Cavanaugh v. Zimmerman (In re Linc Capital, Inc.)

296 B.R. 474, 2003 Bankr. LEXIS 912, 41 Bankr. Ct. Dec. (CRR) 207
CourtUnited States Bankruptcy Court, N.D. Illinois
DecidedAugust 4, 2003
DocketBankruptcy No. 01 B 03320; Adversary No. 02 A 01239
StatusPublished
Cited by1 cases

This text of 296 B.R. 474 (Cavanaugh v. Zimmerman (In re Linc Capital, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Cavanaugh v. Zimmerman (In re Linc Capital, Inc.), 296 B.R. 474, 2003 Bankr. LEXIS 912, 41 Bankr. Ct. Dec. (CRR) 207 (Ill. 2003).

Opinion

MEMORANDUM OPINION ON DEFENDANT CHARLES J. ASCHAUER’S MOTION TO VACATE ORDERS

JACK B. SCHMETTERER, Bankruptcy Judge.

BACKGROUND HISTORY

Defendant Charles J. Aschauer (“Aschauer”) was a director of the Debtor. Patrick Cavanaugh (“Plaintiff’) is the Estate Representative authorized under the confirmed Chapter 11 Plan to pursue claims on behalf of creditors of the estate.

The Debtor’s Chapter 11 confirmed Plan fixed July 22, 2002, as the deadline for Plaintiff to file any claims against directors of the debtor (“D & 0 claims bar date”). The parties agree that confirmation of the Plan fixed that date as a deadline for filing such claims unless it was extended by Court order before it expired. That deadline was twice extended, and this suit against directors was filed before expiration of the second extension.

Aschauer has moved to vacate or amend orders entered by this Court in the related bankruptcy case on July 9, 2002 and August 29, 2002, which extended the bar date for filing claims against outside directors and officers of the Chapter 11 Debtor, Line Capital, Ine.(“Line or Debtor”).

The orders at issue here reset the deadline date first to September 3, 2002, and then to September 9, 2003. The Plaintiff and certain co-defendants, not including Aschauer, had sought those extensions to allow time for those parties to negotiate a settlement with the Debtor’s corporate insurer on its directors and officers liability (“D & O”) policy. The settlement talks were unsuccessful, and on September 9, 2002, Plaintiff filed the instant Adversary Complaint against the directors, including Aschauer, charging breach of fiduciary duty, waste, payment of an improper dividend, breach of contract, and fraudulent transfer.

Aschauer now collaterally attacks the complaint by asserting that this suit against him was not filed by the original deadline, and he was deprived of Fifth Amendment Due Process rights because he was never given notice of motions to extend the deadline and did not agree [476]*476thereto. Plaintiff does not contend that Aschauer or any lawyer representing him was sent notices of the motions to extend, but counters that Aschauer had imputed notice of the hearings to extend the bar date because Debtor’s insurer under a the D & 0 policy was aware of the proceedings and was negotiating toward possible resolution of claims against all directors.

Because fact issues could be involved, Aschauer’s motion was by court order treated as a Motion for Summary Judgment under Fed.R.Bankr.P. 7056. The parties exchanged briefs and materials pursuant to former Local Rule 402 M and N.1 For reasons stated below, judgment will issue in Aschauer’s favor dismissing him from this proceeding.

JURISDICTION

Section 105(a) of title 11 U.S.C. gives bankruptcy judges authority to “issue any order, process or judgment that is necessary or appropriate to carry out the provisions” of the Bankruptcy Code and the court may “tak[e] any action or make[e] any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.” 11 U.S.C. § 105(a). Hence, authority in this Circuit has held that bankruptcy judges have jurisdiction to modify or vacate their own orders. Matter of Lintz West Side Lumber, Inc., 655 F.2d 786, 789 (7th Cir.1981); In re Rodco Merchandising Services, Inc., 111 B.R. 684, 689 (N.D.Ill.1990). They have the equitable power and duty to assure that injustice or unfairness is not done in the administration of the bankrupt estate. In re Multiponics, Inc., 622 F.2d 709, 714 (5th Cir.1980) (quoting Pepper v. Litton, 308 U.S. 295, 308, 60 S.Ct. 238, 84 L.Ed. 281 (1939)). Therefore, this Court has core jurisdiction to hear the instant motion pursuant to 28 U.S.C. §§ 157 and 1334(a) and the standing referral of District Court Internal Operating Procedure 15(a). Venue lies here under 28 U.S.C. § 1409(a).

UNDISPUTED FACTS

The following undisputed facts emerge from filings by the parties supporting and opposing summary judgment:

1. Line Capital is a Delaware corporation that provided specialty financing, equipment leasing, and rental and distribution services to high-tech companies. The Trustee contends that the Defendants engaged in a scheme to divert assets from the company into ventures that they controlled and attempted to conceal their fraud from investors by publishing phony financial data. According to the Trustee, the Defendants cost the company $40 million and forced it into bankruptcy.

2. Defendant Charles J. Aschauer served on the Board of Directors of Line until he resigned on May 26,1999.

3. Patrick D. Cavanaugh is the duly appointed representative of the Debtor’s estate authorized to bring this Adversary proceeding.

4. Under the Amended Joint Plan of Reorganization, the Debtor and its representative Cavanaugh had until July 22, 2002, to file suit against directors of Line.

5. Certain Defendants herein, Robert E. Laing, Allen P. Palles, Stanley Green, Curtis S. Lane, Terrence J. Quinn, Mark A. Arvin, and Martin E. Zimmerman (the “Zimmerman Defendants”) filed an Adversary Complaint entitled Zimmerman et al v. Cavanaugh, No. 02 A 00291 on March [477]*47727, 2002. They sought to use the Debtor’s D & 0 coverage to settle two lawsuits that had been brought against them by investors in Line. That Adversary was settled on December 26, 2002. Aschauer was not named as a party in that litigation, nor did he participate in the settlement agreement.

6. As part of the settlement agreement with the Zimmerman Defendants, the parties agreed to extend the deadline for filing claims against Directors of Line from July 22, 2002, to September 3, 2002.

7. Howard Goodnick (“Goodnick”) signed the agreement on behalf of Messrs. Green, Quinn and Lane (the “Represented Defendants”). Aschauer had no knowledge or notice of the settlement agreement or the related agreement to extend the July 22nd deadline.

8. Pursuant to their agreement, the parties to the case numbered 02 A 00291 submitted in the bankruptcy case on July 9, 2002, a Joint Motion For Modification of Amended Joint Plan of Reorganization to Reset the D & O claim deadline. Attorney Goodnick signed the agreement on behalf of the Represented Defendants. Aschauer was not sent and did not receive service of the motion to extend the bar date. He was not present at any hearings related to the extension, nor was he served, nor did he receive a copy of the proposed or final order to extend the bar date, nor did any attorney representing him participate or receive notice.

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Related

Cavanaugh v. Zimmerman (Linc Capital, Inc.)
310 B.R. 847 (N.D. Illinois, 2004)

Cite This Page — Counsel Stack

Bluebook (online)
296 B.R. 474, 2003 Bankr. LEXIS 912, 41 Bankr. Ct. Dec. (CRR) 207, Counsel Stack Legal Research, https://law.counselstack.com/opinion/cavanaugh-v-zimmerman-in-re-linc-capital-inc-ilnb-2003.