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In re Allbrand Appliance & Television Co.

decided: May 17, 1989.


Appellant Arthur C. Unger, trustee in bankruptcy of Allbrand Appliance & Television Co., Inc., appeals from an order of the United States District Court for the Southern District of New York (Sand, J.) dated August 17, 1988 which held that trustee could not, under Fed.R.Civ.P. 15(c), add appellee Raytheon Company as a defendant of its bankruptcy action. Affirmed.

Kaufman, Timbers and Cardamone, Circuit Judges.

Author: Cardamone

CARDAMONE, Circuit Judge

Appellant Arthur C. Unger, a Trustee in bankruptcy of the Allbrand Appliance & Television Co., Inc. (Allbrand), appeals from an August 17, 1988 order of the United States District Court for the Southern District of New York (Sand, J.), which affirmed a bankruptcy court order holding that appellee Raytheon Company could not be added under Fed.R.Civ.P. 15(c) as a defendant to the pending bankruptcy proceeding. This appeal presents the single issue of whether under Rule 15(c) notice of an action served on a corporate subsidiary within the applicable period of limitations constitutes notice to its parent, even though the subsequently named parent did not receive actual notice of the action until after the limitations period had run.

The old procedural rules regarding service of process and notice of suit were so disarranged and complicated that often the practitioner, in choosing what course to follow, resembled a participant in the child's game of selecting which hand holds the prize: Choose the correct hand and suit would lie; choose the wrong one and suit was barred. It was for deliverance from this "sporting theory of justice" as Roscoe Pound termed it, see R. Pound, The Causes of Popular Dissatisfaction with the Administration of Justice, 29 American Bar Assn. Reports 395, 417 (1906), that the Federal Rules of Civil Procedure were promulgated. The Federal Rules turned away from this instinct of gamesmanship, id. at 404-05, in favor of decisions on the merits. See, e.g., Conley v. Gibson, 355 U.S. 41, 48, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). Mindful that the very nature of limitations periods contains an inherent arbitrariness, we think the purpose of the federal rules is best served by their uniform application. Hence, we affirm the district court's order.


The material facts are largely undisputed. The underlying bankruptcy proceedings were commenced on October 17, 1980 and were converted to Chapter 7 liquidation proceedings on October 19, 1983. Pursuant to 11 U.S.C. § 341(a) (1982 & Supp. IV 1986), a meeting of creditors was held on the latter date, and a permanent Trustee in bankruptcy, the appellant Unger, was elected. Caloric Corporation (Caloric), a manufacturer of kitchen appliances specializing in top-of-the-line ranges, had sold and delivered goods to Allbrand, the debtor, which had issued checks in the amount of $265,759,40 to Caloric prior to the filing of its bankruptcy petition.

On October 18, 1985 Trustee Unger filed an action against Caloric seeking to avoid these alleged preferential transfers made to it by the debtor. A summons and complaint mailed the same day were received by defendant Caloric at its offices in Topton, Pennsylvania on October 24, 1985. Defendant forwarded the papers to its in-house counsel, Beatrice T. Heveran, who received them on October 30, 1985 at Raytheon's corporate headquarters in Lexington, Massachusetts. At that time, attorney Heveran appears to have been in the employ of both Raytheon and Caloric.

The Trustee learned thereafter that Caloric had not been independently incorporated until December 13, 1982 when a certificate of incorporation was filed with the Delaware Secretary of State. Thus, "Caloric Corporation" did not exist at the time the alleged preferential transfers were made and was not properly named as a defendant in the action instituted by Unger. The proper defendant was "Raytheon Company, Caloric Corporation division." Caloric filed an amended answer asserting these facts and appellant countered by seeking to add Raytheon as a party defendant. The bankruptcy court thereafter found that Caloric had been a division of Raytheon, until December 13, 1982 when it became a separate corporate entity incorporated in the State of Delaware and a wholly-owned subsidiary of Raytheon. Headquarters of the two corporations are in different states, they share no common management or officers, and there is no evidence of common directors serving the parent and its subsidiary.

In its opinion and order of February 9, 1987 the bankruptcy court held that Raytheon could not be added as a defendant under Fed.R.Civ.P. 15(c). It stated that under 11 U.S.C. § 546(a) a two-year period of limitations applies to a preference action, and that the statute of limitations had commenced running on the date of the Trustee's election -- October 19, 1983. The bankruptcy judge further ruled that the claim against Raytheon could not relate back because Caloric had not received notice of the action until after the period of limitations had run. On appeal, the district court remanded the matter to the bankruptcy court to determine the appropriate date for the two-year statute of limitations to commence. The choice was between October 19, 1983 the date upon which the § 341 election of Unger was held, or October 24 the date the bankruptcy court appointed him as Trustee.

On remand, the bankruptcy court held that from October 19 to October 24, the question of Unger's status as permanent Trustee was "in limbo." Because of that uncertainty, the bankruptcy judge held that the two-year period of limitations did not begin to run until October 24, 1983, and that Caloric, which had received the summons and complaint at its corporate offices in Pennsylvania on October 24, 1985 therefore had notice of the action within the limitations period. The bankruptcy court then turned to the question of whether Raytheon could thereby be added under Rule 15(c) as a party defendant. Relying upon the Supreme Court's decision in Schiavone v. Fortune, 477 U.S. 21, 91 L. Ed. 2d 18, 106 S. Ct. 2379 (1986), it held that Raytheon could not be added because it did not receive adequate notice of the pending action until October 30, 1985 -- five days after the statute of limitations had run. The court also held that notice to Caloric could not be imputed to Raytheon under the so-called "identity of interest" exception to Rule 15(c). By an order dated August 17, 1988 the district court affirmed the findings and conclusions of the bankruptcy court. This appeal followed.


1. Relation Back Rule. This dispute turns on the so-called "relation back" rule of Fed.R.Civ.P. 15(c) that provides:

Whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading. An amendment changing the party against whom a claim is asserted relates back if the foregoing provision is satisfied and, within the period provided by law for commencing the action against the party to be brought in by amendment that party (1) has received such notice of the institution of the action that the party will not be prejudiced in maintaining his defense on the ...

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