FEDERAL PROCEDURE-APPLICABILITY OF STATE DECISIONAL LAW INTERPRETING STATE STATUTES OF LIMITATIONS UNDER SECTION 11 (e) OF THE BANKRUPTCY ACT

Plaintiff is the trustee in bankruptcy of a Virginia corporation whose petition for reorganization under chapter X of the Bankruptcy Act was approved by a Virginia federal district court in 1942. Plaintiff filed this action in a New York federal district court under section 11 (e) of the Bankruptcy Act against defendant, the principal stockholder, and others for breach of fiduciary duty. The alleged breaches of duty occurred in 1927 and 1929. The defendant pleaded the New York statute of limitations and contended that it should be applied as interpreted by New York decisions, which hold that the statute begins to run on the date of the wrongful act.

Thus, according to New York decisions law this action was barred before the reorganization petition was filed. The trial court construed the statute in accordance with equitable principles which suspend the running of the statute so long as the injured party is ignorant of the fraud, or the dominating parties control the corporation. From a judgment for the plaintiff, the defendant appealed. Held: reversed.

The New York statute of limitations as interpreted by the New York decisions bars this action. Clark, J., dissented. Austrian v. Williams, (2d Cir. 1952) 198 F. (2d) 697.