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January 24, 2010

Statute to Sue Trustee Ran Says 7th Circuit

By Lara Boyko, UWLA Law Student

CIT Communications Finance Corporation v. Maxwell (In re marchFirst, Inc), 589 F.3d 901 (7th Cir., 2009)

Issue: Was suit against the trustee here properly dismissed where the complaint was filed after the statute of limitations had run?

Holding: Yes

In 2000, CIT leased telephone equipment to marchFIRST.  On April 12, 2001, marchFIRST filed a bankruptcy petition.  Maxwell was appointed trustee.  CIT then requested the return of its equipment. “Maxwell and his agents advised CIT to contact different individuals, each of which ‘stonewalled’ CIT.”  In addition, Maxwell missed the August 12, 2001 deadline for filing an inventory of CIT’s property as required by Section 704.  Three and a half months later, Maxwell filed a Statement of Financial Affairs denying that the debtor held or controlled any of CIT’s property.  Maxwell began liquidating the debtor’s property (which presumably included CIT’s property).  CIT filed an administrative expense claim in 2002 and sued Maxwell in 2007 for breach of fiduciary duties.  The statute of limitations is five years in Illinois.  Maxwell sought dismissal based on the statute but CIT argued that it did not discover Maxwell’s breaches until some time in 2002 and therefore the statute had not run.  The bankruptcy court dismissed and the district court affirmed. 

The 7th Circuit affirmed.  The statute of limitations begins “at the time of the breach or when the plaintiff reasonably should be aware of its injury and its wrongful cause.”   Based on the timeline of events and sophistication level of CIT, it should have known that its injury was wrongfully caused during the summer and fall of 2001 during Maxwell’s refusal to cooperate and not between May 7, 2002, and December 12, 2002, as claimed.  Therefore the statute of limitations period started accruing in 2001, which is more than five years before CIT filed a complaint against the defendant.

January 24, 2010 in Other Circuit Briefs | Permalink

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