Fraudulent Transfer, Breach Of Fiduciary Duty Claims Constitute Equitable Tolling

In the case of Forman v. Kelly Capital LLC (In re National Service Industries), Adversary No. 14-50377, U.S. Bankruptcy Judge Mary F. Walrath of the District of Delaware issued a memorandum opinion concerning various motions to dismiss filed in an action brought by a Chapter 7 trustee. In the complaint, the trustee: (1) sought to avoid certain fraudulent transfers and (2) asserted claims of breach of fiduciary duty against the debtor's former principals. In their motions to dismiss, the defendants asserted that the trustee's claims were either insufficiently pleaded or barred by the statute of limitations. While Walrath rejected most of these defenses, she did hold that certain portions of the fraudulent transfer claims were, in fact, barred by the applicable statute of limitations.

The procedural history of this case is relatively straightforward. On July 12, 2012, the debtor filed a voluntary petition for relief under Chapter 7 of the U.S. Code. Charles Forman was appointed the Chapter 7 trustee and on June 4, 2014, the trustee filed a complaint against the debtor's former officers and directors, Michael R. Kelly and David N. Spriggs II, along with various entities that were owned and/or controlled by these individuals. In the complaint, the trustee alleged Kelly, through one of his corporate affiliates, caused the debtor to sell the assets of its subsidiaries with the consideration of these sales flowing not to the debtor but, rather, to entities owned or controlled by Kelly. In addition, the trustee alleged that between 2004 and 2011, the debtor made approximately $120 million in loans and $70 million in transfers to the defendants and that, between 2007 and 2011, the debtor also forgave approximately $120 million in loans that were made to the defendants. Following the filing of the complaint, the defendants filed three motions to dismiss, claiming that the complaint was either insufficiently pleaded or barred by the statute of limitations.

In deciding the motions to dismiss, Walrath analyzed the standard of review for determining whether a complaint can withstand a Rule 12(b)(6) motion. According to the court, in order to survive a motion to dismiss, a complaint must contain "enough facts to state a claim to relief that is plausible on its face," citing Bell Atlantic v. Twombly, 550 U.S. 554, 570 (2007). A claim is "facially plausible 'when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged,'" quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Furthermore, a complaint must set forth "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do," quoting Twombly. In order to determine whether a complaint is facially plausible, Walrath noted that...

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