Sender v. Dillow et al

Filing 14

MEMORANDUM AND ORDER denying 7 Motion to Dismiss by defendants; granting 13 Motion for Leave to File a surreply brief by plaintiff. Signed by District Judge Richard D. Rogers on 8/30/2013. (daw)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
HARVEY SENDER, in his capacity
as Receiver,

)
)
)
)
)
)
)
)
)
)
_

Plaintiff,
v.
JEFFREY R. DILLOW and
ANN DILLOW CROWLEY,
Defendants.

Case No. 13-2170-RDR

MEMORANDUM AND ORDER
This is an action brought by a receiver to recover funds
for

the

benefit

of

the

receivership

estate.

The

court

has

diversity jurisdiction in this matter pursuant to 28 U.S.C. §
1332.
dismiss

This case is before the court upon defendants’ motion to
upon

Defendant’s
fraudulent
claim.

statute

of

limitations

argumentation
transfer

claims

focuses
and

grounds.

upon

Doc.

plaintiff’s

plaintiff’s

unjust

No.

7.

statutory
enrichment

For the reasons which follow, the court finds that there

is an issue of equitable tolling which prevents dismissal of
plaintiff’s
plaintiff’s

statutory
unjust

fraudulent

enrichment

transfer

action

pursuant to the Kansas saving statute.

should

claims

and

not

dismissed

be

that

Also pending before the

court is plaintiff’s motion for leave to file a surreply brief.
Doc. No. 13.

That motion shall be granted.

I.

FACTUAL BACKGROUND
Plaintiff is the receiver for the Yost Partnership, LP,

which

operated

as

an

investment

partnership.

appointed by a state court in Colorado.

Plaintiff

was

The Yost Partnership

was an Illinois limited partnership with its principal place of
business in Chicago, Illinois.
The

Yost

Partnership

started

legitimately for many years.

in

1991

and

operated

It is alleged and undenied for the

purposes of this order that sometime in 2005 and thereafter the
Yost Partnership began operating as a Ponzi scheme in response
to major trading losses.

The partnership was enjoined after

September 8, 2010 when the Securities Commissioner for the State
of Colorado filed a complaint.
Plaintiff
funds

were

has

brought

wrongly

this

distributed

action
from

alleging

the

Yost

that

certain

Partnership

to

defendants, although there are no allegations that defendants
were

part

of

the

Ponzi

scheme.

Defendants’

father,

Dillow, invested money in the Yost Partnership in 1997.

Byron

He died

in 2002 and his interest in the Yost Partnership was inherited
by defendants’ mother, Sara Dillow.

When she died in 2008,

defendants inherited their interest in the Yost Partnership from
her.

Defendants are two children of Byron and Sara Dillow and

are Kansas residents.

A third child is an Illinois resident and

is a party to similar litigation filed in Illinois, but not a
party to this action.
2

The complaint alleges that between March 31, 2005 and the
receivership commencement date, the Yost Partnership distributed
funds in excess of $270,000 of the true capital account value of
the interest held by defendants’ mother and that these funds
were inherited by her children.

It is undisputed that money was

transferred from the Yost Partnership to defendants on February
20, 2009, February 24, 2009 and April 8, 2009.

Plaintiff was

appointed as receiver on September 14, 2010.
This lawsuit was filed on April 10, 2013, more than four
years

after

lawsuit,

the

last

plaintiff

money

filed

transfer.

suits

upon

Prior
the

to

same

facts

defendants in Colorado and Illinois state courts.
case

was

filed

on

August

17,

prejudice on February 6, 2012.
January

30,

2012.

It

was

2011

and

filing

this

against

The Colorado

dismissed

without

The Illinois case was filed on
dismissed

for

lack

of

personal

jurisdiction as to the defendants in this case on October 25,
2012.
II.

PLAINTIFF’S CLAIMS AND DEFENDANTS’ ARGUMENTS
Plaintiff seeks a declaratory judgment in Count I of the

complaint.
requests

In Count II, plaintiff alleges unjust enrichment and

that

the

court

impose

alleged excess distributions.

a

constructive

trust

on

the

Plaintiff asks for similar relief

under the terms of the receivership order in Count III.

In

Counts IV and V plaintiff alleges fraudulent transfer (fraud in
fact and constructive fraud) in violation of Kansas and Illinois
3

fraudulent transfer statutes.

These statutes, which are more or

less the same, are based upon the Uniform Fraudulent Transfer
Act or “UFTA.”

Defendants contend that the longest limitations

period for any of plaintiff’s claims is four years and, since
plaintiff filed this action more than four years after the last
money transfer on April 8, 2009, that plaintiff’s claims are
untimely

filed.

focuses

upon

As

stated

plaintiff’s

before,

defendants’

fraudulent

argumentation

transfer

and

unjust

enrichment claims.
III.

MOTION TO DISMISS STANDARDS
Defendants do not identify what rule they believe governs

their motion to dismiss.

The court will apply the standards of

FED.R.CIV.P. 12(b)(6), with some leeway for facts which seem
undisputed although they are not contained in the complaint.
accept

as

true

all

well-pleaded

factual

allegations

in

We
the

complaint and view them in a light most favorable to plaintiff.
Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)
cert. denied, 558 U.S. 1148 (2010).
is an affirmative defense.

The statute of limitations

Aldrich v. McCulloch Props., Inc.,

627 F.2d 1036, 1041 n.4 (10th Cir. 1980).
limitations

defense

in

a

Rule

12(b)

Defendant can raise a
motion

when

the

dates

alleged in the complaint make clear that the right sued upon has
been extinguished.

The court should not focus upon whether the

allegations in the complaint show compliance with the statute of
limitations, but whether the allegations in the complaint show
4

noncompliance.

See

Jones

v.

Bock,

549

U.S.

199,

215

(2007)(complaint need not include facts defeating affirmative
defense of administrative exhaustion); Cancer Foundation, Inc.
v.

Cerberus

Capital,

559

F.3d

671,

(7th

674-75

Cir.

2009)(a

limitations defense should not be considered upon a motion to
dismiss unless plaintiff pleads himself out of court by alleging
facts establishing the defense).
As

equitable

appropriate

to

tolling

note

that

is

argued

“generally,

in

this

the

case,

it

is

applicability

of

equitable tolling depends on matters outside the pleadings, so
it is rarely appropriate to grant a Rule 12(b)(6) motion to
dismiss (where review is limited to the complaint) if equitable
tolling is at issue.”

Huynh v. Chase Manhattan Bank, 465 F.3d

992, 1003-04 (9th Cir. 2006).
Although some of the facts relevant to the arguments in
this case do not appear in the complaint, plaintiff has not
objected to the motion to dismiss on this ground.

As these

facts appear undisputed, for the purposes of expediency, the
court

will

proceed,

where

we

can,

to

decide

the

motion

to

dismiss without going through the step of converting it to a
summary judgment motion.
IV.

CHOICE OF LAW
A.

Substantive law

Federal courts that sit in diversity apply “the choice of
law principles of the state in which it sits.”
5

Lyons v. Kyner,

367 Fed.Appx. 878, 882 (10th Cir. 2/10/2010)(quoting

Morrison

Knudsen Corp. v. Group Improvement Techniques, Inc., 532 F.3d
1063, 1077 n.12 (10th Cir. 2008).

Kansas courts follow the rule

of lex loci delecti or “place of the wrong” in deciding the
substantive law to apply.
Building

Systems,

See Andy’s Towing, Inc. v. Bulldog

Inc.,

2011

WL

2433679

*5-6

(D.Kan.

6/14/2011)(applying rule to determine whether Oregon or Kansas
consumer fraud statutes should be applied); see also, Hermelink
v.

Dynamex

(D.Kan.

Operations

2000)(in

a

East,

tort

Inc.,

action,

109

F.Supp.2d

“[w]hen

a

1299,

plaintiff

1303

alleges

financial injury, the court looks to the law of the state in
which the plaintiff felt that financial injury”).

Here, it

appears that Illinois is the place of the wrong.

The money

which the receiver seeks to recover was transferred from the
Yost Partnership in Illinois.
substantive law.

So, the court will apply Illinois

The parties appear in agreement with this

finding.
B.

Limitations periods

“Kansas

.

.

.

generally

applies

limitations to actions before it.”

its

own

action

is

‘incorporates

based
a

on

a

limitations

.

.

period

of

Garcia v. Int’l Elevator

Co., Inc., 358 F.3d 777, 779 (10th Cir. 2004).
of

statutes

.

But, “if a cause

non-Kansas
for

suit,’

statute
that

that

statutory

time restriction is considered ‘substantive in nature’ and will
be considered controlling.”

Garcia, supra (quoting
6

Muzingo v.

Vaught, 859 P.2d 977, 980 (1993)).

“[I]f the cause of action

arose

Kansas

in

another

Kan.Stat.Ann.

§

jurisdiction,
60-516,

the

requires

borrowing

application

of

statute,

the

other

jurisdiction’s statute of limitations if it would result in the
action being time-barred.”

Id.

The Illinois UFTA statute has its own limitations period.
Therefore,
expressed

under
in

the

Garcia,

above-stated
the

court

Kansas
shall

provisions of the Illinois statute.1
that:

choice

apply

the

of

law

rule

limitations

These provisions state

“A cause of action with respect to a fraudulent transfer

or obligation under this Act is extinguished unless action is
brought: [regarding transfers made with actual intent to hinder
delay or defraud any creditor of the debtor] . . . within 4
years after the transfer was made or the obligation was incurred
or, if later, within one year after the transfer or obligation
was or could reasonably have been discovered by the claimant;
[or regarding transfers amounting to constructive fraud] within

1
The court shall also apply the tolling rules of Illinois.
See
Warfield v. Carnie, 2007 WL 1112591 *15 (N.D.Tex. 4/13/2007)(Texas federal
court applying Washington statute of limitations and tolling rules in an UFTA
action brought by a receiver); see also Board of Regents v. Tomanio, 446 U.S.
478, 483-84 (1980)(borrowing state statute of limitations and tolling rules
for federal cause of action).
2
A cause of action for unjust enrichment in Illinois is governed by
Illinois' five-year statute of limitations.
Apollo Real Estate Inv. Fund,
IV, L.P. v. Gelber, 935 N.E.2d 949, 957 (Ill. App. 2009)(citing 735
ILL.COMP.STAT. 5/13–205 (West 2006)).
Thus, the court need not apply the
provisions of K.S.A. 60-516 requiring application of another jurisdiction’s
statute of limitations if the cause of action arising in that jurisdiction
would be expired.

7

4

years

after

incurred.”

the

transfer

was

made

or

the

obligation

was

740 ILL.COMP.STAT. 160/10(a)&(b).

Illinois does not have an unjust enrichment statute with
its own limitations period.2

Therefore, the court shall apply

the Kansas limitations period for unjust enrichment claims to
plaintiff’s unjust enrichment action.
V.

STATUTORY FRAUDULENT TRANSFER CLAIMS
Plaintiff’s fraudulent transfer claims are controlled by

the

Illinois

UFTA

and

the

above-recited

limitations

periods.

There appears to be no dispute that the transfers in question in
this case were made more than four years before plaintiff filed
this action.

It also appears undisputed that plaintiff could

have reasonably discovered the transfers within one year of his
appointment
plaintiff’s

as

receiver

claims

are

in

September

untimely

under

2010.
the

Therefore,

Illinois

statute

unless some grounds exist to toll the running of the four-year
limitations periods.
Defendant contends that the four-year limitations periods
are

statutes

of

equitable tolling.
statutes

of

repose

and,

therefore,

are

not

subject

to

In Illinois, however, it appears that even

repose

have

been

interpreted

circumstances as open to equitable tolling.

under

some

In In re Werner,

386 B.R. 684, 698-9 (Bkrtcy.N.D.Ill. 2008) the court held that
the Illinois UFTA statute of limitations at 740 ILL.COMP.STAT.

8

160/10(a)(1) should not be construed as a statute of repose.
The

court

further

decided

that

even

if

it

was

considered

a

statute of repose that the Illinois Supreme Court has applied
tolling provisions to statutes of repose in such cases as DeLuna
v. Burciaga, 857 N.E.2d 229 (Ill. 2006).

So, the court shall

consider plaintiff’s equitable tolling arguments.3
Plaintiff
tolling.
periods

has

cited

two

separate

grounds

for

equitable

First, plaintiff contends that the 4-year limitations
should

domination.

be

tolled

under

the

doctrine

of

adverse

The Seventh Circuit has stated that the doctrine of

adverse domination “’tolls the statute of limitations for claims
by a corporation against its officers and directors while the
corporation
directors.’”

is

controlled

by

those

wrongdoing

officers

or

Independent Trust v. Stewart Information Services

Corp., 665 F.3d 930, 935 (7th Cir. 2012)(quoting Lease Resolution
Corp. v. Larney, 719 N.E.2d 165, 170 (Ill.App. 1999)).

“’The

rationale behind [the] doctrine is “that control of the board by
wrongdoers precludes the possibility for filing suit since these
individuals cannot be expected to sue themselves or initiate
action contrary to their own interests.”’”
3

Id. (quoting Larney,

Defendants also contend that where the cause of action is statutory,
equitable tolling is unavailable. We reject this contention. See Belleville
Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 770 N.E.2d 177, 188-90
(Ill. 2002)(determining whether limitations period for statutory claim is an
element of a claim or an ordinary limitations period is a matter of statutory
construction); Ralda-Sanden v. Sanden, 989 N.E.2d 1143, 1147-49 (Ill.App.
2013)(applying equitable tolling to action filed under state Parentage Act);
see also, Burnett v. New York Cent. R. Co., 380 U.S. 424, 427 n.2
(1965)(“that the right and limitation are written into the same statute does
not indicate a legislative intent as to whether or when the statute of
limitations should be tolled”).

9

supra, quoting FDIC v. Greenwood, 739 F.Supp. 450, 453 (C.D.Ill.
1989)).

In Independent Trust, the Seventh Circuit held that

Illinois courts would not extend the adverse domination doctrine
to toll the limitations period for claims made against persons
who were not wrong-doing directors or co-conspirators.

As the

court explained, “the Larney court made clear that a plaintiff’s
allegations must establish that the defendant was complicit in
the

wrongdoing

doctrine

to

of

toll

the
the

directors
statute

(emphasis in the original).

of

for

the

adverse

limitations.”

domination
Id.

at

937

There are no such allegations here.

Therefore, the court does not believe adverse domination should
be

recognized

as

tolling

the

Illinois

UFTA

statute

of

limitations.
Plaintiff also alleges that equitable tolling is proper in
this case because plaintiff previously filed this action against
defendants in other courts, but the cases were dismissed without
prejudice

for

lack

of

personal

jurisdiction.

Timely

but

mistakenly filing a case in the wrong forum is recognized in
Illinois as a legitimate ground in support of equitable tolling.
Clay v. Kuhl, 727 N.E.2d 217, 223 (Ill. 2000).

Whether it is a

sufficient ground to support equitable tolling depends upon the
facts of the case.
(N.D.Ill.
issues

to

pleadings);

See Tamayo v. Hamer, 256 F.R.D. 175, 177-78

2009)(deferring
later

stage

Central

limitations
than

States,

motion
Southeast
10

and

equitable

tolling

for

judgment

on

and

Southwest

the
Areas

Pension Fund v. St. Louis Post-Dispatch, LLC, 2007 WL 2492084 *4
(N.D.Ill.

8/28/2007)(equitable

tolling

issue

turns

which cannot be decided upon a motion to dismiss).

on

facts

This is a

matter which the court cannot determine upon a motion to dismiss
given the record and allegations currently before the court.
Accordingly, the court shall not dismiss plaintiff’s claims
under the Illinois UFTA.
VI.

UNJUST ENRICHMENT
In response to defendants’ motion to dismiss, plaintiff has

argued

that

the

Kansas

saving

state

applies

to

extend

the

limitations period for plaintiff’s unjust enrichment claim.

The

court agrees with this analysis.
Unjust enrichment claims in Kansas are governed by a threeyear

limitations

period

found

in

K.S.A.

60-512.

Estate

of

Draper v. Bank of America, N.A., 205 P.3d 698, 715 (Kan. 2009).
The three-year period expired while plaintiff’s claims against
defendants were pending in Illinois

state court.

Under the

Kansas saving statute, K.S.A. 60-518, plaintiff may commence a
new action within six months, if any action timely commenced
fails upon grounds other than the merits.

Plaintiff filed this

case against defendants within six months of the dismissal of
plaintiff’s claims against defendants in the Illinois case.
Defendants argue that the court should not recognize an
independent cause of action for unjust enrichment because the

11

statutory action under the Illinois UFTA occupies the field.4
Defendants note that the statute reads broadly that “a cause of
action with respect to a fraudulent transfer or obligation under
this act is extinguished unless action is brought . . .” within
the

limitations

periods

ILL.COMP.STAT. 160/10.

set

forth

in

the

statute.

740

Defendants contend that this means that

all causes of action with respect to fraudulent transfers are
governed

by

the

Illinois

limitations periods.

UFTA

statute

and

its

four-year

The Illinois UFTA also states, however,

that:
Unless displaced by the provisions of this Act, the
principles of law and equity, including the law
merchant and the law relating to principal and agent,
estoppel, laches, fraud, misrepresentation, duress,
coercion, mistake, insolvency and other validating or
invalidating cause, supplement its provisions.
740 ILL.COMP.STAT. 160/11.
by

other

courts

as

This provision has been interpreted

preserving

common

relating to fraudulent transfers.

law

causes

of

action

See In re Valente, 360 F.3d

256, 260-61 (1st Cir. 2004); Cavadi v. DeYeso, 941 N.E.2d 23, 3536

(Mass.

Securities,

2011);
LLC,

see

2013

also
WL

Taylor

3166336

*9

v.

Community

(S.D.Tex.

Bankers

6/20/13)(UFTA

claim and unjust enrichment claim brought by receiver); Silica
Tech, LLC v. J-Fiber, GmbH, 2009 WL 2579432 *35-36 (D.Mass.

4

Defendants also state that it is unclear whether a stand-alone claim
for unjust enrichment is recognized under Illinois law.
The court finds,
however, that Illinois does recognize a stand-alone claim for unjust
enrichment. Cleary v. Philip Morris Inc., 656 F.3d 511, 516 (7th Cir. 2011);
Handler v. Heidenry, 2012 WL 2396615 *4 (N.D.Ill. 6/25/2012)(allowing such a
claim in an action brought by a receiver).

12

5/19/2009)(recognizing

the

equitable

remedy

for

fraudulent

conveyance in Massachusetts).
There is contrary authority.
F.Supp.2d

871,

878-79

See Donell v. Keppers, 835

(S.D.Cal.

2011);

Roach

v.

Lee,

369

F.Supp.2d 1194, 1198-99 (C.D.Cal. 2005); Moore v. Browning, 50
P.3d 852, 857-58

(Ariz.App. 2002);

S.W.3d 345, 353 (Tex.App. 2004).

Cadle Co. v. Wilson, 136

But, it should be noted that

in California the UFTA statute is somewhat different from the
Illinois

UFTA

statute.

The

California

version

states,

in

addition to the four-year limitations provisions contained in
the Illinois statute:
Notwithstanding any other provision of law, a cause of
action with respect to a fraudulent transfer or
obligation is extinguished if no action is brought or
levy made within seven years after the transfer was
made or the obligation was incurred.
CAL. CIV. CODE § 3439.09(c).

The Illinois statute does not

contain language which “[n]otwithstanding any other provision of
law” extinguishes actions for fraudulent transfer if they are
not brought within a seven-year period.
After

due

consideration,

the

court

shall

predict

that

Illinois courts would find in light of 740 ILL. COMP. STAT.
160/11
unjust

that

the

Illinois

enrichment

claims

UFTA

statute

relating

transfers.

13

does

to

not

alleged

preempt

all

fraudulent

VII.

CONCLUSION
Consistent with the discussion set forth above, the court

shall deny defendants’ motion to dismiss.

Plaintiff is granted

leave to file a surreply brief, Exhibit A to Doc. No. 13, which
the court has considered in rendering this decision.
IT IS SO ORDERED.
Dated this 30th day of August, 2013, at Topeka, Kansas.

s/Richard D. Rogers
United States District Judge

14