Bankr. L. Rep. P 71,041 Delgado Oil Company, Inc. v. Michael R. Torres, James R. Cleveland, 785 F.2d 857, 10th Cir. (1986)
Bankr. L. Rep. P 71,041 Delgado Oil Company, Inc. v. Michael R. Torres, James R. Cleveland, 785 F.2d 857, 10th Cir. (1986)
2d 857
In July 1982, Delgado commenced an action which was removed to the United
States District Court for the District of Wyoming, averring that defendant
Cleveland, as a director of Balducci, made false representations about the
company's financial statements on which Delgado relied in extending credit to
Prior to trial, in March 1982, Balducci had filed a petition for reorganization
under Chapter 11 of the Bankruptcy Code (11 U.S.C. Secs. 1101-1146) in the
United States Bankruptcy Court for the District of Colorado.3 Because
Balducci was not a party in the instant case, the automatic stay provisions of
the Bankruptcy Code did not affect the pendency of this suit. More importantly,
no party apparently considered the possible effect of the bankruptcy nor
presented the question of whether the trial court retained jurisdiction over the
issue of a preferential transfer.4
The question presented is whether, under the Bankruptcy Reform Act of 1978
(the Code),6 the filing of a bankruptcy petition by a corporation deprives the
district court of jurisdiction to try the issue of a preferential transfer by a
corporate director and vests the bankruptcy court with exclusive jurisdiction.
After viewing the appropriate statutory provisions, we conclude the question
must be answered in the affirmative.
We start our analysis with the provisions of 28 U.S.C. Sec. 1471(a), (e) (1978),
which state:
(a) Except as provided in subsection (b) of this section, the district courts shall
have original and exclusive jurisdiction of all cases under title 11.
....
(e) The bankruptcy court in which a case under title 11 is commenced shall
have exclusive jurisdiction of all of the property, wherever located, of the
debtor, as of the commencement of such case.
10
11
(a) The commencement of a case under section 301, 302, or 303 of this title
creates an estate. Such estate is comprised of all the following property,
wherever located:
12
....
13
(3) Any interest in property that the trustee recovers under section 543, 550,
553, or 723 of this title.
14
This definition of the property of the estate is key to our inquiry and requires
that recoveries made by the trustee (11 U.S.C. Sec. 550)7 in actions to void
preferential transfers be included in the estate under 11 U.S.C. Sec. 547. Thus,
when Sec. 541(a)(4) is applied to 28 U.S.C. Sec. 1471(e), we must conclude
that, by statute, the bankruptcy court is the only court with postbankruptcy
subject matter jurisdiction over preferential transfers of the debtor's property.
15
17
Thus, the filing of the bankruptcy petition by Balducci transmuted the legal
rights of its creditors seeking recovery of corporate debts. However, plaintiff
Delgado invoked the doctrine of Colorado common law imposing liability on a
corporate officer or director for the breach of fiduciary duties owed to the
corporation's creditors. Crowley v. Green, 148 Colo. 142, 365 P.2d 230 (1961);
Rosebud Corp. v. Boggio, 39 Colo.App. 84, 561 P.2d 367 (1977). Delgado
sought to impose individual liability on Cleveland as a director for actions
which directly and "tortiously" injured Delgado as an unsecured creditor who
had extended credit to Balducci as a corporation. Delgado relied on a series of
Colorado cases which, under ostensibly similar situations, allowed recovery to
creditors or an individual creditor on the theory that directors owe a duty to
creditors not to divest corporate property for the director's benefit.9 Central to
the common law doctrine is the recognition that creditors may pursue this
remedy on behalf of the corporation to ensure that all creditors are treated
equally. Ficor, Inc. v. McHugh, 639 P.2d 385 (Colo.1982).10
18
However skillfully pleaded, the instant common law action is preempted by the
bankruptcy case. Even under the common law, plaintiff's cause of action is
maintainable only through the debtor corporation; hence, it is property of the
estate.11 Defendant Cleveland was not the debtor. Any liability of Cleveland to
Balducci creditors for violating a trust relationship was thrust upon him solely
because of his capacity as a director of an insolvent corporation indebted to the
plaintiff. 12 Of greater consequence, this trust relationship applied to all the
creditors of Balducci, not just this plaintiff. The intervention of the bankruptcy
case now prevents the inequity of one creditor recovering more on its debt than
the remaining similarly situated creditors can recover on theirs.
19
which results in the preference of one or more creditors over others, the purpose
of an action against those transferees is to return assets to the debtor's estate for
equitable distribution to all creditors. While the common law action to recover
a preferential transfer can be maintained by creditors under certain
circumstances, the intervention of the events of bankruptcy and the pervasive
jurisdiction of the bankruptcy court must negate the common law right of
recovery. The negation occurs to satisfy the basic bankruptcy purpose of
treating all similarly situated creditors alike. To do this, the trustee in
bankruptcy is given power to recover, as property of the debtor, preferentially
transferred property or the value of that property.
20
We cannot ignore the significance of the recovery in the context of our case.
Even in the common law action, the property allegedly preferentially
transferred by Balducci was not that of Delgado but of Balducci. In the light of
the creation and function of the bankruptcy estate, only the trustee has the right
to reach out and recover the value of that property.
21
Accordingly, the judgment of the trial court is reversed, this case is remanded,
and the trial court is directed to dismiss the action for preferential transfer
against the defendant.
Honorable Lee R. West, United States District Judge for the District of
Oklahoma, sitting by designation
The court found that Cleveland did not actively participate in any fraud and that
Delgado did not rely on the financial statement in deciding to extend credit to
Balducci
Delgado's action was instituted against both Cleveland and Michael R. Torres,
the comptroller of Balducci. Torres is not a party to this appeal
Delgado filed a claim as an unsecured creditor in the bankruptcy court and was
a member of the creditors' committee. However, according to the record,
Delgado received nothing from the bankruptcy distribution
The first claim for alleged fraud was obviously beyond the purview of the
bankruptcy proceeding; but, at trial, the court held for the defendants on this
claim, and that finding has not been appealed
After we raised the jurisdictional question, the parties were given the
opportunity to submit supplemental briefs confined solely to the issue of
whether the filing of the bankruptcy petition had the effect of depriving the
district court of jurisdiction to try the issue of the existence of a preferential
transfer
6
This section provides: "[T]o the extent that a transfer is avoided under section
... 547 ... of this title, the trustee may recover, for the benefit of the estate, the
property transferred, or ... the value of such property...."
Indeed, according to the supplemental record, the trustee in this case brought
such an action in the bankruptcy court. In its order filed December 24, 1984,
the bankruptcy court granted summary judgment in favor of Cleveland on the
issue of alleged preferential transfers. On appeal to the district court, the order
was reversed and trial of the issue was set
Appellant cites Crowley v. Green, 148 Colo. 142, 365 P.2d 230 (1961); La
Fond v. Basham, 683 P.2d 367 (Colo.Ct.App.1984); Rosebud Corp. v. Boggio,
39 Colo.App. 84, 561 P.2d 367 (1977); Fishel v. Goddard, 30 Colo. 147, 69 P.
607 (1902)
10
11
12
Plaintiff never argued alter ego or piercing the corporate veil as a means of