Opinion ID: 4538516
Heading Depth: 2
Heading Rank: 2

Heading: Dismissal Based on the Statute of Limitations

Text: We now turn to the district court’s dismissal of the Ritchie entities’ claims under Fed. R. Civ. P. 12(b)(6). The district court found the claims were brought after Illinois’s five-year statute of limitations expired. See 735 Ill. Comp. Stat. 5/13-205. The district court began its analysis by determining New York’s choice-of-law principles applied because the case was transferred from New York. See Ferens v. John Deere Co., 494 U.S. 516, 523 (1990) (holding a transferee forum must “apply the law of the transferor court, regardless of who initiates the transfer”). Consequently, the district court applied New York’s borrowing statute, N.Y. C.P.L.R. § 202.3 The borrowing statute applies when a nonresident sues on a cause of action that accrues outside of New York. 2138747 Ontario, Inc. v. Samsung C & T Corp., 103 N.E.3d 774, 777 (N.Y. 2008). When implicated, the statute requires filing within the limitations period of both the jurisdiction where the claim accrued and New York. Id. Concluding the Ritchie entities were all non-residents and the claims accrued in Illinois, the district court determined the relevant statute of limitations period on each claim was, at most, five years. The district court then interpreted Illinois law to conclude all of the claims were time barred because their injuries accrued between February and 3 The statute provides: An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply. N.Y. C.P.L.R. § 202. -10- May 2008, but they did not file their complaint until April 2014, outside of the five-year time limit. The Ritchie entities attack nearly every step of the district court’s analysis. We address their arguments sequentially, reviewing the dismissal de novo and recognizing the general rule that a statute of limitations defense is only grounds for dismissal when the defense is established by the complaint itself. See Joyce v. Armstrong Teasdale, LLP, 635 F.3d 364, 367 (8th Cir. 2011) (providing the standard of review in reviewing a dismissal under Rule 12(b)(6)); In re Dittmaier, 806 F.3d 987, 989 (8th Cir. 2015) (standard of review for interpretations of state law); St. Paul Fire & Marine Ins. Co. v. Bldg. Constr. Enters., Inc., 526 F.3d 1166, 1168 (8th Cir. 2008) (standard of review for choice-of-law determinations); In re ADC Telecomms., Inc. Sec. Litig., 409 F.3d 974, 976 (8th Cir. 2005) (standard of review for statute-of-limitations determinations).
The Ritchie entities challenge the district court’s decision to use New York choice-of-law principles. According to the Ritchie entities, because the Edge Act is the basis for federal court subject matter jurisdiction, federal choice-of-law principles must be used instead, and these principles dictate the choice-of-law principles from the state which has the greatest connection to the dispute should apply. They suggest, but do not directly argue on appeal, that Minnesota’s law should apply. We reject the Ritchie entities’ argument for two reasons. First, the Ritchie entities did not directly advance this argument in their briefs before the district court. In fact, the only time another jurisdiction’s choice-of-law rules were mentioned to the district court was during a hearing where counsel suggested the district court should use the limitations statute from Minnesota, as the state with the most contacts. But counsel never argued the district court should apply federal common law or provided any -11- authority suggesting such an approach be used. Considering this record, the Ritchie entities arguably waived their argument. See Joseph v. Allen, 712 F.3d 1222, 1226 (8th Cir. 2013) (concluding an argument was waived when first raised on appeal). Second, we are aware of only one circuit court decision where jurisdiction existed under the Edge Act and a party suggested federal common law choice-of-law principles should apply. See A.I. Trade Fin., Inc. v. Petra Int’l Banking Corp., 62 F.3d 1454, 1463–64 (D.C. Cir. 1995). There, our sister circuit rejected the argument and required the district court to apply the local forum’s choice-of-law principles, as opposed to federal common law choice-of-law principles, because the action was based on substantive state law not addressed within the Edge Act. Id.; see also Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Secs., LLC, 797 F.3d 160, 170 & n.5 (2d Cir. 2015) (applying New York choice-of-law principles in an Edge Act claim where no party objected). We see no reason to disagree with this approach, particularly in light of the Ritchie entities’ failure to develop this argument. We conclude that in light of this record, the district court was correct to apply New York choice-of-law principles. 2. Residency of Ritchie Capital Management, L.L.C. We next address whether the district court erred in concluding Ritchie Capital Management, L.L.C., was exclusively an Illinois resident for purposes of New York’s borrowing statute. Recall the borrowing statute is only applicable to non-resident plaintiffs. The Ritchie entities contend Ritchie Capital Management, L.L.C., was both a resident of Illinois and New York, and therefore the New York borrowing statute is irrelevant. “[T]he determination of whether a plaintiff is a New York resident, for purposes of CPLR 202, turns on whether he has a significant connection with some locality in the State as the result of living there for some length of time during the course of a -12- year.” Antone v. Gen. Motors Corp., 473 N.E.2d 742, 746 (N.Y. 1984). But doing business in New York at a New York office is not enough to make a company a New York resident, at least for purposes of the borrowing statute. See Am. Lumbersmens Mut. Cas. Co. of Ill. v. Cochrane, 129 N.Y.S.2d 489, 490–91 (N.Y. Sup. Ct. 1954) (holding the plaintiff, which was incorporated in Illinois, was not a resident of New York even though it legitimately did business in New York and had a New York office). Rather a business qualifies as a resident of New York if its principal place of business is in New York. See Woori Bank v. Merrill Lynch, 923 F. Supp. 2d 491, 495 (S.D.N.Y. 2013) (“Under the New York borrowing statute, a business’s principal place of business constitutes the sole residency of that business entity.”); Allegaert v. Warren, 480 F. Supp. 817, 820 (S.D.N.Y. 1979) (holding a business incorporated in another state was a resident of New York for purposes of the borrowing statute when its principal place of business was in New York). Thus, in order for Ritchie Capital Management, L.L.C, which was not organized in New York, to be a New York resident for purposes of the borrowing statute, it must ultimately show that its principal place of business is in New York. The Second Amended Complaint alleges the company “is a limited liability company with dual registration in Delaware and the Cayman Islands. At all relevant times, until 2015, Ritchie Capital Management had offices in Illinois and New York.” These allegations fail to show the company’s principal place of business was in New York. We recognize that because the statute of limitations argument is an affirmative defense, a plaintiff typically does not need to plead all facts necessary to prove which state’s statute of limitations applies. See Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 601 & n.10 (8th Cir. 2009) (explaining “a plaintiff need not plead facts responsive to an affirmative defense before it is raised”). But here, the district court was able to fill in the gap and eliminate the possibility that Ritchie Capital Management, L.L.C., was a New York resident by taking judicial notice of a previous court filing where the -13- company had represented that its principal office was in Illinois. See Compl. at ¶ 12, Ritchie Capital Mgmt. L.L.C. v. Coleman, No. 12-cv-00270 (D. Minn. Feb. 2, 2012), ECF No. 1. This was permissible. See Humphrey v. Eureka Gardens Pub. Facility Bd., 891 F.3d 1079, 1081 (8th Cir. 2018) (explaining that when reviewing a motion to dismiss under Rule 12(b)(6), it is permissible to consider matters of public record). Further, despite being aware of this statute of limitations argument, the Ritchie entities never affirmatively asserted that the company’s principal place of business was in New York. We therefore find no error in the district court’s conclusion that Ritchie Capital Management, LLC, was not a New York resident for purposes of the borrowing statute, but instead was a resident of Illinois. 3. The Cayman entities The Ritchie entities next argue the district court erred in its conclusion that Illinois’s statute of limitations applied to three of the plaintiffs — Ritchie Special Credit Investments, Ltd., Rhone Holdings II, Ltd., and Ritchie Capital Management SEZC, Ltd. (collectively, “the Cayman entities”). We agree with the Ritchie entities that this conclusion was premature because the pleadings do not definitively establish their claims accrued in Illinois. “For purposes of the New York borrowing statute, a cause of action accrues where the injury is sustained rather than where the defendant committed the wrongful acts.” Gordon & Co. v. Ross, 63 F. Supp. 2d 405, 408 (S.D.N.Y. 1999). “When an injury is purely economic, the place of injury for purposes of the borrowing statute is where the economic impact of defendant’s conduct is felt, which is usually the plaintiff’s place of residence.” Id. Under this rubric, New York courts have selected a foreign company’s principal place of business over its place of incorporation for determining the place of accrual for purposes of the borrowing statute. See Interventure 77 Hudson LLC v. Falcon Real Estate Inv. Co., 101 N.Y.S.3d 326 (N.Y. -14- App. Div. 2019) (explaining that “given [the] plaintiffs’ injury was purely economic, the place of their injury for purposes of the borrowing statute is normally deemed their residence, where the economic impact of defendants’ conduct is sustained”); Brinckerhoff v. JAC Holding Corp., 692 N.Y.S.2d 381 (N.Y. App. Div. 1999) (choosing as the place of accrual the state where the out-of-state company had its principal place of business and where the monetary damages would be felt). New York courts have found dismissal inappropriate when courts cannot determine a business’s principal place of residency for purposes of the borrowing statute because factual questions remain unresolved. See Oxbow Calcining USA Inc. v. Am. Indus. Partners, 948 N.Y.S.2d 24 (N.Y. App. Div. 2012) (reversing a dismissal based on the statute of limitations because there was a factual dispute about the plaintiff’s principal place of business at the time of the alleged breach). Contra Verizon Directories Corp. v. Continuum Health Partners, Inc., No. 117782/05, 2009 WL 1116113 (N.Y. Sup. Ct. April 21, 2009) (affirming dismissal based on statute of limitations where, despite plaintiff’s assertion of New York residency, plaintiff never alleged that its principal place of business was in New York and its allegations that it had extensive presence and was authorized to do business in New York were insufficient to establish residency), aff’d, 902 N.Y.S.2d 343 (N.Y. App. Div. 2010). The district court decided the Cayman entities’ claims accrued in Illinois because it concluded they resided in Illinois and suffered the economic injury there. In reaching that conclusion, the district court cited Cayman Islands Companies Law § 163, which requires so-called “exempt companies” to predominately conduct their business outside the Cayman Islands. So, the district court reasoned, the Cayman entities resided and suffered their injury in Illinois, where their manager, Ritchie Capital Management, L.L.C, was principally based. This conclusion was flawed. The district court may have been generally correct that the Cayman entities, as exempted companies, could not predominately carry out their business within the -15- Cayman Islands. See Cayman Islands Companies Law § 163 (2018) (“Any proposed company applying for registration under this Law, the objects of which are to be carried out mainly outside the Islands, may apply to be registered as an exempt company.”). But we are aware of nothing in Cayman law that prevents a Cayman exempt company from primarily suffering an injury’s economic impact in the Cayman Islands. A Cayman exempt company could, for example, presumably keep its assets in the Cayman Islands. See Cayman Islands Companies Law § 174 (2018) (“[N]othing in this section shall be construed so as to prevent the exempted company effecting and concluding contracts in the Islands and exercising in the Islands all of its powers necessary for the carrying on of its business outside the Islands.”) And if that were true, the company would plausibly have suffered its economic injury in the Cayman Islands, making that the location where the claim accrued for purposes of New York’s borrowing statute. And such an injury could potentially lengthen the limitations period. The district court’s suspicion that the Cayman entities’ claims accrued in Illinois may ultimately be correct. But for purposes of Rule 12(b)(6), we cannot conclude that this was established by the pleadings or other information properly before the district court.4 Therefore, we must reverse the dismissal of the claims brought by the Cayman entities. 4 The dissent contends we should take judicial notice that, in a federal court filing, the Ritchie entities stated their injury occurred in Illinois. See Verified Compl. at ¶ 11, Ritchie Captial Mgmt., L.L.C v. Jeffries, No. 09 CV 07228, 2009 WL 4074122 (N.D. Ill. Nov. 18, 2009), ECF No. 1. This assertion was made to demonstrate venue was proper in the Northern District of Illinois. We are unconvinced judicial notice of this filing resolves the issue. After all, venue may be proper in multiple districts, particularly when there are multiple plaintiffs. See Setco Ents. Corp. v. Robbins, 19 F.3d 1278, 1281 (8th Cir. 1994) (recognizing the venue analysis does not focus on the “best” venue but whether or not the chosen district had a substantial connection to the claim). Therefore, the fact the Ritchie entities collectively alleged they suffered injury in Illinois does not necessarily mean the primary economic impact suffered by the Cayman entities occurred in Illinois. -16- 4. Illinois’s Statute of Limitations Having concluded the dismissal of the Cayman entities’ claims was erroneous, we must now consider the next step of the district court’s analysis for the remaining plaintiffs; Ritchie Capital Management, L.L.C., and Yorkville Investment I, L.L.C. This requires us to review whether the district court correctly concluded that Illinois’s five-year limitations period expired before the Ritchie entities filed their lawsuit. The Ritchie entities commenced the underlying lawsuit against most of the defendants on January 30, 2014. This means that in order for their claims to be timely, they must have accrued no earlier than January 30, 2009.5 In Illinois, “[a] cause of action ‘accrues’ when facts exist that authorize the bringing of a cause of action.” Khan v. Deutsche Bank AG, 978 N.E.2d 1020, 1028 (Ill. 2012). “Thus, a tort action accrues when all its elements are present, i.e., duty, breach, and resulting injury or damage.” Id. The district court determined the claims accrued when the loans took place, between February and May 2008. And the Ritchie entities do not meaningfully attack this determination. Instead, they argue they are entitled to application of the discovery rule, equitable estoppel, or equitable tolling under Illinois law, which would make their claims timely. We address each in turn, but ultimately conclude that, under Illinois law, these doctrines are not applicable. 5 The Ritchie entities do not challenge the district court’s determination that “Illinois’s statute of limitations for tort injuries to property is five years,” 735 Ill. Comp. Stat. 5/13-205, nor that the causes of action would not have a longer limitations period under New York law. -17-
The Illinois discovery rule exists “[t]o ameliorate the potentially harsh results” that may be caused by “[a] mechanical application of the statute of limitations,” resulting in the limitations period “expiring before a plaintiff even knows of [its] cause of action.” Khan, 978 N.E.2d at 1028. The discovery rule works “to postpone the start of the period of limitations until the injured party knows or reasonably should know of the injury and knows or reasonably should know that the injury was wrongfully caused.” Id. at 1028–29. Starting at that moment, “the burden is on the injured person to inquire further as to the possible existence of a cause of action.” Id. at 1029. “A person knows or reasonably should know an injury is ‘wrongfully caused’ when he or she possesses sufficient information concerning an injury and its cause to put a reasonable person on inquiry to determine whether actionable conduct had occurred.” Janousek v. Katten Muchin Rosenman LLP, 44 N.E.3d 501, 505 (Ill. App. Ct. 2015). The plaintiff need not know or suspect who the wrongdoer actually is or even that a cause of action exists in order to have sufficient information to be put on inquiry. Id; accord Ritchie Capital Mgmt., L.L.C. v. Fredrickson & Byron, P.A., No. 1–4–2067, 2015 WL 1445681, at  (Ill. App. Ct. Mar. 27, 2015) (“Historically, courts in Illinois have recognized that ‘the phrase wrongfully caused does not mean knowledge of a specific defendant’s negligent conduct or knowledge of the existence of a cause of action.’”) (quoting Castello v. Kalis, 816 N.E.2d 782, 789 (Ill. App. Ct. 2004) (cleaned up)). The district court concluded that by the end of 2008, the Ritchie entities knew or should have known they were injured by wrongful conduct. By that time, the district court reasoned, the Ritchie entities knew the government had arrested Petters, and had indicted him, PCI, and PGW. The indictment detailed the Ponzi scheme and sought -18- forfeiture of assets traceable to the fraud. We agree with the district court’s assessment. Even if the Ritchie entities did not know the various defendants were involved in causing their injury or their exact cause of action by the end of 2008, Illinois law says they were on notice and the burden was on them to inquire about a possible cause of action. See Janousek, 44 N.E.3d at 505 Ritchie Capital Mgmt., 2015 WL 1445681, at . In other words, if they did not know, we believe they should have known. Therefore, the Illinois discovery doctrine does not prevent the expiration of the Ritchie entities’ claims by the end of 2013.
The Ritchie entities also contend their claims are timely under the doctrines of equitable estoppel6 and equitable tolling. They argue they were unable to unravel Petters’s fraudulent scheme because their lawsuit against Petters — in which they intended to conduct discovery — had been stayed and enjoined. Further, the Ritchie entities complain, JP Morgan fought discovery in other litigation to which it was not a party through 2013, which prevented them from understanding JP Morgan’s alleged role in the fraud. With these allegations, the Ritchie entities seek application of equitable estoppel and equitable tolling. We hold neither is appropriate under Illinois law. To establish equitable estoppel under Illinois law, the Ritchie entities must demonstrate six elements: (1) the defendants concealed or misrepresented material facts; (2) the defendants knew the representations were untrue when they were made; 6 In their reply brief, the Ritchie entities argue this court should apply fraudulent concealment under 735 Ill. Comp. Stat. 5/13-215, which they maintain is similar to equitable estoppel. Because they first mentioned this argument in their reply brief, we do not consider it here. See United States v. Martinson, 419 F.3d 749, 753 (8th Cir. 2005). -19- (3) the Ritchie entities did not know the representations were untrue, both when the defendants made them and when the Ritchie entities acted upon them; (4) the defendants intended or reasonably expected the Ritchie entities to act upon the representations; (5) the Ritchie entities reasonably relied upon the misrepresentations in good faith and to their detriment; and (6) the Ritchie entities were prejudiced by their reliance. See Parks v. Kownacki, 737 N.E.2d 287, 296 (Ill. 2000). “The gist of the doctrine is that ‘one cannot justly or equitably lull his adversary into a false sense of security, causing him to subject his claim to the bar of the statute, and then plead the very delay caused by his course of his conduct.’” Anderson v. Holy See, 878 F. Supp. 2d 923, 935 (N.D. Ill. 2012) (quoting Beynon Bldg. Corp. v. Nat’l Guardian Life Ins. Co., 455 N.E.2d 246, 252 (Ill. App. Ct. 1983)). The only specific allegation against any defendant that would potentially implicate equitable estoppel is made against JP Morgan. According to the Ritchie entities, JP Morgan thwarted their efforts in discovery to obtain information revealing the defendants’ purported role in Petters’s scheme, by first not responding to a subpoena duces tecum issued in May 2010 in a New York bankruptcy action, and later by getting a protective order against such discovery. We fail to see how this apparently routine discovery fight over documents lulled the Ritchie entities into a false sense of security, causing them to delay bringing their claims. It would be one thing if JP Morgan falsely represented to the Ritchie entities that it had turned over all relevant documents and the Ritchie entities relied on that representation to conclude no cause of action existed against JP Morgan. In such a scenario, all elements of equitable estoppel may very well be met. But here, the Ritchie entities have failed to establish that JP Morgan lulled them into delaying their lawsuit by lawfully resisting their efforts to obtain documents through third-party discovery. We therefore agree with the district court that the Ritchie entities have not met their burden of showing the doctrine of equitable estoppel applies here. -20- As for the doctrine of equitable tolling, Illinois law provides that the doctrine “may be appropriate if the defendant has actively misled the plaintiff, or if the plaintiff has been prevented from asserting his or her rights in some extraordinary way, or the plaintiff has mistakenly asserted his or her rights in the wrong forum.” Clay v. Kuhl, 727 N.E.2d 217, 223 (Ill. 2000). However, “[w]hile equitable tolling is recognized in Illinois, it is rarely applied.” Am. Family Mut. Ins. Co. v. Plunkett, 14 N.E.3d 676, 681 (Ill. App. Ct. 2014). The Ritchie entities have failed to point us to any Illinois case supporting their contention that the doctrine should apply here. In fact, we are only aware of two cases where Illinois courts have applied the doctrine. See Williams v. Bd. of Review, 948 N.E.2d 561, 567–72 (Ill. 2011); Ralda-Sanden v. Sanden, 989 N.E.2d 1143, 1148–49 (Ill. App. Ct. 2013). Williams is not helpful to the Ritchie entities’ argument because the Illinois Supreme Court was applying federal law to determine whether a federal statutory bar should be tolled. 948 N.E.2d at 567. The case thus tells us nothing about Illinois law. And Ralda-Sanden involved factual circumstances dramatically different and more extreme than those alleged by the Ritchie entities. 989 N.E.2d at 1148–49 (holding equitable tolling permitted a woman to bring a complaint to establish the paternity of her father where her mother withheld information that the father was alive due to threats to kill her and her family). We are thus unconvinced that Illinois law permits us to apply this “rarely applied” doctrine here, where similarly exceptional circumstances are lacking. In sum, we conclude neither equitable estoppel nor equitable tolling apply under Illinois law.