                                                              FILED
                                                 United States Court of Appeals
                                                         Tenth Circuit

                                                       March 12, 2013
                                   PUBLISH           Elisabeth A. Shumaker
                                                         Clerk of Court
                  UNITED STATES COURT OF APPEALS

                                TENTH CIRCUIT


ERIC C. RAJALA, Trustee in
Bankruptcy for the Estate of
Generation Resources Holding
Company, LLC,

      Plaintiff - Appellant,

v.                                              No. 12-3113

ROBERT H. GARDNER; ROBBIN M.
GARDNER; R. JAMES ANSEL;
VIRGINIA Z. ANSEL; WILLIAM W.
STEVENS; AKIKO N. STEVENS;
LOOKOUT WINDPOWER HOLDING
COMPANY, LLC, a Missouri Limited
Liability Company; FORWARD
WINDPOWER HOLDING
COMPANY, LLC, a Missouri Limited
Liability Company; LOOKOUT
WINDPOWER HOLDING
COMPANY, LLC (MO); FORWARD
WINDPOWER HOLDING
COMPANY, LLC (MO); STEVENS
FAMILY INVESTMENT COMPANY,
LLC, a Missouri LLC,

      Defendants - Appellees,

and

FREESTREAM CAPITAL, LLC;
GARDNER FAMILY INVESTMENT
COMPANY, LLC, a Missouri LLC;
WINDFORCE HOLDINGS, INC.;
       Consol Defendants - Appellees,

 and

 EDISON MISSION ENERGY,a
 California corporation; MISSION
 WIND PENNSYLVANIA, INC., a
 Delaware corporation; MISSION
 WIND PA TWO, INC., a Delaware
 Corporation; MISSION WIND PA
 THREE, INC., a Delaware
 corporation; LOOKOUT WIND
 POWER, LLC, a Delaware Limited
 Liability Corporation; FORWARD
 WIND POWER, LLC, a Delaware
 Limited Liability Company,

       Defendants.


       APPEAL FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF KANSAS
   (D.C. No. 2:09-CV-02482-EFM-KMH and 2:11-CV-02524-EFM-KMH)


Michael P. Healy (and Michael J. Fleming of The Healy Law Firm, L.L.C., on the
briefs), Lee’s Summit, Missouri, for Plaintiff - Appellant.

Scott J. Goldstein (Douglas M. Weems and Barry L. Pickens of Spencer, Fane,
Britt & Browne, L.L.P, with him on the brief), Kansas City, Missouri, for
Defendants - Appellees.

Tyler W. Hudson and Adam S. Davis of Wagstaff & Cartmell, L.L.P., Kansas
City, Missouri, for Consol Defendant -Appellee


Before KELLY, MURPHY, and TYMKOVICH, Circuit Judges.


KELLY, Circuit Judge.

                                        -2-
      Plaintiff-Appellant Eric Rajala, Trustee of the bankruptcy estate of

Generation Resources Holding Company, LLC (GRHC), appeals from the district

court’s order granting motions to distribute (by Defendants-Appellees FreeStream

Capital, LLC (FreeStream) and Lookout Windpower Holding Co., LLC (LWHC))

approximately $9 million held in escrow. This amount represents part of the

purchase price of a wind power project allegedly developed by GRHC. In a

nutshell, the Trustee claims that the Debtor, GRHC, has been left with $5 million

in debt while the individual Defendants-Appellees and their affiliated entities

received some $13 million in proceeds from the sale of several wind power

projects, unburdened by the debt.

      At issue is what constitutes property of the bankruptcy estate and whether

allegedly fraudulently transferred property is subject to the Bankruptcy Code’s

automatic stay before a trustee recovers the property through an avoidance action.

See 11 U.S.C. §§ 362, 541(a). The district court held that allegedly fraudulently

transferred property is not part of the bankruptcy estate until recovered and

therefore is beyond the reach of the automatic stay. Exercising our jurisdiction

under 28 U.S.C. § 1291, we affirm.




                                        -3-
                                    Background

      GRHC was formed in 2002 for the purpose of developing wind-generated

power projects. Aplt. App. 69–70. As part of its development strategy, GRHC

employed FreeStream to provide advisory services. Id. at 79. In June 2005,

GRHC entered into a Memorandum of Understanding (MOU) with Edison Capital

(Edison). Id. at 75–77. The MOU detailed Edison’s contemplated purchase of

three GRHC wind power projects, including the “Lookout” project. Id. Based on

the MOU, development agreements were also drafted. Id. at 79.

      Later that year, several GRHC insiders formed LWHC. 1 Id. at 80. On

February 3, 2006, LWHC closed a deal with Edison for the sale of the wind power

projects. Id. at 83. According to the second amended complaint, the GRHC

insiders caused a switch in the identity of the projects’ developer from GRHC to

LWHC. Id.

      On March 28, 2007, LWHC entered into a contract, the Lookout

Redemption Agreement (LRA), with an Edison subsidiary. Id. at 96–97, 319–24.

The LRA provided that once Lookout achieved commercial operation (at which

point it would be fully owned by Edison), it would pay “25% of the Final

Installment to FreeStream [], as full satisfaction of all amounts that may be due to



      1
     LWHC was first established as a Pennsylvania company (LWHC-PA), but
LWHC-PA then transferred its interests to a newly-created Missouri company,
LWHC-MO. Id. at 91.

                                        -4-
FreeStream [] from Lookout, Developer Member and/or Investor Member, and (ii)

75% of the Final Installment to Developer Member.” Id. at 320. The LRA

identified LWHC as the “Developer Member.” Id. at 319.

                          The Fraudulent Transfer Claims

      In September 2009, the Trustee filed suit in Kansas federal district court

against six individual defendants and numerous companies. Id. at 20, 58–67. The

Trustee refers to several of the Defendants as “insiders,” based on their ownership

and control of GRHC. Id. at 59. The second amended complaint contains

numerous claims, including fraudulent transfer claims. Id. at 56–156. The

Trustee alleges the insiders fraudulently transferred GRHC’s development and

redemption opportunities to insider-owned companies. Id. at 108–37.

                              The Pennsylvania Case

      In April 2009, LWHC and FreeStream sued Edison in federal district court

in the Western District of Pennsylvania, seeking the final installment due under

the LRA Id. at 166. In an effort to suspend LWHC and FreeStream’s suit, the

Trustee requested that the Kansas federal district court stay the Pennsylvania case

or hold that any judgment obtained could not result in collateral estoppel in the

Kansas case. Id. at 157–58, 200–01. The Trustee contended that any proceeds

would be property of GRHC’s bankruptcy estate—thus related to the action in

Kansas federal district court. Id. The Kansas federal district court denied the

Trustee’s motion, and the Pennsylvania case proceeded. Id.


                                        -5-
       Shortly before the Pennsylvania case went to trial, the Trustee filed a notice

of bankruptcy with the Pennsylvania court, followed by a motion to stay the case

or, alternatively, transfer it to Kansas. Id. at 188, 193–94, 199–214. The Trustee

argued that Lookout’s sale price was property of GRHC’s bankruptcy estate and,

therefore, subject to the automatic stay. Id. at 202–03.

       On May 31, 2011, the Pennsylvania federal district court declined the

Trustee’s motion to stay or transfer, and proceeded to enter judgment in favor

LWHC and FreeStream for approximately $9 million (75% to LWHC; 25% to

FreeStream). Id. at 187, 197–98. However, the court transferred the issue of

whether the judgment was part of GRHC’s bankruptcy estate to the Kansas

bankruptcy court. Id. at 195–96, 198. The Pennsylvania court also ordered that

the judgment funds be deposited with the Kansas bankruptcy court. Id. 160–61,

198.

       Once in Kansas bankruptcy court, LWHC and FreeStream successfully

moved to withdraw the case to Kansas federal district court. Id. at 363. The

court also consolidated the Pennsylvania case with the Trustee’s pending claims.

Id. at 227, 352–54.

                                  The Distribution

       Both LWHC and FreeStream filed motions to distribute the Pennsylvania

judgment, arguing that the funds were not property of GRHC’s bankruptcy estate.

Id. at 181–86, 335–43. On April 9, 2012, the Kansas federal district court granted


                                         -6-
their motions. See Rajala v. Gardner, No. 09-2482-EFM, 2012 WL 1189773 (D.

Kan. Apr. 9, 2012). The court held that the bankruptcy estate does not include

fraudulently transferred property until recovered through a fraudulent transfer

suit. Id. at *7. The court also held that because the LRA provided for

FreeStream to be paid directly by Lookout, FreeStream’s contingency fee could

never be considered part of the bankruptcy estate. Id. at *5–6.

      On April 12, the district court issued a clarifying nunc pro tunc order

directing the bankruptcy court to distribute the Pennsylvania judgment. Aplt.

App. 398–99. The Trustee followed with a motion to certify that order for

appellate review, Fed. R. Civ. P. 54(b), which the district court denied. Id. at

402–13. The court held that the Trustee’s motion to certify the April 12 order

was procedurally improper. Id. at 409. The court also indicated it would decline

to grant any Rule 54(b) motion to certify its April 9 substantive order, reasoning

that the order was non-final as to the fraudulent transfer claims. Id. at 409–13.


                                      Discussion

A.    Does this Court Have Appellate Jurisdiction?

      Contrary to the arguments of the various Defendants, the Kansas federal

district court did rule on the applicability of the automatic stay in granting the

motions to distribute. Specifically, the court found that the Pennsylvania

judgment was not property of GRHC’s estate and, therefore, not subject to the

automatic stay. Thus, the district court’s order, which deemed § 362 inapplicable

                                         -7-
to the judgment proceeds, was essentially an order granting relief from the

automatic stay. See Quigley Co., Inc. v. Law Offices of Peter G. Angelos (In re

Quigley Co.), 676 F.3d 45, 51 (2d Cir. 2012) (holding that a decision on § 362’s

applicability is “the equivalent of a decision . . . on a motion seeking relief from a

stay”); see also Eddleman v. U.S. Dep’t of Labor, 923 F.2d 782, 785 (10th Cir.

1991), overruled in part on other grounds by Temex Energy, Inc. v. Underwood,

Wilson, Berry, Stein & Johnson, 968 F.2d 1003, 1005 n.3 (10th Cir. 1992).

      The grant or denial of relief from an automatic stay is generally an

appealable final order. Franklin Sav. Ass’n v. Office of Thrift Supervision, 31

F.3d 1020, 1022 n.3 (10th Cir. 1994); see 3 Collier on Bankruptcy ¶ 362.13

(collecting cases). We have explained that an immediate appeal “is necessary to

effectuate Congress’ intent to settle these matters quickly.” Eddleman, 923 F.2d

at 785.

      Defendants do not contest the general rule. Rather, they argue that 28

U.S.C. § 158(d) circumscribes our jurisdiction. Accordingly, we may only review

a decision granting relief from a stay where the order is entered by a bankruptcy

court and affirmed by a district court. But this view of our jurisdiction is too

limited. When a district court exercises its jurisdiction and grants relief from an

automatic stay, that decision is considered an “appealable final order” under 28

U.S.C. § 1291. See Franklin Sav. Ass’n, 31 F.3d at 1022 n.3; see also Safety-

Kleen, Inc. v. Wyche, 274 F.3d 846, 864 n.4 (4th Cir. 2001); United States v.


                                         -8-
Pelullo, 178 F.3d 196, 200–01 (3d Cir. 1999); Lentino v. Cage (In re Lentino), ---

F.3d ----, 1999 WL 77140, at *1–2 (5th Cir. 1999) (summary calendar); Sonnax

Indus., Inc. v. Tri Component Prods. Corp. (In re Sonnax), 907 F.2d 1280, 1283

(2d Cir. 1990); Tringali v. Hathaway Mach. Co., Inc., 796 F.2d 553, 557–58 (1st

Cir. 1986); Packerland Packing Co. v. Griffith Brokerage Co. (In re Kemble), 776

F.2d 802, 805 (9th Cir. 1985). 2

      We recognize that in Trinity Broad. Corp. v. Eller, we weighed in on one

side of a circuit split in holding “that a judgment in a consolidated action that

does not dispose of all claims shall not operate as a final, appealable judgment

under 28 U.S.C. § 1291.” 827 F.2d 673, 675 (10th Cir. 1987). However, this rule

is necessarily more flexible in the bankruptcy context, where the concept of

finality requires consideration of a particular adversary proceeding or a discrete

controversy rather than the broader litigation. See Healthtrio, Inc., v. Centennial

River Corp. (In re HealthTrio, Inc.), 653 F.3d 1154, 1159–60 (10th Cir. 2011);

see also Keyesr v. Wasacht Towers Condo. Owners Ass’n, Inc., No. 12-4114,

2012 WL 5909210, at *2 (10th Cir. Nov. 27, 2012). For practical purposes, the

finality of a decision granting or denying relief from an automatic stay is the



      2
        Additionally, some courts and commentators have relied upon 28 U.S.C.
§ 1292(a)(1) as a basis for jurisdiction over orders denying or granting relief from
§ 362. See In re Nat’l Cattle Cong., Inc., 91 F.3d 1113, 1114 (8th Cir. 1996); see
also Wright, Miller, & Cooper, Federal Practice & Procedure § 3926.1, at 290–91
(2012). But for purposes of this appeal, we need only consider § 1291 as the
basis for our jurisdiction.

                                        -9-
same whether the order is issued by a bankruptcy court or a district court. See,

e.g., Official Comm. of Unsecured Creditors v. Cajun Elec. Power Co-op, Inc.,

(In re Cajun Elec. Power Co-op., Inc.), 119 F.3d 349, 353–54 (5th Cir. 1997);

Jove Eng’g, Inc. v. I.R.S., 92 F.3d 1539, 1547–48 (11th Cir. 1996); In re Sonnax,

907 F.2d at 1283; United States v. Nicolet, Inc., 857 F.2d 202, 205 (3d Cir.

1988); see also 16 Wright, Miller, & Cooper, Federal Practice and Procedure §

3926.1, at 286–88 (2012).

      Defendants seek to distinguish Franklin Sav. Ass’n. They argue that unlike

Franklin Sav. Ass’n, the underlying litigation in this case is ongoing. This

argument is unpersuasive. First, the Trustee has not asserted any fraudulent

transfer claims against FreeStream. Second, the pending fraudulent transfer

claims against LWHC do not preclude us from treating the district court’s

decision as a final, appealable order.

      Simply put, the scope of the automatic stay constitutes a discrete dispute.

See Howard Delivery Serv., Inc. v. Zurich Am. Ins. Co., 547 U.S. 651, 657 n.3

(2006) (“[O]rders in bankruptcy cases may be immediately appealed if they

finally dispose of discrete issues within the larger case . . . .” (quotation

omitted)). The narrow legal issue presented on appeal does not depend on the

merits of the underlying fraudulent transfer claims. In fact, resolution of the

fraudulent transfer claims would render the court’s decision on the automatic stay

“virtually unreviewable.” See Eddleman, 923 F.2d at 785. Accordingly, we have


                                         - 10 -
jurisdiction to review the district court’s decision on this point of law. 3

      Defendants raise another challenge to our jurisdiction. They argue the

appeal is moot because we cannot grant the Trustee an effective remedy. See

Aplee. Br. (FreeStream) 17–18. It is true that a lawsuit is moot where the court

cannot possibly grant relief. See Calderon v. Moore, 518 U.S. 149, 150 (1996)

(per curiam). But Defendants bear the heavy burden of proving there is no longer

a live case. See In re Paige, 584 F.3d 1327, 1336 (10th Cir. 2009); see also Cnty.

of LRA v. Davis, 440 U.S. 625, 631 (1979). And even “a partial remedy is

sufficient to prevent a case from being moot.” Calderon, 518 U.S. at 150

(quotation omitted).

      Here, the Trustee simply requests that we reverse the district court by

holding that the $9 million is GRHC property and should be returned to the

bankruptcy court pursuant to § 362(a)(3). Aplt. Br. 52. This is not a case where

real property has been sold to a third party, or where reversal would require

untangling a complex web of transactions. See In re Arnold & Baker Farms, 85

F.3d 1415, 1419–20 (9th Cir. 1996) (“Fashioning effective judicial relief would

hardly require putting Humpty Dumpty together again.” (quotation omitted)).

Rather, the Trustee seeks to reimpose the stay on the amount disbursed. See In re


      3
        Though it appears the district court concluded that its April 9 order was
not final, we disagree. As the Court has stated, “Rule 54(b) . . . . does not
supersede any statute controlling appellate jurisdiction.” Sears, Roebuck & Co. v.
Mackey, 351 U.S. 427, 438 (1956).

                                         - 11 -
C.W. Mining Co., 641 F.3d 1235, 1239 (10th Cir. 2011) (case not moot where

monetary relief was possible); Raymark Indus., Inc. v. Lai, 973 F.2d 1125, 1129

(3d Cir. 1992); see also Am. Atheists, Inc., v. Detroit Downtown Dev. Auth., 567

F.3d 278, 287–88 (6th Cir. 2009); Burbank Anti-Noise Grp. v. Goldschmidt, 623

F.2d 115, 116 (9th Cir. 1980).

      We recognize the possibility that various Defendants have dissipated all or

part of the funds. But money is fungible and we have no reason to think that $9

million could not be returned. Further, the Trustee is not required to demonstrate

that he will obtain complete relief; it is likely that some measure of effective

relief could be fashioned, hence, the case is not moot. See In re Paige, 584 F.3d

at 1336–37.

B.    Does Freestream’s 25% Contingency Fee Constitute Property of the
      Bankruptcy Estate Under § 541?

      Whether the contingency fee constitutes property of the estate is a question

of law reviewed de novo. In re Cranmer, 697 F.3d 1314, 1316 (10th Cir. 2012).

The district court concluded that FreeStream’s contingency fee could “never be”

property of the estate. The court based its decision on the LRA, which required

Lookout to pay “25% of the Final Installment to FreeStream [], as full satisfaction

of all amount that may be due . . . from Lookout, Developer Member and/or

Investor Member.” According to the district court, it is “clear that FreeStream’s

portion [came] directly from Lookout” and did “not pass through the Developer

Member.” Rajala, 2012 WL 1189773, at *5.

                                        - 12 -
      The Trustee argues that the district court focused on the physical path of

the funds, rather than the legal path required by the documents. Aplt. Br. 29–31.

He argues that the purchase price is based upon the value of the projects, and any

money FreeStream received is part of the purchase price, as allocated by the

Developer Member. Id. at 30. Merely because the ultimate amount is based upon

the value of the project or is part of the purchase price does not allow us to

disregard the language of the agreements or the Pennsylvania judgment. Aplt.

App. 197–98.

      The district court was correct—the plain language of the LRA clearly

required FreeStream’s payment to come directly from Lookout (owned by

Edison). Further, as both the Pennsylvania and Kansas courts found, FreeStream

was the intended third-party beneficiary of the LRA As such, FreeStream had a

right to enforce the LRA, and FreeStream had its own right to payment. See John

Julian Const. Co. v. Monarch Builders, Inc., 306 A.2d 29, 34 (Del. Super. Ct.

1973) (The LRA provided that it was to be governed by Delaware law.).

Therefore, the district court correctly held that FreeStream’s fee could not be

considered property of GRHC’s bankruptcy estate.

C.    Does an Automatic Stay Apply to Unrecovered Property that Is the Subject
      of a Fraudulent Transfer Claim?

      The underlying issue we must decide is whether a bankruptcy estate

includes fraudulently transferred property that the Trustee has not yet recovered.

Because the appeal presents a question of statutory interpretation, our review is

                                        - 13 -
de novo. In re HealthTrio, 653 F.3d at 1161.

      1.     The Split

      Under 11 U.S.C. § 362(a)(3), the filing of a Chapter 7 bankruptcy petition

automatically stays “any act to obtain possession of property of the estate . . . or

to exercise control over property of the estate.” Section 541(a)(1) defines

property of the estate to include “all legal or equitable interests of the debtor in

property as of the commencement of the case,” and § 541(a)(3) also includes in

the estate “[a]ny interest in property that the trustee recovers under section . . .

550.” Under § 550, a trustee may recover transferred property, “to the extent that

a transfer is avoided under section . . . 548.” In turn, § 548 enables the trustee to

avoid fraudulent transfers.

      The Fifth Circuit has held that fraudulently transferred property belongs to

the estate under § 541(a)(1), and is therefore subject to § 362’s stay even before it

is recovered. Am. Nat’l Bank of Austin v. MortgageAmerica Corp. (In re

MortgageAmerica Corp.), 714 F.2d 1266 (5th Cir. 1983). The court explained

that “it makes the most sense to consider the debtor as continuing to have a ‘legal

or equitable interest’ in the property fraudulently transferred.” Id. at 1275; see

also Barber v. McCord Auto Supply, Inc. (In re Pearson Indus., Inc.), 178 B.R.

753, 764 (Bankr. C.D. Ill. 1995) (“The transferee merely h[olds] voidable title . . .

.”). Thus, even before fraudulently transferred property comes into the estate by

operation of § 541(a)(3), the property is considered part of the estate under



                                         - 14 -
§ 541(a)(1).

         In contrast, the Second Circuit rejected In re MortgageAmerica’s analysis

in favor of a narrower reading. 4 See Fed. Deposit Ins. Corp. v. Hirsh (In re

Colonial Realty Co.), 980 F.2d 125 (2d Cir. 1992). The court held that

§ 541(a)(3), rather than § 541(a)(1), governs § 362’s stay as applied to

fraudulently transferred property. Therefore, such property does not become part

of the estate until it is recovered. Id. at 131. In other words, pursuant to

§ 541(a)(3), the automatic stay does not apply to fraudulently transferred property

until the transfer is avoided under § 548, and the property is recovered under

§ 550.

         2.    Which Interpretation?

         In general, “[t]he plain meaning of [a statute] should be conclusive, except

in the rare cases in which the literal application of a statute will produce a result

demonstrably at odds with the intentions of its drafters.” United States v. Ron

Pair Enters., Inc., 489 U.S. 235, 242 (1989). Here, although § 541 is very broad,

see Parks v. Dittmar (In re Dittmar), 618 F.3d 1199, 1207–10 (10th Cir. 2010), it

         4
        Outside the Fifth and Second Circuits, courts are divided between the two
approaches. The Trustee cites N.L.R.B. v. Martin Arsham Sewing Co., 873 F.2d
884 (6th Cir. 1989), as adopting the In re MortgageAmerica rationale. There, the
Sixth Circuit concluded that “property fraudulently conveyed and recoverable
under [the Code] remains property of the estate and, if recovered, should be
subject to equitable distribution under the Code.” Id. at 887. But as Defendants
note, courts within the Sixth Circuit have interpreted Arsham differently.
Compare Teleservices Grp., Inc. v. Huntington Nat’l Bank (In re Teleservices
Grp., Inc.), 463 B.R. 28, 34 n.18 (Bankr. W.D. Mich. 2012), with In re Cincom
iOutsource, Inc., 398 B.R. 223, 235 (Bankr. S.D. Ohio 2008).

                                         - 15 -
plainly does not include fraudulently transferred property until that property is

recovered. Therefore, because the statute’s plain meaning is not demonstrably at

odds with Congress’s intent, it should control.

      Section 541(a)(1) defines the bankruptcy estate as including “all legal or

equitable interests” the debtor holds “as of the commencement of the case.” The

Trustee alleges that GRHC’s insiders fraudulently transferred the Lookout

purchase price to Defendants. Accordingly, the Trustee urges us to adopt the In

re MortgageAmerica rationale, under which the Debtor retains an “equitable

interest” in fraudulently transferred property. See 714 F.2d at 1275; Aplt. Br.

41–44.

      An equitable interest is “[a]n interest held by virtue of an equitable title or

claimed on equitable grounds, such as the interest held by a trust beneficiary.”

Black’s Law Dictionary (9th ed. 2009). “Equitable title” is defined as “a

beneficial interest in property [which] gives the holder the right to acquire formal

legal title.” Id. Reading “equitable title” to include any property a trustee merely

alleges to have been fraudulently transferred would violate the concept of equity.

See Michael R. Cedillos, Note, Categorizing Categories: Property of the Estate

and Fraudulent Transfers in Bankruptcy, 106 Mich. L. Rev. 1405, 1416–17

(2008). “[O]ne of the fundamental principles [of] equity jurisprudence is . . . that

before a complainant can have [] standing in court he must first show that . . . [he

has] a good and meritorious cause of action . . . .” Keystone Driller Co. v. Gen.



                                        - 16 -
Excavator Co., 290 U.S. 240, 244 (1933). It follows that a mere allegation,

without any showing of merit, cannot create “equitable title.”

      Further, “[i]t is a cardinal principle of statutory construction that . . . if it

can be prevented, no clause, sentence, or word shall be superfluous, void, or

insignificant.” TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001). Here, § 541(a)(3)

provides that the estate includes “[a]ny interest in property that the trustee

recovers” pursuant to his avoidance powers. As the Second Circuit explained,

interpreting § 541(a)(1) to include fraudulently transferred property would render

§ 541(a)(3) meaningless with respect to property recovered in a fraudulent

transfer action. In re Colonial, 980 F.2d at 131.

      In response, the Trustee argues that § 541(a)(3) is “a belt and suspenders,”

designed to ensure that assets will be available to satisfy creditor interests.

See Aplt. Br. 35. The Trustee argues that inclusion of such property acts as a

deterrent to fraudulent transfers and furthers the bankruptcy objectives of asset

preservation and equitable distribution. However, there are already several

mechanisms for safeguarding debtor assets. Even before property is recovered

and brought into the estate under § 541(a)(3), a trustee may seek a preliminary

injunction or temporary restraining order pending resolution of a fraudulent

transfer claim. 5 See Fed. R. Civ. P. 65; Fed. R. Bankr. P. 7065. In other words,

      5
        In fact, the Trustee attempted to use Rule 65 by filing a motion for a
temporary restraining order or preliminary injunction. See Aplt. App. 414–15.
However, the district court denied the motion based on the Trustee’s failure to
show a likelihood of success on the merits, and the court’s conclusion that a

                                          - 17 -
we are wary of expanding § 541(a)(1) beyond its plain meaning on policy grounds

where other avenues of asset preservation are readily available.

      Moreover, this is not one of the “rare cases” where the plain meaning of the

statute leads to an absurd result. Both sides present plausible arguments

regarding Congress’s intent. Compare In re MortgageAmerica 714 F.2d at 1275

(citing H.R. Rep. No. 595 (1978)), with In re Colonial, 980 F.2d at 131 (citing

structure of statute as evidence of legislative intent). Therefore, the plain

meaning of the statutory language should control.

      Finally, we are mindful that “where an otherwise acceptable construction

of a statute would raise serious constitutional problems, the [courts should]

construe the statute to avoid such problems unless such construction is plainly

contrary to the intent of Congress.” Solid Waste Agency of N. Cook Cnty. v.

U.S. Army Corps of Eng’rs, 531 U.S. 159, 173 (2001) (quotation omitted).

Although neither party addressed the issue, we note that a broad reading could

potentially violate the Due Process Clause by allowing a trustee to enjoin another

party’s property rights based only on the allegation of fraud. See Connecticut v.

Doehr, 501 U.S. 1, 10 (1991).

     Both parties agree that fraudulent transfer claims are included in the

bankruptcy estate. But according to the Trustee, § 541(a)(1) also includes

property that is the subject of a fraudulent transfer claim—even if the property


preliminary injunction would be adverse to the public interest. See id. at 417–21.
Notably, the Trustee did not appeal.

                                        - 18 -
has been sold to a bona fide purchaser. See Oral Argument (12:15). This reading

of the statute is particularly troublesome given that § 362’s stay is automatic.

Mere filing of a fraudulent transfer claim could deprive a bona fide purchaser of

his property without judicial supervision, a finding of probable cause, the posting

of a bond, or a showing of exigent circumstances—let alone a pre-deprivation

opportunity to be heard. See N. Ga. Finishing, Inc. v. Di-Chem, Inc., 419 U.S.

601, 607 (1975); see also Doehr, 501 U.S. at 10, 17–18. Therefore, because “we

assume that Congress legislates with constitutional limitations in mind,” see U.S.

W., Inc., v. F.C.C., 182 F.3d 1224, 1231 (10th Cir. 1999), we would be reluctant

to adopt the Trustee’s sweeping interpretation of the statute.

      In the end, we need not pass upon the constitutionality of such a broad

reading. Instead, we adopt the statute’s plain meaning and hold that fraudulently

transferred property is not part of the bankruptcy estate until recovered. This

interpretation gives Congress’s chosen language its ordinary meaning, and abides

by the rule against surplusage. Further, our reading does not undermine the

Bankruptcy Code’s goal of equitable distribution, as there exist alternative means

of protecting estate assets.

      AFFIRMED. All pending motions are denied.




                                        - 19 -
