Opinion ID: 1269674
Heading Depth: 2
Heading Rank: 2

Heading: Trustee's Cross-Appeal

Text: The Trustee brought alter ego/veil piercing claims against Enodis and Welbilt Holding, seeking a judgment that the Trustee could collect from Enodis and Welbilt Holding any amounts needed to satisfy Consolidated's creditors. The bankruptcy court concluded that the Trustee lacked standing under §§ 541(a) or 544(a) of the Bankruptcy Code to bring these claims. On appeal from the bankruptcy court, the district court concluded that the Trustee did in fact have standing to bring alter ego/veil piercing claims against Enodis and Welbilt Holding under § 541. [7] However, the court stated that it agreed with the bankruptcy court's ultimate legal conclusion that the Trustee's claims fail under that section. Appellants' App. at 87. The Trustee contends that the district court erred in concluding that the Trustee was not entitled to judgment on his alter ego/veil piercing claims by purporting to adopt a ruling that the bankruptcy court never made and by failing to review de novo the merits of the Trustee's claims. In order to prevail on an alter ego/veil piercing claim under Indiana law, a court will consider whether the plaintiff has adduced evidence showing: (1) undercapitalization; (2) absence of corporate records; (3) fraudulent representation by the corporation's shareholders or directors; (4) use of the corporation to promote fraud, injustice, or illegal activities; (5) payment by the corporation of individual obligations; (6) commingling of assets or affairs; (7) failure to observe required formalities; or (8) other shareholder acts or conduct ignoring, controlling or manipulating the corporate form. Nat'l Soffit & Escutcheons, Inc. v. Superior Sys., Inc., 98 F.3d 262, 265-66 (7th Cir.1996) (citing Aronson v. Price, 644 N.E.2d 864, 867 (Ind.1994)). As we have already noted, Rule 52(a) requires that the court in a bench trial set forth findings, stated either in the court's opinion or separately, which are sufficient to indicate the factual basis for the ultimate conclusion. Rucker v. Higher Educ. Aids Bd., 669 F.2d 1179, 1183 (7th Cir.1982) (citation omitted). Doing so serves two purposes: (1) to provide appellate courts with a clear understanding of the basis of the trial court's decision, and (2) to aid the trial court in considering and adjudicating the facts. Bartsh v. Nw. Airlines, Inc., 831 F.2d 1297, 1304 (7th Cir.1987). In the present case, the district court's opinion does not indicate the factual basis for its conclusion that the Trustee has not presented evidence to support his alter ego/veil piercing claims. Although findings on every issue presented in a case are unnecessary if the trial court has found such essential facts as lay a basis for the decision, In re Lemmons & Co., 742 F.2d 1064, 1070 (7th Cir.1984), in the present case, the courts below did not include any factual findings relating to the merits of the Trustee's alter ego/veil piercing claims. The decision to disregard the corporate form is a highly fact-sensitive inquiry, Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1232 (Ind.1994), and in light of the district court's cursory treatment of the Trustee's claims, we are unable to discern the basis of the court's ultimate conclusion on each factual issue. Denofre, 532 F.2d at 45. Thus, we vacate and remand with directions to the district court to comply with Rule 52(a).
The Trustee argues that the district court should have entered judgment against Welbilt Holding under 11 U.S.C. § 550(a)(1), which allows a trustee to recover transfers that have been avoided from the initial transferee of such transfers or the entity for whose benefit the transfers were made. The district court declined to enter judgment against Welbilt Holding on the grounds that judgment in the entire amount had been entered against Enodis and that 11 U.S.C. § 550(d) entitled the Trustee to only a single satisfaction of the judgment amount. Section 550(d) provides that [t]he trustee is entitled to only a single satisfaction under subsection (a) of this section. The Trustee contends that the district court misconstrued § 550(d) and that although § 550(d) precludes the Trustee from collecting more than once, it does not prevent a court from entering judgment against more than one party. There is some support for the Trustee's position. As defined in the Bankruptcy Code, or is not exclusive. See 5 COLLIER ON BANKRUPTCY ¶ 550.02[4] at 550-16 (Alan N. Resnick et al., eds., 15th ed. rev.2007) (citing 11 U.S.C. § 102(5)). Thus, the trustee can recover from any combination of the entities mentioned [in § 550] subject to the limitation of a single satisfaction. Id. Even if the district court erred, however, in order for the Trustee to be entitled to judgment against Welbilt Holding, he must establish that Welbilt Holding was an entity for whose benefit the transfers were made. The bankruptcy court found that [t]he record does not indicate that any of Consolidated's money went to [Welbilt] Holding. . . . None of the transfers from Consolidated to [Enodis] were advantageous to [Welbilt] Holding. Appellants' App. at 50. The Trustee does not challenge that finding, arguing that because the transfers were actually owed to Welbilt Holding, it is an entity for whose benefit they were made. Although a few courts have found that an entity need not actually obtain a benefit in order to be an entity for whose benefit a transfer was made, see, e.g., In re Richmond Produce Co., 118 B.R. 753 (Bankr.N.D.Cal.1990), requiring that the entity actually receive a benefit from the transfer is consistent with the well-established rule that fraudulent transfer recovery is a form of disgorgement, so that no recovery can be had from parties who participated in a fraudulent transfer but did not benefit from it. In re McCook Metals, L.L.C., 319 B.R. 570, 591 (Bankr. N.D.Ill.2005); see also In re Meredith, 527 F.3d 372, 376 (4th Cir.2008) ([A] person must actually receive a benefit from the transfer in order to be an `entity for whose benefit' the transfer was made.); In re Compton Corp., 831 F.2d 586, 595 (5th Cir.1987). Imposing liability on a nontransferee based on the debtor's intent to benefit him, without requiring proof that the nontransferee actually benefited from the transfer, bears no relationship to the theory of cancellation that historically underlies avoidance remedies. Larry Chek & Vernon O. Teofan, The Identity and Liability of the Entity for Whose Benefit a Transfer Is Made under Section 550(a): An Alternative to the Rorschach Test, 4 J. BANKR.L. & PRAC. 145, 156 (1995). Because Welbilt Holding did not derive a benefit from the transfers, we affirm the district court's refusal to enter judgment against Welbilt Holding.
The courts below concluded that the Trustee's claims against defendants Hirsch, Hirsch and Gross were barred by Indiana's two-year statute of limitations on breach of fiduciary duty claims and granted their motion for summary judgment. Under Indiana law, a claim for breach of fiduciary duty is subject to the two-year statute of limitations that applies to tort claims for injury to personal property. Shriner v. Sheehan, 773 N.E.2d 833, 846 (Ind.Ct.App.2002). The Trustee filed this action on May 10, 1999. Although the filing date was almost nine years after the Hirsch defendants left Consolidated's board, the Trustee argues that the two-year limitations period should have been tolled under the adverse domination doctrine. The doctrine of adverse domination allows the tolling of the statute of limitations where the entity [to whom the cause of action belonged] is controlled by or dominated by wrongdoers. The statute of limitations begins to run again when the wrongdoers lose control of the entity. The rationale behind the adverse domination doctrine is premised upon the principle that officers and directors who have harmed the entity cannot be expected to take legal action against themselves. Resolution Trust Corp. v. O'Bear, Overholser, Smith & Huffer, 840 F.Supp. 1270, 1284 (N.D.Ind.1993) (citation omitted) (alteration in original). [8] The courts below concluded that Marion Antonini, who replaced Hirsch, Hirsch and Gross in October 1990, was a disinterested outsider from the standpoint of any wrong which his predecessors may have committed. Appellants' App. at 90. Thus, any claim the Trustee had against the Hirsch defendants accrued in October 1990 and the applicable statute of limitations required Consolidated to bring its breach of fiduciary duty claims against the Hirsch defendants by October 1992. When the Hirsch defendants moved for summary judgment, they asked the court to accept the facts in the Trustee's Third Amended Complaint as true. In the Third Amended Complaint, the Trustee alleged that Enodis controlled the composition of Consolidated's board of directors through January 1998. But this allegation is insufficient to create a genuine issue of material fact as to whether the Hirsches exerted any control over Consolidated after they left the board such that they would be in a position to prevent the company from suing them for breach of fiduciary duty. Celotex v. Catrett, 477 U.S. 317, 331, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). We affirm the bankruptcy court's conclusion that the statute of limitations for the Trustee's claims against the Hirsch defendants began running in 1990 and had lapsed by the time the bankruptcy petition was filed in 1998.