E. Bruce Nangle v. Leroy J. Lauer , 98 F.3d 378 ( 1996 )

___________
No. 95-1012
___________
In re: Leroy J. Lauer, *
*
Debtor *
__________________________ *
*
E. Bruce Nangle; Cele Nangle, *
Guardian of the Estate of *
Timothy Nangle; Stephen J. *
Nangle, Guardian of the Estate *
of Ellen Nangle; Harriet *
Nangle-Rose, * Appeal from the United States
* District Court for the
Appellants, * Eastern District of Missouri.
*
v. *
*
Leroy J. Lauer; Mark Twain *
Bank, N.A., a National Banking *
Association, *
*
Appellees. *
___________________________
A. Thomas Dewoskin; James S. *
Cole, *
*
Trustees. *
___________
Submitted: September 11, 1995
Filed: October 18, 1996
___________
Before FAGG, Circuit Judge, HENLEY, Senior Circuit Judge, and MAGILL,
Circuit Judge.
___________
HENLEY, Senior Circuit Judge.
E. Bruce Nangle filed this adversary bankruptcy proceeding on behalf
of himself and others (collectively, Nangle)1 against Leroy J. Lauer
(Lauer) and Mark Twain Bank (Mark Twain)2 to prevent the
discharge in bankruptcy of certain claims against Lauer, for compensatory
and punitive damages against Mark Twain, and for other relief. The United
States Bankruptcy Court granted summary judgment for Mark Twain Bank.
Nangle appealed the order of the bankruptcy court to the United States
District Court which affirmed. Nangle then filed a timely appeal to this
court pursuant to 28 U.S.C. § 158(d). We affirm in part, reverse in part,
and remand for further proceedings.
BACKGROUND
This bankruptcy proceeding is but one part of the litigation among
these parties dating back to 1983 and arising from their participation in
a real estate partnership. Plaintiff/appellant Nangle and others were
limited partners in a Missouri limited partnership named Crossroads U.S.A.
Limited II (Crossroads). Defendant/appellee Lauer and Joseph Graves were
the general partners of Crossroads. The principal assets of the
partnership
1
In their brief, appellees contend that E. Bruce Nangle lacks
standing to pursue this action and was dismissed from the case by
order of the bankruptcy court. Appellees do not, however, state
the basis for their challenge to Nangle's standing nor do they
offer any explanation of said order of the bankruptcy court.
Appellants do not address the issue in their brief. Because of
this incomplete record and because we remand on other grounds for
further proceedings, we leave for consideration by the bankruptcy
court the question of whether Nangle has standing.
2
The adversary complaint in bankruptcy asserts claims against
two separately incorporated sister banks: Mark Twain Bank, N.A., of
St. Charles County and Mark Twain Bank, N.A., of Big Bend
Boulevard. The complaint alleges that each bank separately, and
both of them together, violated the Uniform Fiduciaries Law of
Missouri. The two banks have been represented by one counsel on
this appeal. In this opinion for convenience we sometimes refer to
Mark Twain Bank generally as including both branch banks and at
other points we refer to the separate sister banks where the
conduct of one or the other but not both appears to be implicated.
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were two interests in real estate: the Riverheights Retirement Center in
Booneville, Missouri and a 32 acre parcel of land near Wentzville,
Missouri.
In 1982, general partners Lauer and Graves solicited Nangle and the
other limited partners to sell their limited partnership interests to the
general partners. The contracts for sale of the partnership interests
contained guarantees of payment by the general partners secured by the
general partners' own interests in Crossroads and representations that the
condition of the assets of the partnership had not changed. Transfer of
the partnership interests to Lauer and Graves was completed in November of
1982.
Approximately six months later, general partner Graves died. The
former limited partners learned at the time of Graves' death that --
contrary to the representations made by Lauer and Graves in the contracts
to buy out the interests of the limited partners -- general partners Lauer
and Graves had previously sold the Riverheights Retirement Center property
in return for an interest in an industrial development bond.
In March 1983, the former limited partners filed suit in Missouri
state court against Lauer and the representative of Graves' estate. The
complaint was later amended to add claims against Mark Twain Bank of St.
Charles and Mark Twain Bank of Big Bend which had provided a total of three
loans: (1) a loan by Mark Twain (St. Charles) to the Crossroads
Partnership, allegedly secured by partnership assets (the March 1981 loan);
(2) a loan by Mark Twain (St. Charles) to finance the general partners'
purchase of the limited partners' interests, allegedly secured by
partnership assets (the November 1982 loan); and (3) a loan by Mark Twain
(Big Bend) to Lauer personally, allegedly secured by partnership assets
(the December 1985 loan).
In November 1986, Lauer filed a voluntary petition for
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personal bankruptcy and reported the state court lawsuit as one of the
claims against the bankruptcy estate. In order to prevent the discharge
in bankruptcy of their claim against Lauer, plaintiffs filed in the
bankruptcy court a complaint to hold the debt nondischargeable.
The complaint alleged that the limited partners were induced to sell
their interests to the general partners based on misrepresentations
concerning the status of the assets of the limited partnership, including
the retirement center property. Plaintiffs alleged in the complaint that
they would not have sold their limited partnership interests if they had
known that the Riverheights property had been sold in exchange for the
industrial revenue bond from which earnings were tax free.
The complaint also alleged that Lauer and Graves had improperly used
partnership assets to secure the personal loan they obtained from Mark
Twain to finance the buy out of the limited partners. The complaint
further alleged that Mark Twain Bank violated Missouri law by granting the
loan to the general partners and taking a security interest in partnership
property for the personal loan. According to the complaint, the actions
of the general partners were in contravention of the terms of the limited
partnership agreement and thus a breach of the general partners' fiduciary
obligations. By lending money to Lauer and Graves, knowing that they were
breaching fiduciary duties owed to the limited partners, the complaint
asserted that Mark Twain Bank violated the Uniform Fiduciaries Law of
Missouri. Three counts of the complaint for nondischarge in bankruptcy
(Counts II, III and IV) named Mark Twain and are the subject of the present
appeal.3
3
The complaint in bankruptcy contained four counts: (1) Count
I against defendant Lauer requested, under the bankruptcy code,
nondischarge of plaintiffs' claim against Lauer on grounds that he
fraudulently and in violation of his fiduciary duties sold
partnership assets, misrepresented partnership assets and pledged
partnership assets for personal loans; (2) Count II alleged that
Mark Twain had violated the Missouri Uniform Fiduciaries Law by
dealing with Lauer with actual knowledge that he was violating his
fiduciary duties; (3) Count III alleged that Mark Twain had
violated the Missouri Uniform Fiduciaries Law by obtaining
partnership assets in bad faith; and (4) Count IV alleged that
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The bankruptcy complaint requested the following relief: nondischarge
in bankruptcy of the debt of Lauer to plaintiffs, compensatory and punitive
damages against Mark Twain,4 avoidance of Mark Twain's security interest,
an injunction against Mark Twain's enforcement of its security interest,
and relief under Section 548 of the Bankruptcy Code regarding voidable
preferences.
PROCEEDINGS BELOW
Mark Twain Bank first moved to dismiss the counts of the complaint
against Mark Twain, but the bankruptcy court overruled the motion. After
discovery, Mark Twain moved for summary judgment on Counts II, III and IV
of the complaint. The bankruptcy court granted the motion for summary
judgment in March, 1989. The bankruptcy court ruled that Count II was
barred by the statute of limitations; Count III failed to state a claim for
relief; and plaintiffs lacked standing to sue on the issues presented in
Count IV.
Plaintiffs appealed the order of the bankruptcy court to the United
States District Court as provided in 28 U.S.C. § 158(a). In October 1994,
the district court affirmed the grant of summary judgment for Mark Twain.
Nangle then brought this appeal from the order of the district court
pursuant to 28 U.S.C. § 158(d).
because Mark Twain obtained security interests in partnership
assets in violation of Missouri law the bankruptcy court should,
under the bankruptcy code, void the transfer of such interests to
Mark Twain
4
The complaint in bankruptcy alleged that plaintiffs' actual
damages exceeded half a million dollars.
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STANDARD OF REVIEW
On a motion for summary judgment, the bankruptcy court views the
evidence, and inferences from the evidence, in the light most favorable to
the non-moving party. Matushita Electric Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986). Summary judgment is granted only if there is no
dispute as to any issue of material fact and if the moving party is
entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 250 (1986); Fed. R. Civ. P. 56(c); Fed. R. Bkr. P. 7056.
On appeal of the bankruptcy court's judgment to the district court,
the district court acts as an appellate court and reviews the bankruptcy
court's legal determinations de novo and findings of fact for clear error.
Rine & Rine Auctioneers, Inc. v. Douglas County Bank & Trust Co., 74 F.3d
854, 857 (8th Cir. 1996); Wegner v. Grunewaldt, 821 F.2d 1317, 1320 (8th
Cir. 1987). Thus, when reviewing a grant of summary judgment by the
bankruptcy court, the district court must determine de novo whether the
moving party was entitled to judgment as a matter of law. In re Euerle
Farms, Inc., 861 F.2d 1089, 1090 (8th Cir. 1988).
As the second court of appellate review, we conduct an independent
review of the bankruptcy court's judgment and apply the same legal
standards as the district court. Affeldt v. Westbrooke Condominium Assoc.,
60 F.3d 1292, 1294 (8th Cir. 1995). We must determine whether there were
disputed issues of material fact and whether Mark Twain was entitled to
judgment as a matter of law. Southern Technical College, Inc. v. Hood, 89
F.3d 1381, 1383 (8th Cir. 1996).
The issues raised by this appeal all concern matters of law rather
than fact. In general, the parties have not presented substantial disputes
over matters of fact but rather have contested what legal conclusion should
follow from the unchallenged facts. The bankruptcy court granted summary
judgment for Mark Twain on
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each of three counts of the complaint on grounds that Mark Twain was
entitled to judgment as a matter of law.
APPLICABLE LAW
In this contested bankruptcy matter, the validity of the plaintiffs'
claim for nondischarge in bankruptcy is determined by state law and the
federal bankruptcy code. Because all relevant events occurred in Missouri,
the bankruptcy and district courts based their rulings on Missouri law.
We agree that Missouri law is applicable. As required by the Supreme
Court, we review the lower courts' determinations of state law de novo.
Salve Regina College v. Russell, 499 U.S. 225, 231 (1991).
The three counts of the complaint involving Mark Twain Bank asserted
the following violations of law. Count II alleged that Mark Twain Bank
(St. Charles) violated the Missouri codification of the Uniform Fiduciaries
Law (sometimes "UFL"), Mo. Rev. Stat. §§ 456.240 to 456.350, through the
bank's actual knowledge that Lauer and Graves were violating their
fiduciary duties to the limited partners by misrepresenting the condition
of the assets of the partnership.
Count III alleged that Mark Twain Bank (Big Bend) violated the
Missouri Uniform Fiduciaries Law by making the December 1985 loan to Lauer
and taking a security interest in partnership assets as collateral. Count
III also alleged that this loan was an act in furtherance of an agreement
between Lauer and the two Mark Twain Banks to obtain that collateral for
less than its market value. Count III contended that this constituted bad
faith by Mark Twain.
Count IV alleged that by financing the buyout by Lauer and Graves of
the limited partnership interests and by taking a pledge of partnership
assets as collateral Mark Twain Bank obtained property of the partnership
in violation of the Uniform Fiduciaries Law. Count IV asserted that this
transfer of property to Mark
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Twain should be voided by the court under Section 548 of the Bankruptcy
Code, 11 U.S.C. § 548, providing that certain pre-bankruptcy transfers are
voidable.
Before going further it may be helpful to note briefly the basic
premises of the Uniform Fiduciaries Law. This statute is the Missouri
codification of the Uniform Fiduciaries Act, promulgated by the
Commissioners on Uniform State Laws and adopted by more than 25 states.
The Uniform Fiduciaries Law modifies the common law with respect to the
duties of parties who deal with fiduciaries. Trenton Trust Co. v. Western
Sur. Co., 599 S.W.2d 481, 490 (Mo. 1980). In particular, the UFL relieves
banks of their common law duty of inquiring into the propriety of each
transaction conducted by a fiduciary. Id. The UFL provides that banks and
others who typically deal with fiduciaries may not be held liable for a
fiduciary's breach of duty absent either (1) "actual knowledge" of the
breach or (2) knowledge of sufficient facts to constitute "bad faith."5
Id. at 491-92. See also Cassel v. Mercantile Trust Co., 393 S.W.2d 433,
440-42 (Mo. 1965) ("[A] suit of this nature must have as its basis bad
faith or actual knowledge on the part of the bank.") (emphasis in
original).
COUNT II
The first of the three counts of the complaint asserting claims
against Mark Twain (Count II of the complaint) provided in
5
The Missouri Uniform Fiduciaries Law does not define bad
faith. It does, however, define good faith: "A thing is done in
good faith . . . when it is in fact done honestly, whether it be
done negligently or not." Mo. Rev. Stat. § 456.240. Missouri
courts have held by reference to this statutory definition of good
faith that "bad faith" means "dishonestly and not merely
negligently" or in a "commercially unjustifiable" manner. See,
e.g., General Ins. Co. of America v. Commerce Bank of St. Charles,
505 S.W.2d 454, 457-58 (Mo. App. 1974) ("Evil motive is not the
gauge; it is whether it is 'commercially unjustifiable for the
[bank] to disregard or refuse to learn facts readily available.'").
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relevant part:
That at all times herein mentioned § 456.240 - 350 R.S.Mo. 1978
as amended was in full force and effect entitled "Uniform
Fiduciary [sic] Law".
The documents of the partnership agreement in possession of the
bank [Mark Twain Bank N.A. of St. Charles County] at the time
of the [November 1982] loan, together with the written
statement of the general partners on the loan application that
the loan was to buy out the other partners, the further
knowledge that the I.D.A. Bond was recently issued, together
with the bank's prior knowledge that the partnership was so
cash short as to be required to sell . . . a one-half interest
in the pledged real estate, all of the above alone and in
culmination [sic] give the bank actual knowledge of the breach
of the fiduciary obligation of the general partners.
In Count II, plaintiffs alleged that Mark Twain Bank had violated its
obligations under the Uniform Fiduciaries Law by lending money to Lauer and
Graves and taking partnership assets as collateral with actual knowledge
that Lauer and Graves were breaching fiduciary duties owed to the
Crossroads' limited partners.
a. Mo. Rev. Stat. § 456.630 Limitations Period.
The bankruptcy court, without written explanation, denied Mark
Twain's motion to dismiss Count II of the complaint for failure to state
a claim for relief under Section 456.260 of the Missouri Uniform
Fiduciaries Law, Mo. Rev. Stat. §§ 456.240 - 456.350. However, the court
concluded that the claim was barred by a two- year statute of limitations
found in Mo. Rev. Stat. § 456.630. We believe this ruling rested on a
misinterpretation of Missouri law regarding the Uniform Fiduciaries Law
claims and the applicable limitations period.
The bankruptcy court found that the plaintiffs were aware of the
alleged wrongdoing by Lauer and Graves by at least March 1983, but did not
file suit against Mark Twain Bank until November 1986.
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The court then concluded that the applicable statute of limitations could
be found in Section 456.630. The court further concluded that under
Section 456.630 in order to be timely the claim against Mark Twain Bank had
to be brought within two years of discovery of the breach of fiduciary
duty. Thus, the action against Mark Twain would have had to be filed no
later than March 1985. Because it was filed after this date it was time
barred.
Finding no clear error with respect to the bankruptcy court's factual
findings, we accept the bankruptcy court's conclusions as to the date the
plaintiffs were charged with discovery of the claim and the later date when
suit was actually filed. See Wegner, 821 F.2d at 1320 (on appeal from a
grant of summary judgment we review the bankruptcy court's findings of fact
for clear error). However, we believe that the bankruptcy and district
courts erred in concluding that the statute of limitations applicable to
the claim in Count II is the two-year period derived from § 456.630.
Section 456.630 is not part of the Uniform Fiduciaries Law as adopted
by Missouri. Mo. Rev. Stat. § 456.350 ("Sections 456.240 to 456.350 may
be cited as the 'Uniform Fiduciaries Law.'"). Section 456.630 is, however,
codified as part of Missouri Revised Statutes Chapter 456, entitled Trusts
and Trustees, of which the Uniform Fiduciaries Law is also part. Mo. Rev.
Stat. §§ 456.010-456.820, Trusts and Trustees. Section 456.630 is included
in a portion of Chapter 456 addressing the powers, duties and liabilities
of trustees. Mo. Rev. Stat. §§ 456.500-456.670, Trustees' Powers, Duties
and Liabilities.
Section 456.630 provides, in full, as follows:
456.630 Effect of fraud and evasion
Whenever fraud has been perpetrated in connection with any
proceeding under this chapter or if fraud is used to avoid or
circumvent the provisions or purposes of this chapter, any
person injured thereby may obtain
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appropriate relief against the perpetrator of the fraud,
including restitution from any person, other than a bona fide
purchaser, benefitting from the fraud, whether innocent or not.
Any such proceeding must be commenced within two years after
the discovery of the fraud but no proceeding may be brought
against one not a perpetrator of the fraud later than ten years
after the time of commission of the fraud. This section has no
bearing on remedies relating to fraud practiced on a settlor
during his lifetime which affects the validity of a trust or
succession to its assets.
Mo. Rev. Stat. § 456.630 (emphasis added). Thus, by its terms, the key to
Section 456.630 is fraud: suits under Chapter 456 for fraud must be brought
within two years of discovery.
The courts below found, and the appellees here urge, that Section
456.630 is the applicable limitations period because Count II of
plaintiffs' complaint against Mark Twain sounds in fraud. Appellees
contend that the essence of Count II is that Mark Twain obtained its
security interest in partnership assets by participating in a fraudulent
scheme with Lauer and Graves. We respectfully disagree with this
characterization.
As the quotation above from Count II of the complaint illustrates,
it does not assert a claim for common law or other fraud. Indeed the word
fraud is never used in Count II. Instead, Count II fairly clearly asserts
that Mark Twain violated the Missouri Uniform Fiduciaries Law. In
particular, it alleges facts which, if proved, would establish that Mark
Twain loaned money to Lauer and Graves with "actual knowledge" that Lauer
and Graves were breaching fiduciary duties owed to Nangle and the other
Crossroads limited partners.
Contrary to appellees' contentions in their brief and at oral
argument, a violation of the Uniform Fiduciaries Law does not rest upon an
assertion of fraud. General Ins. Co. of America v. Commerce Bank of St.
Charles, 505 S.W.2d 454, 456-58 (Mo. App.
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1974). All that is required is that the plaintiff prove either that the
bank dealt with the fiduciary with actual knowledge of the fiduciary's
wrongdoing or, lacking actual knowledge, that the bank's actions amounted
to bad faith. Southern Agency Co. v. Hampton Bank of St. Louis, 452 S.W.2d
100, 104-06 (Mo. 1970). As drafted by plaintiffs, Count II asserts a
violation of the Uniform Fiduciaries Law on a theory of "actual knowledge"
by the bank.6
Appellees have artfully attempted to support their claim that the
charges against them are ones of fraud, by mixing appellants' claims
against Lauer in Count I with the claims against Mark Twain in Counts II
and III. But this effort is without merit.
Count I of the bankruptcy complaint does allege, in part, that Lauer
and Graves acted fraudulently and thereby breached their fiduciary duties
to their limited partners. However, Count I pertains only to the
plaintiffs' claims against Lauer and is not at issue on this appeal.
Count II recites, as it must, the actions of Lauer, the fiduciary,
in order to state a claim against Mark Twain under the Uniform Fiduciaries
Law. However, Count II specifically does not allege fraud against Mark
Twain. Tracking the language of the
6
In their brief on appeal, appellants at one point suggest
that Count II also states a claim under the UFL against Mark Twain
(St. Charles) for bad faith. There is case law in Missouri holding
that the language of a complaint for violation of the UFL should be
read liberally and that a claim for bad faith may be made out
without using the words "bad faith." See Western Cas. & Sur. Co.
v. First State Bank of Bonne Terre, 390 S.W.2d 913, 922 (Mo. App.
1965) (plaintiff made out a claim for bad faith under the UFL by
pleading the essential facts even without using the words bad
faith). Because the issue of whether Count II states a claim for
relief against Mark Twain under the UFL on the theory of bad faith
(in addition to the claim for relief on the theory of actual
knowledge which we have found is stated) has not been addressed by
the courts below, we will defer judgment on this issue to the
bankruptcy court in the first instance.
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Uniform Fiduciaries Law and the Missouri cases interpreting it, Count II
alleges facts which, if proved, would establish the Bank's actual knowledge
that Lauer and Graves were breaching their fiduciary duties and therefore
the Bank's liability to those harmed by the breach.
Appellees also attempt to bolster their argument that the claim must
be one of fraud by pointing to matters outside the four corners of the
complaint itself. This attempt is also unavailing. Appellees contend, for
example, that Count II must sound in fraud because appellants would not
have been allowed to join in the bankruptcy proceeding absent an allegation
of fraud. However, the bankruptcy code sections cited by appellees,
Section 523 (dealing with exceptions to discharge of debts) and Section 548
(dealing with voidable preferences) both speak to fraud or false
representations, etc. committed by the debtor, not by a third party such
as Mark Twain. It is true that plaintiffs contended that Mark Twain should
also be joined in the adversary proceeding. However, the plaintiffs'
contention that the actions of Mark Twain were necessary for Lauer to
succeed in his alleged fraud are not inconsistent with plaintiffs' claims
under the UFL against Mark Twain. Moreover, our careful review of the
pleadings shows that plaintiffs/appellants have consistently argued in the
bankruptcy and district courts as well as before this court that their
claims against Mark Twain were ones of actual knowledge and bad faith as
required by the UFL but not ones of fraud.
There is no case from the Missouri courts directly on point on the
question of what statute of limitations applies to a violation of the
Missouri Uniform Fiduciaries Law. However, we believe that our conclusion
that a claim under the Uniform Fiduciaries Law is not a claim of fraud is
supported by all the leading Missouri cases, Trenton, 599 S.W.2d at 491-93;
Southern Agency, 452 S.W.2d at 104-06; Cassel, 393 S.W.2d at 440-42, as
well as cases from other jurisdictions. See, e.g., Appley v. West, 832
F.2d 1021,
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1030-31 (7th Cir. 1987) (interpreting Illinois codification of Uniform
Fiduciaries Act). Therefore, we are confident that our decision that the
limitations period in Section 456.630 does not apply here is fully
consistent with the Missouri statutory scheme as it has been interpreted
by its courts.
b. Mo. Rev. Stat. § 516.120 Limitations Period.
Having concluded that Section 456.630 is not applicable, we must
determine what statute of limitations applies. We agree with appellants
that under the Missouri scheme the most directly relevant statute of
limitations is that in Section 516.120. Section 516.120 provides that in
the absence of a more narrowly tailored limitations period, any action
pursuant to a Missouri statute must be commenced within five years. Mo.
Rev. Stat. 516.120(2). Section 516.120 also provides for a five year
limitations period for any action on a claim for personal property or any
other injury to a person or his rights. Mo. Rev. Stat. § 516.120(4).
Section 516.120 has been applied by Missouri courts to very similar
claims in other cases. For example, in Lehnig v. Bornhop, 859 S.W.2d 271
(Mo. App. 1993), investors in a limited partnership sued the general
partner and an attorney alleging, inter alia, breach of fiduciary duty.
The trial court dismissed the action as barred by the five year statute of
limitations in Section 516.120. The Missouri Court of Appeals agreed that
Section 516.120 applied to the breach of fiduciary duty claim but reversed
and remanded on grounds that the statute had not run. See also Lehnig v.
Bornhop, 896 S.W.2d 714 (Mo. App. 1995) (reaffirming that five year statute
of limitations applied); Vogel v. A. G. Edwards & Sons, Inc., 801 S.W.2d
746 (Mo. App. 1990) (claim that broker breached fiduciary duty to clients
governed by five year statute of limitations in Section 516.120); Southern
Cross Lumber & Millwork Co. v. Becker, 761 S.W.2d 269 (Mo. App. 1988)
(claim that escrow agency breached fiduciary duty in disbursing funds
governed by five year
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limitations period in Section 516.120).
In addition, our own court has recently applied the Section 516.120
limitations period to a claim of breach of fiduciary duty. In Koester v.
American Republic Investments, Inc., 11 F.3d 818 (8th Cir. 1993), limited
partners in a real estate partnership sued the general partners for breach
of fiduciary duty. We specifically held that a claim of breach of
fiduciary duty was not "grounded in fraud" and that the applicable
limitations period was five years as set forth in Section 516.120. Id. at
821-22.
As noted above, we assume that the bankruptcy court correctly
concluded that the alleged wrongdoing of Lauer and Nangle occurred in
approximately November 1982, that the wrongdoing was discovered in
approximately March 1983, and that the claims against Mark Twain were first
brought in approximately November 1986. Applying the five year statute of
limitations, we conclude that plaintiffs' allegations against Mark Twain
in Count II were timely.7
c. Elements of a Claim for Relief under the Missouri Uniform
Fiduciaries Law.
Having concluded that Count II was not time barred, we also expressly
affirm the bankruptcy court's ruling that Count II of the plaintiffs'
complaint in bankruptcy did state a claim for relief under the Uniform
Fiduciaries Law. The elements of a cause of action under that statute are:
(1) the defendant dealt with one who was a fiduciary; (2) the fiduciary
breached his fiduciary duty; and (3) the defendant had either actual
knowledge of the breach or knew sufficient facts to amount to bad faith.
General Ins. Co., 505
7
Appellants argued on this appeal that even if their claims
would otherwise be time barred the limitations period was tolled as
to those plaintiffs who were minors when the action was initiated.
Because we have determined that the claims were not time barred as
to any of the plaintiffs we need not consider whether any tolling
is provided by Missouri law or would apply on these facts.
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S.W.2d at 456-58.
In determining whether the complaint stated a claim for relief we
view the allegations in the complaint in the light most favorable to the
plaintiff. In such light, we believe that the allegations of Count II, if
proved, would establish a claim under the Act.
The complaint alleged that Lauer was a general partner of Crossroads
with fiduciary duties to the limited partners including Nangle. The
complaint also alleged that Mark Twain dealt with Lauer in several ways,
especially lending money to Lauer that was secured by assets of the
partnership rather than of Lauer. Finally, the complaint alleged facts
which, if proved, would show that Mark Twain had actual knowledge of
Lauer's breach of fiduciary duty. In particular, the complaint alleged
that Mark Twain had a copy of the partnership agreement which specifically
forbade the general partners to pledge partnership assets for personal
uses. In addition, the complaint alleged that Mark Twain knew that the
contracts for purchase by Lauer and Graves of the limited partners'
interests misrepresented the assets of the partnership because Mark Twain
knew that the Riverheights Center had been sold for the industrial revenue
bond.
Under the Missouri caselaw, these allegations, along with the rest
of the complaint, were sufficient to state a claim for relief under the
UFL. See Metro Trust Co. v. Northwestern Savings & Loan Assoc., 654 S.W.2d
631 (Mo. App. 1983) (judgment for bank reversed because plaintiff had made
out claim that bank had actual knowledge that fiduciary with whom bank
dealt was breaching her fiduciary duty); Western Cas. & Sur. v. First State
Bank of Bonne Terre, 390 S.W.2d 913 (Mo. App. 1965) (judgment for bank
reversed where bank had actual knowledge that fiduciary breached his
fiduciary duty). See also Penalosa Cooperative Exchange v. A.S. Polonyi
Co., 745 F. Supp. 580 (W.D. Mo. 1990) (complaint was sufficient to state
claim
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for relief that defendant had actual knowledge of fiduciary's breach of
duty); O'Neal v. Southwest Missouri Bank of Carthage, 168 B.R. 941 (Bankr.
W.D. Mo. 1994) (bank was liable under Uniform Fiduciaries Law when it acted
with actual knowledge that fiduciary's behavior was breach of fiduciary
duty).
We hold that in Count II of their complaint the appellants have
stated a claim for relief under Missouri law that is not time barred.
COUNT III
Count III, provided, in relevant part:
The [December 1985] loan of the Mark Twain Bank of Big Bend. .
. is an act in furtherance of an agreement between the
defendant's banks and the debtor to permit the bank to seize
the collateral of said loans for a fractional amount of its
value and is "bad faith" as the same is stated in § 456.240
R.S. Mo. 1978, as amended.
Thus, Count III asserted that Mark Twain Bank of Big Bend (a sister
bank of Mark Twain Bank of St. Charles County) lent further funds to Lauer
in December 1985 also secured by assets of the partnership, including the
industrial revenue bond and the Wentzville real estate. Count III further
asserts that Mark Twain Bank of Big Bend lent these funds pursuant to an
agreement among Mark Twain of St. Charles, Mark Twain of Big Bend and
Lauer, the purpose of which was to allow the banks to seize the collateral
for the loans to the detriment of the appellants when Lauer defaulted.
The bankruptcy and district courts concluded that Count III did not
state a claim for relief against Mark Twain Bank. We respectfully
disagree.
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The theory of Count III is fairly clear that Mark Twain Bank8
violated the Uniform Fiduciaries Law by certain actions taken in bad faith.
As with Count II above, we believe that -- although the drafting of the
complaint is not perfect -- it adequately alleges facts, which if true,
state a claim for relief. If Nangle can prove Lauer did misrepresent the
assets of the partnership in breach of a fiduciary duty to the limited
partners, if the banks did lend money to Lauer, and if the banks lent the
money to Lauer believing he could not repay but that they could seize the
pledged assets -- alleged to be assets of the partnership -- for less than
their fair value, we believe that Nangle has established a claim of bad
faith under the Missouri Uniform Fiduciaries Law.
Appellants having pleaded facts which, if proved, would entitle them
to relief, the lower courts' judgment of dismissal on appellants' claim in
Count III was in error.
COUNT IV
Count IV, provided, in relevant part:
The actions of the defendant Mark Twain Bank of St. Charles,
N.A. was [sic] in violation of the Uniform Fiduciary [sic] Law
of the State of Missouri as more fully set forth above; that
the same was done and performed by the defendant bank with the
knowledge and understanding that the effect of their loan
posture with
8
Count III clearly states a claim for relief based on bad
faith under the UFL against Mark Twain (Big Bend). It is less
clear whether Count III also makes out a claim for bad faith
against Mark Twain (St. Charles). Although focused on actions of
Mark Twain (Big Bend), Count III does incorporate by reference the
recitation in Count II of actions allegedly taken by Mark Twain
(St. Charles). Count III also alleges that there was an agreement
between the two branches of Mark Twain and Lauer to permit the two
banks to seize the collateral for the loans (alleged to be
partnership assets) for less than their value and that the various
actions of Mark Twain (St. Charles) and Mark Twain (Big Bend) were
taken pursuant to this agreement. Because the bankruptcy court did
not rule on this issue and the parties have not addressed it, we
defer judgment on this matter to the bankruptcy court in the first
instance.
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the debtor would be to deprive the plaintiffs of their security
interest in the assets of the partnership as pledged to said
bank . . . .
That as a result . . . the Court should void the transfer of
property made by the partnership to said defendant bank as
authorized by 11 U.S.C. § 548.
In this Count, appellants sought to void the transfer of partnership
property to Mark Twain Bank under Section 548 of the Bankruptcy Code.
Section 548 provides that certain pre-bankruptcy transfers are voidable if
made with intent to hinder, delay or defraud or if made in exchange for
less than reasonable value. 11 U.S.C. § 548.
The bankruptcy court entered judgment for Mark Twain on Count IV on
the ground that the appellants lacked standing to bring a claim under
§ 548. We agree that the appellants lacked standing to assert this claim
and accordingly affirm.
Section 548 by its terms provides that certain transfers by the
debtor prior to bankruptcy may be voided only by "the trustee."
11 U.S.C. § 548(a). Absent evidence that the trustee cannot be relied upon
to assert such claims, claims to avoid preferential transfers may not be
brought by creditors. The courts in this circuit have consistently
followed this rule and have held that individual creditors of the
bankruptcy estate do not have standing to assert claims of voidable
transfers. See, e.g., In re Minnesota Alpha Foundation, 122 B.R. 89
(Bankr. D. Minn. 1990); In re Auxano, Inc., 87 B.R. 72 (Bankr. W.D. Mo.
1988).
Because plaintiffs alleged no facts to support an inference that the
bankruptcy trustee was unable or unwilling to pursue claims on behalf of
the estate, they had no standing to bring a claim under Section 548. Thus,
we affirm the judgment of the lower courts on behalf of defendants on Count
IV of the complaint.
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In sum, we hold that: (1) the bankruptcy court erred as a matter of
law in holding that Count II was barred by the statute of limitations; (2)
the bankruptcy court erred as a matter of law in holding that Count III
failed to state a claim for relief; and (3) the bankruptcy court correctly
granted judgment for defendants on Count IV on grounds that the plaintiffs
lacked standing.
Accordingly the judgment of the district court affirming the decision
of the bankruptcy court is reversed as to Counts II and III and affirmed
as to Count IV. The case is hereby returned to the district court with
instructions to remand to the bankruptcy court for further proceedings not
inconsistent with this opinion.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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