Joint And Several Judgment Against Debtor and Non-Debtor May Be Pursued Against Non-Debtor Outside Of Bankruptcy
IN RE: TEKNEK, LLC (April 29, 2009)
Systems Division, Inc. ("SDI") sought and obtained a judgment for patent infringement against Teknek LLC (“Teknek”) and Teknek Electronics “(Electronics”). During the pendency of the patent infringement suit, the shareholders of Teknek and Electronics created Teknek Holdings ("Holdings") and transferred the assets of Teknek and Electronics into Holdings. Following the judgment, SDI added Holdings and the shareholders as defendants under an alter ego theory. Meanwhile, Teknek filed for bankruptcy. SDI filed a notice of its claim in the bankruptcy court. The bankruptcy trustee filed an adversary proceeding against the alter egos, alleging fraudulent transfers and breach of fiduciary duty. The complaint also sought relief against the shareholders personally for Teknek's obligation to SDI. The bankruptcy court enjoined SDI from attempting to collect its judgment outside of bankruptcy. The district court vacated the injunction. The shareholders paid SDI in full on the judgment. The trustee appeals.
In their opinion, Judges Bauer, Cudahy and Williams affirmed. The Court recognized that both claims were valid but only one could be satisfied – should the trustee or SDI be permitted to pursue the judgment. The Court discussed the law regarding a trustee’s rights to bring actions and the distinction between general claims that can be brought by a trustee and personal claims that can be brought by individual creditors. In the end, however, the Court concluded that those principles apply when the parties seek to recover for an injury inflicted on the debtor. Here, SDI is not seeking to recover from the alter egos for their misconduct directed toward Teknek, the debtor. SDI is seeking recourse for the injury suffered by Electronics. Electronics’ injury is separate from Teknek’s. The Court compared the situation to one in which a creditor brings an action against an insurer or guarantor, which can proceed outside the bankruptcy process. The Court agreed that the injunction was properly vacated by the district court.
While the appeal was pending, both SDI and the trustee sought relief of various sorts from the bankruptcy court, in violation of the rule that lower courts lose their jurisdiction while a matter is on appeal. The Court imposed sanctions on both.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select