By Scott B. Riddle, Esq.

In re Pac One, Inc, 1:06-cv-118-WSD, 2007 WL 2083817 (N.D. Ga. July 17, 2007).  Debtor Pac One filed a Chapter 11 on August 22, 2001, and Plaintiff was appointed Chapter 11 Trustee. The case was converted to a Chapter 7 on November 21, 2001, and Plaintiff was re-appointed as Chapter 7 Trustee. 

On August 17, 2005, Plaintiff filed suit against Debtor’s parent corporation, Packaging Acquisition Corporation (“PAC”), PAC’s stockholders, and individual directors of Pac One and PAC (“Defendants”). … Plaintiff alleges that [defendants] acted in concert to misuse Pac One’s corporate form, and that this misuse drove Pac One into insolvency on October 14, 2000. Plaintiff claims that Defendants’ conduct was motivated by a desire for personal gain.

Plaintiff alleges that Defendants inflated artificially Pac One’s credit standing, so that it could obtain third-party loans to continue to pay their salaries and to pay money under contracts with Pac One beneficial to Defendants or their related entities. Thus, Plaintiff alleges Defendants had a conflict between their pecuniary interest in Pac One’s short-term ability to pay money and their fiduciary obligations to Pac One and its creditors. Plaintiff alleges that Defendants resolved this conflict in a way that benefitted their own interests at the expense of Pac One’s interests.

Plaintiff alleges claims for: (1) negligence and gross negligence; (2) breach of fiduciary duty; (3) fraud; and (4) breach of contract. Plaintiff alleges that Defendants were negligent or grossly negligent by making multiple accounting errors that misstated Pac One’s credit worthiness, including by misstating that Pac One owned certain equipment that it only leased, overstating the value of Pac One’s inventory, and submitting false “Base Borrowing Certificates” to creditors. This conduct is alleged to have resulted in economic harm beginning at least on October 14, 2000, the date of insolvency.

Defendants filed a motion to dismiss based upon the statute of limitations and failure to plead fraud with particularity, and Plaintiff filed a proposed amended complaint.

It was undisputed that claims for negligence, misrepresentation, and fraud are subject to a four-year limitations period. O.C.G.A. §§ 9-3-31, 9-3-32.  Plaintiff first argued that the statute of limitations should be tolled because there was no trustee appointed to sue until the bankruptcy case was filed.  This argument was rejected –

Plaintiff appears to claim that the underlying limitations periods should be tolled until the date of the Petition simply because it would have been unlikely for Pac One to sue PAC, CGW, or its own directors before that time. Plaintiff presents no authority in support of this proposition. …

The purpose of a bankruptcy trustee is to stand in the shoes of the debtor company and to file claims it could have filed itself. In recognition of the unique challenges faced by bankruptcy trustees-which commonly include standing in the shoes of debtors that were controlled by parties that the debtor would otherwise have been economically unmotivated to sue-Congress passed statutes to assist trustees with their duty. Section 108 is one of these. If a bankruptcy trustee is appointed while the statutes of limitation on a debtor’s claims are running, § 108 grants the trustee a minimum of two years to investigate and decide whether to file those claim, regardless of when the underlying statutes of limitation would otherwise run. See, Beck v. Deloitte & Touche, 144 F.3d 732, 736 (11th Cir.1998).

Plaintiff presents no authority for its argument that the statutes of limitation should be tolled because he seeks to sue Pac One’s parent, directors, and controlling shareholders. …

The simple fact is that Pac One itself, through its directors and stockholders, is the perpetrator in Plaintiff’s pleadings. The legal fiction of a “trustee” is that he stands in Pac One’s shoes. Pac One knew of the existence of these allegations well before the date of the Petition, and they resulted in harm at least as of October 14, 2000, when Pac One reached insolvency.

Plaintiff next argued that the fraud he alleges should toll the statutes of limitation because “Defendants … prepared and submitted false, inaccurate and misleading ‘Borrowing Base Certificates’ to lenders …. after August 21, 2001” and because “Defendants exercised such control over Pac One that the entity itself was incapable of seeking redress until a Trustee was appointed.” 

 Fraudulent concealment of a claim can toll a statute of limitation if it “debars and deters the plaintiff from bringing his action.” O.C.G.A. § 9-3-96. To toll a statute of limitations for fraudulent concealment, a plaintiff must show:

(1) actual fraud on the part of the defendant involving moral turpitude, (2) which conceals the existence of the cause of action from the plaintiff, and (3) plaintiff’s reasonable diligence in discovering his cause of action, despite his failure to do so within the time of the applicable statute of limitations.

McClung Survering, Inc. v. Worl, 541 S.E.2d 703, 706 (Ga.Ct.App.2000).

If actual fraud is the gravamen of the action, however, “the statute of limitations is tolled until the fraud is discovered or by reasonable diligence should have been discovered.” Shipman v. Horizon Corp., 267 S.E.2d 244, 246 (Ga.1980). “No other independent fraudulent act is required to toll the statute.” Id. If a relationship of “trust and confidence” exists between the parties, “[f]ailure to exercise reasonable diligence to discover the fraud may be excused….”

Plaintiff does not make a sufficient showing that his claims should be tolled for fraudulent concealment. Plaintiff seeks to assert that Defendants fraudulently concealed these causes of action such that their statutes of limitation should also be tolled. Plaintiff does not make any factual showing in his sparse briefing that Defendants engaged in actual fraud involving moral turpitude to conceal the negligence, breach of contract, or breach of fiduciary duty claims from Pac One, the public, or him.

Plaintiff also does not allege or seek to show that he exercised reasonable diligence to discover these causes of action, despite his failure to do so within the time of the applicable statute of limitations.FN4 Plaintiff was Trustee for Pac One for nearly four years before he filed these claims. Plaintiff does not allege any facts to show that with reasonable diligence he could not have discovered these causes of action within the limitations period, or within the two-year minimum period he was allowed under 11 U.S.C. § 108.

FN4. Under 11 U.S.C. § 108, it is undisputed that Plaintiff had at least two years after the Petition date to file suit, regardless of any other statute of limitations.

Plaintiff does, however, make a sufficient showing that the statute of limitations should be tolled because of the allegation that Pac One defrauded its creditors generally. Acts of fraud themselves toll statutes of limitations until they are discovered. To the extent that Plaintiff’s fraud claim alleges that Pac One’s creditors were defrauded into overestimating Pac One’s creditworthiness, for example, through submission of false Base Borrowing Certificates, the Court understands it to be an alter ego claim, asserted against PAC and the individual Defendants on behalf of the class of all of Pac One’s creditors.FN5 Plaintiff’s allegations show that Pac One’s creditors did not discover the fraudulent Base Borrowing Certificates until after the Petition Date. Having tolled the date of accrual of the fraud claim until the Petition date, the Court finds that Plaintiff’s fraud claim is not barred by the statute of limitations.

Plaintiff next argued that his breach of fiduciary duty claims are subject to a ten-year statute of limitation.

The breach of fiduciary duty claims asserted by Plaintiff against Pac One’s directors, although imprecise, appear to fall within the purview of O.C.G.A. § 14-2-831, which governs derivative proceedings by shareholders or by corporations against their directors. Such actions are governed by a four-year limitations period. O.C.G.A. § 14-2-831(b). As noted above, the breach of duty complained of is the alleged practice of running Pac One deep into unwarranted debt. It is undisputed that this harm began at least as on October 14, 2000, the date of Pac One’s insolvency.

Plaintiff next argued that a six-year statute of limitations should apply to his breach of contract claim.

Plaintiff asserts that director Defendants Allen D. Barnes, Edwin A. Wahlen, Garrison M. Kitchen, and PAC entered into a contract on July 20, 2001 with Defendant Andersen, employing him as Pac One’s Chief Financial Officer. The contract is alleged to have contained an obligation on Andersen’s part to perform his duties faithfully, subject to the supervision of the Board of Directors. The July 20, 2001, agreement is also alleged to require the Board of Directors to supervise Andersen in the performance of his duties and to communicate Pac One’s policies and decisions to him for implementation. …

Georgia law provides for a six-year statute of limitations for simple written contracts, accrued from the date the contracts become “due and payable.” O.C.G.A. § 9-3-24. If the contract is partly in parol such that the agreement is not entirely embodied in the writing, then the six-year limitations period does not apply. Plumlee v. Davis, 473 S.E.2d 510, 514 (Ga.Ct.App.1996). A contract that merely creates a fiduciary relationship and general duties without specifying the manner in which those duties are to be carried out is partly in parol. Id. (“[The contract] did not specify the manner in which the attorney was to carry out his duties, when suit was to be filed, or numerous other material portions …”). 

The July 20, 2001, contract is partly in parol. The contractual terms Plaintiff alleges were breached merely establish a fiduciary relationship with general duties and obligations running between the individual Defendants and Pac One. The manner in which Andersen or the other defendants were required to carry out those duties is necessarily a matter of parol beyond the terms of the writing. Thus, the six-year statute of limitations does not apply. A four-year statute of limitations is appropriate, as the type of damage claimed is in personalty. Id.