649 B.R. 18
Bankr. E.D. Mich.2023Background
- Debtor Jason M. Silver owned Silver’s Jewelry and Loan, which borrowed under a line of credit from Great Lakes Business Credit; pawn loans and pawned items are at issue.
- Trustee Karen E. Evangelista filed an adversary complaint; Great Lakes intervened and was later granted derivative standing to prosecute the Trustee’s claims under an agreement to fund litigation and share net recoveries with the estate.
- The Court’s December 9, 2022 summary-judgment opinion: granted Gold summary judgment on fraudulent-transfer and declaratory-judgment counts; granted Great Lakes summary judgment on common-law conversion liability (reserving damages); denied summary judgment on statutory conversion (knowledge remained a factual issue).
- L&L Gold moved for reconsideration, arguing (1) Trustee lacks standing/ownership to assert conversion (so Court lacks jurisdiction over Great Lakes’ claims), (2) in pari delicto bars the claims, and (3) statute-of-limitations defense.
- The Court applied the local reconsideration standard (E.D. Mich. LBR 9024-1(a)) and denied reconsideration: found related-to jurisdiction exists because Great Lakes’ derivative standing and the recovery arrangement leave the estate affected; deemed in pari delicto and statute-of-limitations defenses waived for failure to timely raise them.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Jurisdiction/standing to pursue conversion claims | Trustee/Great Lakes: Trustee has standing; Great Lakes has derivative standing and any recoveries will affect the estate. | Gold: Trustee (standing in debtor’s shoes) has no ownership interest in pawn loans/items so lacks standing; if Great Lakes pursues only its own claim, bankruptcy court lacks §1334 jurisdiction. | Court: Related-to jurisdiction exists — Great Lakes’ derivative standing and the recovery-sharing agreement leave the estate affected; jurisdiction retained. |
| Liability for common-law conversion (reconsideration of prior SJ ruling) | Great Lakes: conversion liability established; damages reserved for trial. | Gold: seeks reconsideration of liability ruling. | Court: Denied reconsideration as movant failed to show palpable defect; prior liability ruling stands. |
| In pari delicto defense | Trustee/Great Lakes: did not press in pari delicto as a basis to bar claims. | Gold: asserts debtor’s misconduct bars recovery under in pari delicto. | Court: Defense was not timely raised or argued; cannot be asserted for the first time on reconsideration and is therefore rejected. |
| Statute of limitations | Trustee/Great Lakes: limitations defense not previously litigated; claims remain viable. | Gold: contends conversion claims are time-barred. | Court: Statute-of-limitations defense was not previously raised at summary judgment or related proceedings and is waived on reconsideration. |
Key Cases Cited
- In re Greektown Holdings, LLC, 728 F.3d 567 (6th Cir.) (local-rule reconsideration standard governs bankruptcy motions for reconsideration)
- Michigan Emp’t Sec. Comm’n v. Wolverine Radio Co., 930 F.2d 1132 (6th Cir.) (definition of "related to" jurisdiction and test whether outcome could affect the estate)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.) (articulation of the "related to" jurisdiction test adopted by Sixth Circuit)
- Celotex Corp. v. Edwards, 514 U.S. 300 (U.S.) (non-debtor suits can be "related to" bankruptcy if outcome could affect estate)
- In re Nu-Cast Step & Supply, Inc., 639 B.R. 440 (Bankr. E.D. Mich.) (discussion of §1334 jurisdiction categories and related-to scope)
- Church Joint Venture, L.P. v. Blasingame (In re Blasingame), 920 F.3d 384 (6th Cir.) (distinguishing sale of claim from derivative standing; derivative standing preserves estate interest and jurisdiction)