Document Type
Research Memorandum
Publication Date
2017
Abstract
(Excerpt)
Section 541 of the United States Bankruptcy Code (the “Code”) provides in part that the debtor’s estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” The debtor’s interests include “whatever causes of action the debtor may have possessed prior to the petition date.” In certain circumstances, a creditor may obtain the right to bring claims of the debtor. In such a case, generally the creditor is stepping into the shoes of the debtor, and the creditor is subject to all defenses proffered by the defendant that would apply had the debtors themselves instituted the action. Thus, if the debtors were precluded from bringing a claim because of a statute of limitations defense, the creditors would also be barred from bringing the same claim. Ultimately, solely the knowledge of the debtor, not the creditor suing on behalf of the debtor’s estate, is germane to a statute of limitations analysis, as evidenced by the case of In re AMC Inv’rs LLC, 551 B.R. 148, 155 (Bankr. D. Del. 2016), which addressed a creditor’s knowledge of alleged breaches of fiduciary duties by officers and directors.
When considering the knowledge of the debtor in the context of a statute of limitations analysis, the statute will begin to run when the plaintiff discovers, or by “reasonable diligence should have discovered his injury.” The Third Circuit set forth a three-step analytical framework to scrutinize whether a party is under inquiry notice. The analysis includes the “(1) precise nature of the claims now being asserted, (2) whether an objectively reasonable person would have realized the need to investigate further, and (3) what information such an inquiry would have disclosed.” If a Plaintiff is not under inquiry notice and has no knowledge of the claim during the applicable statute of limitations, tolling mechanisms may apply.