In re Bookout Holsteins, Inc.

• Decision Date: 01 May 1989
• Docket Number: Bankruptcy No. 83-11175-REG,Adv. No. 88-1057.
• Citation: 100 BR 427
• Parties: In re BOOKOUT HOLSTEINS, INC., Debtor. BOOKOUT HOLSTEINS, INC., by its Trustee, HALDERMAN FARM MANAGEMENT SERVICES, INC., Plaintiff, v. SUPERBLEND, INC., John R. Bookout and Production Credit Association of the Fourth District, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

100 B.R. 427 (1989)

In re BOOKOUT HOLSTEINS, INC., Debtor BOOKOUT HOLSTEINS, INC., by its Trustee, HALDERMAN FARM MANAGEMENT SERVICES, INC., Plaintiff, v. SUPERBLEND, INC., John R. Bookout and Production Credit Association of the Fourth District, Defendants.

Bankruptcy No. 83-11175-REG, Adv. No. 88-1057.

United States Bankruptcy Court, N.D. Indiana, Fort Wayne Division.

May 1, 1989.

Grant F. Shipley and Edmond P. Kos, Fort Wayne, Ind., for plaintiff.

Richard K. Muntz, LaGrange, Ind., for Superblend.

Thomas A. Brown, Hartford City, Ind., for John Bookout.

Steven J. Ouellette, Fort Wayne, Ind., for Production Credit Ass'n.

DECISION AND ORDER

ROBERT E. GRANT, Bankruptcy Judge.

This matter is before the court on motions to dismiss Plaintiff's complaint, filed on behalf of the Defendants John R. Bookout (Bookout) and Superblend, Inc. Both motions contend that Plaintiff's claims are barred by the applicable statute of limitations.

To assist the court in determining the issues raised by the motions, the parties submitted stipulations of fact which are applicable only for the limited purpose of resolving the statute of limitations questions. Based upon these stipulations, it appears debtor's business consisted of a working dairy. A petition for relief under Chapter 11 was originally filed on December 9, 1983. The individual defendant, Bookout, is the President of the debtor corporation. Business operations were carried on by the debtor in possession until February 18, 1986, when Plaintiff was appointed as Trustee of the bankruptcy estate. The Trustee apparently encountered some difficulty in gaining the debtor's cooperation in turning over property of the estate and, on May 6, 1986, secured a writ of assistance from this court allowing it to enlist the Marshall's services in obtaining possession of the estate's property.

On May 5, 1986, Bookout transported approximately 78 head of dairy cattle to the Topeka Livestock Auction for sale. The trustee claims these cattle were property of the estate. They were delivered to Topeka under the assumed name of Crestview Farms and sold on its behalf on May 6, 1986 for $40,416.40. The Trustee learned of this sale on May 20, 1986. By a letter dated May 22, 1986, the Trustee formally advised Topeka of its potential claim to the sale proceeds.

Prior to this time, Superblend had initiated litigation in the LaGrange Circuit Court against Bookout personally. On April 10, 1986, it obtained a judgment against him in the sum of $49,907.10. In attempting to collect this judgment, on May 15, 1986, Superblend filed proceedings supplemental which named Topeka as a garnishee-defendant. In response to garnishment interrogatories, Topeka informed the Circuit Court that it was holding the sale proceeds and that the Trustee had asserted a claim to the funds on behalf of the estate. Based upon this information, the Circuit Court entered an order restraining Topeka from disbursing the funds. No further action with regard to this money took place until August 13, 1987, when Superblend sought and obtained an order from the Circuit Court directing Topeka to turn the funds over to it.

The complaint in this adversary proceeding was filed on Monday, May 16, 1988. It seeks to recover judgment against Superblend and/or Bookout based upon the sale and disposition of the cattle and the ultimate distribution of the sale proceeds to Superblend. Both Defendants are claimed to have converted property of the estate, under Indiana law, for which the Trustee seeks treble damages and attorney fees. The complaint is also founded upon rights the Trustee is given by various provisions of the Bankruptcy Code. As to Superblend, the Trustee claims that its interest in the sale proceeds arises out of an unauthorized post petition transaction, which may be avoided pursuant to § 549. Additionally, the complaint also claims that Superblend's actions constitute a violation of the automatic stay for which appropriate damages are sought, either in general or pursuant to § 362(h). As to Bookout, the complaint seeks to avoid the claimed conversion of property of the estate, pursuant to § 549, as an unauthorized post petition transfer. It also alleges that Bookout, despite the Trustee's demand and the court's writ of assistance, failed to turn over property of the estate which was in his possession.

The sole issue before the court is whether any or all of the Trustee's claims are barred by the applicable statute of limitations. Given the status of this case, we must apply a summary judgment standard to the issues raised. Accordingly, even though the facts are undisputed, if conflicting inferences can legitimately be drawn from these facts, the motions to dismiss must be denied.

There is no real dispute as to which limitations may be applicable. Instead, the question is when they began to run and if they were tolled for any reason. Both the state law conversion claims and the claims under § 549 are subject to a two year statute of limitations. Section § 549 requires that any action to avoid an unauthorized post petition transfer must be brought within "two years after the date of the transfer sought to be avoided." 11 U.S.C. § 549(d)(1). Under Indiana Law, an action to recover for conversion must also be brought within two years. I.C. 34-1-2-2(a); French v. Hickman Moving & Storage, 400 N.E.2d 1384, 1388 (Ind.App.1980). Both limitations may be tolled or the party claiming their protection may be estopped from raising them based on its conduct.

Indiana has codified the traditionally equitable doctrine that one who conceals his liability from another may not raise the statute of limitations as a defense to the claim. See I.C. 34-1-2-9. It is founded on the concept

that one who by deception or any violation of duty towards the plaintiff, conceals material facts and thereby prevents the discovery of the wrong, should not be permitted to take advantage of his own deceit or concealment by asserting the statute of limitations. Colbert v. Waitt, 445 N.E.2d 1000, 1002 (Ind.App.1982).

The doctrine does not represent an exception to the statute but, rather, operates as an equitable estoppel. Weinstock v. Ott, 444 N.E.2d 1227, 1236 (Ind.App.1983).

The operation of this doctrine depends primarily upon the conduct of the defendant. Mere ignorance or a lack of knowledge on the part of the plaintiff is not sufficient to constitute concealment. Ludwig v. Ford Motor Co., 510 N.E.2d 691, 697 (Ind.App.1987); Forth v. Forth, 409 N.E.2d 641, 645 (Ind.App.1980). Instead, concealment generally requires some type of active and intentional conduct. Ludwig v. Ford Motor Co., supra, 510 N.E.2d at 697; Lambert v. Stark, 484 N.E.2d 630, 632 (Ind.App.1985); Forth v. Forth, supra, 409 N.E.2d at 644. These affirmative acts

must have been employed to prevent inquiry or elude investigation, or calculated to mislead and hinder the plaintiff from obtaining information, by the use of ordinary diligence, that a right of action exists. French v. Hickman Moving & Storage, supra, 400 N.E.2d at 1389. See also Ludwig v. Ford Motor Co., supra, 510 N.E.2d at 697; Colbert v. Waitt, supra, 445 N.E.2d at 1003; Forth v. Forth, supra, 409 N.E.2d at 645.

"There must be some trick or contrivance intended to exclude suspicion and prevent inquiry." Wood v. Carpenter, 101 U.S. 135, 143, 25 L.Ed. 807, 809 (1879).

When the actions claimed to constitute concealment occur is not necessarily determinative. While they may normally be expected to be concurrent with or subsequent to the acts giving rise to the claim, this is not required, neither will it always be the case. So long as there is a relationship between the design and the consummation, concealment may precede the wrong and assist in its perpetration. Wood v. Carpenter, supra, 101 U.S. at 143.

There is one exception to the general principle that concealment requires affirmative action. In limited circumstances it may be found in passive conduct. Silence on the part of the defendant may constitute concealment where there is a duty to speak and disclose material information. Ludwig v. Ford Motor Co., supra, 510 N.E.2d at 697-98; Lambert v. Stark, supra, 484 N.E. 2d at 632; Colbert v. Waitt, supra, 445 N.E.2d at 1003; Forth v. Forth, supra, 409 N.E.2d at 644-45.

Concealment is not entirely dependent upon defendant's conduct. The law imposes a duty upon the plaintiff to protect its own interests, notwithstanding a defendant's efforts to undermine them. Consequently, in addition to proving defendant's attempts to conceal the claim, a plaintiff must also prove that it was reasonably diligent in its efforts to discover the wrong inflicted upon it. See Wood v. Carpenter, supra, 101 U.S. at 143; Ludwig v. Ford Motor Co., supra, 510 N.E.2d at 697-98; Lambert v. Stark, supra, 484 N.E.2d at 632; Whitehouse v. Quinn, 443 N.E.2d 332, 339 (Ind.App.1982).

The same principles of estoppel are also embodied in federal law, where a federal statute of limitations prescribes the time within which a claim must be brought. In addressing a two year statute of limitations contained in the Bankruptcy Act of 1867, the Supreme Court observed:

In suits in equity, the decided weight of authority is in favor of the proposition that where the party injured by the fraud remains in ignorance of it without any fault or want of diligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered, though there be no special circumstances or efforts on the part of the party committing the fraud to conceal it from the knowledge of the other party.

* * * * * *

To hold that by concealing a fraud, or by committing a fraud in a manner that it concealed itself until such time as the party committing the fraud could plead the Statute of Limitations to protect it, is to make the law which was designed to prevent fraud, the means by which it is made successful and secure. And we see no reason why the principle should

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