11 U.S.C. 727; Standing
Thornton v. Mankovitch, 277 Ga. App. 221 (January 12, 2006).
The debtor corporation was pursuing a claim against the US Postal Service when an involuntary bankruptcy petition was filed against it. A trustee was appointed, and the attorney who previously represented the debtor and its principal in the USPS litigation was appointed special counsel to pursue the USPS claim, which was the sole asset of the estate. The trustee sought approval to settle the claim and the lawyer, on behalf of the debtor, objected. The Bankruptcy Court approved the settlement, and the debtor and its principal filed a lawsuit alleging malpractice against the lawyer. The grounds for the claim were that the lawyer settled the USPS claim without permission and for an amount not in their best interests. The lawyer moved for summary judgment on the grounds that it was the trustee who settled the USPS claim, and not the lawyer. The trial court granted the motion as to the debtor’s principal but denied the motion as to the debtor company.
The Court of Appeals reversed, holding that the lawyer was entitled to summary judgment against both parties. Upon the filing of a Chapter 7, a corporation becomes “defunct,” which is akin to a dissolved corporation, and has no existence outside of the bankruptcy estate. It “ceases to exist.” Therefore, it did not have standing to pursue the claim against the lawyer. The claim that the lawyer had a conflict of interest by representing both the debtor and estate was without merit because upon the filing, the estate became the only real party in interest. Moreover, the trustee was the only party who could represent the debtor, and “there is no residue remaining in the corporation which would entitle the debtor to be represented by someone other than the