A Trustee’s New Claims Did Not Qualify “Relation Back” Under Rule 15(c), Barred by the Statute of Limitations
January 22, 2021, Northern District of Illinois - Ronald Peterson, as a Chapter 7 Trustee of two Debtors, Mack Industries Ltd. and Oak Park Avenue Realty, Ltd., brought a clawback action against Defendants Timothy Urquhart and Russet Way Country Club Hills, LLC.
Later on, the Trustee filed an amended complaint to add 154th Street South Holland, LLC (“South Holland”) as a Defendant and sought to recover completely different transfers. South Holland moved to dismiss the amended complaint on the basis that it was filed after the statute of limitations expired and that it did not "relate back" to the filing of the original complaint.
The Court stated that under Rule 15(c)(1)(C), an amended complaint that adds a new party "relates back" to the original complaint if three requirements are met:
(1) Rule 15(c)(1)(B) is satisfied, and, during the period provided by Rule 4(m) for serving the summons and complaint;
(2) The new party "received such notice of the action that it will not be prejudiced in defending on the merits," and
(3) The new party "knew or should have known that the action would have been brought against it, but for a mistake concerning the property party's identity”.
The Court found that - While the Trustee satisfied the second element regarding notice period, he could not satisfy the third element - "the added defendant knew or should have known that the action would have been brought against it but for a mistake concerning the proper party's identity". The new claims against South Holland, therefore, did not "relate back" to the original complaint and were barred by the statute of limitation.
The Court highlighted that the Trustee failed to identify a single allegation in the original complaint that should have led South Holland to believe that, but for a "mistake concerning the proper party's identity," it would have been named as a defendant. The complaint was almost devoid of specific factual allegations to support the claims against either named defendant.
The Court added that the Trustee filed the adversary proceeding (along with more than 400 other cookie-cutter complaints) a few days before the statute of limitations expired with a complaint that contained almost no specific facts about the defendants, their course of dealings with the debtors, or the basis for their liability. That grossly inadequate pleading did not provide notice to South Holland that the Trustee would attempt to recover 42 transfers not identified in the original complaint that was made to another party during a different timeframe.
Thus, the Court concluded that the Trustee did not meet the third requirement in Rule 15(c)(1)(C)(ii). The Court granted South Holland's motion to dismiss.
Peterson v. Urquhart (In re Mack Indus.), Nos. 17 B 09308, 19 A 00254, 2021 Bankr. LEXIS 115 (Bankr. N.D. Ill. Jan. 19, 2021)