Bayer Business and Technology Services v. AGR Permier Consulting, Inc.

Summarized by Michael Nestor , Young Conaway Stargatt & Taylor, LLP
12 years 1 month ago

Citation:

Bayer Bus. & Tech. Servs. V. AGR Premier Consulting, Inc. (In re AGR Premier Consulting, Inc.), No. 12-4622 (3d Cir. Jan. 4, 2014)

Tag(s):

Ruling:

The Third Circuit reversed the decisions of the district court and the bankruptcy court, holding that the bankruptcy court abused its discretion in finding the appellant in contempt for violating a stipulated order.

Procedural context:

The bankruptcy court found appellant to be in contempt for violating a stipulated order. The district court affirmed, and the appellant appealed to the Third Circuit.

Facts:

Appellant 21st Capital Corporation (“21st Capital”) served as a factor, purchasing the debtor’s accounts receivable and then collecting payment from the debtor’s customer, Bayer Business and Technology Services (“Bayer”). 21st Capital commenced a state-court action against Bayer to recover amounts that were outstanding on the debtor’s invoices. Separately, after the debtor’s creditors had filed an involuntary petition for bankruptcy, 21st Capital and Bayer discovered that the debtor had issued a significant number of fraudulent, wholly-fabricated invoices—including $2 million worth of invoices that 21st Capital had already factored. Thereafter, 21st Capital, Bayer, and the debtor’s trustee entered into a stipulated order in the bankruptcy proceeding, which order provided, among other things, that (i) 21st Capital could amend its state-court complaint against Bayer to add a breach-of-contract claim premised on the theory that Bayer had approved the debtor’s fraudulent invoices for payment by 21st Capital and (ii) 21st Capital would not pursue the debtor’s “Accounts Receivable,” which the stipulated order defined as amounts Bayer owed the debtor for services “actually performed.” 21st Capital accordingly amended its state-court complaint against Bayer by (i) adding the breach-of-contract claim and (ii) amending the original claim for amounts owing to clarify that Bayer was indebted to 21st Capital for services “allegedly” rendered by the debtor. In response to these amendments, Bayer filed a contempt motion in the bankruptcy court, arguing that, by maintaining the original claim for amounts owing for services rendered, 21st Capital sought to recover the debtor’s receivables from Bayer in violation of the stipulated order. The bankruptcy court agreed and found 21st Capital in contempt. The district court affirmed, but the Third Circuit reversed, explaining that 21st Capital was not seeking to recover for services “actually performed” and that the claim at issue “plainly involve[d] fraudulent invoices which by definition [could not] constitute accounts receivable,” as defined under the stipulated order. The court thus held that 21st Capital had not disobeyed the stipulated order and that the Bankruptcy Court had accordingly abused its discretion in holding it in contempt.

Judge(s):

Rendell, Jordan and Lipez, Circuit Judges

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