U.S. Supreme Court Refuses to Hear Creditor’s Case Alleging Sale Violated Rights

U.S. Supreme Court Refuses to Hear Creditor’s Case Alleging Sale Violated Rights

 WASHINGTON, D.C. — (Mealey’s) The U.S. Supreme Court today denied certiorari in a bankruptcy case in which a creditor alleged that actual fraudulent conveyance of a debtor’s assets was committed during the bankruptcy sale because his claim against the bankruptcy estate was not preserved (Robert White v. Kubotek Corporation, No. 13-1215, Chapter 7, U.S. Sup.).

Bankruptcy

Robert White was creditor in the Chapter 7 bankruptcy of Cadkey Corp., which was filed in the U.S. Bankruptcy Court for the District of Massachusetts in 2003.

At the asset sale, Kubotek Corp. sought some of Cadkey’s assets.

White objected on grounds that the sale constituted a fraudulent conveyance.  He also asserted a claim against Kubotek for successor liability for the amount due under his allowed unsecured claim that he had filed against the debtor's estate.

State Action

White sued Kubotek in the Massachusetts Superior Court, but neither the Chapter 7 trustee nor Cadkey were parties to White's state court complaint.  Kubotek filed an adversary proceeding in the Bankruptcy Court seeking to remove White’s state court action and dismiss it.

The Bankruptcy Court ruled in Kubotek’s favor, and White appealed to the U.S. District Court for the District of Massachusetts, which affirmed.

White appealed to the First Circuit U.S. Court of Appeals, which affirmed the District Court’s ruling.  He then filed a petition for writ of certiorari in the U.S. Supreme Court.

11 U.S. Code Section 363

White argued that the Supreme Court should grant certiorari to settle two questions.  First, White contended that the Supreme Court needed to rule on whether the “res judicata effect” of a non-plan sale order issued in 2003 pursuant to 11 U.S. Code 363(f), which prevented him from seeking recovery of his allowed unsecured proof of claim from the buyer of the debtor's assets, supported dismissal of his complaint for successor liability and actual fraudulent conveyance.

White contended that the Bankruptcy Court’s ruling denied him adequate protection of his allowed claim pursuant to 11 U.S. Code Sections 361(3) and 363(e).

Second, White maintained that the Supreme Court needed to rule on whether a petitioner’s private right lawsuit against the third-party buyer at the non-plan bankruptcy sale should have been remanded to state court after he made a timely request pursuant to 28 U.S. Code Sections 1334(c)(2) and 1447(c).

Constitutional Rights

White said  the case should have been remanded to preserve his rights under the First, Fifth, and Seventh Amendments to the U.S. Constitution.

White argued that the Supreme Court should grant certiorari because the court has never decided “whether the bankruptcy statutes support extinguishing allowed unsecured claims in a corporate bankruptcy” through an order issued pursuant to 11 U.S. Code Section 363(f).

White insisted that there remains “a wide split” between the Circuit Courts on the issue at hand.  “Given Kubotek's lack of a good faith finding, statutory mootness does not require dismissal” of the appeal in the way a good faith finding normally moots an appeal of a sale order before consideration on the merits, White said.

White is represented by Arthur L. Barnes of Manteca, Calif.  Kubotek is represented by John G. Loughnane of Nutter McClennen & Fish in Boston.

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