Court Opinion

ID: 3004262
Source: CourtListenerOpinion
Date Created: 2015-09-24 22:42:02.741748+00
Date Added: 2024-06-11T15:22:04.356805
License: Public Domain

In the

United States Court of Appeals
               For the Seventh Circuit

No. 09-1663

P RIME E AGLE G ROUP L IMITED, as assignee of
the claims of Nakornthai Strip Mill Public
Company Limited,
                                         Plaintiff-Appellant,
                             v.

S TEEL D YNAMICS, INC.,
                                               Defendant-Appellee.

             Appeal from the United States District Court
      for the Northern District of Indiana, Fort Wayne Division.
               No. 1:08 CV 35—James T. Moody, Judge.

      A RGUED O CTOBER 8, 2009—D ECIDED JULY 27, 2010

   Before E ASTERBROOK, Chief Judge, and M ANION and
T INDER, Circuit Judges.
  E ASTERBROOK, Chief Judge. Nakornthai Strip Mill Public
Company Limited began building a new steel mini-mill
in Thailand during the 1990s. When the project ran
into technical and financial difficulties, it asked Steel
Dynamics, a firm with expertise in developing and
2                                              No. 09-1663

running steel mini-mills, to lend assistance. Steel
Dynamics did so, and it also helped Nakornthai raise
capital. The mill was started and seemingly ran produc-
tively. But in late 1998 steel prices were down, the
economy of Southeast Asia was in recession, and Steel
Dynamics concluded that the venture was going to lose
money. It decided to withdraw, lest it become liable for
some of these losses. (Steel Dynamics had dispatched a
management team that had operational control of the
mill.) Prime Eagle Group, which sues as Nakornthai’s
assignee, contends in this litigation under the inter-
national-diversity jurisdiction, see 28 U.S.C. §1332(a)(2),
that Steel Dynamics chose fraud as its means of exit and
must pay damages in tort. The parties agree that Indiana
law supplies the rule of decision.
  According to Prime Eagle, the fraud was telling
Nakornthai’s board of directors and principal investors
that the mini-mill had design flaws that would cost
about $100 million to fix. When the management team
under Steel Dynamics’ control began preparations for
these changes, major investors pulled the plug. The mill
was idle from December 1998 (when it was put out of
service by lightning) until it restarted in December 2003.
Meanwhile, Nakornthai was reorganized under Thai
insolvency law. In June 2002 it commissioned an engi-
neering study, which two months later concluded that
the mill’s design and construction were sound. The mill
has operated successfully since its restart, without the
costly changes that Steel Dynamics had said were essen-
tial. Prime Eagle believes that Steel Dynamics must pay
$1 billion for losses suffered while the mill was idle or
No. 09-1663                                                 3

operated at less than capacity, plus the costs of con-
ducting the Thai reorganization proceeding.
  Prime Eagle filed this suit in 2008, a decade after the
supposed fraud. (We have recited the complaint’s allega-
tions, which may or may not be true.) The statute of
limitations in Indiana is six years. Ind. Code §34-11-2-7(4).
A claim accrues, and the statute of limitations begins to
run, “when a claimant knows or in the exercise of ordinary
diligence should have known of the injury.” Cooper Indus-
tries, LLC v. South Bend, 899 N.E.2d 1274, 1280 (Ind. 2009).
  Steel Dynamics observes that Nakornthai knew of the
injury when the mill was closed; Prime Eagle replies that
Nakornthai did not know that it had been played false
until the consultant’s report in 2002. Cf. Merck & Co. v.
Reynolds, 130 S. Ct. 1784 (2010) (discussing the dis-
covery doctrine for federal securities claims). Normally
knowledge of who injured you is essential, in addition
to knowledge of the injury’s existence. See Jay E.
Hayden Foundation v. First Neighbor Bank, N.A., No. 09-2781
(7th Cir. June 22, 2010), slip op. 8–9. Nakornthai knew
the “who” no later than it knew the existence of its injury.
  Prime Eagle asks us to treat knowledge of a given per-
son’s culpability, as well as that person’s causal role, as an
additional element of a claim’s accrual. That’s a less
common element. See United States v. Kubrick, 444 U.S. 111,
119–25 (1979). The district judge did not decide whether
a claim’s accrual is postponed until the victim knows
about the defendant’s fault, because Nakornthai had
actual knowledge on that front no later than September
1998, when its own president wrote the board of di-
4                                              No. 09-1663

rectors a detailed letter disagreeing with Steel Dynamics
and concluding that the mill should be restarted as is.
The board chose to fire its president instead and cannot
maintain that it was ignorant. The court found the suit
untimely and entered judgment for Steel Dynamics. 2009
U.S. Dist. L EXIS 13943 (N.D. Ind. Feb. 23, 2009).
  Although the parties have filed lengthy briefs covering
many subjects, the only one that we need to discuss is
whether the president’s knowledge is imputed to
Nakornthai. If it is, then Nakornthai knew in fall 1998
that Steel Dynamics’ assertions were false, or at least
questionable enough to justify an investigation. The
report commissioned in 2002 could have been commis-
sioned in 1998. (We put to one side the question why
Prime Eagle waited 5½ years after Nakornthai received
the consultant’s report. Legal counsel had to have appreci-
ated that a court might deem the claim to have accrued
earlier. Waiting until what is by one’s own calculation
the tail end of a period of limitations is a formula for
disaster.)
  Nakornthai’s president during 1998 was John Schultes,
an engineer who had worked for USX (U.S. Steel) before
he joined Nakornthai as President and CEO in October
1995. That was well before Steel Dynamics became in-
volved. No one contends that Schultes was beholden to
Steel Dynamics or under its influence. Schultes knew the
design of the plant and believed that Steel Dynamics
was wrong in asserting that major changes were required.
He told the board of directors this in a comprehensive
letter. He was fired for his troubles—but his view was
No. 09-1663                                                 5

vindicated by the consultant’s report in 2002 and the
successful restart of the mill in 2003.
  Corporations do not have brains, but they do have
employees. One fundamental rule of agency law is that
corporations “know” what their employees know—at
least, what employees know about subjects that are
within the scope of their duties. (What a mailroom em-
ployee knew, or thought he knew, about the plant’s
design would not be imputed to Nakornthai.) Schultes
knew in 1998 that Steel Dynamics was not giving
Nakornthai accurate information; therefore Nakornthai
itself knew this. See EEOC v. G-K-G, Inc., 39 F.3d 740, 748
(7th Cir. 1994); William Meade Fletcher, Cyclopedia of the
Law of Corporations §811 (2010 ed.) (“notice to and knowl-
edge of the president of a corporation relating to its
affairs and business is notice to and knowledge of the
corporation”). And Nakornthai’s injury began (and the
claim thus accrued) no later than July 1999, when its
investors withdrew their support, left the plant idle,
and threw the firm into insolvency.
   Prime Eagle says that this is not so, because Schultes
was “in an extremely diminished capacity.” Presumably
this does not mean that he was on the verge of insanity.
What Prime Eagle means is that he had lost the board’s
confidence and was on his way out. But the board has
itself to blame. You can’t stare the truth in the face, disbe-
lieve it, and then claim to have been ignorant. See Acme
Propane, Inc. v. Tenexco, Inc., 844 F.2d 1317 (7th Cir. 1988)
(a truthful written disclosure prevents a claim of reliance
on oral deceit). Conflicting assertions (Schultes on one
6                                              No. 09-1663

side, Steel Dynamics on the other) may leave a person in
doubt, but there are means to resolve doubt, such as
the consultant’s report commissioned in 2002. When
“ordinary diligence” (see Cooper Industries) following a
notice would expose the untruth, the plaintiff has all
required knowledge.
  The common law of agency recognizes only two ex-
ceptions to the proposition that an employee’s knowl-
edge of a matter within the scope of his duties is imputed
to the employer: One is that the employee was acting
adversely to the principal’s interests, and the other is
that the employee was subject to a duty to a third
party not to disclose the information to the principal. See
Restatement (Third) of Agency §5.03 (T.D. 6, 2005). Neither
the American Law Institute nor any state’s judiciary
thinks that there is, or should be, a third exception, for
employees who have lost the board’s confidence and are
soon to be shown the door. If Prime Eagle wanted to
argue for the creation of such an exception, it should
have sued in state rather than federal court. We must
take state law as we find it.
  Prime Eagle suggests that, when the reorganization
began, and a new set of investors took over (the old bond-
holders’ claims were converted to equity, and new debt
capital was raised), Nakornthai effectively “forgot” what
the board had been told in 1998. The board members
to whom Schultes passed the information were no longer
there; Schultes himself was gone. The common law of
agency does not provide for corporate forgetfulness,
however; information is a corporate asset that does not
No. 09-1663                                              7

vanish when investors elect a new board. A corporation
is a continuing entity as the board changes, just as
the United States of America is a continuing entity gov-
erned by legal texts adopted in 1788 and 1791, even
though George Washington is no longer the President
and James Madison no longer sits in the House of
Representatives. More: if Schultes’ report drops out of
the picture, then Steel Dynamics’ statements do too; it
is not possible to adopt a rule that turnover on the
board causes selective corporate amnesia.
  Prime Eagle argued in the district court that Steel
Dynamics is equitably estopped to plead the statute of
limitations, but it has not contested on appeal the
judge’s adverse decision. It does argue for equitable
tolling during its insolvency, but it misunderstands the
doctrine. Equitable tolling does not restart the period of
limitations, as Steel Dynamics supposes. Instead it
permits deferral of suit until the tolling event ceases
and requires diligent action thereafter. See, e.g., Pace v.
DiGuglielmo, 544 U.S. 408, 418–19 (2005); Cada v. Baxter
Healthcare Corp., 920 F.2d 446 (7th Cir. 1990); Jay E.
Hayden Foundation, slip op. 10–11. Nakornthai was out
of bankruptcy, and had its mill running, with at least
eight months left in the period of limitations, even on the
earliest possible accrual date. (Steel Dynamics contends
that the first injury occurred in August 1998.) Nakornthai
waited more than four years after the success of its mill
put the lie to Steel Dynamics’ analysis, and 5½ years
after the consultant reported that the mill would run
just fine as is. Prime Eagle has been anything but dili-
8                                        No. 09-1663

gent and cannot use equitable tolling to justify the
untimely filing.
                                           A FFIRMED

                       7-27-10