author: PAUL KELLY, Jr., Circuit Judge.

text:
    In re Curtis Lawayne TURNER and Rita Gail Turner, Debtors. Curtis Lawayne TURNER and Rita Gail Turner, Appellees/Cross-Appellants, v. SMALL BUSINESS ADMINISTRATION, The Administrator of the Small Business Administration, an Agency of the Government of the United States of America, Appellant/Cross-Appellee.
    Nos. 94-6191, 94-6208.
    United States Court of Appeals, Tenth Circuit.
    May 23, 1996.

      Cynthia L. Alexander, Attorney, Civil Division, Department of Justice, Washington, D.C. (Rosalee Morris, Special Assistant U.S. Attorney, Oklahoma City, Oklahoma, and J. Christopher Kohn and Tracy J. Whitaker, Attorneys, Civil Division, Department of Justice, Washington, D.C. with her on the brief), for Appellant/Cross-Appellee.
    Kenneth L. Peaeher (Thomas J. Steece, Steece, Mathews, Gray & Peaeher, Oklahoma City, Oklahoma, and Alford A. Bratcher, Marlow, Oklahoma with him on the brief), for Appellees/Cross-Appellants.
    Before SEYMOUR, Chief Judge, PORFILIO, ANDERSON, TACHA, BALDOCK, BRORBY, EBEL, KELLY, HENRY, BRISCOE, LUCERO and MURPHY, Circuit Judges.
   ON REHEARING EN BANC

PAUL KELLY, Jr., Circuit Judge.

The Small Business Administration appeals from the entry of summary judgment in favor of Debtors Curtis Lawayne Turner and Rita Gail Turner. The bankruptcy court granted summary judgment in favor of the Debtors in an adversary proceeding, ruling that the United States’ setoff of payments owed by the Agricultural Stabilization and Conservation Service (“ASCS”) to the Turners against the Turners’ delinquent debt to the Small Business Administration (“SBA”) was avoidable. The district court affirmed, as did a panel of this court, albeit on different grounds. Turner v. Small Business Admin., 59 F.3d 1041 (10th Cir.1995). We voted to grant rehearing en banc thereby vacating the panel judgment. 10th Cir.R. 35.6. We now withdraw the panel’s opinion and remand to the panel for further consideration.

Background

The facts of this case are not in dispute. In 1979 and 1981, the Debtors received two loans from the SBA totaling approximately $200,000.00. By August 7,1991, the Debtors had become delinquent in their payments, and the SBA declared the Debtors in default and accelerated the amounts due under the loans.

Subsequently, on March 4, 1992, the Debtors entered into four contracts with the ASCS to receive payments from the United States Department of Agriculture as part of the 1992 Price Support and Production Adjustment Programs. After the Debtors received initial payments from the ASCS under the contracts, the SBA notified the Turners that it would request administrative offset of any further payments against their delinquent SBA debt. A hearing was held and the SBA Office of Hearings and Appeals declared that the SBA could collect on the Debtors’ debt through administrative offset. Between December 30,1992 and February 8, 1993, the ASCS directed $24,599.35 to the SBA rather than to the Debtors, which the SBA applied against their indebtedness.

The Debtors filed a Chapter 12 bankruptcy petition on February 10, 1993. Debtors then initiated an adversary proceeding to recover the funds diverted to the SBA. Debtors conceded that the administrative offset was legal and in compliance with the federal regulations, but maintained that the administrative offset occurred within the ninety days before they filed their petition, and therefore was avoidable under either 11 U.S.C. § 553, the setoff provision of the Code, or 11 U.S.C. § -547, the preference provision of the Code. The bankruptcy court, affirmed by the district court, determined that the transaction was indeed a set off under § 553, but one which was avoidable because it occurred within the ninety day prepetition period, § 553(b). The government contends that the bankruptcy court incorrectly applied § 553(b), an argument not addressed by the panel.

The panel determined that § 553 did not apply, reasoning that the transaction at issue was not a “set off’ because the SBA and the ASCS did not satisfy the mutuality requirement of § 553. The panel determined that the transaction was instead a voidable preference under § 547 because the transfer of the funds occurred within 90 days of the filing of the petition. Turner, 59 F.3d at 1046. We granted the Government’s petition for rehearing en banc to decide the narrow issue of whether the United States is a unitary creditor in bankruptcy. We now hold that the United States is a unitary creditor for purposes of bankruptcy. Therefore, the debts owed from the Turners to the SBA and from the ASCS to the Turners are “mutual debts” and may be set off subject to any applicable exceptions in § 553. We remand to the panel for further consideration under § 553.

Discussion

In reviewing the decision of a bankruptcy court, the district court and the court of appeals apply the same standards of review that govern appellate review in other cases. CCF, Inc. v. First Nat’l Bank & Trust Co. (In re Slamans), 69 F.3d 468, 472 (10th Cir.1995). We therefore review de novo the district court’s order affirming the bankruptcy court and the discrete legal issue on which rehearing en banc has been granted. Id.

I.

There cannot be much debate that outside of the bankruptcy context, the United States is treated as a unitary creditor, and agencies of the United States government, including the SBA and ASCS, may set off debts owed by one agency against claims that another agency has against a single debtor. 31 U.S.C. § 3716(a) provides that an agency that has a claim against a person “may collect the claim by administrative offset.” The Supreme Court has explained that “[t]he right of setoff ... allows entities that owe each other money to apply their mutual debts against each other.” Citizens Bank of Maryland v. Strumpf, — U.S. — , — , 116 S.Ct. 286, 289, 133 L.Ed.2d 258 (1995).

Most directly, in Cherry Cotton Mills v. United States, 327 U.S. 536, 66 S.Ct. 729, 90 L.Ed. 835 (1946), the Supreme Court made clear that the United States has a right to effect interagency setoffs. In that case, the Government owed petitioner a tax refund under the Agricultural Adjustment Act, and the petitioner owed the Reconstruction Finance Corporation (“RFC”) the balance on a loan. The Treasury paid the overage directly to the RFC to reduce the petitioner’s indebtedness. While the immediate issue decided in Cherry Cotton Mills dealt with the jurisdictional power of the Court of Claims, the Court’s language clearly indicates that agencies of the United States government are deemed a unitary creditor:

We have no doubt that the set-off ... jurisdiction of the Court of Claims was intended to permit the Government to have adjudicated in one suit all controversies between it and those granted permission to sue it, whether the Government’s interest had been entrusted to its agencies of one kind or another.

Id. at 539, 66 S.Ct. at 730. The Court explained further that the right to setoff “applies with equal force” to all agencies, including an agency such as the RFC, notwithstanding the fact that Congress chose to call it a “corporation.” Id.

An examination of other relevant Supreme Court authority and the appropriate federal regulations reveals that the holding of Cherry Cotton Mills applies equally to the SBA and the ASCS. In Small Business Admin. v. McClellan, 364 U.S. 446, 450, 81 S.Ct. 191, 194-95, 5 L.Ed.2d 200 (1960), the Supreme Court described the SBA as “an integral part of the governmental mechanism ... created to lend the money of the United States.” The Court held that the SBA was therefore “entitled to the priority of the United States in collecting loans made by it out of government funds” under the Bankruptcy Act. Id.; see also 13 C.F.R. § 140.5(a) (“SBA may, after attempting to collect a claim from a person under normal SBA collection procedures, collect the claim by means of administrative offset.”). Similarly, in United States v. Remund, 330 U.S. 539, 542, 67 S.Ct. 891, 892-93, 91 L.Ed. 1082 (1947), the Court held that the Farm Credit Administration, which, like the ASCS, was an agency under the general direction of the Department of Agriculture, was entitled to priority under the Bankruptcy Code. The Court stated that “[a]t no time has the Farm Credit Administration been other than an unincorporated agency of the United States Government.... And the use of a name other than that of the United States cannot change that fact.” Id.; see also 7 C.F.R. § 1403.7(j)(1) (“Debts due any agency other than [ASCS] shall be offset against amounts payable by [ASCS] to a debtor”).

II.

The question, which we now answer in the negative, is whether the United States and its agencies should be treated differently solely due to the fact that a bankruptcy proceeding has been superimposed on the pertinent transaction. We are convinced that the presence or absence of a bankruptcy proceeding does not affect the United States’ status as a unitary creditor.

A.

The language of the Bankruptcy Code makes clear that the term “setoff’ has no special meaning in the bankruptcy context. The Supreme Court recently indicated that “[a]lthough no federal right of setoff is created by the Bankruptcy Code, 11 U.S.C. § 553(a) provides that, with certain exceptions, whatever right of setoff otherwise exists is preserved in bankruptcy.” Strumpf, — U.S. at — , 116 S.Ct. at 289. Section 553(a) specifically states that “this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor.” 11 U.S.C. § 553(a).

Debtors contend that the Bankruptcy Code evinces a clear intent that government agencies must be treated as separate entities for setoff in a bankruptcy proceeding. However, the only specific statutory provision which they cite to support their contention is in the definitional section of the Code. The Bankruptcy Code defines “creditor” as an “entity;” “entity” as including a “governmental unit;” and “governmental unit” as “mean[ing] United States; ... [or] ... department, agency, or instrumentality of the United States....” 11 U.S.C. § 101(10), (15), (27). From this, the Debtors suggest that the set-off rights of a creditor preserved in § 553 apply differently to the United States as a whole than to its particular agencies. It is true that the Bankruptcy Code does recognize a difference between the United States and an agency of the United States government, but this in no way demonstrates an intent to erode the right of administrative offset that exists outside of bankruptcy. To the contrary, the clear language of § 553 leaves little doubt that such administrative offset rights are preserved, not lost, in bankruptcy. Maintaining the United States’ status as a unitary creditor for purposes of setoff under § 553 both comports with the language of the section and avoids any inconsistencies between the setoff provisions of the Bankruptcy Code and 31 U.S.C. § 3716(a), the statutory grant of the right to collect debts by administrative offset. See Negonsott v. Samuels, 933 F.2d 818, 819 (10th Cir.1991) (“statutes should be construed so that their provisions are harmonious with each other”), aff'd, 507 U.S. 99, 113 S.Ct. 1119, 122 L.Ed.2d 457 (1993).

B.

Existing case law also supports this interpretation. In Luther v. United States, 225 F.2d 495 (10th Cir.1954), a bankruptcy referee in a liquidation proceeding allowed the United States to set off amounts owed by the debtor to the Commodity Credit Corporation against a tax refund owed to the debtor by the IRS. The debtor sought to avoid the setoff, arguing in part that the debts were not mutual. Basing our decision on Cherry Cotton Mills, we held that mutuality was not lacking and that a bankrupt party’s “over-payments of income tax were properly offset against the amount which the bankrupt owed Commodity.” Luther, 225 F.2d at 498. Moreover, in the recent case of Doe v. United States, 58 F.3d 494, 498 (9th Cir.1995), the Ninth Circuit considered a similar argument and cited Luther with approval for the proposition that the United States is a unitary creditor in bankruptcy. The court held that “for purposes of ... setoff under 11 U.S.C. § 106, all agencies of the United States, except those acting in some distinctive private capacity, are a single governmental unit.” Id. The same treatment is appropriate for § 553 setoff as well. The several arguments advaneed by the Debtors in the present case do not persuade us to rule differently than we did in Luther.

Debtors rely upon several bankruptcy cases in support of their contention that there is a lack of mutuality between the SBA and ASCS. Each of these eases, however, was reversed by a district court acting in an appellate capacity. See In re Mehrhoff, 88 B.R. 922 (Bankr.S.D.Iowa 1988), on remand, 104 B.R. 125, 125 (1989) (remand decision after district court concluded there was mutuality between SBA and ASCS); In re Butz, 86 B.R. 595 (Bankr.S.D.Iowa 1988), rev’d, 154 B.R. 541, 544 (S.D.Iowa 1989) (“This court concludes, contrary to the bankruptcy court’s ruling, that federal agencies are not separate legal entities within the meaning of section 553(a).”); In re Rinehart, 76 B.R. 746 (Bankr.D.S.D.1987), aff'd on other grounds, 88 B.R. 1014 (D.S.D.1988), aff'd in part, rev’d in part, 887 F.2d 165 (8th Cir.1989). In Rinehart, the district court made clear on appeal that “in deciding whether federal agencies stand in the same capacity for section 553 offsets, there is no authority for distinguishing between the capacity of parties in relation to each other outside of bankruptcy and that capacity following the filing of a bankruptcy petition.” United States v. Rinehart, 88 B.R. 1014, 1016 (D.S.D.1988). Counsel are reminded that they have a duty to advise the court when authorities upon which they rely have been reversed or overruled. See Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (11th Cir.1994).

The more abundant and persuasive authority supports the rule we established in Luther that the United States is a unitary creditor for setoff purposes in bankruptcy. See In re Kalenze, 175 B.R. 35, 37 (Bankr.D.N.D.1994); In re Mohar, 140 B.R. 273, 277 (Bankr.D.Mont.1992); In re Stall, 125 B.R. 754, 757-58 (Bankr.S.D.Ohio 1991); In re Julien Co., 116 B.R. 623, 624-25 (Banikr.W.D.Tenn.1990); In re Evatt, 112 B.R. 405, 412-13 (Bankr.W.D.Okla.1989).

C.

Debtors also seek to distinguish Luther on the ground that it arose in a straight liquidation rather than Chapter 12 reorganization. However, neither the statutory authority nor the case law supports making such a distinction. Section 553, which clearly preserves existing setoff rights in the context of bankruptcy, applies to both liquidations as well as reorganizations. 11 U.S.C. § 103(a) (“[C]hapters 1, 3, and 5 of this title apply in a case under chapter 7, 11, 12, or 13 of this title.”). This statutory provision simply is inconsistent with the notion that the Bankruptcy Code prohibits an administrative offset in a reorganization case. Cases that attempt such a distinction are unpersuasive. In Rinehart, the bankruptcy court distinguished Luther because, among other reasons, “it arose in a liquidation of assets, and not a reorganization.” Rinehart, 76 B.R. at 751-52. As noted, however, this section of the bankruptcy court’s decision was rejected by the district court on appeal. Rinehart, 88 B.R. at 1016. Moreover, both In re Hancock, 137 B.R. 835 (Bankr.N.D.Okla.1992), and Matter of Butz, 104 B.R. 128 (Bankr.S.D.Iowa 1989), on which the Debtors rely heavily for their liquidation/reorganization distinction, follow the bankruptcy court in Rinehart. Finally, we reject the Debtors’ contention that to allow administrative set-offs in a reorganization is inconsistent with the rehabilitative purpose of the Bankruptcy Code. Because we hold that the United States is a unitary creditor in bankruptcy, it, like any other single creditor, should be entitled to offset any mutual debts it has involving multiple agencies in accordance with § 553. Because the panel did not reach the arguments of the parties advanced with respect to § 553, we remand the balance of these appeals to the panel.

REMANDED.

      . Counsel for the government suggested at oral argument that certain government agencies, such as the Federal Deposit Insurance Company when acting in its private receivership capacity and the Pension Benefit Guaranty Corporation, which perform distinctive private functions, should be deemed separate entities for purposes of set off under § 553. Because no such agency is involved in this case, we accordingly decline to address whether there are any such agencies that might be subject to a different set off rule.

      . The parties do not contest the fact that none of the exceptions to the general rule of § 553(a) applies in this case.

      . As an example of this “distinctive private capacity,” the court explains that “certain federal agencies such as the Federal Deposit Insurance Corporation are viewed as separate governmental units when they act in their private receivership capacity.” Doe, 58 F.3d at 498. Neither the SBA nor the ASCS is an agency of this sort.


source: Caselaw Access Project

author: BRORBY, Circuit Judge.

license: Public Domain

text:
    Harvey SENDER, Trustee of the Bankruptcy Estates of Hedged-Investments Associates, Inc., Hedged-Securities Associates, LP, Hedged-Investments Associates, LP, and Hedged-Investments Associates II, LP, Plaintiff-Appellant, v. William E. SIMON; Baker Family Partnership I, Defendants-Appellees.
    No. 94-1569.
    United States Court of Appeals, Tenth Circuit.
    May 23, 1996.

      John B. Wasserman (Bonnie A. Bell with him on the briefs), Katch, Sender & Wasser-man, P.C., Denver, Colorado, for Plaintiff-Appellant.

      David C. Warren (James E. Searboro and Allison Hartwell Eid with him on the brief) Arnold & Porter, Denver, Colorado, for Defendants-Appellees.
    Before BRORBY and McWILLIAMS, Circuit Judges, and KERN, District Judge.

       The Honorable Terry C. Kern, United States District Judge for the Northern District of Oklahoma, sitting by designation.

   BRORBY, Circuit Judge.

This ease arises out of an elaborate and long-running Ponzi scheme. As with all Ponzi schemes, this one collapsed and left many innocent investors with significant losses. The scheme was masterminded and operated by a man named James Donahue, whom a federal district court sentenced to federal prison for his role in the debacle. In his operation of the scheme, Mr. Donahue utilized a solely-owned corporation and three limited partnerships. The corporation served as the managing general partner of the three limited partnerships. The innocent investors in the scheme purportedly purchased limited partnership interests in the partnerships. Now that the scheme has collapsed, the corporation and the three limited partnerships are in bankruptcy under Chapter 7 of Title 11 of the United States Code.

Harvey Sender is the trustee in bankruptcy for the four bankrupt entities. William Simon and the Baker Family Partnership I (the “Baker Partnership”) find themselves among what Mr. Sender calls the “lucky” group of innocent investors who managed to withdraw more money from the Ponzi scheme than they put into it. Mr. Sender has sued Mr. Simon and the Baker Partnership under Colorado partnership law to recover the money they received in excess of the money they contributed. Mr. Sender claims the excess payments represent fictitious profits to which the defendants are not entitled.

The district court entered summary judgment for Mr. Simon and the Baker Partnership after concluding the partnership agreements are not enforceable. We exercise jurisdiction under 28 U.S.C. § 1291 and affirm the district court.

I. Background

In the late 1970s, Mr. Donahue formed a corporation named Hedged-Investments Associates, Inc. (“HIA Inc.”) for the purpose of operating an investment fund known generally as Hedged Investments. Mr. Donahue attracted investors to the fund by claiming he had developed a sophisticated, computer-based strategy for trading in hedged securities options. He boasted annual returns of fifteen to twenty-two percent. When an individual agreed to invest in the fund, Mr. Donahue purported to sell him or her limited partnership interests in one of three limited partnerships: Hedged-Investments Associates, L.P. (“HIA L.P.”), Hedged-Investments Associates II, L.P. (“HIA II L.P.”), and Hedged-Securities Associates, L.P. (“HSA L.P.”) (collectively the “Debtor Partnerships”). HIA Inc. served as the managing general partner for each of the Debtor Partnerships. According to Mr. Donahue’s representations, HIA Inc. would take the money invested in the partnerships and invest it in the Hedged Investments fund according to his trading strategies.

Mr. Donahue failed to maintain separate accounting records for the Debtor Partnerships and commingled investors’ funds into a single checking account held in the name of HIA Inc. Though he maintained no records for the partnerships themselves, Mr. Donahue did establish individual investor accounts through HIA Inc. that allowed each investor to know the putative status of her or his investment in the Hedged Investments fund. In other words, Mr. Donahue treated , the investors as if they were direct participants in a single investment pool instead of investors in discreet limited partnerships.

Mr. Donahue used invested funds to trade in securities options over the life of the operation, and his trading resulted in net profits in a few years, including 1989. However, in most years the Hedged Investments operation realized net trading losses, and in all years Mr. Donahue substantially overstated the fund’s performance. From 1982 onward the fund was insolvent in that its cumulative losses exceeded its cumulative gains. To prevent investors from discovering the fund’s poor performance, Mr. Donahue falsely reported high earnings. When an investor sought to withdraw money from his account on the basis of these reported earnings, Mr. Donahue — because the fund had no real cumulative earnings — apparently paid the withdrawal from the capital contributions of other investors.

The Hedged Investments operation collapsed in the summer of 1990. On August 30, 1990, Mr. Donahue caused HIA Inc. to file for voluntary bankruptcy pursuant to Chapter 11 of Title 11 of the United States Code. On September 7, 1990, the case was converted to a Chapter 7 bankruptcy, and the bankruptcy court appointed Mr. Sender as trustee for the estate of HIA Inc. On October 3, 1990, Mr. Sender, as trustee for HIA Inc., filed involuntary petitions for bankruptcy under Chapter 7 against the Debtor Partnerships. The bankruptcy court then appointed Mr. Sender as the trustee for the Debtor Partnerships and ordered the Debtor Partnerships’ estates to be jointly administered with the HIA Inc. estate. On September 30, 1991, apparently because Mr. Donahue commingled partnership funds and generally disregarded the separate identity of each of the Debtor Partnerships, the bankruptcy court substantively consolidated the Debtor Partnerships for the purpose of administering the bankruptcy estate. According to Mr. Sender’s financial expert, a reconstruction of each of the Debtor Partnerships, while possible, would have been impractical and unnecessary. Since all the investor contributions were commingled into a single investment fund, the value of each investor’s account was determined by her or his pro rata share of the commingled fund — a valuation that would not change with a reconstruction of each Debtor Partnership.

Mr. Simon and the Baker Partnership both invested in the Hedged Investments fund through HSA L.P., a limited partnership formed under the Colorado Uniform Limited Partnership Act of 1981. Mr. Simon’s relationship with HSA L.P. began in June 1988, when he executed a document entitled “Certificate and Articles of Limited Partnership for Hedged Securities Associates” and transferred $5 million into the Hedged Investments fund. This amount was his sole contribution to the fund. The Baker Partnership’s relationship with HSA L.P. began in January 1989, when the managing partner of Baker executed a “Certificate and Articles of Limited Partnership for Hedged Securities Associates” and caused Baker to transfer $1.7 million into the Hedged Investments fund. Like Mr. Simon, this amount was the Baker Partnership’s sole contribution to the fund. Mr. Simon’s and the Baker Partnership’s investment relationships with the Hedged Investment fund ended in August 1989, when each received lump sum checks signed by Mr. Donahue and drawn on a checking account held by “Hedged-Investment- Assoc., Inc. III.” Notations on the two checks indicated they were intended to terminate the “capital” accounts of Mr. Simon and the Baker Partnership. Mr. Simon received $6,220,957.86, which was $1,220,957.86 more than his original contribution. The Baker Partnership received $1,916,366.23, which was $236,366.23 more than its original contribution. The amounts in excess of the defendants’ contributions apparently represented earnings that had been allocated to their accounts during their participation in the Hedged Investments fund. Aside from the lump sum payments, neither defendant received any other distributions from HSA L.P.

In December 1992, Mr. Sender brought separate suits in Colorado District Court, Arapahoe County, against Mr. Simon and the Baker Partnership. Mr. Sender’s complaint in both cases alleged, inter alia, Mr. Simon and the Baker Partnership “received distri-buttons in excess of their contribution” in violation of § 608(2) of the Colorado Uniform Limited Partnership Act of 1981, Colo.Rev. Stat. § 7-62-101, et seq. (“CULPA”). Accordingly, Mr. Sender claimed the bankruptcy estate was “entitled to the return of the [excess distributions].” As already noted, Mr. Simon and the Baker Partnership received, respectively, $1,220,957.86 and $236,-366.23, in excess of their contributions to the Hedged Investments fund.

In March 1993, Mr. Simon and the Baker Partnership, represented by the same counsel, removed the eases to the District Court for the District of Colorado, basing jurisdiction on diversity of citizenship. See 28 U.S.C. § 1332. The two actions were consolidated in June 1993. The district court decided the case on cross motions for summary judgment, granting summary judgment in favor of Mr. Simon and the Baker Partnership after determining the partnership agreements were not enforceable. Mr. Sender appealed.

II. Applicable Law & Standard of Review

The district court’s jurisdiction over this ease was based on diversity of citizenship under 28 U.S.C. § 1332. “A federal court sitting in diversity applies the substantive law ... of the forum state.” Barrett v. Tallon, 30 F.3d 1296, 1300 (10th Cir.1994). Mr. Sender brought this suit under the substantive law of Colorado, and, as neither party disputes, Colorado is the forum state in this matter. Therefore, to the extent Colorado law governs this case, we are bound by the most recent statements of Colorado law by the Colorado Supreme Court. Wood v. Eli Lilly & Co., 38 F.3d 510, 513 (10th Cir.1994). In the event “no state cases exist on a point, we turn to other ‘state court decisions, federal decisions, and the general weight and trend of authority.’ ” Barnard v. Fireman’s Fund Ins. Co., 996 F.2d 246, 248 (10th Cir.1993) (quoting Armijo v. Ex Cam, Inc., 843 F.2d 406, 407 (10th Cir.1988)). However, in a diversity action, “as a matter of independent federal procedure, we utilize the normal federal standards of appellate review to examine the district court’s decision process.” Mid-America Pipeline Co. v. Lario Enters., Inc., 942 F.2d 1519, 1524 (10th Cir.1991).

We review the grant or denial of a motion for summary judgment de novo, applying the same legal standard used by the district court pursuant to Fed.R.Civ.P. 56(c). Willis v. Midland Risk Ins. Co., 42 F.3d 607, 611 (10th Cir.1994). Summary judgment is appropriate when the district court record “ ‘show[s] that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.’ ” Universal Money Ctrs. Inc. v. AT & T Co., 22 F.3d 1527, 1529 (10th Cir.) (quoting Fed.R.Civ.P. 56(c)), cert. denied, — U.S. -, 115 S.Ct. 655, 130 L.Ed.2d 558 (1994). If no genuine issue of material fact is in dispute, we determine whether the substantive law requires judgment for the moving party. Wolf v. Prudential Ins. Co., 50 F.3d 793, 796 (10th Cir.1995) (citing Applied Genetics Int’l, Inc. v. First Affiliated Secs., Inc., 912 F.2d 1238, 1241 (10th Cir.1990)).

III. Discussion

A. Mr. Sender’s Standing

We begin our analysis of Mr. Sender’s appeal with an evaluation of his standing to bring the claims he asserts. Mr. Sender, in his capacity as trustee in bankruptcy for the debtor estates, must draw his authority to assert a particular cause of action from some provision within Title 11 of the United States Code. Causes of action commenced by a trustee on behalf of a debtor estate fall into two broad categories: (1) actions brought by the trustee as successor to the debtor’s interests included as property of the estate under 11 U.S.C. § 541, and (2) actions brought under one of the trustee’s avoidance powers. 2 Collier on Bankruptcy ¶ 323.02[4], at 323-10. Though Mr. Sender’s complaints against the defendants did not address the issue of his capacity to bring his state law claims, his brief to this court asserts, “the actions ... are brought by [the] bankruptcy trustee utilizing his statutory powers under 11 U.S.C. § 544.” Because § 544 gives a trustee certain avoidance powers, actions brought under the section fall within the second category of types of trustee actions. To the extent Mr. Sender relies on § 544 for his authority to bring the claims he asserts, his reliance is misplaced.

Section 544 is divided into two subsections: 544(a) and 544(b). Mr. Sender has not indicated which of these subsections he attempts to invoke. Section 544(a) gives the trustee the power, as of the commencement of the bankruptcy case, to avoid transfers and obligations of the debtor to the same extent as certain hypothetical ideal creditors. See 11 U.S.C. § 544(a) (giving the trustee the same avoidance powers as (1) a judicial lien creditor, (2) a creditor holding an execution returned unsatisfied, or (3) a bona fide purchaser of real property, whether or not such creditors or purchaser exist). Mr. Sender makes no claims against the defendants available under 544(a). We therefore construe his invocation of § 544 as a reference to subsection (b).

Under § 544(b), a “trustee may avoid any transfer of an interest of the debt- or ... that is voidable under applicable law by a[n] [unsecured] creditor.” 11 U.S.C. § 544(b). Subsection (b) contains no substantive provisions indicating what transfers or obligations are avoidable. The trustee’s powers under the section are predicated on the non-bankruptcy law, usually state law, applicable to the transaction sought to be avoided. See Dicello v. Jenkins (In re International Loan Network, Inc.), 160 B.R. 1, 17-18 (Bankr.D.D.C.1993). Before asserting applicable state law, however, the trustee “must first show that there is an actual creditor holding an allowable unsecured claim ... who, under [state] law, could avoid the transfers in question.” Id. at 18; see also Merrill v. Abbott (In re Independent Clearing House Co.), 77 B.R. 843, 863 n. 30 (D.Utah 1987). See generally 4 Collier on Bankruptcy ¶ 544.03. In other words, “[i]f there are not creditors within the terms of section 544(b) against whom the transfer is voidable under the applicable law, the trustee is powerless to act so far as section 544(b) is concerned.” 4 Collier on Bankruptcy ¶ 544.03[1], at 544-18.

Mr. Sender has not met § 544(b)’s requirements. Mr. Sender’s brief repeatedly emphasizes he is pursuing claims of the partnership itself, not claims that belong to creditors of the partnership. Indeed, it does not seem the state law on which he relies would allow it any other way. The partnership law under which Mr. Sender is proceeding provides that when a partner receives “the return of any part of his contribution in violation of the partnership agreement or this article, he is hable to the limited partnership.” Colo.Rev. Stat. § 7-62-608(2) (emphasis added). If Mr. Sender is bringing claims belonging to HSA L.P. itself, we fail to see how he can satisfy § 544(b)’s requirements that he establish the existence of an actual unsecured creditor who could avoid the challenged transactions under the applicable law. The applicable law in this case is, by Mr. Sender’s own decision, a certain section of CULPA, and Mr. Sender has not pointed to any creditors of HSA L.P. who would have causes of action against Mr. Simon or the Baker Partnership under that section. The cause of action he pursues belongs to the debtor partnership itself, not the partnership’s creditors.

That Mr. Sender asserts a cause of action not authorized by § 544(b) does not necessarily render him powerless to bring it. Under 11 U.S.C. § 541(a)(1), the bankruptcy estate includes, except as otherwise provided, “all legal or equitable interests of the debtor in property as of the commencement of the case.” This definition includes causes of action belonging to the debtor at the commencement of the bankruptcy case. Mixon v. Anderson (In re Ozark Restaurant Equip. Co.), 816 F.2d 1222, 1225 (8th Cir.), cert. denied, 484 U.S. 848, 108 S.Ct. 147, 98 L.Ed.2d 102 (1987); see Delgado Oil Co. v. Torres, 785 F.2d 857, 860 (10th Cir.1986) (debtor corporation’s estate includes any right of action debtor corporation has against corporate officers or directors); H.R.Rep. No. 595, 95th Cong., 1st Sess. 367, reprinted in 1978 U.S.C.C.A.N. 5963, 6323 (under § 541 debtor estate “will include choses in action and claims by the debtor against others”). Importantly, to satisfy the requirements of § 541, the cause of action asserted by the trustee must belong to the debtor entity itself, not the debtor’s creditors individually. Mixon, 816 F.2d at 1225; see Pierson & Gaylen v. Creel & Atwood (In re Consolidated Bancshares, Inc.), 785 F.2d 1249, 1254 (5th Cir.1986); 4 Collier on Bankruptcy ¶ 541.10. State law provides the guidelines for determining whether a cause of action belongs to the debtor and therefore becomes property of the estate. Mixon, 816 F.2d at 1225; Zimmerman v. Starnes, 35 B.R. 1018, 1020 (D.Colo.1984) (citing Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979)). Mr. Sender’s claims against Mr. Simon and the Baker Partnership satisfy these requirements. As noted in the previous discussion of 11 U.S.C. § 544(b), the section of CULPA on which Mr. Sender relies makes limited partners “liable to the limited partnership.” Colo. Rev.Stat. § 7-62-608(2). Under Colorado law, it seems clear Mr. Sender’s cause of action belongs to the partnership itself and is therefore included as property of the debtor estate within the meaning of 11 U.S.C. § 541. Because the cause of action is property of the estate, Mr. Sender, as trustee of the estate, has standing to pursue it on the estate’s behalf. Mixon, 816 F.2d at 1225.

When asserting claims under the authority of 11 U.S.C. § 541, as Mr. Sender does in this case, the trustee stands in the shoes of the debtor and “can take no greater rights than the debtor himself had.” H.R.Rep. No. 595, 95th Cong., 1st Sess. 368, reprinted in 1978 U.S.C.C.A.N. 5963, 6323. This means the trustee is “ ‘subject to the same defenses as could have been asserted by the defendant had the action been instituted by the debt- or.’ ” Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1154 (3d Cir.1989) (quoting 2 Collier on Bankruptcy ¶ 323.02[4]); see also W.F. Pigg & Son, Inc. v. United States, 81 F.2d 334, 335 (10th Cir.1936) (“The trustee takes subject to all valid claims, liens, and equities which might have been asserted against the bankrupt.”) (interpreting Section 70a of the Bankruptcy Act, the predecessor of 11 U.S.C. § 541). In other words, though this case is brought by a bankruptcy trustee who gains his authority to sue from the United States Bankruptcy Code, Mr. Sender’s success or failure on the merits is determined as if the debtor entity itself brought the claims at issue under the applicable law. Accordingly, we now turn to Mr. Sender’s contentions under CULPA.

B. Mr. Sender’s Claims

Mr. Sender contends the defendants received payments, as limited partners of HSA L.P., in violation of CULPA. CULPA applies “to all limited partnerships formed on or after November 1, 1981,” Colo.Rev.Stat. § 7-62-1101, and therefore applies to HSA L.P., which was formed in December 1984. Mr. Sender’s claims against Mr. Simon and the Baker Partnership rely specifically on Colo.Rev.Stat. § 7-62-608(2), which provides:

If a partner has received the return of any part of his contribution in violation of the partnership agreement or this article, he is hable to the limited partnership for a period of six years thereafter for the amount of the contribution wrongfully returned.

Mr. Sender contends the defendants received “wrongfully returned” contributions under § 608(2) in both senses contemplated by the section. First, he claims Mr. Simon and the Baker Partnership received payments in violation of the partnership agreement. Second, Mr. Sender claims the defendants received payments in violation of § 607 of CULPA. See Colo.Rev.Stat. § 7-62-607.

Mr. Simon and the Baker Partnership offer several alternative reasons why they should not be held hable on Mr. Sender’s claims. First, Mr. Simon and the Baker Partnership invoke the defense of fraud and argue the Partnership Agreement was void ab initio and unenforceable. Second, the defendants contend they were never limited partners in HSA L.P. and are therefore not subject to claims under CULPA. Third, they claim that even if they are subject to claims brought under CULPA, they nevertheless, as a matter of law, cannot be found hable under § 608(2) of that act. Fourth, Mr. Simon and the Baker Partnership assert that if they are liable on the claims brought by Mr. Sender they are nevertheless entitled to recoupment or setoff.

The district court granted the defendants’ motion for summary judgment on the basis of their fraud defense. According to the district court, the limited partnership Mr. Simon and the Baker Partnership purportedly joined was merely a fraudulent arrangement used to carry on a Ponzi scheme. The putative partnership never represented “a legitimate contract between consenting parties” and therefore a valid partnership never existed to give rise to the provisions of CUL-PA.

For slightly different reasons than those relied on by the district court, we reach the same result. Before embarking upon our analysis, it is important to emphasize two points on which we have already touched. First, Mr. Sender relies exclusively on provisions in CULPA; he has pursued no other legal or equitable claims that might be available under Colorado law. Accordingly, the success of his claims depends on a threshold demonstration that Mr. Simon and the Baker Partnership entered into valid and enforceable partnership agreements that give rise to CULPA’s provisions. Second, in his capacity as a bankruptcy trustee bringing causes of action pursuant to 11 U.S.C. § 541, Mr. Sender stands in the shoes of the bankrupt partnership and has no greater rights than the partnership had as of the bankruptcy filing. 11 U.S.C. § 541(a)(1) (limiting estate to the debtor’s interests in property “as of the commencement of the case”); Hays & Co., 885 F.2d at 1154 n. 7. With these principles in mind, we turn to Mr. Sender’s claims against the defendants.

As other courts have recognized in the context of Ponzi schemes, courts generally will not enforce an illegal contract based upon “‘the elementary principle that one who has himself participated in a violation of law cannot be permitted to assert in a court of justice any right founded upon or growing out of the illegal transaction.’” Merrill v. Abbott, 77 B.R. at 857 (quoting Gibbs & Sterrett Mfg. Co. v. Brucker, 111 U.S. 597, 601, 4 S.Ct. 572, 574, 28 L.Ed. 534 (1884)); Martino v. Edison Worldwide Capital (In re Randy), 189 B.R. 425, 441 (Bankr.N.D.Ill.1995) (same quote). This rule is not reserved for contracts that are illegal on the basis of their subject matter, e.g., a contract to manufacture illicit narcotics.

“A bargain may be illegal by reason of the wrongful purpose of one or both of the parties making it. This is true even though the performances bargained for are not in themselves illegal and even though in the absence of the illegal purpose the bargain would be valid and enforceable. A party who makes such a bargain in furtherance of his wrongful purpose can not enforce it....”

Tri-Q, Inc. v. Sta-Hi Corp., 63 Cal.2d 199, 45 Cal.Rptr. 878, 890, 404 P.2d 486, 498 (1965) (quoting 6A Corbin on Contracts § 1518, at 744 (1962)).

As Mr. Sender has conceded, Mr. Donahue operated an illegal Ponzi scheme and was sentenced to federal prison upon being convicted of securities fraud. Though it is not clear whether Mr. Donahue intended to run a Ponzi scheme from the moment he began Hedged Investments in the late 1970s, Mr. Sender concedes the operation “never made the returns” it reported and would have collapsed absent new funds being invested. Neither does Mr. Sender dispute that Mr. Donahue created the Debtor Partnerships “as vehicles for persons to invest with him.” According to the conclusions of Mr. Sender’s accounting expert, “[t]he purported annual returns set forth in ... the partnership tax returns as filed were completely fictitious.” Notwithstanding the representations made to investors, the Debtor Partnerships were insolvent as of 1982.

Though the Debtor Partnerships were not illegal per se, it is beyond peradventure they were created and operated in furtherance of a fraudulent and illegal investment scheme. To the extent HSA L.P. was created as a vehicle to further the Ponzi scheme and utilized to give the scheme a veneer of legitimacy, it was in utter complicity with Mr. Donahue’s fraud. HSA L.P., acting through Mr. Donahue and HIA Inc., fraudulently induced the participation of Mr. Simon and the Baker Partnership in the scheme by misrepresenting both the true nature of the Hedged Investments fund and the partnership’s role in perpetuation of the fraud. In other words, with regard to its interactions with Mr. Simon and the Baker Partnership, HSA L.P.’s purpose was an illegal one. It furthered this illegal purpose by fraudulently inducing Mr. Simon and the Baker Partnership to execute the partnership agreements.

Mr. Sender, standing in the shoes of HSA L.P., now seeks to enforce the partnership agreements against Mr. Simon and the Baker Partnership. Following the suggestions of our fellow jurists, this court will not aid in the enforcement of an agreement that was fraudulently procured in furtherance of an illegal purpose. See Merrill, 77 B.R. at 857; Tri-Q, 45 Cal.Rptr. at 890, 404 P.2d at 498. That Mr. Sender acts as a trustee in bankruptcy cannot lend strength to the partnership’s position. The question is whether the partnership could have succeeded on its claims before it entered bankruptcy, and the answer to that question is clearly no.

Mr. Sender contends HSA L.P. was not an illegal partnership, and in support of this contention points us to the language of the partnership agreement. Mr. Sender correctly observes: “There is nothing in the stated purposes of the Partnership Agreement which violates any statute or the common law, there was no failure to obtain a required license and further there is nothing on the face of the Partnership Agreement reflecting that the partnership is to be operated as a fraud.” Mr. Sender insists that since an options trading business is not an unlawful enterprise, HSA L.P., which was created for the putative purpose of running such a business, cannot be an illegal partnership. Mr. Sender’s argument ignores the reality of HSA L.P.’s existence. Obviously, the language of the agreement did not indicate the partnership actually operated as a vehicle for fraud. That is the point; the partnership and its agreement helped endow the scheme with a fagade of legitimacy. As we have already established, a bargain may be illegal by reason of the wrongful purpose of one or both of the parties making it. This axiom is true even though the performances bargained for are not in themselves illegal and even though in the absence of the illegal purpose the bargain would be valid and enforceable. Such is the case with HSA L.P.

Mr. Sender also tries to immunize HSA L.P. from illegality by contending Mr. Donahue’s illegal acts and purposes cannot be attributed to the partnership. He argues a limited partnership may not be held responsible or hable for the wrongful conduct of a general partner unless the conduct is “within the ordinary course of the partnership’s business or is done with the authority of the other partners.” In support of this contention, Mr. Sender cites Colo.Rev.Stat. § 7-60-113, which provides:

Partner’s wrongful acts — liability.
Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.

As the language of this statute makes clear, the rule on which Mr. Sender relies applies only when “loss or injury is caused to any person, not being a partner in the partnership.” (Emphasis added.) Also, the cases he cites in support of his position each involve injury to third parties, not other partners. See, e.g., Courts of the Phoenix v. Charter Oak Fire Ins. Co., 560 F.Supp. 858 (N.D.Ill.1983); Wales v. Roll, 769 P.2d 899 (Wyo.1989); see also Williams v. Burns, 463 F.Supp. 1278 (D.Colo.1979). They do not involve the situation where a limited partnership, acting through its managing general partner, has fraudulently induced an innocent investor to participate in a Ponzi scheme. In our ease, HSA L.P. held itself out to Mr. Simon and the Baker Partnership as a legitimate component of a legitimate investment opportunity. Once Mr. Simon and the Baker Partnership joined HSA L.P. as limited partners, the partnership encouraged them to remain partners by reporting fictitious earnings. When, by prudence or luck, they sought to leave the partnership, HSA L.P. continued the fiction by paying them unrealized profits. To say the fraudulent intent originated in Mr. Donahue merely recognizes that HSA L.P. acted exclusively through Mr. Donahue as sole shareholder of HIA Inc., HSA L.P.’s managing general partner. Focusing on Mr. Donahue as the source of wrongdoing does nothing to change the fact that fraud and illegality permeated every aspect of HSA L.P.’s relationship with Mr. Simon and the Baker Partnership. Mr. Sender now asks us to brush aside the pervasive illegality of HSA L.P.’s relationship with Mr. Simon and the Baker Partnership and focus on the facially valid partnership agreements. We refuse.

In conclusion, this court will not aid the effort of a fraudulent entity that used the trappings of legal formality to lure its victims to turn around and try to hold its victims accountable under those same legal formalities. Though our reasoning parallels that of the district court in certain respects, we would like to emphasize that, unlike the district court, we are not declaring the partnership agreements void ab initio. As one court explained:

‘While it is frequently asserted that an illegal bargain is void, meaning thereby, presumably, that the situation is just as if no contract had been made, this is not strictly so. What the courts really have done, in such cases, in the absence of a statute specifying otherwise, is to take the view merely that the judicial machinery is not available for use to one who has participated in an illegal transaction.”

Kermath Mfg. Co. v. Brownell, 222 F.2d 577, 580 (6th Cir.) (quoting Grismore’s Law of Contracts § 290), cert. denied, 350 U.S. 843, 76 S.Ct. 84, 100 L.Ed. 752 (1955); see also Smithy Braedon Co. v. Hadid, 825 F.2d 787, 790 n. 4 (4th Cir.1987) (noting with approval Williston’s and Corbin’s efforts “to inter the proposition that illegal contracts are Void’ ab initio”).

We would also like to make clear that nothing we say in this opinion should be seen as affecting the rights of trustees like Mr. Sender who bring actions under other theories of state law. We understand Mr. Sender is only trying to maximize the value of the debtor entities in the interest of mitigating other investors’ losses. Though his goals and zeal are laudable, we cannot endorse his means.

The district court’s grant of summary judgment in favor of Mr. Simon and the Baker Partnership is AFFIRMED.

      . A Ponzi scheme is a fraudulent investment scheme in which “profits" to investors are not created by the success of the underlying business venture but instead are derived from the capital contributions of subsequently attracted investors. Sender v. Nancy Elizabeth R. Heggland Family Trust (In re Hedged-Investments Assocs., Inc.), 48 F.3d 470, 471 n. 2 (10th Cir.1995). For an Informative discussion of Ponzi schemes and their namesake, Charles Ponzi, see Merrill v. Abbott (In re Independent Clearing House Co.), 41 B.R. 985, 994 n. 12 (Bankr.D.Utah 1984).

      . In some cases, as with the Baker Partnership, investors joined in sub-partnerships that in turn invested in one of the Debtor Partnerships.

      . Mr. Sender's complaint cited Colo.Rev.Stat. §§ 7-62-608(2) and 7-62-607 as the bases for his claims. Section 608 makes a partner liable to the partnership for any return of his contribution in violation of the partnership agreement or CULPA. Mr. Sender's brief clearly indicates his intention to rely on § 608(2) as his grounds for bringing his claim under § 607, a section which places certain restrictions on distributions to partners. In this sense, Mr. Sender's § 607 claim relies on the applicability of § 608. Therefore, when referring to Mr. Sender’s theory of recovery, we describe it as a claim under Colo. Rev.Stat. § 7-62-608(2). Mr. Sender alleged alternative grounds for relief against the Baker Partnership under Colo. Rev.Stat. §§ 7-61-117 and 7-61-118, but those claims were later withdrawn. (Ape. Br. at 3 n. 3.) The two complaints also named the Frank Russell Company as a defendant, but this defendant was subsequently dismissed from the suits by stipulation of the parties.

      . As we discuss below, Mr. Sender’s standing to sue in this case is a question of federal law under the Bankruptcy Code.

      . In this respect, sections 541 and 544(b) of the Bankruptcy Code are mirror images of one another. When the trustee proceeds on a state claim under the former, the cause of action must belong to the debtor itself, but under the latter, the cause of action must belong to an actual creditor of the debtor.

      . Mr. Simon and the Baker Partnership contend they never became limited partners in HSA L.P. Our language above is not meant to suggest they actually did become limited partners; we are merely articulating Mr. Sender’s position.

      . In support of this contention, Mr. Sender cites four provisions of the HSA L.P. partnership agreement:
      6.1 Allocation of Net Revenues Among Partners. As of the end of each year, the net revenues shall be divided eighty percent (80%) to the Partners to be distributed in accordance with their allocation percentages in the Partnership and the remaining twenty percent (20%) to the General Partners.
      6.3 Allocation of Costs and Expenditures. All the general and administrative costs, offering costs and all others costs and expenses of operations of the Partnership shall he paid by the General Partners. Losses to the Partnership shall be allocated to and borne by the General Partners to the extent of the Escrow Account. Upon exhaustion of the Escrow Account, the losses will be borne by the Partners in accordance with their allocation percentages.
      12.1 Closing of Purchase. Upon receipt of a 90-day written notice from a Limited Partner directing that the Partnership purchase his Interests, the Managing General Partner shall set a date within 10 days of the end of the next calendar quarter as the closing date for the purchase of such Interests. On the closing date the Partnership shall pay the Limited Partner an amount equal to the unreturned capital of such Limited Partner on the preceding January 1, plus a return on such capital based on the estimated rate of return for the year of redemption pro rated to the closing date, and the Limited Partner shall assign his interest to the Partnership.
      12.3 Capital Account Withdrawals and Additions. Additions and withdrawals to Limited Partner capital accounts may be made in the first ten days of any fiscal period in whole or partial increments of Interest ($5,000). Each Limited Partner shall have the right to withdraw out of his capital account any amounts up to the redemption value of his account. Thirty days (30) of notice of intention to withdraw funds from a capital account must be submitted in writing to the General Partners by the Limited Partners. This notice must be received by the Managing General Partner not later than thirty days (30) prior to the last day of the fiscal period.

      . Colo.Rev.Stat. § 7-62-607 provides:
      A partner may not receive a distribution from a limited partnership to the extent that, after giving effect to the distribution, all liabilities of the limited partnership, other than liabilities to partners on account of their partnership interests, exceed the fair value of the partnership assets.


author: BRORBY, Circuit Judge. EBEL, Circuit Judge,

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Wesley Allen DORROUGH, Defendant-Appellant.
    No. 95-7098.
    United States Court of Appeals, Tenth Circuit.
    May 29, 1996.

      Sheldon J. Sperling (John Raley, United States Attorney, with him on the brief), Assistant United States Attorney, Muskogee, Oklahoma, for Plaintiff-Appellee.
    Stephen J. Greubel (Stephen J. Korr, Federal Public Defender, with him on the briefs), Assistant Federal Public Defender, Tulsa, Oklahoma, for Defendan1>-Appellant.
    Before TACHA, BRORBY and EBEL, Circuit Judges.
   BRORBY, Circuit Judge.

Defendant Wesley Allen Dorrough appeals his sentence under USSG § 2D1.1, comment, (n.l). We have jurisdiction under 18 U.S.C. § 3742(a) and 28 U.S.C. § 1291 and we affirm.

A jury convicted Mr. Dorrough of attempting to manufacture phenyl-2-propa-none (“P2P”) and amphetamine, possession of P2P with intent to manufacture amphetamine, conspiring to manufacture, possess, and distribute amphetamine under 18 U.S.C. § 2 and 21 U.S.C. §§ 841 and 846 and traveling in interstate commerce in the aid and promotion of drug offenses. 18 U.S.C. §§ 2 & 1952. Under the version of the sentencing guidelines effective November 1, 1989, Mr. Dorrough was sentenced to 235 months incarceration. His sentence was calculated using the base offense level of 34. This base offense level was determined by multiplying the entire 94 liters of the liquid mixture which Mr. Dorrough was using to make P2P by its cocaine equivalency in accordance with the Sentencing Guideline’s Drug Equivalency Table, USSG § 2D1.1. At the time of his sentencing, a footnote in the drug quantity table provided “the weight of a controlled substance set forth in the table refers to the entire weight of any mixture or substance containing a detectable amount of the controlled substance.” USSG § 2Dl.l(c) comment, (n.*) (1989). In reliance on this language, the prosecution did not produce evidence regarding the precise amount of P2P contained in the liquid mixture. We affirmed Mr. Dorrough’s conviction and sentence. United States v. Dorrough, 927 F.2d 498 (10th Cir.1991).

On November 1, 1993, the Sentencing Commission approved Amendment 484 to USSG § 2D1.1, comment, (n. 1), which provides: “Mixture or substance does not include materials that must be separated from the controlled substance before the controlled substance can be used.” USSG App.C, amend. 484. This subsequent modification, which could lower Mr. Dorrough’s guideline sentencing range, may be applied retroactively. USSG § lB1.10(a) & (e). Mr. Dorrough filed a motion pursuant to 28 U.S.C. § 2255 claiming, among other things, his sentence should be recalculated in light of Amendment 484. The district court denied his motion. He appealed the district court’s order and we remanded to the district court to determine whether Amendment 484 warranted recalculation of his sentence. Dorrough v. United States, No. 94-7071, 1995 WL 43595 (10th Cir. Feb. 2, 1995). On remand, the district court conducted a hearing and held:

You argue that 91 liters of P2P seized at your clandestine laboratory contained waste water that would need to be separated from the controlled substance before it could be used. Upon further review, the Court finds that you were in the process of manufacturing amphetamine when authorities seized the laboratory. The P2P that formed the basis of original offense level computations is a controlled substance recognized as an immediate precursor to the production of amphetamine. The guidelines take into account a percentage of waste in P2P evidenced by the sizeable decrease in drug equivalency ratios.
The Court adopts by reference the second addendum to the Presentence Report, and I find by a preponderance of the evidence that offense level computation based on 91 liters of P2P is reasonable and proper.
Based on these findings, the sentence heretofore imposed will not be disturbed.

Mr. Durrough appeals this ruling claiming the district court erred in reimposing a sentence based upon the entire amount of mixture found at defendant’s laboratory, rather than upon the amount of P2P actually present within said mixture.

The retroactive application of a change in the offense level of the Sentencing Guidelines is not required by § lB1.10(a), but rather falls within the district court’s discretion. In United States v. Telman, 28 F.3d 94, 96 (10th Cir.1994), we noted “it is apparent from the language of § lB1.10(a)— i.e., ‘may consider’ — that a reduction is not mandatory but is instead committed to the sound discretion of the trial court.” See also United States v. Holmes, 13 F.3d 1217, 1222 (8th Cir.1994) (holding district court has discretion to apply Amendment 488 retroactively under lB1.10(a)); United States v. Connell, 960 F.2d 191, 197 (1st Cir.1992) (holding “l.B1.10(a) does not mandate the use of the lesser enhancement, but merely affords the sentencing court discretion to utilize it”). Under the abuse of discretion standard we will not reverse a district court’s decision unless we have “a definite and firm conviction that the lower court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances.” Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir.1994) (internal quotation omitted).

We also noted in Telman, that “[i]n determining whether to reduce a defendant’s sentence due to a subsequent amendment, 18 U.S.C.- § 3582(c) directs the district court to ‘consider[] the factors set forth in section 3553(a) to the extent that they are applicable’ and determine whether ‘reduction is consistent with the applicable policy statements issued by the Sentencing Commission.’ ” 28 F.3d at 96. See United States v. Avila, 997 F.2d 767, 768 (10th Cir.1993) (holding district court’s power to reduce a sentence in light of a subsequent modification to the sentencing guidelines “is tethered to the factors contained in § 3553(a)”). The factors to be considered under § 3553(a) include: (1) the nature and circumstances of the offense and the history and characteristics of the defendant; (2) the need for the sentence imposed; (3) the kinds of sentences available; (4) the applicable sentencing range under the guidelines; (5) any pertinent Sentencing Commission policy statement; (6) the need to avoid unwarranted sentence disparities among defendants; and (7) the need to provide restitution to victims. 18 U.S.C. § 3553(a). There is no requirement that the district court make specific findings regarding each of the above factors as long as it states the reasons for its actions. United States v. Lee, 957 F.2d 770, 774-75 (10th Cir.1992) (internal quotation omitted).

In this case, the sentencing court reviewed Mr. Dorrough’s sentence in light of Amendment 484 and after considering the relevant factors found the amendment did not warrant a change in Mr. Dorrough’s sentence. See Telman, 28 F.3d at 97 (holding the district court did not abuse its discretion in failing to reduce defendant’s sentence when it considered .“a number” of the § 3553(a) factors). In particular the court noted the case involved a clandestine laboratory engaged in the process of manufacturing amphetamines, P2P is a controlled substance and that the guidelines take into account a percentage of waste in P2P as evidenced by a sizeable decrease in drug equivalency ratios. The district court also adopted the second addendum to the presentence report in its order. The second addendum recalculated the defendant’s sentence in accordance with the amendment and also provided an alternative means of sentencing, as provided by USSG § 2D1.1, comment, (n.l), which would result in Mr. Dorrough having the same offense level under the new guidelines as he had under the old. In light of the above record, we do not find the district court abused its discretion in refusing to modify Mr. Dorrough’s sentence.

The district court’s order is AFFIRMED.

EBEL, Circuit Judge,

concurring.

Because I agree that Mr. Dorrough is not entitled to a reduction in his sentence, I concur in the judgment of the court, although I do so on a ground unrelated to the P2P quantity. I write separately, however, to express my disagreement with the majority’s conclusions regarding the retroactive application of Amendment 484 in this case.

The majority opinion assumes the district court decided not to give Amendment 484 retroactive application “after considering the relevant factors” set forth at 18 U.S.C. § 3553(a). The record before us, however, does not provide such a clear picture of the district court’s reasoning. Indeed, at first glance, it appears the district court did in fact apply the amendment retroactively. The court adopted by reference the Second Addendum to the Presentence Report, which purported to calculate Mr. Dorrough’s sentence “in accordance with the guideline manual in effect November 1, 1994.” Because Amendment 484 became effective November 1,1993, the sentencing court’s use of the 1994 version of the guideline manual would indicate that the court at least attempted to apply the amendment retroactively. The majority opinion appears to acknowledge this possibility. See ante at 1311 (“[T]he sentencing court reviewed Mr. Dorrough’s sentence in light of Amendment 4,84,....”) (emphasis added).

However, the outcome reached by the district court suggests that the court did not apply the amendment retroactively, or if it did do so, that it erred in its application of the amendment. The district court stated that it was calculating Mr. Dorrough’s sentence based on the entire 91 liter mixture containing P2P, even though Amendment 484 explicitly directs a sentencing court to exclude from the drug quantity calculation those “materials that must be separated from the controlled substance before the controlled substance can be used.” U.S.S.G. § 2D1.1, comment, (n.l). Because, the 91 liter chemical mixture was seized from Mr. Dorrough’s laboratory before processing was completed, no one disputes that it would have been necessary to separate the various chemical by-products from the mixture before the P2P then in the solution could be used for its intended purpose of manufacturing amphetamine. See United States Sentencing Commission, Guideline Manual, App. C., amend. 484 (“The chemicals seized before the end of processing are also not usable in that form because further processing must take place before they can be used.”). If the nature of the lab mixture was such that the usable and nonusable materials could not be separated, then Amendment 484 required the district court “to use any reasonable method to approximate the weight of the” P2P in the mixture. U.S.S.G. § 2D1.1, comment, (n.1). Thus, if the district court was attempting to apply Amendment 484, I believe the court erred in calculating Mr. Dorrough’s sentence based on the entire 91 liter mixture containing P2P, rather than the actual amount of P2P therein. See United States v. Deninno, 29 F.3d 572, 579 (10th Cir.1994) (“[T]he full amount of the waste water need not be used in the calculation of quantity of the [controlled substance].”), cert. denied, — U.S. -, 115 S.Ct. 1117, 130 L.Ed.2d 1081 (1995); United States v. Levay, 76 F.3d 671, 673 (5th Cir.1996) (“Under the amended guideline, only the actual weight of the controlled substance is applied in calculating the base offense level, not the aggregate weight of any mixture_”).

The ambiguity regarding whether the district court in fact applied Amendment 484 retroactively merely underscores a more obvious judgment that can be drawn from the district court’s opinion, which is that the district court in any event failed to undertake a proper retroactivity analysis. As the majority correctly observes, whether to give retroactive application to a guideline amendment is a decision that rests within the discretion of the district court after the court evaluates the factors set forth at 18 U.S.C. § 3553(a). Although we have stated in another context that a sentencing court need not “make specific findings relating to each of the [§ 3553(a) ] factors considered,” United States v. Lee, 957 F.2d 770, 774-75 (10th Cir.1992) (addressing the factors in connection with a challenge to the revocation of supervised release under § 3583), the sentencing court nevertheless remains obligated to state clearly the reasons for its decision. Id. In many other sentencing areas, we have required district courts to make explicit findings of fact to support their sentence calculations. See, e.g., United States v. Roberts, 14 F.3d 502, 522 (10th Cir.1993) (“In enhancing a defendant’s sentence based on his role in the offense, a district court must make specific factual findings as to that role.”); United States v. Molina-Cuartas, 952 F.2d 345, 348 (10th Cir.1991) (“In order to impose a sentence based on a quantity of drugs, the trial court's factual findings must be determined by a preponderance of the evidence.”), cert. denied, 503 U.S. 995, 112 S.Ct. 1698, 118 L.Ed.2d 408 (1992). I see no reason why consideration of a sentence reduction under § 3582(c), which specifically directs the district court to consider the factors set forth in § 3553(a), should be treated any differently. As an appellate court we are always hindered, and often completely prevented, from effectively reviewing the district court’s exercise of sentencing discretion if the district court fails to address the statutorily-mandated factors that Congress has said should direct and guide that discretion.

In any event, even if we were not to require the sentencing court to address explicitly the statutory factors, at a very minimum we require the sentencing court to “state the reasons for its action,” Lee, 957 F.2d at 775, and it goes without saying that the reasons provided by the court must have some correlation to the statutory factors set forth in § 3553(a), see United States v. Avila, 997 F.2d 767, 768 (10th Cir.1993) (holding that the district court’s power to reduce a sentence in light of a subsequent amendment to the guidelines “is tethered to the factors contained in § 3553(a)”). In my opinion, the district court in this case has failed to comply with even this minimal requirement. The district court’s order makes no reference to § 3553(a), nor do any of the court’s stated reasons for denying Mr. Dorrough’s sentence reduction bear any relation to the criteria set forth in § 3553(a). At one point, the district court did rely on the fact that the sentencing guidelines “take into account a percentage of waste in P2P, evidenced by the sizeable decrease in drug equivalency ratios.” R.O.A. Yol. X, p. 7. While this statement may be interpreted as reflecting the district court’s concern about sentencing disparities, see 18 U.S.C. § 3553(a) (directing sentencing courts to consider, inter alia, “the need to avoid unwarranted sentence disparities among defendants”), I do not believe it is a correct statement of the law.

The decreased drug equivalency ratio between amphetamine and P2P cannot be explained on the basis of accounting for “waste” associated with P2P. The drug equivalency ratio remains constant throughout the manufacturing process and yet the amount of “waste” associated with the P2P is much greater earlier in the manufacturing process than it is late in the process. That is, as I understand it, the P2P becomes more concentrated in the mixture as it is being manufactured. Thus, under the district court’s interpretation of the guidelines, a defendant is punished more severely earlier in the manufacturing process (when the P2P is more diluted and less usable) than he is later in the process when the manufacturing is complete and the P2P is pure. Contrary to the district court’s suggestion, I believe P2P is punished less severely than amphetamine simply because it is not as dangerous a controlled substance. P2P is not an ingestible drug, and additional ingredients must be chemically combined with it in order to manufacture the finished amphetamine product.

Finally, when the § 3553(a) factors are addressed, I am led to conclude that it would be an abuse of discretion to hold that Amendment 484 does not apply retroactively in this case. The factors set forth in § 3553(a) are the following: (1) the nature and circumstances of the offense and the history and characteristics of the defendant; (2) the need for the sentence imposed; (3) the kinds of sentences available; (4) the applicable sentencing range under the guidelines; (5) any pertinent Sentencing Commission policy statement; (6) the need to avoid unwarranted sentence disparities among defendants; and (7). the need to provide restitution to victims. 18 U.S.C. § 3553(a). Applied to Mr. Dorrough’s ease, I believe the first four factors and the seventh factor are either neutral or irrelevant. The district court emphasized that the nature and circumstances of the offense involved a clandestine laboratory engaged in the process of manufacturing amphetamines. However, because all illegal drug labs manufacture illegal substances and are presumably clandestine, it is difficult to understand how this supports a finding against retroactivity. The sixth factor actually supports applying Amendment 484 retroactively; a defendant sentenced under the pre-Amendment 484 guidelines could receive a much harsher sentence for precisely the same conduct as a defendant sentenced after the effective date of Amendment 484. See, e.g., United States v. Levay, 76 F.3d 671, 673 (5th Cir.1996) (noting that application of Amendment 484 would reduce that particular defendant’s base offense level by 20 points). The fifth factor also may support retroactivity because the fact that U.S.S.G. § lB1.10(c) includes Amendment 484 in relatively select company of guideline amendments that may be applied retroactively suggests perhaps some threshold presumption of retroactivity.

While I part with the majority’s conclusions regarding the retroactivity and Amendment 484 issues, I nevertheless concur in the judgment. The Second Addendum to the Presentence Report, which the district court adopted by reference into its order, offers an alternative (and I believe a correct) method for sentencing Mr. Dorrough that results in a sentence identical to that originally imposed. The sentencing guidelines provide that “[i]f the offense involved both a substantive drug offense and an attempt or conspiracy, the total quantity involved shall be aggregated to determine the scale of the offense.” U.S.S.G. § 2D1.1, comment, (n.12) (parenthetical omitted). Further, where the amount of drugs seized does not reflect the scale of the offense, the guidelines direct the sentencing court to “approximate the quantity of the controlled substance ... consider[ing], for example, ... the size or capability of any laboratory involved.” Id.; see also United States v. Sturmoski, 971 F.2d 452, 456, 462 (10th Cir.1992) (estimating drug quantity based on the capability of the laboratory and the amount of precursor chemicals seized); United States v. Short, 947 F.2d 1445, 1456-57 (10th Cir.1991) (estimating drug quantity based on characteristics of drug laboratory), cert. denied, 503 U.S. 989, 112 S.Ct. 1680, 118 L.Ed.2d 397 (1992). Because Mr. Dorrough was convicted of attempt and conspiracy to manufacture amphetamine (in addition to possession of P2P), he may be sentenced for the approximate amount of amphetamine he intended to manufacture. At the original sentencing hearing, the government criminalist testified that Mr. Dorrough’s laboratory was capable of producing approximately 100 pounds of amphetamine. See Second Addendum to Presentence Report. Based on this estimate, Mr. Dorrough would still have been assigned a base offense level of 34 under U.S.S.G. § 2D1.1(c)(3). For this reason, I do not believe Mr. Dorrough is entitled to a reduced sentence and thus I concur in the judgment of the court.

      . The panel commends attorneys Stephen J. Greubel, who appeared on behalf of the appellant, and Sheldon J. Sperling, who appeared on behalf of the appellee, for the quality of their oral arguments and their candor before the court.

      . Mr. Dorrough presented the district court with a reasonable method of approximating the amount of-P2P in the mixture; namely, a chemist who testified that the chemicals seized from Mr. Dorrough's laboratory cotdd have produced at most 8.85 kilograms, or 19.5 pounds, of P2P.


author: LOGAN, Circuit Judge.

text:
    Dwayne Keith JEFFERSON, Petitioner-Appellant, v. Colonel William. L. HART, Respondent-Appellee.
    No. 95-3025.
    United States Court of Appeals, Tenth Circuit.
    May 29, 1996.

      Dwayne Keith Jefferson, pro se.
    Randall K. Rathbun, United States Attorney, Mary Kreiner Ramirez and David B. Bailey, Assistant United States Attorneys, Topeka, Kansas, for Respondent-Appellee.
    Before ANDERSON, LOGAN, and MURPHY, Circuit Judges.
   LOGAN, Circuit Judge.

Petitioner-appellant Dwayne Keith Jefferson appeals from the district court’s order granting his petition for a writ of habe-as corpus to the extent of ordering that he be given a parole hearing. We have jurisdiction pursuant to 28 U.S.C. § 2253, and affirm.

The sole issue presented in this appeal is whether the district court, having determined that petitioner had suffered an ex post facto violation, should have ordered his release from incarceration. Petitioner contends that the district court’s order of a parole hearing did not provide him with adequate relief. Respondent argues that petitioner has received all of the relief to which he is entitled, and that this appeal is moot.

Petitioner, an inmate at the United States Disciplinary Barracks, is serving a fifty-year sentence for involvement in the 1983 murder of a German citizen. His sentence began, for purposes of computing eligibility for parole, on May 10, 1983. At the time of his crime, Department of Defense Instruction Number 1325.4 (October 7, 1968) governed eligibility for parole. Under Instruction 1325.4, petitioner was entitled to discretionary parole consideration beginning May 9, 1984, and mandatory consideration no later than May 9, 1993. On May 19, 1988, Department of Defense Directive 1325.4 became effective. Under Directive 1325.4, which modified Instruction 1325.4, petitioner would not become eligible for parole until he had served a full ten years of his sentence. He would receive mandatory parole consideration after ten years, and annually thereafter.

On August 8, 1991, petitioner filed this habeas corpus action, contending that the Army Clemency and Parole Board (Board) violated the Ex Post Facto Clause of the Constitution by applying the 1988 Directive to him. He claimed that he was deprived of parole consideration prior to serving ten years of his sentence.

The district court determined that application of the 1988 Directive to petitioner constituted an ex post facto violation. It granted the writ, and ordered that petitioner be given a parole hearing within 120 days of its July 29, 1993 order if he had not already received one. After respondent provided proof to the court that petitioner had received a parole hearing on June 8, 1993 (at which he was denied parole), the district court denied petitioner’s requests for further relief.

Respondent does not challenge the district court’s finding of an ex post facto violation. “The proper relief upon a conclusion that a state prisoner is being treated under an ex post facto law is to remand to permit the state court to apply, if possible, the law in place when his crime occurred.” Weaver v. Graham, 450 U.S. 24, 36 n. 22, 101 S.Ct. 960, 968 n. 22, 67 L.Ed.2d 17 (1981). The parole law in place when petitioner’s crime occurred provided the Board discretion to give petitioner a hearing before expiration of ten years. Here by the time the district court ordered that petitioner receive a parole hearing ten years had elapsed; it was no longer possible to apply the earlier law. Cf. Devine v. New Mexico Dep’t of Corrections, 866 F.2d 339, 347 (10th Cir.1989) (when inmate’s punishment was unforeseeably and retroactively enhanced by a modified parole statute, inmate must be provided a parole hearing before expiration of the time period provided for by the prior statute; if not he must be released). However, a habeas petitioner who has been deprived of timely parole consideration is entitled to a hearing, not release. See, e.g., Jones v. U.S. Bureau of Prisons, 903 F.2d 1178, 1181 (8th Cir.1990); Clifton v. Attorney General of the State of California, 997 F.2d 660, 665 (9th Cir.1993); cf. McNeal v. United States, 553 F.2d 66, 68 (10th Cir.1977) (delay in holding parole revocation hearing not per se violation of due process entitling inmate to release). Under these circumstances, we agree that petitioner received all of the relief to which he was entitled.

AFFIRMED.

      . Respondent contends that this court lacks jurisdiction over this appeal because petitioner’s motion for reconsideration remains pending before the district court. The clerk of court entered a minute order dated January 6, 1995 “upon direction by the court” denying that motion as moot. II R. doc. 32. This order, although signed by the clerk, was authorized by the court and is entitled to a presumption of regularity. See Weedon v. Gaden, 419 F.2d 303, 305-06 (D.C.Cir.1969). Having carefully reviewed the record, we conclude that we have jurisdiction over this appeal.

      . After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R.App. P. 34(a); 10th Cir. R. 34.1.9. The case is therefore ordered submitted without oral argument.

      . Instruction 1325.4 reads in pertinent part as follows:
      A prisoner with a punitive discharge or dismissal confined pursuant to a sentence or aggregate sentences of:
      More than three (3) years who have (sic) served not less than one (1) year will become eligible for parole consideration at such time as the appropriate Clemency and Parole Board may recommend and by the Secretary of the Department concerned approve, but such time shall not be more than one-third of the sentence or aggregate sentences as lawfully adjudged and approved, or not more than ten (10) years when the sentence is in excess of thirty (30) years.
      I R. doc. 8, att. 3, p. 20.

      . Directive 1325.4 reads in pertinent part as follows:
      Clemency and Parole Boards shall consider a prisoner for release on parole when the prisoner first becomes eligible and annually thereafter. A prisoner is eligible for release on parole, when requested by the prisoner, as follows:
      (b) When the unsuspended sentence or aggregate sentence to confinement is 12 months or more and the prisoner has served one-third of his or her term of confinement, but in no case less than 6 months, or after having served 10 years of a sentence to confinement for 30 years or more or a sentence to life.
      I R. doc. 8, att. 5, p. 1 — 10.

      .Petitioner argues that he was actually entitled to several parole hearings. He asserts that since the 1988 amendment makes it mandatory for the Board to consider a prisoner for release when he becomes eligible “and annually thereafter," and since he became “eligible" under the 1968 Instruction after one year, he was entitled to man-datary, annual parole hearings beginning in 1988. He cites Spradling v. Maynard, 527 F.Supp. 398, 404 (W.D.Okla.1981), for the proposition that when application of a statute results in an ex post facto violation, the inmate may avoid any detriment resulting from the new enactment but is entitled to its benefits. We disagree with petitioner's analysis. The Spradling case relied on Weaver v. Graham, 450 U.S. 24, 101 S.Ct. 960, 67 L.Ed.2d 17 (1981). Weaver notes that when a habeas petitioner challenges a new law on an ex post facto basis the severable provisions that are not ex post facto still apply to him. Id. at 36 n. 22, 101 S.Ct. at 968 n. 22. Petitioner fails to show here that the provision in the new Directive relating to mandatory parole consideration upon eligibility (favorable to him) is severable from the provision making eligibility for such consideration available only after ten years (unfavorable to him). The two are closely intertwined, and there is no showing that the Secretary of Defense intended for them to operate independently. See id. at 38-39, 101 S.Ct. at 969 (Rehnquist, J., concurring in the judgment).