Amending A Complaint After Statute Of Limitations Expires? (In re Art Institute)

Relating back? (Photo by Marilyn Swanson)

Can a complaint be amended after the statute of limitations expires? And what are the governing legal standards?

These questions are addressed in Miller v. Nelson (In re Art Institute of Philadelphia, LLC), Adv. P. No. 20-50627, Delaware Bankruptcy Court (decided August 25, 2025).

What follows is a summary of that opinion.

Facts

Debtor runs for-profit colleges.

Debtor’s actions result in investigations by Congress and by various state attorneys general.

Litigation ensues, the resolution of which costs Debtor $200 million in settlement payments and student loan debt forgiveness:

the settlements prove unaffordable, and Debtor’s colleges are sold at “pennies on the dollar”—which leads to the Chapter 7 bankruptcy filing;
along the way, Debtor’s executives receive bonuses of more than $20 million; and
so, the Chapter 7 Trustee sues Debtor’s former officers and directors, alleging that the colleges misled prospective students about tuition costs and job prospects;

Passage of Time—and Expiration of Statutes of Limitation

Debtor files its voluntary Chapter 7 Petition in June of 2018.

Nearly two years later (on June 17, 2020), Debtor’s Chapter 7 Trustee files a Complaint against Defendants, asserting claims for breach of fiduciary duty, common law fraud, preference, fraudulent conveyance, civil conspiracy, corporate waste and unjust enrichment.

A year and a half later (on January 12, 2022), the Bankruptcy Court:

dismisses certain fiduciary duty claims because of the statute of limitations;
dismisses claims for common law fraud, civil conspiracy, corporate waste, unjust enrichment, and intentional fraudulent conveyance;
denies the motions to dismiss the constructive fraudulent conveyance claims; and
dismisses the preference claim.

A First Amended Complaint is also rejected. So, on September 22, 2022, the Chapter 7 Trustee files a Second Amended Complaint (Doc. 132), and Defendants file answers (Docs. 134, 135 & 136).

Two and a half years later (on April 8, 2025), the Chapter 7 Trustee moves (Doc. 176) for leave to file a Third Amended Complaint. Defendant’s object (Doc. 178). By this time, all applicable statutes of limitation have expired.

The Dispute

The crux of the dispute is whether the Third Amended Complaint, (i) adds a new claim about which the defendants were not put on notice by the existing complaint, or (ii) simply “fleshes out” the claims already asserted in the existing complaint.

The Ruling

The Bankruptcy Court concludes that the proposed Third Amended Complaint asserts a new and different claim from those asserted in the Second Amended Complaint.

As such, the Third Amended Complaint does not relate back to the filing of the original Complaint and is therefore time barred.

Legal Principles

The legal principles are straightforward.

Rule 15(c) provides: “[a]n amendment to a pleading relates back to the date of the original pleading when … the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out—or attempted to be set out—in the original pleading.”

Fairly read, the Third Amended Complaint seeks to assert a new and different claim, arising from a different “transaction” or “occurrence” from the claims asserted in the Second Amended Complaint.

The Complaints

The first iterations of the Complaint seek to recover “an amount in excess of $200 million.”

The proposed Third Amended Complaint adds a new set of allegations on breaches of fiduciary duty that were not included in the Second Amended Complaint:

the new theory is that, while Debtor’s assets were being sold, Debtor turned down an offer that would have been better for Debtor and its creditors—but worse for Defendants personally.

The Third Amended Complaint alleges that the potential sale that Debtor chose not to pursue would have brought in an additional $150 million for Debtor. So, the Third Amended Complaint increases the amount of damages sought to $350 million.

Any way you slice it, says the Delaware Bankruptcy Court, that is a new and different claim that falls outside the claims alleged in the Second Amended Complaint.

Trustee’s Erroneous Argument

The nub of the Chapter 7 Trustee’s argument is this:

the Second Amended Complaint alleges that the result of Debtor’s liquidation is creditors recovering only “pennies on the dollar” on their prepetition claims; and
such allegation puts Defendants on notice that they failed to maximize value—which includes turning down the higher offer because of their conflicts of interest.

This argument reads the Second Amended Complaint too broadly—as shown by three precedents.

Three Precedents

–Bensel v. Allied Pilots Association

In Bensel, a class of former TWA pilots sue their union, after American Airlines buys TWA out of bankruptcy.

The TWA pilots amend their complaint twice. The union challenges the second amended complaint as time barred because the new allegations do not relate back. The federal district court dismisses the pilots’ complaint in part, but the Third Circuit reverses.

The Third Circuit holds that the amended complaint does relate back because the additional alleged facts simply add “further details” to the roughly sketched facts in the original complaint. For example:

the original complaint outlines in broad terms all the key events;
the original complaint not only focuses on specific violations but also alleges a general breach by the union of its duties under the collective bargaining agreement; and
such allegations are broad enough to “easily be read to encompass the more particularized claim in the Second Amended Restated Complaint.”

–Glover v. F.D.I.C.

In Glover, plaintiff takes out a mortgage from Bank. Plaintiff eventually falls behind on mortgage payments, and Bank files a foreclosure complaint.

During the foreclosure, Bank assigns plaintiff’s mortgage to Wells Fargo. Plaintiff and Wells Fargo negotiate a workout that prevents foreclosure—but the foreclosure complaint is not withdrawn until nearly four years later.

So, plaintiff sues Bank, Bank’s attorneys and Wells Fargo in federal district court, alleging violations of various laws, including the Fair Debt Collection Practices Act.

Later, plaintiff moves to file a second amended complaint, alleging a violation of that same Fair Debt Collection Practices act, based on the failure to withdraw the foreclosure complaint.

The federal district court denies plaintiff leave to amend because the new allegations do not relate back to the original complaint.

Plaintiff appeals and the Third Circuit affirms, finding that the original complaint does not put defendants on notice of the failing to withdraw claim. Here’s why:

the allegation of failing to withdraw the complaint, though factually related, constitutes a “factually and legally distinct” violation of the FDCPA that is not referenced in the original complaint;
though there is factual overlap, the allegations in the original complaint are too broad to put defendants on notice of plaintiff’s failure to withdraw claim;
there must be a limit on the relation back doctrine for “expansive pleadings” to avoid exposing defendants to increased liability and diminishing the value of the statute of limitations; and
even though defendants “might have guessed” by “making several inferential leaps” that such a claim might be asserted against them, Rule 15 does not require such an undertaking.

–In re Maxus Energy Corp.

In Maxus, this court explains the standard for amending a proof of claim after passage of the bar date:

the question is, whether the proposed amended proof of claim seeks to recover damages that are fairly encompassed within the original proof of claim;
additional facts can be added;
to the extent a contingent or unliquidated claim has become concrete, it is appropriate to update the proof of claim to provide additional factual detail;
if the claimant has a new legal theory to recover for the same injury or loss, that can be set forth in an amended proof of claim; but
since the debtor and other parties-in-interest will have relied on the claims register to understand the total claims universe, what a creditor cannot do is amend a proof of claim to recover damages that were not fairly encompassed in its original proof of claim.

Precedents Applied

This case is more like Glover than Bensel.

And the Maxus standard is doing exactly the same thing as the “transaction or occurrence” test of Rule 15:

Rule 15(c)(1)(B) provides that an amendment alleging a claim or defense that arises out of the conduct, transaction, or occurrence attempted to be set forth in the original pleading will relate back to the original pleading; but
if plaintiff attempts to allege an entirely different transaction by amendment, Rule 15(c)(1)(B) will not authorize relation back.

Here, the Third Amended Complaint seeks to recover an additional $150 million in damages from different alleged breaches of fiduciary duty that relate to the manner in which the defendants allegedly conducted the sale of Debtor’s assets.

Even if one squints at the Second Amended Complaint, one cannot find such an allegation.

The Third Amended Complaint, accordingly, seeks to assert claims arising out of a different transaction or occurrence from what was alleged in the Second Amended Complaint. Such claims do not relate back under Rule 15 and are, therefore, time barred.

Conclusion

Very interesting!

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