In re marchFIRST Inc.

• Decision Date: 21 December 2009
• Docket Number: No. 08-3600.,08-3600.
• Citation: 589 F.3d 901
• Parties: In re marchFIRST INCORPORATED, Debtor. Appeal of CIT Communications Finance Corporation, formerly known as Newcourt Communications Finance Corporation.
• Court: U.S. Court of Appeals — Seventh Circuit

589 F.3d 901

In re marchFIRST INCORPORATED, Debtor Appeal of CIT Communications Finance Corporation, formerly known as Newcourt Communications Finance Corporation.

No. 08-3600.

United States Court of Appeals, Seventh Circuit.

Argued October 26, 2009.

Decided December 21, 2009.

Andrew J. Maxwell, Attorney, Maxwell & Potts, Chicago, IL, for Debtor.

Stephen J. Rosenfeld, Attorney, Bruce N. Menkes, Attorney (argued), Mandell Menkes, LLC, Chicago, IL, for Appellant.

Don R. Sampen, Attorney (argued), Clausen Miller, Chicago, IL, for Trustee-Appellee.

Before BAUER and SYKES, Circuit Judges, and SIMON, District Judge.^*

BAUER, Circuit Judge.

CIT Communications Finance Corporation leased phone equipment to marchFIRST, Inc. When marchFIRST filed for bankruptcy protection and failed to return the equipment, CIT eventually sought damages from Andrew Maxwell, the trustee in bankruptcy, for breach of fiduciary duty. The bankruptcy court dismissed the claims as barred by the statute of limitations. The district court affirmed. Finding that the five-year statute of limitations bars CIT's claims, we affirm.

I. BACKGROUND

CIT began leasing telephone equipment to marchFIRST in 2000. On April 12, 2001, marchFIRST filed for bankruptcy in Delaware and CIT appeared as an interested party. The court-appointed trustee rejected all of marchFIRST's leases with CIT and received court permission to retain an auctioneer to assist in liquidating property held by marchFIRST. On July 10, the Delaware court transferred the case to the Bankruptcy Court for the Northern District of Illinois, which court appointed Andrew Maxwell as the successor trustee.

After Maxwell's appointment, CIT began seeking the return of its equipment. On July 20, CIT's attorney wrote Maxwell requesting the return of the equipment. According to CIT, Maxwell and his agents responded to the letter and the related attempts to recover the equipment by advising CIT to contact "different individuals," each of whom "stonewalled" CIT. Maxwell also missed an August 12, 2001 deadline for filing an inventory of CIT's property in the debtor's possession as required by Fed. R. Bankr.P.2015(a)(1) and 11 U.S.C. § 704(a)(2).

On November 2, 2001, Maxwell filed a Statement of Financial Affairs in the bankruptcy court denying that marchFIRST held or controlled any of CIT's property. Nearly three months later, on January 31, 2002, the bankruptcy court gave Maxwell permission to re-employ the auctioneer in order to continue liquidating equipment marchFIRST held at various locations. Nearly a year later, on December 12, 2002, CIT filed an amended administrative expense claim seeking the full value of its equipment. The claim asserted that Maxwell had breached his fiduciary duty but that CIT had not discovered the breach until sometime after October 11, 2001, the deadline for filing such claims in the bankruptcy court.

CIT filed its complaint in this case on May 7, 2007, four-and-a-half years after filing its amended administrative expense claim, and five years and nine months after it first wrote to Maxwell seeking the return of its equipment. CIT's complaint charged Maxwell with, among other things, breaching his fiduciary duty to CIT by ignoring requests to return the equipment, failing to safeguard the equipment, and improperly disposing of the equipment—all of which CIT claims were done outside the scope of his duties as trustee. The bankruptcy court dismissed the claims as barred by Illinois' five-year statute of limitations. CIT appealed the decision to the district court, which affirmed. CIT timely appealed.

II. DISCUSSION

CIT argues that the statute of limitations should not bar it from pursuing its claim for breach of fiduciary duty, even though it filed the claim nearly six years after it was first "stonewalled" by Maxwell and four-and-a-half years after it filed its amended administrative expense claim. Both parties agree that CIT's claims to recover personal property are governed by Illinois five-year statute of limitations, as interpreted by the Illinois Supreme Court. 735 Ill. Comp. Stat. 5/13-205. See Commonwealth Ins. Co. v. Stone Container Corp., 323 F.3d 507, 509 (7th Cir.2003). Because CIT filed its complaint on May 7, 2007, the claims for which it seeks relief must have accrued no earlier than May 7, 2002. We review de novo the district court's dismissal of CIT's claims as barred by the statute of limitations. Dominguez v. Hendley, 545 F.3d 585, 588 (7th Cir. 2008).

The disputed issue is when CIT's claims against Maxwell accrued and triggered the running of the limitations period. Illinois follows the general rule that tort claims arising from a contract accrue when the contract is breached, whereas most tort claims accrue when the plaintiff sustains an injury. Hermitage Corp. v. Contractors Adjustment Co., 166 Ill.2d 72, 209 Ill.Dec. 684, 651 N.E.2d 1132, 1135 (1995). But courts also have a discovery rule to protect those who are unaware of their right to sue, "to encourage the trial of cases on their merits and avoid premature summary dismissals." Superior Bank FSB v. Golding, 152 Ill.2d 480, 178 Ill.Dec. 720, 605 N.E.2d 514, 518 (1992). The discovery rule delays the accrual of claims until the plaintiff reasonably should know that he has been injured and that the injury was wrongfully caused. Id. A plaintiff's knowledge that his injury was wrongfully caused does not necessarily mean knowledge of actionable conduct. Knox Coll. v. Celotex Corp., 88 Ill.2d 407, 58 Ill.Dec. 725, 430 N.E.2d 976, 980-81 (1981). The cause of action accrues and the limitations period begins to run when "the injured person becomes possessed of sufficient information concerning his injury and its cause to put a reasonable person on inquiry to determine whether actionable conduct is involved." Id. In addition, in Illinois, the party seeking to utilize the discovery rule bears the burden of proving the date of discovery. Hermitage, 209 Ill. Dec. 684, 651 N.E.2d at 1138.

In this case, CIT's claims accrued before May 7, 2002, and thus are barred by the statute of limitations. CIT maintains that, as trustee of the bankrupt marchFIRST estate, Maxwell breached the fiduciary duty he owed to marchFIRST's creditors. Maxwell accomplished this, according to CIT, by failing to inventory, return, and safeguard, (and eventually disposing of) CIT's equipment. However, all activity the complaint describes relating to CIT's efforts to recover its equipment and Maxwell's lack of response occurred during the summer and fall of 2001, over five years and six months prior to the date CIT filed its complaint. CIT first appeared in the bankruptcy proceeding as an interested party on April 23, 2001. In July 2001, CIT first asked for its phone system back in a letter to Maxwell. According to CIT, Maxwell responded to this and other such requests with "stonewalling." He also failed to file an inventory of the debtor's possessions as required by the Bankruptcy Code. Then, according to CIT, Maxwell "deliberately" filed a Statement of Financial Affairs in November 2001, "falsely represent[ing] that Debtors did not hold any property owned by" CIT. Hence, by November 2001,...