In Re American Bridge Products, Inc.

United States Court of Appeals
For the First Circuit

No. 09-1165

IN RE: AMERICAN BRIDGE PRODUCTS, INC.,

Debtor.
__________

LYNNE F. RILEY, CHAPTER 7 TRUSTEE OF
AMERICAN BRIDGE PRODUCTS, INC.,

Appellant,

v.

NICHOLAS J. DECOULOS, ESQ.,

Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. George A. O'Toole, Jr., U.S. District Judge]

Before
Boudin, Stahl and Lipez,
Circuit Judges.

Lynne F. Riley with whom Altman Riley Esher LLP was on brief
for appellant.
Charles R. Bennett, Jr. with whom Kathleen E. Cross and Hanify
& King, P.C. were on brief for appellee.

March 10, 2010
 BOUDIN, Circuit Judge. More than 16 years ago, Nicholas

Decoulos (appellee in this court) was appointed receiver of

American Bridge Products, Inc., by a Massachusetts state court, and

more than 13 years ago American Bridge was put into involuntary

bankruptcy. Most of the issues involved in American Bridge's

receivership and bankruptcy have been resolved, but a claim endures

by bankruptcy trustee Lynne Riley (now appellant in this court) to

recover from Decoulos for misfeasance while receiver that damaged

the American Bridge estate. That claim is the subject of the

present appeal.

In August 1993, American Bridge and its then-owners filed

a complaint in Massachusetts Superior Court alleging that a group

of defendants--including Robert Conti, a major investor in American

Bridge, and John Conti, Robert's son and a former employee of

American Bridge--had converted and were conspiring to convert

American Bridge's assets to their private benefit in fraud of the

company's creditors. Everett Savings Bank was also charged with

assisting Robert Conti to divert American Bridge's bank assets into

accounts controlled by Conti.

The next month, the state court appointed Decoulos as

receiver of American Bridge. Not long after, American Bridge's

principals and creditors began to complain about Decoulos'

performance as receiver. Efforts opposing Decoulos began in

October 1993, and included a failed attempt to put the company into

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federal bankruptcy proceedings, fruitless complaints about Decoulos

to state bar authorities, and objections to Decoulos' fee and other

applications, which were nevertheless approved by the state court,

summarily so in most cases. In July 1995, American Bridge's owners

filed the first of two unsuccessful motions seeking to remove

Decoulos as receiver.

In August 1996, the owners and a major creditor of

American Bridge filed an involuntary Chapter 7 bankruptcy petition

against the company. When Decoulos resisted, proponents filed an

affidavit that set forth in detail Decoulos' shortcomings as

receiver. In October, the federal bankruptcy court granted the

motion for an involuntary bankruptcy and shortly thereafter

appointed Joseph Braunstein as bankruptcy trustee. Control of the

estate passed to him.

Under the Bankruptcy Code, Decoulos now had an obligation

to account to the federal court as to the property he had held as

receiver (and which now passed to the trustee). 11 U.S.C. §

543(b)(2) (2006) (accounting requirement); id. § 543(c) (surcharge

authority); Fed. R. Bankr. P. 6002 (2009). Without filing an

accounting, Decoulos sought compensation for earlier work as

receiver. Braunstein and several creditors objected and the court

allowed an examination of Decoulos as to the fate of certain

American Bridge assets. The matter then remained in limbo while

other disputes involving the bankruptcy were resolved. In March

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1999, Braunstein resigned as trustee and was replaced in October

1999 by Riley.

On March 9, 2000, Riley filed an adversary proceeding

against Decoulos personally, alleging inter alia negligence and

breach of fiduciary duty by Decoulos in his capacity as receiver.1

Under Massachusetts law, these two claims had a three-year statute

of limitations, Mass. Gen. Laws ch. 260, § 2A (2009); LoCicero v.

Leslie, 948 F. Supp. 10, 12 n.2 (D. Mass. 1996), and Decoulos had

ceased to be a receiver in 1996. Further, Riley's predecessor

Braunstein had investigated possible claims against Decoulos and

determined not to pursue them.

Nevertheless, the bankruptcy court rejected Decoulos'

statute of limitations objection on the ground that the statute did

not start to run until Decoulos had accounted for his

administration and been discharged, and neither had occurred either

in the state court prior to bankruptcy or in the bankruptcy court

thereafter. In re Am. Bridge Prods., Inc., 328 B.R. 274, 350

(Bankr. D. Mass. 2005). A trial on Riley's claims, held over 15

days in 2004, resulted in detailed findings by the bankruptcy judge

that Decoulos had mismanaged the receivership, and a substantial

judgment was awarded to Riley as trustee. Id. at 341-50, 356.

1
Riley also brought a claim for unfair trade practices,
claims against Decoulos in his capacity as attorney to the estate,
claims against his law firm and claims against other defendants,
but none of these are at issue on this appeal.

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 Liability was imposed, with particulars, for "fail[ing]

to adhere to the orders issued by the" state court, "fail[ing] to

take possession of [American Bridge]'s assets in a timely manner,"

"fail[ing] to recognize and proceed with causes of action,"

"fail[ing] to act impartially in considering the allegations in"

American Bridge's Complaint, "fail[ing] to take steps" to prevent

the conversion of American Bridge's assets, and "fail[ing] to seek,

let alone obtain, appropriate court orders" to pursue actions

against the defendants in the litigation. In re Am. Bridge Prods.,

328 B.R. at 342.

The judgment against Decoulos was for the lesser of

$379,173.78 or the amount needed to pay all creditors and

administrative claims of the estate, In re Am. Bridge Prods., 328

B.R. at 356, amended thereafter to add prejudgment interest. The

damages, calculated item by item, comprised waste of inventory and

materials under Decoulos' management; diminishment of value of

assets; unremedied diversion to the Contis of debts owed the

company; and unremedied loss due to similar diversion by Everett

Savings Bank. Id. at 349. The bankruptcy court also ordered

Decoulos to disgorge any fees paid to him while receiver. Id. at

349-50.

On appeal, the district court reversed, ruling that the

Massachusetts statute of limitations ran from the discovery of

Decoulos' actions and barred Riley's claims. In re Am. Bridge

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Prods., Inc., 398 B.R. 724, 730-34, 736 (D. Mass. 2009). Riley now

appeals. Decoulos defends the district court and, in addition,

offers alternative grounds for sustaining its result. Our review

of rulings of law is de novo; the bankruptcy court's findings are

tested for clear error. In re Northwood Props., LLC, 509 F.3d 15,

21 (1st Cir. 2007).

At the threshold, Decoulos claims that the bankruptcy

court lacked subject matter jurisdiction, arguing first that under

Barton v. Barbour, 104 U.S. 126, 136 (1881), actions against the

receiver required the approval of the state court and, second, that

under the Rooker-Feldman doctrine federal courts cannot review

final orders of a state court. Rooker v. Fidelity Trust Co., 263

U.S. 413 (1923); D.C. Court of Appeals v. Feldman, 460 U.S. 462

(1983). The second argument was raised below, although the first

was not; however, Barton v. Barbour may be viewed as

jurisdictional, Muratore v. Darr, 375 F.3d 140, 146-47 (1st Cir.

2004); but cf. Robinson v. Tr. of N.Y., N.H. & H.R. Co., 60 N.E.2d

593, 599 (Mass. 1945).

Barton aims to protect the authority of the court that

appointed the receiver and avoid costs and other complications that

would arise from dual superintendence of the same property.

Barton, 104 U.S. at 136-37; In re Linton, 136 F.3d 544, 545 (7th

Cir. 1998). In this case, authority over the estate had passed to

the federal courts before Riley's claim was filed; the receiver was

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therefore responsible to account to the bankruptcy court, and Riley

had permission from that court to bring suit. Thus, the concerns

that animated Barton were not present.

As for Rooker-Feldman, the rule applies only when "the

losing party in state court filed suit in federal court after the

state proceedings ended, complaining of an injury caused by the

state-court judgment and seeking review and rejection of that

judgment." Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S.

280, 291 (2005). Whatever limited and implicit attention the state

court may have paid to charges of wrongdoing when approving

Decoulos' various applications on largely unrelated topics, no

prior judgment was entered by the state court on the claims that

Riley now pursues.

Finally, the bankruptcy court had authority to resolve

Riley's claims. Decoulos had made his own claim in the bankruptcy

court for compensation and a compulsory counterclaim appears to

fall within the statutory definition of core proceedings. 28

U.S.C. § 157(b)(2); In re CBI Holding Co., Inc., 529 F.3d 432, 460

(2d Cir. 2008); In re Am. Bridge Prods., 398 B.R. at 729-30. We

need not determine whether, independently, the statutory surcharge

power under 11 U.S.C. § 543 extends to pre-bankruptcy conduct by a

prior custodian. See generally In re Sundance Corp., 149 B.R. 641,

650 (Bankr. E.D. Wash. 1993).

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 On the merits, we agree with Decoulos that but for his

status as receiver, the limitations defense would likely succeed.

Riley framed her charge as state causes of action for negligence

and breach of fiduciary duty, and she does not argue they have

become federal claims merely because the estate later entered

federal bankruptcy. As already noted, the Massachusetts

limitations period for the state claims is three years, and

Decoulos' challenged conduct as receiver occurred more than three

years before Riley sued.

Of course, limitations statutes may be tolled where the

wrongful conduct was concealed or difficult to ascertain at the

time it occurred. E.g., Koe v. Mercer, 876 N.E.2d 831, 836 (Mass.

2007). But although Riley contends otherwise, enough was known by

those who objected to Decoulos' conduct in the state court and by

Braunstein, who conducted his own investigation, to bring an end to

such tolling more than three years before Riley's suit. We would

describe the pertinent facts in detail if the fate of Riley's

appeal depended on this tolling issue, but it does not.

The bankruptcy court rejected the limitations defense not

because of concealment or lack of knowledge but on the ground that

Decoulos had not rendered a final accounting or been discharged in

either state or federal court. In re Am. Bridge Prods., 328 B.R.

at 350. In the bankruptcy judge's view, a receiver or bankruptcy

trustee's liability for misconduct remains open, despite ordinary

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limitations rules, until a final accounting and discharge (unless,

presumably, the issue had been definitively determined by a

competent court before a final accounting).

Thus, the bankruptcy judge said that "[a]ny determination

of a receiver's liability, whether personal or official, is not

subject to a statute of limitations defense in the absence of his

discharge," 328 B.R. at 350, citing to a passage of the treatise

Clark on Receivers; the passage can be read to say that a

receiver's liability for misconduct in relation to his duties

continues, despite the statute of limitations, until he has

fulfilled his duty to account and is discharged.2 "Decoulos," the

judge pointed out, "neither received a discharge in [state court]

nor filed a report and account in accordance with Fed. R. Bankr. P.

6002." Id.

In reversing, the district court said that the treatise

position, supported only by citation to a 19th-century English

case, might have been referring only to actions against the

receiver in an official capacity (as opposed to personal

dereliction) and anyway nothing showed that Massachusetts has

adopted the treatise position. In re Am. Bridge Prods., 398 B.R.

2
"Statute of limitations does not run in favor of receiver.
The position of a receiver is one in which liability to account
would not easily be barred, and so long as he is living he must be
held to have been a trustee of the money received[,] therefore the
defense of the statute of limitations is not a bar to a claim
against him." Clark, Law of Receivers, § 418, at 705-06 (3d ed.
1959).

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at 730-32. The district court thought the position refuted by

Massachusetts cases indicating that where an ordinary trustee

breaches his duties and repudiates the trust, the limitations

period begins to run when a beneficiary has knowledge of the breach

and repudiation. E.g., Lattuca v. Robsham, 812 N.E.2d 877, 884

(Mass. 2004).

However, this court In re San Juan Hotel Corp., 847 F.2d

931 (1st Cir. 1988), rejected a former bankruptcy trustee's

argument that "personal liability actions against a bankruptcy

trustee can be time-barred before the trustee has presented a final

account to the bankruptcy court and been discharged." Id. at 939.

Instead, the court held "a trustee cannot be released from

liability before discharge" because the purpose of the final

accounting is to ensure that a trustee can be held accountable

after making full disclosure. Id. at 939.3

True, the trustee in San Juan Hotel was already under

federal authority when he committed his wrongs while Decoulos was

a state receiver at the time of the wrongs. Although the

bankruptcy court had jurisdiction to decide the claims against

Decoulos, facially the claims remained ones arising under state law

and presumptively Riley could not recover if those claims were now

3
This was one of two alternative grounds adopted in San Juan
Hotel (the other being tolling of the statute until the wrong was
revealed). San Juan Hotel is not binding precedent as to
Massachusetts law but rather is relevant and useful authority.

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barred under state limitations rules. The first assumption seems

fairly secure and the second, if perhaps open to debate, we will

assume arguendo in favor of Decoulos.4

Claims against a trustee for breach of fiduciary duty are

typically equitable claims, In re San Juan Hotel Corp., 847 F.2d at

938, but, in Massachusetts, such equitable claims are nevertheless

subject to statutes of limitation. Stoneham Five Cents Sav. Bank

v. Johnson, 3 N.E.2d 730, 732 (Mass. 1936) ("statutes of limitation

apply of their own force to suits in equity"); Farnam v. Brooks, 26

Mass. 212, 216 (1830); 6 Smith & Zobel, Massachusetts Practice §

8.17 (2d ed. 2006). The district judge was correct in saying that

in a suit against an ordinary faithless or incompetent trustee, the

statute begins to run once the wrongdoing comes to light. O'Connor

v. Redstone, 896 N.E.2d 595, 607-09 (Mass. 2008).

But ordinary trusts operate without much court

supervision and often indefinitely. Receivers and bankruptcy

trustees, by contrast, look to wind up an estate, aiming at a

final, closing-the-books accounting. Hess, Bogert & Bogert, The

Law of Trusts and Trustees § 14, 165-71 (3d ed. 2008); Scott &

Fratcher, The Law of Trusts § 16A, 211-12 (4th ed. 1989). San Juan

Hotel treated the rule it propounded not as some peculiarity of

4
Occasionally, a federal connection may convert state law
claims into ones governed by federal law, Metropolitan Life Ins.
Co. v. Taylor, 481 U.S. 58, 62-67 (1987); Textile Workers Union of
Am. v. Lincoln Mills of Ala., 353 U.S. 448, 456-57 (1957), but the
concerns in those cases are different.

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federal law but as a general rule applicable to trustees who are

winding up estates, and the Clark treatise relied upon by the

bankruptcy judge was not focused on federal law at all. Absent

Massachusetts case law to the contrary, it is reasonable to assume

that Massachusetts would follow the same approach in cases where

the receiver is engaged in winding up an estate. Cf. Mass. R. Civ.

P. 66(e) ("[N]o order discharging a receiver from further

responsibility will be entered until he has settled his final

account.").

Decoulos argues that the Clark treatise approach entails

liability without limit in time, but filing the required accounting

and obtaining a discharge would trigger limitations protections.

In re San Juan Hotel Corp., 847 F.2d at 940. Further, although

limitations periods have not run, Massachusetts case law allows

laches to be asserted against equitable claims where undue delay

combines with prejudice. Cohen v. Bailly, 165 N.E. 7, 11 (Mass.

1929); W. Broadway Task Force v. Boston Hous. Auth., 608 N.E.2d

713, 716 (Mass. 1993). So even without a final accounting,

Decoulos was free to show that he had been prejudiced by the delay

in the claims against him; but he did not do so.

Decoulos does argue that his receivership terminated;

that he gave an "oral accounting" to Braunstein; and that the

bankruptcy court's authority to "surcharge" is limited only to

improper disbursements. But termination neither extinguishes

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liabilities nor under San Juan Hotel and the Clark treatise starts

the limitations period running. And an accounting must ordinarily

be presented for court review, e.g., Fed. R. Bankr. P. 6002; In re

Ira Haupt & Co., 287 F. Supp. 318, 322-23 (S.D.N.Y. 1968);

disclosure to a successor may have other consequences but it does

not prompt a discharge or constitute approval by a court.

Decoulos says that "virtually all" of the conduct for

which he was surcharged had been approved by the state court and,

under settled doctrine governing trustee conduct and under res

judicata principles, cannot be made the basis for personal

liability.5 But most of the orders entered by the state court are

unrelated to the actions for which the bankruptcy court surcharged

him. Ironically, the bankruptcy court surcharged Decoulos in part

for actions taken in disregard of or contrary to the orders of the

state court which Decoulos claims protect him.

The state court order most closely related to Riley's

claims permitted Decoulos to sell American Bridge's personal

property for $6,000 to a company controlled by the Contis.

Decoulos argues this order barred the bankruptcy court from

awarding $29,000 against him for allowing "the loss and waste of

5
"[A] trustee acting with the explicit approval of a
bankruptcy court is entitled to absolute immunity" from personal
liability as long as trustee has made "full and frank disclosure to
creditors and the court" and did not "prevaricate[] or otherwise
act[] in bad faith." In re Mailman Steam Carpet Cleaning Corp.,
196 F.3d at 8; accord, Kermit Const. Corp. v. Banco Credito y
Ahorro Ponceno, 547 F.2d 1, 3 (1st Cir. 1976)).

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[American Bridge]'s assets." Id. at 343. But the bankruptcy court

premised liability not on misconduct making the sale approved by

the state court, but on Decoulos' "failure to secure inventory and

equipment belonging to [American Bridge]," allowing conversion of

$29,000 in value before the sale. Id.

The other state court sale-of-assets order cited by

Decoulos authorized him "to sell the blueprint machine that is

presently in the possession of John Conti for the sum of Eight

Hundred ($800.00) Dollars." The bankruptcy court held Decoulos

liable for the loss in value of $35,000 in equipment acquired in

1990, id. at 285, 344, but the blueprint machine, referred to by

the bankruptcy court as having been purchased in 1993, id. at 298,

does not appear to have been part of this category.

In re Iannochino, 242 F.3d 36, 45 (1st Cir. 2001), relied

on by Decoulos, is not on point. There, an attorney making a final

fee request from an estate gained approval without objection as to

the quality of his services and was later sued for malpractice.

The complaint was deemed barred by claim preclusion on the ground

that the misconduct could and should have been asserted as a

defense to the fee award and that allowing the malpractice suit

would undermine the final judgment by opening up the fee award to

disgorgement, contrary to claim preclusion doctrine.

Here, by contrast, objectors to the initial Decoulos fee

request did object that Decoulos had been guilty of misconduct--

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exactly what Iannochino says they should have done; but the state

court seems to have ignored the issue and rejected two further

requests to remove Decoulos with cursory or no explanation. Of

course, had the state court heard evidence and made findings

vindicating Decoulos, there might be possible claims of issue

preclusion; but the burden of showing such a vindication was upon

Decoulos and he has not even attempted any such showing.6

Lastly, Decoulos argues that the bankruptcy court was

barred from imposing liability on him for failing to pursue prompt

action against Everett Savings Bank because, in his last report to

the state court, Decoulos reported the full amount of the

misappropriation, along with the bank's possible defenses.

Decoulos' mere reporting of the amount of the claim does not

indicate that the state court approved his failure to pursue it.

In a nutshell, the state court does not appear to have authorized

or approved the challenged conduct.

Decoulos does not argue on appeal that the bankruptcy

court erred in finding that he breached his duty of care, but does

6
The Restatement requires for issue preclusion a showing that
the issue was actually litigated and decided on the merits.
Restatement (Second) of Judgments §§ 27-28 (1982). Massachusetts
law is similar. Alba v. Raytheon Co., 809 N.E.2d 516, 522 (Mass.
2004) (where not "strictly essential" to the judgment, proponent
must show adjudication to be "the product of full litigation and
careful decision" (quoting Green v. Brookline, 757 N.E.2d 731, 735-
36 (Mass. App. Ct. 2001))). The resolution must also be final, a
requirement that Iannochino found satisfied because--unlike
Decoulos' awards--the disposition ended the attorney's service.
Iannochino, 242 F.3d at 45.

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argue in closing that the evidence does not support the finding

that his actions or inactions caused the damages assessed. We

review the bankruptcy court's causation finding for clear error,

Clement v. United States, 980 F.2d 48, 53 (1st Cir. 1992), and our

review here does not leave us "with the definite and firm

conviction that a mistake has been committed," id. (quoting Deguio

v. United States, 920 F.2d 103, 105 (1st Cir. 1990)).

The judgment of the district court is vacated and the

case remanded for further proceedings consistent with this

decision. Costs are taxed in favor of the appellant.

It is so ordered.

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