Company President's Knowledge, For Purposes Of Cause of Action Accrual, Is Imputed to Corporation
PRIME EAGLE GROUP LTD. v. STEEL DYNAMICS (July 27, 2010)
Prime Eagle Group Ltd. is the assignee of a Thai company that built a steel mill in Thailand in the 1990s. During the mill’s construction, the company ran into difficulty and sought the assistance of Steel Dynamics, an expert in the field. Early on, with Steel Dynamic’s help, the venture was successful and profitable. In the late 1990s, however, when the region was in a recession and steel prices were deflated, Steel Dynamics decided to withdraw. It reported to company management and investors that the mill had design flaws and corrective action would cost $100 million. The company's president did not agree and reported his position to the board of directors. He was fired and investors soon pulled out. Lightning put the mill out of commission in December of 1998. Several years later, after the company came out of reorganization, it commissioned an engineering study. The study concluded that the original design was sound and the mill has operated successfully since -- without an expenditure of $100 million. Prime Eagle brought suit against Steel Dynamics for fraud. Judge Moody (N.D. Ind.) concluded that the suit was untimely under Indiana’s six-year statute of limitations and entered judgment for Steel Dynamics. Prime Eagle appeals.
In their opinion, Chief Judge Easterbrook and Judges Manion and Tinder affirmed. Prime Eagle concedes that the suit was filed ten years after the alleged fraud but asserts that the claim did not accrue until the company learned the results of the 2002 report. The Court noted that the only real issue is whether the president's knowledge is imputed to the company. The president wrote a lengthy and comprehensive letter to the board detailing his disagreement with Steel Dynamics. He certainly knew enough at that time for the company to commission an investigation. Instead of doing so, however, the board fired him and did nothing for four years. The general rule is that an employee's knowledge is imputed to the corporation. Only two exceptions to the rule exist, neither of which applies here. The Court rejected Prime Eagle's argument that a third exception -- for an employee who has lost the confidence of the board -- applies and noted that a federal court is the wrong place to even argue for a new exception to state law. Finally, the Court rejected Prime Eagle's equitable tolling argument. Under equitable tolling, Prime Eagle is required to act diligently after the tolling event (its insolvency) terminates. Here, they failed to do so. In fact, they delayed at least four years before taking any action.
