IN RE: WRIGHT ENTERPRISES                                   CASE NO.  95-50894

 

UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

IN RE:

 

WRIGHT ENTERPRISES,

A Kentucky General Partnership                                        CASE NO.  95-50894

                                    DEBTOR

 

 

JAMES D. LYON, Chapter 7 Trustee                                   PLAINTIFF

 

 

v.                                                                                             ADV. NO.  98-5022

 

 

BLACK GOLD SALES, INC.                                     DEFENDANT

 

 

MEMORANDUM OPINION

 

            This matter is before the court on the Motion of the defendant, Black Gold Sales, Inc., by counsel, to dismiss the complaint on the ground the cause of action of trustee is barred by the applicable statute of limitations.

            The issue is whether the applicable statute is KRS 292.480(3), the three-year statute of limitation on causes of action for fraudulent and prohibited practices in connection with the sale or purchase of any security made unlawful by KRS 292.320(1), or  KRS 413.120(12), the five-year statute of limitations relating to actions for fraud in general.

 

FINDINGS OF FACT:

            An involuntary petition in bankruptcy was filed against the debtor, Wright Enterprises, a Kentucky general partnership, on June 6, 1995.  On May 1, 1996, Wright Enterprises withdrew its objections to the petition and an Order for Relief was entered against the partnership on that date.  Castil Williams, the original plaintiff in this action, was appointed trustee on May 7, 1996.  He initiated this action on April 30, 1998, within two years after his appointment as trustee, within the time specified by title 11 U.S.C. 546, to the extent that section might be applicable.  The more applicable statute appears to be title 11 U.S.C. 108(a).  The present plaintiff in the action, James D. Lyon, succeeded Mr. Williams as chapter 7 Trustee of the estate of the Wright Enterprises partnership.

            The Complaint and First Amended Complaint allege that in March of 1989 the debtor, through its Chief Executive Officer, Lyle G. Robey, and managing general partner, J.T. Lundy, in collusion with the defendant, Black Gold Sales, Inc., entered into a contract to sell 233,333 shares of common stock of CCAIR owned by Wright Enterprises to Black Gold Sales, Inc. for $699,999.00 or $3.00 per share, knowing there would soon be a public offering of CCAIR stock for $10.00 per share.  There was a side agreement whereby the managing general partner, J.T. Lundy, would benefit from the transaction by receiving one-half of any profit realized by Black Gold Sales, Inc. on resale of the stock.  The complaint seeks damages from the defendant, Black Gold Sales, Inc., for the loss suffered by the general partnership on the transaction.

            Lyle G. Robey, the former Chief Operating Officer of the general partnership, is deceased.  J.T. Lundy, the former managing general partner of the partnership subsequently filed a voluntary petition in bankruptcy and has received a discharge in bankruptcy.  More recently, he was convicted in a federal court in Houston, Texas, of defrauding a bank and has been sentenced to a term in prison.  He has appealed the conviction to the U.S. Court of Appeals for the Fifth Circuit.  He is free on bond pending appeal.  He now resides in the vicinity of Ocala, Florida.  The foregoing may explain why Black Gold Sales, Inc. is the only participant in the alleged fraudulent sale of the CCAIR stock named as a defendant in this action.

            The contract for the sale and purchase of the stock was entered into on March 8, 1989, more than five years prior to the filing of the involuntary petition against Wright Enterprises on June 6, 1995.  However, the trustee, who relies on the five-year general statute of limitations applicable to actions for fraud, contends the running of the time for filing this action was tolled by the fact the sale was concealed from the other general partners by Robey, Lundy and Black Gold Sales, Inc.  The trustee contends the statute did not being to run until the fraud was actually discovered by the other general partners in 1991.  There is a disputed issue of material fact as to when the general partners of Wright Enterprises, other than Lundy, learned or reasonably should have learned, of the sale of the partnership's shares of the CCAIR stock.  KRS 413.130(3) provides the discovery exception on which the trustee relies.

            The other general partners are Bertha Wright and her four children, Lucille Wright Lundy, wife of J.T. Lundy, Courtney Wright Lancaster, Warren Wright III, and Thomas Wright.  The Wright family inherited Calumet Farm on the death of Lucille Wright Markey, the wife of Warren Wright, Sr., the founder of Calumet Farm.  Bertha Wright is the surviving spouse of Warren Wright, Jr., who predeceased Mrs. Markey.  Mrs. Markey died in 1982.  J.T. Lundy managed Calumet Farm from 1982 and also was managing partner of Wright Enterprises until his removal from both positions in March of 1991 for mismanagement that led to the demise of both entities.

            The defendant, Black Gold Sales, Inc., by counsel, contends the applicable statute of limitations is KRS 292.840(3) which provides that no person may sue for damages for a practice prohibited by chapter 292 of the Kentucky Revised Statutes in the sale of a security more than three years after the contract of sale.  There is no statutory discovery exception to the three-year limitation period fixed by KRS 292.840(3).

 

CONCLUSIONS OF LAW

            The court concludes that the determination of the applicable statute of limitation is dictated by the decision in Carothers v. Rice, 633 F.2d 7 (6th Cir., 1980).

            The court held that a defrauded seller of a security has an implied cause of action under KRS 292.320(1) and that the three-year statute of limitation in KRS 292.480(3) applies with respect to such action rather than the five-year statute in KRS 413.120(12).

            The Kentucky Blue Sky Law does not include a discovery exception tolling the application of KRS 292.480(3) until the fraudulent conduct is discovered.  Cali-Ken Petro Co. v. Miller, 815 F.Supp. 216 (W.D. Ky. 1993).

            Accordingly, the court concludes the complaint of the trustee and this adversary proceeding should be dismissed.

 

 

Dated:                                                            By the Court -

 

 

 

                                                            _____________________________ 

                                                            JUDGE

 

Copies to:

 

John O. Morgan, Esq.

James D. Lyon, Esq., Trustee

Brent Caldwell, Esq.

James H. Frazier, III, Esq.

U.S. Trustee

 


 

UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

IN RE:

 

WRIGHT ENTERPRISES,

A Kentucky General Partnership                                        CASE NO.  95-50894

                                    DEBTOR

 

 

JAMES D. LYON, Chapter 7 Trustee                                   PLAINTIFF

 

 

v.                                                                                             ADV. NO.  98-5022

 

 

BLACK GOLD SALES, INC.                                     DEFENDANT

 

 

ORDER

 

In conformity with the Memorandum Opinion of the court this day entered, the complaint of the trustee and this adversary proceeding are hereby dismissed.

 

Dated:                                                                        By the Court -

 

 

                                                                        ___________________________

                                                                        Judge

 

Copies to: 

 

John O. Morgan, Esq.

James D. Lyon, Esq., Trustee

Brent Caldwell, Esq.

James H. Frazier, III, Esq.

U.S. Trustee