Arlington Capital, LLC v. Bainton McCarthy, LLP

GT owed its bank, Comerica, $7.8 million, secured by a lien on all of GT’s assets. GT filed for bankruptcy. Its assets were auctioned off. If the assets sold for more than $7.8 million, the excess would go to the estate. If the assets sold for less than $7.8 million, all of the purchase money would go to Comerica, which would have an unsecured claim for the difference. The successful bidder would take the assets free of Comerica’s lien. Arlington's $2.7 million bid was successful. The bankruptcy trustee believed that Arlington had colluded with GT insiders to keep the price down, and hired the Law Firms to pursue claims under 11 U.S.C. 363(n) to undo the sale or recover the difference. The trustee contended that GT’s assets had been worth $5 million. The GT insiders settled, but Arlington won at trial and was awarded costs. Arlington became a general unsecured creditor for about $5,000. The Law Firms asked the bankruptcy court to approve their fees. Arlington objected, contending that the Firms’ services had not been reasonably likely to benefit the estate, 11 U.S.C. 330(a)(4)(A)(ii)(I).), reasoning that the trustee did not allege that GT’s assets were worth more than $7.8 million. The bankruptcy court and district court agreed with the Law Firms and approved the fee petitions. The Seventh Circuit remanded with instructions to dismiss for lack of standing. Arlington did not show that it stands to benefit if the fees are denied. View "Arlington Capital, LLC v. Bainton McCarthy, LLP" on Justia Law