Yesterday, we reported how the courts are split on whether a trustee can step into the shoes of the Internal Revenue Service to bring a fraudulent transfer suit going back 10 years under Section 544(b).

Regardless of how the IRS question ultimately works out, Bankruptcy Judge J. Craig Whitley of Charlotte, N.C., has ruled that a bankruptcy trustee cannot step into the shoes of the Pension Benefit Guaranty Corp. to enjoy a six-year statute of limitations seemingly given to the PBGC under the Federal Debt Collection Procedures Act, or FDCPA, 28 U.S.C. § 3001 et seq. The opinion seems to mean that the PBGC usually isn’t a “triggering creditor” for a claim by a trustee under Section 544(b).

The facts were complicated but boiled down to this. The chapter 7 trustee had claims against several individuals for about $1.4 million in fraudulent transfers that took place more than four years before filing. The claims were therefore barred by the two-year statute of limitations in Section 548(a)(1) of the Bankruptcy Code and by the four-year lookback under state law.

As it happened, the PBGC had an allowed unsecured claim against the debtor for almost $7 million. The PBGC evidently could have asserted the same claims against the same defendants who were being sued by the chapter 7 trustee.

To keep the lawsuit alive, the trustee claimed the right to step into the shoes of the PBGC and the six-year statute allegedly afforded to the government under the FDCPA. Judge Whitley nixed the idea and dismissed the suit in his opinion on July 28.

The outcome was governed by Section 544(b), allowing the trustee to step into the shoes of an unsecured creditor who actually exists, and by the FDCPA, which controls whether the PBGC could even invoke the FDCPA.

Section 544(b) provides that

the trustee may avoid any transfer of an interest of the debtor in property . . . that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title.

The PBGC was the so-called triggering creditor, but could the PBGC even use the six-year statute of limitations in the FDCPA? In our story yesterday, Chief Bankruptcy Judge Dale L. Somers decided that the Internal Revenue Service could invoke the FDCPA’s statute of limitations, but does the same rule apply to the PBGC?

Judge Whitley reached a different result based on the fine print in the FDCPA, which was not applicable to the case before Judge Somers.

As Judge Whitley explained, the FDCPA “create[d] a statutory framework for collecting debts owed to the U.S. government.” However, he said it “applies only to a ‘debt’ owed to the United States.” In turn, the term “debt” is defined in the statute to exclude obligations “originally entered into by only persons other than the United States.”

Judge Whitley analyzed opinions from the First, Second and Fifth Circuits, where he said the courts of appeals held that “the Government may not use the FDCPA to collect a debt owing to merely anyone.” The government, he said, “must be the holder of the debt.” In other words, the FDCPA does not cover contracts where the government was not the original party.

Of principal importance, the courts of appeals held that the government may not use the FDCPA to collect a debt on behalf of someone else. For instance, the government could not use the FDCPA to collect wages owing to an employee or to collect unpaid child support. In those circumstances, the government was attempting to collect debts originally owed to individuals.

The Fourth Circuit, Judge Whitley said, had not taken a position on the government’s invocation of the FDCPA in similar circumstances.

Applying authority from sister circuits, Judge Whitley observed that a suit by the PBGC would entail collecting a debt owing to the underfunded pension plan that the PBGC had taken over. The fruits of victory, he said, “will not inure to the U.S. Treasury,” because the PBGC is funded by premiums paid by sponsors of pension plans.

Judge Whitley expounded on the role played by the PBGC:

The fact that the PBGC itself is a government corporation does not matter. The U.S. itself must be a party to the original transaction or insure the original loan, and here, the United States did not directly provide or guarantee funding to [the PBGC or to the pension plan that the PBGC had taken over].

Judge Whitley held that the fraudulent transfers the PBGC might attempt to recover would put the PBGC in the role of attempting to collect a debt owing to the pension fund and its beneficiaries and thus did “not meet the definition of a ‘debt owing to the United States’ under the FDCPA.”

Consequently, Judge Whitley held that the PBGC could not invoke the FDCPA to mount a fraudulent transfer suit, thereby precluding the trustee from relying “on the FDCPA as ‘applicable law’ under § 544(b).”

With the trustee deprived of the six-year statute of limitations, Judge Whitley dismissed the trustee’s fraudulent transfer suit because the transfers all took place more than four years before the bankruptcy filing.