James A. Knight v. Bank of America, 695 F.3d 714

Knight, as principal owner and CEO of Knight Industries I, LLC, faces potential D&O claims from Knight-Celotex and others in bankruptcy proceedings; Barry Chatz serves as chapter 7 trustee for the Companies and also as Knight's personal bankruptcy trustee, with Freeborn & Peters LLP representing him in both matters.
In December 2009, Chatz and Bank sent letters asserting the Companies’ D&O claims against Knight and demanding substantial recovery; the letters identified potential claims including director/officer liability.
Knight filed a voluntary Chapter 7 petition on February 23, 2010; he listed the D&O claims as unknown in his asset schedule, and the Knights’ case was transferred to the Illinois court handling the Companies’ case.
On May 19, 2010, Chatz sought to retain Freeborn & Peters for Knight’s individual bankruptcy, and the firm stated it did not represent an adverse interest; a supplemental declaration later reaffirmed the firm’s disinterested status.
On May 25, 2010, the bankruptcy court approved the retention of Freeborn & Peters; Knight’s counsel did not object to the firm’s dual representation, and the court accepted the firm as disinterested.
On November 3, 2010, the Bank and Chatz moved to assign the Companies’ D&O claims against Knight to the Bank; Knight objected, arguing judicial estoppel should bar the assignment.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Standing to object to the assignment	Knight contends he lacks standing because D&O claims target the Companies, not Knight personally.	Bank asserts the D&O claims could discharge or affect potential personal liability, giving Knight standing to contest.	Knight has standing; some D&O claims may not be discharged and could affect Knight personally.
Judicial estoppel applicability	Knight argues the trustee’s and firm’s inconsistent positions trigger judicial estoppel to bar assignment.	Bank argues discretion under New Hampshire v. Maine factors supports estoppel.	Banking court properly declined to apply judicial estoppel; no clear inconsistency warranting estoppel.
Whether the retention of Freeborn & Peters created a clear inconsistency	Knight claims the retention of a firm that represented both the trustee and the estate implied abandonment of the D&O claims.	The court found no explicit abandonment and that dual representation was not clearly inconsistent with pursuit of the D&O claims.	No clear inconsistency; retention did not establish abandonment of the D&O claims.
Effect of omission of D&O claims from disclosures	Omission in the retention application violated §327(a) and Rule 2014(a), warranting estoppel or other remedies.	Omission was harmless; all parties were aware of the D&O claims, and no abandonment occurred.	Omission was harmless; no equitable basis for estoppel given the record.

New Hampshire v. Maine, 532 U.S. 742 (2001) (three-factor framework for judicial estoppel balancing equities)
IBM v. Fernstrom Storage and Van Co., 938 F.2d 731 (7th Cir. 1991) (creditors can pursue debtor's insurers; not harming estate administration)
In re Crivello, 134 F.3d 831 (7th Cir. 1998) (definition of interests adverse to the estate for §327(a))
In re Knight-Celotex, LLC, 427 B.R. 697 (N.D. Ill. 2010) (case discussing transfer and involvement of the D&O claims)
Cult Awareness Network, Inc. v. Martino, 151 F.3d 605 (7th Cir. 1998) (standing requirements in bankruptcy contexts)
Wiese v. Community Bank of Central Wisconsin, 552 F.3d 584 (7th Cir. 2009) (abuse of discretion standard in judicial estoppel analysis)
Commonwealth Ins. Co. v. Titan Tire Corp., 398 F.3d 879 (7th Cir. 2004) (equitable considerations in estoppel determinations)
Bisek v. Soo Line R.R. Co., 440 F.3d 410 (7th Cir. 2006) (application of New Hampshire v. Maine factors in bankruptcy context)