  |
  |
  |
    
  
   |
 | |||
|
|
|
|
| |||
estate and the lenders. Accordingly, the lenders could not assert pre-existing security interests in estate property (i.e., cash on hand) because the settlement agreement overrode those security agreements.
the property since the foreclosure sale, and all profits realized by the insiders' new entity since purchasing the property through the foreclosure sale. The Eight Circuit affirmed the award, holding that a constructive trust was an appropriate remedy for this type of conduct and the damages sought. Said the court, the insiders had a duty to preserve the equity in the property for the benefit of the debtor and its creditors. To the extent that the insiders benefitted from their conduct, the court held that they were unjustly enriched. The court noted that the profits received by the insiders' new entities after the foreclosure sale were properly awarded to the chapter 7 trustee as a money judgment rather than a constructive trust.* Capp Seville, Inc. v. Northwest Airlines, Inc. (In re Northwest Airlines, Inc.), 383 B.R. 575 (Bankr. S.D.N.Y. Mar. 2008) (Gropper, J.)
Debtor was not entitled to summary judgment on claims for breach of contract and tortuous interference against hotel, under well-settled principles of agency. The debtor sued the owner of a hotel after the owner terminated service agreements promising the debtor's employees rooms at preferable rates. On cross motions for summary judgment, the bankruptcy court ruled not only that the debtor was not entitled to summary judgment, but that the hotel owner was entitled to judgment as a matter of law that it was not liable to the debtor. The debtor argued that the hotel owner was bound by the service agreements which the debtor had executed with the hotel's management company. The court disagreed for several reasons. First, the management company lacked actual authority to execute the service agreements on behalf of the owner, based on the agreements between the owner and the management company. Second, the owner did not ratify the debtor's agreements with the management company because, under the applicable Statute of Frauds, such ratification must have been in writing. Finally, the court found that the management company lacked apparent authority, because the debtor's reliance on the management company as an authorized agent was unreasonable under the circumstances -- the debtor had attempted unsuccessfully to obtain the owner's signature on the service agreements and so was stuck with the consequences.
* Moecker v. Greenspoon Marder, P.A. (In re Lentek Int'l, Inc.), 377 B.R. 396 (Bankr. M.D. Fla. Oct. 2007) (Jennemann, J.)
Based on the reasonable subjective beliefs of debtor's principal, a law firm did not represent the corporate debtor. In this adversary proceeding for malpractice, the chapter 11 trustee claimed that a law firm committed malpractice when the debtor corporation was harmed by the sale of shares of the debtor's stock to the debtor's principal at an unreasonably low price. At issue was whether the law firm representing the individual stock purchaser also represented the debtor in the stock sale. The trustee argued that the law firm performed some legal services for the debtor. However, said the bankruptcy court, no such attorney-client relationship existed between the firm and the debtor corporation. Despite the fact that some services may have been performed, the applicable test is what the prospective client reasonably and subjectively believed -- in this case, the principals of the debtor. The debtor's failure to retain counsel to represent its own interests, noted that court, may have been a breach of fiduciary duties. Furthermore, the law firm may have incidentally performed legal services for or affecting the debtor. Nonetheless, the law firm in this case was hired to represent the purchasing principal
