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In re marchFIRST

September 12, 2008


The opinion of the court was delivered by: Honorable David H. Coar


Bankruptcy Case No. 01 B 24742

Bankruptcy Adv. No. 07 A 00379

Appeal From the Honorable Judge John D. Schwartz.


CIT Communications Finance Corporation appeals the bankruptcy court's dismissal of its adversary complaint against Andrew Maxwell, trustee of the estates of marchFIRST, Inc., and others (collectively, "Debtors"). In its complaint, CIT alleged that it had leased telephone equipment to the Debtors and that, as a result of Maxwell's wrongful acts, the equipment was never returned after the leases expired. The bankruptcy court concluded that CIT's allegations show that it knew or should have known that it was wrongfully deprived of its property more than five years ago, and that the complaint is therefore time-barred under Illinois law. The bankruptcy court dismissed the complaint with prejudice, yielding a final judgment reviewable by this court under 28 U.S.C. § 158(a)(1). This court affirms the judgment of the bankruptcy court.


Because the bankruptcy court dismissed CIT's complaint on the pleadings, at this stage the court will treat as true all well-pleaded allegations in the complaint, drawing all possible inferences in CIT's favor. See Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). The court also may take judicial notice of facts in the record of the bankruptcy proceedings. Menominee Indian Tribe of Wisc. v. Thompson, 161 F.3d 449, 456 (7th Cir. 1998).Because the primary issue in this appeal is the timeliness of the complaint, the court recites the facts chronologically.

On April 12, 2001, the Debtors filed voluntary petitions under Chapter 11 of the Bankruptcy Code, see 11 U.S.C. §§ 101 et seq., in the United States Bankruptcy Court for the District of Delaware. At the time, the Debtors still possessed telephone equipment leased from CIT, who filed an appearance in the bankruptcy court on April 23, 2001. On April 25, 2001, the court converted the Debtors' petitions to Chapter 7 filings, see id. § 701 et seq., and appointed Michael Josephs as trustee. Sixty days later, on June 26, 2001, the Debtors' unexpired leases-including its leases with CIT-were deemed rejected pursuant to 11 U.S.C. § 365(d)(1). On that same day the bankruptcy court authorized trustee Josephs to retain Bottom Line, Inc., as a liquidation consultant. On July 10, 2001, the cases were transferred to the United States Bankruptcy Court for the Northern District of Illinois, where, on July 13, 2001, Maxwell was appointed to replace Josephs as trustee of the Debtors' estate.

Upon Maxwell's appointment, CIT began its attempts to retrieve its telephone equipment. On July 20, 2001, CIT wrote to Maxwell's attorney to arrange for the equipment's return, but Maxwell advised CIT to contact other persons, who ultimately "stonewalled," and denied CIT access to the Debtors' facilities. Maxwell also did not file a complete inventory of the Debtors' possessions within 30 days of his appointment.

On October 10, 2001, CIT filed an administrative expense claim against the estate, seeking post-petition rental fees and other costs for its telephone equipment, which CIT claimed the Debtors were still using. (Bankr. Case No. 01 B 24742, Doc. 297.) Maxwell publicly disagreed with that contention, though, in his "Statement of Financial Affairs," entered in the docket on November 8, 2001, where he represented that the Debtors did not hold any property owned by another person. (Bankr. Case No. 01 B 24742, Doc. 425.)

Thirteen months later, on December 12, 2002, CIT amended its earlier claim for administrative expenses to reflect that, along with the unpaid leasing fees, it was seeking the full value of its equipment. CIT wrote that some time after October 11, 2001, it had learned that Maxwell "had breached his fiduciary duty to gather, administer and turnover some of the Equipment to CIT," leading to the conversion of its equipment. (Bankr. Case No. 01 B 24742, Doc. 1106.) Maxwell filed objections to the claim, which was never resolved.

Four and a half years later, on May 7, 2007, CIT filed in the bankruptcy court the adversary complaint at issue here. See 28 U.S.C. § 157(b)(2)(A). In its first two claims, CIT alleges that Maxwell, in his official and personal capacity, breached his fiduciary duty to CIT by (a) failing to file a complete inventory for the Debtors within 30 days of qualifying as trustee (i.e., by August 12, 2001), (b) falsely representing that the Debtors were not holding anyone else's property in his statement of financial affairs of November 8, 2001, (c) failing to safeguard CIT's equipment, (d) ignoring CIT's requests for return of the equipment, and (e) failing to inspect the Debtors' premises for property not belonging to the estate before relinquishing control of the premises. CIT also alleges that, in improperly disposing of its equipment, Maxwell acted outside of his mandate (ultra vires), and that he breached his duty as a constructive bailee of the equipment.

Maxwell filed a motion to dismiss for failure to state a claim. See Fed. R. Civ. P. 12(b)(6), incorporated for banrkuptcy proceedings by Fed. R. Bankr. P. 7012(b). He argued, among other things, that CIT contravened the Barton doctrine by not requesting leave of the court before filing its complaint, see Barton v. Barbour, 104 U.S. 126, 127 (1881), and that CIT's complaint is barred by Illinois's five-year statute of limitations for ...

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