In re Lyons
| Citation | 130 BR 272 |
| Decision Date | 30 July 1991 |
| Docket Number | Bankruptcy No. 88 B 03578,Adv. No. 91 A 00300. |
| Parties | In re Timothy F. LYONS, Debtor. Catherine STEEGE, Trustee, Plaintiff, v. Mary T. LYONS, Defendant. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
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Catherine Steege, Rachel R. Schulman, Jenner & Block, Chicago, Ill., trustee.
Joseph McJohn, Chicago, Ill., for Mary T. Lyons.
This matter comes before the Court on a motion to dismiss filed by the defendant, Mary T. Lyons ("Mary Lyons"). For the reasons set forth herein, the Court hereby allows the motion to dismiss.
The Court has jurisdiction to entertain this motion pursuant to 28 U.S.C. § 1334 and General Rule 2.33(a) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (H) and (O).
The relevant facts in the instant matter are not in dispute. On March 7, 1988, the Debtor filed a Chapter 7 petition. On the Schedule B-1 of real property, the Debtor indicated that he did not have an interest in any real property. Joseph Stein ("Stein") was appointed as the interim trustee pursuant to 11 U.S.C. § 701. Subsequently, on May 11, 1988, Stein concluded a meeting of creditors under 11 U.S.C. § 341, originally scheduled for April 13, 1988. On May 16, 1988, Stein filed a "Report of Trustee in No-Asset Case" ("No-Asset Report"), indicating that there were no assets in the estate to be administered for the benefit of the creditors. The following day, the Court approved the No-Asset Report and discharged Stein as trustee.
On January 12, 1989, counsel for a creditor, Merrill Lynch, Pierce, Fenner & Smith, contacted Stein alleging that the Debtor had fraudulently transferred the beneficial interest in an Illinois land trust, which held title to his home, to his non-debtor spouse, Mary Lyons. Pursuant thereto, on February 8, 1989, Stein appeared before the Court on a motion requesting entry of an order allowing his resignation because the Debtor had consulted with another attorney in Stein's law firm about the matter without Stein's prior knowledge; appointing a new interim trustee; and vacating the No-Asset Report. In accordance with Stein's request, on that same date, the Court entered an Order authorizing Stein to withdraw as interim trustee, vacating the No-Asset Report, and directing the appointment of a new interim trustee. On February 28, 1989, the Clerk of the Court sent another notice to all creditors indicating, inter alia, that Catherine Steege (the "Trustee") was appointed as interim trustee and a new section 341 meeting would be held on March 22, 1989. On that date, the Trustee convened the meeting, but continued same until April 25, 1989. Pursuant to 11 U.S.C. § 702(d), the Trustee became the permanent trustee because the creditors did not elect a different trustee at that section 341 meeting of creditors. Most significantly, in her pleadings, the Trustee alleges that she first became aware of the alleged voidable transfers on April 25, 1989, when she was supplied with the documentation relating thereto from the Debtor. The Debtor was subsequently granted a discharge on October 24, 1989.
On March 21, 1991, within two years after the first date of the new section 341 meeting, but more than two years after Stein's appointment as the initial Chapter 7 trustee at the conclusion of the May 11, 1988 first section 341 meeting, the Trustee filed a complaint against Mary Lyons pursuant to 11 U.S.C. §§ 544(b) and 550(a)(1) and Ill.Rev.Stat. ch. 59, para. 4 (1987). The complaint seeks to avoid and recover the transfer from the Debtor to Mary Lyons of two interests in property as fraudulent conveyances. The Trustee further seeks the recovery of the property or the value of the property transferred. Specifically, the Trustee alleges in the complaint that Mary Lyons and the Debtor had previously acquired joint ownership of real estate located at 11124 Forest Woods Drive, Willow Springs, Illinois (the "Forest Woods property"). On February 13, 1986, the property was conveyed to LaGrange Bank and Trust Company (the "Bank") as trustee under an Illinois land trust in which Mary Lyons holds all of the beneficial interest in the res of the trust. The same day, Mary Lyons and the Debtor placed another parcel of real estate commonly known as 8316 Chelsea Lane, Willow Springs, Illinois (the "Chelsea Lane property"), in another land trust with the Bank as land trustee and Mary Lyons as the sole holder of the beneficial interest. On October 17, 1986, the Debtor and Mary Lyons caused the Forest Woods property to be conveyed to Michael and Sheri Norbett for $98,000.00, of which $30,888.50 was paid in cash to the Debtor and Mary Lyons. The complaint further alleges that the Debtor did not receive any consideration in exchange for the transfers to Mary Lyons which were made with the intent to delay, hinder and defraud the creditors of the Debtor. Thus, such transfers to Mary Lyons are voidable fraudulent conveyances. None of these transfers were disclosed on the Debtor's bankruptcy schedules.
On April 23, 1991, Mary Lyons filed the instant motion to dismiss arguing that pursuant to 11 U.S.C. § 546(a)(1), the Trustee is barred from pursuing this action. Mary Lyons claims that that statute of limitations began to run on the date that Stein was appointed in 1988, not when Catherine Steege became the "successor" Trustee in 1989. The Trustee responds by initially arguing that the doctrine of equitable tolling should be applied so as toll the statute of limitations until April 25, 1989, which is the date she uncovered the operative facts underlying the fraudulent transfers. In the alternative, The Trustee contends that the statute of limitations did not begin to run until she became the permanent Trustee.
Mary Lyons replies by citing case authority holding that the two year limitations period prescribed by section 546 begins running with the appointment of the original trustee and binds a successor trustee. She also claims that the doctrine of equitable tolling is inapplicable because the underlying facts were known within the statutory period of section 546(a), and hence, chargeable to the Trustee. Furthermore, she asserts there was no fraudulent concealment that would give rise to the tolling of the statute of limitations.
No specific Federal Rule of Civil Procedure was cited. The Court will assume, however, that Mary Lyons seeks to dismiss the matter pursuant to Rule 12(b)(6), incorporated by reference in Federal Rule of Bankruptcy Procedure 7012. In order for Mary Lyons to prevail on the motion to dismiss, it must clearly appear from the pleadings that the Trustee can prove no set of facts in support of her claims which would entitle her to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957); Meriwether v. Faulkner, 821 F.2d 408, 411 (7th Cir.1987), cert. denied, 484 U.S. 935, 108 S.Ct. 311, 98 L.Ed.2d 269 (1987); Doe v. St. Joseph's Hospital, 788 F.2d 411, 414 (7th Cir.1986); Swanson v. Wabash, Inc., 577 F.Supp. 1308 (N.D.Ill.1983). The Seventh Circuit has emphasized that "despite their liberality on pleading matters . . . the federal rules still require that a complaint allege facts that, if proven, would provide an adequate basis for each claim." Gray v. County of Dane, 854 F.2d 179, 182 (7th Cir.1988). It is well established that alleging mere legal conclusions, without a factual predicate, are inadequate to state a claim for relief. Briscoe v. LaHue, 663 F.2d 713, 723 (7th Cir.1981), aff'd, 460 U.S. 325, 103 S.Ct. 1108, 75 L.Ed.2d 96 (1983). Moreover, the Court must take as true all well-pleaded material facts in the complaint and must view these facts and all reasonable inferences which may be drawn from them in a light most favorable to the Trustee. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2332, 81 L.Ed.2d 59 (1984); Infinity Broadcasting Corp. v. Prudential Ins. Co., 869 F.2d 1073, 1075 (7th Cir.1989); Corcoran v. Chicago Park Dist., 875 F.2d 609, 611 (7th Cir.1989); Marmon Group, Inc. v. Rexnord, Inc., 822 F.2d 31, 34 (7th Cir.1987); Meriwether v. Faulkner, 821 F.2d at 410; Ellsworth v. Racine, 774 F.2d 182, 184 (7th Cir.1985), cert. denied, 475 U.S. 1047, 106 S.Ct. 1265, 89 L.Ed.2d 574 (1986). The issue is not whether the Trustee will ultimately prevail, but whether the Trustee has pleaded a cause of action sufficient to entitle her to offer evidence in support of her claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).
11 U.S.C. § 546(a) provides:
11 U.S.C. § 546(a). This section does not apply to actions outside the Bankruptcy Code sections enumerated therein. See In re Coan, 96 B.R. 828, 831 (Bankr.N.D.Ill. 1989); In re Mid Atlantic Fund, Inc., 60 B.R. 604, 610 (Bankr.S.D.N.Y.1986).
11 U.S.C. § 702 provides in pertinent part:
11 U.S.C. § 702(b) and (d) (emphasis added). Most courts hold that pursuant to sections 546(a) and 702, the two year statute of limitations under section 546(a) does not begin to run until the election or qualification of a trustee ("permanent" as distinct...
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