Beloit Liquidating Trust v. Grade, 02-2035.

• Decision Date: 01 July 2003
• Docket Number: No. 02-2035.,02-2035.
• Citation: 2003 WI App 176,669 N.W.2d 232,266 Wis.2d 388
• Parties: BELOIT LIQUIDATING TRUST, a Delaware Trust, Plaintiff-Appellant, v. Jeffrey T. GRADE, Francis M. Corby, Jr., Mark E. Readinger, James A. Chokey, Robert A. Messier, Alton L. Daffin, and Thomas E. Engelsman, Defendants-Respondents.
• Court: Wisconsin Court of Appeals

266 Wis.2d 388

2003 WI App 176

669 N.W.2d 232

BELOIT LIQUIDATING TRUST, a Delaware Trust, Plaintiff-Appellant, v. Jeffrey T. GRADE, Francis M. Corby, Jr., Mark E. Readinger, James A. Chokey, Robert A. Messier, Alton L. Daffin, and Thomas E. Engelsman, Defendants-Respondents.¹

No. 02-2035.

Court of Appeals of Wisconsin.

Oral argument June 3, 2003.

Decided July 1, 2003.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of John F. Hovel, Leonard G. Leverson, and Joseph S. Goode of Kravit, Gass, Hovel & Leitner, S.C., Milwaukee, and Curtis C. Mechling of Stroock & Stroock & Lavan LLP, New York, New York. There was oral argument by Curtis C. Mechling.

On behalf of the defendants-respondents, James A Chokey, Mark E. Readinger, Robert A. Messier, and Alton L. Daffin, the cause was submitted on the briefs of Paul F. Linn, Christopher C. Mohrman and Charles J. Crueger of Michael Best & Friedrich LLP, Milwaukee. There was oral argument by Paul F. Linn.

Before Wedemeyer, P.J., Fine and Schudson, JJ.

¶ 1. FINE, J.

Beloit Liquidating Trust is the transferee of the assets of Beloit Corporation, following the latter's liquidation under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 1101-1174. The Trust appeals from an order dismissing its supplemental complaint against seven persons whom the supplemental complaint alleges were, during the time material to this appeal, officers or directors of Beloit Corporation or Harnischfeger Industries, Inc., which was Beloit Corporation's eight-percent controlling shareholder.² As material to this appeal, the supplemental complaint alleged that the defendants breached their fiduciary duties to both Beloit Corporation and its creditors, and that the defendants wasted the assets of Beloit Corporation. The circuit court held that the claims asserted on behalf of Beloit Corporation were barred by the two-year statute of limitations for intentional torts, WIS. STAT. § 893.57, and that the two-year extension provided for by 11 U.S.C. § 108(a) did not apply.³ Further, the circuit court held that the defendants owed no duty to Beloit Corporation's creditors.⁴ We reverse and remand for further proceedings.

I.

[1, 2]

¶ 2. Although the facts underlying this case are complex, those material to our decision are relatively simple. As noted, this appeal comes to us from the circuit court's order dismissing the Trust's supplemental complaint. Thus, we take as true the facts alleged in that supplemental complaint and the various documents referred to therein, and apply the rule that a complaint "should be dismissed as legally insufficient only if `it is quite clear that under no conditions can the plaintiff recover.'" Morgan v. Pennsylvania Gen. Ins. Co., 87 Wis. 2d 723, 731, 275 N.W.2d 660, 664 (1979) (quoted source omitted). We also take judicial notice of the bankruptcy proceedings that underlie this appeal. See WIS. STAT. RULE 902.01. We review de novo the circuit court's decision to dismiss a complaint for failure to state claims. Heinritz v. Lawrence Univ., 194 Wis. 2d 606, 610, 535 N.W.2d 81, 83 (Ct. App. 1995).

¶ 3. Before 1996, Beloit Corporation was, according to the supplemental complaint, "one of the premier manufacturers of pulp and papermaking equipment" in the world. As its name might suggest, its primary place of business for most of its existence was Beloit, Wisconsin. Beloit Corporation "also operated 65 partially or wholly-owned subsidiaries, including foreign subsidiaries in Asia, Italy, Poland, the United Kingdom, and Austria." During at least part of the time material to this appeal, the corporate headquarters of Beloit Corporation was in Illinois. Beloit Corporation was incorporated under the laws of Delaware, as was Harnischfeger.

¶ 4. The Trust's supplemental complaint alleges that Beloit Corporation "was continuously insolvent from as early as 1996." On June 7, 1999, Beloit Corporation and Harnischfeger filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. By order dated May 18, 2001, the bankruptcy court confirmed the Debtors' Third Amended Joint Plan of Reorganization, which encompassed Harnischfeger and its fifty-seven affiliates, including Beloit Corporation. According to the notice of entry of the confirmation order, the confirmation order "became effective" on July 12, 2001.

¶ 5. During the time Beloit Corporation, Harnischfeger, and their creditors were attempting to resolve the issues presented by the Chapter 11 filings, Beloit Corporation and Harnischfeger operated as debtors in possession. On May 12, 2000, the United States Trustee for the District of Delaware under the authority granted by 11 U.S.C. § 1102 appointed an Official Committee of Unsecured Creditors of Beloit Corporation to, as the bankruptcy court recounted in a subsequent order, explore "potential intercompany issues and possible conflicts of interest between various Debtors and related parties." See 11 U.S.C. § 1103(c)(2) (committee may "investigate the acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtor's business and the desirability of the continuance of such business, and any other matter relevant to the case or to the formulation of a plan"). One year after its appointment by the trustee, the Committee of Unsecured Creditors sought from the bankruptcy court an order authorizing the Committee to sue" on behalf and in the name of Beloit Corporation" "current and former officers and directors of" Beloit Corporation and Harnischfeger, alleging that the Committee's "investigation has uncovered an appalling record of corporate waste, mismanagement and breach of fiduciary duty by" those management officials.

¶ 6. By order dated June 5, 2001, the bankruptcy court granted the Committee's motion, noting that "no objection to such Motion" was filed by any party even though there was "due and sufficient notice of such Motion." The bankruptcy court determined that it was "within this Court's authority to vest the [Committee of Unsecured Creditors] with the right to prosecute such claims ... in the name and on behalf of Beloit [Corporation]," and that "the two-year extension of statutes of limitations provided by § 108 ... of the Bankruptcy Code may arguably expire as early as June 7, 2001, the second anniversary of the entry of the first order for relief in these bankruptcy cases." The bankruptcy court also determined:

• Under the Settlement Agreement between the parties "as incorporated in the Debtors' Third Amended Plan of Reorganization," both Beloit Corporation and the Committee of Unsecured Creditors "expressly retain the right to assert any claims that Beloit [Corporation] may have against (i) any current or former officers or directors of Beloit [Corporation] arising out of or connected with such person's role as an officer or director of Beloit [Corporation], and (ii) any person who was not a director of [Harnischfeger] on the Petition Date and who was at any time an officer of [Harnischfeger]"; and

• "[R]epresentatives of the Debtors advised counsel for the [Committee of Unsecured Creditors] that the Debtors do not believe there are meritorious claims" against the officers or directors, "and therefore are unwilling to prosecute any such claims."

The bankruptcy court ordered:

• "Before the Plan's Effective Date, the [Committee of Unsecured Creditors] is hereby authorized to commence actions ... in the name of and on behalf of Beloit [Corporation] against," with exceptions not material here, current or former officers or directors of Beloit Corporation and Harnischfeger;

• "After the Plan's Effective Date, the authority granted the [Committee of Unsecured Creditors] hereunder shall be deemed transferred to the Plan Administrator [of the Liquidating Trust] as specified in the Plan"; and

• "Nothing contained in this Order shall be deemed an admission of liability by the Debtors or any of their current or former officers or directors ... nor impair any defenses, offsets or counterclaims such parties may have."

¶ 7. The Committee of Unsecured Creditors filed its complaint against the defendants on the same day as the bankruptcy court entered its order permitting the suit, June 5, 2001. The June 5 complaint alleged that Beloit Corporation was the "plaintiff" and that "the Committee was vested with the power to bring this action in the name of and on behalf of Beloit" Corporation. The complaint further noted that "[i]t is anticipated that, shortly after the effective date of the Plan and pursuant to the powers vested in it by the Plan, the Beloit Liquidating Trust will be substituted as plaintiff herein and will assume the prosecution of this action for the benefit of the beneficiaries of the Beloit Liquidating Trust."

¶ 8. As noted, the Plan was confirmed by the bankruptcy-court order dated May 18, 2001, but did not become effective until July 12, 2001. On November 8, 2001, the Trust, "acting by and through its Plan Administrator," filed the supplemental complaint, as envisioned by both the bankruptcy court's June 5, 2001, order and the Committee's June 5, 2001, original complaint.

II.

A. Statute of Limitations.

¶ 9. As we have seen, the circuit court dismissed the Trust's claims asserted on behalf of Beloit Corporation because it concluded that the two-year statute of limitations for intentional torts expired before June 5, 2001, and was not extended by 11 U.S.C. § 108(a). The parties dispute which statute of limitations governs, and, also, whether the discovery rule first recognized in Wisconsin by Hansen v. A.H. Robins, Co., 113 Wis. 2d 550, 560, 335 N.W.2d 578, 583 (1983) ("tort claims shall accrue on the date the injury is discovered or with reasonable diligence should be discovered, whichever occurs first"), saves the claims. We need not decide these matters, however, because the supplemental...