In re Golf 255, Inc.

Summarized by Kent Bowersock , Sherrill, Corsnoe & Goff
14 years 8 months ago

Citation:

United States Court of Appeals for the Seventh Circuit; No. 10-3732; In re Golf 255, Inc.; July 22, 2011

Tag(s):

7th Circuit

Ruling:

Creditor's incidental status as an attorney does not by itself indicate that any possible fraud committed by the creditor during a Chapter 11 claims process necessarily indicates a fraud on the court, which would allow the court to rescind an order of sale delivered over a year before.

Procedural context:

Appeal from district court’s affirmation of the bankruptcy court’s order to close an involuntary Chapter 11 case.

Facts:

Owners of a corporation forced into an involuntary Chapter 11 case sought to rescind an order by the bankruptcy court allowing for the sale of the corporation’s principal asset - a golf course - which order was delivered over a year before. The owners argued that one of the business’ creditors, who also happened to be an attorney and previous shareholder, committed fraud on the court by contriving the involuntary bankruptcy proceedings, inflating the claims process, and forcing the emergency sale of the business under the terms of his choosing. In order to avoid the one year bar date for fraud actions to set aside a judgment, the owners argued that the creditor’s status as an attorney escalated his actions from ordinary common law fraud to fraud on the court. The court disagreed stating: “[creditor] is a lawyer, but was not functioning in that capacity when he signed the petition to declare [the business] bankrupt. He was acting as a creditor. A creditor who makes false representations in a bankruptcy proceeding [...] is no different from a lying witness in any other case; and a witness’ lies are not fraud on the court unless a lawyer in the case is complicit in therm.” The court further noted that the bankruptcy trustee, the U.S. Trustee, bankruptcy judge, district judge, and others have all found the ordinary fraud allegations to be without merit. The district court’s ruling was affirmed.

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