In Re American Bridge

• Decision Date: 10 March 2010
• Docket Number: No. 09-1165.,09-1165.
• Citation: 599 F.3d 1
• Parties: In re AMERICAN BRIDGE PRODUCTS, INC., Debtor. Lynne F. Riley, Chapter 7 Trustee of American Bridge Products, Inc., Appellant, v. Nicholas J. Decoulos, Esq., Appellee.
• Court: U.S. Court of Appeals — First Circuit

599 F.3d 1

In re AMERICAN BRIDGE PRODUCTS, INC., Debtor. Lynne F. Riley, Chapter 7 Trustee of American Bridge Products, Inc., Appellant, v. Nicholas J. Decoulos, Esq., Appellee.

No. 09-1165.

United States Court of Appeals

First Circuit.

Heard: Oct. 5, 2009.

Decided: March 10, 2010.

Lynne F. Riley with whom Altman Riley Esher LLP was on brief for appellant.

Charles R. Bennett, Jr. with whom Kathleen E. Cross and Hanify & King P.C. were on brief for appellee.

Before BOUDIN, STAHL and LIPEZ Circuit Judges.

BOUDIN, Circuit Judge.

More than 16 years ago, Nicholas Decoulos (appellee in this court) was appointed receiver of American Bridge Products Inc., by a Massachusetts state court, and more than 13 years ago American Bridge was put into involuntary bankruptcy. Most of the issues involved in American Bridge's receivership and bankruptcy have been resolved, but a claim endures by bankruptcy trustee Lynne Riley (now appellant in this court) to recover from Decoulos for misfeasance while receiver that damaged the American Bridge estate. That claim is the subject of the present appeal.

In August 1993, American Bridge and its then-owners filed a complaint in Massachusetts Superior Court alleging that a group of defendants—including Robert Conti, a major investor in American Bridge, and John Conti, Robert's son and a former employee of American Bridge— had converted and were conspiring to convert American Bridge's assets to their private benefit in fraud of the company's creditors. Everett Savings Bank was also charged with assisting Robert Conti to divert American Bridge's bank assets into accounts controlled by Conti.

The next month, the state court appointed Decoulos as receiver of American Bridge. Not long after, American Bridge's principals and creditors began to complain about Decoulos' performance as receiver. Efforts opposing Decoulos began in October 1993, and included a failed attempt to put the company into federal bankruptcy proceedings, fruitless complaints about Decoulos to state bar authorities, and objections to Decoulos' fee and other applications, which were nevertheless approved by the state court, summarily so in most cases. In July 1995, American Bridge's owners filed the first of two unsuccessful motions seeking to remove Decoulos as receiver.

In August 1996, the owners and a major creditor of American Bridge filed an involuntary Chapter 7 bankruptcy petition against the company. When Decoulos resisted, proponents filed an affidavit that set forth in detail Decoulos' shortcomings as receiver. In October, the federal bank-ruptcy court granted the motion for an involuntary bankruptcy and shortly thereafter appointed Joseph Braunstein as bankruptcy trustee. Control of the estate passed to him.

Under the Bankruptcy Code, Decoulos now had an obligation to account to the federal court as to the property he had held as receiver (and which now passed to the trustee). 11 U.S.C. S 543(b)(2) (2006) (accounting requirement); id. § 543(c) (surcharge authority); Fed. R. Bankr.P 6002 (2009). Without filing an accounting Decoulos sought compensation for earlier work as receiver. Braunstein and several creditors objected and the court allowed an examination of Decoulos as to the fate of certain American Bridge assets. The matter then remained in limbo while other disputes involving the bankruptcy were resolved. In March 1999, Braunstein resigned as trustee and was replaced in October 1999 by Riley.

On March 9, 2000, Riley filed an adversary proceeding against Decoulos personally, alleging inter alia negligence and breach of fiduciary duty by Decoulos in his capacity as receiver.¹ Under Massachusetts law, these two claims had a threeyear statute of limitations, Mass. Gen. Laws ch. 260, § 2A (2009); LoCicero v. Leslie, 948 F.Supp. 10, 12 n. 2 (D.Mass. 1996), and Decoulos had ceased to be a receiver in 1996. Further, Riley's predecessor Braunstein had investigated possible claims against Decoulos and determined not to pursue them.

Nevertheless, the bankruptcy court rejected Decoulos' statute of limitations objection on the ground that the statute did not start to run until Decoulos had accounted for his administration and been discharged, and neither had occurred ei ther in the state court prior to bankruptcy or in the bankruptcy court thereafter. In re Am. Bridge Prods., Inc., 328 B.R. 274, 350 (Bankr.D.Mass.2005). A trial on Riley's claims, held over 15 days in 2004, resulted in detailed findings by the bankruptcy judge that Decoulos had mismanaged the receivership, and a substantial judgment was awarded to Riley as trustee. Id. at 341-50, 356.

Liability was imposed, with particulars, for "fail[ing] to adhere to the orders issued by the" state court, "fail[ing] to take possession of [American Bridge]'s assets in a timely manner, " "fail[ing] to recognize and proceed with causes of action, " "fail[ing] to act impartially in considering the allegations in" American Bridge's Complaint, "fail[ing] to take steps" to prevent the conversion of American Bridge's assets, and "fail[ingj to seek, let alone obtain, appropriate court orders" to pursue actions against the defendants in the litigation. In re Am. Bridge Prods., 328 B.R. at 342.

The judgment against Decoulos was for the lesser of $379,173.78 or the amount needed to pay all creditors and administrative claims of the estate, In re Am, Bridge Prods., 328 B.R. at 356, amended thereafter to add prejudgment interest. The damages, calculated item by item, comprised waste of inventory and materials under Decoulos' management; diminishment of value of assets; unremedied diversion to the Contis of debts owed the company; and unremedied loss due to similar diversion by Everett Savings Bank. Id. at 349. The bankruptcy court also ordered Decoulos to disgorge any fees paid to him while receiver. Id. at 349-50.

On appeal, the district court reversed, ruling that the Massachusetts statute of limitations ran from the discovery of Decoulos' actions and barred Riley's claims. In re Am. Bridge Prods., Inc., 398 B.R. 724, 730-34, 736 (D.Mass.2009). Riley now appeals. Decoulos defends the district court and, in addition, offers alternative grounds for sustaining its result. Our review of rulings of law is de novo; the bankruptcy court's findings are tested for clear error. In re Northwood Props., LLC, 509 F.3d 15, 21 (1st Cir.2007).

At the threshold, Decoulos claims that the bankruptcy court lacked subject matter jurisdiction, arguing first that under Barton v. Barbour, 104 U.S. 126, 136, 26 L.Ed. 672 (1881), actions against the receiver required the approval of the state court and, second, that under the RookerFeldman doctrine federal courts cannot review final orders of a state court. Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923); D.C. Court of Appeals v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983). The second argument was raised below, although the first was not; however, Barton v. Barbour may be viewed as jurisdictional, Muratore v. Darr, 375 F.3d 140, 146-47 (1st Cir.2004); but cf. Robinson v. Tr. of N.Y., N.H. & H.R. Co., 318 Mass. 121, 60 N.E.2d 593, 599 (1945).

Barton aims to protect the authority of the court that appointed the receiver and avoid costs and other complications that would arise from dual superintendence of the same property. Barton, 104 U.S. at 136-37; In re Linton, 136 F.3d 544, 545 (7th Cir.1998). In this case, authority over the estate had passed to the federal courts before Riley's claim was filed; the receiver was therefore responsible to account to the bankruptcy court, and Riley had permission from that court to bring suit. Thus, the concerns that animated Barton were not present.

As for Rooker-Feldman, the rule applies only when "the losing party in state court filed suit in federal court after the state proceedings ended, complaining of an injury caused by the state-court judgment and seeking review and rejection of that judgment." Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 291, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005). Whatever limited and implicit attention the state court may have paid to charges of wrongdoing when approving Decoulos' various applications on largely unrelated topics, no prior judgment was entered by the state court on the claims that Riley now pursues.

Finally, the bankruptcy court had authority to resolve Riley's claims. Decoulos had made his own claim in the bankruptcy court for compensation and a compulsory counterclaim appears to fall within the statutory definition of core proceedings. 28 U.S.C. § 157(b)(2); In re CBI Holding Co., Inc., 529 F.3d 432, 460 (2d Cir.2008); In re Am, Bridge Prods., 398 B.R. at 729-30. We need not determine whether, independently, the statutory surcharge power under 11 U.S.C. § 543 extends to pre-bankruptcy conduct by a prior custodian. See generally In re Sundance Corp., 149 B.R. 641, 650 (Bankr. E.D.Wash.1993).

On the merits, we agree with Decoulos that but for his status as receiver, the limitations defense would likely succeed. Riley framed her charge as state causes of action for negligence and breach of fiduciary duty, and she does not argue they have become federal claims merely because the estate later entered federal bankruptcy. As already noted, the Massachusetts limitations period for the state claims is three years, and Decoulos' challenged conduct asreceiver occurred more than three years before Riley sued.

Of course, limitations statutes may be tolled where the wrongful conduct was concealed or difficult to ascertain at the time it occurred. E.g., Koe v. Mercer 450 Mass. 97, 876 N.E.2d 831, 836 (2007). But although Riley contends otherwise, enough was known by those who objected to Decoulos' conduct in the state court and by Braunstein, who conducted his own investigation, to bring an end to such tolling more than three years before Riley's suit. We would describe the pertinent facts in detail if the fate of Riley's...