542 B.R. 662
Bankr. E.D.N.Y.2015Background
- This bankruptcy case involves a dispute over who may request and vote in the election of a permanent chapter 7 trustee for Barkany's estate.
- Canadian Northern Creditors, including the Family Partnership, seek to participate in the trustee election; other creditors oppose their participation.
- Two prepetition schemes by Barkany and related litigation against various recipients gave rise to the Canadian Northern Lawsuit and FP Lawsuit, affecting potential estate claims.
- The court held multiple hearings to determine (i) whether a trustee must be disinterested under 11 U.S.C. § 702 and (ii) whether the Canadian Northern Creditors and Family Partnership have interests materially adverse to other creditors.
- The court found that Barkany’s conduct and related litigation do not render the Canadian Northern Creditors or Family Partnership disqualified to vote under § 702(a)(2).
- Mr. Frankel was found to be a disinterested candidate for permanent trustee and was appointed, with related procedural orders for turnover of records and stay of other matters.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a permanent trustee must be disinterested under § 702 | Canadian Northern Creditors | Rosenberg Group | Yes; the court adopted disinterestedness as a requirement for the permanent trustee. |
| Whether the Canadian Northern Creditors hold an interest materially adverse to other creditors | Canadian Northern Creditors have no material adverse interest because no collusive or self-serving arrangements exist. | Rosenberg Group contends there is an adverse interest due to the Canadian Northern Lawsuit and alleged agreement with BARM to share proceeds. | No; the court found no admissible evidence of an agreement or other material adversity; the Canadian Northern Creditors are eligible to vote. |
| Whether the FP Lawsuit creates an adverse interest for Family Partnership | Canadian Northern Creditors/Family Partnership | Rosenberg Group asserts FP Lawsuit renders Family Partnership adverse to creditors. | No; FP Lawsuit was stayed and does not create a material adverse interest to voting creditors. |
| Whether the Canadian Northern Lawsuit affects eligibility to vote | Canadian Northern Creditors | Rosenberg Group argues it creates competitive, estate-detracting interests. | No; because the action is stayed as a claim against third parties and argues common injury to all creditors, it does not render the creditors ineligible. |
Key Cases Cited
- Keene Corp. v. Coleman (In re Keene Corp.), 164 B.R. 844 (S.D.N.Y. 1994) (trustee standing and construction of stay; creditors cannot pursue same claims as trustee)
- St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir. 1989) (general rule on standing to assert claims in bankruptcy and trustee's exclusive role)
- Picard v. Stahl (In re Madoff), 443 B.R. 295 (S.D.N.Y. 2011) (claims against third parties for Ponzi-type schemes belong to the estate; trustee standing)
- Amherst Techs., LLC, 335 B.R. 502 (Bankr. D.N.H. 2006) (prompt resolution of election disputes and timely objections; balance speed and due process)
- In re New York Produce Am. & Korean Auction Corp., 106 B.R. 42 (Bankr. S.D.N.Y. 1989) (standard for objections to voting eligibility and evidence burden)