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Summarizing by Shane Ramsey

In re Ritchie Special Credit Investments, Ltd.;

Case Type:
Case Status:
21-2707 (8th Circuit, Sep 13,2022) Published
A creditor (not an investor) does not have standing to sue another creditor for aiding and abetting a fraud perpetrated by a Chapter 7 debtor if the estate could assert the claim. Such a claim, a "general claim," can be brought only by the bankruptcy trustee. Further, a claim under New York law for aiding and abetting a fraud requires the plaintiff to allege and ultimately prove that the defendant had actual knowledge of the fraud.
Procedural context:
A creditor that had loaned money to companies operating as part of a Ponzi scheme (the "losing creditor") sued another creditor that had received payments before the Ponzi scheme collapsed (the "winning creditor"). The losing creditor sued the winning creditor for aiding and abetting the fraud and for receiving fraudulent transfers. The losing creditor also sued a third-party company that prepared due diligence documents for the loan, alleging that this company had constructive notice of the fraudulent scheme and thus aided and abetted the fraud. The district court dismissed the losing creditor's complaint, and the creditor appealed.
Ritchie Special Credit Investments, Ltd. loaned about $189,000,000 to companies owned or controlled by Tom Petters. When Ritchie made the loan, other lenders to Petters, including JP Morgan, were demanding repayment of their loans. Worse, for Ritchie, Petters' Ponzi scheme was collapsing. Within months after Ritchie made the loan, Petters was arrested by the FBI, and various of his companies were in bankruptcy. Trustees were appointed. The bankruptcy trustees settled with JP Morgan, and JP Morgan disgorged some of the payments it had received during the waning days of Petters' fraud. The bankruptcy court entered "bar orders" that barred creditors from asserting related claims in other cases if the claims belonged to one or more of the trustees. Nonetheless, Ritchie sued JP Morgan and Richter Consulting, alleging that they aided and abetted Petters' fraud. As an alternative claim, Ritchie asserted that transfers to JP Morgan were fraudulent.

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