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* In re Kmart Corp., 371 B.R. 823 (Bankr. N.D. Ill. July 2007) (Sonderby, J.)
The debtor's fault in failing to retain and produce potentially relevant information did not warrant sanctions for spoliation. The claimant filed an administrative claim seeking damages for breach of contract and tortious misconduct, and the debtor objected to the claim. After months of discovery, the claimant moved for sanctions on the basis of spoliation. First, said the court, the "trigger date" for preserving potentially relevant information was not necessarily the date that the claim was filed, nor was it necessarily the date that the debtor filed its objection. Instead, because the claim in this case was sufficiently detailed, the "trigger date" was the date upon which the debtor first reviewed the claim. Second, the court considered the levels of culpability for spoliation: bad faith, willfulness, and fault. While the debtor was, no doubt, at fault for failing to employ some form of a litigation hold, the court found that claimant did not present evidence sufficient to find that the debtor acted willfully or in bad faith. Absent such a finding (and, without evidence of prejudice to the claimant), the court concluded that sanctions were not warranted. Said the court, widespread destruction is not tantamount to a presumption of prejudice without evidence of what was destroyed and how the destruction prejudiced the claimant. The court, nevertheless, concluded that the debtor's behavior warranted an award of a portion of the claimant's fees and costs for its trouble, to be determined at a later time.
* Buena Vista Home Entertainment, Inc. v. Wachovia Bank, N.A. (In re Musicland
Holding, Corp.), 374 B.R. 113 (Bankr. S.D.N.Y. Aug. 2007) (Bernstein, J.) Bank was not liable to other lenders for amending an inter-creditor agreement. Before the commencement of the case, Wachovia had provided a revolving line of credit to the chapter 11 debtor, which was secured by a first priority lien on substantially all of the debtor's assets. Wachovia then assigned portions of its loan commitments to several other lenders (the plaintiffs in this action) and entered into an inter-creditor agreement with the lenders/plaintiffs which allowed them to assert liens on the debtor's assets, subject only to Wachovia's first priority lien. When the debtor ran into financial problems and attempted to obtain additional credit under the revolving loans, the plaintiffs refused. The debtor, however, was able to obtain a short-term loan from a different lender. Because the debtor's security agreement with Wachovia restricted the short-term lender's ability to assert liens senior to the plaintiffs' liens, Wachovia devised a way to amend the revolving loan and inter-creditor agreements to bring the short-term loan under the revolving credit line which, according to the debtor, effectively circumvented the restriction. When the debtor pre-paid the short-term loan without paying down the revolving debt to the plaintiffs, the plaintiffs took actions which essentially led to the bankruptcy case. The debtor's assets were sold in the bankruptcy case, and the proceeds were sufficient to pay the plaintiffs in full. However, the plaintiffs commenced this adversary proceeding against Wachovia and the short-term lender asserting claims for breach of the inter-creditor agreement, tortious interference, and unjust enrichment. The court reviewed the loan documents and the inter-creditor agreement under New York law and concluded that the language was sufficiently broad and unambiguous to allow Wachovia to amend the inter-creditor agreement and bring the short-term lender under inter-creditor umbrella and ahead of the plaintiffs in priority.
