In re: E.C. Morris Corp.., No. 14-8016 (6th Cir. 2014)
Annotate this CaseDebtor had significant financial problems. Morris, Debtor's principal, formed ECM on January 1, 2010, had the Debtor grant him a security interest in its assets, and recorded the financing statement on January 5. On January 10, Morris executed a bill of sale transferring his security interest to ECM. On July 27, 2010, the Debtor, through Morris, voluntarily surrendered its assets to ECM. Before the bankruptcy, the creditors filed state court actions, alleging successor liability, fraudulent transfer, fraud, and breach of fiduciary duty. The Debtor filed a voluntary Chapter 7 petition in 2012. The Chapter 7 Trustee filed an adversary proceeding to avoid fraudulent transfers. The Bankruptcy Court approved a settlement and dismissed “without prejudice.” The Trustee filed his Final Account and Distribution Report. The Debtor, as a corporation, did not receive a discharge. After the bankruptcy proceedings were completed, creditors reactivated their state court litigation. The Bankruptcy Court declined to enjoin the state proceedings. The Sixth Circuit Bankruptcy Appellate Panel affirmed. There is no reason the state court should not determine the preclusive effect of the Bankruptcy Court’s order, just as bankruptcy courts are regularly called upon to determine the preclusive effect of state court judgments in bankruptcy.
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