June 1, 2023


In re: Mallinckrodt PLC Bankr. DE

During the negotiation of its now-confirmed plan, the Ch. 11 debtor was aware of third-party claims asserted against it by a defendant being sued in connection with radioactive material released as part of the Manhattan Project. The debtor and the third-party claimant negotiated the following term in the confirmed plan:

Notwithstanding anything to the contrary in this Confirmation Order or in the Plan, any liabilities of Debtor Mallinckrodt LLC that have been asserted in writing before the Petition Date . . . (for purposes of this paragraph, the foregoing liabilities shall be referred to as the “Defined Liabilities”) shall not be discharged, released, enjoined, or otherwise impaired by the Plan or this Confirmation Order. . . .

Post-confirmation, the plaintiffs who were suing the third-party claimant added direct claims against the debtor, who then sought to enforce the discharge injunction. The court finds that the above-referenced plan provision is ambiguous. After receiving extrinsic evidence, the court finds that the discharge does not bar the subject claims:

The emails demonstrate that Debtors were informed that the counterparty in the negotiations expected that the claims of both Cotter and the Plaintiffs would be preserved. Debtors said nothing in response to that suggestion that in any way hinted that they did not agree with this understanding. On the contrary, they simply deleted the offending language, added an additional requirement regarding a prepetition writing, and moved on. These actions support the conclusion that the parties intended for the phrase “any liabilities of Debtor Mallinckrodt LLC that have been asserted in writing before the Petition Date” to include any prepetition written assertion by Plaintiffs that Mallinckrodt is responsible for injuries arising out of its processing of uranium. The question then becomes, did Plaintiffs make such an assertion?

Debtors argue that they did not, focusing on Plaintiffs’ reliance on Cotter’s Third-Party Petition which asserts Mallinckrodt is liable solely on a theory of contribution. Since contribution is not the theory asserted in the complaint that Plaintiffs wish to file now, Debtors argue, Plaintiffs have not satisfied Paragraph 268’s requirement that the liabilities be asserted in writing prepetition. While I agree that Plaintiffs cannot rely on the allegations made by Cotter in its Third-Party Petition, Debtors overlook the allegations made by Plaintiffs in their Second Amended Petition. There Plaintiffs identify Mallinckrodt as one of the parties involved in the handling of uranium that resulted in harm to the surrounding environment.


In re: Karr 11th Cir.

The bankruptcy court erred in certifying an order for appeal:

Appellant seeks review of the district court’s order affirming the bankruptcy court’s March 7, 2022 grant of partial summary judgment to Appellee. In that order, the bankruptcy court deter-mined that Appellant had no right to Debtor’s interest in the property in which he resides, and the bankruptcy estate was entitled to a one-half interest in that property. The bankruptcy court did not resolve Appellee’s claims requesting a judgment allowing for sale of the property and an order requiring turnover of the property to the estate, nor did it address Appellant’s counterclaim for sale of the property and distribution of proceeds.  

We conclude that the bankruptcy court did not properly certify its order, which did not resolve all claims and counterclaims in the adversary proceedings, for immediate review under Fed. R. Bankr. P. 7054(a).

As an initial matter, the bankruptcy court did not provide any reasoning or explanation for its certification decision. It simply stated, summarily, that there was no just reason for delay. Accordingly, we accord no deference to the bankruptcy court’s certification. 

Here, the “special circumstances” we have identified as war-ranting departure from the historic federal policy against piecemeal appeals are not present. 


In re: Griego Bankr. WD TX

Counsel for the plaintiff in an adversary proceeding inadvertently filed a complaint without exhibits because his paralegal was sick and unavailable. He then filed a succession of amended complaints attempting to fix the problem and also add some edits (but no new causes of action) to the original complaint. None of the amended complaints were filed with the consent of opposing counsel or pursuant to authorization from the court. The court grants the defendants’ motion to strike the amended complaints:

There is no evidence that Ovation obtained written consent from the Griegos to amend its pleadings beyond the first amendment which was as of right under Rule 15(a)(1). To date, Ovation has not filed a Motion for Leave to amend its pleading for either the Second Amended Counterclaims or the Third Amended Counterclaims. Consequently, the Court will not analyze whether giving leave to amend is appropriate, as there is no motion for leave currently on file. Because Ovation does not have written consent, nor did it ask for leave from the Court, Ovation’s filings at ECF No. 42 (SAC) and ECF No. 43 (TAC) are improper and should be stricken. Though the Griegos did not include it in their motion, the Court is of the opinion that the first Second Amended Counterclaims at ECF No. 41 should also be stricken for the same reasons. Because ECF No. 41 is now stricken, the Griegos’ answer at ECF No. 44 is now moot.

In deciding this motion, the Court heavily considered the prejudice to either party. On one hand, the Court agrees that from the Griego’s perspective, having an amended answer and counterclaims filed days before the deadline to answer the previous pleading amounts to a moving target. The Court also considered the prejudice to Ovation by mandating it revert to its FAC. The Court carefully reviewed the pleadings for the differences between each iteration of the pleading. Most of the differences between the pleadings amount to what the Court would call “minor edits” (changing tenses, cleaning up grammar, updating language, etc.). The Court did identify one major change from the FAC to the SAC: Ovation bolstered the legal argument behind its counterclaims by adding references to cases and further legal argument. Nothing prohibits the Court from considering these updated legal arguments at trial. The facts alleged and the causes of action are identical. The answers to the Griegos claims also did not change. If the exhibits support the answer/counterclaims, they should have been attached in earlier iterations of the pleading. In conclusion, Ovation failed to adhere to Rule 15 in amending its pleadings and thus the operative answer/counterclaim is ECF No. 38.


In re: Olson Bankr. ND NY

The day after the petition date, a Ch. 13 debtor received the $377,293 proceeds of a workers compensation settlement which he scheduled as fully exempt under a state statute. The settlement was to compensate for the loss and/or reduction of debtor’s future earnings for the rest of his life. The debtor proposed to pay $150/month into a 36-month plan. The trustee objected to the exemption and also objected to confirmation, arguing that even if the money was exempt it was nevertheless disposable income. The court rejects the trustee’s exemption objection. The court, noting a split of authority, finds that the proportionate part of the settlement attributable to the commitment period of the plan, less the amounts necessary for the maintenance and support of Debtor and Debtor’s dependents, must be paid into the plan as projected disposable income:

Applying the forward-looking approach set out by Lanning, given that part of the Indemnity Allocation of the Workers’ Compensation Settlement is payment for future lost or reduced wages, the proportionate share attributable to the applicable commitment period of the Plan must be considered “projected disposable income” within the meaning of section 1325(b)(1)(B).


In re: Khan Bankr. WD MI

In litigation arising from a large check kiting scheme, the court dismisses some of the trustee’s claims:

Plaintiff Mark T. Iammartino, not individually, but solely as the Liquidating Trustee for the Consolidated Estate Trust for the bankruptcy estates of Najeeb A. Khan, the Khan Entity Debtors, and the IOI Debtors (the "Trustee" or "Plaintiff"), seeks judgment avoiding and recovering numerous transfers, disallowance or subordination of claims, and damages based on the role that each defendant allegedly played in a capacious check kiting scheme that ended abruptly in the summer of 2019, resulting in the numerous bankruptcies identified in the caption.


In re: Steed 11th Cir.

In a stay violation proceeding, the court finds that there was a violation but awards $2,250 rather than the $374,000 sought by the debtor:

The bankruptcy court did not err in finding that Steed was not entitled to damages for emotional distress because while the Appellees’ conduct was willful, it was not egregious. Importantly, Investa was not actively trying to get around the automatic stay. When Investa initiated the levy process against Steed, his bankruptcy case had been dismissed—Investa could not have known the case would be reinstated at the time it initiated the levy process.

Because Investa’s conduct was not egregious, Steed needed to provide corroborating evidence to clearly establish both that he suffered significant emotional distress and that there was a causal connection between that distress and violation of the automatic stay. He failed to meet that standard, relying solely on his own testimony.

* * *

[T]he bankruptcy court did not err in denying Steed punitive damages because Steed failed to show that the Appellees acted with reckless or callous disregard for the law or rights of others.



May 31, 2023


In re: Purdue Pharma L.P. 2nd Cir.

In a mass tort bankruptcy where the bankruptcy court confirmed a plan containing third party releases in favor of non-debtors who were contributing substantial funds to the plan, the court finds that the district court erred in reversing the bankruptcy court:

Appellants appeal from an order of the United States District Court for the Southern District of New York (Colleen McMahon, J.) reversing an order of the United States Bankruptcy Court for the Southern District of New York (Robert D. Drain, Bankr. J.) confirming a Chapter plan that included nonconsensual third- party releases of direct claims against non-debtors. We hold that nonconsensual third-party releases of such direct claims are statutorily permitted under 11 U.S.C. 105(a) and 1123(b)(6) of the Bankruptcy Code. We further conclude that this Court’s case law also allows for nonconsensual third-party claim releases in specific circumstances, such as those presented in this appeal. Accordingly, we REVERSE the district court’s order holding that the Bankruptcy Code does not permit nonconsensual third-party releases against non-debtors, AFFIRM the bankruptcy court’s approval of the Plan, and REMAND the case to the district court for such further proceedings as may be required, consistent with this opinion.


In re: FTX Trading Ltd. D DE

In an appeal to the district court of a bankruptcy court order in a large Ch. 11 crypto case denying appointment of an examiner, the court certifies the matter for direct appeal:

Neither the Supreme Court nor the Third Circuit has addressed whether § 1104( c )(2) requires the appointment of an examiner upon the request of the United States Trustee if "the debtor’s fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000." As the Bankruptcy Court acknowledged, "there is a split of [ noncontrolling] authority over whether 1104(c)(2) leaves any discretion on the appointment of an examiner." D.I. 14-2 at 11: 10-11. The Bankruptcy Court determined, based on the "as is appropriate" language in the statute, that § 1104( c) permits but does not require the appointment of an examiner when the Trustee requests one and the $5 million debt threshold is met. The Sixth Circuit, however, has held that 1104( c) mandates the appointment of an examiner in such circumstances. See In re Revco, 898 F .2d 498, 501 (6th Cir. 1990) ("[Section 1104(c)(2)] plainly means that the bankruptcy court ’shall’ order the appointment of an examiner when the total fixed, liquidated, unsecured debt exceeds $5 million, if the U.S. trustee requests one.").

Whether 1104(c)(2) mandates the appointment of an examiner upon the U.S. Trustee’s request when the debtor’s debts specified in the statute exceed $5 million is, of course, a question of law. And, because the Bankruptcy Court rejected the Trustee’s request for the appointment of an examiner based in part on its answer to that question, the Court’s February 21, 2023 order "involves a question of law as to which there is no controlling decision of’’ the Third Circuit or Supreme Court. 158(d)(2)(A)(i). Certification of the Order for an appeal to the Third Circuit is therefore required under 158(d)(2)(B).

Appellees argue that "appeals raising mixed questions of law and fact are not appropriate for direct certification." D.I. 28 at 12. But the question of whether 1104(c)(2) requires the appointment of an examiner upon the Trustee’s request if the debtor’s fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000, does not involve a question of fact. The facts are not in dispute. No one contests that the Trustee requested an examiner here or that the debtor’s fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5 million. The only issue is whether, given those facts, the Bankruptcy Court could lawfully reject the Trustee’s request for the appointment of an examiner under 1104(c).


Janvey, Receiver v. GMAG, L.L.C. 5th Cir.

In a Ponzi receivership, the court finds that an investor who suffered a $79 million judgment in favor of the receiver waived his setoff defense:

As we mentioned earlier, in 2020, after receiving the answer to our certified question, we held that Magness was liable to the Receiver for $79 million and related amounts. Back in district court, the Receiver moved for entry of final judgment. Magness opposed entry of final judgment. His opposition, however, did not include any reference to a setoff defense. In April 2021, the district court entered final judgment.

Forfeiture occurred then. If Magness sought to raise a setoff defense, he should have done so before the district court entered final judgment. Indeed, there was no barrier to raising a setoff defense prior to the district court’s final judgment. Magness failed to make the timely assertion of a right and therefore forfeited any setoff defense.


In re: Boulder Operations Holdings LLC Bankr. DE

In a prior settlement, the bankruptcy estate released its claims against the brother of the debtor’s former principal. A creditor filed a motion seeking to conduct a Rule 2004 exam of the brother in connection with its own claims against the brother. The court denies the motion:

Adaptive asserts that Ariel and Seth Fein may have engaged in misconduct that would give rise to claims against them – both estate causes of action that could be asserted by the chapter 7 trustee as well as direct claims that could be asserted against the Feins by Adaptive. Estate claims against Seth Fein, however, were released as part of a settlement between the chapter 7 trustee and the debtors’ principal lender. The parties state that the trustee is in the process of investigating whatever estate claims may lie against Ariel Fein.

* * *

Here, the strongest of the reasons given by Adaptive for conducting an examination of Seth Fein is the possibility that Adaptive may have direct claims against Seth Fein to recover on the losses it sustained as a result of the debtors’ actions. Seth Fein’s response to the motion notes that the estate claims against him were released in the settlement between the trustee and the lender, and that any direct claims that Adaptive may have against Seth Fein are outside the scope of the bankruptcy court’s related-to jurisdiction.

On the question of subject-matter jurisdiction, this Court is persuaded by Millennium Labs, which explained that the propriety of a Rule 2004 examination does not necessarily turn on whether the bankruptcy court would have subject-matter jurisdiction over the claims that may come out of the investigation.6 The jurisdiction to grant a Rule 2004 motion comes from 28 U.S.C. 1334(b), as the motion is itself a matter “arising in” a bankruptcy case. That jurisdiction is not dependent in any way on the claims that are being investigated.

That said, it is certainly fair to argue, as Seth Fein does, that when Rule 2004 is invoked to examine claims that would have no effect on the bankruptcy estate, it may be hard to see the proper bankruptcy purpose that would be served by authorizing a Rule 2004 examination.

* * *

[I]f the discovery is otherwise appropriate under Rule 2004, the fact that there may be a related lawsuit does not prohibit the use of Rule 2004 when such use is not intended to circumvent otherwise applicable limitations on discovery. But once the claim is asserted, the type of pre-litigation discovery otherwise contemplated by Rule 2004 is no longer appropriate for the purpose of investigating the claim itself. Otherwise put, the fact that Adaptive filed prepetition lawsuits makes clear that it has sufficient information to file a proof of claim. To the extent further discovery related to such a claim is appropriate, it should proceed under Rule 9014(c) in connection with any contested matter emerging out of the claims allowance process.

Adaptive correctly points out that the language of Rule 2004 is not limited to matters relating to the financial condition of the debtors, but also addresses the acts or conduct of the debtors. That is certainly true as far as it goes. But as noted above, the use of Rule 2004 to circumvent the limitations on discovery in another action would also fall within the literal language of the Rule. A court’s authority to preclude this use of the rule, just as with the prohibition on invoking Rule 2004 to investigate claims that may be available against third parties, comes from the language in Rule 2004(a) providing that the court “may” authorize an investigation that fits within the language of the rule. This permissive rather than mandatory language makes clear that there are circumstances in which courts ought to exercise their discretion to preclude an investigation that is within the Rule’s broad ambit. Discovery that is primarily addressed to a claim by a creditor against a third party, like the request now before this Court, is such a circumstance.


In re: Davis Bankr. SC

In a stay violation proceeding arising from repossession of a vehicle, the court awards: (i) $6,092 in actual damages, (ii) $3,500 in attorney’s fees, (iii) $12,000 in punitive damages and (iv) cancellation of the debt on the vehicle.


In re: Fanning Bankr. ED NC

In a Ch. 13 case, the court rejects debtors’ arguments to avoid a local rule requiring court approval before the debtors could move and finance a $1 million house:

Debtors come into this court for many reasons, but a recurring reason is the failure to manage their short-term and long-term financial obligations. The Debtors assert, either through their own belief or that infused by their counsel, that they have learned the worldly lessons needed for efficient and effective personal financial management. Unless and until the Debtors can complete their confirmed Chapter 13 Plan, the Local Rules protect the Debtors from continuing their pre-petition problems.

* * *

At the hearing, the Trustee presented an extensive and impressive compilation of local rules, form Chapter 13 Plans and standing orders from districts across the United States. This compilation overwhelmingly illustrated that debtors in many other districts must obtain approval from the trustee or the court before they may incur post-petition debt above certain threshold amounts or make certain post-petition purchases. Maybe as a surprise to the Debtors’ counsel, the materials presented by the Trustee established that the $10,000 threshold in the Local Rules is significantly higher than the threshold amount for obtaining trustee or court approval in many other districts, making it easier for debtors in this district to incur less significant amounts of post-petition debt. More importantly, the Debtors’ reference to Siegel v. Fitzgerald is misguided. The Bankruptcy Clause applies to laws enacted by Congress, not to local rules of practice and procedure adopted to facilitate the successful administration of bankruptcy cases and which, by their very nature, vary by locality. Still, in light of the court’s finding that the Local Rules at issue do not abridge any substantive right of the Debtors, no conflict exists between the Local Rules and the Bankruptcy Clause’s uniformity requirement.

* * *

The Debtors were unhappy with the court’s ruling on their Motion to Incur Debt, but they did not appeal the court’s Order denying the requested relief. The Debtors now request abrogation of the Local Rules, seemingly seeking another bite at the proverbial apple. This attempted circumvention of the court’s prior ruling is improper, but regardless, the Debtors have not established grounds to abrogate the Local Rules


In re: Caswell Bankr. WD MO

The court clarifies its 4-year old ruling that $600 is a reasonable fee for the participation of a mortgage creditor’s attorney in a routine Ch. 13 case:

Nearly four-and-a-half years ago, this court1 considered whether certain attorney fees incurred in connection with the representation of a mortgage creditor in a chapter 13 case were reasonable under 11 U.S.C. § 506(b). In In re Okafor, the court reduced the creditor’s requested attorney fees from $900 to $600, reasoning that one hour of attorney time for review of the debtors’ chapter 13 plan and one hour for preparing and filing the proof of claim – at an hourly rate of $300 – was reasonable. The court is now asked to consider whether certain attorney fees incurred in connection with the representation of a mortgage creditor in a chapter 13 bankruptcy case filed in 2022 should still be limited to Okafor’s suggested $600. After hearing the evidence presented in this case, and under the circumstances of this case, the court says no.

* * *

As PennyMac argued, this court in Okafor did not intend that Okafor be wielded as a cap on secured creditor’s fees in perpetuity. Rather, Okafor was a guideline in the absence of evidence; and Okafor has served as a useful and helpful guideline for many years. This court does not repudiate Okafor as a guideline. But, based on the undisputed evidence in this case, PennyMac has met its burden of proving the Okafor guideline should not apply in this case.



May 30, 2023


In re: Weed Cellars, Inc. Bankr. CD CA

The debtor rejected a licensing agreement in which the debtor was the grantor of licensing rights. Later, the debtor’s assets, including IP rights, were sold in a free and clear sale, with liens and interests, if any, attaching to the proceeds. The court finds that the counterparty has no direct lien or interest which can attach to the proceeds. However, the counterparty can file an unsecured rejection claim even though the claims bar date has passed:

W Licensing states that “[t]he only potential ‘claim’ that could exist against the Sale Proceeds would be a lien or encumbrances, neither of which W Licensing ever had ….” Adv. Doc. No. 68 at p. 12. W Licensing also states that interests arising from the License Agreement “cannot attach to the [S]ale [P]roceeds” because “it is impossible to determine” the value of any such interests. Adv. Doc. No. 36 at p. 12. These statements constitute a waiver of W Licensing’s right to assert that it possesses an interest directly attaching to the Sale Proceeds under the License Agreement.

Although W Licensing has waived its right to assert that the License Agreement provides it with an interest that directly attaches to the Sale Proceeds, W Licensing still has the right to file a claim for damages arising from the Trustee’s rejection of the License Agreement and the Operating Agreement. There is no merit to the Trustee’s argument that the May 2, 2022 deadline set forth in the Claims Bar Date Notice applies to claims arising from the rejection of an executory contract under Bankruptcy Rule 3002(c)(4). The Claims Bar Date Notice made no reference to any deadline for filing a rejection damages claim under Bankruptcy Rule 3002(c)(4). Instead, the Claims Bar Date Notice stated that it was issued in accordance with Bankruptcy Rule 3002(c)(5).

As noted above, the Rejection Order, which the Court entered in the form proposed by the Trustee, did not specify a deadline for filing a rejection damages claim. As a matter of routine practice, parties who obtain authorization to reject an executory contract include language in the proposed rejection order fixing a deadline for filing a claim for rejection damages. Here, the Trustee neglected to include this routine language in the Rejection Order. The Court cannot rescue the Trustee from the consequences of this omission by artificially expanding the scope of the Claims Bar Date Notice so that it also applies to rejection damages claims.


In re: Vital Pharmaceutical Bankr. SD FL

The debtor produces the best-selling energy drink in the United States. The debtor’s success is heavily dependent on social media. In a dispute about who owns and controls some of the debtor’s social media accounts, the court previously issued a TRO requiring the debtor’s former CEO to cooperate with the debtor in making posts to the social media accounts. The former CEO did not comply and was held in contempt. The debtor is preparing to offer a free and clear sale, which may be chilled due tot the ongoing controversy over the social media accounts. The court converts the TRO to a preliminary injunction:

1. The Plaintiffs’ Motion is GRANTED.

2. Until this Court finally adjudicates the Plaintiffs’ claims in this adversary proceeding, Defendants, John H. “Jack” Owoc and Megan Owoc, are enjoined from accessing, using, deleting, or modifying the CEO Accounts. In particular, the Owocs are prohibited from posting any content to the CEO Accounts or commenting on posts from the CEO Accounts.

3. The Owocs shall do whatever is necessary to enable the Plaintiffs to access the CEO Accounts, including turning over the passwords to the CEO Accounts to the Plaintiffs and cooperating with the Plaintiffs so that the Plaintiffs can access and maintain exclusive control of the CEO Accounts.

4. The Plaintiffs shall maintain exclusive control of the CEO Accounts until this Court finally adjudicates their claims in this proceeding. Absent Court authorization, the Plaintiffs are enjoined from accessing, using, deleting, or modifying the CEO Accounts. In particular, the Plaintiffs are prohibited from posting any content to the CEO Accounts or commenting on posts from the CEO Accounts.


In re: Kern Bankr. KS

Pre-petition, a veterinarian treated 27 head of cattle which were brought to him by an unknown individual for treatment. The person who brought the cattle allegedly told the vet that the cattle belonged to the debtor. When the treatment was finished, the vet left voice mail messages that the cattle were ready but they were never picked up. The vet filed a veterinarian’s lien. The court finds that the vet has failed to establish his claim:

Burlington, through its owner and sole veterinarian, Michael C. Thorp, DVM (“Thorp”), testified that on April 2, an unidentified person brought 27 head of cattle to Burlington’s facility. Thorp described the unknown individual as a pleasant cowboy type with a medium build. Thorp claimed that the individual identified the cattle as belonging to Debtor and gave Thorp verbal instructions for treatment. Thorp stated that it is not uncommon for unknown individuals to drop off cattle, but that he usually recognizes the equipment. Thorp testified that on April 2, he recognized the truck and trailer the individual was driving as being that of the Debtor. On the other hand, Thorp testified that there were no markings on the cattle to indicate that they belonged to Debtors. However, there is no dispute that the cattle belonged to Debtors.

Debtor testified that neither he, nor anyone at his direction, dropped the cattle off at Burlington. Debtor suggested that, instead, Burlington must have taken the cattle from Debtors’ pasture.23 Debtor testified that the cattle in question were put in his pasture in Yates Center, Kansas in February 2022, at which time his last employee left and returned to Oklahoma. Debtor testified that he did not have any employees working for him at the time the cattle were brought to Burlington. Furthermore, Debtor testified that his truck, similar in description to the one Thorp described as bringing the cattle to Burlington’s facility on April 2, was inoperable as the main bearing was out. Debtor further testified that the truck in question would not be able to handle the loaded trailer as Thorp described.

* * *

During Burlington’s closing statement, counsel said, “As far as Dr. Thorp is concerned, a lawful possessor of those cattle delivered those to him.” Unfortunately, Burlington’s discernment of lawful possessor did not meet the requisite level of proof needed to authorize the vet services. With more questions than answers, the Court finds that Burlington did not meet its burden of persuasion by a preponderance of the evidence.


In re: Blair House Associates Limited Partnership Bankr. ME

A petitioning creditor appealed the bankruptcy court’s dismissal of an involuntary case and imposition of attorney’s fees and punitive damages. The appeals court largely affirmed the bankruptcy court’s ruling but remanded with instructions for the court to consider the petitioning creditor’s subjective intent. In the meantime, the petitioning creditor died. The petitioning creditor’s estate’s representative argued that it was now impossible to adjudicate the petitioning creditor’s subjective intent and sought dismissal. The court disagrees:

[h]er contention that it is impossible to present evidence as to Ms. Hancock’s subjective intent because of her death contradicts her earlier assertions about evidence she planned to adduce that relate to her subjective intent and to her argument that the commencement of the involuntary petition was not in bad faith. For example, in her objection to General Holdings’ request for fees and punitive damages, Ms. Hancock and her counsel stated that “when and if this matter goes to trial, Ms. Hancock, as Trustee, will present evidence in the form of expert testimony confirming that her belief that the involuntary petition was warranted was entirely justified and not motivated by malice.” Further, in Ms. Hancock’s motion for the Court to reconsider its award, she and her counsel represented that “the Trust believes that any disputes, such as they are, were not motivated by law or fact, but by the bad faith of Rosa Scarcelli and . . . [General Holdings].” While such evidence may not be direct evidence of Ms. Hancock’s “subjective intent,” it is related.

Further, the Trustee’s dismissal request flies in the face of the dictates of the District Court. When the District Court instructed this Court to take evidence regarding Ms. Hancock’s subjective intent, it knew that Ms. Hancock had died. “Taking such evidence in this case may be admittedly difficult in light of Ellen Hancock’s death. Hancock, however, was bringing this case in her capacity as Trustee of the Hillman Mather Adams Norberg Trust. Her successor Trustee, Wolfson, who has initiated the Hancock appeal, may be able to shed light on the motivations and objectives behind bringing the involuntary petition.” If the Trustee believed that as a matter of law this instruction from the appellate court to this Court was incorrect, she had a remedy – further appeal – that she chose not to utilize.


In re: Motiva Performance Engineering, LLC Bankr. NM

The court rejects a defendant’s argument that a Ch. 7 trustee’s counsel in a adversary proceeding must be replaced because a conflict of interest has developed. The alleged conflict only arises if a particular interpretation of an agreement is correct. The court finds that the defendant’s interpretation of the agreement is wrong:

Before the Court is William Ferguson’s motion for a ruling that the case trustee must retain new counsel in a pending adversary proceeding (now on appeal) against Ferguson. Ferguson argues that new counsel is necessary because an actual conflict of interest has arisen between the estate and its biggest creditor, Creig Butler. The trustee’s current counsel represents both and could not do so if Ferguson is right. The matter has been fully briefed and argued. The Court concludes that Ferguson’s premise is flawed—no actual conflict has arisen. Because of that, his motion will be denied.

* * *

Based on the Court’s interpretation of the Pooling Agreement, the Trustee cannot take the position that Butler’s claim was paid by the Judgment Payment. Instead, the Trustee must treat Butler’s claim as paid only by the Pooled Funds Distribution and other amounts received under the Pooling Agreement. Just as Butler would have breached the Pooling Agreement by keeping the Judgment Payment, the Trustee would breach it by contending that the Judgment Payment extinguished Butler’s claim.

Ferguson’s conflict of interest argument is based entirely on his interpretation of the Pooling Agreement. As shown above, that interpretation is wrong. There is, therefore, no conflict of interest. The interests of the parties are still aligned.


In re: The Roman Catholic Diocese of Rockville Centre, New York Bankr. SD NY

In a dispute in a diocese bankruptcy about whether the debtor can be liable for claims predating the date that the debtor was formed, the court sustains some claim objections with prejudice and sustains other claim objections with leave to amend:

The Debtor seeks to disallow thirteen proofs of claim1 (each, a “Claim,” and collectively, the “Disputed Claims”) because, the Debtor argues, the claims arise from conduct that pre-dates the Diocese’s formation as a religious corporation.

The Debtor contends that the New York statute incorporating the Diocese (“Incorporating Statute2) established the Diocese on February 25, 1958 (the “Incorporation Date”). The Debtor asserts that it cannot be held liable for acts purportedly committed when the Debtor’s territory belonged to its predecessor, the Diocese of Brooklyn. Responses (collectively, the “Responses”) were filed on behalf of all claimants, many of whom argue that the Debtor existed in some form, albeit not as a religious corporation, as early as April 6, 1957.

* * *

[I]n consideration of fairness and particularly because the Debtor itself has provided conflicting representations of when it was established in its own filings in this case, the Court finds that the Post-Establishment Claimants should be granted leave to amend their claims. These Claimants may amend their claims to incorporate arguments consistent with the guidance provided in this section of the opinion—i.e., that relevant non-profit law creates liability for the Diocese of Rockville Centre’s pre-incorporation entity which carries over to the Debtor as a religious corporation.


Brown v. McDonough D DC

The court finds that a debtor is estopped from asserting employment discrimination claims in post-discharge non-bankruptcy litigation because she failed to disclose the claims in her bankruptcy:

Ms. Brown makes two arguments that her claims should not be estopped. First, she represents that she told her lawyer in the bankruptcy case about her pending discrimination claims. But even if the Court accepts that as true, it makes no difference. Ms. Brown signed her petition and was therefore ultimately responsible for its content. See Link v. Wabash R. Co., 370 U.S. 626, 633–34 (1962) (“Petitioner voluntarily chose this attorney as his representative in the action, and he cannot now avoid the consequences of the acts or omissions of this freely selected agent. Any other notion would be wholly inconsistent with our system of representative litigation.”). Second, Ms. Brown argues that her claims should not be estopped because she disclosed her pending discrimination claims in separate bankruptcy proceedings based on a new petition she filed in 2018 (several years after her 2015 discharge). But those were entirely different proceedings. Ms. Brown’s belated disclosure did nothing to alter the fact that her position in this case is inconsistent with the representations she made in the 2012 bankruptcy proceedings, or that the creditors in those proceedings were not informed of a potential asset prior to the discharge of her debts. Accordingly, the Court concludes that Ms. Brown is estopped from pursuing those claims here, including her second nonselection claim.