Court Opinion

ID: 3003901
Source: CourtListenerOpinion
Date Created: 2015-09-24 22:33:18.032605+00
Date Added: 2024-06-11T09:16:29.253836
License: Public Domain

In the

United States Court of Appeals
                For the Seventh Circuit

No. 08-3600

IN RE:
    MARCH FIRST INCORPORATED ,
                                                                    Debtor.

A PPEAL OF:

    CIT C OMMUNICATIONS F INANCE
    C ORPORATION, formerly known as
    N EWCOURT C OMMUNICATIONS
    F INANCE C ORPORATION.

              Appeal from the United States District Court
         for the Northern District of Illinois, Eastern Division.
                No. 08-cv-00121—David H. Coar, Judge.

    A RGUED O CTOBER 26, 2009—D ECIDED D ECEMBER 21, 2009

 Before B AUER and S YKES, Circuit Judges, and S IMON,
District Judge.


  Hon. Philip P. Simon, District Judge for the Northern
District of Indiana, sitting by designation.
2                                                No. 08-3600

  B AUER, Circuit Judge. CIT Communications Finance
Corporation leased phone equipment to marchFIRST, Inc.
When marchFIRST filed for bankruptcy protection and
failed to return the equipment, CIT eventually sought
damages from Andrew Maxwell, the trustee in bank-
ruptcy, for breach of fiduciary duty. The bankruptcy
court dismissed the claims as barred by the statute of
limitations. The district court affirmed. Finding that the
five-year statute of limitations bars CIT’s claims, we affirm.

                    I. BACKGROUND
  CIT began leasing telephone equipment to marchFIRST
in 2000. On April 12, 2001, marchFIRST filed for bank-
ruptcy in Delaware and CIT appeared as an interested
party. The court-appointed trustee rejected all of
marchFIRST’s leases with CIT and received court permis-
sion to retain an auctioneer to assist in liquidating
property held by marchFIRST. On July 10, the Delaware
court transferred the case to the Bankruptcy Court for the
Northern District of Illinois, which court appointed
Andrew Maxwell as the successor trustee.
  After Maxwell’s appointment, CIT began seeking the
return of its equipment. On July 20, CIT’s attorney wrote
Maxwell requesting the return of the equipment. Ac-
cording to CIT, Maxwell and his agents responded to the
letter and the related attempts to recover the equipment
by advising CIT to contact “different individuals,” each
of whom “stonewalled” CIT. Maxwell also missed an
August 12, 2001 deadline for filing an inventory of CIT’s
property in the debtor’s possession as required by Fed. R.
Bankr. P. 2015(a)(1) and 11 U.S.C. § 704(a)(2).
No. 08-3600                                                3

  On November 2, 2001, Maxwell filed a Statement of
Financial Affairs in the bankruptcy court denying that
marchFIRST held or controlled any of CIT’s property.
Nearly three months later, on January 31, 2002, the bank-
ruptcy court gave Maxwell permission to re-employ the
auctioneer in order to continue liquidating equipment
marchFIRST held at various locations. Nearly a year
later, on December 12, 2002, CIT filed an amended admin-
istrative expense claim seeking the full value of its equip-
ment. The claim asserted that Maxwell had breached
his fiduciary duty but that CIT had not discovered the
breach until sometime after October 11, 2001, the dead-
line for filing such claims in the bankruptcy court.
   CIT filed its complaint in this case on May 7, 2007, four-
and-a-half years after filing its amended administrative
expense claim, and five years and nine months after it
first wrote to Maxwell seeking the return of its equip-
ment. CIT’s complaint charged Maxwell with, among
other things, breaching his fiduciary duty to CIT by
ignoring requests to return the equipment, failing to
safeguard the equipment, and improperly disposing of
the equipment—all of which CIT claims were done out-
side the scope of his duties as trustee. The bankruptcy
court dismissed the claims as barred by Illinois’ five-year
statute of limitations. CIT appealed the decision to the
district court, which affirmed. CIT timely appealed.

                    II. DISCUSSION
   CIT argues that the statute of limitations should not bar
it from pursuing its claim for breach of fiduciary duty,
4                                                No. 08-3600

even though it filed the claim nearly six years after it
was first “stonewalled” by Maxwell and four-and-a-half
years after it filed its amended administrative expense
claim. Both parties agree that CIT’s claims to recover
personal property are governed by Illinois five-year
statute of limitations, as interpreted by the Illinois
Supreme Court. 735 Ill. Comp. Stat. 5/13-205. See Com-
monwealth Ins. Co. v. Stone Container Corp., 323 F.3d 507, 509
(7th Cir. 2003). Because CIT filed its complaint on May 7,
2007, the claims for which it seeks relief must have
accrued no earlier than May 7, 2002. We review de novo
the district court’s dismissal of CIT’s claims as barred by
the statute of limitations. Dominguez v. Hendley, 545 F.3d
585, 588 (7th Cir. 2008).
  The disputed issue is when CIT’s claims against Maxwell
accrued and triggered the running of the limitations
period. Illinois follows the general rule that tort claims
arising from a contract accrue when the contract is
breached, whereas most tort claims accrue when the
plaintiff sustains an injury. Hermitage Corp. v. Contractor’s
Adjustment Co., 651 N.E.2d 1132, 1135 (Ill. 1995). But
courts also have a discovery rule to protect those who
are unaware of their right to sue, “to encourage the trial
of cases on their merits and avoid premature summary
dismissals.” Superior Bank FSB v. Golding, 605 N.E.2d 514,
518 (Ill. 1992). The discovery rule delays the accrual of
claims until the plaintiff reasonably should know that he
has been injured and that the injury was wrongfully
caused. Id. A plaintiff’s knowledge that his injury was
wrongfully caused does not necessarily mean knowledge
of actionable conduct. Knox Coll. v. Celotex Corp., 430
No. 08-3600                                                 5

N.E.2d 976, 980-81 (Ill. 1981). The cause of action accrues
and the limitations period begins to run when “the
injured person becomes possessed of sufficient informa-
tion concerning his injury and its cause to put a rea-
sonable person on inquiry to determine whether
actionable conduct is involved.” Id. In addition, in Illinois,
the party seeking to utilize the discovery rule bears the
burden of proving the date of discovery. Hermitage, 651
N.E.2d at 1138.
   In this case, CIT’s claims accrued before May 7, 2002, and
thus are barred by the statute of limitations. CIT maintains
that, as trustee of the bankrupt marchFIRST estate,
Maxwell breached the fiduciary duty he owed to
marchFIRST’s creditors. Maxwell accomplished this,
according to CIT, by failing to inventory, return, and
safeguard, (and eventually disposing of) CIT’s equipment.
However, all activity the complaint describes relating to
CIT’s efforts to recover its equipment and Maxwell’s
lack of response occurred during the summer and fall
of 2001, over five years and six months prior to the date
CIT filed its complaint. CIT first appeared in the bank-
ruptcy proceeding as an interested party on April 23,
2001. In July 2001, CIT first asked for its phone system
back in a letter to Maxwell. According to CIT, Maxwell
responded to this and other such requests with “stone-
walling.” He also failed to file an inventory of the
debtor’s possessions as required by the Bankruptcy
Code. Then, according to CIT, Maxwell “deliberately”
filed a Statement of Financial Affairs in November 2001,
“falsely represent[ing] that Debtors did not hold any
property owned by” CIT. Hence, by November 2001, CIT
6                                              No. 08-3600

had appeared as a party to the bankruptcy and knew it
was entitled to recover its equipment, but Maxwell
refused to turn it over and even publicly denied
possessing it. CIT reasonably should have known at
that point that Maxwell had wrongfully disposed of
its equipment or at least refused to cooperate in its
return—either of which put CIT on notice of an injury
and potential claims against Maxwell.
  Even if, as CIT claims on appeal, Maxwell’s conduct
in breach of his duty continued after the May 7, 2002
trigger date, CIT’s claims accrued and the limitations
period commenced in November 2001, when it first was
reasonably aware of its injury and its wrongful cause.
Unlike tort claims involving an ongoing or continuing
series of acts in which the limitations period does not
run until the date when tortious acts cease, Feltmeier v.
Feltmeier, 798 N.E.2d 75, 85 (Ill. 2003), where the tort
claims arise out of contract, the limitations period begins
at the time of the breach or when the plaintiff reasonably
should be aware of its injury and its wrongful cause.
Hermitage, 651 N.E.2d at 1135. As discussed above, CIT
knew of Maxwell’s wrongful conduct in relation to its
phone equipment during the summer and fall of 2001
and the statute of limitations commenced on that date.
  CIT further argues that it was inappropriate to
dismiss its claim on a Rule 12(b)(6) motion because
the statute of limitations is an affirmative defense that
should not be adjudicated on the pleadings. In ruling on
Rule 12(b)(6) motions, the court must treat all well-
pleaded allegations as true and draw all inferences in
No. 08-3600                                                  7

favor of the non-moving party. See Tamayo v. Blagojevich,
526 F.3d 1074, 1081 (7th Cir. 2008). Under this standard,
CIT says it is entitled to an inference that its claims did not
accrue until December 2002, when it filed its amended
administrative expense claim for the full cost of the
equipment in bankruptcy court. This is the date when CIT
says it became clear that it had a cause of action. But
the true test under Illinois law is when CIT reasonably
should have known it was injured by Maxwell’s wrongful
conduct. See Knox Coll., 430 N.E.2d at 980 (citing Nolan v.
Johns-Manville Asbestos, 421 N.E.2d 864 (Ill. 1981)). CIT’s
argument then, is that despite its repeated attempts to
recover its equipment in the summer and fall of 2001 and
Maxwell’s refusal to cooperate, CIT was unaware of its
injury and its cause until sometime after the May 7, 2002
triggering date for the statute of limitations, but before
it amended its expense claim in the bankruptcy pro-
ceeding on December 12, 2002. This is where CIT pleads
itself out of court. After Bell Atlantic v. Twombly, 550 U.S.
544 (2007), it is no longer sufficient for a complaint “to
avoid foreclosing possible bases for relief.” E.E.O.C. v.
Concentra Health Svcs., Inc., 496 F.3d 773, 776-77 (7th Cir.
2007) (citing Bell Atl., 550 U.S. at 560-63). The plain-
tiff must plead some facts that suggest a right to relief
that is beyond the “speculative level.” Id. By including
in the complaint no triggering facts that occurred
during this window of time, CIT’s complaint establishes
an impenetrable defense to its claims that would have
to be contradicted for CIT to prevail on the merits. See id.
It would be mere speculation to infer from the com-
plaint that CIT discovered its claims between May 7, 2002
8                                             No. 08-3600

and December 12, 2002; the complaint is completely
silent as to anything that happened during that period.
Rather, the complaint alleges that Maxwell failed to in-
ventory the equipment and publicly declared in the
Statement of Financial Affairs that marchFIRST did not
possess the equipment before that period. These events
should have put CIT on notice that it had been in-
jured—that Maxwell had either wrongfully disposed
of the equipment or was less than truthful about its
whereabouts. And as a sophisticated party appearing in
the bankruptcy proceedings, CIT should have known
that its injury was wrongfully caused. All of this
occurred, at the very least, on or before November 8,
2001, more than five years and five months before CIT
filed its complaint.

                  III. CONCLUSION
   CIT’s claims accrued more than five years before it
filed its complaint and its claims are barred by the five-
year statute of limitations. We A FFIRM .

                         12-21-09