Opinion
Case No. 97-CV-750
January 28, 2003
OPINION AND ORDER
I. INTRODUCTION
This matter is before the Court on the Motion of Defendants Richard Durst ("Durst") and Steven Russi ("Russi") to Dismiss the claims asserted against them in the Plaintiffs' Amended Complaint. The Plaintiffs filed an Amended Complaint in this action on June 21, 2002. In their Amended Complaint, they added Durst and Russi as party Defendants, and asserted claims against them for breach of fiduciary duty. The Defendants now seek to have those claims dismissed on two alternative grounds: (1) that the claims are barred by the statute of limitations; and (2) that Durst and Russi did not owe a fiduciary duty to the Plaintiffs.
For the following reasons, the Court GRANTS the Defendants' Motion to Dismiss.
II. BACKGROUND A. Facts
The following facts are taken from this Court's September 6, 2001 Opinion and Order granting the Plaintiffs' Motion for Class Certification.
The Plaintiff, Owner-Operator Independent Drivers Association, Inc. ("OOIDA"), is a business association comprised of individuals and entities who own and operate motor vehicle equipment. The three individual Plaintiffs, Carl Harp, Garvin Keith Roberts, and Michael Wiese (collectively, "Members"), are persons who have entered into a Lease Purchase Agreement with Defendant DA Associates, Ltd. ("DA"), and a Motor Vehicle Lease Agreement with Defendant Arctic Express, Inc. ("Arctic"). Arctic is a regulated motor carrier engaged in the business of providing transportation services to the shipping public. DA is a non-carrier company engaged in the business of leasing truck tractor units to independent owner-operators. DA and Arctic are under common ownership and control.
Currently, Plaintiff Roberts is presumed deceased. By agreement of the parties, he was termed from the litigation on July 9, 2002.
Owner-operators are business men and women who own or control truck tractors used to transport property on the country's highways. Owner-operators either transport commodities exempt from Department of Transportation ("DOT") regulations, or, as independent contractors, lease or provide their equipment and services to motor carriers who possess the legal operating authority under DOT regulations to enter into contracts with shippers to transport property. The relationship between independent truck owner-operators and regulated carriers is set forth in an agreement between the parties and regulated by the DOT. See 49 U.S.C. § 14102; 49 C.F.R. pt. 376.
Arctic and each owner-operator entered into an "Independent Contractor Motor Vehicle Lease Agreement" ("Lease Agreement"), whereby the owner-operator leased a truck unit and provided, in return, the services of a qualified driver to Arctic. Under the contract between DA and the owner-operators, entitled "Lease/Purchase Option at Termination" ("Lease/Purchase Option"), Members leased truck tractor units from DA. Under this Lease/Purchase Option, Members were obligated to make weekly equipment rental payments to DA, and also were obligated to make payments to a maintenance fund based on mileage.
Under Paragraph 5A of the Lease Agreement, captioned "LEASE AND MAINTENANCE OBLIGATIONS," the Member agreed to have deducted a certain sum per week to pay DA for his or her rental obligations; under Paragraph 5B, the Member agreed to have withheld nine cents per mile, also payable to DA, "for the sole purpose of satisfying any maintenance obligations imposed upon Contractor by lessor of Contractor's equipment." Under Paragraph 9A of the Lease/Purchase Option entered into between DA and the owner-operators, each Plaintiff who leased a motor vehicle was required to make maintenance payments at the rate of nine cents per mile. The maintenance payments were collected in a "maintenance fund." Arctic deducted the "maintenance fund" payments directly from the Member's compensation on a weekly basis.
Under Paragraph 9B of the Lease/Purchase Option, the unused maintenance fund monies were refundable if the lease ran its term. The fund balance was not refundable if the lease was terminated mid-term without the Member exercising his or her purchase option. None of the named Members in the present case exercised his purchase option, and thus the maintenance fund balances were not refunded to the Members under the DA Lease/Purchase Option.
Under Paragraph 11 of the Arctic Lease Agreement, a separate escrow account was established for each Member, and those funds have been returned to the Members, together with a full accounting as required by the federal equipment leasing rules.
When the commercial driver's licenses of two of the Members, who are Plaintiffs in this suit, were canceled or suspended, they notified Arctic and their equipment leases were terminated. The Plaintiffs then voluntarily terminated their equipment leases with Arctic. The Plaintiffs could have hired other drivers for the vehicles they leased from D A ; however, they did not, and as a result their Lease/Purchase Options with D A were terminated before the end of the specified lease term. Their maintenance fund monies were not returned to them.
Federal Regulations preclude regulated carriers such as Arctic from using the services of any driver who does not have a valid commercial driver's license.
The maintenance fund, according to Defendant Steven R. Russi ("Russi"), Executive Vice President of Arctic and DA, was established based on a "projected per mile cost" of maintaining a truck over the term of the lease. DA contends that it costs nine cents per mile to maintain a truck through the first 500,000 miles of operation, though during the first 100,000 to 200,000 miles, the per-mile cost is much less than nine cents. When the truck is new, maintenance costs are minimal; the maintenance costs increase as the truck ages. The Defendants charged the Members a flat rate of nine cents per mile to cover the total maintenance costs over lease term. The Defendants use the "savings" from the escrow fund during the first part of the lease to apply to the "deficit" that occurs toward the end of the lease.
Having been deprived of their escrow funds and other funds deposited with the Defendants during the terms of their Lease Agreements and Lease/Purchase Options, the Plaintiffs are seeking, for themselves and on behalf of other similarly situated independent truck owner-operators, monetary damages and declaratory and injunctive relief.
B. Procedural History
Plaintiffs Harp, Roberts, Wiese, and OOIDA filed a Complaint with this Court on June 30, 1997, alleging that the forfeiture of required maintenance escrow funds upon early termination of Defendants' lease and lease/purchase agreements violated 49 C.F.R. § 376.12(k) of the federal truth-in-leasing regulations. On April 11, 2000 Defendants Arctic and DA filed their Answer to the Plaintiffs' Complaint and simultaneously brought Counterclaims against the named Plaintiffs. DA brought individual Counterclaims against Plaintiffs Wiese,, Roberts, and Harp alleging that each Plaintiff had breached his Lease/Purchase Option. Arctic brought a Counterclaim against Plaintiff Roberts alleging a breach of the Independent Contractor Agreement. On August 2, 2001, this Court issued an Order denying the Plaintiffs'' Motion to Dismiss Counterclaims for Lack of Subject Matter Jurisdiction.
On August 30, 2001, the Court denied the Defendants' Motion for Summary Judgment and granted the Plaintiffs' Motion for Partial Summary Judgment, concluding that the Defendants had violated 49 C.F.R. § 376.12(k). Then, on September 6, 2001, the Court granted the Plaintiffs' Motion to Certify this matter as a Class Action.
On October 11, 2001, Defendant DA filed for bankruptcy under Chapter 11 of the Bankruptcy Code. In April and May 2002, the parties participated in settlement discussions that were mediated by this Court. During the course of mediation, Arctic represented that payment of more than $125,000 in damages to the Plaintiffs would force it to file for bankruptcy protection.
On June 21, 2002, the Plaintiffs filed an Amended Complaint, adding Durst and Russi as Defendants. In their Amended Complaint, the Plaintiffs assert that Durst is the sole shareholder, sole director, and President and Chief Executive Officer ("C.E.O.") of Arctic. They claim that he owns ninety-eight percent and Arctic owns two percent of DA. The Plaintiffs state that Durst is also the President and C.E.O. of DA and that Durst and Arctic are the sole members of DA. The Plaintiffs claim, further, that Russi is the Executive Vice President and an authorized member of Arctic and DA, and substantially controlled the operations of Arctic and DA. Through their Amended Complaint, the Plaintiffs assert two claims for breach of fiduciary duty against Durst and Russi.
This matter is now before the Court on the Motion of Defendants Durst and Russi to Dismiss the claims asserted against them in the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).
III. STANDARD OF REVIEW
Pursuant to Rule 12(b)(6), the defendant may file a motion to dismiss the plaintiff's complaint based on the plaintiff's "failure to state a claim upon which relief can be granted." FED. R. Civ. P. 12(b)(6). In considering a Rule 12(b)(6) motion to dismiss, this Court is limited to evaluating whether a plaintiff's complaint sets forth allegations sufficient to make out the elements of a cause of action. Windsor v. The Tennessean, 719 F.2d 155, 158 (6th Cir. 1983). Under limited circumstances, however, a court may rely on documents outside the pleadings, if those documents "simply [fill] in the contours and details of the plaintiff's complaint, and [add] nothing new," without converting the motion to dismiss into a motion for summary judgment. Yeary v. Goodwill Indus. — Knoxville, Inc., 107 F.3d 443, 445 (6th Cir. 1997).
A complaint should not be dismissed under Rule 12(b)(6) "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Lillard v. Shelby County Rd. of Educ., 76 F.3d 716, 724 (6th Cir. 1996). This Court must "construe the complaint liberally in the plaintiff's favor and accept as true all factual allegations and permissible inferences therein." Lillard, 76 F.3d at 724 (quoting Gazette v. City of Pontiac, 41 F.3d 1061, 1064 (6th Cir. 1994)). While the complaint need not specify every detail of a plaintiff's claim, it must give the defendant "fair notice of what the plaintiff's claim is and the grounds upon which it rests." Gazette, 41 F.3d at 1064. While liberal, this standard of review does require more than the bare assertion of legal conclusions. In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993) (citation omitted). A complaint must contain either direct or inferential allegations with respect to all the material elements necessary to sustain a recovery under some viable legal theory. Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 437 (6th Cir. 1988).
IV. ANALYSIS
The Plaintiffs' breach of fiduciary duty claims are governed by Ohio Rev. Code section 2305.09(D), which provides for a four-year statute of limitations. The cause of action for breach of fiduciary duty accrues when the plaintiff's interest is impaired by the breach. Nixon v. Bank One of Eastern Ohio, N.A., 599 N.E.2d 742, 744 (Ohio Ct.App. 1991) (citing Kunz v. Buckeye Union Ins. Co., 437 N.E.2d 1194, 1196 (Ohio 1982)).
The statute states, in relevant part:
An action for any of the following causes shall be brought within four years after the cause thereof accrued:
* * *
For any injury to the rights of the plaintiff not arising on contract nor enumerated in sections 2305.10 to 2305.12, 2305.14 and 1304.35 of the Revised Code.
Ohio Rev. Code § 2305.09(D).
In an attempt to avoid a dismissal of their claims based on the statute of limitations, the Plaintiffs assert in their Memorandum Contra Defendants' Motion to Dismiss that the Defendants breached their fiduciary duties when the corporations for which they are officers and directors became insolvent, or when they began operating in the vicinity of insolvency. The plain language of their Amended Complaint, however, belies this assertion.
In Count Two of the Amended Complaint, the Plaintiffs state, in pertinent part, as follows:
52. On October 11, 2001, Defendant DA filed a Petition in Bankruptcy in United States Bankruptcy Court for the Southern District of Ohio, Case No. 01-62009.
53. Upon information and belief, Defendant Arctic is operating in the vicinity of insolvency.
54. A fiduciary relationship exists between the officers, directors and shareholders of the corporation and its creditors, where a corporation is insolvent or operating in the vicinity of insolvency. The fiduciary relationship arises from the superior position of knowledge and power held by those individuals in relation to creditors of the corporation.
55. When a corporation becomes insolvent, or operates in the vicinity of insolvency, its assets are regarded as a trust fund for the payment of its creditors; officers and directors and shareholders assume a fiduciary relationship with respect to the creditors when the corporation becomes insolvent.
56. By wrongfully retaining escrow maintenance funds held in trust for class members, Durst and Russi breached their fiduciary duties to individual class members.
Amended Complaint, ¶¶ 52-56.
Assuming, without deciding, that the Plaintiffs are correct when they state that a fiduciary duty was imposed upon Durst and Russi in relation to their creditors when their corporations became insolvent or when they began operating in the vicinity of insolvency, the Plaintiffs have failed to connect that fiduciary duty to any conduct that might constitute a breach thereof. For conduct to constitute a breach of the fiduciary duty, such conduct logically must occur after the fiduciary duty arises. Here, however, the conduct alleged by the Plaintiffs — the wrongful retention of escrow maintenance funds held in trust for the class members — occurred before either DA or Arctic became insolvent, and, hence, before Durst and Russi assumed fiduciary responsibilities to their creditors under the Plaintiffs' own theory of liability.
Moreover, any claim for a breach of a fiduciary duty that is premised on the conduct alleged in the Amended Complaint is barred by the statute of limitations. The Defendants' wrongful retention of the escrow maintenance funds occurred when the Defendants failed to return those funds within forty-five days of the termination of the Plaintiffs' respective leases, as is required by 49 C.F.R. § 376.12(k). Accordingly, the four-year statute of limitations with respect to claims based on such conduct began running forty-five days after the termination of the Plaintiffs' leases, which was when the class members interests' were impaired by the Defendants' conduct. Hence, with respect to Plaintiff Harp's claim, the statutory period began to run on April 14, 1995. With respect to Plaintiff Wiese's claim, the statutory period began to run on May 12, 1997. In addition, when the first Plaintiffs filed this action on June 30, 1997, they alleged that, at that time, the unnamed class members were entitled to a return of escrow and other funds held by Defendants Arctic and/or DA. Accordingly, the Plaintiffs asserted that the class members' interests were already impaired by Durst's and Russi's actions on that date. Thus, with the respect to both the named Plaintiffs and the absent class members, the statute of limitations began running well over four years before the Plaintiffs filed their claim for breach of fiduciary duty on June 21, 2002.
The allegations set forth in Count Three of the Amended Complaint are similarly flawed. In Count Three, the Plaintiffs allege, in pertinent part:
59. The Truth-in-Leasing regulations, 49 C.F.R. § 376, et seq. were enacted, and preserved at the sunset of the ICC, expressly to protect owner-operators from abuses stemming from the superior position of knowledge and power occupied by motor carriers in relation to owner-operators. Under federal law, the truth-in-leasing regulations create a statutory trust over maintenance escrow funds collected from Class Members.
60. The District Court found that Arctic and DA wrongfully retained the maintenance escrow funds in violation of federal law, and that Arctic and DA had absconded with Class Members' maintenance escrow funds. The maintenance escrow funds are held by Defendants in constructive trust for the benefit of individual Class Members.
61. When a corporation as an entity is placed in a fiduciary position, it is its officers and directors who are charged with performing the fiduciary duties.
62. By wrongfully retaining escrow maintenance funds held in trust for class members, Durst and Russi breached their fiduciary duties to individual class members.
Amended Complaint, ¶¶ 59-62.
Although the source of the fiduciary duty set forth in this claim is different from the source of the fiduciary duty alleged in Count Two, the conduct that allegedly gives rise to the breach is the same. That is, as in Count Two, the Plaintiffs assert in Count Three that Defendants Durst and Russi breached their fiduciary duties by wrongfully retaining escrow maintenance funds held in trust for the class members. As discussed above, the statute of limitations for any fiduciary duty claim based on that conduct began to run more than four years ago with respect to each of the named Plaintiffs and the class members.
The Court recognizes that, in their Memorandum Contra Defendants' Motion to Dismiss, the Plaintiffs argue that their claims for breach of fiduciary duty did not accrue until the Defendants allowed the escrow funds to be dissipated. In particular, the Plaintiffs state that, regardless of the source of the fiduciary duties, the Defendants breached those duties when DA filed for bankruptcy on October 11, 2001 and when Arctic became insolvent, or began operating in the vicinity of insolvency, in April and May 2002. In making this argument, the Plaintiffs assert that the tort committed by the Defendants could not have been complete until the companies became insolvent, or began operating in the vicinity of insolvency. They rely on Kunz v. Buckeye Union Ins. Co., 437 N.E.2d 1194 (Ohio 1982), for the proposition that the statute of limitations for a tort action does not begin to run until the tort is complete.
In Kunz, the the plaintiff brought suit against his insurance agent alleging that the agent had failed to obtain the coverage that the plaintiff had requested. Five years after purchasing the coverage, the plaintiff was involved in an accident that was not covered by the insurance policy that was purchased by the agent, but that would have been covered had the policy been what the plaintiff believed he was purchasing. Discussing whether the plaintiff's claim was barred by the four-year statute of limitations, the Supreme Court of Ohio stated:
". . . The statute of limitation as to torts does not usually begin to run until the tort is complete. A tort is ordinarily not complete until there has been an invasion of a legally protected interest of the plaintiff. Appellant's interest was in being protected against [this type of] loss. There was no invasion, or infringement upon or impairment of such interest until there had been [such] a loss. . . . because until that event occurred such protection could avail appellant nothing. His interest, which is legally protected, was in having such protection when it was needed, at the time of the loss and not before. Thus, in a case like this there must be an injury or harm to appellant as a consequence of appellee's negligence to serve as a basis for recovery of damages before the tort became actionable and before the period of limitation commenced to run."Kunz, 437 N.E.2d at 1196 (quoting Austin v. Fulton Ins. Co., 444 P.2d 536, 539 (Alaska 1968)).
This case is distinguishable from Kunz. In Kunz, the plaintiff suffered no actual harm as a result of the defendant's conduct until he suffered the type of loss that he thought was covered by the insurance policy, but was not. Here, however, the Plaintiffs suffered actual harm as soon as the Defendants failed to return their escrow maintenance funds within the mandated forty-five day period. Immediately upon the Defendants' failure to return the funds within the time period mandated by federal regulations, the Plaintiffs' legally protected interest was impaired because it was at that point that they suffered the harm of not possessing the money that rightfully belonged to them. Thus, at that time, the tort was complete. Accordingly, the Court rejects the Plaintiffs' argument that the Defendants' alleged tort of breach of fiduciary duty was not complete until the Defendants dissipated the maintenance funds.
The Court views the Plaintiffs' position as an argument that the tort was not complete until the Defendants engaged in conduct that rendered them unable to pay the Plaintiffs' damages. While the Court is sympathetic with the position in which the Plaintiffs now find themselves, such conduct cannot toll the statute of limitations for claims based on conduct that occurred more than four years ago.
Therefore, the Court GRANTS the Defendants' Motion to Dismiss the fiduciary duty claims asserted against them in the Amended Complaint on the grounds that those claims are barred by the statute of limitations. Because the Court grants the Defendants' Motion to Dismiss on the ground that the claims are time-barred, the Court need not address the Defendants' alternative argument that they did not owe a fiduciary duty to the Plaintiff class. In granting the Defendants' motion, the Court expresses no opinion as to the validity of the Plaintiffs' assertion that either the operation of the corporation during insolvency or the truth-in-leasing regulations gave rise to a fiduciary duty owed by Durst and Russi to the class members.
V. CONCLUSION
Based on the foregoing analysis, the Court GRANTS the Motion of Defendants Durst and Russi to Dismiss the claims asserted against them in the Plaintiffs' Amended Complaint.