In RE: MF Global Holdings Ltd.

Filing 18

OPINION AND ORDER: For the reasons stated herein, the decision of the Bankruptcy Court is AFFIRMED. The Clerk of Court is directed to amend the caption as reflected in this Opinion and to close the case. (As further set forth in this Opinion.) (Signed by Judge Lorna G. Schofield on 8/13/2015) (kgo)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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In re:
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MF GLOBAL INC.
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Debtor.
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AMERICAN BULLION EXCHANGE
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CORP.,
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Appellant,
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-against:
JAMES W. GIDDENS, as Trustee for the :
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SIPA Liquidation of MF Global Inc.,
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Appellee.
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #:
DATE FILED: 08/13/2015

14 Civ. 8155 (LGS)
OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge:
Appellant American Bullion Exchange Corp. (“ABEX” or “Appellant”) appeals from an
August 27, 2014, decision of the United States Bankruptcy Court for the Southern District of
New York (the “Bankruptcy Court”) sustaining the objection (the “Objection”) filed by Appellee
James W. Giddens, Trustee for the Securities Investor Protection Act (“SIPA”) Liquidation of
MF Global Inc. (the “MFGI Trustee” or “Appellee”) and expunging ABEX’s two general
creditor claims (the “Claims”) against MF Global Inc. (“MFGI”) on the grounds they are time
barred. For the following reasons, the Bankruptcy Court’s decision is affirmed.

BACKGROUND
Unless otherwise noted, the following facts are taken from Bankruptcy Judge Martin
Glenn’s opinion and order dated August 27, 2014 (the “Opinion”).
On October 18, 2007, ABEX opened an account with MFGI. The customer agreement
that the parties signed (the “Customer Agreement”) specified a one-year limitations period for
any claims arising out of the Customer Agreement: “No judicial, administrative, arbitration or
reparations proceeding may be commenced . . . more than one (1) year after any claim arises,
directly or indirectly, out of this Agreement or the transactions contemplated thereby.” The
Customer Agreement also contained a choice-of-law provision stating that Illinois law would
govern any such dispute.
On March 21, 2008, MFGI allegedly made an improper margin call on ABEX’s account.1
ABEX alleges that MFGI intentionally disregarded ABEX’s sell-stop orders and, without
ABEX’s authorization, entered purchase orders for gold totaling $20 million that overleveraged
the account. According to ABEX, on at least three occasions between March 26 and April 1,
2008, ABEX notified MFGI of the errors and asked for corrections to its account.
On April 23, 2008, ABEX initiated Chapter 7 bankruptcy proceedings in the Central
District of California. ABEX listed a $5 million claim against MFGI as an asset in a bankruptcy
schedule filed on May 7, 2008, but a report filed by the ABEX Chapter 7 Trustee on May 20,
2011, stated that the estate had no assets for distribution and the case had been fully
administered, thus abandoning the Claims. ABEX asserts that, on May 21, 2011, the ABEX

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The Opinion identifies March 21, 2008, as the date of the allegedly improper margin
calls, but ABEX identifies March 18, 2008, as the date in its brief. Whether the margin call took
place on March 18 or March 21, 2008, does not affect the outcome here, however, and the March
21 date is used hereinafter.
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Trustee abandoned the claim back to ABEX. The Bankruptcy Court closed the ABEX case on
May 24, 2011.
On January 30, 2012, in MFGI’s SIPA proceedings before the Bankruptcy Court, ABEX
filed the Claims at issue here against MFGI’s estate: (1) a general creditor claim seeking $5
million; and (2) a customer claim seeking $3.7 million. By stipulation, the parties converted the
customer claim to a general creditor claim. As it did below, Appellee asserts here that the
Claims are duplicative, and Appellant does not appear to argue to the contrary on appeal.
On July 18, 2014, the MFGI Trustee filed the Objection, seeking to disallow and expunge
the Claims. On August 8, 2014, Appellant filed its opposition to the Objection. On August 21,
2014, the Bankruptcy Court heard oral argument and, on August 27, 2014, issued the Opinion,
sustaining the Objection and expunging the Claims. The Bankruptcy Court held that (1) the
Claims’ one-year limitations period continued to run during ABEX’s bankruptcy proceedings
and (2) equitable tolling is inapplicable. This appeal followed.
STANDARD
When reviewing a bankruptcy court’s decision, this Court “accepts its factual findings
unless clearly erroneous but reviews its conclusions of law de novo.” In re Saint Vincents
Catholic Med. Ctrs. of N.Y., 449 B.R. 209, 213 (S.D.N.Y. 2011). Thus, the review of the
Bankruptcy Court’s opinion here is de novo.
DISCUSSION
The Bankruptcy Court correctly held that (1) the Claims’ limitations period continued to
run during ABEX’s bankruptcy and (2) equitable tolling is inapplicable to the Claims. The
Bankruptcy Court’s ruling is affirmed.

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I.

TIMELINESS OF THE CLAIMS
As the statute of limitations continued to run on ABEX’s pre-bankruptcy claims against

MFGI even after ABEX’s bankruptcy filing, the Bankruptcy Court properly held that the Claims
are time barred.
When a party declares bankruptcy, with few exceptions, “all ‘legal and equitable interests
of the debtor in property as of the commencement of the [bankruptcy] case” become property of
the bankruptcy estate, represented by the bankruptcy trustee. 11 U.S.C. § 541. Causes of action
possessed by the debtor or arising from the debtor’s property when the bankruptcy petition is
filed become property of the bankruptcy estate. See In re Jackson, 593 F.3d 171, 176 (2d Cir.
2010). Under Chapter 7 of the Bankruptcy Code, a debtor does not have standing to pursue such
causes of action unless the trustee abandons the claim. See Olick v. Parker & Parsley Petroleum
Co., 145 F.3d 513, 515 (2d Cir. 1998) (holding that Chapter 13 debtors -- unlike Chapter 7
debtors -- have standing to pursue causes of action that are part of bankruptcy estate); see also
First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 176 n.16 (2d Cir. 2004) (noting
that, unlike Chapter 13, Chapter 7 “provides for the appointment of trustee who is charged with
administering the bankruptcy estate and overseeing the liquidation of the debtor’s assets”). Even
when the trustee declines to prosecute a claim, no other party may assert that claim without first
petitioning the bankruptcy court for an order authorizing abandonment of the property. See
Seward v. Devine, 888 F.2d 957, 963 (2d Cir. 1989) (remanding debtors’ claims to district court
to determine if trustee properly effected abandonment of claims, such that debtors had standing
to pursue action).
As the allegedly improper margin call was placed on March 21, 2008 -- absent the
application of any tolling principles -- the terms of the Customer Agreement required that ABEX

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commence any judicial action arising from the margin call no later than March 21, 2009.
Nevertheless, Appellant filed the Claims on January 30, 2012 -- nearly three years after the end
of the limitations period.
Absent any statutory exception, the statute of limitations on a debtor’s pre-bankruptcy
claim continues to run after the debtor’s bankruptcy petition. See, e.g., In re Dawnwood
Props./78, 209 F.3d 114, 117 (2d Cir. 2000) (affirming dismissal of adversary proceeding
initiated by debtor as time barred and including duration of bankruptcy proceedings in statute of
limitations calculation); In re GNK Enters., Inc., 197 B.R. 444, 446 (Bankr. S.D.N.Y. 1996)
(dismissing debtor’s fraud, negligence and contract claims as time barred, reasoning that
neither § 108(a) nor any other provision of Bankruptcy Code extended limitations periods on
debtor’s claim); cf. In re O.E.M./Erie, Inc., 405 B.R. 779, 787 (Bankr. W.D. Pa. 2009) (“[I]f at
the time the bankruptcy petition is filed the statute of limitations on a cause of action has not yet
lapsed, 11 U.S.C. § 108(a) gives the trustee the ability to still bring suit on that cause of action
by tolling that statute of limitations for a period of two years after the order for relief is entered.”
(emphasis added)). Accordingly, ABEX’s claims here are time barred.
ABEX argues that the limitations period should be tolled during the pendency of its
bankruptcy proceedings, which spanned a total of 1,122 days from April 23, 2008 through May
20, 2011. Therefore, ABEX contends, only 292 days had run on the Claims’ one-year
limitations period when it filed the Claims. Citing the “rule of reversion,” ABEX argues that
when its bankruptcy proceedings commenced on April 23, 2008, “ABEX no longer had title to
the [Claims] and thus the limitations period did not run until the claim was abandoned [by the
ABEX Trustee back to ABEX] on May 20, 2011.” This argument is incorrect.

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As a threshold matter, the “rule” of reversion is a principle of equity that courts are not
bound to apply. See Barletta v. Tedeschi, 121 B.R. 669, 674 (N.D.N.Y. 1990) (“Th[e] rule of
reversion is a legal fiction invented by the courts to aid them in achieving a just result.” (citing
Rosenblum v. Dingfelder, 111 F.2d 406, 409 (2d Cir. 1940)); see also In re Hat, 363 B.R. 123,
141 (Bankr. E.D. Cal. 2007) (noting that reversion “is not a categorical imperative, to be blindly
followed to a result that is unjust” and that the “Supreme Court itself ha[s] not so followed” the
rule (citation omitted)). Appellant offers no authority -- and the Court can find none -- to support
the proposition that the “rule of reversion” broadens the scope of § 108(a) to statutes of
limitations as applied to debtors. Section 108(a) by its terms specifies the time in which the
trustee, not the debtor, may commence an action: “If . . . an agreement fixes a period within
which the debtor may commence an action, and such period has not expired before the date of
the filing of the [bankruptcy] petition, the trustee may commence such action only before the
later of - (1) the end of such period . . . or (2) two years after the order for relief.” 11 U.S.C.
§ 108(a) (emphasis added); see also In re Chenault, No. BKR 09-91786, 2010 WL 797015, at *3
(Bankr. C.D. Ill. Mar. 4, 2010) (“The plain language of § 108 unequivocally limits the right to
extend the statute of limitations to the trustee.” (citation omitted)). “[H]ad Congress intended to
extend the statute of limitations for a bankruptcy debtor’s claims generally, as opposed to in the
limited circumstance where a bankruptcy trustee brings a claim during pendency of bankruptcy
proceedings, it clearly knew how to do so.” Roach v. Option One Mortg. Corp., 598 F. Supp. 2d
741, 756 n.24 (E.D. Va. 2009) (discussing explicit reference in § 108(a) to claims commenced by
trustee and explicit reference in § 108(c) to claims brought against debtor).
Most important, however, ABEX’s argument finds no support in case law. The cases it
does cite are inapposite. See Brown v. O’Keefe, 300 U.S. 598, 602-03 (1937) (addressing

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reversion of title of abandoned assets -- not statutes of limitations); Rosenblum, 111 F.2d at 409
(same) (citing Brown, 300 U.S. at 602); Barletta, 121 B.R. at 674 (holding that, where debtor
had timely filed claims, “[d]ismissing the plaintiff’s claim for lack of standing here would create
the inequitable result of extinguishing the plaintiff’s claim through the inaction of the trustee,
who did not intend to pursue the claim but did not abandon it, while at the same time preventing
the plaintiff from taking action until it was too late”).
Accordingly, the Bankruptcy Court properly held that the Claims are time barred.
II.

EQUITABLE TOLLING
As ABEX has not presented any grounds for equitable tolling, the Bankruptcy Court

properly declined to apply it.
It is well established that “[e]quitable tolling . . . require[s] due diligence on the part of
the claimant.” Williams v. Bd. of Review, 241 Ill. 2d 352, 372 (2011); accord Credit Suisse Sec.
(USA) LLC v. Simmonds, 132 S. Ct. 1414, 1419 (2012) (stating that “under “long-settled
equitable-tolling principles. . . . a litigant [must establish] . . . that he has been pursuing his
rights diligently . . . .” (quoting Pace v. DiGuglielmo, 544 U.S. 408, 418 (2005))); In re Dec, 272
B.R. 218, 224 (Bankr. N.D. Ill. 2001) (“Under [the equitable tolling] doctrine, a plaintiff may
avoid the bar of a statute of limitations if despite all due diligence on its part, it is unable to
obtain vital information bearing on the existence of its claim.”). Where a bankruptcy trustee has
failed to assert claims that the debtor wishes to be prosecuted, the debtor may, in the exercise of
due diligence, “petition the bankruptcy court to compel the trustee to either bring suit or abandon
the claim.” Mitchell Excavators, Inc. v. Mitchell, 734 F.2d 129, 132 (2d Cir. 1984) (citing
Dallas Cabana, Inc. v. Hyatt Corp., 441 F.2d 865, 868 (5th Cir. 1971)).

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ABEX does not dispute that it failed to file any such petition during its bankruptcy
proceedings, and ABEX’s pre-bankruptcy communications to MFGI that it intended to arbitrate
the Claims do not on their own satisfy the diligence requirement. Cf. Polis v. Getaways, Inc.,
No. 98 C 1808, 2001 WL 185481, at *2 (N.D. Ill. Feb. 26, 2001) (holding that debtor’s claims
were time barred where debtor did not petition bankruptcy court to compel trustee to file suit or
abandon claim). In other words, ABEX “is bound by [its] own inaction and this court cannot
now afford [ABEX] any relief.” Polis, 2001 WL 185481, at *2; accord Obriecht v. Foster, 727
F.3d 744, 750 (7th Cir. 2013) (noting that equitable tolling requires petitioner to demonstrate
that, in the “more than two years” between statutory deadline and actual filing of petition, “he
was diligently pursuing his claims”).
ABEX’s remaining arguments also fail. First, ABEX argues that, although it could have
petitioned the ABEX Trustee to abandon the Claims, “such a request ‘is not a guarantee of
abandonment.’” This argument is unavailing as ABEX does not identify a single action that it
took during the pendency of its bankruptcy proceedings to preserve its claims against MFGI.
The fact that ABEX chose not to take action because it doubted its chances of success does not
excuse its failure to exercise diligence. Cf. In re Estate of Mondfrans, 9 N.E.3d 1, 6 (Ill. App.
2014) (in probate proceeding, holding that petition to renounce wife’s will filed by husband’s
representative was untimely, where husband’s representatives “had time to preserve [husband’s]
right to renounce [wife’s] will while he was alive” but did not do so).
Second, ABEX’s argument that it was prevented from asserting its legal rights during the
limitations period by virtue of its “legal disability” -- or lack of standing to pursue the Claims
during bankruptcy -- is rejected. Although ABEX itself may have been unable to pursue the
Claims, the ABEX Trustee had standing to pursue the Claims on ABEX’s behalf throughout

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ABEX’s bankruptcy proceedings, and ABEX could have petitioned the Trustee to do so. See,
e.g., In re Mediators, Inc., 105 F.3d 822, 827 (2d Cir. 1997) (holding that bankruptcy trustee
may pursue breach of fiduciary duty claim on behalf of debtor). Thus, ABEX was “not in the
same situation as an incapacitated individual without a legal representative.” In re Marshall, 307
B.R. 517, 523 (Bankr. E.D. Va. 2003).
The Bankruptcy Court therefore properly declined to apply equitable tolling to ABEX’s
claims.
CONCLUSION
For the reasons stated, the decision of the Bankruptcy Court is AFFIRMED. The Clerk
of Court is directed to amend the caption as reflected in this Opinion and to close the case.
SO ORDERED.
Dated: August 13, 2015
New York, New York

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