Milavetz, Gallop & Milavetz, P.A. v. United States, No. 08-1119 (March 9, 2010) (click here for opinion). The majority opinion was written by Justice Sotomayor.   Justices Scalia and Thomas filed opinions concurring in part in the opinion, and the judgment.

The issue before the Court was whether Bankruptcy lawyers were "debt relief agencies" as defined by 11 U.S.C. §101(12A) (added in the BAPCPA in 2005).  The BAPCPA amendments "prohibit such "agencies"  from “advis[ing] an assisted person . . . to incur more debt in contemplation of [filing for bankruptcy] . . . .” §526(a)(4). It also requires them to disclose in their advertisements for certain services that the services are with respect to or may involve bankruptcy relief, §§528(a)(3), (b)(2)(A), and to identify themselves as debt relief agencies, §§528(a)(4), (b)(2)(B)."

The plaintiff lawyers argued that they were not "debt relief agencies" and were therefore not bound by the above-stated restrictions.  The District Court agreed.  The Eighth Circuit affirmed in part and reversed in part. It held that lawyers were debt relief agencies and bound by the disclosure requirements, but §526(a)(4) was unconstitutional.

The United States Supreme Court held today that:

1) Attorneys who provide bankruptcy assistance to assisted persons are debt relief agencies under the BAPCPA.

         ... a debt relief agency is “any person who provides any bankruptcy assistance to an assisted person” in return for payment. §101(12A). By definition, “bankruptcy assistance” includes several services commonly performed by attorneys. Indeed, some forms of bankruptcy assistance, including the “provi[sion of] legal representation with respect to a case or proceeding,”§101(4A), may be provided only by attorneys... Moreover, in enumerating specific exceptions to the definition of debt relief agency, Congress gave no indication that it intended to exclude attorneys. See §§101(12A)(A)–(E). Thus, as the Government con-tends, the statutory text clearly indicates that attorneys are debt relief agencies when they provide qualifying services to assisted persons...
            But Milavetz does not contend, nor could it credibly, that only professionals expressly included in the definition are debt relief agencies. On that reading, no professional other than a bankruptcy petition preparer would qualify—an implausible reading given that the statute defines “debt relief agency” as “any person who provides any bankruptcy assistance to an assisted person . . . or who is a bankruptcy petition preparer.”

2) "Section 526(a)(4) prohibits a debt relief agency only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose. The statute’s language, together with its purpose, makes a narrow reading of §526(a)(4) the natural one"

The Government’s sources show that the phrase “in contemplation of” bankruptcy has so commonly been associated with abusive conduct that it may readily be understood to prefigure abuse. As used in §526(a)(4), however, we think the phrase refers to a specific type of misconduct designed to manipulate the protections of the bankruptcy system... [W]e conclude that §526(a)(4) prohibits a debt relief agency only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose... That “[n]o other solution yields as sensible a” result further persuades us of the correctness of this narrow reading.

3) Section 528's disclosure requirements are valid as applied, as it is directed at misleading commercial speech  and imposes a disclosure requirement rather than an affirmative limitation on speech.

 §528’s required disclosures are intended to combat the problem of inherently misleading commercial advertisements—specifically, the promise of debt relief without any reference to the possibility of filing for bankruptcy, which has inherent costs. Additionally, the disclosures entail only an accurate statement identifying the advertiser’s legal status and the character of the assistance provided, and they do not prevent debt relief agencies like Milavetz from conveying any additional information... Other information that Milavetz must or may include in its advertisements for bankruptcy-assistance services provides additional assurance that consumers will not misunderstand the term. The required statement that the advertiser “‘help[s] people file for bankruptcy relief’” gives meaningful context to the term “debt relief agency.” And Milavetz may further identify itself as a law firm or attorney. Section 528 also gives Milavetz flexibility to tailor the disclosures to its individual circumstances, as long as the resulting statements are “substantially similar” to the statutory examples. §§528(a)(4) and (b)(2)(B).

I find it difficult to disagree that Bankruptcy lawyers don't fall within the definition of "debt relief agencies" as defined in the Code.  Instead, it is simply one of the many BAPCPA amendments that add absolutely nothing of substance to Bankruptcy law.  I will read the opinion in more detail later and will likely update this post.

Seraphin v. Morris Publ'g Group LLC (In re Morris Publ'g Group LLC), 2010 Bankr. LEXIS 488, Ch. 11 Case No. 10-10134 (Bankr. S.D. Ga. Feb. 9, 2010). Morris Publishing Group and 15 affiliates filed Chapter 11 petitions on January 19, 2010.  The Debtors filed a prepackaged plan under which all classes were unimpaired. 

A group of "longtime readers and subscribers" of the St. Augustine Record (one of Debtors' newspapers), objected to the Plan saying they are "horrified" at the quality of the newspaper and its news coverage.  Because the newspaper promised "no change" as a result of the bankruptcy, the Activists argued that the Plan did not work.

The Objecting Parties object to "the promise of 'no change'" (id. P 3) as "uphold[ing] Morris family mismanagement" of the Debtors' media properties (id. P 10). The Objecting Parties see the Debtors' plan as "a potential death sentence for smaller newspapers" like the Record, the demise of which "would be a clear and present danger to our democracy, allowing wrongdoers to prosper without investigative news coverage." 2 (Id. P 7.) The Objecting Parties assert that "Morris Publishing must be held accountable" for inadequate news coverage and for "violating the standard of care . . . . result[ing] in a death spiral of declining interest in newspapers." (Id. P 8.) The Objecting Parties further argue that "[r]efusal to cover the news adequately is contrary to the interest of bondholders . . . in selling newspapers and advertising." (Id. P 9.)

It is not a surprise that the Court found that the Activists had no standing to object to the Plan as creditors.  The Court further held that they had no standing as "newspaper readers" or "community activists."

Mere interest in the outcome of the proceeding is not sufficient to meet the standard. In re Goldman, 82 B.R. 894, 896 (Bankr. S.D. Ohio 1988). Thus an entity without some kind of direct relationship with the debtor, the debtor's property, or the administration of the bankruptcy estate--an entity that is a stranger to the bankruptcy case--is generally not a party in interest under § 1109(b).

The Objecting Parties, as newspaper readers and community activists, are just such strangers to the bankruptcy case here, with nothing more than mere interest in the confirmation of the Debtors' plan. The Objecting Parties, self-styled as community activists or readers, have no direct relationship with the Debtors, the Debtors' property, or the administration of this chapter 11 case. Further, the Objecting Parties do not assert a pecuniary interest that is directly or adversely affected by confirmation and as to which they require representation. Indeed, the Objecting Parties do not assert any pecuniary interest at all.

None of the issues raised by the Objecting Parties are in any way related to the purpose of this chapter 11 case, which is to give the Debtors the breathing space necessary to accomplish their financial rehabilitation. The Objecting Parties raise what could generally be termed public interest issues. The Objecting Parties, self-styled as community activists or merely readers, therefore have not met the standard under § 1109(b) and consequently are not parties in interest as such.

Moreover, even if the Objecting Parties had met the standard under § 1109(b), they still would not have standing to object to confirmation as newspaper readers and community activists any more than they have standing to object as newspaper subscribers. Newspaper readers and community activists have no legally protected interest affected by confirmation in this case. The Objecting Parties are thus precisely the prospective litigants that the limits on standing were designed to exclude: the "clouds of persons indirectly affected by the acts and entitlements of others . . . [who] buzz about, delaying final resolution of cases"

Again, it is obviously no surprise that the group was denied standing to object to the Plan.  However, what if an "activist-minded" Congress decided that such groups did have standing?  What kinds of objections to Plans would we see in cases?  Environmental groups objecting to General Motors' filings because the cars do not meet a certain level of emission control? The local Homeowners' Association objecting to the plan of a business down the road?

There have been several cases over the years dismissing lawsuits by Debtors who failed to list the claim as an asset in their Bankruptcy schedules.  As the opinion below confirms, the same duty applies where the claim arose after the filing of a Chapter 13 case and even where the Debtor proposed to pay, and in fact did pay, all claims in full through a Chapter 13 plan.

Robinson v. Tyson Foods, Inc., 2010 U.S. App. LEXIS 2473 (11th Cir. Ala. Feb. 5, 2010).   The Debtor filed a Chapter 13 petition in 2002, and proposed to pay all claims, secured and unsecured, in full over 60 months.  In 2005, Debtor resigned from Tyson Foods alleging that she had been subject to harassment.  In October 2006, Debtor brought a civil suit against Tyson, alleging unlawful employment practices and mistreatment on the basis of race severe enough to constitute constructive termination.  She sought compensatory, punitive and liquidated damages.

Debtor did not amend her Bankruptcy schedules to disclose the claim against Tyson.  However, in 2007, she completed all payments under her Chapter 13 plan, paid all creditors in full, and received a discharge.

Tyson subsequently moved for a dismissal of the lawsuit based on judicial estoppel as Debtor failed to disclose her claim in the Chapter 13 case.

In preparation for her employment discrimination suit, Tyson took Robinson's deposition in September 2007. During the deposition, Robinson revealed that she had not disclosed her suit against Tyson to the bankruptcy court. .... When asked whether she had any suits or administrative proceedings pending, Robinson checked "NONE" on the schedule disclosure forms... Tyson argued that Robinson's non-disclosure constituted inconsistent positions under oath that were calculated to make a mockery of the judicial system. The district court agreed and granted summary judgment for Tyson. This appeal followed. The only issue on appeal is whether the district court abused its discretion in applying judicial estoppel.

Debtor argued that she had no continuing duty to disclose changes in her assets after the Chapter 13 was filed. The Court disagreed.

Our court has emphasized the importance of full and honest disclosure in bankruptcy proceedings, stating that it is "crucial" to the system's "effective functioning." Id. A debtor seeking shelter under the bankruptcy laws has a statutory duty to disclose all assets, or potential assets to the bankruptcy court. 11 U.S.C. §§ 521(1), 541(a)(7). "The duty to disclose is a continuing one that does not end once the forms are submitted to the bankruptcy court; rather the debtor must amend [her] financial statements if circumstances change." Burnes, 291 F.3d at 1286. This duty applies to proceedings under Chapter 13 and Chapter 7 alike because "any distinction between the types of bankruptcies available is not sufficient enough to affect the applicability of judicial estoppel because the need for complete and honest disclosure exists in all types of bankruptcies." ...

[E]ven if the reasoning in Burnes is dicta, it became the law of this circuit.... Therefore, under the established law of this circuit, a Chapter 13 debtor has a statutory duty to disclose changes in assets...

In addition to the general statutory duty, in this case there was a court ordered duty to disclose additional assets. The bankruptcy court's order specifically states that, "the property of the estate shall not vest in the Debtor until a discharge is granted under § 1328 or the case is dismissed." Therefore, all qualified property acquired by Robinson during the pendency her bankruptcy belonged to her bankruptcy estate and not her personally...

In a case that will likely be much more relevant to Chapter 13 cases, rather than Chapter 7 cases (where creditors are far less interested in repossessing household goods), Judge Bonapfel has ruled that a store credit card issuer's claim must be treated as secured in the Debtor's Chapter 13 plan. 

In In re Wages, 2009 Bankr. LEXIS 4325 (Bankr. N.D. Ga. Dec. 21, 2009), the Debtor had applied for a credit card at Best Buy.  The Application, signed by the Debtor, stated the following:

"You grant us a purchase money security interest in the goods purchased on your Account." 4 Section 3 of the Application also states that use of the credit card constitutes agreement to the terms and conditions of a "Cardholder Agreement and Disclosure Statement" (the "Cardholder Agreement") that would be sent with the credit card. Paragraph 5 of the "Important Terms" set forth in the Cardholder Agreement states in pertinent part, "[Y]ou grant us a purchase money security interest in the goods purchased with your Card."

Debtor made several purchases on the account, each time signing a sales slip.  The Debtors' Chapter 13 plan proposed to pay HSBC Bank Nevada, N.A. as an unsecured claim.

The Debtors contend that HSBC does not have an enforceable security interest under O.C.G.A. § 11-9-203. Under § 11-9-203(b)(3)(A), the creation of a valid security interest requires, among other things, the debtor's authentication of "a security agreement that provides a description of the collateral." A description of personal property "is sufficient, whether or not it is specific, if it reasonably identifies what is described," O.C.G.A. § 11-9-108(a), but a description only by type of collateral is an insufficient description of consumer goods in a consumer transaction. O.C.G.A. § 11-9-108(e)(2). The basic requirement is that the description must make possible the identification of the collateral described.

The Court, however, disagreed that the creditor had not met these requirements.

Georgia law does not require that a single document contain all of the requisites of a security agreement… Here, both the Application and the Cardholder Agreement that it incorporates, coupled with Mr. Wages' use of the credit account, establish the existence of a security agreement in which he agreed that HSBC would retain a security interest in goods he might later purchase on that account. When he purchased the goods and thereby acquired rights in them, HSBC retained a security interest in them pursuant to the earlier security agreement. O.C.G.A. § 11-9-203(b)(2). The sales slips that evidenced transactions on the account show the purchased items that serve as collateral, and Mr. Wages has not challenged the adequacy of those descriptions.

The Court therefore concludes that HSBC has a valid and enforceable security interest in the goods Mr. Wages purchased on the account… The Chapter 13 plan proposed by the Debtors in this case contemplates treatment of HSBC's claim as unsecured. As such, it cannot be confirmed. The Debtors shall have 20 days from the date of entry of this Order to file and serve a modification to their plan, or to propose a new plan, that deals with the claim of HSBC as a secured claim.

In re Stevens, 2010 Bankr. LEXIS 463 (Bankr. N.D. Ga. Jan. 28, 2010) (Bonapfel).  The United States Trustee filed a Motion to Dismiss the Chapter 7 case on the grounds that the Debtor had not provided a copy of his tax return within 7 days before the first meeting of creditors, and Debtor testified at the meeting that he had not filed a return for 15 years.   The parties submitted a consent order dismissing the case, but Judge Bonapfel declined to enter the order or dismiss the case.

11 U.S.C. § 521(e)(2)(A)(i) provides that the Debtor shall provide not later than 7 days before the date first set for the first meeting of creditors, to the trustee a copy of the Federal income tax return required under applicable law (or at the election of the debtor, a transcript of such return) for the most recent tax year ending immediately before the commencement of the case and for which a Federal income tax return was filed. If the debtor fails to comply with this requirement, the next subparagraph provides that the court "shall dismiss the case unless the debtor demonstrates that the failure to comply is due to circumstances beyond the control of the debtor." 11 U.S.C. § 521(e)(2)(B).

The Motion's request for dismissal under these provisions is problematic because it does not clearly articulate the basis for dismissal. The Motion appears to assume that, because the Debtor was required to file federal tax returns for recent years, § 521(e)(2)(A)(i) requires the debtor to produce a tax return for a recent year. This is not what the statute says. Rather, it states that the debtor must produce the return for the most recent tax year that was filed. Nothing requires that the Debtor file a tax return...

Admittedly, the Debtor here has provided no explanation for the absence of his most recent tax return (whatever year that is), so he has arguably failed to carry the burden that § 521(e)(2)(B) expressly places on him. One could reasonably expect that a debtor seeking to avoid dismissal should advise the United States Trustee and the Court of the last tax return that he filed. Because the Debtor has not done so on the record before the Court, the Court could possibly grant the Motion on technical pleading grounds.

The Court declines to reach such an absurd result on the undisputed facts that the present record reflects. Had the Debtor stated, "The last tax return I filed was around 1993 and I no longer have it," the Court would conclude without hesitation (no other evidence being presented) that the passage of 15 years from the date of filing of the return established cause for not producing it. And absent something else in the record, that is exactly what the Court thinks the Debtor meant in his declaration... And the Court does wonder what relevance the debtor's 1993 tax return could possibly have to his current financial situation.
 

 The U.S. Trustee also sought dismissal under § 707(a), contending that the Debtor failed to submit necessary documents, and the trustee is not required to speculate about or reconstruct the Debtor's financial history.

(after the jump...)

The rules for venue for bankruptcy cases are found in 28 U.S.C. § 1408, which provides the following:

Except as provided in section 1410 of this title, a case under title 11 may be commenced in the district court for the district—

(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district; or
(2) in which there is pending a case under title 11 concerning such person’s affiliate, general partner, or partnership.
 

Typically, large corporate Chapter 11 cases have been filed in Delaware or the Southern District of New York. Often, Delaware is an option because most large corporations are incorporated in Delaware (although there have been recent efforts to remove the "state of incorporation" venue option).  Other large corporations may have been incorporated in another state, and have their principal office in another state, yet choose Delaware or New York because they have an office or facility there.  This option may no longer be available, depending on how Courts apply the recent Supreme Court opinion.

On February 23, 2010, the United States Supreme Court issued its opinion in Hertz v. Friend, No. 08-1107 (U.S. February 23, 2010) (click here for the opinion). One of the issues in the case was the location of the principle place of business for a corporation.  Justice Breyer, for a unanimous Court, stated the following:

In an effort to find a single, more uniform interpretation of the statutory phrase, we have reviewed the Courts of Appeals’ divergent and increasingly complex interpretations. Having done so, we now return to, and expand, Judge Weinfeld’s approach, as applied in the Seventh Circuit. See, e.g., Scot Typewriter Co., 170 F. Supp., at 865; Wisconsin Knife Works, 781 F. 2d, at 1282. We conclude that “principal place of business” is best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities. It is the place that Courts of Appeals have called the corporation’s “nerve center.” And in practice it should normally be the place where the corporation maintains its headquarters—provided that the headquarters is the actual center of direction, control, and coordination, i.e., the “nerve center,” and not simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion).

Three sets of considerations, taken together, convince us that this approach, while imperfect, is superior to other possibilities. First, the statute’s language supports the approach. The statute’s text deems a corporation a citizen of the “State where it has its principal place of business.” 28 U. S. C. §1332(c)(1). The word “place” is in the singular, not the plural. The word “principal” requires us to pick out the “main, prominent” or “leading” place. 12 Oxford English Dictionary 495 (2d ed. 1989) (def. (A)(I)(2)). Cf. Commissioner v. Soliman, 506 U. S. 168, 174 (1993) (interpreting “principal place of business” for tax purposes to require an assessment of “whether any one business location is the ‘most important, consequential, or influential’ one”). And the fact that the word “place” follows the words “State where” means that the “place” is a place within a State. It is not the State itself.

The Seventh Annual Emory Bankruptcy Developments Journal Symposium will be held on March 4, 2010.  The schedule for the event is below. You can register by clicking here.

Symposium Schedule

8:00 am – 8:45 am
Registration and Breakfast

8:45 am – 8:50 am
Welcome
    Dean David Partlett

8:50 am – 9:50 am
Panel Discussion
“Ponzi Schemes—Bankruptcy Court v. Federal Court Equity Receivership”:  The Business Bankruptcy Panel

      Featured Panelists:

9:50 am – 10:20 am
Coffee and Refreshments

10:20 am – 11:20 am
Panel Discussion
“Views from the Bench—Five Years of BAPCPA”:  The Consumer Bankruptcy Panel

      Featured Panelists:

11:20 am – 11:50 am
Coffee and Refreshments

11:50 am – 12:50 pm
Panel Discussion
“Ethics 2.0—The Ethical Challenges and Pitfalls Web 2.0 Presents to Bankruptcy Attorneys”: The Ethics Panel

     Featured Panelists:

12:50 pm – 2:00 pm Lunch

Location

Tull Auditorium
Emory University School of Law
1301 Clifton Road, NE
Atlanta, GA 30322
Map and Directions

Parking

Please note: parking has changed from previous years. Click here for more information.

Questions

If you have any questions or suggestions about the symposium, please contact Robert Rhodes or Trevor Pinkerton.

We look forward to your attendance,

Robert F. Rhodes
Executive Symposium Editor

Trevor G. Pinkerton
Symposium Editor
Notes and Comments Editor

Chase Bank USA, N.A. v. Hampson (In re Hampson), 2009 Bankr. LEXIS 3412, Adv No. 09-4059 (Bankr. N.D. GA September 11, 2009) (Bonapfel).

Plaintiff Bank sought an order of nondischargeabilty for cash advances taken by the Debtor within 174 days of the filing of her Chapter 7 case. Debtor did not answer, and Plaintiff moved for default.  However, the Plaintiff failed to file the affidavit required by the Servicemembers Civil Relief Act.  Additionally, the Complaint did not allege that cash advances were taken within 70 days of the filing of the petition, as required by § 523(a)(2)(C).  The Complaint also failed to allege facts from which to conclude that the advances arose from false pretenses, false representations or actual fraud as required by § 523(a)(2)(A). 

In FDS National Bank v. Alam (In re Alam), 314 B.R. 834 (Bankr. N.D. Ga. 2004), this Court set forth the criteria for establishing nondischargeability under § 523(a)(2)(A). In Alam, the plaintiff, a credit card company, contended that each use of the debtor's available credit line for a purchase or a cash advance was a representation that he had the ability and intent to repay the debts incurred (the "implied representation theory"). The Court rejected this implied representation theory and instead held that, in order for a Plaintiff to prevail on a false representation or false pretenses claim, the plaintiff must show an express, affirmative representation made by the debtor to the plaintiff or use of the card after clear communication of its revocation... With respect to actual fraud, the Court also rejected the implied representation theory and held that "a debtor commits actual fraud for purposes of § 523(a)(2)(A) if the debtor uses a credit card without the actual, subjective intent to pay the debt thereby incurred." Id. at 841. Such a claim is established by showing sufficient facts from which the Court may draw an inference of the debtor's actual, subjective fraudulent intent. Id. at 843.

Based upon the above, the Court declined to enter a default against the Debtor.  Finally, Judge Bonapfel also expressed concerns about the lawyers for both parties:

The filing of this motion raises two troubling issues for the Court. First, five years after this Court's Alam decision, the Plaintiff's attorney has filed a complaint that ignores the holding of Alam. The Plaintiff's law firm cannot plead ignorance; it was also the firm representing the plaintiff in the Alam decision and, thus, is well aware of this Court's requirements for the pleading and proof of a § 523(a)(2)(A) and (a)(2)(C) claim. The continued reliance on the "implied representation theory" in such circumstances is a strategy that appears foolish at best (denial of motion for default judgment or dismissal of the claim), and reckless at worst (see 11 U.S.C. § 523(d)).

Just as troubling is the Debtor's attorney's disregard of this Court's instruction in In re Egwim, 291 B.R. 559, 580 (Bankr. N.D. Ga. 2003). The failure to respond to a complaint and motion that so plainly fail to state a factual basis for relief is an abdication of responsibility to the client. The Court notes that the Debtor's attorney has attempted to except representation in adversary proceedings from the scope of its representation of the Debtor. However, unless and until the Debtor's attorney is permitted to withdraw from representation, the Debtor's attorney has a responsibility  to the client to protect her interests. See In re Egwim, 291 B.R. 559, 580 (Bankr. N.D. Ga. 2003) ("A lawyer must represent the debtor in connection with all adversary proceedings and contested matters filed in the case which may affect the debtor's rights and interests unless and until the lawyer withdraws in accordance with BLR [9010-5(b)]."). Here, failing to respond had the potential for entry of a judgment against the Debtor, a result directly adverse to one of the Debtor's primary objectives - obtaining a discharge. Counsel for the Plaintiff and the Debtor are advised to govern themselves accordingly or face potential sanctions in this or any other future case.

In re McGuirk, 414 B.R. 878 (Bankr. N.D. Ga. August 31, 2009) (Bihary).  A creditor approached the Chapter 7 Trustee about purchasing the assets of the Chapter 7 Estate, including the avoidance actions (although the Trustee apparently believed there were no such actions available in the case).  A Motion to sell assets was filed, and an objection was filed by the debtor, who alleged improper motive on the part of the creditor.  The Court denied the Motion. 

This Court made it clear in a prior published decision that absent extraordinary circumstances, a trustee cannot sell, transfer, or assign the right to assert and maintain an estate's avoidance action to an individual creditor. In re Carragher, 249 B.R. 817, 820 (Bankr. N.D.Ga. 2000); see also In re Metro. Elec. Mfg. Co., 295 B.R. 7, 12 (Bankr. E.D.N.Y. 2003). The rationale for this is sound. The Bankruptcy Code gives trustees special powers to fulfill their primary duty of marshaling the debtor's assets for the benefit of the estate. A Chapter 7 trustee is appointed and trained by the United States Trustee and must have certain qualifications to be appointed. A single creditor does not have the training or qualifications to exercise the role of a panel Chapter 7 trustee. The trustee "is visibly the court-appointed representative of creditors, but a buyer is just another self-interested  party." ...The trustee's power to bring an avoidance action is one such power reserved exclusively for the trustee.

In limited situations, a court may grant a creditor derivative standing to bring an avoidance action.  Official Comm. of Unsecured Creditors of Cybergenics v. Chinery, 330 F.3d 548, 568 (3d Cir. 2003). However, Cadles is not seeking derivative standing; it seeks to purchase the Trustee's rights to bring avoidance claims in its own name. Derivative standing is granted to benefit the estate as a whole, not merely to benefit the creditor bringing the claim. Craig v. Green Light Capital Qualified, L.P. (In re Prosser), 51 B.C.D. 256, 2009 Bankr. LEXIS 2237 (Bankr. D.V.I. 2009). In addition, none of the elements justifying derivative standing has been established in this case. Neither the Trustee nor Cadles has established any colorable claim, and there is no indication that the Trustee has unjustifiably refused to bring any avoidance action.

 Cadles should not be surprised by this Court's ruling. See Reed v. Cooper (In re Cooper), 405 B.R. 801, 816 (Bankr. N.D. Tex. 2009) ("[T]he court will not allow Cadle [The Cadle Company] to usurp the role of the Trustee in this case and pursue estate causes of action")...

 

  THIRTY-SIXTH ANNUAL SEMINAR
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