In re E.C. Morris Corp.

(6th Cir. B.A.P. Dec. 10, 2014)

The Sixth Circuit B.A.P. affirms the bankruptcy court’s denial of the motion to enforce an order approving compromise of claims in this Chapter 7 bankruptcy. The movants were the debtor’s principal and the new entity that held property owned by the debtor entity prepetition. Before the bankruptcy, the respondents had instituted successor liability and fraudulent transfer claims against the movants in state court. During the bankruptcy, the trustee settled the estate’s claims against the movants, which settlement was approved by the bankruptcy court. After the bankruptcy was concluded, the respondents reactivated the state court litigation. The movants then filed their motion with the bankruptcy court, seeking to enjoin the prosecution of the state court litigation based on res judicata. The Sixth Circuit B.A.P. holds that the bankruptcy court appropriately denied the motion for lack of subject matter jurisdiction. The state court litigation was not directed at the debtor or the debtor’s estate and would have no impact on the estate. While the trustee could have brought the claims while the bankruptcy was pending, after it was closed, the respondents could proceed with the claims. 11 U.S.C. § 105(a) and the Anti-Injunction Act also did not permit the bankruptcy to grant the requested relief. Opinion below.

2014-12-10 – in re ec morris corp