In re: Wilton Armetale Inc, No. 19-2907 (3d Cir. 2020)Annotate this Case
Artesanias recorded its $900,000 judgment as a lien on Wilton’s warehouse. Artesanias learned that Wilton was insolvent and that its previous owner and North Mill, another creditor had plotted with Wilton’s law firm, Leisawitz, to plunder the company’s remaining assets. They had engineered a sale of Wilton’s non-real estate assets; allowed North Mill to file inflated judgments against Wilton; and paid Leisawitz future legal fees. North Mill tried to foreclose on the warehouse. Artesanias sued North Mill and Leisawitz, alleging they had hindered Artesanias’ ability to enforce and collect Wilton’s obligations.
Wilton filed for Chapter 7 bankruptcy. The automatic stay stopped the warehouse foreclosure. The trustee entered settlements, agreeing to split the warehouse sale proceeds between North Mill and Artesanias, release the estate’s claims against North Mill, and not interfere with Artesanias’s claims against North Mill and others. All agreed that nothing in the settlements would “affect [Artesanias’s] litigation” against North Mill. After selling the warehouse, Wilton’s bankruptcy estate had few assets. Among them were legal claims against those who had allegedly plundered the company. Rather than spend the estate’s remaining assets pursuing those claims, the bankruptcy court let the trustee abandon all but professional-liability claims against Leisawitz.
Artesanias’s claims against North Mill were dismissed for lack of standing. The Third Circuit vacated. Chapter 7 trustees can relinquish the statutory authority to pursue a claim back to a creditor.