Case Roundup

Plan bars punitive damages claim against Debtors

In re A.G. Financial Service Center, Inc. (7th Cir. 2005)

Held: Bankruptcy Court did not err in confirming Plan prohibiting punitive damages against Debtor and its parent.

Facts: Debtor settled potential claims against parent with approval of the Bankruptcy Court. Claimants asserting a right to punitive damages adduced no facts or circumstances that supported said right. A "freakish" pre-Petition punitive damage verdict for other claimants was considered an aberration. Thus there was no denial of a right to trial as alleged by claimants.

Opinion: Bankruptcy Court did not err in requiring disclosure of Debtor's customer list. The list (which was sought by claimants' Attorney to solicit more clients) had been sold as an asset during the Bankruptcy and had value because it was confidential. Lawyers have a right under the First Amendment to solicit Clients; they do not have a right to a subsidy in this endeavor. Counsel could have bid for the list like any other asset, or they could have rented the list from its buyer. Lawyers pay for paper, books, office space and other inputs into their profession; they must pay for mailing lists too.

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What is a corporate "insider" for preferential transfer purposes?

In re Enterprise Acquisition Partners, Inc. (9th Cir. BAP 2005)

Held: Bankruptcy Court erred in holding that an insider of an insider (a corporation wholly owned by a statutory insider) was an insider.

Opinion: A Trustee can avoid transfer of an interest in Debtor's property if the transfer meets certain requirements including the fact that it occurred within the requisite pre-Bankruptcy period per §547(b). Because the transfer at issue in this case, the filing of a UCC-1 to perfect a security interest in Debtor's property, occurred more than 90 days but less than 1 year before Bankruptcy, it is avoidable under §547 only if the transferee was an "insider" per §547(b)(4)(B). State law controls whether it is appropriate for the Bankruptcy Court to pierce the corporate veil. In re Pajaro Dunes Rental Agency, Inc., 174 B.R. 557, 582 (Bankr. N.D. Cal. 1994). In order to pierce the corporate veil the Court must apply the correct legal standard. That requires considering both the unity of interest between the shareholder and the corporation and whether an inequitable result will follow from recognizing the corporate form. Although the Bankruptcy Court considered the unity of interest prong and found that it was met, it failed to consider what inequity would follow if the corporate form were recognized. Piercing the corporate veil requires more than a unity of interests; it also requires some inequity arising out of the use of that form. The Court did not make any finding that there was any such inequity in this case, nor did the Trustee point to any evidence that would support such a finding. Therefore, the court erred.

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ATTY FEES NOT ALLOWABLE IN ABSENCE OF STATUTE OR SETTLEMENT TERMS PROVIDING FOR SAME

In re Weinschneider (7th Cir. 2005)

Where a settlement agreement between a Chapter 7 Trustee and a 3rd party sued by the Trustee did not have an Attorneys' Fees provision and State law contained no entitlement to Attorneys' Fees to the prevailing party in a contract suit, the counterparty to the agreement was not entitled to payment of legal fees incurred in connection with successful litigation against the Trustee regarding the interpretation of the settlement agreement.