592 B.R. 469
S.D. Ill.2018Background
- Melvin "Mel" Cooper filed Chapter 7 (personal) and signed a Chapter 11 petition for Imperial Capital LLC; trustees were appointed for both estates. A global Settlement Agreement (June 2017) between the Cooper Trustee and Imperial Trustee transferred causes of action in two state suits (the Cooper Action and the BBHG Action) to defendants David Cooper, Cara Cooper, and Eric Ramos in exchange for distributions among claimants.
- BB Holding Group, LLC (BBHG) sued in state court (BBHG Action) alleging QT membership interest belonged to BBHG (75% Gabriella Cooper, 25% Mel Cooper) and asserted claims similar to earlier Cooper suits; Cooper had earlier sued in his individual capacity claiming ownership of QT shares.
- Bankruptcy Court approved the global Settlement Agreement, finding the disputed causes of action were property of the Cooper Estate, the transfer constituted an arm’s-length sale, and transferees were entitled to section 363(m) protections; the Court ordered the claims conveyed free and clear of liens and enjoined assertion of liens.
- BBHG appealed, arguing (1) the transferred claims belonged to BBHG not Cooper, (2) incorporation-by-estoppel should recognize BB LLC/BBHG as owner, (3) the transfer improperly extinguished attorneys’ charging liens, and (4) BBHG was denied adequate discovery on ownership.
- District Court held the appeal not statutorily moot under 11 U.S.C. § 363(m) because transferees (who were defendants in the underlying suit) had actual knowledge of the adverse claims and therefore could not be considered good-faith purchasers; on the merits, the District Court affirmed the Bankruptcy Court on each challenged point.
Issues
| Issue | Plaintiff's Argument (BBHG) | Defendant's Argument (Trustees/Transferees) | Held |
|---|---|---|---|
| Whether appeal is statutorily moot under 11 U.S.C. § 363(m) | Transfer was not a "sale" or, even if it was, transferees were good-faith purchasers so appeal is moot | Transfer was a sale under § 363(m) but transferees lacked good-faith because they knew of BBHG's adverse claims | Not moot: transfer was a sale, but transferees are not good-faith purchasers due to their detailed knowledge of adverse claims |
| Whether the BBHG Action was property of the Cooper Estate or BBHG | Documentary statements and affidavits show BBHG (via BB LLC) owned QT shares and causes of action | Record shows no proof BB LLC existed or assigned shares; Cooper’s earlier filings and shareholder agreement indicate Cooper personally owned shares | Bankruptcy Court did not err: record supports finding the claims belonged to Cooper/Cooper Estate |
| Whether the transfer could be made free and clear of attorneys’ charging liens | Charging lien for BBHG’s counsel exists and cannot be extinguished by Trustee’s transfer | BBHG and its counsel executed a stipulation releasing the estate from any obligation to pay them | Upheld: stipulation bars counsel from recovering from the estate, so transfer free and clear was proper |
| Whether incorporation-by-estoppel prevents trustees from disputing BB LLC’s existence | Cooper’s execution of documents on behalf of BB LLC should estop trustees from denying BB LLC’s existence and thus support BBHG’s ownership | Doctrine inapplicable because BB LLC was not an asserting plaintiff benefiting from contracts and trustees did not seek to evade liability to such a corporation | Doctrine inapplicable: incorporation-by-estoppel does not apply to these circumstances |
| Whether BBHG was wrongly denied additional discovery on ownership | BBHG needed further discovery (depositions, documents) from QT, David Cooper, Ramos and third parties to prove ownership | Parties already produced extensive discovery, relevant public records absent, many records destroyed or inaccessible, and further discovery would be futile/vexatious | Denial of further discovery affirmed: additional discovery would likely be futile and record was adequate |
Key Cases Cited
- Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d 116 (2d Cir. 2008) (causes of action may be property of the bankruptcy estate)
- Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 105 F.3d 837 (2d Cir. 1997) (section 363(m) bars reversal of unstayed sale to good-faith purchaser)
- Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 126 F.3d 380 (2d Cir. 1997) (good-faith purchaser defined as one who buys for value, in good faith, and without notice of adverse claims)
- In re TMT Procurement Corp., 764 F.3d 512 (5th Cir. 2014) (distinguishing mere knowledge of objections from knowledge of adverse claims)
- Jeremiah v. Richardson, 148 F.3d 17 (1st Cir. 1998) (purchaser on notice of the same claim central to the compromise cannot be a good-faith purchaser)
- Boslow Family Ltd. P'ship v. Glickenhaus & Co., 7 N.Y.3d 664 (N.Y. 2006) (doctrine of incorporation by estoppel centers on defendants seeking to escape liability to a corporation they benefited from)