Underhill v. Huntington National Bank (In re Underhill)

Summarized by Thomas DeCarlo , John Steinberger & Associates, PC
11 years 5 months ago

Citation:

Case No. 13-4195 (6th Cir. 2014)

Tag(s):

Ruling:

Cause of action belonging to debtor's wholly owned corporation is not asset of estate where cause of action did not accrue until after commencement of the debtor's bankruptcy case.

Procedural context:

Debtors filed for Chapter 7, listing stock in wholly owned corporation as asset. After debtors received discharge, corporation accrued cause of action against third party. Creditor moved to reopen bankruptcy case and claim proceeds as property of estate. Bankruptcy Court agreed, reopening case and ordering turnover of proceeds to truste. On appeal the BAP affirmed. On further appeal, teh Sixth Circuit reversed holding that cause of action that accrued post-petitoin in favor of debtors' wholly owned corporation was not property of estate as cause of action did not exist as of petition date.

Facts:

Debtors were 100% stockholders of closely heldo corporation. Debtors filed Chapter 7, disclosing stock interest in schedules and stating that neither debtors nor corporation had any causes of action against third parties. Trustee abandoned stock ownership as of no value to estate and debtors received discharges. Three months later, one of the corporation's competitors tortiously interfered with contractual relationships between corporation and suppliers that effectively put corporation out of business. Corporation sued and recovered damages that corporation forwarded to debtor. A creditor sought to recover proceeds, arguing that cause of action was property of estate and therefore proceeds paid to debtor were property of the estate. To constitute pre-petition cause of action. action must have basis in pre-bankruptcy past and injury just have accrued pre-petition. Even if teh defendant had attempted to tortiously interfere prior to commencement of the bankruptcy, evidence indicated that debtor's corporation did not lose any contracts or otherwise suffer any damages until suplier terminated relationship 3 months post-petition. Absent some connection between injury and pre-petition conduct, cause of action did not exist as of petition date and so could not constitute property of estate as a matter of law.

Judge(s):

Merrit, Cook and Donald (dissenting)

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