In re Hydro-Action, Inc.

• Decision Date: 14 March 2006
• Docket Number: Adversary No. 04-1059.,Bankruptcy No. 01-10209.
• Parties: In re HYDRO-ACTION, INC., Debtor. Daniel J. Goldberg, Trustee, Plaintiff, v. Bruce A. Craig, et al., Defendants.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Texas

341 B.R. 186

In re HYDRO-ACTION, INC., Debtor Daniel J. Goldberg, Trustee, Plaintiff, v. Bruce A. Craig, et al., Defendants.

Bankruptcy No. 01-10209.

Adversary No. 04-1059.

United States Bankruptcy Court, E.D. Texas, Beaumont Division.

March 14, 2006.

Stephen W. Sather & Barbara M. Barron, Barron & Newburger, P.C., Austin, TX, for Plaintiff, Daniel Jacob Goldberg, Trustee.

Jason R. Searcy, Jason R. Searcy, P.C., Longview, TX, for the Drewery Defendants.

MEMORANDUM OF DECISION

BILL PARKER, Bankruptcy Judge.

Before the Court is the Motion for Summary Judgment (the "Motion") filed by Defendants Gig Drewery, Trina Drewery, Crimson Hill, L.P., Hydro-Action Distributing, Inc., Ponderosa Development, L.P., Ponderosa Management, Inc., Aqua Partners, Ltd., and Aqua Drip Innovations, Inc. (hereafter cumulatively referred to as the "Drewery Defendants"). Based upon the Court's consideration of the Motion, the memoranda in support and opposition thereto, and the proper summary judgment evidence referenced in this Memorandum of Decision, and for the reasons stated in this Memorandum of Decision, the Court concludes that the Drewery Defendants' Motion for Summary Judgment should be granted in part and denied in part.¹

Factual and Procedural Background

Hydro-Action, Inc. (the "Debtor") filed a Chapter 11 petition for bankruptcy relief on February 2, 2001, and subsequently confirmed a Chapter 11 plan of reorganization. More than two years after the case filing, on May 27, 2003, the case was converted to a Chapter 7 liquidation. Shortly thereafter, Daniel Goldberg (the "Trustee") was appointed Chapter 7 Trustee, and on May 26, 2004, he commenced this adversary proceeding. The Drewery Defendants were all insiders of the Debtor or parties related to such insiders of the Debtor. The Trustee seeks through this adversary proceeding to recover various sums of money as either preferential or fraudulent transfers, to assert a state law cause of action for breach of fiduciary duty, and to recover allegedly misappropriated property of the bankruptcy estate. He asserts these claims under 11 U.S.C. §§ 542, 544, 547, 548, and 549, and state laws incorporated through 11 U.S.C. § 544.

The Drewery Defendants bring this Motion for Summary Judgment asserting that the Trustee is time-barred from recovering on most of his alleged causes of action, and that another cause of action (brought under 11 U.S.C. § 549) fails for lack of evidence. While the Drewery Defendants submitted various documents in support of the Motion which were challenged by the Trustee,² the Court finds that consideration of the disputed documents is not required in order to reach its decision on this matter. The Court does, however, rely on documents entered upon the docket of this Court during the Hydro-Action bankruptcy case.

Discussion

Standard for Summary Judgment

The Drewery Defendants bring their Motion for Summary Judgment in the adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7056. That rule incorporates Federal Rule of Civil Procedure 56 which provides that summary judgment shall be rendered "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R.Civ.P. 56 (c).

The party seeking summary judgment always bears the initial responsibility of informing the court of the basis for its motion, identifying those portions of the "pleadings, depositions, answers to interrogatories, and affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). While the Trustee contests the admissibility of the summary judgment evidence accompanying the Motion, there can be no genuine issue of material fact as to the filing date and contents of documents actually filed with the Court. The Court is free to take judicial notice of such evidence in determining the merits of a motion for summary judgment. See FED.R.EVID. 201(b) and (f). Once the Court has evaluated that evidence it must determine whether it is sufficient to preclude controversy as to any material fact.

To determine whether summary judgment is appropriate, the record presented is viewed in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). However, if the evidence demonstrating the need for trial "is merely colorable or is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Thus, a non-movant must show more than a "mere disagreement" between the parties, Calpetco 1981 v. Marshall Explor., Inc., 989 F.2d 1408, 1413 (5th Cir. 1993), or that there is merely "some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. 1348.

The Drewery Defendants assert a right to summary judgment on various grounds, each applicable only to portions of the Trustee's complaint. The Court will first consider the Drewery Defendants' arguments with respect to the timing of the Trustee's complaint, and then proceed to their argument with respect to a "no evidence" summary judgment.

Statute of Limitations

11 U.S.C. § 546(a) provides that:

(a) An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced after the earlier of —

(1) the later of —

(A) 2 years after the entry of the order for relief; or

(B) 1 year after the appointment or election of the first trustee under section 702, 1104, 1163, 1202, or 1302 of this title if such appointment or such election occurs before the expiration of the period specified in subparagraph (A); or

(2) the time the case is closed or dismissed.

Because this case has not yet been closed or dismissed, and because no trustee was appointed or elected within the two-year period after the entry of the order for relief, subparagraph (A) sets the deadline for bringing actions under §§ 544, 547 and 548 in this case as two years after the entry of the order for relief. This action was indisputably commenced three years and three months after the entry of the order for relief. Thus, under the plain language of the statute, the Trustee is time-barred from bringing the portions of his complaint relying on §§ 544, 547, and 548,³ unless some equitable principle precludes application of the limitations period established by § 546(a). The legislative history of that section notes the possibility of such equitable tolling, stating:

This section ... imposes a 2-year statute of limitations within which an appointed trustee must bring an avoidance action. The purpose of a statute of limitations is to define the period of time that a party is at risk of suit. This section defines the applicable statute of limitations as 2 years from the entry of an order of relief or 1 year after the appointment of the first trustee if such appointment occurs before the expiration of the original 2-year period. The section is not intended to ... have any bearing on the equitable tolling doctrine where there has been fraud determined to have occurred.

140 Cong. Rec. H10752-01, at H10768 (October 4, 1994).

In his response to the Drewery Defendants' motion for summary judgment on their affirmative defense of limitations, the Trustee asserts that the § 546(a) statute of limitations should be equitably tolled in this case.

The doctrine of equitable tolling has historically been used to prevent the inequitable application of a statute of limitations. Bailey v. Glover, 21 Wall. 342, 88 U.S. 342, 349-50, 22 L.Ed. 636 (1875)["[T]o 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."]; but see Chase Sec. Corp. v. Donaldson, 325 U.S. 304, 313-14, 65 S.Ct. 1137, 89 L.Ed. 1628 (1945).⁴ It is "read into every federal statute of limitations," Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct. 582, 90 L.Ed. 743 (1946), and is "applied under federal law in two types of situations: (1) where defendant's wrongful conduct prevented plaintiff from timely asserting his claim, and (2) where extraordinary circumstances outside plaintiff's control make it impossible for plaintiff to timely assert his claim." In re Hayes, 327 B.R. 453, 459 (Bankr.C.D.Cal.2005). Stated in more precise terms, "the application of equitable tolling is appropriate where: (1) a defendant has actively misled a plaintiff; (2) a plaintiff has been prevented, in some extraordinary way or circumstance, from asserting his rights; or (3) a plaintiff has asserted his rights in a timely manner, but in the wrong forum." In re Miller, 333 B.R. 368, 372 (Bankr.N.D.Tex.2005). While equitable tolling is generally a question of fact, it can in proper circumstances be decided as a matter of law. See Osherow v. Porras (In re Porras), 312 B.R. 81, 108 (Bankr.W.D.Tex.2004).

Applying those standards to the summary judgment evidence presented, the Court concludes that there are genuine issues of material fact to be decided as to whether equitable tolling should be applied to avoid the impact of the § 546(a) statute of limitations as to the causes of action asserted by the Trustee under §§ 544 and 548. However, as to the Trustee's § 547 preference actions against the Drewery Defendants, there is no proper summary judgment evidence to create even a genuine issue of material fact regarding garding whether, as alleged by the complaint, the Drewery Defendants engaged in any concealment of the transfers made the basis of the Trustee...