DII Northwest LLC v. Carey (In Re National Jockey Club)
451 B.R. 825
Bankr. N.D. Ill.2011Background
- Debtor National Jockey Club operated Sportsman's Park; plaintiff DII Northwest LLC asserts claims in Debtor's Chapter 11 case.
- Defendant Thomas Carey III served as HNL president, manager, and board member; all HNL funds were controlled by Carey and later Timothy Carey.
- Operating Agreement restricted contracts over $100,000 and term length; alterations were allegedly made without approvals totaling $1.2 million.
- Plaintiff alleges unauthorized expenditures and seeks turnover of estate property under §542(a); arbitration resolved the tie on a related board resolution but did not issue a monetary judgment.
- Complaint attached the Operating Agreement and arbitration award; plaintiff seeks to hold Carey liable for misappropriation and fiduciary breach.
- Court grants dismissal with prejudice on both counts for failure to show funds were property of the estate or actionable breach/time-barred.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Turnover viability under §542(a) | Plaintiff claims $1.2M misappropriated funds are estate property | No money judgment; resolution not a payment obligation | Count I dismissed with prejudice; no estate property to turnover |
| Breach of fiduciary duty statute of limitations | Continuing wrong theory tolls limitations | Single discrete act; discovery rule does not save claim | Count II dismissed as time-barred under 5-year period |
| Standing to assert Count II | Plaintiff has derivative/rightful standing under estate claims | Standing not established; moot due to time-bar | Not reached; Count II dismissed on timeliness |
Key Cases Cited
- E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773 (7th Cir. 2007) (pleading must plausibly suggest entitlement to relief under Twombly)
- Krol v. Crosby (In re Mason), 386 B.R. 715 (Bankr.N.D.Ill. 2008) (turnover not available to obtain property debtor did not have at filing)
- Midway Aircraft Eng'g., Inc. v. American Airlines, Inc. (In re Midway Airlines), 221 B.R. 411 (Bankr.N.D.Ill. 1998) (turnover remedy not for asserting disputed rights)
- Sokol v. Mass. Mut. Life Ins. Co. (In re Sardo Corp.), 95 A. 01620, 1996 WL 362756 (Bankr.N.D.Ill. 1996) (turnover not a substitute for breach of contract/fiduciary remedy)
- In re marchFIRST Inc., 589 F.3d 901 (7th Cir. 2009) (breach of fiduciary duty not an ongoing wrong; discovery rule discussed)
- U.S. v. Whiting Pools, Inc., 462 U.S. 198 (1983) (definition of property of the estate under §541; broad interpretation)