Fort v. Volkswagen Grp. of Am., Inc. (In re Stotz Fredenhagen Indus., Inc.), C/A No. 12–00209–HB
| Decision Date | 22 July 2016 |
| Docket Number | Adv. Pro. No. 16–80030–HB,C/A No. 12–00209–HB |
| Citation | 554 B.R. 777 |
| Court | U.S. Bankruptcy Court — District of South Carolina |
| Parties | In re Stotz Fredenhagen Industries, Inc., Debtor(s). John K. Fort, as Chapter 7 Trustee, Plaintiff(s), v. Volkswagen Group of America, Inc., Volkswagen Group of America Chattanooga Operations, LLC, KV Consulting GmbH, Defendant(s). |
Mary M. Caskey, Haynsworth Sinkler Boyd, PA, Columbia, SC, for Plaintiff.
Brandon K. Poston, Nelson Mullins Riley & Scarborough, George Barry Cauthen, Columbia, SC, for Defendant.
KV Consulting GmbH, pro se.
ORDER DISMISSING CLAIMS AGAINST VOLKSWAGEN GROUP OF AMERICA, INC. AND VOLKSWAGEN GROUP OF AMERICA CHATTANOOGA–OPERATIONS, LLC
THIS MATTER came before the Court for consideration of the Motion to Dismiss filed by Volkswagen Group of America, Inc. and Volkswagen Group of America Chattanooga Operations, LLC (collectively “Volkswagen”).1 Volkswagen's Motion contends the Complaint filed by Plaintiff John K. Fort, as Chapter 7 Trustee (“Plaintiff”) fails as a matter of law because the causes of action are barred by the statute of limitations. Plaintiff asserts the Motion should be denied because the statute of limitations should be equitably tolled.
The parties agree this Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157, and this matter is a core proceeding under 28 U.S.C. § 157(b)(2). The parties have consented to this Court's entry of a final order.2
The relevant allegations found in the Complaint are summarized below. For the purpose of considering this Motion, the allegations of the Complaint are viewed in the light most favorable to Plaintiff, the non-movant.3
In December 2009, Stotz Fredenhagen Industries, Inc., (“Debtor”) and Volkswagen entered into a contract whereby Debtor agreed to provide labor, services, and/or materials necessary for the construction of a conveyor system at Volkswagen's plant located in Chattanooga, Tennessee. Thereafter, Debtor contracted with various subcontractors to provide services and materials for this project. Debtor did not receive full payment from Volkswagen and, as a result, Debtor failed to pay the amounts owed to the subcontractors. The last payment Debtor made to one of the subcontractors was in October 2010. In early 2011, the subcontractors filed mechanics liens and initiated litigation against Debtor and Volkswagen in Tennessee and South Carolina state courts for amounts owed under their contracts. In the state court litigation, Volkswagen contended it owed nothing to the subcontractors because Debtor asserted no money was due from Volkswagen and its contract balance had been paid.
In early July 2011, Debtor's representatives met with attorneys to consider filing a bankruptcy for Debtor, while also forming a new American company to continue the relationship and goodwill with Volkswagen. Debtor's executives consulted with Volkswagen regarding its plan to file for bankruptcy protection and whether Volkswagen would continue to do business with the new company. Volkswagen consented to the business arrangement, despite the fact that it and Debtor both knew there were several large liens on the plant and pending lawsuits filed by the subcontractors. Two months prior to the filing of Debtor's bankruptcy petition, KV Consulting GmbH (“KV Consulting”), a holding company that owns 100% of the shares of Debtor, formed SFI America. SFI America engages in the same business as Debtor, stepped in the shoes of Debtor once it filed for bankruptcy protection, and has the same officers and directors as Debtor. In September 2011, Debtor's personnel and KV Consulting developed a plan whereby Debtor would sell additional conveyors to Volkswagen, receive payment, and have KV Consulting take all the profits from Debtor within 2011 so Debtor could file for bankruptcy relief in 2012.
On January 6, 2012, Debtor “explored” whether Volkswagen intended to make any offers to Debtor for the unpaid claims of the subcontractors.4 Thereafter, Debtor's business ended with the filing of a voluntary petition for Chapter 7 relief on January 16, 2012. Debtor did not list any accounts receivable or debts owed by Volkswagen in its schedules, despite the fact that Volkswagen failed to pay $549,128 due to Debtor and its subcontractors. The records turned over to Plaintiff during the course of the bankruptcy case substantially consisted of computers that were actively scrubbed of all useful data. Debtor also failed to supply any information about its financial condition or where the money went from the payments it received from Volkswagen or other sources of income.
Plaintiff's Objection to Volkswagen's Motion and Volkswagen's Reply included the following evidence outside the pleadings: an affidavit from an expert retained by Plaintiff's counsel; deposition testimony from the examination of Rainer Herzog pursuant to Fed. R. Bankr.P.2004 (“2004 Exam”); a memorandum of law in opposition to a subcontractor's motion to proceed despite Debtor's bankruptcy served by Volkswagen on November 20, 2012, in litigation pending in Tennessee; and Volkswagen's responses to discovery requests from Plaintiff.5 The Court gleans the following from these filings and the Court's docket,6 which are considered in the light most favorable to the non-moving party.7
It appears that files were deleted from Debtor's computers in January and February 2012. It was represented at the hearing and is not disputed that Debtor turned over these computers to Plaintiff shortly after the meeting of the creditors held pursuant to 11 U.S.C. § 341,8 which took place on February 22, 2012. Over one year later in July 2013, Plaintiff employed special counsel to investigate and recover assets of the estate.9 There is no specific information given or dates provided for any actions during the gap of time between the filing date of January 16, 2012, and the employment of counsel in July 2013.
On August 1, 2013, Plaintiff's counsel moved for authority to conduct a 2004 Exam of Herzog. It was represented at the hearing and is undisputed that Herzog was Debtor's primary executive in North America and is the current manager and primary executive of SFI America. Plaintiff's counsel also subpoenaed documents from Herzog and SFI America concerning Debtor's relationship with Volkswagen. Herzog produced some of the documents at his 2004 Exam, which took place on September 26, 2013, and it is not disputed that he agreed to supplement his production. Instead of producing any additional documents, on October 24, 2013, Herzog and SFI America filed a motion to quash the subpoena. A hearing on the motion to quash was held on November 26, 2013, where the matter was resolved by the parties and the motion was withdrawn. It was argued and is not disputed that SFI America and Herzog turned over the additional subpoenaed documents in June 2014. There is no specific information provided as to what additional subpoenaed documents Herzog and SFI America produced at this point or their content. There is also no specific information provided for any actions taken during the gap between resolution of the motion in November 2013 and May 2014 when Plaintiff sent Volkswagen discovery requests. Volkswagen responded to discovery requests in June 2014.
An expert was retained by Plaintiff's counsel in mid–2015 to extract data from Debtor's computers. The record does not include any other actions relating to the computers during the gap of time of approximately three years from when Plaintiff received Debtor's computers shortly after the § 341 meeting in early 2012 and the employment of the expert to analyze them in mid–2015.
Plaintiff filed this adversary proceeding on April 5, 2016, demanding a declaratory judgment determining what obligations of Volkswagen remain due under the contract with Debtor and what other obligations Volkswagen has to the subcontractors in the state court litigation, the liability for which flows through Debtor. Plaintiff also asserts damages resulting from civil conspiracy. The Complaint alleges Debtor, Volkswagen, and KV Consulting conspired together to: (1) place Debtor in bankruptcy in order to defeat the claims of lien claimants for the work on the project; (2) preserve the valuable goodwill Debtor had in its relationship with Volkswagen by not aggressively pursuing rightful claims against Volkswagen and transfer the valuable goodwill to SFI America without any liability; and (3) continue doing business with Volkswagen without generating any assets to pay creditors.
There is no dispute that the applicable statute of limitations for both causes of action asserted here is found in South Carolina state law and the applicable limitation period is three years. S.C.Code Ann. § 15–3–530(1) & (5). South Carolina applies the “discovery” rule, which provides “the statute of limitations begins to run from the date the injured party either knows or should know, by the exercise of reasonable diligence, that a cause of action exists for the wrongful conduct.” Epstein v. Brown, 363 S.C. 372, 376, 610 S.E.2d 816, 818 (2005) (citations omitted); see also S.C.Code Ann. § 15–3–535 (). “The exercise of reasonable diligence means simply that an injured party must act with some promptness where the facts and circumstances of an injury would put a person of common knowledge and experience on notice that some right of his has been invaded or that some claim against another party might exist.” Id. (emphasis in original). “The fact that the injured party may not comprehend the full extent of the damage is immaterial.” Id. at 382, 610 S.E.2d at 821 (citing Dean v. Ruscon Corp., 321 S.C. 360, 363–64, 468...
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