Chicago, Milwaukee, St. Paul and Pacific R. Co., Matter of

• Decision Date: 05 June 1989
• Docket Number: No. 88-2978,88-2978
• Parties: Bankr. L. Rep. P 72,984 In the Matter of CHICAGO, MILWAUKEE, ST. PAUL and PACIFIC RAILROAD COMPANY, Debtor. Appeal of CMC REAL ESTATE CORPORATION.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 182

878 F.2d 182

Bankr. L. Rep. P 72,984

In the Matter of CHICAGO, MILWAUKEE, ST. PAUL and PACIFIC RAILROAD COMPANY, Debtor Appeal of CMC REAL ESTATE CORPORATION.

No. 88-2978.

United States Court of Appeals, Seventh Circuit.

Argued April 3, 1989.

Decided June 5, 1989.

Daniel R. Murray, Jerold S. Solovy, Barry Sullivan, Robert P. Zapinski, Michael T. Brody, Jenner & Block, Chicago, Ill., for CMC Real Estate Corp.

John C. Boylan, Keith A. Queensen, Rerat Law Firm, Minneapolis, Minn., for Ralph G. Kelly.

Before BAUER, Chief Judge, and CUMMINGS and EASTERBROOK, Circuit Judges.

CUMMINGS, Circuit Judge.

I.

The Chicago, Milwaukee, St. Paul and Pacific Railroad Company ("Milwaukee Road") filed for reorganization on December 19, 1977, under Section 77 of the Bankruptcy Act of 1898, 11 U.S.C. Sec. 205 (1976) (repealed in 1978), ¹ in the District Court for the Northern District of Illinois. Acting under the authority of Section 77 of that Act and Bankruptcy Rule 8-401 (1979), the district court entered an order requiring all proofs of claims against Milwaukee Road, its trustee, or estate arising during the reorganization to be filed before September 10, 1985, the "bar date". On November 12, 1985, a consummation order was entered by the district court effective November 25, 1985, discharging all claims against Milwaukee Road, its trustee and the estate arising prior to the consummation order except those filed prior to the applicable bar dates. ²

Plaintiff Ralph G. Kelly filed this personal injury action under the Federal Employers' Liability Act, 45 U.S.C. Sec. 51 et seq. ("FELA"), against the Milwaukee Road and the Soo Line Railroad Company ("the Soo") in the District Court for the District of Minnesota on October 22, 1987, later amending the complaint to add CMC Real Estate Corporation ("CMC") as an additional defendant. Kelly subsequently dismissed his action against Milwaukee Road and CMC, leaving the Soo as the sole defendant. ³

The entity emerging from the reorganization, CMC, filed this petition for injunctive relief in the District Court for the Northern District of Illinois asserting that plaintiff's claim is foreclosed by the consummation order for failure to file proof of his claim prior to the applicable bar date. The district court refused to enjoin the plaintiff's suit on the basis that Milwaukee Road had fraudulently procured the plaintiff's agreement to settle his claim for $250 on March 22, 1985, resulting in the plaintiff's refraining from filing a claim prior to the bar date in the belief that he no longer possessed a viable claim. We reverse and remand to the district court for the entry of an injunction barring the plaintiff from pursuing his action under FELA.

II.

Under 11 U.S.C. Sec. 205(f) (repealed in 1978) the debtor or successor corporation emerging from the reorganization receives the debtor's property pursuant to the plan of reorganization "free and clear of all claims of the debtor, its stockholders and creditors, and the debtor shall be discharged from its debts and liabilities." "Creditors" include "all holders of claims of whatever character against the debtor or its property, whether or not such claims would otherwise constitute provable claims under this [Act]". 11 U.S.C. Sec. 205(b) (repealed in 1978). "Claims" is defined very broadly to include "debts, whether liquidated or unliquidated ... or other interests of whatever character." Idem. Neither party disputes the fact that a cause of action constitutes a claim in bankruptcy or that Kelly received both constructive notice of the September 10, 1985, bar date for filing through publication in The Wall Street Journal, and actual notice from his union, the Brotherhood of Maintenance of Way Employees. The parties instead differ over whether Kelly's FELA claim is barred as arising during the reorganization for which no proof of claim was filed or whether it arose after the reorganization and therefore is not barred by the consummation order.

If Kelly's FELA claim arose during the reorganization, his failure to file proof of his claim prior to the applicable bar date will presumably operate to discharge the Soo, unless Kelly can demonstrate that relief from the consummation order is warranted. Relief from a final order in bankruptcy may be pursued solely through a motion under Fed.R.Civ.Proc. 60(b), applicable to bankruptcy proceedings through Bankruptcy Rule 8-703(a)(5) (1976). In the Matter of Whitney-Forbes, Inc., 770 F.2d 692 (7th Cir.1985); In the Matter of Chung King, Inc., 753 F.2d 547 (7th Cir.1985). Rule 60(b) provides in part:

On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: ... (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; ... or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken.

Kelly has failed to file a Rule 60(b) motion for relief from the consummation order and is barred from doing so on the basis of fraud since the one-year filing period has expired for a motion for relief based on fraud. Because Kelly's argument before this Court is explicitly premised on fraud, the catchall claim in Rule 60(b)(6) is also inapplicable.

In answer to his failure to file a Rule 60(b) motion, plaintiff contends he need not meet the time limitations of Rule 60(b) since his cause of action did not arise until after the reorganization was final when he discovered the fraud perpetrated upon him in the settlement by Milwaukee Road. In order to file a claim cognizable in bankruptcy, a creditor must possess a debt based on state or federal law creating a substantive obligation independent of bankruptcy law. Vanston Committee v. Green, 329 U.S. 156, 170, 67 S.Ct. 237, 243, 91 L.Ed. 162 (Frankfurter, J., concurring). Since plaintiff's cause of action is based on FELA, we look to FELA to determine when plaintiff's claim accrued against Milwaukee Road. For the purposes of commencement of the three-year statute of limitations for FELA actions, the cause of action accrues as of the date of the injury. Reading Co. v. Koons, 271 U.S. 58, 46 S.Ct. 405, 70 L.Ed. 835; Lancaster v. Norfolk & Western R. Co., 773 F.2d 807, 821 (7th Cir.1985); Deer v. New York Cent. R. Co., 202 F.2d 625 (7th Cir.1953). ⁴

Plaintiff alleges that he suffered injuries to his left leg, right side and lower back during the five-year period preceding December 1, 1984, due to Milwaukee Road's negligent assignment of work duties which exceeded his physical capabilities. As a result of these injuries he assertedly became permanently disabled from any further employment with Milwaukee Road as of December 1, 1984. Plaintiff expressly admits in his complaint that his injury was sustained "during the 5 year period prior to December 1, 1984." Kelly acknowledged the existence of his injuries through acceptance of $250 in return for his March 22, 1985, release of Milwaukee Road from any claims based upon these injuries. Plaintiff argues that because of Milwaukee Road's fraudulent misrepresentation of the worth of his claim, he was led to believe that his claim had been satisfied by the $250 he accepted from Milwaukee Road. ⁵

Judge Marshall accepted plaintiff's position that his claim was not barred due to the alleged fraud of Milwaukee Road. Applying contractual principles, the district court held that the settlement Kelly accepted from Milwaukee Road could properly be rescinded if it was entered into on the basis of misrepresentations by Milwaukee Road, which as Kelly's employer should be held to a higher standard of dealing akin to that of a fiduciary. The district judge further determined that the consummation order would not bar the plaintiff's action since his claim did not accrue until he discovered the fraud immediately prior to filing his FELA action. Notably absent from the district court's opinion, however, is discussion of any evidence demonstrating that Kelly's claim may have been worth in excess of $250; indeed, none has been presented. Judge Marshall also failed to cite any specific allegations of fraud perpetrated by Milwaukee Road other than the fact that plaintiff accepted Milwaukee Road's offer of $250 in complete satisfaction of his claim.

There are two possible theories under which Kelly may hold a viable claim against the Soo: (1) he has a FELA claim which was fraudulently concealed or misrepresented by Milwaukee Road such that he did not possess a cause of action or dischargeable claim in bankruptcy until after the reorganization when the fraud was discovered; or (2) Kelly's complaint is a simple action for fraud which did not accrue until the fraud was discovered after the reorganization. As to the first alternative, Kelly has failed to direct this Court to any controlling authority that provides for the postponement of the accrual of a FELA cause of action based on fraudulent conduct of the defendant. Indeed, the courts are split on whether fraud will toll the statute of limitations for a FELA action. ⁶ Plaintiff's complaint states merely an action under FELA for an injury which arose during the reorganization and as such is barred by the consummation order.

As to the second theory, Kelly's complaint is absolutely devoid of any allegation or bare mention of fraud. Rule 9 of the Federal Rules of Civil Procedure requires that all averments of fraud and the circumstances constituting fraud shall be stated with particularity. It is difficult to accept Kelly's assertion that he was unaware of the existence or even physical...