In re: SII Liquidation Co., No. 14-8009 (6th Cir. 2014)
Annotate this CaseSchwab filed a chapter 11 bankruptcy petition in 2010. HLP was appointed as bankruptcy counsel. Schwab’s individual directors/shareholders filed an adversary proceeding against Attorney Oscar and HLP, asserting malpractice arising from an allegedly undisclosed conflict of interest with Bank of America. The bankruptcy court dismissed, holding that the directors lacked standing to bring the claim directly or derivatively and that the claim was barred by res judicata. They did not appeal. One year after the dismissal, the directors sought to reopen the adversary proceeding on the basis of asserted newly discovered evidence of failure to disclose a conflict with Huntington National Bank. The bankruptcy court denied the motion for relief from judgment, reasoning that the directors had not challenged the prior ruling that they lacked standing and that, although other arguments were immaterial in light of lack of standing, the proffered evidence was neither new nor newly discovered. The directors “had knowledge of the specific conflict at least three years earlier than they’ve claimed in their motion for relief.” The Sixth Circuit Bankruptcy Appellate Panel affirmed. Because the directors lacked standing to be a party in the underlying complaint, they lack standing to bring a motion for relief from judgment.
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