In re Machne Menachem, Inc.

Citation:
In re Machne Menachem, Inc., No. 11-1496 (3d Cir. Jan 3., 2012)
Tag(s):
Ruling:
The United States Court of Appeals for the Third Circuit affirmed the judgment of the United States District Court for the Middle District of Pennsylvania affirming a bankruptcy court decision that certain advances made Yaakov Spritzer, a former director of the debtor, were donations and not loans, as Spritzer contended.
Procedural context:
Spritzer appealed the judgment of the United States District Court for the Middle District of Pennsylvania affirming a bankruptcy court decision that $286,000 in advances made by Spritzer to the debtor were donations, and therefore were not allowable as claims against the debtor in its bankruptcy case.
Facts:
The debtor was a not-for-profit corporation that run a summer camp for children. Spritzer was a director of the corporation until, on March 17, 1997, the other board members passed a resolution prohibiting Spritzer from undertaking activities on behalf of the debtor. Despite this, Spritzer continued to operate the camp through October 2002. Throughout his tenure as a director, Spritzer wrote a number of checks payable to the debtor from his personal account. In 2001, the debtor filed for bankruptcy. Spritzer filed a proof of claim for $1,012,454, stating that these amounts represented loans that he made to the debtor. The debtor objected to his claim, and the bankruptcy court allowed it in the amount og $76,000, finding that Spritzer could only establish that this amount was advanced to the debtor as a loan. Spritzer appealed, and the district court affirmed. The Third Circuit affirmed, applying the standards set forth in Cohen v. K.B. Mezzanine Fund II (In re SubMicron Sys. Corp.), 432 F.3d 448, 457 (3d Cir. 2006) for determining whether an advance is debt or equity. The Third Circuit found that although Spritzer presented deposit slips and checks , some with "loan" written on them, Spritzer presented no other evidence that the debtor intended to repay the advances.
Judge(s):
Fuentes, J.; Chagares, J.; and Restani, J. (Judge of the United States Court of International Trade, sitting by designation)

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