OPINION
Chapter 7
Under § 544(b) and Cal. Civ.Code §§ 3439-3439.12, Trustee sought to avoid certain fraudulent transfers to Appellees that occurred up to seven years prior to the debtors’ petition date. Trustee filed his complaints against Appellees within the two years prescribed in § 546(a)(1)(A). Finding that the California fraudulent transfer statute, Cal. Civ.Code § 3439.09(c), is a statute of repose, the bankruptcy court, relying on an unpublished Ninth Circuit decision, ruled that Trustee could reach back only to those transfers occurring up to seven years prior to the filing of his complaint, not the petition date. In other words, the bankruptcy court determined that § 546(a) has no effect on the seven-year limitations period set forth in Cal. Civ.Code § 3439.09(c); it runs concurrently with the two year statute of limitations set forth in § 546(a). Trustee appeals, contending that the filing of a bankruptcy petition tolls the California statute and gives a trustee an additional two years to investigate and file an avoidance action, regardless of whether Cal. Civ.Code § 3439.09(c) is a statute of repose.
The narrow question of whether § 546(a) preempts a state-law statute of repose such as Cal. Civ.Code § 3439.09(c) is an issue of first impression in this circuit. At least no published decisions have addressed it. While relatively few courts have addressed this particular issue, virtually all have held in favor of Trustee. We conclude that the bankruptcy court erred in its application of § 546(a), and we REVERSE.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
EPD Investment Company, LLC (“Debtor”) was operated by Jerrold S. Pressman (together “Debtors”)
Trustee filed his complaints against Defendants on November 30 and December 2, 2012 (the “Complaints”). Trustee alleged that Debtor operated as a Ponzi scheme between 2003 and the petition date. Pursuant to § 544(b) and Cal. Civ.Code §§ 3439.04(a) and 3439.07, Trustee’s first claim for relief sought to avoid transfers from Debtors to Defendants occurring up to seven years prior to the petition date: December 7, 2003 through December 7, 2010 (the “First Claim”).
Defendants moved to dismiss Trustee’s Complaints under Civil Rule 12(b)(6) (“Motions to Dismiss”). Citing Cal. Civ.Code § 3439.09(a) and (b),
Trustee opposed the Motions to Dismiss. Citing Von Gunten v. Neilson (In re Slatkin),
Defendants argued that Cal. Civ.Code § 3439.09(c) was a statute of repose, not limitations, and was not subject to tolling. To support their argument, Defendants cited Jenner v. Neilson (In re Slatkin),
In its decision, the bankruptcy court identified Cal. Civ.Code § 3439.09(a) and (c) as the apphcable “statute of limitations” for a fraudulent transfer claim under Cal. Civ.Code § 3439.04(a). Relying on Slatkin I, the court dismissed Trustee’s First Claim against Defendants, with prejudice, to the extent it sought to avoid transfers occurring more than seven years prior to the date he filed his Complaints. After considering the parties’ arguments at the hearing on the Motions to Dismiss, the court added:
First, I believe that the Slatkin I case better reflects the application of relevant California law. And so I think it’s a better — it’s not binding on the Court, but I think it reflects appropriately what the state of the law is in California with respect to that statute of repose.
Hr’g Tr. (July 16, 2013) 13:2-7 (emphasis added). We granted Trustee’s motion for leave to file interlocutory appeals. Rule 8004.
II.JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(H). We have jurisdiction under 28 U.S.C. § 158.
III.ISSUE
Does § 546(a) preempt a state-law fraudulent transfer statute of repose such as Cal. Civ.Code § 3439.09(c)?
IV.STANDARDS OF REVIEW
The bankruptcy court’s dismissal of an adversary complaint for failure to state a claim under Civil Rule 12(b)(6) is reviewed de novo. Barnes v. Belice (In re Belice),
We review a bankruptcy court’s conclusions of law, including its interpretations of provisions of the Bankruptcy Code and state law, de novo. See New Falls Corp. v. Boyajian (In re Boyajian),
V.DISCUSSION
A. Civil Rule 12(b)(6) standards
Under Civil Rule 12(b)(6), made applicable in adversary proceedings through Rule 7012, a bankruptcy court may dismiss a complaint if it fails to “state a claim upon which relief can be granted.” In reviewing a Civil Rule 12(b)(6) motion, the trial court must accept as true all facts alleged in the complaint and draw all reasonable inferences in favor of the plaintiff. Navarro v. Block,
We do not ignore affirmative defenses to a claim; if the allegations show that relief is barred as a matter of law, the complaint is subject to dismissal. Jones v. Bock,
To avoid dismissal under Civil Rule 12(b)(6), a plaintiff must aver in the complaint “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal,
B. The interplay of § 544(b), § 546(a) and the statute of limitations in Cal. Civ.Code § 3439.09(a) and (b).
Section 544(b)(1) authorizes a trustee to avoid “any transfer of an interest of the debtor in property ... that is voidable under applicable law” — i.e., state law. The transfers at issue here were argued to be fraudulent transfers under the California Uniform Fraudulent Transfer Act (“UFTA”), found in Cal. Civ.Code §§ 3439-3439.12. Specifically, Trustee sought to avoid certain transfers under Cal. Civ.Code §§ 3439.04(a) and 3439.07. Monies lost by Ponzi-scheme investors are recoverable under the UFTA. See Donell v. Kowell,
Cal. Civ.Code § 3439.09(a) and (b) are statutes of limitation requiring a plaintiff to file a fraudulent transfer action within four years of the transfer or, for an intentional fraud, within one year after the transfer was or could reasonably have been discovered. In re JMC Telecom LLC,
A trustee’s action under § 544 is also subject to the time limitations set forth in § 546(a), which provides, in relevant part, that an action or proceeding under § 544 to avoid a transfer must be commenced within “2 years after the entry of the order for relief.” § 546(a)(1)(A). Many courts, including the Ninth Circuit, have held that if the statute of limitations period governing a state-law fraudulent transfer action has not yet expired on the petition date (or the date the order for relief is entered, which is generally the same date), the trustee may bring the action under § 544(b), provided it is filed within the § 546(a) limitations period. This rule applies even if the state statute of limitations expired while the bankruptcy case was pending. Acequia, Inc.,
Simply put, so long as the state-law ’ fraudulent transfer claim exists on the petition date (or the order for relief date), the state statutes of limitations cease to have any continued effect, and the only applicable statute of limitations for bringing the claim thereafter is within § 546(a). Accordingly, the reach back period is established on the petition date (or the order for relief date) and encompasses all transfers within the relevant period provided by state law. Trustee’s Complaints were timely filed under § 546(a).
C. The interplay of § 546(a) and Cal. Civ.Code § 3439.09(c) and similar state statutes of repose
In contrast to subdivisions (a) and (b), the seven year time limitation set forth in Cal. Civ.Code § 3439.09(c) is a statute of repose. Donell v. Keppers,
Relying on Slatkin I, the bankruptcy court determined that the seven-year repose period in Cal. Civ.Code § 3439.09(c) was not tolled and, therefore, Trustee could not avoid any transfers that occurred more than seven years prior to the filing of the Complaints as those claims were extinguished. In Slatkin I, the chapter 7 trustee initiated an avoidance action to recover fraudulent transfers made by debtor during the course of a Ponzi scheme.
In Slatkin II, which involved a different transferee of the debtor and was decided six months after Slatkin I, the Ninth Circuit stated in its introductory paragraph: “The bankruptcy court determined that Slatkin had been running a fraudulent Ponzi scheme and that the transfers from Slatkin were voidable fraudulent conveyances that occurred within seven years of Slatkin’s bankruptcy. We affirm the bankruptcy court’s order.”
Trustee argues that Slatkin I and Slat-kin II are inconsistent as to whether a trustee can recover transfers that occurred up to seven years prior to the petition date or to the date the complaint is filed. We agree. Slatkin I appears to hold that, unlike the four year statute of limitations set forth in Cal. Civ.Code § 3439.09(a), the seven-year repose period in Cal. Civ.Code § 3439.09(c) is not tolled upon the filing of the bankruptcy petition, and therefore a trustee can only recover transfers occurring up to seven years from when the complaint is filed. Slatkin II arguably holds just the opposite, that a trustee can recover transfers occurring up to seven years prior to the petition date. Slatkin II, however, made no mention pf whether Cal. Civ.Code § 3439.09(c) is a statute of repose or limitations. Either way, while the Slatkin cases may provide persuasive authority on the matter at hand, we are not bound by them.
No published Ninth Circuit case has addressed this specific issue. Therefore, we turn to other jurisdictions which have considered it. First, however, we believe a brief explanation about the difference between statutes of limitations and statutes of repose is in order. In a recent decision, we explained that a statute of limitations creates an affirmative defense if a party fails to initiate an action within a specific time period, whereas a statute of repose extinguishes a party’s claim after a fixed period of time, usually measured from one of the defendant’s acts. The former involves a party’s diligence; the latter promotes a defendant’s peace from litigation. DeNoce v. Neff (In re Neff),
Although statutes of limitations are subject to equitable tolling, equitable tolling is inconsistent with statutes of repose. In re Neff,
While these cases have determined that the repose period in Cal. Civ.Code § 3439.09(c) is not subject to equitable tolling or any type of extension provided in potentially conflicting California statutes, such as Cal.Code Civ. Proo. §§ 356 or 338(d), none confronted the interplay between Cal. Civ.Code § 3439.09(c) and the Bankruptcy Code, namely § 546(a).
1. Cases supporting Trustee’s position
Trustee argues that § 546(a) makes no distinction between statutes of limitations and statutes of repose, and therefore the bankruptcy court erred in determining he could reach back only to those transfers occurring within seven years from the filing of his Complaints. Several cases support Trustee’s position.
In Gibbons v. First Fid. Bank, N.A. (In re Princeton-New York Inns., Inc.),
As with Appellees in the instant case, the defendants in Princeton I argued that § 544(b) gave the trustee no more rights than a hypothetical unsecured creditor has under state substantive law, which requires that the fraudulent transfer action
The district court affirmed. First Union Nat’l Bank v. Gibbons (In re Princeton-New York Invs., Inc.),
Not convinced by the bank’s argument that a statute of repose should be treated differently under § 546(a), the district court in Princeton II stated:
The Court is not convinced that § 25:2— 31’s status as a statute of repose, alone, is sufficient to establish an overriding state public policy requiring subordination of the Code’s goals for §§ 544(b) and 546(a). After carefully weighing the goals of the Code, namely for the Trustee to maximize the bankruptcy estate for creditors’ benefit, with the New Jersey legislature’s purposes for enacting the statute of repose, pursuant to the Supremacy Clause and substantive countervailing federal law considerations, the state statute must give way. Section 546(a)’s wording is clear. It applies to those actions brought under § 544. If § 546(a)’s plain meaning has led to unworkable results, it is for Congress and not the courts to remedy that problem.
Id. at 65-66 (footnote omitted).
In a factually similar case, the transferee defendants moved under Civil Rule 12(b)(6) to dismiss the trustee’s avoidance actions as barred by the limitations period set forth in the New Jersey UFTA, arguing that the transfers occurred more than five years before the trustee filed his complaint. Tsai v. Bldgs, by Jamie, Inc. (In re Bldgs. by Jamie, Inc.),
The bankruptcy court in Mi-Lor Corp. v. Gottsegen (In re Mi-Lor Corp.),
In Smith v. Am. Founders Fin. Corp.,
While Appellees argue that Cal. Civ. Code § 3439.09(c) cannot be equitably tolled or held in abeyance until the discovery of alleged fraudulent transfers, none of the above courts based their decisions on the doctrine of equitable tolling. Rather, each concluded, either expressly or implicitly, the statute of repose in their respective state fraudulent transfer statute was preempted by § 544(b) and the statute of limitations set forth in § 546(a).
2. Cases supporting Appellees’ position
Far fewer cases support Appellees’ position that Trustee’s claims for fraudulent transfers occurring more than seven years prior to the complaint date are barred by California’s statute of repose. We located two.
The first case supporting Appellees is Official Comm. of Unsecured Creditors v. Action Indus., Inc. (In re Phar-Mor, Inc. Secs. Litig.),
In considering the interplay between § 546(a) and the Ohio probate statute, the district court held that § 546(a) did not preempt Ohio law. Id. at 694-96. Preemption in this case was “inappropriate because [the court could not] discern a ‘clear and manifest’ intention on the part of Congress to override the state’s strong and traditional interest in regulating the
The other case is Floyd v. Option One Mortg. Corp. (In re Supplement Spot, LLC),
D. The bankruptcy court erred when it dismissed Trustee’s First Claim in part as being barred by the seven year statute of repose in Cal. Civ. Code § 3439.09(c).
We are persuaded by the well-reasoned holdings of Princeton I and Princeton II and their progeny and conclude that the state statute of repose at issue here presents an obstacle to the objectives of Congress in enacting the Code. In cases like Phar-Mor, which involve state probate statutes, we agree that because Congress has not expressed an intention to override a state’s strong and traditional interest in regulating probate matters, the Code may not control.
However, by enacting the Code, Congress has expressed an intent to regulate bankruptcy and maximize the bankruptcy estate for the benefit of creditors. Congress enacted § 544(b) and § 546(a) to foster a trustee’s ability to avoid fraudulent transfers of property under state law and to recover that property for the benefit of the estate. Section 546 was created with the intent to give trustees sufficient time or “breathing room” to determine whether to assert any claims under § 544. Princeton I,
The California Legislature has expressed an intent in Cal. Civ.Code § 3439.09(c) to extinguish liability if an avoidance action is not timely filed. In addition, the phrase “notwithstanding any other provision of law” found in Cal. Civ. Code § 3439.09(c) expresses the legislature’s intent for the seven-year repose period to control despite the existence of other laws which might otherwise govern. See Roach,
In considering both California and federal law, we conclude the time bar set forth in Cal. Civ.Code § 3439.09(c) frustrates Congress’ intent in § 546 and col
Accordingly, we hold that so long as a state-law fraudulent transfer claim exists on the petition date (or the date the order for relief is entered), ie., the state’s applicable repose period governing the action has not yet expired on the petition date (or the order for relief date), the trustee may bring the avoidance action under § 544(b), provided it is filed within the limitations period in § 546(a). The “reach back” period is established on the petition date (or the order for relief date) and encompasses all transfers within the relevant period provided by state law.
In this case, Trustee should have been allowed to bring a claim for those transfers occurring within seven years prior to the petition date — i.e., back to December 7, 2003 — and the bankruptcy court erred in dismissing his First Claim under Civil Rule 12(b)(6) to the extent it sought to avoid the transfers to Bank of America from December 24, 2003 through November 21, 2005, and the transfers to Countrywide from December 15, 2003 through November 16, 2005. Because Trustee timely filed his First Claim within the two years prescribed in § 546(a)(1)(A), recovery of these transfers was not time-barred.
YI. CONCLUSION
For the foregoing reasons, we REVERSE.
Notes
. Unless specified otherwise, all chapter, code and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure are referred to as "Civil Rules.”
. EPD Investment Company, LLC was filed as an involuntary case on December 7, 2010. The bankruptcy court entered an order for relief on February 9, 2011, nunc pro tunc to December 7, 2010. It also ordered substan-five consolidation of Debtor’s case and Mr. Pressman’s individual voluntary case nunc pro tunc to December 7, 2010. Therefore, the petition date and the order for relief date are the same; Trustee could arguably recover transfers going back seven years from December 7, 2010. See Alexander v. Compton (In re Bonham),
. Although Trustee alleged other claims for relief, his First Claim is the only claim at issue in these appeals.
. Cal. Civ.Code § 3439.09(a) and (b) provides: A cause of action with respect to a fraudulent transfer or obligation under this chapter is extinguished unless action is brought pursuant to subdivision (a) of Section 3439.07 or levy made as provided in subdivision (b) or (c) of Section 3439.07:
(a) Under paragraph (1) of subdivision (a) of Section 3439.04, within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant.
(b) Under paragraph (2) of subdivision (a) of Section 3439.04 or Section 3439.05, within four years after the transfer was made or the obligation was incurred.
. Cal. Civ.Code § 3439.09(c) provides, in relevant part:
Notwithstanding any other provision of law, a cause of action with respect to a fraudulent transfer or obligation is extinguished if no action is brought ... within seven years after the transfer was made or the obligation was incurred.
. Appellees argue that in the underlying district court order from Slatkin II, it is clear the issue there was only the four year statute of limitations set forth in Cal. Civ.Code § 3439.09(a), not the seven-year repose period in Cal Civ.Code § 3439.09(c). While that was certainly one of the issues, the district court nonetheless proceeded to affirm the bankruptcy court’s finding that the trustee could bring fraudulent transfer claims up to seven years prior to the date of the debtor's bankruptcy filing:
The Court finds that pursuant to Cal. Civ. Code § 3439.09(a), the Trustee presented sufficient evidence to avoid transfers up to seven years prior to Slatkin's bankruptcy and the transfers actually avoided did not go beyond seven years.
The Court finds that pursuant to [§ 546(a)(1)(A) ], the Bankruptcy Court did not err in finding that the Trustee's claims against Appellants were timely.
Von Gunten v. Neilson (In re Slatkin), No. 2:04-cv-10280, at 4 (C.D.Cal. Aug. 31, 2005) (emphasis added).'
. In In re JMC Telecom LLC, the district court held that because of the language contained in Cal. Civ.Code § 3439.09(c) — “Notwithstanding any other provision of law”' — all fraudulent transfer claims were barred after seven years whether they arose under the UFTA or Cal.Code Civ. Proc. § 338(d).