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In re Chicago

decided: June 5, 1989.

IN THE MATTER OF CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY, DEBTOR. APPEAL OF CMC REAL ESTATE CORPORATION


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 77 B 8999, Prentice H. Marshall, Judge.

Bauer, Chief Judge, Cummings and Easterbrook, Circuit Judges.

Author: Cummings

CUMMINGS, Circuit Judge

I.

The Chicago, Milwaukee, St. Paul and Pacific Railroad Company ("Milwaukee Road") filed for reorganization on Act her 19, 1977, under Section 77 of the Bankruptcy Act of 1898, 11 U.S.C. § 205 (1976) (repealed in 1978),*fn1 in the District Court for the Northern District of Illinois. Acting under the authority of Section 77 of that Act and Bankruptcy Rule 8-401 (1979), the district court entered an order requiring all proofs of claims against Milwaukee Road, its trustee, or estate arising during the reorganization to be filed before September 10, 1985, the "bar date". On November 12, 1985, a consummation order was entered by the district court effective November 25, 1985, discharging all claims against Milwaukee Road, its trustee and the estate arising prior to the consummation order except those filed prior to the applicable bar dates.*fn2

Plaintiff Ralph G. Kelly filed this personal injury action under the Federal Employers' Liability Act, 45 U.S.C. § 51 et seq. ("FELA"), against the Milwaukee Road and the Soo Line Railroad Company ("the Soo") in the District Court for the District of Minnesota on October 22, 1987, later amending the complaint to add CMC Real Estate Corporation ("CMC") as an additional defendant. Kelly subsequently dismissed his action against Milwaukee Road and CMC, leaving the Soo as the sole defendant.*fn3

The entity emerging from the reorganization, CMC, filed this petition for injunctive relief in the District Court for the Northern District of Illinois asserting that plaintiff's claim is foreclosed by the consummation order for failure to file proof of his claim prior to the applicable bar date. The district court refused to enjoin the plaintiff's suit on the basis that Milwaukee Road had fraudulently procured the plaintiff's agreement to settle his claim for $250 on March 22, 1985, resulting in the plaintiff's refraining from filing a claim prior to the bar date in the belief that he no longer possessed a viable claim. We reverse and remand to the district court for the entry of an injunction barring the plaintiff from pursuing his action under FELA.

II.

Under 11 U.S.C. § 205(f) (repealed in 1978) the debtor or successor corporation emerging from the reorganization receives the debtor's property pursuant to the plan of reorganization "free and clear of all claims of the debtor, its stockholders and creditors, and the debtor shall be discharged from its debts and liabilities." "Creditors" include "all holders of claims of whatever character against the debtor or its property, whether or not such claims would otherwise constitute provable claims under this [Act]". 11 U.S.C. § 205(b) (repealed in 1978). "Claims" is defined very broadly to include "debts, whether liquidated or unliquidated . . . or other interests of whatever character." Idem. Neither party disputes the fact that a cause of action constitutes a claim in bankruptcy or that Kelly received both constructive notice of the September 10, 1985, bar date for filing through publication in The Wall Street Journal, and actual notice from his union, the Brotherhood of Maintenance of Way Employees. The parties instead differ over whether Kelly's FELA claim is barred as arising during the reorganization for which no proof of claim was filed or whether it arose after the reorganization and therefore is not barred by the consummation order.

If Kelly's FELA claim arose during the reorganization, his failure to file proof of his claim prior to the applicable bar date will presumably operate to discharge the Soo, unless Kelly can demonstrate that relief from the consummation order is warranted. Relief from a final order in bankruptcy may be pursued solely through a motion under Fed.R.Civ.Proc. 60(b), applicable to bankruptcy proceedings through Bankruptcy Rule 8-703(a)(5) (1976). In the Matter of Whitney-Forbes, Inc., 770 F.2d 692 (7th Cir. 1985); In the Matter of Chung King, Inc., 753 F.2d 547 (7th Cir. 1985). Rule 60(b) provides in part:

On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: . . . (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; . . . or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken.

Kelly has failed to file a Rule 60(b) motion for relief from the consummation order and is barred from doing so on the basis of fraud since the one-year filing period has expired for a motion for relief based on fraud. Because Kelly's argument before this Court is explicitly premised on fraud, the catchall claim in Rule 60(b)(6) is also inapplicable.

In answer to his failure to file a Rule 60(b) motion, plaintiff contends he need not meet the time limitations of Rule 60(b) since his cause of action did not arise until after the reorganization was final when he discovered the fraud perpetrated upon him in the settlement by Milwaukee Road. In order to file a claim cognizable in bankruptcy, a creditor must possess a debt based on state or federal law creating a substantive obligation independent of bankruptcy law. Vanston Committee v. Green, 329 U.S. 156, 170, 91 L. Ed. 162, 67 S. Ct. 237 (Frankfurter, J., concurring). Since plaintiff's cause of action is based on FELA, we look to FELA to determine when plaintiff's claim accrued against Milwaukee Road. For the purposes of commencement of the three-year statute of limitations for FELA actions, the cause of action accrues as of the date of the injury. Reading Co. v. Koons, 271 U.S. 58, 70 L. Ed. 835, 46 S. Ct. 405 ; Lancaster v. Norfolk & Western R. Co., 773 F.2d 807, 821 (7th Cir. 1985); Deer v. New York Cent. R. Co., 202 F.2d 625 (7th Cir. 1953).*fn4

Plaintiff alleges that he suffered injuries to his left leg, right side and lower back during the five-year period preceding December 1, 1984, due to Milwaukee Road's negligent assignment of work duties which exceeded his physical capabilities. As a result of these injuries he assertedly became permanently disabled from any further employment with Milwaukee Road as of December 1, 1984. Plaintiff expressly admits in his complaint that his injury was sustained "during the 5 year period prior to December 1, 1984." Kelly acknowledged the existence of his injuries through acceptance of $250 in return for his March 22, 1985, release of Milwaukee Road from any claims based upon these injuries. Plaintiff argues that ...


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