he was appointed trustee of the estate
under 11 U.S.C. S 1104 on December 15, 1995. Ken Mizuno
Bankr. Estate v. Mizuno (In re Mizuno), 125 F.3d 858, 1997
WL 579128 (9th Cir. Sept. 17, 1997) (unpublished disposi-
tion).
The instant adversary action was filed on December 12,
1997, within two years of Salisbury's appointment as trustee,
but more than two years after the filing of the involuntary
petition. It has been litigated in tandem with another adver-
sary action filed by Salisbury against MGM Dist., Inc., for-
merly known as the Desert Inn. As here, in the Desert Inn
action the defendants argued that the adversary action was
barred by the statute of limitations because it was brought
more than two years after the bankruptcy commenced, even
though it was within two years of Salisbury's appointment as
trustee. Also as here, the primary question the Bankruptcy
Court believed it had to address was whether Ohashi was act-
ing, on the one hand, as a debtor in possession or a de facto
trustee or, on the other hand, in some other capacity. If he was
either the debtor in possession or a de facto trustee, Desert Inn
argued the adversary action was untimely since under 11
U.S.C. S 546(a) and the cases interpreting that provision, the
time period ran from the initiation of the action. 2 If he was
never a debtor in possession or de facto trustee, the time
period would run from the time Salisbury was appointed and
the lawsuit would be deemed timely.
Based upon its prior holdings in the automatic stay viola-
tion action against Mizuno, the bankruptcy court found that
Ohashi was the de facto trustee of the estate and therefore,
that the limitations period began to run from the filing of the
bankruptcy petition because the "appointment" of Ohashi was
simultaneous with the filing of the order for relief. Thus the
lawsuit was untimely. In making its determination, the bank-
ruptcy court noted Ohashi's authority from the Japanese bank-
ruptcy court to (1) file the involuntary petition against
Mizuno, (2) answer the petition on Mizuno's behalf admitting
insolvency and consenting to the order for relief, and (3) exer-
cise control over the debtor's property. The bankruptcy court
went on to find that even if Ohashi was not a de facto trustee
but instead a debtor in possession under S 546(a), and Duke
Salisbury was the first trustee to be appointed, the time period
still expired two years after commencement of the action
because John Mitchell, Inc. v. Steinbrugge (In re Hanna), 72
F.3d 114 (9th Cir. 1995) (holding that the statute of limita-
tions runs from the appointment of the first trustee but, if none
is appointed, it runs from the establishment of the debtor in
possession by the filing of the bankruptcy petition) could not
be read to mean that the limitations period restarted when the
Chapter 11 trustee was appointed after the initial limitations
period had expired. The bankruptcy court found that Salis-
bury's argument, that Hanna announced an unambiguous rule
that all trustees get two years from the date of first appoint-
ment, was mistaken. In deciding the same issue with regard
to Mirage, the bankruptcy court incorporated by reference its
decision in the Desert Inn case and reached the same conclu-
sions: Ohashi was acting as a debtor in possession or de facto
trustee from the outset of the bankruptcy and the statute of
limitations on the claim against Mirage had lapsed since it had
not been filed within two years of the filing of the initial peti-
tion for relief.
Salisbury appealed to the district court, which by minute
entry of December 1, 1998, reversed the decision of the bank-
ruptcy court and remanded for further proceedings. The dis-
trict court held that, under old S 546(a), where a Chapter 11
trustee is appointed the two year limitation period restarts and
the trustee gets two years from the date of his appointment to
initiate adversary actions. The district court also found that
Salisbury was the first Chapter 11 trustee to be appointed;
regardless of what term the bankruptcy court used to describe
Ohashi's status, he was never "appointed" as trustee and thus
treating him as the Chapter 11 trustee for purposes of deter-
mining whether the adversary action was timely would be
contrary to the plain language of old S 546(a)(1). Accord-
ingly, the district court reversed the decision of the bank-
ruptcy court, reinstated the adversary action, and remanded.
III.
We have discussed the application of old S 546(a) on sev-
eral occasions. In Ungrade Corp. v. Government Technology
Servs. (In re Softwaire Centre International, Inc.) , 994 F.2d
682 (9th Cir. 1993), a Chapter 11 debtor in possession filed
an avoidance action more than two years after the petition was
filed. In that case, no trustee had ever been appointed. In hold-
ing that S 546(a) was intended to apply to debtors in posses-
sion as well as trustees, id. at 684, we adopted the reasoning
of Zilkha Energy Co. v. Leighton, 920 F.2d 1520, 1523-24
(10th Cir. 1990), which construed S 546(a) in light of 11
U.S.C. S 1107(a)'s provision that a debtor in possession "shall
have all the rights . . . and powers and shall perform all the
functions and duties . . . of a trustee." We concluded in Soft-
waire Centre that "[w]e do not believe that Congress intended
to limit actions filed by an appointed trustee to two years
without making the same restriction apply to a debtor-in-
possession who is the functional equivalent of an appointed
trustee." Id. at 684.
That same year we decided Ford v. Union Bank (In re San
Joaquin Roast Beef), 7 F.3d 1413 (9th Cir. 1993). In that case,
a Chapter 11 trustee had been appointed and subsequently
replaced by a Chapter 7 trustee when the case was converted.
The Chapter 7 trustee attempted to bring an action to recover
a preferential transfer within two years of his own appoint-
ment, but beyond the second anniversary of the Chapter 11
trustee's appointment. In response to the trustee's argument
that the two year period began to run anew when he was
appointed, we held that "the most logical interpretation of sec-
tion 546(a) is that the statute of limitations begins running
from the date the first trustee is appointed and that all subse-
quent trustees are subject to the same statute of limitations."
Id. at 1415.
Two years later in Mosier v. Kroger Co. (In re IRFM, Inc.),
65 F.3d 778 (9th Cir. 1995), we faced the situation of an
avoidance action which was brought more than two years
after the filing of the Chapter 11 petition by the debtor in pos-
session, but within two years of the appointment of a Chapter
7 trustee. We held that Softwaire Centre and San Joaquin
Roast Beef compelled a conclusion that the statute of limita-
tion had begun to run when the initial Chapter 11 petition was
filed. See id. at 780. As Softwaire Centre held that a Chapter
11 debtor in possession was the functional equivalent of an
appointed trustee, and San Joaquin Roast Beef held that the
limitation period does not start anew when there is a conver-
sion to Chapter 7, "[a]dding these two cases together, the stat-
ute of limitations in the case began running on . . . the date
IRFM filed its Chapter 11 bankruptcy petition. The fact that
IRFM's petition was subsequently converted to a Chapter 7
bankruptcy, and a Chapter 7 trustee appointed, did not start
the clock ticking anew." IRFM at 781.
That same year we decided Hanna, a case where the Chap-
ter 11 trustee brought an avoidance action more than two
years after the bankruptcy petition was filed, but within two
years of the trustee's appointment. We found the action to be
timely, rejecting the argument that the time ran from the date
the petition was filed since the debtor in possession was the
functional equivalent of a trustee:
If . . . the debtor in possession is always the first
trustee, then in all Chapter 11 cases, the relevant
triggering event would be the date on which the
debtor filed the bankruptcy petition. The date on
which a Chapter 11 trustee is actually appointed
would be completely irrelevant when calculating the
expiration of the limitations period. [This] interpreta-
tion of our three cases reads the "appointment of a
trustee" language out of the statute.
Hanna, 72 F.3d at 116-17. Rather, Hanna
. . . read Softwaire Centre, San Joaquin Roast Beef,
IRFM, and the language of section 546(a) together to
hold that whenever a Chapter 11 trustee is actually
appointed under section 1104, the rule in San Joa-
quin Roast Beef applies, so that "the two-year statute
of limitations begins running from the date the first
trustee [i.e., the Chapter 11 trustee] is appointed."
However, where no actual Chapter 11 trustee is ever
appointed, Softwaire Centre and IRFM apply, and
the debtor in possession is the functional equivalent
of a Chapter 11 trustee.
Id. at 117.
In Liquidation Estate of DeLaurentiis Entertainment Group
v. Technicolor, Inc. (In re DeLaurentiis Entertainment Group,
Inc.), 87 F.3d 1061 (9th Cir. 1996), we addressed the situation
of an action to recover a preferential transfer brought more
than two years after the filing of the petition by a debtor in
possession but less than two years after the creation of a Cred-
itor's Committee to act as agent for the debtor's estate under
11 U.S.C. S 1123(b)(3)(B). We held that S 546(a), "read in
conjunction with S 1107(a), affords a debtor in possession two
years from the filing of the bankruptcy petition to bring an
avoidance action. Neither the plain language ofS 546(a) nor
the language of S 1104 conveys the same status on estate rep-
resentatives." Id. at 1063-64. Accordingly, we reaffirmed the
holding of Hanna: if no Chapter 11 trustee is ever appointed
the holding of Softwaire Centre applies and the two year
period runs from the filing of the petition. But whenever a
Chapter 11 trustee is actually appointed, San Joaquin Roast
Beef applies, "the statute of limitations restarts, and the
trustee gets two more years from appointment . . . . Thus,
under the pre-amended version of S 546(a), two distinct stat-
ute of limitations periods exist for avoidance proceedings."
DeLaurentiis, 87 F.3d at 1064 (emphasis added).
Finally, our most recent case construing old S 546(a) is
Avalanche Maritime, Ltd. v. Parekh (In re Parmetex, Inc.),
199 F.3d 1029 (9th Cir. 1999), where we addressed the ques-
tion of whether the trustee's limitation period begins to run
upon the appointment of an interim trustee, or upon the quali-
fication of a permanent trustee. We held that, applying the
conclusions of San Joaquin Roast Beef that appointment of
the first trustee triggers the statute of limitations, and Soft-
waire Centre that the functional equivalent of a trustee quali-
fies as a trustee for purposes of S 546, the limitation period
begins to run upon the appointment of the interim trustee. Id.
at 1033-34.
IV.
[1] Returning to the facts presented sub judice, we have an
individual who is variously described by the bankruptcy court
as a "de facto trustee" or a "debtor in possession," but who
was never actually appointed a trustee, conducting the affairs
of an estate for several years before Salisbury was actually
appointed to be the Chapter 11 trustee. Ohashi's status is the
key to determining whether the statute began to run: if he was
a trustee, the statute began to run at the outset of the case; if
he was either the debtor, a debtor in possession or an agent
of the estate, and not a trustee, under DeLaurentiis the statute
began to run when Salisbury was appointed.
We conclude that Ohashi was never a trustee, as that term
is used in S 546(a). It is clear from the record that the bank-
ruptcy court considered him the debtor or a debtor in posses-
sion from the outset of the case. It allowed him to file the
answer on Mizuno's behalf, admitting insolvency and con-
senting to the order for relief. It held early in the proceedings
that Ohashi could act as the debtor or debtor in possession and
denied Mizuno's motion to vacate the order for relief which
argued that Ohashi could not act as the debtor. The bank-
ruptcy court specifically found that Ohashi had permission to
answer the involuntary petition in place of Mizuno, and
Mizuno did not appeal this decision. In the later action to
enforce the automatic stay against Mizuno, this court found
that the district court had erred in revisiting the issue of
whether Ohashi lacked standing to initiate the action for vio-
lation of the automatic stay, since Mizuno did not appeal the
earlier decision. Most importantly, the bankruptcy court never
ordered the appointment of a trustee under 11 U.S.C.
S 1104(a), and the United States Trustee never appointed
Ohashi the trustee under S 1104(d).
[2] Whether Ohashi was, alternatively, an agent, debtor or
debtor in possession is of little import, and we do not decide
that issue. The determinative issue is that he was never a
trustee. While the bankruptcy court, in both its Desert Inn
decision and the decision in this case which incorporated
Desert Inn, continuously called Ohashi a "de facto trustee" its
use of that term was error. The only case cited by the bank-
ruptcy court for the proposition that Ohashi was a "de facto
trustee" was In re Holiday Isles, Ltd., 29 B.R. 827 (Bankr.
S.D. Fla. 1983). In that case, however, there was an actual
order for the appointment of co-trustees. The co-trustees
never duly qualified because they failed to post the required
penal bond. See id. at 828-29. Nonetheless they appeared
before the court and acted as trustees on numerous occasions,
were reimbursed by the court from estate funds for their
expenses, and filed pleadings in which they represented them-
selves as the trustees. See id. at 829. Holiday Isles held that
those who so hold themselves out as co-trustees are estopped
from contending they are not trustees as a defense to a suit
brought against them based on their actions as trustees; that
where such persons never qualified as de jure trustees, the
court will consider them de facto trustees. Id . at 830.
[3] Whether the de facto trustee theory used in Holiday
Isles is proper or not, it would not apply here. This was not
a situation where Ohashi was apparently appointed, but never
technically qualified to be the Chapter 11 trustee. He merely
administered the estate, being permitted by the bankruptcy
court to exercise the powers of a trustee, presumably under
the authority of 11 U.S.C. S 1107(a) as a debtor in possession.
This does not make him a de facto trustee. Otherwise every
debtor in possession would be a de facto trustee and, as we
held in Hanna, such an interpretation "reads the `appointment
of a trustee' language out of the statute." Id., 72 F.3d at 117.
[4] We find this case is controlled by Hanna and De-
Laurentiis. As in Hanna, we have an action instituted more
than two years after the bankruptcy petition was filed, but
within two years of the trustee's appointment. The only distin-
guishing factor between this case and Hanna is the fact that
the two year period running against the debtor in possession
expired before the trustee was ever appointed. While Mirage
argues that such a "dead" statute cannot be "revived" by the
appointment of a trustee, this argument ignores our discussion
in DeLaurentiis. In that case we held that where a Chapter 11
trustee is actually appointed, "the statute of limitation restarts,
and the trustee gets two more years from appointment. . . .
Thus, under the pre-amended version of S 546(a) two distinct
statute of limitations periods exist for avoidance proceed-
ings." DeLaurentiis, 87 F. 3d at 1064 (emphasis added). Since
the limitation period applicable to Salisbury is distinct from
the one applicable to Ohashi, it is immaterial that Ohashi's
two year period expired. This is not a situation where a statute
is "revived." Rather, as Salisbury was the first and only
trustee actually appointed, the new statute of limitation began
to run on the date of his appointment, and the adversary action
was timely filed.3
Because Salisbury's action was timely filed, we need not
consider his argument that equitable tolling would save his
action even if it were technically untimely.
AFFIRMED.
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FOOTNOTES
1 Honorable Charles R. Weiner, Senior United States District Judge for
the Eastern District of Pennsylvania, sitting by designation.
2 The version of S 546(a) in effect at the time of the filing of the petition
for relief provided in its entirety:
(a) An action or proceeding under section 544, 545, 547, 548, or
553 of this title may not be commenced after the earlier of --
(1) two years after the appointment of a trustee under section
702, 1104, 1163, 1302, or 1202 of this title; or
(2) the time the case is closed or dismissed.
Following enactment of the 1994 Bankruptcy Amendments the section
now provides:
(a) An action or proceeding under section 544, 545, 547, 548, or
553 of this title may not be commenced after the earlier of -- (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, 1104, 1163, 1202, or 1302 of
this title if such appointment or such election occurs
before the expiration of the period specified in subpara-
graph (A); or
(2) the time the case is closed or dismissed.
3 Mirage makes the additional argument S 546 is ambiguous and that
Congress's enactment of S 216 of the Bankruptcy Reform Act of 1994,
Pub. L. No. 103-394, 108 Stat. 4106, which amendedS 546 to its current
form, should guide our interpretation of the old provision. First, there is
no cause to find that old S 546 is ambiguous. The mere fact that it has
been construed to have different applications under different factual sce-
narios does not render it ambiguous. Moreover, Congress's amendment to
S 546 did not declare what the former statute was intended to mean; it
altered the statutory scheme adding the provision Mirage wishes was in
effect at the time this action was filed. While the amendment retained the
two distinct limitations periods, one running from the entry of the order
for relief and a second period which runs from the appointment of the first
trustee, the second period was conditioned upon the trustee being
appointed before the expiration of the first two year period. In other
words, the new statute contains an important provision not found in the
original, that no proceeding can be brought by a trustee more than three
years after the order for relief. This was clearly not the law at the time this
action was filed.